DEVELOPMENT STRATEGY OF THE VICD COMPANY

DEVELOPMENT STRATEGY OF THE VICD COMPANY .1 : To provide scientific justification for making development strategy of a company;2 : To provide the most accurate and genuine information on the business environment, defining the strength, weakness, opportunities and threats of companies at present.3 : To make and evaluate strategies and to choose the feasible business strategy for the company.4 : To propose solutions to achieve strategic goals which are suitable to the actual conditions of the company for the 20102015 period.

Thesis DEVELOPMENT STRATEGY OF THE

VICD COMPANY

Development strategy making is a requirement which has the orientation role ensuring the development, stability and effectiveness of a company In the market oriented economy, defining the development strategy for specific stages is the basis for the company to exploit the best the company potentiality and resources Makng

a sound development strategy is the foundation for international integration and sustainable development in the market mechanism

In VICD, development strategy definition for each stage received special attention from company managers Knowing the importance of development strategy, the group has worked with the company managers to make development strategy for the company up to 2015 This is a practical study and during the research, the group has been supported by the company management board and director board The group also got the enthusiastic assistance of the Professional Council, professors, and instructors of the university, national professors and instructors

2 The significance of the paper.

Studying and making development strategy of a company help students to have chance to connect the obtained knowledge with the actual situation of the company Applying knowledge in the company management actual practices is the best experiences for the students to complement and improve their knowledge of business administration in their personal development

From the actual business situation, applying appropriately the knowledge and experiences of international business administration in the specific business conditions of the company will help the company to orient their development appropriately, ensuring using effectively the company resources and capacity The field study also helps the company to find its shortcomings and weak points to

adjust the long term development strategy goals, define the specific strategic objectives, provide concrete action plans to achieve goals.

In terms of society, the company development strategy reflects the indispensable trends in the market economy wile show the consistent viewpoint of Vietnam government toward economic development during the international integration

3 : To make and evaluate strategies and to choose the feasible business

strategy for the company

4 : To propose solutions to achieve strategic goals which are suitable to the actual conditions of the company for the 2010-2015 period

4 Research methodology:

To fulfill the requirements and objectives of the research, the group has used

a combination of methods:

competitive strategy theory of Michael E.Porter

5 Major research outcomes:

opportunities and threats etc to understand the current situation of the VICD company

- Developed and evaluated strategic options and selected the feasible business strategy for VICD

6 Paper structure:

Chapter1: Company development strategy theory

Chapter 2: VICD actual situation analysis

Chapter 3: Developing development strategy for VICD

Chapter 4: Strategy implementation options, conclusion and

recommendations

The group would like to deliver sincere thanks to the Management Board, Director Board, functional departments of VICD for the whole-hearted supports and cooperation The group would like to thank Associate Professor, Professional Council, professors, instructors of NEU

CHAPTER I COMPANY DEVELOPMENT STRATEGY THEORITICAL BASIC

1.1 BASIC STRATEGIC ISSUES.

In 1980 Quinn presented a more general definition of strategy: “ Strategy is the pattern or plan that integrates major goals, policies and action sequences into a cohesive whole” (2).

After that Johnson and Scholes redefined strategy in an environment with many

changes: “ Strategy is the direction and scope of an organization over the term: which achieves advantage for the organization through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfill stakeholder expectations” (3)

long-According to Mintzberg, strategy definition is generalized with 5 P:

Plan: a consciously intended course of action

Pattern: consistent in behavior, whether or not intended

Position: locating a firm in its environment

Perspective: ingrained way of perceiving the world

Ploy: specific "maneuver" intended to outwit an opponent or competitor

(1) Chandler, A (1962) Strategy and Structure.Cambrige Massacchusettes.MIT Press (2) Quinn, J,B (1980)Strategies for change; Logical Incrementalism Homewood.

(3) Johnson, G, Scholes, K (19990 Exploring Corporate Strategy, 5 th Ed.Prentice Hall.

In nature, the definitions of strategy are made depending on the viewpoint However, the levels of strategy include: Corporate strategy, Business unit strategy, and Functional strategy.

According to Charles W.L.Hill and Gareth R.Jones: “Business strategy is a process of identifying the basic and long term objectives of the company, selecting action methods or option and relocating necessary resources to implement those objectives”

Fred David: “Business strategy is the tools to reach the long term objectives”

William J Glueck: “Business strategy is a comprehensive, consistent and integrated plan which is designed to ensure the company basic objectives will be completed”

Business strategy of a company is the comprehensive action plan aiming at implementing the ultimate objectives of the company However, the, strategy doesn’t draw specifically how to achieve those objectives but a frame for thinking and acting only

The important thing is that all the business strategy is made and taken care of because it is used to distinguish the “competitive advantage” from other business plans In fact, all competitors make their own strategy because strategy is the ultimate objective and ensures that the company can find and gain the stable position against its competitors

In exposing to the above definitions, strategy can be generalized despite of how differently it is expressed as:

“A complex action sequence aiming at mobilising the resources of an organisation

to achieve a certain objective.”

