DEVELOPMENT STRATEGY FOR POST AND TELECOMMUNICATION TECHNOLOGY OF OPTICAL FIBER AND EQUIPMENT JSC

Strategic development directions...27 CHAPTER 2: STRATEGIC MANAGEMENT ANALYSIS IN POST AND TELECOMMUNICATION TECHNOLOGY OF OPTICAL FIBER AND EQUIPMENT JSC...29 A.. Rational After 20 year

DEVELOPMENT STRATEGY

FOR POST AND TELECOMMUNICATION

TECHNOLOGY OF OPTICAL FIBER AND EQUIPMENT JSC

(TFP)

PART 1: Introduction 5

1 Rational 5

2 Thesis objective 6

3 Study scope 6

4 Study methodology 6

PART 2: CONTENT 8

CHAPTER 1: GENERAL THEORY 8

1.1 Strategic management 8

1.1.1 What is strategy? 8

1.1.1.1 Views on strategic management 8

1.1.1.2 Definitions of strategy 9

1.1.2 Strategic management 10

1.1.2.1 Definition of strategic management 10

1.1.2.2 The necessity of strategic management in the company 11

1.1.2.3 Process of strategic management 13

1.2 Structural analysis of the competitive environment 17

1.3 Selecting development strategy 25

1.3.1 Generic strategies 25

1.3.2 Strategic development directions 27

CHAPTER 2: STRATEGIC MANAGEMENT ANALYSIS IN POST AND TELECOMMUNICATION TECHNOLOGY OF OPTICAL FIBER AND EQUIPMENT JSC 29

A External factor analysis 29

2.1 Macro environment analysis 29

2.1.1 Global financial crisis and world economic downturn 29

2.1.2 The position, role and development orientation of telecommunication industry in Vietnam economy 37

2.2 Vietnam Optical Fiber Production Industry Analysis 40

2.2.1 Overview of Vietnam optical fiber production industry 40

2.2.2 Competitor analysis 41

2.2.3 Buyer position 42

2.2.4 Material supplier position 43

2.2.5 Substitute products 43

2.3 Opportunities and threats for TFP 44

2.3.1 Opportunities 44

2.3.2 Threats 45

B Internal factor analysis 46

2.4 History of TFP 46

2.5 TFP's mission 47

2.6 Organization structure 47

2.7 The production of TFP 50

2.7.1 Production process and quality control: 50

2.7.2 TFP Production Capacity 53

2.7.2 TFP Production Capacity 54

2.7.2.1 Technical capacity 54

2.7.2.2 Technology capacity 54

2.7.2.3 Human resources capacity 55

2.7.3 TFP products 55

2.7.3.1 Optical cable 56

2.7.3.2 Post and telecommunication equipments and accessories 56

2.8 Sales and profit 74

2.9 Marketing 76

2.9.1 Price Policy 76

2.9.2 Distribution network 79

2.10 TFP finance status 80

2.10.1 Liquidity ratios: 85

2.10.1.1 Current ratio 85

2.10.1.2 The quick ratio 85

2.10.1.3 Inventory to Net Working Capital 86

2.10.1.4 Cash ratio 86

2.10.2 Profitability ratios 86

2.10.2.1 Net Profit Margin 87

2.10.2.2 Gross Profit Margin 87

2.10.2.3 Return on Assets (ROA) 88

2.10.2.4 Return on Equity (ROE) 88

2.10.3 Activity ratios 89

2.10.3.1 Inventory turnover 89

2.10.3.2 Day of inventory ratio 90

2.10.3.3 Net working capital turnover 90

2.10.3.4 Asset turnover ratio 90

2.10.3.5 Fixed asset turnover ratio 90

2.10.3.6 Average collection period: 91

2.10.3.7 Account receivable turnover 92

2.10.3.8 Days of cash 92

2.10.4 Leverage ratio 92

2.11 Identifying strengths, weaknesses of TFP 93

CHAPTER 3: FORMULATING DEVELOPMENT STRATEGY FOR TFP- CONCLUSION AND RECOMMENDATIONS 95

3.1 Formulating development strategy for TFP 95

3.1.1 Foundations of TFP’s strategy 95

3.1.1.1 What is to be satisfied? (Customer needs and product differentiation) 95

3.1.1.2 Who is to be satisfied? (Customer groups and market segmentation) 95

3.1.1.3 How customer needs are to be satisfied? (Distinctive competences) 96

3.1.2 Strategic options for TFP 96

3.1.2.1 Generic competitive strategies and a recommended strategy for TFP 96

a Cost leadership strategy 97

b Differentiation strategy 97

c Focus strategy 98

3.1.2.2 Directions for TFP’s strategy development 98

3.3 Recommendations 100

3.3.1 Organization structure 101

3.3.2 Products 101

3.3.3 Product price 101

3.3.4 Advertisement and promotion activities 102

3.3.5 Financial recommendations 102

References 103

PART 1: Introduction

1 Rational

After 20 years of renovating Post, Telecommunication and InformationTechnology industry, Vietnam has had comprehensive and great step forward,improved capacity, modernized continuously, shortened the development gap incomparison with other countries in the region and the world, integrated actively in theinternational economy, ensured security and national defense for the countrymodernization and industrialization

