An insight into business strategies and development orientation of Petro Vietnam Power Corporation to year 2015, vision to year 2025

] owe a heartfelt thanks to Advisors from Vietnam Oil and Gas Group and Petro Vietnam Power Corporation, especially those who have been with Group 01 for their interesting and useful inf

GRIGGS UNIVERSITY GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION

PROGRAM

CAPSTONE PROJECT REPORT

AN INSIGHT INTO BUSINESS STRATEGIES & DEVELOPMENT

ORIENTATION OF PETRO VIETNAM POWER CORPORATION

TO YEAR 2015, VISION TO YEAR 2025

Group No.: 1 Student's name:

ACKNOWLEDGEMENTS

We would like to express our sincerest thanks to all Vietnamese and foreign Teachers and Lecturers of Global Advanced Master of Business Administration Program organized

by Griggs University & International Academy and Center for Educational Technology

and Career Development- ETC ( Vietnam National University, Hanoi) Their valuable

encouragement, support and comments did help us a lot during our works on this Capstone Project Report, especially Teachers of Strategy Management course Without their support,

We would have never completed this capstone project report

] owe a heartfelt thanks to Advisors from Vietnam Oil and Gas Group and Petro Vietnam Power Corporation, especially those who have been with Group 01 for their interesting and useful information about Strategy Analysis in Business, especially in Electricity Business Firms

Last but not least, thanks are due to our classmates in Gemba 01.03 Class , who

encouraged us to commence and conduct this report

TABLE OF CONTENTS

Ce {na an ga nŸŸỶnn nan nntOnEnEEannEOnOOoEnAAEAEO 1 [- REASONS FOR CHOOSTNG THE TOPIC - 22222212 2+ xkrsrikeskreses | II- RESEARCH OBJECTIVES oon ecccceecceseeteescseeeneeesseeneeessesnseseeeneeteesneeesees 3 IH- RESEARCH METHOIHDOLOOY c2 11221112 112 11x yệu +

Ts Erase PED SCORE sar as sve noms RA GN DARA DEAS sh RO RAS + V- RESEARCH 8 PRUCT URES conennsarssmssxs am rnongsippdeeittirtangirhiisiot ĐESNGEE90380.S88450090030108 5 CHAPTER ly CONCEPTUAL BASIS carcass maasssemevreenaemmncmmaeaienss 6 1.1 THEORIES ON BUSINESS STRATEGY ooo eececccccccecseceeteeseeeenseesnseeeseens 6 1.1.1 Concepts OÍ SIFA[€ĐY cuc HH n HT TH TT KH tk kg 6

II VAO) 2U0ể000 00v AŒQẦỒaỚẮỚŨỚÚŨ À 6 1.1.3 Features of business S{TA{CĐV LH n TH HH TH ng HH ng khe 7 1.2 STRATEGY FORMULATTING PROCESS c2 1 12 seerye 8 Phố 10 D2, VINH ii ke SẰ caeneiiiiB se im seo Eusvasel Eoengie cơn gưnbrrlee ly vang reo chỗ 10 Tec CGC ics sxe i26 sáng 0HD.< s68 Tni2ln c8 6u sẵn 488 Rerreaoil in hroen emexisesmonea ensign tm a 10 1.3 EXTERNAL ENVIRONMENT ANALYSIS MODEL - II 1.3.1 Macro analySIS mOd€Ì cv TS TT ng nhện 1] 1.3.2 Porter`s five force model — Industrial anaÏySIS . -.-<© 52 15 1.4 INNTERNAL BUSINESS ANALYSIS Ặ 2Q 2v Hy nhe 19

Ae Ls WRU: IAM sores crate donna ined Hie onnadiantitdanuane tbdobe WiesivmenatiitSann shniienenaliokis nailiteane 19

lL Az Stable competitive: advantages ccomsas.aneresan mse onsimess enarasmwamenea euseomes 22 1.5 SWOT ANALYSIS 2 eecccccccneceseeseesecseeteeesseeesaeesaeenseeeeestrenaeeeneeeneeeatens 22 1.6 GENERAL COMPETITIVE STRATEGIES eecccceeceeeesteeeteeeeteeeeneeeneeens 24 l.6.1 KDst TeatErgHiI? SÍRgÍGĐ sa caccax 0Ÿs«s s10 <snđh4 đáo o=DNG hàn au44231soổ gi mast 24

lở TEWUDGE ĐỊITEEFETTTNLIOTI IRIEH[ĐTVfisnonse gà nh ng GanngH nghĩ thngia0130000300030g410831583001800008 25

AS , PSS ES oe sngrooae phe: Enga2NNNhPGME2TNDESUEP HDĐGVGDGEP'ĐMNNGB-7HDIDRHEDNJĐEISEEGNNIRGEEIGGREISSZ80V0800n 25 1.7 ANALYSIS AND SELECTION OF STRATEGIES c-cscs2+ 26 1.7.2 Peripheral factor evaluating IẪAfTIX cc ctS ch re oi 1N 990, na - 28

1 7á, CPR, TAI cau san ty tina gia gõ n huấn ĐEheeu-iuEnSBB xeoSBifBdGicoð Đu no duÄiicbeemdiukirocuä 8 vẽ 29

18, 8LBRATEGY DMPLEMEN TAL TION so cscmasanscasaaecmsasnscrenn ones IS G90 canine naa 29

