Xây dựng và phát tiển chiến lược tai công ty cổ phần phân đạm và hóa chất hà bắc

The group will actively search for the theories on SWOT and industrycompetitive forces, strategies and strategic management in an attempt to pave theway toward formulating a development

LIST OF FIGURES

Figure 1.1: The strategic management process 6

Figure 1.2: The External Environment 8

Figure 1.3: The 5 force model of M.E Porter 10

Figure 1.4: Competitor analysis components 12

Figure 1.5: External analyses’ outcomes 13

Figure 1.6: Types of business-level strategies 16

Figure 2.1: Top 10 Countries in the 2009 Global Retail Development Index 21

Figure 2.2: Internet usage of Vietnam 23

Figure 2.3: Urea distribution system of HANICHEMCO 32

Figure 2.4: Coal price (without VAT) between 2005 ÷ 2009 36

Figure 2.5: Organization structure 47

Figure 2.6: Turnovers and profits of HANICHEMCO from 2005 to 2008 49

Figure 3.1: Waste Treatment system 72

Figure 3.2: HANICHEMCO brand strategy 74

Figure 3.4: Roadmap for the implementation of the strategy 80

LIST OF TABLES

Table 1.1: SWOT Matrix 7

Table 1.2: The general Environment: Segments and Elements 9

Table 1.3: Tangible resources 14

Table 1.4: Intangible resources 14

Table 1.5: GREAT model 19

Table 2.1: Selected Economic Indicators of Vietnam 22

Table 2.2: Cultivated area and yield of grain 28

Table 2.3: Forecast of Domestic Demand for Urea by 2015 30

Table 2.4: Capacity of Domestic Fertilizer Manufacturers 31

Table 2.5: Urea consumed amount of HANICHEMCO from 2005 to 2008 33

Table 2.6: The amount of coal purchased from 2005 to 2008 35

Table 2.7: Coal product types 37

Table 2.8: World urea output 39

Table 2.9: Urea price comparison between Ha Bac and Phu My 41

Table 2.10: Assessing strengths and weaknesses compared to competitors 42

Table 2.11: Quantity of imported DAP fertilizer in Vietnam from 2003 to 2008 43 Table 2.12: Operating results of HANICHEMCO from 2005 to 2008 48

Table 2.13: Quantitative matrix with GREAT criteria 65

Table 3.1: Expected production scales of HANICHEMCO 70

Table 3.2: Energy consumption of new technology 70

Table 3.3: Expected change in human resource of HANICHEMCO 77

Table 3.4: Total investment of HANICHEMCO 78

Table 3.5: Expected profit, tax, break-even point, ROI, IRR 79

Table 3.6: Expected financial resources 79

TABLE OF CONTENTS

LIST OF FIGURES ii

LIST OF TABLES iii

A INTRODUCTION 1

1 Rationale 1

2 Objectives 2

3 Methodology 3

4 Structure of the research 3

B DEVELOPMENT 5

CHAPTER I: THEORETICAL BACKGROUND …5

1.1 Definitions of strategy and strategic management process 5

1.2 SWOT analysis – the tool to formulate the strategy 7

1.2.1 External Environment Analysis: 8

1.2.1.1 Macro environment Analysis: 8

1.2.1.2 Industrial analysis and Michael Porter’s competitive five forces 9

1.2.1.3 Competitor analysis 11

1.2.2 Internal Environment Analysis 13

1.3 Business-level Competition Strategies 15

1.3.1 Cost leadership strategy 16

1.3.2 Differentiation Strategy 17

1.3.3 Focus Strategies 17

1.3.4 Integrated Cost Leadership/ Differentiation Strategy 18

1.3.5 Select methods of assessment strategies 19

CHAPTER II: AN ANALYSIS ON THE CURRENT SITUATION OF HANICHEMCO 21

2.1 Current situation of macro and industrial environment 21

2.1.1 Macro economic conditions 21

2.1.1.1 Economic 21

2.1.1.2 Technological 23

2.1.1.3 Political-legal 25

2.1.1.4 Demographics: 27

2.1.1.5 Global environment 27

2.1.2 General industry situations 28

2.1.2.1 Agricultural Production Situation 28

2.1.2.2 Domestic fertilizer manufacturing capacity 30

2.1.2.3 Industry Competitive forces 31

2.2 Current situation of HANICHEMCO 45

2.2.1 An overview on HANICHEMCO 45

2.2.2 HANICHEMCO’s overall situation 47

2.3 HANICHEMCO’s internal analysis 50

2.3.1 Company’s main activities 50

2.3.2 Evaluation company’s strengths and weaknesses 56

2.4 SWOT Matrix analysis 56

2.5 Options combined strengths, weaknesses, opportunities and threats: 59

CHAPTER III: FORMULATION OF DEVELOPMENT STRATEGY FOR HANICHEMCO FOR PERIOD 2011-2020 67

3.1 HANICHEMO’s visions/missions 2011-2020 67

3.2 Selecting development strategy for HANICHEMCO 2011-2020 67

3.3 Solutions for the implementation of the strategies 69

3.3.1 Expanding manufacturing activities, modernizing technologies with cost management activities 69

3.3.3 Diversifying products 72

3.3.4 Branding 73

3.3.4 Improving the current organizational structure 75

3.3.5 Human resource development (HRM) Strategy 77

3.3.6 Financial Resource Preparation 77

3.4 Roadmap for the implementation of the strategy 79

C CONCLUSION 81

REFERENCES 83

A INTRODUCTION

1 Rationale

Within the last fifteen years, the world has witnessed three great financial crises,namely the 1994 Mexico’s currency crisis, the 1997-1998 Asian crisis and the not-

yet-over 2008 financial global crisis According to World Bank’s statistics, “43

poor countries are suffering the consequences of the global recession”1

In that situation, Vietnam still remains one of the fastest-growing economies in theworld, averaging around 8% annual gross domestic product (GDP) growth from

