Strategy business of PV oil Tay Ninh in period 2011-2020

Capstone Project Report — Business Strategy for PV Oil Tay Ninh in period 2011-2020 ACKNOWLEDGEMENTS With the accomplishment of this capstone project report, first of all, We would lik

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Global Advanced Master of Business Administration

CAPSTONE PROJECT PROPOSAL STRATEGY BUSINESS OF

| PV OIL TAY NINH IN PERIOD

Group No.: 2

HOANG THI DUYEN NGO VAN NHIEM NONG HUU DUC HOANG SONG TUY DIEM TRAN VAN DUONG

HCM City — 2011

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Capstone Project Report — Business Strategy for PV Oil Tay Ninh in period 2011-2020

ACKNOWLEDGEMENTS

With the accomplishment of this capstone project report, first of all, We would like to say may thanks to all teachers at ETC who had allowed me to attend

their classes so that We could get valuable knowledge used as a good background in

our capstone project report Moreover, they also gave an enthusiastic performance during our attention, a good symbol for teaching career and source of encouragement for ours to fulfil our report in time

Secondly, We would like to send our deep gratitude to Mr Trinh Kim Nhac,

Chairman; Mr Nguyen Ngoc Anh, General Director and all of our other superiors and colleagues at PV OIL Tay Ninh have instructed ours everything related to

distributing petroleum both in marketplace and in the company and have also shared

with ours much of knowledge and experience during our research time, for which

We are greatly indebted

Finally, We would particularly like to acknowledge with grateful thanks the generous helps from our considerate classmates as well as our other closed friends

Ho Chi Minh City, Juny 5", 2011

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TABLE OF CONTENTS

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4 The relevance of research .eeeceececceceeeneeeneeeeeeeeneeeseneesseeesneessseessseeneeeeeseees 08

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Chapter I LITERATURE REVIEW ẶẶ SH ke 15

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1.1.1 Definition of Strategy and Business straf€gy - cccnsnseeerke là

1.1.2 Corporate strategy, business strategy and functional strategy 16 leo Understanding “competitive NVAHSDPE savsaasseusersaosiidasoedttbieminruonbsdgeoaae 17 1.2.1Definition of Competitive adVanfagØe€ ch Hi 17 1.2.2 The important of CompetitIVe adVanfage .- che 17

1.2.3 How companIes achieve competitIVe adVantage .-cccccceceằ: 18

1.3 Understanding several maJor business model .- -‹- + +cssss+seceeerees 19 1.5.1 SWCITI SHHÏNGI o Ăn n0 ce100 1x6 62810/061606<08692L58313gà GH 850 gga10g78 85jg.g.mgiE 19 1.3.2 Michael Porter's five THTGỮS úuy àccsoa ga gan ga banh ganiadk25 8061005 4010300,305 G00030000201G0980088 20 1.3.2 Construction tools aid optoni SEFAÍEB iaseanseeadeioaigsirsenseisaisokseusstsiogia navene 22

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Capstone Project Report — Business Strategv for PV Oil Tay Ninh in period 2011-2020

2.1.2 Micro external analysis 0.0.0.0 n(.(( 30 2.1.3 Michael Porter`s fTV€ ÍOTC€S nghe 43

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Ki SOI TU ĐSÏS seeisieiiesspsreesiaLindddiebixeesnvvsiamsopdkdvone blesbstsilpssinksdesezrreolliv4viEEcsxirvraesilk 57 2.4.1 Forecast of petroleum demand in Viet Nam and the region to 2020 57 2.4.2 Forecast of petroleum products consumed in Tay Ninh province to 2015 58

2.4.3 Plan 2011-2015 consumption of PV Oil eee eee Ăn site 59

2.4.4 Business result expected in 2011 - 2015 oo eee c1 1S như 60

Chapter 3 CONSTRUCTION AND SELECTION STRATEGY 62

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Capstone Project Report — Business Strategy for PV Oil Tay Ninh in period 2011-2020 LIST OF TABLE, FIGURES

Figure l-l: Research Fratiework ina csisamasccansemse mero meme ce one 13 Piguite 142 "The Strategy HIGrare hy 1.00 sscassnsenaosssenmoescmneananeceeameeannn ves voce cores 16 Figure l=32 Porter's Five Forges si0:.1s vessvenconamasein san asceeer meee wn me renee 20 Figure 2-1: GDP Growth Of VICtiaim, sscsnscseessoss comune mameres aeeromrencenrameererensonemns 25 Figure 2-2: Petroleum used in Vietnam (thousand CBM) e 26 Figure: 2-33 Ta tiation Of Veta ence sserosarrari not torunntrtirtrtietgtgnt tsasetreasare eereoeeeieererreae 27 Figure 2-4: Petroleum distribution channe - c2 s‡ssttsrreerrrrrrre 31 Figure 2-5 - Vietnamese petroleuin market SHALE « csssssncvasnascenosesscsecnemmanransnemnsaveseenecnenss 32 Figure 2-6: Market share of PV OIL Tay Ninh in TayNinh market 42 Figure 2-7: PV OIL Tay Ninh organizational chart -: - -:- :++-+>+c>+cs>+ 47 Figuré 2-8: Sales in voluie in 2002-2009 Deri0ỎS.c.ceooeenieiieiriiiriesririrerriee 48 Eipuire 2-9: S5les ïn value in 2002-2009 DEHOỦS eeesaseeeieenirrriiiioiiiieirrrreerre 48 Figure 2-10: Forecast of petroleum demand in Viet Nam to 2020 58 Figure 2-ll: Forecast of petroleum demand of the region to 2020 58