10, STRATEGY WOM OREN G cnc: sacmnecmansenarememernenaessene am awn aan vn monde sis B8 30 1.10 APPLICATION OF THEORIES IN BUILDING STRATEGIES FOR PV 6): TA ore esa cons ensense nnsensnens nes petesonepreeenaseeenarred eheenss caveureven eneenesinereuones neseney 31 I.11 SUMMARY OF CHAPTIER Ì G12 ng gu 32

CHAPTER 2: CURRENT BUSINESS AND PRODUCTION OPERATIONS AND STRATEGY PLANNING OF PETRO VIETNAM POWER

CORPORATION: sisscssassnsansesstignstivessgaucheneonensbtibonpaielsingnstinceosesitinpenpesShinensiesboren Takes 32 2.1 GENERAL BACKGROUND INFORMATION OF PV POWER .005 33 2.1.1 Establishment and development of PV PowWetr cccccccccceesseceeeteseeeeteees 33 2.1.2 Functions and đutI€S uc 111cc HH ST TS TH TT ng tk khe 34 2.1.3 Business fields ofPV PO'WER c c2 2 v11 ng 35 2.1.4- Organizational structure of the €OFpOFafION: cc 22s cssscssses 37 2.1.5 Production and business situation of Petro Vietnam and PV Power in the FAISE POWELL YS AUS wre acs woern acs wea.nas een 0300125810005 380 can Maes mH Ra ane SUING Kem LANE aie wu ape AL 39 2.2 BUSINESS RESULT OF PV POWER wu eceecceceeceeeseeeeteeeneeseeeeesereenaeenes A 2.2.1 Brief summary of Petro Vietnam business resuÌfS .:‹-.: 44 2.2.2 Business results in 2008 and 2009 oFPV POWER - sec: 44 2.3 OVERVIEW ON EXTERNAL ENVIRONMENT .cccccceeeceessseeeccecseceeeecccceeeeseuuaanaas 48 2.3.1 Brief Introduction about current situation of Vietnam Electric Industry 48 2.4.2 Polioy lor developing Electrielty I aCket cr nà: gà nà nan vườn Go consi ase ston ara ean xm 49 2.3.3 Comparison on electricity investment in Vietnam eeeeeeeteees ae 2.4 CURRENT PRODUCTION PLAN AND BUSINESS STRATEGY OF PV POWER IN THE RECENT TIME G1 1112011129 1 v1 nh ray 61 2M mg SAUL “WES MOE es sence sre teensercan ans UR MT PE A DU 61 2.4.3 Current strategy of PV POWER: woo eee ececcccecseceeccesssseeceseseeeeeseeeeseaeees 65

2.4.4 Strengths and weaknesses of the present sfraf€Ø1€S: sec: 67

2.4.5 Difficulties in Implementing presenf straf€Ø1©S: - ccẰceesee 69 2.4.6 Problems to be solved for the present strat€gy: . -.««-.«cc<«2 70 27.72 ASSesamMient OF Ihe Present SECALEOY: sic scnccscsnseecenssntcanssassace umboascews 488 3606 Hghi 12 ưng DU ON MA IV HƠI CHI¬LThT Tà từ) th singi0017N01EPBiVEPNI t8 HG030724G300078983011980107 7'GMH1S/09136.7SG03188 NEĐSNBEHS 74 CHAPTER 3 SOLUTIONS TO IMPROVE BUSINESS STRATEGIES AND DEVELOPMENT ORIENTATION TO YEAR 2015 AND VISION TO YEAR

2025 OF PETRO VIETNAM POWER CORPORA TION 76 3.1 ORIENTATION FOR DEVELOPMENT OF PV POWER IN THE

FT onnecandssctonnocsnsrsi secnstonneprrintgrmteSnaseinencetsmouasinomenjutecuarestineivncasaoiemaisiesdrikenstnanum toveemesssnal 76 BLL L VISION: cece eccceeeceeccccccccceeaseeesseseseeseeeeeeecceseeeceseuuusasseeauassteseceeeseeueeeeueuuaaaaaaaaas 76 3.1.2 MiUSSION Lecce ccececsccseeeeeeeessssssesssseseeessessseeeuuesssesseusseeteceeseeassssseuaaeensesseenes 76

3.2 SWOT ANALYSIS IN THE FUTURE AND COMPETITORS .:csssssseetseeeeeeeeeeeeeeees 77 3.2.1 SWOT matrix in the ẨU{UF€: 2 c1 11111 ven gưyt 77

3.2.2 Amalyzing COMPECtitOIS 177 81

3.3 BUSINESS STRATEGY AND DEVELOPMENT TO YEAR 2015 &

LLG, UE sscnnamionemesanmemencchstimnonntmsitiayeinagynaneseielton ieee heen leer WAS 0 84

3.3.1, CHHÌ IS DWE BH BÍ san ars enon aexesecncmamcammremamaresan ccuesenans aemeacees anccenn sseeee 84 3.3.1.1 Electricity industry developIm€Ti «c5 che 84

3.3.2 QualItafIV€ CFIẨCFIA: 2 225 1221021211112 22121211211 ru 85

oh BeLECTION OF BT RAT EOUES: secremnedens ames emcmerenreteten E295 HE HƠPRSVETHE tÙP 29 S0EH z3Hl 89 3.4.1 Strategy A: Low cost strategy — to meet the demand of extending market share and lower electricity priCe COSt 0 eccceeeessecesereeeeenteesteeesseeeeneessneesensaes 89 3.4.2 Strategy B: Combination of Low cost strategy and outstanding features

to gain more market share and create distineguished products 90 3.4.3 Strategy selection for period to 2015: oie eeceeeteeetecteeeeteeteeteeeetens 9] 3.4.4 Orientation for development of PV Power in period of 2015-2025: 95