Post, Telecommunication and Information Technology industry which now isVietnam Information Technology and Communications industry has made greatdevelopment step Telephone density is almost 50% (surpassing the target of 35% set

by the X National Party Congress), 100% communes have telephones, internet users aremore than 20 % of the population, the average radius of post office reduced to less than2.3 km Most of state agencies and more than 50% of private companies having appliedinformation technology The rate of state officers using information technology andinternet skillfully in the central agencies is 70% Information technology has developedwith higher speed day by day Hardware industry development speed is 20-30% on theaverage Software and service industry has a development speed of 30-40% Manyworld leading information technology and communication corporations have enterVietnam market and created many favorable conditions Information technology andcommunication contributes an important part in improving management capacity,business and production, poverty reduction, digital gap shortening, national informationsecurity and safety insurance It’s necessary to mention the great contribution of thepost equipment and telecommunication material production and supplying industry inthe whole industry success

Having been established in May 2007, Post and Telecommunication Technology

supplying optical in Vietnam market With the favorable location in the industrialproduction zone of Vietnam Post and Telecommunication Corporation (Dốc Vân - YênViên - Gia Lâm - Hà Nội), the European comprehensive production line which is themost modern one in Vietnam now, the company has the capacity to produce and supplymore than 15,000 km optical cable/year in the market The optical cable types that thecompany produce are: duct fiber cable, figure 8 cable, electricity attaching cable, directburied cable, telecommunication accessing cable; family connecting cable Moreover,the company also supplies accessories like: incandescent gas-lamp, ODF, patch cordand pigtail… TFP is gradually proving its brand name in domestic and internationalmarket with the quality of each product.

 Evaluating TFP's current strategy

 Formulating a long term development strategy for TFP

3 Study scope

This is the study of TFP only, especially of telecommunication optical cableproducts which are the main products of TFP The thesis is a systematic presentation ofTFP's long term development strategy

The thesis is the outcome of analyzing and evaluating available data of Vietnameconomy, telecommunication industry in general and TFP's information

4 Study methodology

The study was conducted according to the below diagram:

Study diagram

FORMULATING, EVALUATING AND SELECTING THE BEST STRATEGY

CONCLUSION AND RECOMMENDATION

External

influencing factor

evaluation

Current result evaluation

Internal influencing factor consideration

Opportunities,

Competition factor consideration

1.1.1 What is strategy?

1.1.1.1 Views on strategic management

There are in fact many different views on strategic management It depends onthe different study purpose and different development period in which economists havedifferent views on strategy

According to General Ailleret, strategy is “identifying ways and applied tools toachieve goals defined by policies”

F.J.Gouillart said that the strategy of businessmen is “the whole decisions aimed

at winning important positions, defending and creating results which can be exploitedand used immediately”

“Strategy is the art of coordinating controlling activities to achieve long termgoals” (G Hissh)

“The strategy of companies is to outline the long term and sustainabledevelopment orbit around which accurate decisions and actions of companies can bearranged” ( Alain Charlec Martinet)

Some economists in the world has unified the business strategy with companydevelopment strategy Representatives for this view are BCG economist who said that

“the development strategy is the general strategy of companies including parts of thesecondary strategies of marketing, finance, research and development etc.”

However, for M Parter and K Ohmac, the purpose of business strategy is tocreate the most favorable conditions to make the competitive advantages for companies

According to the common approach, strategy is a system of long term objectives,policies and major measures for production and business in terms of finance, humanresources to make the company one step forward

Business strategy has the features of:

- Business strategy is the overall company strategy which defines objectives andbusiness directions for a relatively long term period (5-10 years) and is fully understood

in all production and business activities of the company to ensure that the company willdevelop sustainable

- Business strategy only outline the long term orientation and is for orientationonly In the actual practice, business should be conducted with a combination ofstrategic objectives and the situational objectives, strategy and tactics, long term andshort term objectives After that it’s possible to ensure the business results andovercome mistakes caused by strategy

- All the important decision during the strategy formulation, selection,preparation, monitoring and evaluation should be made by the top manager of thecompany This ensures the accuracy of long term decisions and informationconfidentiality

- The business strategy is always made based on the competitive advantages Itrequires that in the strategy formulation, the company should evaluate correctly itsactual business and production situation to find out the strengths, weaknesses andfrequently review the internal factors during strategy implementation

- Business strategy is first and foremost made for business areas, specialized businesses, and traditional strengths of the company This put the company in a positionwhere it should make, select and implement the strategy as well as do the business in existing markets where it has strengths

1.1.2 Strategic management

1.1.2.1 Definition of strategic management

“Strategic management” is a rather new concept and is not as popular as

“strategy” concept Similar to strategy, there are many different views on strategicmanagement

“Strategic management is the management process of pursuing anorganization’s functions and responsibilities while managing the relations to itsenvironment.”