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Table 1; External Factor Evaluation MÍQfFIX (cà +seEieerereeeerrrees 30

Table 2 —PV O1FL storage SYSICM aia ca saree ocmermmadnemmmemmmarmcmensermmaaviecccenrenes 25

Table 3 : PV OIL sharing or renting storà€ sySfem - se 37

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Table 5: GDP Growth of Tay Ninh province c cece eee eee eee cee ceeeeeeeseeenseenes 40

Table 6: Picture compete matrix of PV Oil Tay Ninh . : -: +: 44 Table 7: Internal Factor Evaluation Matrix ofPV Ơil Tây Ninh 50

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Table 8: Forecast of petroleum products consumed in Tay Ninh province to

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GLOSSARY

CBM

The cubic metre (US spelling: cubic meter, symbol: m3) is the international system

of units derived unit of volume It is the volume of a cube with edges one metre in length An alternative name, which allowed a different usage with metric prefixes, was the steres Another alternative name, not widely used any more, is the kilolitre PETROLEUM PRODUCTS

Petroleum products are useful materials derived from crude oil (petroleum) as it 1s

processed in oil refineries Major products of oil refinery are diesel, fuel oil, gasoline and kerosene

DIESEL

Diesel fuel in general is any liquid fuel used in diesel engines

FUEL OIL

Fuel oil is a fraction obtained from petroleum distillation, either as a distillate or a

residue Broadly speaking, fuel oil is any liquid petroleum product that is burned in

a furnace or boiler for the generation of heat or used in an engine for the generation

of power

GASOLINE

Gasoline is a petroleum-derived liquid mixture which is primarily used as a fuel in

internal combustion engines It is also used as a solvent, mainly known for its ability

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The octane number of a fuel is measured in a test engine, and is defined by comparison with the mixture of 2,2,4-trimethylpentane (iso-octane) and heptanes which would have the same anti-knocking capacity as the fuel under test: the percentage, by volume, of 2,2,4-trimethylpentane in that mixture is the octane number of the fuel For example, gasoline with the same knocking characteristics as

a mixture of 92% iso-octane and 8% heptanes would have an octane rating of 92 This does not mean that the petrol contains just iso-octane and heptanes in these proportions, but that it has the same detonation resistance properties Because some

fuels are more knock-resistant than iso-octane, the definition has been extended to

allow for octane numbers higher than 100

Octane rating does not relate to the energy content of the fuel It is only a measure of the fuel's tendency to burn in a controlled manner, rather than exploding in an

uncontrolled manner Where octane is raised by blending in ethanol, energy content

per volume is reduced

RESEARCH OCTANE NUMBER (RON)

The most common type of octane rating worldwide is the Research Octane Number (RON) RON is determined by running the fuel in a test engine with a variable

compression ratio under controlled conditions, and comparing the results with those for mixtures of iso-octane and n-heptanes

KEROSENE

Kerosene, sometimes spelled kerosine in scientific and industrial usage Kerosene is widely used to power jet-engine aircraft (jet fuel) and some rockets, but is also commonly used as a heating fuel and for fire toys In parts of Asia, where the price

of kerosene is subsidized, it fuels outboard motors rigged on small fishing craft

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INTRODUCTION

1 Problem statement

Gasoline is a strategic commodity, It meets an economy sectors requirements from industry, agriculture, forestry, fishery to transportation Nowadays there is no alternative fuels for this one so that Vietnam State and consumers also have had an hourly watch on this market

Vietnam gasoline systems currently has 11 enterprise hubs There are 9 state companies allowed to import and export gasoline Consumers get it over via general

agents or distributor system consisting of about 10,000 dealers and retail filling

stations

Tay Ninh is a Southeast province of Vietnam It has the frontier with Kingdom

of Cambodia in the West and the North, Binh Duong and Binh Phuoc provinces in the Est, Ho Chi Minh City and Long An province in the South It has an important

and strategic position also with a long border with Cambodia, extensive forests, high mountains, conveniently sea transportation And it is the gateway to Ho Chi Minh city and other provinces

Gasoline market in Tay Ninh is growing well Till March 2011, it had 329 gasoline retailers in which PV Oil has 8 stores under, 3 outlets and 71 agents

In 2009, sales in volume of PV OIL Tay Ninh were 72,000 CBM that increased

11 percent in comparison with the implementation of 2008 However, deeply analysis that figure, there were 65,000 CBM distributed in Tay Ninh market and 7,000 CBM distributed in Ho Chi Minh City Thus, in Tay Ninh market, PV OIL