3.5 MEASURES TO IMPLEMENT STRATEGIES ccc:sssssseesesecscceseesceseeessassuueeeauaeesens 97

3.5.1 Measures for trading and investing In eÌeCfrICIẨY - c2 97 Daou Measures Tor developing NUNIT TESOUT CEB a.com soannei sang ggg tk gang Ha gia nag8 98 3.5.3 Marketing SỌUtÏOPS c c2 HH H* Hs HT TH KH khen kn 98 3.5.4 Measures for organization — external relatIOnS -. .c + ssss2 99 3.5.5 Measures of technological deveÏlopmenI ccsccccsccsssssrereeses 99 3.5.6 Measures of finance and inVeStIm€nI[L - án vn nhe 100 3.6 SUMMARY OF CHAPTER 3 AND RECOMMENDATIONS 104 CONCLUSTON sueeeeeeneninsennnapnnareririaDinisiioDDnBSEHGIYD1000l101400/0/7ĐSS8000013800439300%4068/09-00006 106 BI.) no TL san c-sna nen nnnnn00051 08502 EgrcspEsi0VT02ES11255767Ex00500050000953801230005.SE10010iW995200n06091 7E 107 APPENDIX

IV

LIST OF ABBREVIATIONS

PVN: Petro Vietnam

EVN: Electricity of Vietnam

PV POWER: Petro Vietnam Power

IPP: Independent Power Producer

VINACOMIN: Vietnam National Coal — Mineral Industries Group

CBP: Cost based pool

ODA: Official Development Aid

SBU: Share of Business Unit

BT: Build and Transfer

BTO: Build, Transfer and Operation

LIST OF TABLES

Chapter 1

Table 1.1 Macro-environment analysis

Table 1.2: SWOT analysis model

Table 1.3: Hoper matrix

Chapter 2

Table 2.1 Business results of 2006, 2007 & 2008

Table 2.2 Summary of business results in 2007,2008 & 2009

Table 2.3 Problems to be solved

Table 2.4 Assessment of present strategies

Chapter 3

Table 3.1 SWOT matrix in the future

Table 3.2 Total electricity capacity of PV POWER in different periods

Table 3.3 Expected business results 2010- 2025

Table 3.4 Comparison between Strategy A & Strategy B

Table 3.5 Expected investment projects of PV POWER according to selected

LIST OF FIGURES

Chapter 1

Figure 1.1 Strategic management process model

Figure 1.2 External environment

Figure 1.3 The relation between factors in the operation environment of a company Figure 1.4 Main parts of competitor analysis is presented as follow

Figure 1.5 | Value chain Mode

Figure 1.6 Building process of EFE matrix

Figure 1.7 BCG matrix

Chapter 2

Figure 2.1 Organization chart of PV POWER

Figure 2.2 Expected electricity source structure in 2010

INTRODUCTION

- REASONS FOR CHOOSING THE TOPIC

“he overall objective for economic development of Vietnam is to basically become

in industrialized country by 2020 To realize the set objectives, the Ministry of ndustry and Trade has developed a strategy for industrial development by 2020 An mportant direction is to lay focus on development of competitive industries, vinning the domestic market and promote exports of electricity, processed igricultural, forestry and fisheries products, textile, leather products-shoes,

‘lectronics and informatics, a number of mechanical, medical and consumer

:oods

lowever, significance has been given to development of infrastructure projects,

‘specially major and big projects In parallel to implementing series of big scale wrojects, for example Dung Quat oil refinery factory, bocid exploitation, alumin and luminium processing investment in the Highland, ship and steel production,

‘tutomobile production and assembling, paper and pulp, gas-power-fertilization wrojects The Government is laying focus on a number of work items of the power

‘ector, one of the most important infrastructure industry for a country where the ndustrialization process is underway Those are hydropower projects of Son La, Lai -hau and thermal power electricity projects of Vung Ang, Nghi Son, O Mon, Cam

*ha, Hai Phong, and is enthusiastically preparing for a nuclear electricity project

lo develop the energy sector in general and electricity sector in particular, the sovernment is exerting efforts to complete the legal framework concerning the sector by newly introducing or amending relevant legal regulations Specifically in

he electric sector, the Law on Electric Energy and guiding decrees as well as sector levelopment strategy and planning, electricity price adjustment path has been ntroduced to match with the current conditions, creating an opportunity for private sector and foreign investment The domestic market for electric energy has been,

step by step, established with various ways of investment and making business in electricity, not turning the State monopoly into business monopoly, encouraging private and foreign investors to participate in construction of power source items and distributing networks under forms of: independent power producer (IPP), Building-Operating — Transfer (BOT) contract, BT, BTO, joint venture, joint stock company, taking an active part to join and link power networks, buy and purchase power from regional countries Under instruction from the Government, the plan for power sector is that by 2010, a competitive power market should be operated From

2015, a competitive power purchasing market will be developed, and from 2022, a competitive retail power market shall be operated

Most recently, on 31st July 2009, the Prime Minister provided his conclusion about the power sector restructuring proposal of MIT Restructuring of the power sector should meet the requirement of gradually implementing market oriented mechanism

in the power sector, following which, selling price should attract other economic sectors to invest in power and state-owned enterprises continue to play a leading role