1990 to 1997 and 6.5% from 1998-2003 From 2004 to 2007, GDP grew over 8%annually Foreign trade and foreign direct investment have improved significantly.From 1990 to 2005, agricultural production nearly doubled, transforming Vietnamfrom a net food importer to the world's second-largest exporter of rice The averageVietnamese savings rate is about 30% Inflation in 2007 was 7.3% but was in thedouble digits and approaching 30% year-on-year by August 20082 The 2009 firstquarter’s GDP was 3.1% against same period in 2008, the lowest growth quarter inrecent years, but in second quarter GDP growed by 4.5% and in third quarter by5.8% Generally in 9 months, GDP increased by 4.6% against same period in 2008, ofwhich the agriculture, forestry and fishing rose by 1.6%; the industry andconstruction by 4.5% (industry by 3,3% and construction with high increase of9.7%); the service by 5.9%.3

Vietnam is still considered as an agriculture-based country with more than 60%total workforce working in the agricultural sector, which generates 20% of GDP.The productivity of the 60% is only one third as against that of the rest working inother sectors4 However, the country is getting more and more populated with85.789.573 people, making the country the most 3rd populous country in Asean and

1 http://www.worldbank.org/financialcrisis/bankinitiatives.htm

2 http://www.gso.gov.vn/default_en.aspx?tabid=622

3 http://www.gso.gov.vn/default_en.aspx?tabid=501&thangtk=09/2009

4 http://www.vneconomy.vn/20090813094713956P5C11/co-cau-lai-nhan-luc-nong-nghiep.htm

the 13th while its area stands only the 58th in the world.5 Within the last five years,total agriculture agriculture area has shrunk 366,000 ha; especially the rice area isnow only 3.8 mil hecta, which is a 47.7 % decrease per capita6.

As the rice field and agricultural area are being turned into urban areas andindustrial parks, food security is seriously threatened In order to overcome thesituation, the Resolution of the Communist meetings of the Agriculture and Rural

Development Ministry has set the objectives of “developing a commodity-oriented,

diversified, sustainable agriculture taking full advantage of the competitive advantages and advanced technology in order to improve the use of land, labor and capital resources …” Consequently, one of the technological inputs that help partly

improve the productivity is to further develop the domestic fertilizing sector Beingone of the leading fertilizer and chemical producers in the country, HabacNitrogenous Fertilizer and Chemical Company Limited (HANICHEMCO) certainlyplays a very important role in contributing to the realization of the vision of thewhole industry However, despite being founded for 50 years, HANICHEMCOdoes not seem to be very active in influencing the trend but rather reactive.Annually, the targets of the company tend to be based on the previous yearperformance with the plus of 10 percent It can be easily seen that HANICHEMCO

is in a great need for a development strategy in the phase of 2011-2020 to betterprepare itself to actively obtain the industry’s set objectives

2 Objectives

The project is aims at following objectives:

 Set up a theoretical foundation for the analysis of the external and internalenvironment The group will actively search for the theories on SWOT and industrycompetitive forces, strategies and strategic management in an attempt to pave theway toward formulating a development strategy for HANICHEMCO in the 2011-

5 http://www.vneconomy.vn/20090813080916457P5C11/dan-so-viet-nam-dat-gan-86-trieu-nguoi.htm

6 http://www.laodong.com.vn/Home/Bao-ve-nghiem-ngat-dien-tich-dat-trong-lua/20085/87478.laodong

4 Structure of the research

The research includes 3 mains parts with following compositions:

A INTRODUCTION

B DEVELOPMENT

CHAPTER I: THEORETICAL BACKGROUND

CHAPTER II: AN ANALYSIS ON THE CURRENT SITUATION OF

HANICHEMCO

2.1 Current situation of macro and industrial environment

2.2 Current situation of HANICHEMCO

2.3 HANICHEMCO’s internal analysis

2.4 SWOT matrix summary: Strengths, Weaknesses, Opportunities and Threats

CHAPTER III: FORMULATION OF DEVELOPMENT STRATEGY FORHANICHEMCO 2011-2020

3.1 HANICHEMCO’s visions/missions 2011-2020

3.2 Selecting development strategy for HANICHEMCO 2011-2020

3.3 Solutions for the implementation of the strategies

3.4 Roadmap for the implementation of the strategy

3.5 Recommendations

C CONCLUSION

B DEVELOPMENT

CHAPTER I: THEORETICAL BACKGROUND

1.1 Definitions of strategy and strategic management process

The word “strategy” has long been used in military context, because it derives from

the Greek word for “general” According to Oxford English Dictionary, “a strategy

is a plan of action designed to achieve a particular goal” Strategy deals with the