1.1.2 Strategic management:

Garry D Smith said, “Strategic management is a process of studying current and future environment, identifying organization objectives: make, implement and

check the implementation of decisions to achieve those objectives in the current and future environment.”

According to Fred R David, “Strategic management can be defined as an art and science which set up, implement and evaluate multi function related decisions which allow an organization achieve the set objectives Strategic management focuses on combining the management, financial accounting, marketing, production, research and development and information system of all business aspects to make the organization successful.”

There are many different definitions of strategic management However, according to the "Strategy & business policy" by MA Nguyễn Thị Liên Diệp, three approaches are available:

• Environment approach: "Strategic management is a decision process to connect the internal power of an organization to the external opportunities and threats” The feature of this approach is the make the company responds to the

environment, get opportunities and encounter threats

• Objective and measure approach: "Strategic management is part of the decision making and management activities fixing the long term achievement of a company " This approach enable managers to identify more accurately the company objectives, which are the foundation of the management while allow the

managers to use the organization resources more effectively

• Action approach: "Strategic management is reviewing the current and future context, creating organization objectives, making decisions and supervising decisions, focusing ion implementing objectives in the current and future context "

Strategic management is the studying current and future environment, setting organization objectives; setting, implementing and supervising decisions to achieve objective in the current and future environment in order to improve the competitiveness and position of the company

1.1.3 The benefits of strategic management to the company development.

Strategic management helps the company to know its objectives and orientation Being aware of the desired outcomes and objectives in the future helps the managers and staff to know well what to be done to be successful

The environment conditions that the organization faces always change quickly and create surprises Strategic management helps managers to see clearly the environment in the future Therefore, they can know and take advantages of opportunities better while avoiding or limiting risks

Strategic management helps managers to use effectively existing resources of the company and allocate them appropriately It helps company to attach decisions

to the related environment conditions Moreover, strategic management harmonizes the organization demand, through which attract senior managers and create synergy

to reach the common objectives of the company

The fact of the study shows that the companies having strategic management often get better results than they did before and the companies not having strategic management

1.2.1 Environment Analysis:

In making business strategy, studying environment is very important It helps company the identify opportunities to take and see the risks and challenges to act with caution

Environment is the existing factors, forces and institution impacting and influencing the company activities and operation outcomes The company environment consists of macro environment and micro environment (the industry) and the internal conditions

Here below is the strategic environment analysis diagram of a company

Diagram 1: The strategic environment analysis diagram of a company

The combination of strength, weakness, opportunities and threats will create

a SWOT matrix and the strategic options for selecting

Studying the operation environment of a company is focusing on identifying and evaluating trends and incidents go beyond the control of the company Evaluating external factors show the opportunities and challenges that a company faces so the managers can make strategy to take opportunities and limit risks We

will analyze the operation environment of a company with the macro and micro (industry) environment

1.2.1.1 Macro environment

1.2.1.1.1 Economic factors

They are factors outside the company They don’t not only orient and affect directly the management but also affect the micro environment of the company These factors are also the causes of opportunities and threats to each company in different industries Studying the macro economic factors plays an important role to the management of a company and it includes the following factors: economic development speed, inflation rate, exchange rate, interest rate, salary and income

1.2.1.1.2 Legal, governmental and politic factors

They include the system of viewpoints and policies of the government, the system of current law, trends of diplomatic politics with other countries, and domestic, regional and international politic incidents

The legal and politics factors can create opportunities or threats to company

To take advantages of opportunities and limit the threats, companies must grasp the viewpoints, regulations and preferential programmes of the government They should establish a good relationship and even lobby when necessary to create a favorable environment for the company operation

1.2.1.1.3 Social factors

Social influences mainly include: entertainment and pleasure habits, moral standards, aesthetics, lifestyles, professions, traditions, customs, interests and focuses of society, awareness and general education level of the society The social factors change slowly and are difficult to recognize

1.2.1.1.4 Natural factors

Natural factors include geographical locations, climates, natural landscapes, land, seas, rivers, underground minerals and resources, marine and forest resources, air and water environment etc Natural factors are important input for many

industries In many cases, it’s the natural condition to become a significant factor to create the competitive advantage of products and services

1.2.1.1.5 Technological factors

They are very dynamic factors which include many opportunities and threats

to companies The pressures and threats caused from technological environment are:

The appearance of new technology create and improve the competitive advantages of substitute products, threaten traditional product, put pressure on companies to change their technology to increase competitiveness

Besides the above threats, technological environment also creates some opportunities for companies, which is:

The new technology creates conditions to make better quality and cheaper products, makes the product more competitive Normally, the new companies have more advantages in taking this chance than existing companies in the sector

1.2.1.1.6 Global:

In the globalization context nowadays, the admission into international economic organization and association like WTO, AFTA … is the factor influencing companies greatly The problem is that it is necessary to define in the company development strategy the world economic integration trend The company will lag behind and can’t develop if the company development is not placed in the globalization and integration context

Digram 2- Micro environment model (4)

L

1.2.1.2 Micro environment :

Micro environment include the industry and external factors of the company They decide the characteristics and levels of competitiveness in that business/production sector There are 5 major factors: competitors, suppliers,

factor Environment Industry

Threats of new entrantsPower of suppliersPower of buyersThreats of product substitutesIntensity of rivalry

Competitor environment

Socio cultural

customers, substitute products, potential competitors Moreover, the suppliers and debt owners are also factor affecting the business environment of the company.

