BUILDING BUSINESS STRATEGY FOR TOAN PHAT CONSTRUCTION INDUSTRY JOINT STOCK COMPANY

BUILDING BUSINESS STRATEGY FOR TOAN PHAT CONSTRUCTION INDUSTRY JOINT STOCK COMPANY TOPACO VISION TO 2020... Toan Phat Construction Industry Joint Stock Company Topaco is a newlyestablish

BUILDING BUSINESS STRATEGY FOR TOAN PHAT CONSTRUCTION INDUSTRY JOINT STOCK COMPANY

(TOPACO) VISION TO 2020

VERIFICATION AND ASSESSMENT OF TOAN PHAT CONSTRUCTION

INDUSTRY JOINT STOCK COMPANY

(TOPACO)

1 Contribution of the research project

The research project of group 10 - class GaMBAM0709 not only introducessuitable scientific theoretical points but also makes practical contribution tobuilding business strategy of Topaco

Scientific implication: In the market economy, business strategy has a

decisive role to the success or failure of an enterprise Business strategy is important

to all enterprises rather than a typical one If wanting to exist and develop, first ofall, there must be a good and effective business strategy

There are many approaches to build business strategy for an enterprise Theresearch project has a scientific implication that is summarizing the existing theoriesfrom many different sources to form a process of building business strategy for anenterprise in the most basic, easy-to-understand and easy-to-use manner

Practical implication: Rooting from the formation of business strategy that

is vital to an enterprise, the research project contributes to assert the importance ofbuilding business strategy, providing enterprises in general and Topaco in particular

an approach on building business strategy

In the current market economy with fierce competition, building a successfulbusiness strategy will be a difficult and complicated task There are manyapproaches to build business strategy; however, building an appropriate andeffective business strategy is not simple

This research project has introduced a new approach to establish a process ofbuilding suitable business strategy to the current situation in Vietnam, not onlyapplicable to Topaco but also has implication to the formation of business strategyfor many other enterprises Basic factors involved in the process of buildingbusiness strategy include:

Identifying the goals of the enterprise; evaluating environmental factors to

the enterprise; finding opportunities and threats to the operation of the enterprises

combining with the assessment on the strengths and weaknesses of the enterprise to

form matrix for selecting strategy and form a full business strategy

To Topaco, this research project is very valuable to the Company’s Board of

Leader in making business strategy, especially in reinforcing and promoting the

brand image via raising productivity and effectiveness of sales and customers care

services, bringing about high effectiveness for Topaco

2 Shortcomings of the capstone project and orientation for later

researches

Because the conclusion of the research is drawn from the real situation at

Topaco, so according to Topaco, the application of these measures and conclusions

into other companies will need further researches

On behalf of Topaco’s Board of Leaders, I would like to express our sincere

thanks to members of group 10 for the research project./

GENERAL DIRECTOR OF THE COMPANY

Nguyen Ngoc Vinh

To help us complete the capstone project of Global Advanced Master ofBusiness Administration Program (GaMBA), members of group 10- classGaMBA.M0709 has received a lot of support and contributed ideas of the lecturerand staff of GaMBA Program ad Board of Leaders of Toan Phat ConstructionIndustry Joint Stock Company

We would like to express our sincere thank to the Board of Leaders,Teaching and Study Managing Department, Class Management Division, etc ofGaMBA Program We are very grateful to the Board of Leaders and the staff ofcenter for Educational Technology and Career Development (ETC) - VietnamNational University, Hanoi and Griggs University (USA) Thanks to your support,

we can study in the most favorable conditions

We are grateful to lecturers of GaMBA Program and Griggs USA Thanks to your enthusiasm and conscience in teaching, we have gained usefulknowledge for our current jobs

University-Last but not least, we are in debt to our families’ members and classmates inM0709 class Thanks to their support and encouragement, we have finished thecourse without encountering any obstacles

Although the group has tried a lot but due to the condition of work-study, thequality of the capstone project is still limited We do hope and will try to study anddevelop the research project both in theory and in application in the real situation ofTopaco with the expectation to make a small contribution to the sustainable successand development of Topaco in competing in the coming integration environment

We have tried to complete the capstone project in the best way with ourknowledge and capacity; however, shortcomings are unavoidable, we do hope toreceive valuable contributions from our teachers and classmates./

MEMBERS OF GROUP 10

1.1. CONCEPT AND CLASSIFICATION OF BUSINESS STRATEGY 13

1.1.3 Basic characteristics of business strategy 14

1.2.1 Analyze internal and external environment 15

1.2.1.1

5 1.2.1.2

9 1.2.2.2

.