Investment in power projects presents a new business direction with lots of potentials of big corporations having financial capability and operating experience Under support of the Government, newly established corporations like Petro

Vietnam (PVN), Vietnam National Coal-Mineral Industries Group (VINACOMIN)

have actively invested in power projects apart from Electricity of Vietnam (EVN) who currently keeps a monopoly status in production and supply of power

At the present time, adequate supply of power for economic development with the need of high supply growth rate of 15 - 17%/annum, even the highest rate is considered to be 22%, puts big pressure on Petro Vietnam to utilize the exploited

sas for power production, utilizing exploited gas for power production and firstly, it

i required to meet 15% of power capacity of the whole country

letro Vietnam Power Corporation directly affiliated to Petro Vietnam came iito existence with the main task of power production and business, investing in construction of electrical network and has been contributing to improve electrical apacity of the whole country together with EVN, minimizing power shortage, msuring national security For sustainable and effective development PV Power 1eeds a sound development strategy that can bring about economic effectiveness

nd adequate competitiveness with other economic incorporations once a healthy competitive power market has been established

Jor the reason, a research of the * Business and development strategy of PV Power

ly 2015, with vision to 2025 ‘ is a necessity of PV Power in particular and Petro

"ietnam in general This marks a breakthrough, contributing to break the monopoly

¢atus of a vital industry in the national economy, creating healthy competitiveness

v develop all together, contributing to ensure power energy for economic growth

nd the national security

I- RESEARCH OBJECTIVES

“he research applies state-of-the-art business administration knowledge with the

im of bringing an overall picture of PV Power development strategy which has just ieen established and developed and whose major business is power production and upply for economic development and ensuring national power security

“he objective of the research is to produce a business and development strategy to

015, with vision to 2025 of PV POWER It also develops suitable solutions to

nlarge operational scale, reduce business costs and improve capital utilization ffectiveness, bring business profit as well as to improve business competitiveness, ilevelop a development direction with strategic vision to 2025 of the company

In this way, the research also makes proposals and recommends strategic solutions for Petro Vietnam to submit to the Government for consideration overall in terms

of policies and mechanism, helping PV Power to achieve sustainable development and contributing to completion of policies for the power market to develop effectively following the power sector development direction instructed by the Government

IH- RESEARCH METHODOLOGY

1 Method of statistics collection

Primary data collection: observing facts in the company, interviewing individuals (mainly staff of the corporation), etc

Secondary data collection: collecting data from reports, document of the company,

annual statistics publication, information on media, television and latest researches

2 Method of comparison and synthetic:

To make comparison between indicators and planned indicators with business results statistics, market parameters, other comparative average indicators Comparative condition is statistics in line with time and space, economic contents,

measure unit, counting methods, business scale and condition

3 Method of listing in chart and table:

Listing and identifying trends or general characteristics of analyzing factors

4 SWOT method:

Find out strengths, weaknesses of the corporation This is a key method in forming strategy

IV- RESEARCH SCOPE

The research reviews the existing strategy of PV POWER, its achievements and outstanding limitations It furthers studies the development of business and

V- RESEARCH STRUCTURE

The research consists of 3 parts: Introduction, main report content, conclusion and

list of reference materials In which, the main research content is divided into 3

chapters:

Chapter 1: Conceptual basis for business strategy development

Chapter 2: Current business and production situation and strategy planning of PV Power

Chapter 3: Solutions to improve Business strategies and Development orientation to year 2015 and vision to year 2025 of PV Power

CHAPTER 1: CONCEPTUAL BASIS

1.1 THEORIES ON BUSINESS STRATEGY

1.1.1 Concepts of strategy

Nowadays, the concept of strategy has been widely and popularly used and it has been considered as an important foundation for company’s activities There have been a variety of ways to define strategy: “strategy is the model concluding options, missions and plans built to achieve these objectives” (Kenneth, 1965) or “strategy 1s

a red thread lining through all of organization’s activities” (Ansoff, 1965) “Strategy

is the plan for controlling and utilizing the organization’s resources like human, assets, finance with the aim to ensure and increase its own essential benefits” This outstanding idea has been firstly introduced Kenneth Andrews in his famous classic book “The Concept of Corporate Strategy” According to him, strategy is what to be done by the organization basing on its strengths, weaknesses in the condition that contains both threats and opportunities

1.1.2 Nature of business strategy

Business strategy is the way to do business, the enterprise’s operation creed, the way to use resources, and the foundation to solve all matters of the enterprise

Business strategy is a creative activity in management Basing on the set objectives

to arrange and create a new effective and high competitive management system Copying the business strategy of other will not bring the long term development and prosperity for the company Therefore, making business strategy must be based on the real context of each firm Two companies operating in the same industry, providing the same product or service with the same production scale will have different business strategies because of differences in their internal conditions In addition, a business strategy can only show its effectiveness when there is a good

combination of creative in management and creative in organization and technology

Business strategy is the action plan of company, building a business strategy is a crucial task but implementing it is considered to be more essential Obviously, a business strategy will be worthless if it is not put into implementation For implementing the business strategy, all members of the company must know and clearly understand it, it then must be broken down to detail feasible objectives for each year for each department and specified tasks for each individual

