BUILDING BUSINESS STRATEGY FOR DUC LONG JOINT STOCK COMPANY

4 6.THE STRUCTURE OF THE SUBJECT...4 CHAPTER I RATIONALES FOR BUILDING ENTERPRISE’S BUSINESS STRATEGY...5 1.1OVERVIEW ABOUT BUSINESS STRATEGY...5 1.2PROCESS OF BUILDING BUSINESS STRATEGY

DISSERTATION MBA

BUILDING BUSINESS STRATEGY FOR DUC LONG JOINT STOCK COMPANY

HANOI – 2011

TABLE OF CONTENT

INTRODUCTION 3

1.THE NECESSITY TO CHOOSE RESEARCH TOPICS 3

2.STUDY SUBJECTS 3

3.PURPOSE OF RESEARCH 4

4.RESEARCH METHODOLOGY 4

5.SCOPE OF RESEARCH 4

6.THE STRUCTURE OF THE SUBJECT 4

CHAPTER I RATIONALES FOR BUILDING ENTERPRISE’S BUSINESS STRATEGY 5

1.1OVERVIEW ABOUT BUSINESS STRATEGY 5

1.2PROCESS OF BUILDING BUSINESS STRATEGY 6

1.3 ANALYSIS INSTRUMENTS OF BUSINESS STRATEGY 14

CHAPTER II ANALYSIS OF RATIONALES FOR BUILDING BUSINESS STRATEGY OF DUC LONG JOINT STOCK COMPANY 20

2.1INTRODUCTION TO DUC LONG JOINT STOCK COMPANY (DLC) 20

2.2 ANALYSIS ON BUSINESS ENVIRONMENT OF DLC 21

2.3GENERAL EVALUATION OF ENVIRONMENTAL FACTORS AND SWOT ANALYSIS 43

CHAPTER III SELECTING STRATEGY AND IMPLEMENTATION SOLUTIONS FOR 47

3.1MISSION, VISIONS AND STRATEGIC OBJECTIVES 47

3.2STRATEGY SELECTION PERIOD 2011 – 2020 OF DLC 49

3.3STRATEGIC SOLUTIONS 51

3.4STRATEGIC ROADMAP 60

CONCLUSION 62

1 The necessity to choose research topics

After six years of construction and development, the Duc Long Corporation(DLC) has gained encouraging achievements From an original base of polytechnictechnology burned brick manufacturing, now DLC has become one of the providers

of semi-flexible technology burn bricks with a top quality production in Bac Giang,and Bac Ninh The being-built factories of aerated autoclaved concrete (AAC brick)

of the company promised to elevate DLC to a new position in producingconstruction materials in general and environmentally friendly bricks in particular

In the context of economic integration, the level of competition amongenterprises increased fierce, many challenges posed to small businesses in general,and to DLC in particular

With a vision of striving to become one of 10 manufacturers anddistributors of environmental friendly construction materials in Vietnam in thecoming years, DLC has to apply scientific technology and scientific management inaccordance with practical conditions of the DLC Building a business strategy is themost important and practical thing to do to get the DLC-oriented platform forbuilding process and development of the company in the present and future Afterattending the program Master of International Business Administration from theUniversity Center Griggs and ETC - Hanoi National University, together with thecaring guidance of Prof Ngo Kim Thanh, we, the members of Group 13 in M1009class, implement the project "Building a Business Strategy for Duc LongCorporation period 2011 to 2020" to help DLC select an appropriate businessstrategy platform based on the knowledge and socio-economic reality of the country

as well as specific operational context of the current DLC

2 Study subjects

Subjects of research topics are business operations analysis and competitorsanalysis to form business strategies for the DLC That helps DLC make appropriatebusiness strategy in the period 2011 - 2020 to realize its vision

3 Purpose of research

The purpose of the research is to build business strategy for the Duc LongJoint Stock Commpany period 2011 - 2020 and to propose solution to implementstrategies that help DLC become 1 of 10 leading manufacturers and distributors ofenvironmental friendly building material products in Vietnam in 10 years

4 Research Methodology

We use the methods of analysis and synthesis, and combine with the matrixtool that has been learnt in other subjects: strategic management, marketingmanagement, corporate finance, production management, etc, applying to study thecharacteristics of business, financial data of the DLC and some competitors in theindustry We also use the techniques of inside - outside (IE) environmental analysisand SWOT analysis for the DLC

5 Scope of research

The scope of the research is limited to the industry of materials production;simultaneously, the data analyzed is mainly from the DLC and from somecompanies that are direct competitors with the DLC Therefore, the scope of theprojects are applicable in a particular business This is limited to this topic and weexpect the scope can be extended further to other economic sectors of our country inthe near future

6 The structure of the subject

Topics are laid out according to the main contents as follows:

Introduction

Chapter I Rationale for building business strategy

Chapter II Analysis of rationales for building strategy of Duc Long joint stockcompany

Chapter III Selecting strategy and implementation solutions for Duc LongCorporation

Conclusion

References

Appendix

CHAPTER I RATIONALES FOR BUILDING ENTERPRISE’S BUSINESS

STRATEGY

1.1 Overview about business strategy

According to Alfred Chandler, "Strategy is the determination of goals andlong-term basic objectives of the enterprise, identify actions and allocate theresources necessary to achieve that goal”

In the view of unity, "Strategy is the art of coordinating the activities andcontrol them to achieve long term goals of the enterprise." Chandler consideredstrategy involves to setting basic long-term goals of the business and selecting thecourses of action and allocate the necessary resources and implement those goals

In business, "Strategy is the art of design, and organizational means toachieve long term goals of the business and relationship with the change of businessenvironment and competitiveness."