0 1.2.2.3

.

1 1.2.2.4

4 1.2.3.2

25

2.1.1 The process of establishment, organizational structure and

apparatus

26

2.1.2 Situation and business performance from 2008 to 2010 28 2.2 ANALYZING SITUATION ANG BUSINESS SITUATION OF TOPACO COMPANY

31

2.2.1.1

2 2.2.1.2

2 2.2.2.2

.

7 2.2.2.3

.

9 2.2.2.4

External-Internal factor evaluation matrix 5

2 2.2.3.2

.

5 2.2.3.3

.

8

3.1.1.1

5 3.1.1.2

3.2.2.1

0

3.2.2.2

4

LIST OF TABLES

page

Table 1.1: External factor evaluation matrix ……… 20

Table1.2: External factor evaluation matrix ……… 21

Table1.3: Competitive Profile Matrix ……… 21

Table 1.4 SWOT Matrix ……… 22

Table 1.5 Table of selecting strategy ……… 23

Table 2.1: Performance of Production and Buisness in 2008, 2009, and 2010 29 Table 2.2: List of main supplier of material for Topaco ……… 40

Table 2.3: Table of comparison of competitors ……… 50

Table 2.4: External Factor Evaluation Matrix of Topaco (EFE) ……… 52

Table 2.5: Topaco’s matrix of internal factor evaluation (IFE) ……… 53

Table 2.6: Several socio-economic targets ……… 61

Table 3.1: SWOT matrix of Topaco……… 67

Table 3.2: comparison of feasible strategies ……… 71

Table 3.3: GREAT Model to select strategy ……… 72

Table 3.4: Total production cost of 1m3 of concrete construction …………

76

LIST OF FIGURES AND GRAPHS

page

Figure 1.1 Business strategy ……… ……… 13

Figure 1.2 Process of building business strategy ……… 15

Figure 1.3 Macro environment ……… 16

Figure 1.4 Five forces model ……… 18

Figure 2.1: Model of Organizational structure ……… 27

Figure 2.2: Chart of Revenue, Profit Target ……… 30

Figure 2.3: Chart of density structure of products and service as per revenue 41 Figure 2.4: IFE – EFE matrix ……… 55

Figure 2.5: BCG Matrix ……… 56

International economic integration creates conditions for Vietnam’sconstruction enterprises to have a more dynamic business environment Vietnamalso becomes a new market to foreign enterprises When foreign enterprises invest

in Vietnam, there will be a competitive environment; therefore, Vietnam’senterprises need to build a concrete and long-term business strategy

Toan Phat Construction Industry Joint Stock Company (Topaco) is a newlyestablished Company which has ceaselessly developed in organizational scale Atpresent, Topaco has been participating in constructing many key industrial projects

of the country such as hydroelectric power plants, bridges and roads, civilconstruction, etc Therefore, setting targets and plans as well as operating strategiesfor the Company to set the long-term development orientation really plays an

important role in the development orientation, creating competitive advantages tothe Company in the coming time More importantly, the leader of Topaco is also amember of group 10 – that is the Chairman of Management Board and GeneralDirector of the Company – Mr Nguyen Ngoc Vinh.