According to this view point, strategic management is to make the companywork in the orientation of the environment, exploit opportunities, avoid risks tocomplete the functions and responsibilites of the company

“Strategic management is a combination of the management view points andacts, deciding the permanent success of the company”

This view point shows that the managers should define correctly the company’sobjectives and use the organisation’s resources better

“Strategic management is the combination of decisions and action measuresleading to the planning and implementation of strategies to achieve the organisation’sobjectives”

From the above view points on strategic management, we can have the followingdefinitions:

- Strategy is the study process of both current and future environments, theplanning of organisation’s objectives; the formulation, implementation and monitoringthe decision implementation for achieving those objectives in the current and futureenvironments

Therefore, strategic management analyzes internaal and external conditions ofthe company Thanks to this, the company’s strengths and weaknesses can be defined totake advantage of external opportunities and mitigate internal problems

1.1.2.2 The necessity of strategic management in the company

Strategic management increasingly proves its role to the existence anddevelopment of the company A company without strategic management will oftenorient its plans by resources analysis and plannings with assumption that theenvironment context is stable and the long term plan will have many shortcomings So

in the increasingly severe competitive environment, the company will fail and can’t beflexible in adapting to the environment activities A good strategic management willbring many to the company opportunities and make it be active in gaining thecompetitive advantage

Strategic management has special importance to the survival of company

- Strategic management helps the company to see clearly its goals and direction

success With the direction and goals, company leaders will find it more easy in shortterm plan making and implementation Strategic management will help the wholecompany to know where they are and how far they have gone on the way to their goals.

- Any organisation operatates in its environment and so does company Theenvironment conditions always change Environment changes always cause newchanges and threats to company, especially sudden opportunities and threats when theenvironment changes quickly The problem is how to exploit opportunities andovercome threats in such a changing environment Company managers can define inadvance opportunities and threats with strategic management The strategicmanagement always care about the future The strategic management forces thecompany managers to analyse and forecast the environment conditions in the future andfrom which the company can imagine and forecast the future to grasp opportunities thebest, make the most of opportunities and mitigate threats’ impacts Companies applyingstrategic management often have ability to gain active position toward the changes ofthe environment On the contrary, companies not applying strategic managementalways make decision passively which means they only act after the environment haschanged

- Strategic management helps company to implement the strategy with plans tocomplete objectives the most effectively Strategic management will coordinates andunifies closely divisions and resources of the company to reach objectives Strategicmanagement will reduce overlapping among divisions, allocate resources moreappropriately, operate, supervise and control more easily

In summary, strategic management nowsaday has become an important part ofcorporate management Without strategy and strategic management, company willoperate with dispersion and overlapping and no action framwork at all Therefore, it’sdifficult for them to survive permanently to reach the objectives

However, company will only be successful when it has good strategic

company can move in the opposite direction with the objectives and wrong way withthe requirements

Most of companies nowsaday only formulate strategies and don’t focus much onstrategy implementation Strategy formulation is the most important stage of strategicmanagement process However, the strategy is only what on paper if theimplementation is not good

On the other hand, to formulate the strategy management process, company needlots of time and efforts Taking long term benefits into consideration, companies stillhave to apply strategic management

1.1.2.3 Process of strategic management

The process of strategic management involves 3 basic stages: (1) strategyformulation, (2) strategy implementation, and (3) evaluation and control Differentstages of the strategic management process at business level are visualized by theStrategic Management Model in Figure 1.1

Figure 1.1: Strategic Management Model Based on the context of this study, the focus will be on the strategy formulation

process

Strategy formulation is often referred to as strategic planning or long-range

planning Regardless of the term used, the process is primarily analytical, not oriented As shown in the Strategic Management Model, the formulation process isconcerned with developing a corporation’s mission, objectives, strategy, and policies

action-In order to do this, corporate strategy makers must scan both the external and internalenvironments for needed information on strategic factors

The first six steps commonly found in strategy formulation are a series ofinterrelated activities:

b the corporation’s current mission, objectives, strategies, and policies.

2 Examination and evaluation of the corporation’s strategic managers - board ofdirectors and top management

3 Scanning of the external environment to locate strategic opportunities and threats

4 Scanning of the internal corporate environment to determine strategic strengths andweaknesses

5 Analysis of the strategic factors from step 3 and 4 to

a pinpoint problem areas, and

b review and revise the corporate mission and objectives as necessary

6 Generation, evaluation, and selection of the best alternative strategy appropriate tothe analysis conducted in step 5

(Source: Wheelen / Hunger, 1988)

The above strategy formulation process can be divided into 2 substages, asillustrated in Figure 1.2:

Opportunities Threats

Scan external environment

Develop:

MissionObjectives

Analyze strategic factors

in light of current situation

Analyze the competitive environment

Entry Buyers Suppliers Substitutes Competitors

Evaluate strategic managers

Strengths Weaknesses

Scan internal environment

S I T U A T I O N A N A L Y S I S

Figure 1.2 Strategy formulation process (Source: Wheelen / Hunger,

GENERATION, EVALUATION, AND SELECTION OF THE BEST

STRATEGY

 The first substage is the situation analysis Beginning with an evaluation ofcurrent performance and ending with the review and possible revision of missionand objectives, this substage includes step 1 through 5.