To make a successful strategy, the company must analyze each of these major factors thoroughly

(4) – Strategic management textbook - Griggs University

Knowing these factors will help company recognize the strength, weakness relating

to the opportunities and threats that business sector is facing

1.2.1.2.1 Competitors:

Understanding competitors is very important to a company for different reasons Companies competing with each other decide the characteristics and level of competition or the ploy to gain the advantage in the sector

1.2.1.2.2 Customers (buyers):

Customers are an indispensable part of a company The loyal customer is a big advantage of the company The loyalty of the customer is built by satisfying the customers’ demand and wishing to do better

1.2.1.2.3 Supplier:

Companies always have to connect with suppliers to be provided with different and necessary resources for their business and production operation like input, equipments, workers, capital etc Studying suppliers who provide resources to companies can not be omitted during the environment study

1.2.1.2.4 Potential competitors:

Potential competitors taking part in the sector is also a factor decreasing the company’s benefits because they use new production capacity with a wish to gain market share and necessary resources Therefore, in making strategy and protect the competitiveness, the company should take into consideration maintaining the legal barriers against outsider invasion

1.2.1.2.5 Substitute products:

Substitute products are the results of technological and scientific breakthrough The pressure of the substitute products limits the high price of companies in the sector Without taking notice of potential substitute products, the company can lag behind with smaller environment Therefore in order to be successful, companies should pay attention and put resources in the development or application of new technology in their strategy.

Diagram 3- Micro environment (Industry environment) (5)

1.2.2 Company internal conditions

Each company has the strength and weakness in their business No company

is strong or weak in all aspects The internal strength and weakness, the external opportunities and threats and specific tasks are major points of interest in setting

Potential competitors

Customers

Substitute products

objectives and making strategy for the company Companies should try to analyze thoroughly those internal factors to clearly define their advantages and disadvantages Based on this, they can provide measures to limit disadvantages and exploit advantages to achieve the ultimate advantages Basically, the internal factors include the functional areas like:

1.2.2.2 Research and development (R&D)

Research and development activities aim at creating new products ahead of competitors, improving product quality, controlling or upgrading production process to decrease cost Research and development activities can help the company

to maintain leading position or make it lag behind the competitors in the sector

1.2.2.3 Management:

Management activities include:

* Planning: is all activities relating to the preparation for the future:

forecasting, objective setting, strategy making, policy development, plan making

* Organizing: are the activities creating the structure for relation between

authorities and responsibilities The specific tasks are: organization design, job specialization, job description, job specification, control expansion, order consistency, coordination, arrangement, job design and analysis

(5) – Strategic management textbook - Griggs University

* Leadership: includes the efforts aiming at orienting the activities of

people, namely: directing, team communication, activity changes, authorization, job quality improvement, job satisfaction, demand satisfaction, organization development

* Controlling: Are the management activities to ensure that the actual

outcomes correspond to the planned outcomes Major activities are: quality control, financial control, sales control, inventory control, cost control, change analysis, compensation etc

1.2.2.4 Line production

Line production includes all activities aiming at turning inputs into services

or merchandised products Line production management should take into

consideration 5 areas as follow: Firstly, process: the physical production system design Secondly, productivity: deciding the best productivity Thirdly, inventory: managing raw inputs, under processing works and finished products Fourthly, human resources: managing admin staff, skilled and unskilled staff Fifthly, quality:

making high quality products

1.2.2.5 Finance - Accounting

It is the factor that the managers pay special attention to The shortcomings

in this activity often cause difficulties to implementing the company objectives The areas need consideration are: the existing capital capacity against the requirement for implementing company plans; possibilities of mobilizing external capital; the

resources allocation and using; controlling cost, receipts and expenses, financial relations inside the company and with other agencies

1.2.2.7 Information system

The good information system will facilitate to collect the raw data of the external environment and the internal environment of the company It helps us to keep track of the environment changes, realize the threats as well as support us in implementing, evaluating and controlling strategy Besides that, an effective information system will create other competitive advantages for the company

1.2.2.8 Company culture:

The company culture plays an important role in the strategic management in the company Company culture creates the difference in values, standards, practices and specific effective opportunities for the company development and worker behavior guidance

Diagram 4 – Internal conditions of company

Organizatio nal culture

Management

Research and Development (R&D)