A business strategy has the following basic characteristics:

- Business strategy defined the basic objectives and business direction of thebusiness in each period

- The orientation of the strategy to ensure business continuity and developmentfirm in the business environment is constantly fluctuating

- Business strategy to ensure maximum mobilization and optimal combination ofextraction, use of corporate resources in the present and future to promote theadvantages and seize the opportunity to gain in competition

- Business strategy of the business are reflected throughout the processcontinuously

- Business strategy always thought offensive, winning in the marketplacebusiness

- Business strategies are often built in a long period (3, 5, 10 years)

Develop business strategies have special importance for the survival anddevelopment of enterprises, which reflected the following aspects:

- Business strategy to help businesses identify the purpose, its direction as abasis, the guideline for all production and business activities of enterprises

- Business strategy to help businesses understand and take advantage of businessopportunities, and proactive measures to overcome the risks and threats in thecompetitive marketplace

- Business strategy to contribuites to improve the efficient use of resources,enhance the competitive position of businesses to ensure sustainabledevelopment of enterprises

- Business strategy creates a solid basis for the proposed policies and decisions

on production and business in accordance with the fluctuation of the market

1.2 Process of building business strategy

Business strategy is built according to a general process as below

Table 1.1: Road map to create business strategy

Source: Associate Professor, Doctor Ngo Kim Thanh

Analysis on internal factors

of company (S,W) (3)

Analysis on business environment (O, T) (2)

Strategy selection (4)

Strategy at company level (5)

Strategy at business and function’s level

Strategy implementation (6)

Test & evaluate results (7)

Corporate functions, missions and strategic

objectives (1)

Feedbacks

1.2.1 Determine mission and strategic objectives

1.2.1.1 Determine business mission

Drucker said developing a clear business mission is "responsibility ofstrategists" Nature of business tasks can be expressed through competitiveadvantage or disadvantage of the company

The good mission statement is a necessary condition for preparation,implementation and evaluation strategies The mission statement may vary inlength, content, size and unique features, but the report should be 9 effectivemanagement components and corresponding questions that a mission statementneeds to be answered are:

(1) Customers: Who are the consumers of the company?

(2) Products or services: What are products and services of the companies? (3) Market: In which market, does the company compete?

(4) Technology: Technology is a leading concern of the company or not? (5) Interest in a matter of survival, growth and profitability: the company is tied to economic goals or not?

(6) Philosophy: What are the basic beliefs, values, aspirations and priorities

of the company's philosophy?

(7) Self-assessment: What is special power or major competitive advantage

Mintzberg defines a mission as follows: "A mission for the basic functions

of a social organization in terms of aspects of goods and services that organizationproduced to serve its customers"

Mission is the message expressed the core values of the business Itexpresses the importance, the contribution of business in terms of business and life,

showing the motto of the enterprise, the location of the business marketplace andwhat the business is committed to comply Mission Statement should include aconcise but meaningful platform that is dynamically and display long-term stability.

1.2.1.3 Vision

Vision is a message specifying mission statement goals that motivate andhighlight the need for improvement that is vital for businesses; it creates confidence

in the future of business and it aims to turn the impossibleness into possibleness

1.2.1.4 Setting strategic objectives

Setting goals is the transformation of vision into specific performance thatcan be measured

The purpose of the establishment of objectives: Transforming the visioninto specific operational objectives; create standards to evaluate and monitor theactivities and, making the company to be creative, driven and focus on its actionplan

Characteristics of goal setting are: giving commitment to achieve specificoperational objectives and the results must be made over time in terms of quantityand types

1.2.2 Analysis and assessment of external environment

1.2.2.1 Macro environment analysis – PEST model

Analysis of the macro environment is aimed at identifying the changes, thetrends expected from the elements of the external environment With the focus onthe future, analyzing the external environment allows enterprises to realize theopportunities and threats

Political factors - the law (P)

The political factors and laws have a significant impact on the level ofopportunities and threats from the environment The main thing in this segment ishow business can influence government and how government affects them Thisfactor is constant change and will significantly affect the competition

Economic factors (E)

The state of macro-economic environment determines the health andprosperity of the economy, causing impacts to businesses and industries Economicenvironment is the nature and direction of the economy in which businessesunderstand relativity The economic impact of a business can change the ability tocreate value and its income Four important factors of the macroeconomicenvironment include: economic growth; interest rate, exchange rate and inflation.