1.1.3 Features of business strategy

Overall: Business strategy is the overall map guiding the firm’s development; it decides the relationship of company with external environment The overall feature

can be seen in three aspects: be consistent with the overall development trend of the

firm, be the directing ground for all of company’s activities; be consistent with the country’s development trends in economic, technology and society for a particular period; be consistent with the trend of global economic integrations

Visionary feature: In the previous time, although employees worked hard, their work result and effectiveness were not high; the reasons were the company did not have a strategy to direct its business activities and it could not predict the company’s development trend Therefore, in order to build a successful business strategy, it is crucial to precisely anticipate the trends of overall economics, technology and society And a winning strategy must be built basing on the accurate future forecasting

Competitiveness: Building and implementing the business strategy will not be required if there is no rivalry competition Consequently, competition is evaluated

as the most fundamental factor of any business Additionally, there is no firm running business without knowing their rivalry competition So a business strategy

rust be able to show how to achieve the competitive advantages to win their competitors

Risks: Business strategy is future development plans for the company and it is a dfficult task since future market environment is unpredictable and changeable The longer strategy’s period, the more changeable environment factors and the riskier tte strategy will be Therefore to reduce potential future business risk, company nust develop business strategy on the foundation of good vision, unbiased and ciutious observation and prediction

frofessional and creation: Basing on its own capability, the company should s:lect business activities that fit with its strengths and avoid heading directly with lirge competitors Because advanced technology and market competition is ulimited, companies should continuously catch up with advanced technology Specialization and technical innovation are also considered as survival factors for tie existence and development of the company, especially for the small and medium eiterprise

Felative stability: Business strategy of a company must be relatively stable during

a particular period; otherwise it cannot be the direction for the firm’s business

ativities Since the external environment and business activities continuously ciange over time, the business strategy also must be able to adapt with these cianges Accordingly, the strategy should neither be permanent nor changeable in siot term period, it should be comparatively stable

12 STRATEGY FORMULATING PROCESS

‘trategic management process includes:

analyzing Company’s external environment to determine opportunities and threats; nalyzing company’s internal environment to determine strengths and weaknesses Drafting and selecting the best strategy basing on the company’s vision, mission, (portunities, threats, strengths and weaknesses

Implementing and adjusting the strategy, supervising and evaluating the implementation then making necessary adjustments to ensure that the strategy is suitable for the company

The strategic management process is displayed as below:

Figure 1.1 Strategic management process model

Vision Mission

Strategic Objectives

-Five forces model

Making adJustment Implementing and

1.2.1 Vision

The most crucial element for building and selecting a strategy is the vision of the team and individual participated Vision depends on the intuition of each individual and organization Intuition and analysis are important backgrounds for setting a strategy, which is consistent with the business environment Doing business in the constantly changing environment, the company’s manager must have a good intuition and vision to accurately analyze business environment and find out the actual advantages as well as disadvantages that have large impacts on the company Moreover, it will help to make a high feasible strategy, which fits with the business’s environment and the company’‘s vision

1.2.2 Mission

It is no doubt that each organization has its own objectives even when the objectives are not officially announced Most of company’s founders and leaders believe that their business will be highly imaged by customers The earliest step of strategic management is to set objectives and strategy In addition, after a period joining the

fluctuated business environment, the manager will see the need to review the

original objectives

1.2.3 Objectives

e To ensure the unification in objectives of the company

e To set standard or benchmark for resources allocation

e To establishing same communication language or company’s culture

e To serve as a central connection for all individual to follow the company’s objectives and direction

e To provide support in creating workflow to determine tasks and responsibility for each position in the company

e To determine clearly the company’s measurable objectives in term of cost

control, time and other variables

1.3 EXTERNAL ENVIRONMENT ANALYSIS MODEL

1.3.1 Macro analysis model

Macro analysis is used to analyze macro environment - enterprise’s external environment To analyze, summarize external forces affecting to the enterprise’s exist and development The enterprise has to identify opportunities and threats in the external environment; Macro environment’s factors are showed as following

Competitive environment

Demographic analysis

Population size: observes the changes in population to highlight its importance Rapid population growth is a global challenge in the 21st century but could bring great business opportunities

Age structure of population: shows the potentiality for the elderly-care and insurance service However, it is also a threat for company in term of labour resources

Geographic distribution can create advantages for information technology firms With computer, people could stay at home and work, contact or communicate with others through telecommunication network

Politics and legal analysis

Political environment: is political factors and environment that impacts the business activities They consist of political system, parities, union, atmosphere and government policies

Legal environment: is legal system, the mechanism for creating, interpreting and enforcing the laws related to business area, it comprises the legal norms and rules that govern business activities

It is undoubted that the Politics and legal environment have deep influence on business activities On the whole, company can only grow stably and healthily in a country that has the political stability, transparent policies and low level of corruption risk

Economic analysis

The economic environment is defined as the economic policies, socioeconomic circumstance of the country in which company do business Macro economic environment is consisted of factors that affecting consumer’s buying power and spending patterns, including: the socioeconomic structure, economic development level economic regime and macro-economic policies

Socioeconomic structure analysis: socioeconomic structure is the structure of the national economy, it includes: industrial types, distribution, consumption, technology, property Because the industry development strategy is considered as the most crucial element, company’s manager has to carefully study the development and future tendency of the industry which covers the company’s business activities

Economic growth analysis: economic growth is the economy-scale, the economic growth of a country, a region The indicators of economic growth: GDP, national income, national income per capital, economic growth rate By analyzing the economic growth, company could understand the economic development trend and anticipate the future trend, base on that to build a suitable business strategy