Therefore, we, group 10 decided to select the topic "Building the businessstrategy of Topaco from 2011 to 2015, Vision up to 2020" as a capstone project.The topic will demonstrate the importance and practical significance of building abusiness strategy if the Company really wants to have sustainable development Atthe same time, the subject also provides businesses and business owners withstrategy-building process, analysis and assessment of the real situation of currentbusiness of the Company, analyses of both objective and subjective impacts on theproduction and business activities of the company Since then, we will makerecommendations to choice the best business strategy to the Company in 2011 -

2015 period and vision toward 2020

2 OBJECTIVE AND SCOPE OF THE STUDY

- Build strategic business objectives for the Company from date to 2015,vision up to 2020 and propose the plan to implement the strategic objectives inorder to help the Company develop sustainably in competitive environment andintegration

- To us, members who conduct the project, this is the application of theorylearnt from MBA program to solve job-related problems in the reality

2.2 Subject and scope of the study

- Subject of the study: Toan Phat Construction Industry Joint Stock Company(Topaco) However, in order to analyze and clarify the content studied, the researchsubject is expanded to other competitive companies in the construction sector.

- Scope of the study: includes problems related to the business strategy ofTopaco in execution and installation

- Research duration through statistical data from 2008 to 2010 and factorsaffecting the business of the Company up to 2015 to analyze and assess the business

of the Company

3 METHODOLOGY OF THE STUDY

To achieve the objective and meaning as mentioned above, research methodselected by us is applying synthetically a lot of qualitative and quantitative researchmethods, including:

- Method of dialectical analytical: We have analyzed the data and documents

on the development history of Toan Phat Construction Industry Joint-stockCompany (Topaco) as well as resource management of the Company for the pastyears, especially three recent years (2008, 2009 and 2010) to analyze the strengthsand weaknesses of the Company and focus on researching opportunities as well aschallenges in order to make the best business development strategies for theCompany in 2011-2015 period We also considered the research subject in a logicaland dialectic relation with other problems to make the essay more highly applicable

- The statistical and method combines theory and practice to build matrices

in order to select the appropriate business strategy for Topaco The advantage ofthis method is simple to implement, but this method also has disadvantages, that is,the accuracy is often not at high level compared to the actual survey because itcomes from the subjective opinions of those who implement the project However,this method is enough to build a good business strategy

4 STRUCTURE OF CAPSTONE PROJECT

Apart from the introduction, conclusion, the capstone project consists ofthree chapters and the summary of each chapter is presented as follows:

Chapter 1: Basic rationale of the research project

This chapter presents most basically the definition of business strategy andprocess to program a business strategy, at the same time, present matrices to helpselect the business strategy

Chapter 2: Analyzing the real situation of business of Toan Phat Construction Industry Joint Stock Company (Topaco)

Introduce the establishment and development of the Company, key businessproducts and make brief assessment about the business of the Company in recenttime Analyze external environment as well as internal environment, strengths andweaknesses, and establish matrices like IFE, EFE and BCG The conclusion of thechapter makes assessment of the implementation of business plan, shortcomings andnecessity to build a business strategy in 2011 – 2015 period

Chapter 3: Solutions and recommendations

Determine the objective, vision, mission, core value to propose and selectbusiness strategy in 2011-2015 period, solutions to deploy the strategy and somerecommendations to solve shortcomings and enhance business productioneffectiveness of Toan Phat Construction Industry Joint Stock Company (Topaco) inthe up-coming time

Chapter 1 BASIC RATIONALE OF THE REAEARCH PROJECT 1.1 CONCEPT AND CLASSIFICATION OF BUSINESS STRATEGY 1.1.1 Concept of business strategy

The concept of business strategy was introduced a long time ago This is thescience of planning and controlling activities Accordingly, the basic theoreticalpoint of strategy is that a party can crush their rival that is even stronger and morecrowded if they can lead the situation and put their rival into a favorable battlefieldfor the deployment of their capacities When the exchange of goods became moreand more developed in the society, strategy started to be used more in business withthe general model as follows:

Figure 1.1 Business strategy

Scholars viewed business strategy under different angles According toMichael Porter (1996), a well-known scholar of strategic management at HarvardUniversity, the business strategy is considered the art of competition in the

marketplace and development because: "Strategy is the art of building firm competitive advantages to defend.” In view of management category, business strategy is a plan; G Arlleret thought that "Strategy is the determination of the ways and means to achieve the set objectives via policies ".