Cultural factors - social (S)

The scope of the impact of cultural factors - society is often very broad, "itdefines how we live to work, production and consumption of products andservices." Thus an understanding of cultural - social facilities will be very importantfor managers in the strategic management process in organizations Theenvironmental aspects of social cultural forms influence significantly to businessactivity

Technology factor (T)

This is the kind of factors that has significant influence, directly to strategicbusiness areas, industry and business Changing technology can make existingproducts become outdated overnight, and it can generate a series of new productcapabilities Thus, changes in technology, including creation and destruction, bothopportunities and threats

Science and technology are key competitive factors, and the essence of thebusiness Therefore, analyzing and judging the change of technology is veryimportant and urgent The strategy needs to pay constant attention to changes ininvestment and technological progress

Natural factors (+)

Geographical location, climate, topography These are very importantfactors directly affect the process of production and business of enterprises.Unpredictable changes in climate sometimes threat to businesses their services areseasonal

Infrastructure availability is also considered a part of the natural factorsaffecting important to the organization of work, costing the business

1.2.2.2 Industry environment analysis

Michael E Porter, professor at Harvard School of Business Administration,has a framework to help managers identify opportunities and risks that businessesface in an industry Framework of Michael E Porter is called the five forces model

of competition, expressed by the following diagram:

Figure 1.1 5 forces model of Michael E Porter

Porter pointed out that the stronger the force, the more limited ability ofexisting firms to raise prices and earn higher profits According to Porter's model,strong competitive forces can be seen as a threat, because it will reduce profits Thestrength of five competitive forces may change over time, as industry conditionschange

The task set for the administrator is to be aware of the opportunities andrisks that changes in competitive forces will bring, thereby building appropriatelyadaptive strategy

Competitive pressures from existing competitors

If the weaker competitors, companies have the opportunity to raise pricesand earn greater profits Conversely, when the competition is strong, thecompetition in price is significant, and all price competition will lead to injuries.Therefore, strengthening competition among enterprises will create a strong threat

Competitive rivalry within an industry

Bargaining power of customers

Threat of substitute products

The risk from the potential competitor

The potential competitors are companies currently do not compete within

an industry, but become competitive if they choose and decide to join the industry.This is a threat to existing businesses The current enterprise in trying to deterpotential rivals does not let them join the industry, the more enterprises in theindustry, the more increasingly fierce competition is

The ease and difficulty for the entrants of potential competition dependslargely on the barriers to enter the industry The barriers to enter the industry,including: brand loyalty; Economies of scale and cost of conversion; the provisions

of the Government and the retaliation

The power of buyers

Third force in Porter’s five forces is bargaining power of buyers The buyer

of a business may be end users (end-user), the enterprise can distribute its products

to end users, or those retail and wholesale Buyers can be viewed as a competitivethreat to their business in a position to force down prices or demand higher qualityand better service Conversely, when people buy low, businesses will haveopportunity to raise prices and earn greater profits Buyers can give requests to abusiness depends on whether buyers have relative power to the business

The power of suppliers

The vendor may be considered a threat when they pressure to increase inputprices or reduce quality of products and services provided, so that reduces theprofitability of the business Conversely, major suppliers will give businesses achance to push down prices and demand high quality As for buyers, the ability ofsuppliers to request business does depend on the relative power between them andthe business

Threat of substititute products and services

Final force in Porter's model is threatened from the substitutes These aresubstitute’s products that can satisfy the needs of customers

Its characteristics are often superior to those of the product being replaced.The existence of strong alternative products is a competitive threat, limiting thepossibility of increasing value and thus limits the profitability of the business

1.2.3 Analysis and assessment of internal environment

Environmental analysis within the enterprise in order to: Identify strengthsand weaknesses of the enterprise to determine the capacity of differentiation andcompetitive advantage of companies (the basis for the selection of competitivestrategy); Identify core business capabilities (the basis for implementing the visionand mission)

1.2.3.1 Resources analysis

Analysis of resources to know the reserve of resources, capabilities andassets available to businesses The analysis should consider the financial resources;the material properties; human resources (skills and loyalty of employees andmanagers); intangible assets (reputation, brand, name sound financial, reputationstrategy, values, corporate culture), the technological assets (including copyrights,patents) and the long-term contracts

1.2.3.2 Research and Development capacity (R&D)

Research and development efforts can help the enterprise role up in leadingpositions in industry or vice versa, making enterprises lag behind the industry-leading businesses Therefore, enterprises must constantly change in technologicalinnovation related to the technology, products and materials

1.2.3.3 Production capacity

Manufacturing is one of the primary activities of companies associated withthe creation of products, strongly influence the success of your business Themanufacture of products with relatively high quality with relatively low prices willbring many benefits to businesses as easy to sell more products, saving financialresources to create positive attitude among employees

The contents of note when analyzing the factors of production are: priceand supply of raw materials, the level of inventory turnover, the arrangement ofmeans of production, performance and cost of equipment equipment, cost andtechnological capabilities with the industry and the competitors

1.2.3.4 Financial capacity

The functions of the finance department include the analysis of planningand supervising the implementation of financial planning and financial situation ofenterprises Finance department has a deep impact across the enterprise Whenanalyzing the accounting and financial factors, managers should focus on thecontent: the ability to mobilize short-term and long-term total capital of theenterprise, the flexibility of capital structure; the utilization of strategic controlcapabilities to reduce cost, accounting systems and effective for cost planning,financial planning and profitability

1.2.3.5 Marketing factor

The function of the marketing department include analysis, planning,implementing and supervising the implementation of the program, maintainingrelationships and communication with customers on the principle of mutualinterests Therefore, in general, the task of marketing management is to adjust level,timing and nature of demand among consumers and businesses to achieve goals

1.2.4 Forming strategic plans, selecting appropriate strategies

Strategy analysis and selection are mainly subjective decisions based onobjective information Strategy analysis and selection process to determineactivities which companies can fulfill the responsibilities and objectives Thecurrent strategy, objectives and mission of the company plus controlled informationinside and outside will form the basis for the formation and evaluation of feasiblestrategic options