Economic regime analysis: economic regime is the model of the national economy

It governs the relationship between government and business, business and business, business and industry by applying certain methods in managing and adjusting the scale, content and mode of the economic activities

Government economic policies analysis: economic policies are the economic development objectives in a particular period and approaches as well as strategy of

government to achieve these objectives

Science and technology analysis

Science environment: includes factors and social phenomenon that have close relationship with scientific technology in areas where company‘s business is expanded Scientific technology factors consist of four elements:

e Development level of the technology in society

e Scientific forces

e Scientific institutions

e Policies and law documents relating to science and technology

Cultural and social analysis

Social environment consists of:

e The establishment and changes of classes in society, population structure

e Geographic shift in population

e Power distribution in society

e Schedules of people’s daily activities and working in society

Cultural environment: consists of philosophy, region, language, literature and art The impacts of these elements on business activities are often indirect, but can not

be underestimated

Global environment

The global environment consists of:

e Global market of company’s business activities

e Current markets that have been changing

e Important international political events

e Culture of countries or regions

e Macro- environments analysis helps us to evaluate easier:

e Macro-economic factors which influence company’s business activities

e Major changes in competition

Macro- environment analysis 1s shown as below:

Table 1.1 Macro-environment analysis

segmentation Deficit/ surplus balance of trade |GNP

Deficit/ surplus government budget

IAnti-monopoly law Human resource training Political/legal Tax law law

segmentation Educational policies and

trend

Female proportion in labour force|Environmental concerns Labour force diversity Changes in selection Social and cultural [Perception bout work-result decision of service and

segmentation quality occupation

Changes in priority related

to goods and service’s

attributes Renovating products Government budget for Technological Knowledge application R&D

segmentations Innovative communication

Source: Strategic management text book- statistic publishing house 2007

1.3.2 Porter’s five force model — Industrial analysis

Sectors in the national economy are classified basing on the features of goods or services and its roles in the national economy:

It is a fact that when taking part in the business game, companies have to face with five types of competitive pressures associated with:

e Competition pressure from new entrants

e Competition pressure from same products providers

e Competition pressure from substitute products

e Supplier bargaining power

e Buyer bargaining power

The five forces model of competition provide by Michael E Porter is displayed as following:

Figure 1.3: The relation between factors in the operation

The understanding of competitors has an important meaning for companies because

of many reasons

Figure 1.4: Main parts of competitor analysis

is presented as follow :

What they want to What they can do and

reach? | will be able to do?

Some questions have to

answer about the Future competitors Present

purpose - Do they satisfy with their present strategy

Multidimension position? How is the

al management |» What are their ability? | competitive

- What are their weaknesses? ability of the

- What can help them react in the company?

most powerful and effective way?

How can it effect Strengths and

Beside new competitors, new technology solutions affect property and level of competition Companies should analyze each competitor to master actions and reactions they may approve

Buyers

Customer problem is not apart from competition environment Goodwill is the most valuable property The goodwill achievement is due to company meets the demand better than competitors do Other key problem is bargaining ability of customer

The buyer has ability of decreasing the benefit of a business sector by mean of price squeezing or requiring higher quality and more services

Supplier

Companies have relations with supplying organizations who supply many kinds of

goods such as materials, devices, labor, and capital

- Number of supplier is little

- There isn’t replacement

- There isn’t supplier offering different product

Supplier selection relies on seller analysis result Analysis supplying organization has importance significance for any company In some certain time, most companies including well-doing ones have to temporarily borrow money from

term borrowing capital issue Before analyzing capital market, company should pay attention to define its position in competition with others

Labour source is a main factor in company’s competition environment The ability

of attractiveness and hold competence employees is prerequisite to ensuring success

of company Main factors need analyzing:

Substitutes

The pressure of replacement restricts potential benefit of a business because higher price is limited If a company does not pay attention to replacement, it may fall

behind with small market share

Hence, company should incessantly research and check new potential replacement Most of replacement is result of technology explosion To get achievement, company need pay attention to using resources to develop and apply new technology in its strategy

1.4 INTERNAL BUSINESS ANALYSIS

revenues Hence, to obtain the competitive advantage company has to lower its total cost comparing to competitors or differentiate their products or services to achieve higher sales It means they are applying low-cost and _ product differentiation strategy

Michael Porter had provided the conclusion: Value chain is a collection of design, production, sales, distribution and supported service activities Each activity has contribution to increase the products and service’s value Value chain could be divided into the primary activities, supported activities as following:

Primary activities Supporting activities

Internal logistics Materials management

Production Research & Development

Sales and marketing Company’s infrastructures

After sales service Human resource management

External logistics

Figure 1.5 Value chain Mode

Source: The strategic management lecture- Gemba01.03

In order to achieve the objectives of efficiencies, quality, innovation and customization of products and services, company has to build specific strategies that are closely linked to activities creating the products differentiation These

mentioned objectives could be seen as cross- objectives which make contribution to

company value chain

it

1.4.2 Stable competitive advantages

The stable competitive advantages of a company have four main attributes:

Valuable: competitive advantages help the company to create value, reduce cost, and boost the business activities’ efficiencies

Uniqueness: competitive advantages can combine with company’s other resources

in the unique way

Internal reproduction: it is the result of internal coordination between company’s individuals and divisions through the combination and organization of technical resources to create the company‘s main capability