Tay Ninh ranked the second position with 39 percent of market share after

Petrolimex Tay Ninh who sold 69,000 CBM accounting for 42 percent of market

share

From 2010, PV OIL Tay Ninh have transformed to a join stock company from a

dependent accounting branch of PV OIL Corporation Moreover, in 2010, PV OIL

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Tay Ninh have finished upgrading capacity of petroleum storage to 8,500 CBM increasing 5,000 CBM, more than twice times in comparison with old capacity These changes have given PV OIL Tay Ninh more opportunities in positively managing business and managing inventory On the other hand, PV OIL Tay Ninh has the requirement of increasing sales and market share and becoming the best petroleum distributor in Tay Ninh and vicinity to effectively operate new storage and meet the expectation of PV OIL Corporation

With the above issues and our team members are working at Tay Ninh PV Oil,

group 2 decided to select PV Oil Tay Ninh to be our research topics for assignments

as “business strategy of Tay Ninh PV Oil from 2011 to 2020” Having limited

experience and business strategy understanding, we have a strong disire to receive

comments from lectures and other groups to order to improve our research

2 Research objective

The main objectives of this study are as follow:

- Systematic of the theoretical basis of the stragety, business stragety

- To process as SWOT analysis (Strength — Weakness — Opportunity — Threat) of PV OIL Tay Ninh with special reference to petroleum trading activity based on the consideration to external and internal environment

- To identify the key success factors of trading petroleum activity in Tay Ninh and vicinity market and find out PV OIL Tay Ninh’s core

competences

- To test the client’s satisfaction with the PV OIL Tay Ninh’s service to have

better understanding about the company’s competences and weaknesses

- To propose suitable strategies in an effort to improve PV OIL Tay Ninh’s

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The company was newly created, and there was no research on development strategy formerly

4 The relevance of the research

This research mainly discusses how Tay Ninh Petrovietnam Oil Company could have its competitive advantages to develop market share in Tay Ninh province and vicinity Thus, the author shall aim to help the company’s Board of Directors to

make strategic decisions, by analyzing its internal and external forces, in different phases and to propose detailed and practical recommendations in order that the

company gets its objectives

5 Research Methodology

The purpose of this chapter is to give readers a better understanding of major means, tools and techniques used in this research to help the author obtain applicable data, gain valuable knowledge and reach useful conclusions related

directly to the problem investigated Basically, these resources include:

5.1 Theoretical framework

This capstone project report shall begin with a brief literature review with the

examination of some business models of Michael Porter in line with SWOT analysis The purpose of these studies is to better understand the enterprise business environment and competition capability as well as development pathways On the basis of comprehensive knowledge of these theories, the author will further explore the company’s inner forces and flaws and outer opportunities and challenges so as to propose effective recommendations to the management board

5.2 Primary data

Primary data are collected through in-depth and open-ended interviews with the company management and discussions with major business partners being customers and market experts The results are deemed an integral part of the paper

as It gives a guideline on to which extent the research should aim at, 1.e short-term

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or long-term strategies; which fields of business focus should rest on, etc Basically, there are three questionnaires designed, implemented, analyzed and followed up as follows:

Questionnaire No 1:

Interviewing PV OIL Tay Ninh’s board of management is necessary to learn about the followings:

- The external environment of the company

- The background of company from the establishment up to now

- | The SWOT of the company

- The situation of the company, especially sales and market share in recent years

- The strategic development fields of company

- The core competences and competitive advantages of company

In general, the face to face interview is carried out with the aim of gaining essential information on the petroleum market in Vietnam and also on the internal environment of PV OIL Tay Ninh All the interviewees were asked the same questions, which covered both the external and internal environments in order to

obtain their views and evaluation on the current business

A qualitative and exploratory analysis was done with a view to discovering the strengths and weaknesses of PV OIL Tay Ninh in relation to the opportunities and

threats the company is facing In general, comments from the interviewees were complied and categorized to deepen all important information related to the

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General Director, Director of Trading Department, Director of Operation Department and Chief Accountant

Questionnaire No 2:

Face to face interview with some experts in trading petroleum will be held to clearly point out external environment of the company and the key success factor of the industry in Tay Ninh and vicinities market These experts are five people who have long time experience and knowledge in trading petroleum in South of Vietnam They are Petroleum Director of PV OIL Corporation, Former Deputy Director of Petrolimex Sai gon, Trading Manager of Petrolimex Tay ninh, Trading Director of Petec Company and Trading Director of Saigon Petro Company

Questionnaire No 3:

In line with the above questionnaire, this similar survey seeks responses from the company’s key groups of clients who are wholesalers, retailers Below are all aspects the author is trying to seek an answer from the questionnaire:

e Customer satisfaction in each service criteria

e Service quality of PV OIL Tay Ninh in comparison with that of the current competitors

Upon designing this questionnaire, the author essentially lays a crucial focus on larger customers of the company only and expects to obtain feedbacks from key persons of:

e 05 wholesalers

e 60 retailers

After that, appropriate strategies and recommendations are proposed in line with

PV OIL Tay Ninh business objectives

5.3 Secondary data

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With secondary data, the author shall utilize different sources, internal and external, of PV OIL TAY NINH such as the company’s annual and periodical reports and business plans, brochure and other publications; the Internet; reference books; newspapers and magazines, etc