1.2.5 Building actions plan and solution for strategy execution

Stage of setting up strategies to ensure successful implementation ofsuccessful strategies Although being interdependent, strategies between two stagessetting up and implementation are different in nature All "real work only beginsafter the strategy was set." The implementation of successful strategies will requiresupport, discipline, motivation and effort from all the administrators and staff

Implementing strategy should focus on key governance issues as well:

- Establish annual targets

- Establish policies

- Distribution of resources is an administrative operation spotlight to implementthe strategy

- Management of conflict

- Mounting structure with strategy

- Attach performance compensation strategy

- Administration of anti-change

- Create a culture to support strategy

1.2.6 Test and adjust

The strategy is too rigid mold and become obsolete when the environmentalconditions inside or outside of the business change So the strategy to review,evaluate and adjust the implementation of the strategy

Rumelt set standard for evaluating the strategy as follows:

1.3 Analysis instruments of business strategy

1.3.1 Matrix I.E

1.3.1.1 Matrix evaluation of external factors – EFE

Assessment matrix of external factors for strategy summarizes andevaluates economic information, social, cultural, demographic, geographic,political, government, law, technology and competition There are five steps todevelop a matrix evaluation of external factors

- Step 1: Make a list of 10 to 20 factors and risk opportunities primarily decisiverole for the success of businesses as identified in the inspection process fromexternal factors

- Step 2: Classification of importance from 0.0 (not important) to 1.0 (veryimportant) for each element This classification shows the respectiveimportance of the factors for success in the business of enterprise, of theimportance of all factors must equal 1.0

- Step 3: Classification from 1 to 4 for each determinant of success shows howthe current strategy of the business response to these factors, of which 4 is agood response, 3 is above average, 2 is the average response and a reaction low.These levels are based on the effectiveness of corporate strategy Thus theclassification step is based on firm’s size, while the classification in step 2based on the industry

- Step 4: Multiply the importance of each element of its type to determine thescore of the importance of each factor

- Step 5: Add all the scores on the importance of factors to determine a total score

of the matrix is important for business

The total score of the matrix does not depend on the number of elements inthe matrix; the highest is 4 points, at least one point If the total scores of 4,businesses respond well to opportunities and risks, if the total scores of 2.5 businessresponses moderately to opportunities and risks, if the total score is 1 businessresponses weakly to the opportunities and risks

1.3.1.2 Assessment matrix for internal factors – IFE

- Step 1: Make a list of 10 to 20 factors, including the strengths and weaknessesaffect the development of enterprises

- Step 2: Assign importance from 0.0 (not important) to 1.0 (most important) foreach element The importance assigned to each factor given that the relativeimportance of factors for the success of businesses in the industry Excludingmajor factor is the strength or weakness within, the elements are considered tohave the greatest impact on the performance of the organization shall bedeemed most importantly Total of all levels of this importance must be 1.0

- Step 3: Classification from 1 to 4 for each element will indicate factors thatrepresent the biggest weakness (classified as 1), minimal weakness (classified

by 2), the smallest strength (classified by three), and the biggest strengths(classified by four) Thus this classification is based on business, while theirimportance in step 2 based on the industry

- Step 4: Multiply each importance of each element with its type to determine theimportance of each factor

- Step 5: Add all important score of all factors to determine the total number ofcritical points of the matrix

The total score of the matrix range from 1 point to 4 points will not depend

on the number of elements in the matrix If the total scores below 2.5 points,enterprises are weak internally; if the total scores of 2.5 points or above, enterprisesare strong internally

1.3.1.3 Competitive image matrix

Competitive image matrix compares enterprises with competitors basingprimarily on factors affecting the competitiveness of enterprises in the sector,thereby helping administrators to identify strategies’ strengths and weaknesses ofthe enterprises with those of competitors, identifying competitive advantages forbusinesses and the weaknesses that companies need to overcome To buildcompetitive image matrix, we need to perform five steps:

- Step 1: Make a list of about 10 factors that affect critical to the competitiveness

of enterprises in the industry

- Step 2: Classification of importance from 0.0 (not important) to 1.0 (veryimportant) for each element This classification shows the respectiveimportance of each factor depends on the influence of factors, thecompetitiveness of enterprises in the sector, the total weight of all the factorsmust equal 1.0

- Step 3: Determine the number from 1 to 4 for each factor, the score of eachfactor depends on the ability of businesses to the elements, of which 4 is good,

3 is above average, 2 is average and 1 is weak

IFE – internal environment factors

- Step 4: Multiply the weight of each element with its scores to determine thecritical points of the elements

- Step 5: Sum of all important factors to determine the total number of criticalpoints of the matrix

We will compare the total number of enterprises with that of majorcompetitors in the industry to assess the competitiveness of enterprises

O), strengths threats (S T), weakness – threats (W T), weaknesses opportunities (W - O) Depending on the field of business, executives will use one

-or m-ore matrices to conduct SWOT analysis and select solution options

SWOT often makes four basic strategic groups:

- S - O: The strategy is based on the strengths of the business to exploitopportunities outside

- S - T: The strategy is based on the strengths of the business to prevent or limitthe threat from the outside

- W - O: The strategy fell within the internal weaknesses to take advantage ofexternal opportunities