“how” part rather than the “what”

The term “strategy” may have been used in business context long before the

business strategic management as a discipline originated in the 1950s and 60s.Although there are as many definitions of strategy as the number of scholars trying

to do so, this research adopts the Hitt, A, M; Ireland D.R and Hoskisson E.R’sdefinition of strategy put forward in the first chapter of the book “StrategicManagement, Competitiveness and Globalization: Concepts and Cases”

Accordingly, strategy is defined as “a coordinated series of actions which involve

the deployment of resources to which one has access for the achievement of a given purpose.” (slide1, chapter 1)

Basing on this definition of strategy, the strategic management process can be may

“involve the full set of commitments, decisions and actions which are required for firms to achieve strategic competitiveness, sustained competitive advantage and above-average returns” In other words, the whole process can be illustrated in the

following graph:

Figure 1.1: The strategic management process

(Source: slide 5, chapter 1, “Strategic Management, Competitiveness and Globalization:

Concepts and Cases”, Hitt, A, M; Ireland D.R and Hoskisson E.R’s, 2007)

Looking at the graph, we can see that a strategic management process’s goals are tohelp us gain the strategic competitiveness and above average returns In order forthe objectives to be realized, the initially vital steps for an effective strategicmanagement process are to analyze the external environment and internalenvironment The analysis will act as the inputs for the strategic mission and intentfrom which we can formulate our strategy and afterward implement it If all of thosestep are successfully fulfilled, then strategic competitiveness will be gained andeventually bring about the above-average returns However, the circle does not juststop there Continuous feedback is extremely important to further enhance theinputs quality which in turns betters the mission and the process repeated itself at ahigher level It is this continuity that brings about the sustainable competitive

advantages and above-average returns Obviously, the external and internal analysisplays crucial roles in developing an effective strategy A tool that has been used forlong to generate inputs for the formulation of strategy is SWOT analysis.

1.2 SWOT analysis – the tool to formulate the strategy

SWOT Analysis is a strategic planning method used to evaluate the Strengths,Weaknesses, Opportunities, and Threats involved in a business SWOTs are used asinputs to the creative generation of possible strategies which may com from the use

of the matrix

Another use of SWOT is to march and convert Matching is used to findcompetitive advantages by matching the strengths to opportunities Converting is toapply conversion strategies to convert threats or weaknesses into strengths oropportunities

7 http://www.markintell.com/swot-analysis-tools-templates/

1.2.1 External Environment Analysis

The external environment may be seen not only as the broader external economy and society but also the industry environment that the business operates in

1.2.1.1 Macro environment Analysis

In a more general perspective, all businesses and organizations operate in achanging world and are subject to forces that are more powerful than they are such

as demographic, cultural, technological change, and which are beyond their control

No business can survive without continued interaction with the externalenvironment Any business strategy needs to take account of all these forces so thatthe organization can navigate its way to success by matching its internal strengths toexternal opportunities

Therefore, external environment is defined by Hitt, A, M; Ireland D.R and

Hoskisson E.R’s, 2007 as the “Dimensions in the broader society that influence an

industry and the firms within it” (slide 2, chapter 2) To be more specifically, the

external factors that can influence an organization are listed in the following graph:

Figure 1.2: The External Environment

To effectively formulate a strategy, a firm should not only look at the currentsituations but also the trends in those factors in order to be more actively ininfluencing the future since most strategy are usually set in a longer term Thegeneral environment factors can be summarized in the following table:

1.2.1.2 Industrial analysis and Michael Porter’s competitive five forces

As seen in the figure 1.1, external environment factors include both themacroeconomic environment and the industrial environment The industry is

defined as “a group of firms producing products that are close substitutes or the

firms that influence one another.”9 Moreover, an industry also “includes a rich mix

of competitive strategies that companies use in pursuing strategic competitiveness and above-average returns”

8Hitt, A, M; Ireland D.R and Hoskisson E.R, slide 5, chapter 3

9 Hitt, A, M; Ireland D.R and Hoskisson E.R, Slide 9, chapter 2,

A very useful tool that has been long used for industrial analysis is Michael Porter’sfive force model published in the book Competitive Strategy (1980), Free Press,

New York, 1980 Michael Porter developed a framework, which identified 5 forcesthat act to either increase or reduce the competitive forces within an industry asfollows

Threat of New Entrants: The easier it is for new companies to enter the industry,

the more severe competition there will be Factors that can limit the threat of newentrants are known as barriers to entry

Power of Suppliers: This is how much pressure suppliers can place on a business.