The competitive advantages are formed through the studying and experience accumulation process It could not be sold or bought and copied

1.5 SWOT ANALYSIS

Constant changes in company’s environment could bring potential opportunities to business activities However, whether company can make use of potential opportunities; this depends on both external and internal environment factors It is the fact that although many companies have supportive external environment, they can not take advantages of their opportunities since their internal resources are in shortage Meanwhile, some companies with unsupportive external environment, but they still gain success because they actively and fully make use of their competitive advantages and strengths Consequently, it is necessary and important to analyze company’s external as well as internal environment

SWOT analysis: analyzing company’s strengths and weaknesses, opportunities and threats SWOT analysis is the key to develop a strategy, to highlight the internal strengths, also external opportunities and threats

Strengths and weaknesses are internal elements, while opportunities and threats are from external environment SWOT allows to analysis various environment factors, which can relatively affect the company‘s competitive advantages in a logic that enables readers to understand, present and discuss in order to have a final decision

To build business strategy, SWOT analysis is often combined with other analysis tools

SWOT analysis model can be shown as following table:

Table 1.2: SWOT analysis model

Strengths

Strong strategy

Healthy financial situation

Popular brand name or

Good customers’ service

Good products’ quality

Joint-venture or partnership

Weaknesses Ambiguous strategy Backward machine and equipments

unhealthy financial situation Higher cost than rivals Lack of basic capabilities or resources

Production breaking down Backward R&D

Little products line Little advertising budget

Opportunities

Larger customers segments

Geographic expansion

products line expansion

Launching new products

Backward and forward

integration Threats

More new entrants Decrease sales due _ to substitutes

Slow demand growth Unfavourable exchange rate

e Expanding to gain market share’ e New costly regulation

rivals e Positive relationship with

e Taking over rivals business cycle changes

e Joint-venture or partnership to e Strong bargaining power with increase market share buyers and suppliers

e Expanding to taking advantages e Shifts in customers’ demands

of potential opportunities e Demographic changes

e Expanding to make brand name

more popular

Source Strategic management lecture - Gemba0 1.03

1.6 GENERAL COMPETITIVE STRATEGIES

Enterprises pursue company strategy to achieve competitive advantage, operate

better than competitors in order to achieve above-middle revenue Enterprises usually select its business strategy from basic strategies: cost leadership, product differentiation and focus

1.6.1 Cost leadership strategy

This is the strategy that can produce goods or services with lower cost in comparison with competitors This strategy has two basic advantages Firstly, with lower cost, cost leadership enterprise can impose the lower price than competitors but achieve profit as competitors If enterprises in one industry achieve similar value for their products, cost leadership enterprise can achieve higher profit because

it has lower cost Secondly, if industry competition increase and enterprises compete with each other by price, cost leadership enterprise is able to stand better than other enterprises because of its lower cost

Advantages: In the most general, solutions to achieve cost advantage depend on each industry and industrial structure Advantage may come from production scale, technological monopoly, favours on materials, product’s structure, service level, technological process

Disadvantages: The main threats of cost leadership method are that competitors find ways to produce with lower cost and attack the cost leadership enterprise to its own strong point Competitors’ imitative ability with cost leadership enterprise’s method

is one of threats with cost leadership strategy Cost leadership enterprise may only think of decreasing cost but it they can not track changes in customer’s the demand will be affected dramatically

1.6.2 Product differentiation strategy

The differentiation strategy seeks to produce a competitive edge by producing products or service that buyers consider valuable and worth to purchase The company’s ability to differentiate their products to satisfy demand of the buyers in a unique way that the competitors can not offer, enables them to put a remarkable higher price than the industrial average one Earning higher revenue by setting higher price (not lower the cost like the case of the cost leadership) allows the product differentiation company to operate better and receive higher revenue

1.6.3 Focus strategy

What makes focused strategy be different from Cost leadership strategy or broad

differentiation strategy is the concentrated attention on a particular customer group

or market segment The targeted segment or niche can be defined by geography, by

a specific group of customer, or by a branch in the whole product line through differentiation or cost leadership In nature, a focused company is a cost leader or a

differentiator

Another point is that a focused company competes with a differentiator in only one

or several chains of the product by successful differentiation as they have knowledge at only a small group of customers or areas Moreover, the focus on a small chain of product allows better focus to bring out new ideas than a broad

differentiator

1.7 ANALYSIS AND SELECTION OF STRATEGIES

1.7.1 Strategy Selection using SWOT Matrix

SWOT analysis is putting opportunities, threats, strengths, and weaknesses which influence the current and future position of company in an interactive relation then analyze it to identify strategic position of each relation

(Strengths) (Weaknesses)

(Opportunities) SO combined strategy WO combined strategy

(Threats) ST combined strategy WT combined strategy

In which:

SO Strategy - «development » strategy: combine opportunities and strengths factor of the company to expand and diversify Strengths and opportunities of company need to be used to compete with other companies and expand market

WO Strategy: weaknesses are bigger than strengths but external opportunities predominate It corresponds to “competition” strategy This combination enables company to overcome weaknesses by taking advantages of opportunities

ST Strategy: this is the situation where company uses internal strengths to fight against external constraint conditions This strategy is called «opposition » strategy

WT Strategy- `eƒense ` strategy: Company is unable to deal with external risks and has its development capacity revoked In this situation, company has two ways: being bankrupt or cooperate with other company This combination requests company to use method of lowering weaknesses to avoid risks by using defense strategy