Figure 1-1: Research Framework

(Source: Strategy management, Alex Miller)

recommendation formulation &

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CHAPTER I LITERATURE REVIEW

1.1 Understanding ‘strategy’

1.1.1 Definition of ‘strategy’ and ‘business strategy’

To begin with, it is essential to understand the term ‘strategy’ alone Along with history, it seems that people had practiced strategy since the beginning of time

The term was well recognized by the great Chinese strategist and military theorist Sun Tzu who described his principles of war as early as 500 BCE From Sun Tzu’s

work, many businessmen learned the tactical side of military strategy and specific tactical prescriptions Later on, many authors have developed new strategy concepts

in relation to business performance and until now there is no unique and universal

definition for the term Below could be one of the most useful:

“A strategy is the pattern or plan that integrates an organization’s major

goals, policies, and action sequences into a cohesive whole A well-formulated

strategy helps to marshal and allocate an organization’s resources into a unique and viable posture based on its relative internal competencies and shortcomings, anticipated changes in the environment, and contingent moves by intelligent opponents.” (The strategy process, Henry Mintzberg & James Brian Quinn, p 5)

In simple term, ‘strategy’ refers to how a given objective will be achieved

and is the art of outperforming competitors without necessarily having superior

resources

Business strategy is a long-term approach to implementing a firm's business plans to achieve its business objectives Business Strategy is a term used in business

planning that implies a careful selection and application of resources to obtain a

competitive advantage in anticipation of future events or trends Business strategy relates to making strategic decisions about products, price, meeting customer needs, gaining advantage over competitors that help a business competing successfully in a particular market

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According to Henry Mintzberg, in his 1994 book namely “The Rise and Fall

of Strategic Planning”, the term generally falls into one of the four categories as follows:

— A plan, a "how," a means of getting from here to there

— A pattern in actions over time; for example, a company that regularly markets very expensive products is using a "high end" strategy

— A position; that is, it reflects decisions to offer particular products or services in particular markets

— A perspective, that is, vision and direction

In conclusion, “strategy” is all of a plan, a pattern, a position and a perspective that define the markets and the businesses in which a company will

operate and thus, is crucial to the firm’s survival and success

1.1.2 ‘Corporate strategy’, ‘business strategy’ and ‘functional strategy’

As discussed earlier, a strategy can be considered as a comprehensive master plan to indicate how the firm will achieve its mission and objectives It helps the firm to become successful and stay successful even under severe competition But

the question is whether a unique corporate strategy can be applicable to all levels in

the firm The answer is certainly ‘No’ now that almost all business firms, especially large ones, usually adopt three types of strategy simultaneously which include:

Corporate strategy (or companywide strategy): a description of the firm’s overall direction in terms of its general attitude toward growth and the management

of its various businesses and product lines or services Corporate strategy concerns

two different questions: What businesses the firm should be in and how the

corporate office should manage the array of business units

Business strategy (or competitive strategy): a strategy occurring at the business unit or product level which focuses on the enhancement of the competitive

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position of a firm’s products or services in the specific industry or market segment

by that business unit Business strategy concerns how to create competitive advantage in each of the businesses in which a firm competes

Functional strategy: a strategy implemented by a functional area to achieve corporate and business unit objectives and strategies by maximizing resource

productivity Functional strategy has to do with developing and nurturing a

distinctive competence to provide a firm and business unit with a competitive advantage

With regard to this issue, one usually recognizes the ‘hierarchy of strategy’

or the grouping of all the said strategy types by level in the firm More or less, this

hierarchy is a nesting of one strategy within another so that they complement and Support one another Functional strategies support business strategies, which then Support the corporate strategies This capstone project report, as the title suggests, shall the firm’s internal and external conditions so as to develop important strategies

at corporate level

Figure 1-2: The Strategy Hierarchy

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1.2 Understanding ‘competitive advantages’

1.2.1 Definition of ‘competitive advantages’

History has proved that successful companies — small, medium or large —

tend to one thing in common: they all have specific significant competitive

advantage For long, ‘competitive advantage’ has been the focal point of strategy and can be described, in simple terms, as a position a firm occupies against its competitors

Another well-known ‘competitive advantage’ theory has to do with resources and capabilities The resource-based view states that in order to develop a competitive advantage, the firm must have resources and capabilities that are superior to those of its competitors Resources are the firm-specific assets useful for

creating a cost or differentiation advantage and that few competitors can acquire

easily Some examples of such resources are:

e Patents and trademarks

e Proprietary know-how

e Installed customer base

e Company reputation

Capabilities are the abilities of the company to effectively utilize its

resources Such capabilities are not easily presented as documents They are the

routines of the company Thus, the competitors have difficulties to imitate

Resources and capabilities of the company together form its distinctive competencies These competencies enable efficiency, quality, and customer responsiveness, which can be leveraged to create a cost advantage or a

differentiation advantage The firm then will position itself in its industry by

choosing either the differentiation or cost leadership strategy to create value

1.2.2 The importance of ‘competitive advantages’

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Competitive advantage is believed to play a central role fostering sustainable growth of an organization by ensuring that a company earns excess returns for a longer period of time Competitive advantage 1s proven, through researches, to be an effective tool in achieving higher-than-normal levels of profitability