If one supplier has a large enough impact to affect a company's margins andvolumes, then they hold substantial power

Figure 1.3: The 5 force model of M.E Porter 10

Power of Buyers/ Customers: This is how much pressure customers can place on

a business If one customer has a large enough impact to affect a company'smargins and volumes, then they hold substantial power

10 Porter, M.E (1980) Competitive Strategy, Free Press, New York, 1980.

Availability of Substitutes: What is the likelihood that someone will switch to a

competitive product or service? If the cost of switching is low, then this poses to be

a serious threat

Competitive Rivalry: And last but not least, this describes the intensity of

competition between existing firms in an industry Highly competitive industriesgenerally earn low returns because the cost of competition is high

Industry analysis will help a business identify whether an industry is attractive.Accordingly, an attractive industry would be that with high entry barriers, suppliersand buyers have weak positions, few threats from substitute products and moderaterivalry among competitors With these characteristics, an industry is reallyattractiveness because it has quite high profit potential Otherwise, an industry could

be seen as unattractive and low profit potential if there are low entry barriers,suppliers and buyers have strong positions, there are strong threats from substitutesproducts and intense rivalry among competitors

1.2.1.3 Competitor analysis

As shown in figure 1.3, in addition to macro environment analysis, industry

analysis, analyzing competitors plays crucial roles also Hitt, A, M; Ireland D.R

and Hoskisson E.R defined “competitor analysis” as a way of “gathering and

interpreting information about all of the companies that the firm competes

against.”11 Understanding the firm’s competitor environment complements theinsights provided by studying the general and industry environments The aim ofanalyzing competitor environment is to focus on predicting the dynamics ofcompetitors’ actions, responses and intentions

What should we find out about out competitors? The authors of the textbook 12

suggested that following issues should be put forward:

11 Slides 6, chapter 2

12 Hitt, A, M; Ireland D.R and Hoskisson E.R, Slide 24, chapter 2

Weak: 1; Average: 2; pretty average: 3; Good: 4; Strong: 5.

Figure 1.4: Competitor analysis components

The purpose of the competitor environment analysis is to identify the key successfactors (KSF) of each business To find out the key success factors, one businessshould be able to find out the basis on which customers choose between its brandsand that of the competitors A business should be able to know what it should do tocompete successfully and the resources and competitive capabilities it needs Then,

a business is expected to find out what it takes for sellers to achieve a sustainablecompetitive advantage

In conclusion, the external analyses’ outcomes are to find out opportunities andthreats exposing to a business from macro, industry and competitors’ environments.The outcomes of the analyses can be illustrated in the following graph:

Figure 1.5: External analyses’ outcomes 13

1.2.2 Internal Environment Analysis

Unlike the external analyses’ outcomes that brings about opportunities and threats,

by studying the internal environment, firms identify what they can do In other

words, a firm is expected to successfully identify unique resources, capabilities andcompetencies required for sustainable competitive advantage

Resources are defined as “a firm’s assets, including people and the value of its brand name Resources represent inputs into a firm’s production process, such as: capital equipment, Skills of employees, Brand names, Financial resources Talented managers”14

There are two types of resources including tangible resources and intangibleresources

Tangible resources are the financial resources and physical assets which are valued

in the firm’s financial statements Additionally, a business’s tangible resources also

13 Hitt, A, M; Ireland D.R and Hoskisson E.R, slide 4, chapter 3

14 Slide 14, chapter 3

include a company’s technological resources and organizational resources All ofthose have been identified in the following table:

Table 1.3: Tangible resources 15

Intangible resources are largely invisible, but over time become more important to

the firm than tangible assets because they can be a main source for a competitiveadvantage Such intangible recourses include Human resources, Innovationresources, Reputation resources To be more specific, each of the above factor can

be described in details as in the following table:

Table 1.4: Intangible resources 16

15 Hitt, A, M; Ireland D.R and Hoskisson E.R, slide 10, chapter 3

16 Hitt, A, M; Ireland D.R and Hoskisson E.R, slide 14, chapter 3

Capabilities 17 represent the capacity to deploy resources that have been purposelyintegrated to achieve a desired end state They often emerge over time throughcomplex interactions among tangible and intangible resources and are often based

on developing, carrying and exchanging information and knowledge through thefirm’s human capital

Four criteria for determining strategic capabilities18 include Value, Rarity, to-imitate, and Non-substitutability

Costly-Core Competencies19 are defined as the activities that a firm performs especially

well compared to competitors or the activities through which the firm adds uniquevalue to its goods or services over a long period of time

All in all, external environment and internal environment analysis or SWOTanalysis will help us understand better a company’s resource strengths, resourceweaknesses, best opportunities, external threats The SWOT analysis will help thecompany draw conclusions about how best to deploy resources in light of thecompany’s internal and external situation Then, the company could thinkstrategically about how to strengthen the company’s resource base for the future

Once the SWOT analysis has been successfully done, a firm should be able to selectthe best possible strategy to take full advantage of the strengths and opportunities aswell as mitigate the weaknesses

1.3 Business-level Competition Strategies

A business-level strategy is defined as “an integrated and coordinated set of

commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets.”20 The purpose of abusiness-level strategy is to create differences between the firm’s position relative

17 Hitt, A, M; Ireland D.R and Hoskisson E.R, slide 18, chapter 3

18 Hitt, A, M; Ireland D.R and Hoskisson E.R, slide 20, chapter 3

19 Hitt, A, M; Ireland D.R and Hoskisson E.R, slide 22, chapter 3

20 Hitt, A, M; Ireland D.R and Hoskisson E.R, slide 2, chapter 4

to those of its rivals To position itself, the firm must decide whether it intends toperform activities differently or perform different activities as compared to itsrivals.