 The second substage is the process of generation, evaluation, and selection ofthe best alternative strategy This substage is step 6

In order to construct an appropriate competitive strategy, a “picture” of thecompetitive environment is always a useful basic In other words, there is clearly aneed for competitive environment analysis, an industry structure analysis

1.2 Structural analysis of the competitive environment

Competitive environment analysis or Industry analysis is an important skillrelated to the environmental scanning step in the strategic management process.Periodically, managers need to develop a formal comprehensive analysis - a strategicindustry analysis The analysis includes an overview of strategic forces affecting atarget industry, an analysis of various companies in the industry, forecasts andrecommendations

A formal strategic industry analysis is useful in management and planningpositions It helps managers understand their company’ s current strategic position.Specifically, it should define the scope and direction of competitor actions so that thecompany could focus and target It should pinpoint and analyze the general threats andopportunities facing all the companies in an industry This can provide an advantagefor managers to respond appropriately, to catch timely the available opportunities whileminimizing or avoiding the threats facing firms in the industry The strategic industryanalysis aids managers in deciding whether to enter or leave a particular industry

Finally, it aids managers in understanding the strategies and behavior of specificcompetitors.

A useful guide for strategic industry analysis is provided by Porter He created amodel, calling it the five forces model of competition, as a strategic managementtechnique for established profit-seeking companies, as shown in Figure 2.3 This isessentially a structural method of examining an organization or industry in order toprovide a clear understanding of the factors that affect a business Porter argues that

“competition in an industry is rooted in its underlying economics, and competitiveforces exist that go well beyond the established combatants in a particular industry”

(Porter, 1980) He further suggests that to compete effectively a company should strive

to find a position where it is best able to defend itself against these competitive forces

or can influence them in its favor So, the task of the strategist is to determine which ofthese forces are of greatest importance to the organization and which can be influenced

by the strategic decisions of management Each of these forces is now considered ingreater detail

1 The Threat of Entry

New entrants to an industry tend to make it more competitive The additionalcompetitiveness may be due to a number of factors including: the additional capacitywhich they bring with them, their attempts to build market share, or increased costs due

to the building up of the costs of the factors of production

However, the effects of new entrants materialize, it is frequently in the interests

of existing competitors to deter potential new entrants by making their prospects look

as unattractive as possible This can be done in two major ways - through the erection

of barriers to entry and or through the threat of severe retaliation

Clearly, it is in the interests of existing firms to have as high entry barriers as

possible Porter (McNamee, 1987) lists major barriers to entry which are:

 Economies of scale

 Product differentiation

 Capital requirements

 Switching costs

 Access to distribution channel

 Cost disadvantages independent of scale, for example: proprietary knowledge,etc

 Government policy

The importance of entry barriers to strategic planning can be illustrated by twocontrasting examples as follows:

The U.K aircraft engine manufacturer Rolls Royce has erected around itsubstantial entry barriers in the form of economies of scale, product differentiation,capital requirements, switching costs, proprietary knowledge, experience advantagesand government support It seems extremely unlikely that the threat of new entrantspose a threat to this company The competitive threat that Rolls Royce faces come fromother quarters

COMPETITIVE RIVALRY

SUPPLIERS

Bargaining Power

BUYERSBargaining

Power

SUBSTITUTES

Threat of Substitutes

POTENTIAL ENTRANTSThreat of

Entrants

Figure 1.3 A model for Industry Structural Analysis

(Source: Porter, 1980)

By way of contrast, an “industry” that has grown rapidly in the early 1980s andwhich faces continuous threats from new entrants, because of the extremely low entrybarriers, is retail domestic video rental libraries In this industry, many smallindependent entrepreneurs with limited resources have opened such business Theyhave been able to do so because of the low entry barriers: low capital requirements,low switching costs, immediate distribution and no major economies of scale beingpossible

(Source: Johnson / Scholes, 1993)

2 The Power of Buyers

Buyers can be viewed as a competitive threat when they force down prices orwhen they demand higher quality and better service (which increases operating costs).Whether buyers are able to make demands on a company depends on their powerrelative to that of the company According to Porter, buyers are most powerful in thefollowing circumstances:

 Buyers are few in number and large relative to sellers

 Buyers purchase in large quantities

 The supply industry depends on them for a large percentage of its total orders

 Buyers can switch orders between supply companies at a low costs, therebyplaying off companies against each other to force down prices

 It is economically feasible for them to purchase the input from severalcompanies at once

 Buyers have the potential for backward integration

 The buyers’ product is not strongly affected by the quality of the suppliers’

 The buyer has full information.

(Source: Hill / Jones, 1989)

3 The Power of Suppliers

Powerful suppliers can have the same adverse effects upon profitability aspowerful buyers The big difference is the sources of their power - it is really theopposite of the sources of buyer power Thus suppliers tend to be powerful when thefollowing conditions obtain:

 There are few of them

 There are few substitutes

 The industry supplied is not an important customer

 The suppliers’ product is an important component to the buyer’ s business

 The supplier’s product is differentiated

 Suppliers can integrate forward

4 The Threat of Substitutes

Substitutes, or alternative products that can perform the same function, limit theprice that an industry can charge for its products Substitutes are not always perceived

by an industry to be present, and indeed may only be noticed when it is too late toarrest their dominance One typical example, which illustrates the rise of a substituteproduct, is the current increasing proliferation of low cost microcomputers plus lowcost easy to use business packages in such areas as accounting, data base managementand word processing This “product” has adversely affected the “industry” of specialistprogrammers and specialist computer bureaus It seems likely that this trend willcontinue

5 The Extent of Competitive Rivalry

Competitors will also be concerned with the degree of rivalry betweenthemselves in their own industry How intense is this competition? What is it based on?