1.2.3 How companies achieve competitive advantage

In this section, let us take a look at the financial aspects of a firm to

comprehend why they contribute to its economic success

Miller states that one of the most central goa!s that any business firm has 1s to

maximize shareholders’ returns, the ultimate objective which pulls the rest of other

elements in the framework Under this heading, four elements are discussed as a

mean to measure financial capability of the firm which are Economic Value Added (EVA), profitability, growth and financial risks To be financially healthy, a firm

then needs to build a competitive advantage among differentiation, low cost, and/or

quick response as mentioned above What constitutes a firm’s competitive

environment and position within it are two important elements being structural

position (the firm’s position with regard to rivalry, entrants, substitutes, customers and suppliers) and process execution (how well the firm executes certain core

processes) Competitive advantage, in this connection, can be considered as the

product of both the industry’s structure and the firm’s ability to operate within that

Structure

To this extent, all the concepts have been examined in view of a single business unit, i.e a particular product/service and market that a firm focuses on

However, Miller explains that a firm, usually multinational, operates under many

different business units to seek benefits or synergies Therefore he proposes five

types of ‘enterprise synergies’ which a firm pursues to strengthen competitive advantage across the international operations either through an enhanced structural position or through improved process execution These include core competencies,

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market power, shared infrastructure, balanced cash flows and_ transnational advantages

Organizational capacity is the last but not least element in the framework which refers to the so-called soft issues such as leadership, levers for organizational change, and organizational learning Resting on the bottom of the framework yet this important element, however, needs to be enhanced to allow managers to take

advantage of enterprise synergies and develop more favorable structural position and/or to improve process execution

In conclusion, the Architecture of Strategy is “a framework for linking a

series of means and ends to support superior financial performance through building strong competitive advantages” The analysis of this framework is important to understand what elements should focus rest on in order that a firm succeeds in building winning strategies

1.3 Understanding several major business models

So far, we have discussed ‘business strategy’ and ‘competitive advantage’,

basic concepts in this research This section shall continue with the examination of several business models the author tends to utilize to attain this capstone purposes 1.3.1 SWOT analysis

Of all the four instruments, SWOT analysis (or SWOT matrix) is probably the most common to access a firm’s situation This technique was developed by Albert Humphrey who led a research project at Stanford University in the 1960s and 1970s using data from Fortune 500 companies

SWOT is an acronym used to describe particular Strengths, Weaknesses, Opportunities, and Threats that are strategic factors for a project or a specific business venture SWOT analysis is deemed a strategic planning method which typically starts with the definition of a desirable end state or objective Once such end state or objective is clearly defined, the analysis shall be implemented to help a

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firm identify the key internal factors (strengths and weaknesses) and external factors (opportunities and threats) that are important to achieving the goal

1.3.2 Michael Porter’s five forces

Michael Eugene Porter (born 1947) is a University Professor at Harvard

Business School who pays academic interests in management and economics So far, Porter has proposed many useful economic concepts such as competitive advantage (of a firm), diamond model (of a nation), value chain, generic strategies,

cluster development, etc but ‘the five-force competition model’ is probably one of

the most important notions

Bargaining Power] Competitors | Bargaining Power

of Suppliers of Buyers Suppliers [Ƒ TT * 4———— Buyers

Rivalry among existing firms

or Service

Substitutes

Figure 1-3: Porter’s Five Forces

Porter's five-force model is a framework for the industry analysis and business strategy development The model provides a simple perspective for assessing and analyzing the competitive strength and position of a corporation or business organization In other words, the model is used to analyze the attractiveness and likely-profitability of an industry Porter suggests that five main forces create competition at the level of strategic business units and that a systematic analysis of

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each force shall help managers identify the keys to competitiveness within their particular industry These five forces include:

Threat of new entrants: When a new player enters an industry, it can raise the level of competition, which consequently reduces its attractiveness Such threat

of new entrants, Porter explains, depends very much on the barriers to entry In

many countries, high entry barriers exist in some industries (ex: shipbuilding), while

it is contrary to some other industries (ex: hotel and restaurant) Some sources of major entry barriers include economies of scale, capital/investment requirements, incumbent resistance, customer switching costs, geographical factors, etc