Human resources

INTERNAL CONDITIONS

OF COMPANY

1.2.3 Resource analysis to identify the core competencies.

Each company has its own strength, weakness and specific operating environment Therefore a strategy can help this company to be successfully but it may not be effective for another company or cases The development makes company to choose business sector and market Company can focus on one business only, develop vertically or diversify with new business sectors

The objectives of business structure analysis are to combine and select suitable products (services) by reviewing the potentiality of single business To identify each business structure, managers must finding strategy options from which they can select the strategy from the strategy collection with different approach

If the company is multi-business, it can select a collection of suitable businesses by using one business structure analysis tool or more Companies can use business structure analysis tools or position the company based on two types of low or high tangible or intangible assets Moreover, they can assess the company with two or three different parameters…

1.2.4 Setting long term objectives

Each objective often requires certain amount of time and attaches to certain index like the growth of revenue, capital or market share Therefore the time frame for objective and strategy should correspond to each other

It’s necessary to notice that in the globalization context, it’s not advised to set objectives for a period which is too long while identifying objectives Normally, 2-5 year period is the best

1.2.5 Strategy selection:

1.2.5.1 Viewpoint and criteria for strategy selection:

Strategy selection is done based on:

• Firstly, the advantage of company by analyzing the following

aspects:

- Strength or relative position of company against rivals.

- High ROI of the business in the future

- Value chain analysis of customers, company and rivals

• Secondly, objective: How the selected strategy helps to

achieve the objective?

• Thirdly, resources, financial conditions.

• Fourthly, competence and ability of company: select strategy

depending on the quality and levels of difference competencies and ability of company

• Fifthly, legal consideration and related party reactions:

suppliers, partners, customers

• Sixthly, identifying the time for investment.

1.2.5.2 Selecting strategy:

Strategy is a long term operating method Therefore, the basic features of the business economic and technological nature need special attention This is different from factors which are short term and affect short term competitiveness and benefits

of company Selecting strategy also depends on the culture; politics and the role of strategy management are the most decisive factor in selecting strategy

By environment analysis, strategy makers can have subjective viewpoint based on the objective information on politics, culture, moral and social responsibility They offer strategy collection, analyze the feasibilities and select specific action sequence The strategy can be divided into three levels based on the organization structure and scale of company:

* Corporate Strategy: focus on the issues of:

o Which area to omit

* Business level strategy: focus on identifying the executive method for each

business of a multi-business company or a SBU (strategic business unit) or an enterprise in the sector This strategy focus on the issues: how to overcome competition? Defending or attacking? Low cost or product unique? This is also the core of competitive strategies

According to Michael E Porter [6]: “The purpose of competitive strategy of a business unit in the industry is to find a position in the industry where the company can fight against rivals the best or can influence it in a way that benefit itself”

* Functional strategy: identifying the operation methods of each functional

department: Marketing, product research and development, production, human resources, finance, information … to support and ensure the implementation of company strategy and unit competitive strategy It supports the strategy implementation of SBU, corporate strategy and includes:

Most of small and medium enterprises, even some large enterprises, don’t have strategic business unit or department so the single business strategy tasks should be taken into consideration as well

1.2.6 Strategy formulation steps

Strategy formulation process is done through the following steps:

1.2.6.1 Stage 1: Entering data stage

In this stage, basic information which has been entered will be briefed for making strategy This stage consists of analyzing external and internal environment

Strategic management techniques like EFE matrix, IFE matrix, and competitive image matrix are often chosen in this stage

1.2.6.2 Stage 2: Matching stage

This stage focuses on offering feasible strategies which can be selected by arranging and matching important internal and external factors The techniques used

in this stage include: SWOT, strategic positioning matrix, SPACE), BCG, IE matrix, major strategy matrix…

Within this research and with the company characteristics, it’s advised to use SWOT only because it is suitable for the actual situation and the provided data On the other hand, this is a popular method which is easy to use, comprehensive and time saving

1.2.6.3 Stage 3: Decision making stage

This is the last stage to select the strategy that company pursuits The selected strategies should be ranked with which strategy will be given priority in implementation To select strategy, managers can select quantitative strategic planning matrix The strategy selection will be within the authority of top manager

in each company

In this research, suitable preliminary strategies which to be recommended for the company to pursuit were selected based on the analysis, business environment evaluation of the company like finance, human resources, marketing, rivals and legal consideration etc

The criteria for strategy selection are:

government regulations,)

All techniques in the strategy formulation require a combination of visual abilities and analysis Using techniques allows analysis and synthesis of different

influences, evaluates them objectively and expresses them successfully in a systematic thinking method.