Hitt, A, M; Ireland D.R and Hoskisson E.R suggests following types of level strategies shown in the following graph:

business-Figure 1.6: Types of business-level strategies 21

1.3.1 Cost leadership strategy

Cost leadership strategy is defined as “An integrated set of actions taken to produce

goods or services with features that are acceptable to customers at the lowest cost, relative to that of competitors with features that are acceptable to customers.”22

This strategy is applied for relatively standardized products with features acceptable

to a wide range of customers with lowest possible competitive price

If a company follows this strategy, there are certain costs saving actions required to

be follow First, the facilities must be built in a efficient manner This means the

21 Hitt, A, M; Ireland D.R and Hoskisson E.R, slide 24, chapter 4

22 Hitt, A, M; Ireland D.R and Hoskisson E.R, slide 12, chapter 4

facilities could help save resources and generate higher productivity Second, theproduction and overhead costs should be tightly controlled while the costs of sales,R&D and service should be minimized Any production processes should besimplified and any cost of activities provided by outsiders will also be strictlymonitored

In order to obtain a differentiation advantage, a company must raise performance ofproduct and service and create sustainability through customer perceptions ofuniqueness Therefore, a company will be able to raise the customer’s loyalty to theproducts and feel reluctant to switch to other non-unique product or service

1.3.3 Focus Strategies

Focus strategies are defined as “a set of actions taken to produce goods or services that serve a particular competitive segment.”24 The competitive segment could be aparticular buyer group, different segment of a product line or different geographicmarkets

There are two types of focused strategies, namely, focused cost leadership strategyand focused differentiation strategy To implement a focus strategy, firms must be

able to “complete various primary and support activities in a competitively

superior manner, in order to develop and sustain a competitive advantage and earn above-average returns”25

23 Hitt, A, M; Ireland D.R and Hoskisson E.R, slide 22, chapter 4

24 Hitt, A, M; Ireland D.R and Hoskisson E.R, slide 31, chapter 4

25 Hitt, A, M; Ireland D.R and Hoskisson E.R, slide 32, chapter 4

1.3.4 Integrated Cost Leadership/ Differentiation Strategy

The integrated strategy is expected to bring about a better position for the company

in term of quick adaptation to environmental changes, early adoption of new skillsand technologies A company of this kind could better leverage a company’s corecompetencies while competing against its rivals

According to Hitt, A, M; Ireland D.R and Hoskisson E.R26, a firm that follows theintegrated cost leadership/differentiation strategy is advised to commit to strategicflexibility which involves flexible manufacturing systems (FMS), adaptableinformation network and total quality management systems (TMQ)

Flexible Manufacturing Systems is characterized by computer-controlled processes

to produce a variety of products in moderate, flexible quantities with a minimum of

manual intervention This may help a company eliminate the “low-cost-versus-wide

product-variety” tradeoff and produce large variety of products at relatively low

costs

Information networks link companies electronically with their suppliers,distributors, and customers By having good connection with the stakeholders, acompany may better facilitate efforts to satisfy customer expectations in terms ofproduct quality and delivery speed Additionally, it may improve flow of workamong employees in the firm and their counterparts at suppliers and distributors.Customer relationship management (CRM) will also be implemented effectively

Total Quality Management Systems would help the firm to commit totally to thecustomer through continuous improvement using data-driven, problem-solvingapproaches and empower employee groups and teams to increase the customersatisfaction, lower costs and reduced time-to-market for innovation products

26 Hitt, A, M; Ireland D.R and Hoskisson E.R, slide 36, chapter 4

1.3.5 Select methods of assessment strategies

Based on the above analysis, the authors will select a company specific strategy.Possible basis for selection strategies will be rationalized by the use the GREATmodel

Weight (1)

Assessment score (2)

Total (1x2)

Assessment score (3)

Total (3x2)

Step 1: Select criteria that need to be analyzed (column 1)

Step 2: Use the impact coefficient showing the importance and the influence of

in an attempt to set the background for the following analysis of the fertilizer andchemical industry in chapter 2 The chapter ends with laying out some business-

27 David, F.R.,2003, p56

level competitive strategies, namely, cost leadership, differentiation, focus andintegrated cost leadership/differentiation Which strategies to choose forHANICHEMCO in the period 2011-2020 will very much depend on the analysis ofthe current situation of the company and its vision toward the future put forward inchapter 2.

CHAPTER II: AN ANALYSIS ON THE CURRENT SITUATION OF

HANICHEMCO 2.1 Current situation of macro and industrial environment

2.1.1 Macro economic conditions

Vietnam has become an attractive market for global retail and consumer goodindustry Ranked #6 by A.T Kearney in its Global Retail Development Index,Vietnam remains among the most exciting opportunities despite the current decline

in exports resulting in the GDP declines

Figure 2.1: Top 10 Countries in the 2009 Global Retail Development Index

(Source: 2009 A.T Kearney Global Retail Development Index report 28 )

Vietnam is on the radar screen which is most considerable for all retailers over theworld Additionally, Vietnam is on the peaking period in the GRDI window ofopportunity analysis29

2.1.1.1 Economic

28 http://www.atkearney.com/images/global/pdf/2009_Global_Retail_Development_Index.pdf

29 Source: 2009 A.T Kearney Global Retail Development Index report

Economic indicators 2006 2007 2008

Unemployment rate (% urban

Table 2.1: Selected Economic Indicators of Vietnam

(Source: General Statistics Office of Vietnam)