- W - T: The strategy reduced the weaknesses in internal controls to prevent orlimit the threat outside

Strategists never consider all possible strategies to benefit the companybecause there are numerous feasible and countless ways to implement thesemeasures Thus only the most strategic group is selected to develop

To create a SWOT matrix, undergoes the following eight steps:

- (1) List the opportunities outside the company

- (2) List the important threats outside the company

- (3) List the key strengths within the company

- (4) List the weaknesses within the company

- (5) Combining the strengths of the external opportunities, enter the result ofstrategic S - O in the appropriate box

- (6) Combined internal weaknesses with external opportunities, enter the result

of strategies W - O in the appropriate box

- (7) Combining the strengths of the external threat, enter the result of strategic S

- T in the appropriate box

- (8) Combining the weaknesses within the external risks, enter the result ofstrategies W - T in the appropriate box

1.3.3 QSPM matrix

QSPM Matrix is tools used to quantify the information analyzed in the earlystages that allow administrators to select the optimal strategy, matrix QSPM includethe following six basic steps:

- Step 1: List the opportunities / threats and external big weaknesses / strengths inimportance within the enterprise

- Step 2: Classify each critical success factors inside and outside, theclassification as in the EFE Matrix, IFE matrix (Determination of weights)

- Step 3: Identify replaceable strategies that enterprises should consider forimplementation

- Step 4: Determine total points of attractions for each strategy Points representattractive relative attractiveness of each strategy compared with other strategies,assessment scale from 1 to 4: 1 is not appealing, 2 is somewhat attractive, 3 ispretty attractive, 4 is very attractive (AS)

- Step 5: Calculate the total points of attractions; this is the result of multiplyingthe number of classification (step 2) with some interesting points (step 4) ineach row (TAS) The higher the total scores are, the more attractive the strategy

is

- Step 6: Sum up the points of attractions It is the sum of attractions points in thecolumn of the matrix QSPM strategy For the degree of difference amongpublic attractions in a strategic group, the higher score indicates more attractivestrategy

Table 1.3 QSPM matrix sample

# Important factors Weight

Replaceable strategies Strategy 1 Strategy 2 Strategy n

External factors

Internal factors

Total attractive

scores

CHAPTER II ANALYSIS OF RATIONALES FOR BUILDING BUSINESS STRATEGY

OF DUC LONG JOINT STOCK COMPANY 2.1 Introduction to Duc Long Joint Stock Company (DLC)

2.1.1 History of the company

The precursor of Duc Long Corporation is Binh Son brick factory,established by some workers in 08/2005, specializing in burned brick in Minh Duc,Viet Yen, Bac Giang This was a factory specializing in production of bricks withBack Khoa blast furnace technology

Through the process of capital accumulation, in 2008, Factory Binh Sonwas converted into a limited liability company In the same year, the factory wassuccessfully transformed to technology of producing semi-flexible burned bricks intunnel oven with large output, and high quality

In 2009, Binh Son Ltd invested into factory with high technology ofunburned bricks in Que Vo, Bac Ninh, and converted into Duc Long joinst stockcompany (abbreviated as DLC); headquarter was moved to # 103 zone A, Pho Moi,Que Vo district, Bac Ninh province

Currently, in addition to semi-flexible tunnel technology factory withcapacity of 35 million unit / year operating stability and efficiency in Viet Yen, BacGiang, DLC is completing production line of earated autoclaved concrete withcapacity of 150,000 m3 per year in Que Vo, Bac Ninh, and concrete unburned brickfactory of 45 million unit / year in Phu Ly, Ha Nam

2.1.2 Business areas:

Duc Long Corporation is active in the areas registered as follows:

- Manufacturing concrete products, cement and plaster; Production from metallic minerals;

non Production of construction materials from clay; Manufacturing refractoryproducts; Manufacturing other ceramic products;

- Mechanical; treatment and metal coating; Wholesale materials and equipmentinstalled in the building;

- Manufacturing construction materials production; Construction of other civil

engineering; Transporting goods by road; local waterways cargo;

Among above business, the production of super light unburned brick, flexibe technology unburned brick and burned brick is the core content activities

semi-2.1.3 Organization of DLC

Figure 2.1 DLC’s organization

2.2 Analysis on business environment of DLC

2.2.1 Analysis on macro environment of DLC

2.2.1.1 Political and regulations factors (P)

Vietnam is one of the countries with political stability in the world This isone of the advantages to attract foreign investment in recent years

BOARD OF DIRECTORS

CEO

BOARD OF SUPERVISORS

DEPUTY CEO OF TECHNOLOGY

DEPARTMENT

OF SUPPLIERS AND LOGISTICS

DEPARMENT

OF TECHNOLOGY

- QA

MARKETING DEPARTMENT

FINANCE &

ACCOUNTING DEPARTMENT

HR DEPARTMENT WORKSHOP

PRODUCTION

Legislation, although there are many gaps in the legal system, with theeconomic integration, Vietnam has gradually improved situation, creating afavorable macro environment for investors.