1.2.7 Tools for strategy selection

1.2.7.1 Information gathering tools for strategy formulation

1.2.7.1.1 External Factor Evaluation (EFE)

EFE matrix lists and assigns weight to environment influencing factors toward the company

According to Fred R.David, EFE is made with 5 steps:

Step 1: Make a list of 5 to 10 external factors which are decisive ones to

company success, including opportunities and threats to company and company business

Step 2: Assign weights from 0 0 (not important) to 1.0 (very important) to

each factor This assigning visualizes the corresponding importance of that factor

to the success of company business Weights can be decided by comparing successful company with unsuccessful company in the industry The total value of all weight should equal 1,0

Step 3: Assign rate from 1 to 4 to each factor to see the how company

responds to each factor This rate is based on the strategy effectiveness of company

In which: 4 = superior, 3 = above average, 2= average, 1 = poor

Step 4: Multiply rate by weight for each factor to get the weight score

Step 5: Add all weighted scores for each factor to find the total weighted

score for the company

No matter how many opportunities and threats that the EFE matrix has, the maximum total weighted score of a company is only 4.0, the average one is 2.5 and the lowest one is 1.0

If the total score is 4, it shows that the company is responding well to the current opportunities and threats in its industry If the total score is 1, it shows that

the current company strategy doesn’t take advantage of opportunities and avoid external threats

1.2.7.1.2 Competitive profile matrix (CPM)

Among incidents influencing company strategies, the influence of competition is the most important CPM identifies company’s major competitors as well as their strengths and weaknesses This matrix is the expanded version of EFE matrix in regards to weights, rate and total score

CPM is made similarly to EFE matrix

The rate showing how company’s strategy respond to each factor are: 4 = superior, 3 = above average, 2 = average and 1 = poor

1.2.7.1.3 Internal factor evaluation matrix (IFE)

IFE brief and evaluate the strengths, weaknesses of functional business areas and it provides a basis for identifying and evaluating relationships among those areas IFE matrix is created with 5 steps:

Step 1: List from 10 to 20 core internal factors, including strengths and

weaknesses

Step 2: Assign a weight from 0.0 (not important) to 1.0(very important) to

each factor (in the industry) This assigning shows the corresponding importance of that factor to the company success in the industry, the total weight should equal 1.0

Step 3: Assign rate from 1 to 4 to each factor (based on the company) in

which: 1 is the major weakness; 2 is the minor weakness; 3 is the minor strength; 4

is the major strength

Step 4: Multiply rate by weight for each factor to have to total weighted

score of each factor

Step 5: Add all the weighted score of each factor to find the weighted score

of the company

No matter how many opportunities and threats that the EFE matrix has, the maximum total weighted score of a company is only 4.0, the average one is 2.5 and

the lowest one is 1.0 If the total score is higher than 2.5, it means the company is strong internally and if it is smaller than 2.5, it’s weak internally

1.2.7.2 Strategy formulation tools for selection

1.2.7.2.1 Strengths – Weaknesses – Opportunities - Threats Analysis matrix

(SWOT)

The purpose SWOT analysis matrix is to provide feasible strategies to select, not to select which strategy is the best Therefore, among the strategies offered my SWOT matrix, only some best strategies are selected for implementation SWOT matrix is an important conjunction tool helping managers to develop the four following strategies:

strengths of company to take advantage of external opportunities

internal weaknesses of company to take advantage of external opportunities

strengths of company to avoid or mitigate the influences of external threats

Weakness- Threat strategy (WO): These strategies aim at improving internal

weaknesses or reduce external threats

Combining the important internal and external factors is a very difficult task in creating a SWOT matrix It requires a good analysis, an appropriate and ultimate combination of internal and external factors If not, strategy development will not

be as effective as expected SWOT matrix is created using 8 steps:

Step 1: List important external opportunities of the company

Step 2: List important external threats of the company

Step 3: List important internal strengths of the company

Step 4: List important internal weaknesses of the company

Step 5: Combine strengths with opportunities to formulate SO strategy

Step 6: Combine weaknesses with opportunities to formulate WO strategy Step 7: Combine strengths with opportunities to formulate ST strategy

Step 8: Combine weaknesses with threats to formulate WT strategy

1.2.7.2.2 Space matrix

All organizations can lie in one of the 4 angles of space matrix This matrix evaluates the position of companies based on: competitive position and market growth Suitable strategies for the company will be listed by their attractiveness in

the 4 matrix angles

1.2.7.3 Strategy selection tool - Quantitative Strategic Planning Matrix

(QSPM)

According to Fred R David, QSPM uses inputs of IFE, EFE, CP, SWOT and SPACE matrices to objectively evaluate the best strategies 6 steps to create a QSPM matrix are:

Step 1: List external opportunities/threats and internal strengths/weaknesses of

the company This information is taken directly from IFE and EFE matrix which consists of at least 10 external success factors and 10 internal success factors

Step 2: Rate each internal and external success factor This rating is similar to

that of IFE and EFE matrix

Step 3: Identify alternative strategies that the company should consider for

implementation Group strategies if possible

Step 4: Determine the attractiveness score of each strategy (AS) The

attractiveness score shows the relative attractiveness of each strategy against others Only strategies in the same group are compared with each other The attractiveness

is rated as: 1 = not attractive, 2 = somewhat attractive, 3 = reasonably attractive and