Economic development: Vietnam is one of the fastest-growing economies in the

world, averaging around 8% annual gross domestic product (GDP) growth from

1990 to 1997 and 6.5% from 1998-2003 From 2004 to 2007, GDP grew over 8%annually Foreign trade and foreign direct investment have improved significantly.From 1990 to 2005, agricultural production nearly doubled, transforming Vietnamfrom a net food importer to the world's second-largest exporter of rice The averageVietnamese savings rate is about 30% Inflation in 2007 was 7.3% but was in thedouble digits and approaching 30% year-on-year by August 2008 In 2009, Vietnamreasserted its goal of becoming a middle-income country by 2010 In US dollarterms, income per capita increased from $260 in 1995 to $835 in 2007 At this pace

of Vietnam would be ranked as a middle income country by surpassing $1,000 percapita in 2010

Nature of competition: Since the 1986 Doimoi, the private sector and foreign

sector has played more important role in the economy and account for above 70% inGDP in 2008 The 2005 approved Business laws established a uniform legalframework for enterprises in different sectors, regardless of their ownershipprofiles This is an important step to further consolidate a level playing field amongthe state-owned enterprises and those of the private sector

Membership in regional economic associations: Vietnam became a member of

ASEAN in 1995, APEC in 1998 and joined the WTO in 2007

2.1.1.2 Technological

Number of people using internet: The number of people using internet is a

relatively important technological factor for fast food companies to establish onlinedistribution According to VNNCI- Vietnam Internet Network Information Center, agovernment organization, total people using Internet in January 2009 were about20.984 million, accounted for nearly 24% population, and increased 7 times from

2003 Additionally, total broad band width Subscribers (ADSL) in January 2009were 2,092,666 subscribers, total Dot VN domain names were 92,992 websites Inreal life, free wifi cafés are available from big city to town in the countryside

Figure 2.2: Internet usage of Vietnam

(Source: Vietnam Internet Network Information Center)

Hanichemco considers the increase in the number of people using internet inVietnam a great advantage for the company to implement computer-based programs

such as CRM (Customer Relationship Management) aiming toward better after saleservice It can also use this channel to popularize strongly its brand name and crossselling.

Energy availability/cost: The average price of electricity is VND 862 per kWh,

nearly $0.049 per kWh, in 2009

Natural resource availability: The main natural resources of Vietnam are;

phosphates, coal, manganese, bauxite, chromate, offshore oil and gas deposits,forests, and hydropower (UABCI, 2008) Hanichemco’s main materials are stovecoals and powder coals which are the quite available resources in Vietnam Thiswill create a good strength for the company to reduce its production cost

Transportation network: Railways and road system are spread over the country.

Total quantity of goods by transportation in 2008 was about 604 million tons, anincrease of 8.9% year on year The improved transportation network will enable thecompany to further extend its market to the Central of Vietnam

Skill level of work force: Skill of workforce is improved by the trends of economic

growth The number of students in university increased 4.1% in 2008, students inhigh professional schools increased 19% compared to previous year This is a veryfavourable condition for Hanichemco to extend its current manufactory and recruitskilled labourers

Infrastructure: According to BMI30 (Q3,2009), the energy and utilities sector saw

a surge in new projects with at least two large projects breaking ground, includingthe 4.4GW Long Phu power complex in Soc Trang province and the750MW NhonTrach Power Plant No2 in Dong Nai Province Meanwhile, financing arrangementswere completed for the Van Chan hydroelectric power project in Yen Bai and theHuoi Quang hydro power plant In addition, JAKS Resources singed amemorandum of understanding (MoU) for the first ever public-private partnership

30 http://www.reportlinker.com/p0135270/Vietnam-Infrastructure-Report-Q3-2009.html

(PPP) in Vietnam's power generation sector for the Hai Duong thermal powerstation However, fixed capital formation is forecast to decline from 23% in 2007 to

an estimated 16% in 2008 and 2% in 2009

In fertilizer industry, most of the urea producers in the world are now using coal,petroleum and natural gas, the three most common energies at present, as materials.Demand for these three energies is expected to increase rapidly in the future Technology that producing Urea from coal is mainly used in China whereproducing Urea from powder coal accounts for 65.9% while producing from othermaterials such as: natural gas, oil residue, etc only account for 34.1% ProducingUrea from coal was first applied in the 1950s and until now has been developed intothird generation with modern technologies such as: Shell powder coal gasification(Netherlands) or Texaco (USA); Topsoe Ammonia synthesis technology (Denmark)

or Casale (Switzerland); Snamprogetti urea synthesis technology (Italy) orStamicacbon (Netherlands) of which the main feature is to reduce consumption ofraw materials and energy up to 50% compared with early technology Owners ofthose technologies has come to Vietnam to find opportunities for cooperation andinvestment and showed their willingness to transfer those technologies to Vietnamfor investment and production

2.1.1.3 Political-legal

Form of government: Socialist Republic

Stability of government: Vietnam government has been best known over the world

as the most stable one which is a competitive advantage

Legal system: Legal system in Vietnam has been improved greatly In term of the

governance, the Executives include -president (head of state and chair of NationalDefense and Security Council) and prime minister (heads cabinet of ministries andcommissions) Legislative: National Assembly Judicial Supreme People's Court;Prosecutorial Supreme People's Procuracy