Threat of substitutes: Most industries all have substitutes The presence of

such substitute products/services tend to lower industry attractiveness and profitability since they compete with existing ones, mostly in terms of price The

threat of such substitutes should depend on buyers’ loyalty (or willing toward

substitutes), relative price and performance of substitutes, costs of switching to

substitutes

Bargaining Power of Suppliers: This is to indicate that a supplier may have power over a company because it supplies materials and other products into the industry Therefore, a company's profitability can be significantly affected by the

cost of items bought from suppliers (e.g raw materials, components) The suppliers will have high bargaining power when:

e There are not differentiated but highly valued products

e The industry is threatened to integrate forward by the suppliers

e There are few dominant suppliers and many buyers

e The company does not threaten to integrate backwards into supply

e The industry is not a key customer group

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Bargaining Power of Buyers: At the other end of the rope, companies create demand in an industry and thus, can possibly exert some type of power over the suppliers Basically the buyers will have greater bargaining power when:

e There are standardized products

e There are many sellers in the industry while few dominant buyers

e The industry is threatened to integrate backward by the Buyers

e The buyer’s industry is not threatened to integrate forward by supplier

e The industry is not a key supplying group

Competitive rivalry within an industry: What is important here is the number and capability of a firm’s competitors If the firm has many competitors

who offer equally attractive products and services, then it is likely that the firm has

more competition and less power in the situation Therefore, suppliers and buyers

are supposed to have a good deal from the firm or otherwise they will go to your competitors’ On the other hand, if the firm provides such products or services that

no other firm does, it often has tremendous strength Porter believes that the

intensity of rivalry between these competitors within an industry depend on several

factors such as the structure of competition, the structure of industry costs,

degree of differentiation, etc

Porter’s five-force model is not only used for commercial organizations but also for public organizations and non-profit sectors to better understand their customers, suppliers and other relevant organization with whom they may be

competing for support

1.3.3 Construction tools and option strategy

As mentioned above, construction tools and option strategy used in the article

include:

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- Internal Factor Evaluation Matrix (IFE)

- External Factor Evaluation Matrix (EFE)

- Internal - External Matrix ( IE)

- SPACE Matrix

- QSPM Matrix

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CHAPTER II - SITUATION ANALYSIS

2.1 External analysis

2.1.1 Macro external analysis

External factors can either limit or expand Petroleum Company to achieve its

designed objectives in sales, profit and client needs These conditions include economic conditions, government control and regulations, social factors and technological factors

2.1.1.1 Economic conditions

Ever since Vietnamese government launched a reform program to move toward market-oriented economy that operates under private as well as collective

and state control, Vietnam entered a period of rapid developments as a result Also,

many significant events, both in politics and economics, such as being member of ASEAN (Association of South East Asian Nations) and APEC (Asian Pacific Economic Countries) and WTO (World Trade Organization) help Vietnam open the door to the whole world and join the global market Vietnamese economy has gradually escaped from the stagnant situation A lot of industries have emerged and

developed as a result, creating many business opportunities for all kind of enterprises Economic growth, then, has been raised as a result, becoming a key to the development of petroleum market In other words, economic development,

which can be mainly expressed through GDP (Gross Domestic Products) growth, FDI (Foreign Direct Investment) and inflation, is an important factor for the growth

of Petroleum Company

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Vietnam had a constant increase in GDP until 2007 From 2008, with the

effect of world economic recession, GDP growth of Vietnam decreased to 6.2% in

2008 and 5.3% in 2009, the lowest one within 10 years Although there were

decrease in GDP Growth, those results were impressive in comparison with the

general situation of world economic recession

Usually, when economy develops, facilitating business activities of all enterprises and also bettering people’s life Factory will need more fuel for their dusiness development People tend to spend more on new transportation mean to

serve their work and enjoy their life Briefly, there is a direct correlation between GDP and petroleum spending in which petroleum acts as an input material for

dusiness activities, thereby boosting economy The GDP growth, in its turn, speeds

1p petroleum industry The below graph is an impressive evidence for the 2orrelation between GDP growth and petroleum demand In other words, when GDP

of Vietnam increases, demand of petroleum rises accordingly

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Figure 2-2: Petroleum used in Vietnam (thousand CBM)

(Source: Ministry of Industry and Trade)

Foreign Direct Investment (FDI)

Since Vietnam joined WTO (World Trade Organization), there were more

international companies looking at Vietnam as an alternative investment and

Operation location through FDI which can be considered an important source of

clients for Vietnamese petroleum suppliers Licensed FDI in Vietnam posted at US$

21.48 billion in 2009, approximate 30% of 2008

Same as GDP growth, the correlation of FDI with petroleum demand can also

be felt clearly FDI brings clients to petroleum companies Furthermore, FDI concentrates mostly on industrial sectors, benefiting for petroleum suppliers

Inflation

Inflation has impact on petroleum trading activities It affects price of petroleum, which makes it difficult for petroleum suppliers to achieve their sales

objectives due to the decreasing petroleum demand during periods of rapid inflation

In 2008, when inflation of Vietnam reached to more than 20%, despite being

subsidizing by government, petroleum price still be very high, many industrial

clients forced to try other cheaper material rather than petroleum According to some

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petroleum importers, petroleum demand decreased about 30% in the third quarter of

Figure 2-3: Inflation of Vietnam

(Source: General Statistic Office)

2.1.1.2 Government control and regulations

The petroleum industry is one of the most closely regulated businesses in

Vietnam obeying, the Decree number 84/2009/CP-ND dated 15/10/2009 of Prime

Minister about managing trading petroleum activity

The Ministry of Industry and Trade (MOIT) and The Ministry of Finance are responsible for the supervision of the petroleum industry MOIT considers all new license applications, and maintains a watching brief over the petroleum industry

from a far although they may visit companies once or twice a year to discuss activities MOF offers import tax and controls the retail selling price of importers