Is it likely to increase or decrease in intensity? How can it be reduced? All these arequestions which need to be thought about in the process of strategic analysis Thedegree of rivalry is likely to be based on the following:

 The extent to which competitors in the industry are in balance What ever theirnumber, where competitors are of roughly equal size there is a danger of intensecompetition as one competitor attempts to gain dominance over another.Conversely, the most stable markets tend to be those with dominant organizationswithin them

 A market in slow growth - particularly one which is entering its maturity stageand where competitors are keen to establish themselves as market leaders - is likely

o be high competitive

 High fixed costs in an industry, perhaps through high capital intensity or highcosts of storage, are likely to result in competitors cutting prices to obtain theturnover required This can result in price wars and very low margin operations

 If the addition of extra capacity is in large increments then the competitormaking such an addition is likely to create at least short term over-capacity andincreased competition

 Again the importance of differentiation is clear If a product or service is notdifferentiated then there is little to stop customers switching between competitors,which in turn raises the degree of rivalry between them This is sometimes referred

to as a “commodity market” situation

 Where there are high exit barriers to an industry, there is again likely to be the

persistence of excess capacity and consequently increased competition (Source:

locating the firm in its competitive environment Henderson (Ansoff, 1987) made a

similar point about the importance of the competitive environment when he talkedabout Competitive Mapping He has suggested that companies will only be able toevolve effective strategies after they have plotted their own and their competitors’

locations on a competitive map Once an individual company has done this, then itsstrategy should be to move against the weakest sectors in its competitive map.

1.3 Selecting development strategy

As soon as completing the tasks of identification of the most relevantcompetitors, of selection of the critical success factors and of developing a competitiveprofile, companies have to select a strategy that is most appropriate for theirdevelopment Options about development strategies involve decisions about threeelements that are depicted in Figure 2.5

1.3.1 Generic strategies

According to Porter, the competitive strategies will be designed based on thechoice from three basic competitive approaches: cost leadership, differentiation, and

Whichdirection?

DEVELOPMENT STRATEGIES

ALTERNATIVE METHODS Internal development Acquisition

Joint development/alliances

Consolidation Market penetration Product development Market development Diversificationrelated

unrelated

Figure 1.5 Development strategies

(Source: Johnson / Scholes, 1993)

A cost leadership strategy, where “a firm sets out to become the low-costproducer in its industry a low-cost producer must find and exploit all sources of costadvantage Low-cost producers typically sell a standard product and place considerableemphasis on reaping scale or absolute cost advantage from all sources If a firm canachieve and sustain overall cost leadership, then it will be an above-average performer

in its industry provided it can command prices at or near the industry average” (Porter,

1985)

A differentiation strategy, which Porter defines as seeking “to be unique in itsindustry along some dimensions that are widely valued by buyers It is rewarded forits uniqueness with a premium price A firm that can achieve and sustaindifferentiation will be an above-average performer in its industry if its price premiumexceeds the extra costs incurred in being unique The logic of the differentiationstrategy requires that a firm choose attributes in which to differentiate itself that are

different from its rivals” (Porter, 1985)

COMPETITIVE ADVANTAGE COMPETITIVE

SCOPE

Broad target Cost leadership Differentiation

Narrow target Cost focus Differentiation focusTable 1.2 Generic strategies

(Source: Porter, 1985)

These two generic ways can be combined with the market scope in which thefirm try to achieve competitive advantage This leads to the focus strategy, according toPorter, which is based on “the choice of a narrow competitive scope within an industry.The focuser selects a segment or group of segments in the industry and tailors its

strategy to serving them to the exclusion of others.” (Porter, 1985) There are two

variants here, “in cost focus a firm seeks a cost advantage in its target segment, while

in differentiation focus a firm seeks differentiation in its target segment” (Porter, 1985)

Each of the above generic strategies results from the company’s makingconsistent choices on product, market, and distinctive competences - choices thatreinforce each other Table 2.3 summarizes the choice appropriate for each genericstrategy

Cost leadership Differentiation Focus

Product

differentiation

Low (principally byprice)

Low (one or few segment)

Distinctive

competence

Manufacturing and materials

management

Research and DevelopmentSales and Marketing

Any kind of distinctive competence

Table 1.3 Product / Market / Distinctive competence choice and generic

competitive strategy

(Source: Hill / Jones, 1989)

1.3.2 Strategic development directions

Based on sets of “product/market” choice, there are different directions forcompanies’ strategy development These directions are shown in Table 2.4

Withdrawal Consolidation Market penetration Product development

Table 1.4 Alternative directions for development

(Source: Ansoff, 1987)