4 = highly attractive If the success factor does not affect the choice being made at all, then the Attractiveness Score would be 0 for strategies in this group

Step 5: Calculate the Total Attractiveness Score by multiplying the rate (in

step 2) by the attractiveness score (in step 4) in each row

Step 6: Calculate the sum total attractiveness score for each strategy The

higher the score is the more attractive the strategy is

Chapter I Conclusion

Strategic management is a very dynamic and continuous process; each change in one part of the model can lead to one more many changes in other parts Therefore, formulating activities, implementing and evaluating strategy should be done continuously

Every company doesn’t exist independently but is always influenced by environment factor When the environment factors change, they can create opportunities or threats to the existence and development of the company

In order to have effective business, it does not require managers to solve internal problems but also environment impacts and this is an important issue to the company success in the market So managers should spend time on studying and forecasting the changes of environment factors and consider it as a regular job, the results of business environment study will provide managers important data to formulate development strategy appropriately and timely

Here below is the analysis of the operation environment if VICD, based on which it’s possible to identify opportunities, threats, strengths and weaknesses which will be the foundation for development strategy formulation of VICD in the coming time

CHAPTER IIANALYSIS OF ACTUAL SITUATION IN VICD

2.1 OVERVIEW OF VICD

Name: VICD under VINASHIN

International name: Investment – Construction & Hydro structure

Dredging Joint Stock Company.

+Constructing ports, waterways, industrial and civil works;

+ Constructing industrial zones;

+ Auditing construction work quality;

+ Designing industrial works, civil works, hydro structure;

+ Supervising civil and industrial construction works, transportation and infrastructure works – constructing and finishing supervision

+ Importing assorted materials and equipments for transportation, irrigation, industrial and civil construction;

+ Transporting cumbersome goods with barges and floating bridges

(VINASHIN) and individual stake holders owns 49% of the company regulated capital (*)

5 Establishment and development

VICD was established on 14/11/2006 with 4 functional departments, 2 sites and 3 constructing ships The total staff is 27 people

In the starting stage, the major business of the company is constructing infrastructure works for ship building factories in Vinashin.

After 3 year operating and developing, the company has expanded into operating water transport means: transporting cumbersome good; designing civil and industrial works At the moment, the company has 5 functional departments, 3 sites (Hạ Long, Hòn Gai, and Đà nẵng) and 8 water way transport means The total staff is 94 people

6 Company structure situation

+ Company director

+ Vice director of sales and internal affairs

+ Vice director of production

+ Chief accountant

+ Equipment trading department

+ Project and planning department

Diagram 5 – COMPANY STRUCTURE

MANAGEMENT BOARD

DIRECTOR BOARD

- Director

- Vice director of production

- Vice director of sales and internal affairs

PRODUCTION UNITS

FUNCTIONAL DEPARTMENTS

Site 1 (Hạ

Long)

Site 2 (Hòn Gai)

Site 3( Đà Nẵng)

Finance – Accounting

Human resources Project and Planning

Equipment Trading Designing

Vietnam is boosting up economic integration into the region and the world This policy has attracted lots of foreign investment, creating the preconditions for the economic development in the coming years.

The average income per capital is still low comparing to other countries in the region However, the average rate has increased year after year (from 2000 until now) and has been quite stable at 8%/year

• Current situation evaluation:

Evaluating external factors influencing the company production and business the most which is the global economic depression and financial crisis The economic depression and the crisis, bankruptcy of many economic corporate in the worlds has influenced the domestic economy greatly The foreign investment decreases, international commerce goes down and affects directly the business of company, especially the transportation, loading and unloading as well as construction business

The unusual changes of Vietnam micro economy in 2008 is also a factor influencing the business of companies In 2008, due to the high inflation and

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currency depreciation made the company loose tens of billions VND The value of products, services that the company produced but not settled decreased largely Some product value once settled was only 2/3 or ¾ of the value at the point of contract signing

At the beginning of 2008, as the inflation climbed up, the interest rate increased to a rate that companies would rather stop working than getting loan for business On the other hand, the government controlled the currency policy tightly, making the company not be able or dare to access bank loans and delay a series of works under construction (Vinashin alone had to stop 45 projects with the total investment of VND 10,000 billions)

According to the data of General Department of Statistics, the industrial and construction production in Jan 2009 has decreased by 11% in comparison to same time last year In 2009, the bank loan interest rate reduced, the government also approved the demand boost package to stop inflation However, the focus was placed on the short term capital for production sectors So construction companies got almost no support from this policy of the government (because construction investment projects require long term capital)

2.2.1.2 Legal, government and politic factors.

The government has issued and supplemented laws of foreign investment law, commerce law, value added tax law etc to speed up economic reform Economic policies are opened to encourage the development of economic sectors, create a sound, stable and favorable economic environment