Hereinafter some main government regulations that any player in petroleum sector is obliged to follow, including business model, infrastructure requirement, distribution

system, retail price and quality control

Griggs University — Group 2 Ga€MBA01.C0509 Page 27

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Capstone Project Report — Business Strategy for PV Oil Tay Ninh in period 2011-2020 Business model

Follow the Decree number 84/2009/CP-NĐ, all kind of enterprises established follow Vietnamese Enterprises Law could import and distribute petroleum after fully matching the condition of above Decree Before the validity time of that Decree, only state owned enterprises had been granted to import petroleum

Petroleum wholesalers have to organize own infrastructure including storage

at least 5.000 cubic meter capacity and 5 own petrol stations

Distribution system

Besides distributing petroleum through own station, petroleum importers

have to have at least 40 agent contracts with the wholesaler or retailer Petroleum wholesalers also have to set up distribution system with at least 20 retailers

Retail price

Petroleum importers will not be allowed increasing retail price without permission of MOF In case importing price increase 7% higher than retail price, petroleum importers can correlatively increase their retail price If importing price increase more than 7% but fewer than 12% higher than retail price, petroleum importers can increase their retail price by 7% and 60% of value between importing

price and 7% On the other hand, if importing price decrease fewer than 12%,

petroleum importers have to decrease their retail price correlatively The time between two increasing retail price events is 30 days

Griggs University — Group 2 Ga4MBA01.C0509 Page 28

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All wholesalers and retailers in the distribution system of one petroleum importer will not be allowed selling higher than retail price posted by that petroleum importer

Quality control

Quality of petroleum imported are controlled and approved by National Quality Testing Center obeying to Vietnamese quality standard

2.1.1.3 Socia! factors

Petroleum products are the essential material for many industrial and people

life An increase in petroleum price will affect to price of many other commodities,

therefore, affect to the health of economy and people income Thus, a stable price Strategy will help petroleum importers getting good image in people perception

2.1.1.4 Technological factors

In PV OIL Tay Ninh, technology is applying in data management process with two database systems available The first one was built to monitor its stocks, including cargo’s profile and record of product in and out store The second is used

in sales management and accounting system with a certain software to follow order

and cash inflow and outflow

Additionally, new technology in processing petroleum will create more

products which are more suitable for customer need and friendly with environment

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Table 1: External Factor Evaluation Matrix

from the outside environment

The researchers say the external conditions in the future will tend to grow well, very convenient for market entry strategies

2.1.2 Micro External analysis

2.1.2.1Overview of trading Petroleum in Vietnam

Distribution channel

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Sales branches are established at many provinces to manage the wholesalers and retailers in its location Sales branches also can use its sales force to sell directly

to industrial customers and directly to household through its own petrol station

Wholesaler is an intermediary who buy product from importer then sell to

retailers and end users

Retailer contacts directly to end user In petroleum business, retailer appears

as petrol station Retailers are final seller distributing product of importer

IMPORTER

Sale branch or not

ett Importer's station Retailer

Wholesaler's

Figure 2-4: Petroleum distribution channe

(Source: General Statistic Office)

Vietnamese petroleum market share

Petroleum products include gasoline, gasoil, kerosene and fuel which are

made through straight distillation of crude oil For the purpose of developing country, Vietnam needs about 13 million cubic meter petroleum products every year

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with the annual increase of 8% From the year 2008 back, Vietnam had to import 98% of total demand of petroleum product

From the year 2009, Dung Quat Refinery, the first Refinery of Vietnam, has produced and supplicd to Vietnamese market the first Victnamese petroleum products which has been distributed through the PV Oil distribution system The capacity of Dung Quat Refinery is 1.6 million cubic meters in 2009 and increasing

to 6.5 million cubic meters per year from 2010

Figure 2-5 - Vietnamese petroleum market share

(Source: PV OIL Tav Ninh)

indirectly to industrial customers through industrial distributors

Vietnam National Petroleum Corporation (Petrolimex)

Recent year, the best performance in trading petroleum in Vietnam has been Vietnam National Petroleum Corporation (Petrolimex) who taken 54 percentages of

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market shares Difference with PV Oil, importing and distributing petroleum products is main activity of Petrolimex They have long history trading petroleum Their storage and station spread all over 64 provinces of Vietnam

They implement corporate vertical marketing system Their ideal in business

is direct marketing They organize their own sales force including sales branches, storage, and station and transportation fleet at every province to sell directly to end users Their sales via their own sales branches and own stations accounted for 70

percentages of total sales

They do not have many wholesalers In some provinces, their sales branches even consider wholesalers as competitors They prefer sell product directly to

retailers or industrial customers rather than wholesalers Their sales of selling to

retailers account for 30 percentages of their total sales

Other importers

Because of lack of infrastructure such as storage and station, other importers almost distribute their product through wholesalers They import petroleum products

to their storages or hiring storages and then sell to distributors at their storage

Distributors have to organize their own distribution system to distribute products