CHAPTER 2: STRATEGIC MANAGEMENT ANALYSIS IN POST AND TELECOMMUNICATION TECHNOLOGY OF OPTICAL FIBER AND EQUIPMENT JSC

A External factor analysis

2.1 Macro environment analysis

2.1.1 Global financial crisis and world economic downturn

In 2008, The World Economy witnessed a year full of changes originated fromsubprime loans of housing market in the US, leading to a financial crisis spread all overthe world A series of big and prestigious financial institutions fell into crisis and had

to ask for government support such as Citigroup, America Express Just in the US,from the beginning of 2008 to the present, 25 banks was forced to close down.Stagnant production and recordly high unemployment rate made a mass of bigeconomies in the world fall into crisis such as the US, Germany, Japan, South Korea,Singapore In order to save the economy from crisis, many governments released aseries of solutions, typically, FED lowered USD interest rate to 0-0.25%, Japanlowered Yen interest rate to 0.1%, ECB lowered EUR interest rate to 2.5% to stimulateeconomic growth Moreover, billions dollars solution packs were issued constantly bygovernments, eventhough at the present, global financial crisis has not shown a signal

of stopping and is expected to affect more strong ly in 2009 That affects greatly andstrongly to Vietnam’s economy, of which main incomes are from export Plus, it willmake many import and export firms go bankrupt Therefore, the bank’s bad debts willrise significantly

The world economic forecast of world’s top economists is:

- The world economy continues to be negatively affected by supreme loan crisis and

a massive collapse of the world’s financial system GDP is expected to be: 3.4% in

2008, 3.0%-3.5% in 2009-2010, 3.5%-4.0% in 2011-2013

- Asian economy develops slower; US, Japan and Europe growth is low

- Inflation tends to rise

- USD may recover compared to euro and other strong currencies

- The world’s gloomy securities market may recover in 2010

- Gold price movement is complicated and affects the banking & financial market

- Oil price tends to move irregularly and at a high level

- Food and energy crisis are pushing the world to the risk of recession.

When the world situation was changing complicatedly and unexpectedly, crudeoil price and many materials and other goods prices in the world market increasednoticeably in mid-year months bringing about a significant rise in prices of most ofdomestic goods, inflation occurs in many countries in the world; global financial crisisled to recession of many big economy and weakening world economy, naturaldisasters, epidemic disasters to crop plants and domestic animals happening constantly

in the whole country affect greatly to production and residential life, then our country’seconomy and society in 2008 was affected notably

In 2008, GDP fell to 6.28% Inflation increased to a record high of 19.89% ifcompared to December 2007, and approximately 23% if compared to 2007’s CPI In

2008, State Bank of Vietnam changed base interest rate eight times, at some time it was14% Vietnam’s inflation was above 20% in 10 months in 2008 Therefore, thegovernment used eight solutions and methods to restrain and prevent inflation In there,used the tightening monetary policy That is using interest rate instrument (raisesavings interest rate) to attract money from circular flow to banks Restrict loans to

restrain inflation This method will affect liquidity and business results in 2008 ofcommercial banks.

Furthermore, Ministry of Politics, National Assembly and the Government quicklyconsidered the situation and issued many guidance documents related to the country’seconomic and social development in 2008 Owing to timely guidance and leading ofthe Party, National Assembly, and Government as above; the effort and the initiative inovercoming difficulties of Ministries, Industries, locals, groups, firms, productioncampus and all people, our country’s economy – society in 2008 gradually overcamedifficulties, challenges, economic growth was better, inflation was restrained, socialwelfare was assured, many urgent social problems were continually solved effectively

 Forecast of Vietnam’s key economic indicators 2008-2013

Vietnam’s economy has joined WTO relatively widely and deeply For thisreason, together with the world economy’s situation as above, they will affect directly

to Vietnam’s economy Economists released forecast of Vietnam’s key economicindicators 2008-2013 through the table 2.2:

Table 2.1: Forecast of Vietnam’s key economic indicators 2008-2013

-7.5% 7% - 8% 7% - 8%

7.5% 8.5%

-30%

15% 20% 10% - 15% 8% - 12% 8% - 10% 8% - 9%

exchange rate

(3%/year)

16,500 17,800

-16,665 –17,978

16,832 18,158

-17,000 –18,339

17,170 –18,523

17,342 18,708

-Interest rate 16.5%

-18.5%

14.5% 16.5% 10% - 14% 8% - 12% 8% - 12% 8% - 12%

-Stock: VN-index

(point) 400 – 600 450 – 650 600 – 800

800 –1100

900 –1200

1000 –1300

FDI (billion USD) 55 - 65 50 - 70 70 - 80 75 - 90 75 – 95 80 - 100

FII (billion USD) 3 – 4

billion

3 – 4billion

4 – 5billion

5 - 6.5billion 7 – 10 billion

Gold price (million

VND) 1.7 – 1.9 1.8 – 2.0 1.9 – 2.1 2.0 – 2.2 2.0 – 2.3 2.1 - 2.3

Real estate Quiet More

active

Developingaroundurban areas

Developingaroundurban areas

DevelopingDeveloping

actively

Balance deficit

25% 28%

-GDP

26% 30% GDP

20%

 Forecast of politic – social – law environment

In the economy market in Vietnam’s socialist capitalism orientation, politic,social and law environment are vital factors that can affect any particular corporations,especially banking operations Therefore, with experience of more than 20 years of