Basing on internal factors of the company and external environment factors, the enterprise can select the most suitable strategy for itself

1.7.2 Peripheral factor evaluating matrix

Building process of EFE matrix includes 5 steps:

Figure 1.6: Building process of EFE matrix

List > Define —> Give | „ị Grade Add mark

peripheral level of for each factor factor in factors each factor factor the list

Step 1: List factors has decisive role in the success of company (10-20 factors)

Step 2: Define important level from 0,0 (not important) to 1,0 (very important)

Total of level on the list is 1

Step 3: Define coefficient from 1 to 4 of each factor in relation to responsive ability

1: Lower medium

Step 4: Grade each peripheral factor by multiplying coefficient and important level Step 5: Add the grades of all factor list If result is 2.5, it is medium, 4 1s the highest and | is the lowest

In short, micro and macro factors can combine together in many ways, direct or indirect impact on company to create opportunities or threats

The importance is to analyze, evaluate level of impact and responsive ability of current strategy in the fight against the changes

BGG includes 3 steps:

- Company is divided into some SBU, each SBU is evaluated of its prospect

Compare SBU in a square matrix, show their prospect

Star: SBU in top position

Question mark: SBU in weak position

Cow: SBU in low growth rate business but has high market share

Dog: SBU in low growth rate business and has small market share

Embryo Market share building | Market share building

Rising Developing Market concentrate

Fluctuation Market share raising

đissolve

Strengthen and gain

Growing Reap or dissolve

Performance goals and objectives will also be specified Much of the information needed to develop the action plan will have been generated in above items

Tie second step of implementation consists of actions aimed at marshaling and applying resources In the context of policy change these actions may consist of (but aie not limited to), changes in organizational structures, shifts and reclassification of personnel, the establishment new routines, tasks, and procedures; installation of new ircentive systems; retooling production for new products or services; marketing of new services or creation of demand among new beneficiaries or consumers; development of new financing mechanisms; organizing coalitions to maintain political, budgetary, and beneficiary support; and developing collaborative trrechanisms with cooperating organizations It should be noted that the managers’ tesk is more than just the internal operation of his organization; they must also iranage its fit with the environment

19 STRATEGY MONITORING

Srategic management assumes continual change Therefore mechanisms must be d:veloped for monitoring and analyzing the performance of the organization with respect to achieving the goals and objectives set in the action plan As the elvironment undergoes changes, as minister’s change, elections occur, or budgets g) up or down, priorities will also change Resource flows may be uneven All of ttese elements can alter performance, priorities, and the desirability of certain

policies If the organization wants to maintain a good “fit” with the environment, it

nust first be able to track these changes in order to adjust The monitoring process siould be continuous, regular, and capable of feeding into the decision- making process The manager should develop control mechanisms to gauge the efficiency

d resources used and impact mechanisms to gauge the effectiveness of its actions Finally, it is vital that the monitoring process be timely and usable

1.10 APPLICATION OF THEORIES IN BUILDING STRATEGIES FOR PV POWER

To build business and development strategies for PV POWER in the later parts of this report, we have tried utmost to apply models that we have studied to analyze and evaluate and build most suitable strategies for each period It can be said that, electricity is not a new product to the society, however under the economic development policies, electricity production and trading has been with monopoly The changes in economic policies will allow Vietnam electricity market to develop

to a competitive market, whole sale and retail market in the future

PV POWER is a young company in the field of electricity trading and production Building strategies is of great importance for the development of the company Therefore, it is necessary to apply modern theories on building business strategies with the core business of electricity production We will study the vision of the company, analyze the external environment of electricity industry in Vietnam, analyze the internal factors of the corporation, and define strengths and weaknesses

of PV POWER basing on SWOT analysis We also use SWOT matrix to define group of strategies for comparison and then decide the most suitable strategy The most important part of development strategies for power plant is selecting building

places, technology, electricity structure such as gas thermo electricity, hydro

electricity or coal thermo electricity, etc., capacity of each plant as well as unit price

in contract of electricity buying and selling Investment in electricity production is a long term process which includes careful calculation of input materials, construction schedule, capital mobilization, operation and handover However, as for PV POWER the top priority is gaining market share in the market of generating electricity We will base on theories of building strategies to recommend concrete solutions to increase the competitiveness of the company to bring benefits to the company in particular and to the whole society in general

Capstone Project Report- Group 1 Page 31

1 Agreement on and initiation of the strategic management process

tO Identification and clarification of the organization’s mission, objectives, and current strategies

3 Identification of the organization’s internal strengths and weaknesses

4 Assessment of the threats and opportunities from the external environment

5 Identification of key constituents/ stakeholders and their expectations

6 Identification of the key strategic issues confronting the organization

7 Design/analysis/selection of strategy alternatives and options to manage issues identified in step 6

8 Implementation of strategy

9 Monitoring and review of the strategy’s performance

Any enterprises who want to build business strategies must study and master knowledge of strategies In order to build business strategies for PV Power, we tried

to apply our knowledge of strategic management and models to recommend the best strategies for the development of this corporation It can be said that electricity industry is not a new one, but it is just at the beginning points and there are a lot of potentials in the future Applying theories of strategic management will help enterprises develop stably and effectively

CHAPTER 2: CURRENT BUSINESS AND PRODUCTION OPERATIONS AND STRATEGY PLANNING OF PETRO VIETNAM POWER

CORPORATION