Agricultural legal environment: Developing agriculture means also to develop the

supporting industries, including chemical and fertilizers industry Vietnamesegovernment approved the industry’s development strategy until 2020, and itsdevelopment orientation until 2030, which stipulates that:

Chemical industry is one of the most important industries, which will be given

favorable conditions to develop in accord with the country’s socio-economicdevelopment strategy Besides, advanced technology will also be applied in order toproduce high-quality products with competitive price and to protect theenvironment

Development orientation for fertilizer products: in-depth investment will be made;

innovating technology and equipments of phosphate, NPK and bio-organic fertilizerfactory; diversifying compound fertilizers; and improving nutrient content to meetthe domestic demands and to export

Vietnamese government facilitates and stimulates all economic sectors to invest inchemical industry State funds for investment includes: State budget, State-guaranteed credit, State credit for development investment, development investmentcapital of State-owned enterprises, and other funds managed by the State such asODA, FDI, foreign and domestic commercial credits, capital mobilized viaenterprise bonds

According to decree no 151/NĐ-CP dated 20/12/2006 regarding investment credit

and export credit of the State, investment projects in producing DAP and

nitrogenous fertilizers can borrow capital from Banks of development with interestrate lower than other commercial banks’

Administrative subdivisions: 58 provinces, 5 municipalities (Can Tho, Haiphong,

Danang, Hanoi, Ho Chi Minh City)

2.1.1.4 Demographics31 :

31 https://www.cia.gov/library/publications/the-world-factbook/

Population: 85.789.573 (April 2009 est.) in which more than 60% of the population

living on agriculture Therefore, chemical and fertilizer industry is of significantrole in the country’s economy

Agriculture proportion in the overall economic structure: nearly 60% of the

population working in the agriculture sector producing 20% of the GDP

Fertilizers supply: Mostly imported In the first 10 months of 2009, Vietnam has

imported 3,667 tones of fertilizers worth 1.144 bil USD, an 1.3 times increase asagainst that of 2008 32 Specifically, 1.284 mil tons of urea has been imported, worth0.352 bil USD, an increase of 1.9 times as against that of 2008

2.1.1.5 Global environment

That Vietnam officially became the 150th member of WTO in November 2006 isespecially significant to the economic relationships between Vietnam and othercountries in the world WTO is a fair “play ground” for competent members only;therefore, Vietnam is having many opportunities, but challenges also On the onehand, Vietnam benefits from expanded commodity market; there are a number ofchances to adopt modern and advanced technology of countries all over the world

On the other hand, a considerable challenge of Vietnam is to compete withexperienced opponents, who have strong economic potential, developed science andtechnology, along with advanced management

Today, more than 80% of world’s urea production is produced from natural gas.Thus, Urea factories mostly are built in areas with abundant natural gas such asRussia, Middle East, Indonesia etc Because of great demands but limited supplies,price of natural gas raises increasingly That makes countries having highproduction of Urea fertilizer, such as Japan and America, seriously affected; for

32 http://www.vinachem.com.vn/ViewTinThiTruongDetail.asp?ThitruongID=7607&cateID=1

instance, Japan even stops its domestic urea production and entirely bases on ureaimport.

As The International Fertilizer Industry Association (IFA) predicted, in period from

2005 to 2010, the world’s urea production may have an increase of 14 million tons,

of which 60% is consumed in place During this period, Western Asia willcontribute 50% of the production, next is China with 35%, and the rest mainlycomes from Russia and India

2.1.2 General industry situations

2.1.2.1 Agricultural Production Situation:

Vietnam, a country that long suffered from lack of food has now become the secondlargest rice exporter in the world In 2008, total food production reached 39.6million tons (in which paddy rice accounts for 35.8 million tons) with the averagegrowth of 1.36 million tons per year Food per capita reached 470.8 kg/person/year

In cultivation, the area of crops with high economic value increased remarkably Inthe past five years, the value of agricultural exports increased from 13.5 millionVND/ha to 17.5 million VND/ha

Year

2005 8366,7 7452,2 912,7 37706,9 34568,4 3136,3

2006 8437,8 7445,3 991,1 39581,0 36148,9 3430,9

2007 8383,4 7329,2 1052,6 39621,6 35582,9 3787,1

2008 8357,7 7324,4 1031,6 39648,0 35826,8 3819,4

Table 2.2: Cultivated area and yield of grain (Source: Statistic Yearbook 2008, p68)

The value of agricultural exports increase 16% annually, accounting for 40% ofagricultural GDP, some agricultural products of Vietnam have the potential andstrength in the regional as well as the world market

The consumption growth for urea has been lackluster in the last few years due to thereduction in agricultural land as a result of increased industrialization andurbanization Nonetheless, we expect the demand for urea to remain strong goingforward with more farmers switching from growing of rice to planting of fruits andvegetables which typically consume larger amount of fertilizer coupled with therising agricultural price that encourages farmers to use more fertilizers to boost thefresh fruits yields.