Vietnam foreign investment encouraging policies of the state has attracted many investors, provided development opportunities for many sectors, including shipping industry

Vietnam law system and the under law documents are more and more improved and logical than before However, there are still inconsistency, frequent

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changes and a lack of synergy in execution among different authorities and local, influencing remarkably to companies’ performance

Before the state used tariff barriers to encourage domestic production which

is an advantage for companies However, Vietnam has joined WTO and the tariff barriers will be removed in the coming time Companies will have tough competitions with both domestic and international companies At present, ASEAN countries set up AFTA with Common Effective Preferential Tariff Scheme (CEPT)

to speed up the commerce relations among ASEAN countries including Vietnam It creates many opportunities and threats to companies during this integration

• Political and foreign affair trend

Vietnam is considered as a nation with highly stable politic environment This is an important condition for companies to feel secured to invest and develop the production scale

Vietnam is implementing the policy of extending relations with all countries

in the world with an orientation of peace, cooperation and respecting of self-

determination This is an opportunity for domestic companies to expand commerce relations with other countries, learn experience, manage and open more distribution markets etc

With the global economic depression and financial crisis, Vietnam government has implemented urgent solutions to control inflation growth Among the government solutions, policies of currency control, public spending, investment project evaluation etc has influenced greatly to the company operation The company has difficulty in accessing bank loan A series of investment projects of the company were delayed or were not liquidated

Together with the decreasing construction demand, one of the major influencing factors to the production and operation of the company is that the law and policy on construction investment management have many shortcomings In

2008, the increasing material price which affected the work coast However, the

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guidelines of the government and Construction Ministry on estimation adjustment were too slow and unclear and this made construction companies meet many difficulties Moreover, there are many mistakes and overlapping in the planning and biding regulations which delayed project implementation, increasing the cost for the company considerably

From the end of 2008 to the beginning of 2009, Vietnam government has implemented a series of urgent solutions to stop the economic down turn The inflation was stopped (in 2008, it halted at more than 22%) Vietnam political situation is more stable in all aspects This is one of the important factors to Vietnam Company’s belief in formulating and implementing long term strategy Vietnam law system in the last few years has had some positive changes Many legal documents, circulars and decrees relating to the business and production have been issued, creating a legal corridor for businesses like Commerce Law, Enterprise Law, and Competition Law Moreover, Vietnam has joined WTO officially and regional commerce organization likes AFTA etc This is an opportunity and also a threat to Vietnam companies in the international economic integration due to the cutting imports and expanding foreign investment in Vietnam

Ship building industry in general and the operation of VICD in particular are sectors getting preferential investment according to the domestic investment

encouragement law Besides that, the government recently has provided a series of demand boost package to encourage production and consumption in the country like: reducing importing tax, extending company income tax deadline according to the Decree numbered 30/2008/NQ-CP dated 11/12/2008, reducing VAT according

to 16/2009/QĐ-TTg dated 21/01/2009 in which the government prime minister issued some tax solutions to implement the investment and consumption boost policy, stop economic depression, remove difficulties for companies, exempting and reducing personal income tax until June 2009 etc

Here above a re political and legal factors which have great impacts on the company business and operation It can be said that Vietnam political and legal

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system has been improved continuously to create best conditions for companies’ operation However, some policies still have shortcomings and problems for certain sectors

2.2.1.3 Social factors

It’s different from consumer goods production industries, the company operation is less influenced by social factors Maybe the social issue that affect the company the most if the awareness level of as well as the attention that the society pays to the business of company

2.2.1.4 Natural factors

Natural conditions are factors influencing remarkably to the company operation with great river and port potentiality in Vietnam The increased development of deep water port and maritime transportation is a big opportunity for the company to develop its operation nationwide

With the major operation areas in Hạ long, Cẩm phả, Đà Nẵng, the market expansion potentiality of VICD is large, especially when the government is paying more attention to developing deep water ports for the sakes of regional economic development in the countries

2.2.1.5 Technological factors

Technology is the key issue which decides the business environment of company The robust development of science and technology is a good condition for company to acquire and change equipments, production line as well as change the management logically and effectively

In the globalization and international integration, VINASHIN is expanding cooperation with shipping industry firms, large transport firms as well as traditional customers to carry out port services the most effectively In the dredging area, VICD has the condition to put into operation the most modern equipments in Vietnam For loading and unloading services, VICD is able to use floating bridge

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According to the overall development strategy of VINASHIN, the development of VICD is put within the integration orientation The development of satellite units, the recruitment of local workforce or outsourcing will be applied by VICD in a flexible way in order to make the company business effective.