The process of administrative reform, including improving procedures forinvestment andbusiness legislation in recent years, has brought many positiveresults but there are still matters need to improve, and are opportunities andunderlying factors that are challenging for all businesses

The introduction of a law such as the Investment Law, Business Law,Construction Law, Tax Law, resources – environmental Law, employment lawetc has created a legal framework for businesses to operate favorablely Besides,the perfection of the business also requires to be bound by strict obligations duringthe operation

Decision No 121/2008/QD-TTg dated 29/08/2008 of the Prime Minister onapproving the master plan for developing the industry of construction materials up

to 2020 and Decision No 567/QD-TTg dated 04/28/2010 by Prime Minister toapprove development program of unburned construction materials until 2020created special opportunities for businesses that are environmentally friendlydevelopt In addition to preferential policies to develop the regulations, it alsorequired the building to use at least 30% of light materials in construction of tallbuildings, encouraging the use of other materials will create market opportunitiesopen to the DLC

Decree No 24/2007/ND-CP dated 14/02/2007 of the Government detailingthe implementation of some articles of Law on Corporate Income Tax Circular No.134/2007/TT-BTC on 23/11/2007 of the Ministry of Finance guiding theimplementation of Decree No 24/2007/ND-CP February 14, 2007 of theGovernment detailing the implementation of Enterprise Income Tax Law, whichstipulated that projects produce unburned brick as DLC on the list of specialinvestment incentives (Group A), free of corporate income tax, exemption of landuse fees and machinery import duty is a favorable opportunity for DLC toperform strategic objectives for financial investors to implement new projectseffectively

2.2.1.2 Economy factors (E)

Since the renovation, Vietnam has achieved significant economic success, itbrought the country out of crisis and build market economies Especially in recentyears, due to rapidly growing economy and relatively stable rate of urbanizationleads to demand for construction and housing also increased the demand pull on thematerial collected construction also increased

Table 2.1 Growth rate in some manufacturing industries period 2006 – 2010

Wholesale and retail trading; cars,

motorcycles, motorbikes and other motor

vehicles repairing and maintaining

13.32 13.44 14.03 14.51 14.33

Financial, banking and insurance activities 1.39 1.41 1.42 1.48 1.46 Real estate business activities 2.69 2.55 2.43 2.44 2.4 Specialize, scientific and technological

Administrative and support services activities 0.46 0.45 0.43 0.43 0.43 Communist Party activities, political and social

organization, state management, national

security, compulsory social security acitivities

Health and Social support activities 1.46 1.4 1.28 1.28 1.19 Arts and entertainment activities 0.83 0.8 0.75 0.79 0.76

Activities which the employees work in

household production for material products

and services for own use by these households. 0.17 0.17 0.17 0.17 0.17

(Source: General Statistics)

With the determination of the country, Vietnam is considered one of theearliest countries to overcome the hard times and fast recovery after the globalfinancial crisis Total domestic product (GDP) in 2010 increased 6.78% compared

to that of 2009 This is a fairly high rate compared with an increase of 6.31% in

2008 and much higher than the rate of 5.32% in 2009, exceeding the 6.5% targetset (Source: GSO)

Continuously for more than years from 2007 to 2010, our country wasaffected badly and complexility by the world economy Thanks to the timely anddrastically leadership and direction of the Party, the National Assembly and theGovernment for the efforts and initiative in overcoming the difficulties of theministries, localities and corporations, venture industry, manufacturers and people’sconcensus, so that our economy and society were initially overcome some difficultchallenges, inflation was curbed, production is prioritizedly developed, the socialsecurity objectives continue to achieve good results

However, seven months in 2011, inflation was rising, and getting morecomplicated:

Figure 2.1 Movements of inflation in seven months in 2011

(Source: General Statistics)

Thus, overall, the growth rate of Vietnam's economy is relatively goodcompared to the overall situation of the world economy, opening up opportunitiesfor DLC to implement its growth strategy However, high inflation and

January February March April May June July

unpredictable undermine macroeconomic stability slow-down the economy, createhigh interest rates, and the exchange rate is not stable Inflation increases,investment in expanding production of DLC becomes risky, causing difficulties forexpectation in future, this is the challenge for the DLC in planning andimplementing its strategies.

Although many experts forecast that Vietnam will soon curb inflation,stablize macroeconomics, overall picture of the economy will be brighter in thefuture, but businesses in general, DLC in particular, need to closely observe thechanges in situations to have appropriate response accordingly

2.2.1.3 Social culture factors (S)

National average population in 2010 was estimated to be 86.93 million

people, including male population of 42.97 million, accounting for 49.4% of thetotal population, up 1.09%; female population of 43.96 million, accounting for50.6%, up 1% Of the total national population in 2010, urban population was 26.01million, accounting for 29.9% of the total population, up 2.04% over the previousyear; that in rural areas was 60.92 million people, accounting for 70.1%, up 0.63%.Sex ratio of population in 2010 was 97.7 men per 100 women (in 2009 this was97.6 / 100) Large population, the percentage of urban population is rising asdemand for housing increases; therefore, the product of the DLC will have a largemarket

The average income of Vietnam in 2010 reached $ 1,160 / person; this was

favorable for investment activities As the economy developed steadily and incomes

of farmers were increasing, demand for living and working (home, office,entertainment ) will increase According to Decision No 76/2004/QD-TTg dated06/5/2004 of the Prime Minister for approval-oriented housing development in

2020, our country strives for urban housing development in 2010 to reach 15 m2floor / person and 20 m2 / person in 2020; and that in rural will reach average ofapproximately 14 m2 to 18 m2 in 2010 and 2020 Therefore, the demand forhousing, offices, systems infrastructure for urban areas, public transport, and culture will be huge in the future If reaching the goal by 2030, housing area per personreached 30 m2 for urban areas and 25 m2 for rural areas, then we need 2,305million m2 of housing floor, not to mention the need for development of industrial

parks, infrastructure, work culture, business center It shows that demand forconstruction materials in the future is huge This is a great chance of DLC.