Vietnam renovation (from 1986-2006), we can forecast Vietnam’s politic, social, andlaw environment in the future as below:

- Politic regulation is stable

- Society is stable, advantageous for commercial activities Intellectual standards ofthe people improve more and more Mixed Western trend, especially in youngpeople become popular

- Vietnam is having open policies and big innovation in the law system However,legislative nature is low

- Laws on credit institution will be modified in the future in the orientation ofapplying international practices (OECD’s rules on banking management, Basel II’srules of the Committee on Banking Supervision)

- Administrative system is still heavy, bureaucratic and ineffective

- State-owned enterprise network operates ineffectively but still has a wide effectiverange owing to support of the State The equalization of state-owned enterpriseshappens faster and faster

- Small and medium firms rise strongly but unstably

 Forecast of technology environment:

- Goals, direction of developing Vietnam’s information technology andcommunications up to 2010 and orientation of development to 2020 are defined asfollow:

- Forming and developing Vietnam along with citizen, government, corporation, E-transaction and E-commerce to attain average and fair standards inASEAN area by 2010

E By 2010, density of telephones will reach 32E 42 phones/100 people, in that density

of landline telephones will be 14-16 phones/100 people; density of Internetsubscribers will be 8-12 subscribers/person, rate of using internet will be 25-35%;average density of personal computers will be over 10 computers/100 people.100% of communes will have telephones, 70% of communes will have internetaccess point, 100% of suburban districts and most communes in main economiczones will be provided broadband internet service

- By 2020, density of telephones will reach over 50 phones/100 people, in theredensity of landline telephones will be 20 phones/100 people and mobile phones will

be done through e-transaction and commerce network E-transaction and commerce

by 2010 will increase ten times as they were in 2002

- All Ministries, industries, state administrative bodies, governments at province anddistrict levels will be connected broadband internet

 Forecast of demography:

Age structure of the population: Vietnam has the second youngest population

in Asia and 57% o the population are under 25 years old Vietnam’s populationincreased very slowly in previous centuries, and has started to increase rapidly since20th century like the world’s general trend, but there are some distinguished traits In

1921 Vietnam’s population was only 15.6 million people, 1939: 19.6 millions, 2000:77.6 million, and in 2008 it was almost 86.2 million Vietnam became a country too

little land too many people (in nearly 200 countries and territories, Vietnam ranks 65th

in total area, 13th in population, and its population density exceeded 260 peopel/km2 –ranks 35th in the world) Vietnam’s population is in the young population group (in

2005, Vietnam’s rate of under 15-year-old people was 26.3%, in Asia: 21%, in Europe:16%) is an abundant human resource, an economic prospect to our country

(Source: Economy and Forecast magazine issue 3 February 2009)

Sex structure of population: The women labor force is at third place and tends

to be increasingly vital Now, Vietnamese women contribute a large share in thedevelopment history of the country, expressed in the number of women accounting for

a large proportion of the labor force With over 50% of the population and nearly 50%

of the social labor force, more and more women participate in most aspects of thesocial life and hold important positions in the state apparatus Currently there are33.1% women members in the National Assembly (12th term) – highest in Asia and isone of countries with the highest level of women members in the National Assembly inthe world; women participating in all levels of people’s council make up over 20% More than 90% of women can read and write The rate of university graduated women

is 36.24%, master: 33.95%, PhD: 25.69% Women holds the upper hand in someindustries such as education, health, and service In professional work, women accountfor the majority in literary, linguistics, medical and pharmacy, social science, naturalscience and economics subjects Women’s total working hours (both at home andoutside) are much higher than of men

Urban/Rural population structure: The percentage of urban population is

73%, among that 72% gather in big cities According to General Statistics Office ofVietnam, in 2005, Vietnam was the 13th most popular country in the world with83,119,900 people, among those, 27% live in urban areas and 73% live in rural areas

The annual population growth rate is 1.18% The most crowded cities in Vietnam are

Ho Chi Minh city and Hanoi capital

Almost all cities in the country are in high urbanization trend Therefore,population in these areas will increase more and more quickly There is currently arural to urban migration After two phases of the census activity in 1979 and 1989, thepopulation growth rate was 2.18% Natural growth rate in 1999 was 0.9%, andmechanic growth rate was 1.64% Population living in cities is not distributed evenly:the percentage of urban population is 73%, among that 72% gather in big cities

 Consumption trend:

For the consumption trend that banks can aim at in the future, we have thefollowing figures: Using the rate of 100%, service usage or consumption level in dailylife has the following relative rates:

consumption decisions) and small households will stimulate consumption Theconsumption economy will become a large factor in economic overview Populationgrowth and rural to urban migration are expected to bring Vietnam’s consumptioneconomy to new heights.