After buying petroleum products at importer storage, distributors use their mean of transportation to bring petroleum products from importer storage to distributor’s storage and to retailers’ petrol station

Some importers distribute their product within a location Saigon Petro Company distributes their product within Southern of Vietnam, who is holding 7%

of total market demand Dong Thap Petroleum Trading Company (Petimex) is supplying petroleum in South West of Vietnam They serve 4% of total market

demand Thanh Le Export Import Company, who is holding 2% market shares, distributes their products within Binh Duong and Binh Phuoc Provinces Dong Thap

Petroleum Trading Company also has own sales branches in several provinces, own

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Another importer is Petec Trading Technology and Investment Company They have 10% of market shares They have long time experience in importing and distributing petroleum products They have sales branches and storages at Hai Phong City, Da nang City and Ho Chi Minh City

2.1.2.2 Introduction of Petrovietnam Oil Corporation, mother company

PetroVietnam Oil Corporation (PV Oil) is established upon the basis of the

integration of Petrovietnam Oil Processing and Distribution Company Limited (PDC) and Petrovietnam Trading Corperation (PETECHIM), which wholly-owned

by PetroVietnam from 6th June 2008 under the Parent — Subsidiary model to generate synergetic strength and enhance the competitive advantages in domestic

and international market

After the merger, PV Oil has concentrated on developing infrastructure

serving for distribution petroleum products activity Eight projects in building,

expanding and modernizing storage from Northern to Southern of Vietnam was

started and pushed faster The Corporation has taken 17 percentages of market

shares

PV Oil has a widespread sales force with 25 sales branches in many

provinces in Vietnam They will help PV Oil with tightly managing the retailers at their location If these sales branches had been reorganized effectively, they would have become real distributors and could compete with wholesalers at their location

PV OIL has been granted to export, import and trading crude oil, develop downstream of Vietnamese oil industry, distribute petroleum products of

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Petrovietnam’ refineries Recent year, PV OIL has steady growth and become one of big petroleum importers, producers and traders in Vietnam PV OIL is permitted to perform the following business activities:

o Exporting, importing and trading crude oil in domestic and oversea;

o Exporting, importing and trading petroleum products, chemical products;

o Producing petroleum;

o Building infrastructure for storing, distributing and trading petroleum

products.;

o Organize and joint venture with other inbound or outbound partners to

producing and trading petroleum products;

o Exporting, importing and trading petromaterial, petrochemical and service

in oil industry;

Infrastructure for trading petroleum of PV OIL

o PV OIL has own storage spread over the country with total capacity of

560,000 cubic meter:

Table 2 — PV OIL storage system

(Source: PV OIL Corp)

1 | Dinh vu Hai phong city Main store 75.500 10.000

2 | Thai Binh Thai Binh Prov Local store 6.000 1.000

3 | Nam Dinh Nam Dinh Prov Local store 3.500 500

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TT | Name of store Province Type Se a

(CBM) (DWT)

4 | Chan may Hue Local store 7.000 3.000

5 | Lien Chieu Da nang Local store 7.000 3.000

Southern 460.500

6 | Phu My BR -VT Factory store 30.000 30.000

7 | Vung tau BR- VT Main store 121.500 10.000

8 |CuLao Tao BR - VT Main store 150.000 50.000

9 | Nha be HCM city Main store 100.000 25.000

10 | Can Tho Can Tho city Main store 50.000 10.000

II | Tay Ninh Tay Ninh prov Local store 8.500 300

| I2 | Soc Trang Soc Trang prov Local store 1.000 300

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Table 3 : PV OIL sharing or renting storage system

| | PDC Shinco Quang Ninh Local store 10.000 1000

2 | Ninh Binh JSC Ninh Binh Local store 2.000 1000

3 | Vung Ang JSC Ha Tinh Main store 60.000 15.000

4 | Petromekong Can Tho Main store 72.000 15.000

S | Nam Viét JSC Can Tho Main store 29.000

6 | Bac Lieu Bac Lieu Local store 1.600 500

7 | Kiên Giang Kien Giang Local store 2.600 500

8 | Long Ho Vinh Long Local store 1.660 1.000

9 | Bien Hoa Dong Nai Local store 4.480 1.000

10 | Kho K34-QK9 Can Tho Local store 1.185

II | Kho K38-QK9 Tien Giang Local store 740

12 | Vinh Long JSC Vinh Long Local store 2.000 1.000

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Business result in trading petroleum:

o PV OIL has set up a petroleum distributed network spread from Northern

to Southern of Vietnam and become one of two biggest players in

importing and distributing petroleum in Vietnam Distributed network

including main store, local store, and sale branch has been organized in

Ho Chi Minh City, Vung Tau City, Hai Phong City, Nghe an Province,

Ha noi capital and other provinces of Vietnam With more than 3,000

clients as petrol station and industrial consumers, PV OIL has build its

good band name and prestige as the first class and trustworthy

Corporation in importing and trading high quality petroleum products

o Market share of PV OIL in trading petroleum in Vietnam increased

Table 4: PV OIL market share

Year Market share of PV OIL

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