Forecasts to 2015, total educated labor will increase 6 million compared to

that of 2010, accounting for 50% of the workforce Period 2016-2020, the totalnumber of trained employees is 36.8 million, an average increase of over 1.7million people

According to statistics by the Central Association of Science developinghuman resources - talents resources in Vietnam Workforce Training Seminar 6 /

2011 - currently there are about 53 million people at working age, accounting formore than 63 % of the population However, unemployment remains high in ourcountry: in 2009, the rate was 4.66%, in which the unemployment rate was 6.1% inrural areas Although there are about 1,300 colleges, intermediate vocationaltraining center, but the quality of training does not meet international standards, thecurriculum does not fit, and does not meet the requirements for industrial, exportprocessing zones and export of labor

In areas of DLC’s operation, the characteristics of population, income,labor force training is quite similar to the general characteristics of the country

Thus, abundant labor force creates favorable conditions for enterprises toattract employees easily (in volume) for expanding production scale, but at the sametime solving challenges in the quality of labor trained to meet the technicalrequirements and production technology

Consumption habits of the traditional building material products are deep

into flesh and blood people (especially rural) for a very very very long time, limitedinformation and knowledge of high technology products were as one or moreimportant constraints to the product materials that are environmentally friendly topenetrate market

The trend of consuming high quality products, high technology and

appreciating domestic products, and paying greater attention to environmentalissues are great opportunity as well as challenge of DLC

The enhancement of social responsibility of enterprises towards makinggood business practices in dealing with employees has improved the sociality of

product If you do this well, the business community will promote the traditionalcare to each other to create brand name for products, for business, and for country,and become a comparative advantage to other countries.

2.2.1.4 Technology factors (T)

The process of technology development in Vietnam in recent years is paid aspecial attention to Application of new technologies in production and business(technology products, technological equipment, information technology, technologymanagement ) become important sources of competitiveness of enterprises today.However, overall, technology in Vietnam is considered as being quite far behindcompared with that of the world Investment activities in studying of technologysolutions have not been adequate attention

Technology for producing new products with high yield, low cost, easy toadapt to the changing structure of products are important criteria when deciding thecourse of the business investment The trend of IT application in enterprises todayis: the pace of technology development is rapidly increasing; product life is shorter,rapid imitation of small businesses

Information technology and electronic data exchange become a wonderfultool to control the external factors, create the means to work efficiently to identifythe opportunities and threats, as change the way business, reducing inventoryrequirements, improve customer service, reduce costs

Materials production technology in Vietnam is generally backwardcompared with that of the world Most investment projects used old technology, oldmachinery, and sometimes as "industrial waste" of foreigners Businesses investsynchronous technology from the beginning will have a competitive advantage.And this is one of the elements for DLC confidently enter the market even it is ayoung company

Environmental technologies on one hand create opportunities andadvantages for business applications in manufacturing high technology businesssuch as DLC, on the other hand put DLC facing the challenges posed by the cost ofexpensive technology investments, requireed training of qualified personnel to

master constantly improving technology, the issue of copyright, protecting tradesecret of production and business

Requirements for environmental responsibility with business are increasing

As reported annual business survey, expenditures for environmental protectionaverage per enterprise in 2007 were about VND 564 million in 2008 were VND 822million Requirements for environmental responsibility make cost of businessincreasing Moreover, responsibility for the environment is also an importantcomponent of forming "clean" product

Infrastructure system in Vietnam is concentrated strong capital investmentand has improved significantly (electricity, road, telecommunication systems ) inrecent years but is still limited and needs to be continued to promote investment inupgrading

The effects of natural elements to construction materials industry is veryimportant, that the use of natural resources (clay, stone, coal ) as raw fuel ormaterials DLC can reduce the dependence on resources in the production processthrough technology less selective to raw materials, cheap plentiful supply; activelong-term storage of raw materials right from the start of the project will have acompetitive advantage

Transportation costs account for a large proportion of the cost structure ofgeneral construction materials industry make it difficult for enterprises to builddistribution systems Therefore, enterprises must consider the plan production sitesnear to the market in order to implement strategies to expand and gain market share.Starting from this issue, DLC was properly concerned about technology and theenvironment, the construction of factories in different locations, near to the market,

convenient transportation, near to material resources This is the way DLC takesadvantage of opportunities and responds to the challenge of shipping costs, createcompetitive advantage.