2.2.1.7 Conclusion:

With the above micro environment analysis, we can confirm that the opportunities (O) of the company in the global economy is large However, the threats that company must face is not small It will have to confront with an indispensable trend of integration for development or staying conservative which may lead to lagging behind or bankruptcy

2.2.2 Micro environment of VICD (Industry environment).

2.2.2.1 Competitors:

As analyzing above and in the context of globalization and integration, VICD faces a big threat regarding to domestic and international rivals

2.2.2.1.1 Construction business: (constructing hydrostructrure: ports, quay,

floating dock, leveling)

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- Foreign construction companies with financial potential, equipments, and management capacity own the major market shares:Penta-Ocean (Cái lân, Port, Thị vải Port), Rinkai (Tiên sa Port), Toa, Posco

- Domestic companies (mostly are state owned companies) were provided with equipments before privatization so they have price competitive ability

- Some private companies trading construction machines and equipments entered the market They have advanced equipments but they are weak in techniques and management

lower than average

2.2.2.1.2 Dredging:

- The rivals of VICD are international companies who work mainly in big ODA projects The equipments were imported from abroad so the price is high

- The rivals of VICD who are domestic companies are Marine Dredging Company 1, Marine Dredging Company 2, VINAWACO etc Although they have high capacity dredgers (Long Châu 1- 1500m3, Long Châu 2-1000 m3, 02-09 ship, HP-01ship), they are mostly older than 20 year old and have poor competitiveness

- Most of private companies dredge with low capacity dredgers so they only can handle small dredging works like river and channel dredging

higher than average

2.2.2.1.3 Crane service business.

This is a business with absolute advantage for VICD At present, other crane service providers can only deal with goods less than 150 tons on rivers and seas VICD is the only domestic company who can load and unload goods up to 400 tons

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For international companies, there is now only one Singaporean company who can handle big orders which require foreign cranes (Singapore) The price, however, is very high

The next one is the investors of river and sea port, ship building factories

2.2.2.2.2 Dredging and leveling

The biggest traditional customer is VINASHIN and the main product provided my VICD is dredging areas for ship launching, ship anchoring, ship passages and leveling coastal industrial zones

The next customer of VICD is Vinamarine for whom VICD carry out the dredging and maintaining ship passages, ship anchoring and turning areas

Besides that, VICD provides dredging and leveling service to investors of river and sea port, ship building factories

Being the company having the biggest capacity blowing dredger, VICD dredges the whole ship launching area, anchoring area, ship ways, and levels the coastal industrial zone surface for VINASHIN Besides that, thanks to the ability to ensure the best quality and progress, VICD always gets the order from Vinamarine

to dredge and maintain the ship ways, ship anchoring and turning areas at river and sea ports

2.2.2.2.3 Loading and unloading super weight goods with cranes.

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2.2.2.3 Suppliers:

The major supplier of VICD is domestic and international equipment firms.For domestic suppliers, VICD orders them to produce specialized equipments needed for VICD businesses

For international suppliers, the main orders placed by VICD are for technology and equipments which can’t be produced by domestic companies The equipments that VICD often ordered are special and different type which can make competitive advantage for the company

Moreover, VICD suppliers include human resources providers at local areas where VICD sites locate

2.2.2.4 Potential rivals:

In the globalization and integration, the entrance of new rivals and potential rivals is inevitable At present, the potential rivals that VICD needs to care about are transports firms of Singapore, Japan and some domestic companies, especially joint stock companies in the South

2.2.2.5 Substitute product:

As the above analysis shows, there are almost no substitute products for VICD It’s obvious that the development of airway and inland transport can’t replace waterway transport as it has proved itself

Besides the analyzed factors above, the debtors and distributors also have great impacts on VICD operation The financial figures show that the company loan rate out of the total asset is very high To maintain the effective business

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performance, it’s a problem for VICD to take advantages of the supports from VINASHIN and banks to focus on projects that VICD is implementing after the financial crisis

Moreover, one problem which has considerable impact on the company now is the unhealthy competition in the industry The bribes for bidding and projects are very common in the industry According to the statistics of Construction Ministry,

in 2008 the total contractor- appointed projects accounts for 48% of the state investment projects The big companies make corrupt use of its position to ask for appointing contractors for key works (even with the ODA project If the ODA is provided by Japanese, it’s obvious that some Japanese companies will be the major contractors)

Besides the above disadvantages, it is necessary to consider the long term development potentiality of the industry At the moment, the technical level and financial ability of Vietnam construction companies are at low level The high tech works are mostly designed and implemented by foreign contractors at high cost The construction sector is expected to recover in 2010 with a development rate of 15%/year which is an opportunity for companies to survive 2009

2.2.2.6 Conclusion:

Unlike production companies suffering from the severe competition in their industry environment, the business operation of VICD somehow has certain

advantages against rivals when it has core competences to create competitive

advantages in its sector

2.2.3 Evaluating opportunities and threats of VICD.

By analyzing micro and industry environment of VICD, conclusion on the opportunities (O) and threats (T) of VICD can be made as follows:

2.2.3.1 Opportunities (O)

crisis and economic depression but Vietnam economy has always maintained

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