According to statistics of the Ministry of Agriculture and Rural Development(MARD), the current demand for fertilizers in Vietnam is more than 8.6 milliontons per year In particular, the need for urea is at approximately 2.5 million tons,phosphate fertilizer 1.5 million tons, NPK fertilizer approximately 2.4 million tons,DAP fertilizer about 700 thousand tons, SA fertilizer about 800 thousand tons andpotassium fertilizer 700 thousand tons It is estimated that fertilizer needs in thenext 10 years will increase about 10 ÷ 12% Thus, by 2015 demand for fertilizers inVietnam will reach 10 million tons, including demand for urea which is 3.3 milliontons, NPK 4.0 million tons

Cuu Long River Delta 1.498.000 1.647.000

Table 2.3: Forecast of Domestic Demand for Urea by 2015

(Source:Vinachem 33 ) 2.1.2.2 Domestic fertilizer manufacturing capacity:

(tons/year)

Ha Bac Nitrogenous Fertilizer and

Lam Thao Super Phosphate and

Chemical Company

Single SuperPhosphate

Can Tho Fertilizer and Chemical

33http://www.vinachem.com.vn/ViewTinThiTruongDetail.asp?

ThitruongID=7607&cateID=1

PetroVietnam Fertilizer and Chemicals

As for Urea fertilizers, from now to 2010 demand in the country will increase from2.5 ÷ 3 million tons per year, while the country’s manufacturing capacity will reachabout 1 million tons per year

2.1.2.3 Industry Competitive forces

34 http://www.vinachem.com.vn/ViewTinThiTruongDetail.asp?ThiTruongID=6868&CateID=5

Buyers - Distributors

End Users (Farmers)Company’s Products

Figure 2.3: Urea distribution system of HANICHEMCO

(Source: Hanichemco’s Third-quarter Sale and Marketing Department report, p23, 2009)

It can be seen from the above graph that direct customers are Wholesale

Distributors- which provide farming materials such as:

N

o

3 Bac Giang Agricultural Material JSC 11.900 33.323 31.950

4 Song Hong Agricultural Material

5 Hanoi Agricultural Material

8 Companies of Vietnam General

Table 2.5: Urea consumed amount of HANICHEMCO from 2006 to 2008

(Source: Hanichemco’s Third-quarter Sale and Marketing Department report, p24, 2009)

Every year, the average consumption fluctuated from 160,000 ÷ 180,000 tons

through the Distributors, "Ha Bac Fertilizer" has come to farmers in almost all

provinces in the North However, as presented above domestically produced Urea

(Ha Bac and Phu My nitrogenous fertilizer) only met about 35% of the totaldomestic demand.

Demand for Urea fertilizer in general and in particular for agricultural production is

very large (about 2.5 million tons of urea fertilizer per year), so Distributors have to

import annually large quantities of urea to meet business requirements and satisfydomestic need (about 65% of the demand) Urea demand in Vietnam is forecasted

to increase in the coming years

Comments on the bargaining power of customers:

With the above features together with their inner capacities, the Distributors have

created a certain number of advantages:

 Using illegally imported products from China, to create price pressure

 Powerful marketing network, good relationship with farmers for many years

 Strong Financial Capacity

 Extensive Warehouse Storage System

 Various choices of suppliers with various types of fertilizers and chemicals foragriculture purposes such as Urea, DAP, NPK, Kali etc

Relative power between Hanichemco and Distributors mentioned above has createdpressure for the company because the Distributors often create price pressure to getdiscounts, or more favorable payment terms etc

Continuously increasing oil prices, dragging up the urea price in the world market,with technology to produce urea from coal, products of the company have arelatively lower price than urea produced using gas-extracting productiontechnology, which has created significant advantages for the company

Moreover, the company has the advantage of providing goods with stable quantity,high quality, flexible price, lower transportation costs, the high number of

enterprises selling fertilizer mainly in the North, as to reduce the power of thecustomer.

Besides, the company has a history of business development for many years withclose relationships with its clients It also builds up trust and cooperation, whichhelps lessen the price pressure

The company's products are highly appreciated The annual survey results showedthat:

 The quality of products: more than 90% of the customers rated as good andvery good

 Price and services: over 80% of the customers give urea products goodreviews about the reasonable price and the good services

 The above results demonstrate the company's urea product has also beenaccepted and trusted

In conclusion, customer does not have an absolute power.

 An analysis on the bargaining power of supplier

As mentioned above, the company’s urea production technology uses coal Inaddition, the cost of coal accounts for 50% of product price Therefore, theproviders which play a very important role, directly affect to the company’sbusiness activities is the coal supplier (only focused on these suppliers within thisresearch project)

Table 2.6: The amount of coal purchased from 2005 to 2008

(Source: Hanichemco 2008 Finance and Accounting Report, p34)

According to statistics, the company has to buy a fairly large amount of coal eachyear to meet the demands of production from a single provider, the Vietnam Coaland Minerals Corporation

Monopoly gives the Provider - Vietnam Coal and Mineral Corporation too muchpower The supplier’s advantage cause many difficulties to the manufacturer whouse the raw coal as the main fuel such as thermal power, paper, cement, fertilizeretc.The suppliers are active and dominant in the sale relationship with their clients.They absolutely have the ability to put pressure on price, quality and supplyquantity etc Losses certainly belong to the buyer The coal price increasescontinuously in recent years, which has caused difficulties for households usingcoal – Ha Bac and Chemical Fertilizer Company is an example:

0 200 400 600 800 1000

Figure 2.4: Coal price (without VAT) between 2005 ÷ 2008