2.2.2 Analysis of external environment of DLC

2.2.2.1 Competitive pressure among current rivals

Competitive structure in brick production is decentralized structure,including a large number of small scale enterprises or medium, without anybusiness which hold a dominant position However, for the brick market, firms donot have to compete with imported goods; competitive pressures are not severe as inother sectors

Status of the industry demand is currently very high and will grow in thefuture, creating great opportunities for DLC According to the VietnamConstruction materials Association, in 2008 the construction sector in the countryuse 22 standard billion bricks (total production in 2008 the country produced about

20 billion units) Estimated demand for the country in 2010 was 25 billion units,

2015 would be 32 billion and 42 billion in 2020 needed Current domesticproduction capacity does not meet demand

As of 2008, there were about 20,000 handmade bricks kilns, with totalproduction accounting for 50% of the total nationwide According to the Decision115/2001/QD-TTg approving the master plan for developing the industry ofconstruction materials to Vietnam in 2010, the country will remove all thehandmade bricks kilns that make environment polluted in 2010, switch to modeldeveloping alternative technology products After removing polluted brick kilns,according to calculations of the materials association in Vietnam, with 600 plantsand over 10 projects of light burned brick together with some ongoing unburnedbricks manufacturers, the country will lack of about 12.6 billion bricks (Source:Vietnam Construction materials Association)

Barriers for leaving the industry of brick are relatively high, due to special

nature of technology, machinery, raw materials, capital and labor issues Whenfacing difficulties, businesses often try to survive rather than to plan to leave the

industry (the popular way to leave now is to transfer capital, change ownership) So,competitive pressures from the barriers are high, this is a challenge for the DLC.

Direct Competitors: Currently, there are about 600 burned brick factories,

12 AAC brick factories have been or are about to go into production, 5 foamconcrete plants, about 20 unburned concrete brick plants medium-sized aggregatesand hundreds of manufacturing facilities other small crafts However, the directcompetitors of the DLC are actually only about 7 to 8 businesses

Direct competitors are selected to compare and analyze with the base thatthese companies have same product line in building materials industry sector; there

is similarity in production scale, product structure and also have the same businesslocal with DLC Through analysis of five largest competitors, we assess thecorrelation between the rival forces through competitive image matrix as follows:

Table 2.2 Assessing correlation forces among current rivals

Portfolio

structure and

product quality

0.15 3 0.45 3 0.45 2 0.3 3 0.45 3 0.5 3 0.45 5

Investment

ratio per

product unit

0.05 4 0.2 2 0.1 3 0.15 3 0.15 3 0.2 3 0.15 6

0

Corporate

* Abbreviations:

- Viglacera: Viglacera aerated autoclaved Concrete Joint Stock Company

- SCL: Song Da Cao Cuong Joint Stock Company

- DMC: Doan Minh Cong Joint Stock Company

- KM: Khang Minh Brick Joint Stock Company

- TX: Tan Xuyen tuynel brick Joint Stock Company

We also take a note down that the Viglacera aerated autoclaved ConcreteJoint Stock Company were selected as a new subsidiary of Viglacera Corporationthat established in 2009 specialized in manufacturing AAC brick products, and isnot the whole Viglacera corporation system Therefore, it should be successfully anominate example for analyzing and comparing against DLC

2.2.2.2 Analysis on threats of potential rivals

Brand loyalty: loyalty to the brand of construction bricks is not high;

consumers are deciding to buy mainly on price and quality, which facilitate thenewcomers want the market share of existing firms Therefore, it increases thethreat of joining potential competitors

Economies of scale: production and sales increase, the cost per unit

decreases as the general characteristics of brick This factor makes the risk of newbusinesses to entry increased

Cost of conversion: when customers want to switch their purchases to other

suppliers, switching would be virtually no cost Customers are not restraining theproducts of existing firms, and easily converted to use the product of newcomersbetter In fact, even the company is a new business entrant, products of the DLCeasy to attract customers and create strong brands

The provisions of Government regulations encourage enterprises to produce

environmentally friendly products, which create favorable conditions for enterprises

to new entrants However, restrictions on licensing and exploitation of naturalresources in each province allows limited number of enterprises to registerinvestment products to meet the needs of local, when production is high enough,

local government will cease investment licensing; this creates the largest barriers toentry Registered enterprise has much more convenience to expand the busienssthan the completely new ones; these factors contribute to the reduction ofcompetitive pressure from potential competitors.

Retaliation: existing brick manufacturers have fixed assets that are less

likely to liquidate in the market, they will react very strongly if the market isnarraowed and there is competition This is a barrier for potential competitors toenter the industry

In general, potential rivals for the brick manufacturing industry are only

moderately Potential rivals for the enterprises with unburned production are highwhile that of unburned bricks is very low Currently, the DLC is expected to bepotential competitors with a number of enterprises of Viglacera and Thach Ban;they are are strategically expanding industry in the same direction with that of DLChas chosen: to increase investment in environmentally friendly products line

2.2.2.3 Analysis on bargaining power of customers

For burned brick products, the actual brick production in recent years notenough to meet demand, customers of DLC are mostly households buying smallquantities, les options, thus, bargaining power is not strong Competitive factorsderived from the power of the buyers for burned brick products low

For products AAC brick: as a new product, customers of DLC mainlybuy big volume so they have more power relative to manufacturers Therefore, forlight brick products, DLC needs to build strong distribution system; there arecertain incentives for customers, good after sales service to compete with others

For concrete unburned brick, customers are ranging from families to largeconstruction contractors; it is depending on size of purchases, each subscriber hasdifferent powers Thus, to compete, DLC should develop flexible sales methodssuitable for each specific customer

2.2.2.4 Analysis on power of suppliers

For tunnel (burned) brick semi-flexibility technology, the raw material used

as hill sands, which have little economic value, plentiful and cheap, almostindependent on vendor because DLC is actively have materials for manufacturing