Currently, 80% of Vietnamese consumers tend to shop at supermarkets andhigh-class shopping centers Modern shopping habit increased from 9% in 2005 to 14%

in 2007 and is expected to reach 24% in 2010

2.1.2 The position, role and development orientation of telecommunication industry in Vietnam economy

Mankind is entering a new age of information society and knowledge economywhich has been formed with the wide development and application of information andcommunication technology Being aware well of the important role of information andcommunication technology toward the national socio-economic development, Vietnamhas made great efforts in the last few years in developing the national informationinfrastructure and services in all regions of the country while speeding up informationtechnology development and application Vietnam telecommunication has had robustdevelopment steps, shortening decades- long gap with developed countries andcontributed greatly to the economic development and people life improvement.Vietnam government always gives priorities to telecommunication development for thesake of economic and social development, and creates favorable legal environment tomake Vietnam an attractive and reliable business investment place for internationalinvestors, especially the world leading telecommunication and information technologycorporations

It can be said that convergence is the combination of telecommunicationtechnology and communication technology Convergence opens a new era for the

development of multimedia services in which dialogue, data and images are combined

to make more diversified, abundant and comfortable services for users

In the last few years, Vietnam telecommunication and internet has made greatdevelopment The continuous progress of current information and communication agehas partly changed the Vietnamese society and people The internet booming inVietnam has contributed in the positive changes in the way Vietnamese connects to theworld and with each other According to the assessment of the InternationalTelecommunication Alliance, Vietnam for the last years has always been in the top list

of nations with high telecommunication growth in the world In 2008, despite ofdifficulties caused by the global economic recession impacts, Vietnam internet andtelecommunication network still continues developing, improves capacity, size andextends the service area not only in the urban but also rural and remote areas By theend of 2008, there have been 82.2 millions of telephone contractors of all types (morethan 16.2 millions of desk telephone numbers and 66 millions of mobile telephonenumbers) and more than 20.6 millions using internet In comparison with 200, thenumbers of desk telephone numbers is 6 times bigger, the mobile telephone numbers

80 times, and internet users more than 100 times Telecommunication revenue increasecontinuously and higher than previous years In 2008, telecommunication companieshas reached VND 92,445 billions, increased by 38% compared with 2007 and almostdoubled the plan for 2010 (55 thousand billion dong)

Since 2005, the market has seen the booming of mobile telephone numbers Thenumber of new users every year equals the total number of previous years Togetherwith the mobile communication since 2005 is the sudden growth of broad band ADSLinternet market In 2004, there was only 50,000 ADSL customers By the end of 2008,this number has increased by 40 times with 2 millions customers The development ofmobile communication and ADSL service shows the great potential of mobile

communication and broad band service in Vietnam market and it’s forecasted thatthese services will even have high growth in the coming years.

Although 2009 is a challenging year due to the negative impacts of globaleconomic depression, the telecommunication and internet development potential islarge There are still many opportunities for Vietnam telecommunication and internetdevelopment Especially with the 3G permission issued recently, Vietnamtelecommunication and internet will continue maintaining the growth rate and createfavorable conditions for Vietnam economy to overcome this difficult period

Knowing the world development trends, implementing VietnameseGovernment’s policies, committing to make Vietnam an industrial country in 2020, theMinistry of Information and Communication has been directing the big industrystrategy which includes:

- Developing and constructing comprehensive and modern national informationinfrastructure to provide multi-services as the society demands

- Boosting information technology application at different levels, in industries,enterprises, economic sectors and individuals to organize successfully electronicgovernment in Vietnam

- Developing quickly and sustainably information technology (both hardwareand software industry, content industry and information technology services) to makeinformation technology industry a spearhead economic sector

- Improving the quality and speeding up IT human resources development tomeet the ICT development requirements in particular and the whole economy ingeneral

As regards to telecommunication aspect, in order to meet the increasing demand

boosting up the constructing and developing an advanced, modern, effective, safe andreliable telecommunication network infrastructure which covers all and even theremote, island and border areas and focuses on broad band connection development.Companies providing network infrastructure is gradually developing the newgeneration network (NGN) which is suitable to specific conditions of each company tosupply multi-services with a unified telecommunication infrastructure The Ministry ofInformation and Communications has also issued 4 licenses allowing theimplementation of 3G technology for mobile communication network in Vietnam(IMT-2000 standard within 1900-2200 MHz frequency band).

Vietnam being admitted WTO has created big opportunities for companiesinvesting in telecommunication development in Vietnam To ensure the strong andstable development of telecommunication, Vietnam Government has the policies of:Continuing the policies of door opening and integration in the world and regionaleconomy; Increasing investment attraction from economic sectors; Speeding upmodern technology and foreign direct investment; Having special policies to attractmulti-national corporations, national and international companies to invest intelecommunication development Vietnam has been making efforts to complete legalsystem which include laws relating to telecommunication Vietnam telecommunicationwill actively take part in international integration, improve competition capacity, andcontribute in the successful implementation of the country modernization andindustrialization

2.2 Vietnam Optical Fiber Production Industry Analysis

2.2.1 Overview of Vietnam optical fiber production industry

In 1966, Charles Kuen Kao and George Hockman who were two youngengineers in the Telecommunication Standard Lab (UK) has announced the new and