Strategy

Strengths

Weaknesses

Opportuni ties

Threats

Applying, sustaining

Finding

Overcoming

Preventing

At least, there are three levels of business strategy that identified In which,the corporate level aims at the purpose and overall scale of the organization;business unit level is the overall commitments and actions to gain competitiveadvantages by exploiting their core competencies on the market of specific product;functional strategies are strategies that enable business-level and corporate levelstrategies to be effectively implemented by the components related to resources,processes, people and necessary skills.

The concept of business strategy in the textbook of MBA course of Griggs

University is "a series of commitments and actions that a company uses to win a competitive advantage by exploiting the core competencies on a certain market.”

1.1.2 Role of business strategy

Business strategy helps a company identify its purpose and direction to setthe base and the guideline for all business activities It also helps the companycapture and take advantage of business opportunities, and has proactive measures toovercome the risks and threats in the competitive market Building business strategycontributes to improving the efficient use of resources, strengthening competitiveposition and ensuring the sustainable development of the company Businessstrategy creates a solid basis for working out business policies and decisions that are

in line with market fluctuations

1.1.3 Basic characteristics of business strategy

Business strategy clearly defines the basic objectives and directions of thecompany's business in each period The orientation of strategy ensures the constantand solid growth in the changeable business environment On the other hand, thebusiness strategy ensures the maximum mobilization and optimal combination ofthe exploitation and use of company resources at the present and in the future topromote the advantages and seize the opportunity to gain advantages in thecompetitive world With the specific characteristic of being reflected throughout acontinuous process, business strategy always contains a emulative thinking andwinning success on the business world and is often developed in a period ranging

from 3, 5 or 10 years or further

1.2 PROCESS OF BUILDING BUSINESS STRATEGY

Process of building business strategy is described according to followingsteps:

1.2.1.1 Analyze internal environment

- Analyzing sustainable competitive advantages: through the analysis offinancial resources including facilities, human resources, production capacity,research and development, technological assets such as trademark, patents; valuechain analysis; major activities of the enterprise; analysis of relation management;analysis of sustainability and strategic assets

- Analyzing strategy: includes the analysis of a company’s strategy to review

Mission or the goal of the enterprise

Analyzing internal

environment (S, W)

Analyzing external environment (O, T) Selecting strategy

Implementing the strategy

Checking and assessing the result

Feedback

current business units and geographic scope of the enterprise’s operation, theanalysis of product-customer strategy to define the focus of the enterprises in terms

of product -consumer segment; viewpoint of competitive strategy to understand thecompetitive mode being applied by the enterprise; the analysis of functionalstrategies consider whether the enterprise can implement those strategies on its own

or need to link the implementation of those functions; ultimately the suitabilityassessment of the above-mentioned strategies

- Analyzing financial performance: The fundamental purpose of this section

is to evaluate the financial performance of an enterprise in creating profit.Analyzing parameters directing to four main categories, namely profitability,liquidity, financial leverage and operating parameters

1.2.1.2 Analyze external environment

characteristics and consists of demographic, economic, political / legal, cultural, technological and global factors, etc Changes in the general environmentcan have direct impact on any certain forces in the industry, altering the relativepower to other forces and to it and ultimately changing the attractiveness of anindustry Therefore, the analysis of external environment helps organizations beaware of challenges and opportunities confronting them to attain the rightorientation.

socio-Economic factors: socio-Economic environment indicates the nature and

orientation of the economy in which the enterprise is operating

Political-legal factors: Are factors showing the stability of political

institutions, constitutions and government’s policies that directly affect theproduction and business environment of the industry or the enterprises

The socio-cultural factors: Are factors related to social attitudes and cultural

values because they form the foundation of the society That is the change inviewpoint on life, living standard, consumer habit, career expectations, populationgrowth rate, population shifts, the diversity of the workforce, traditions, beliefs,customs, etc The changes of these factors will create opportunities, challenges orthreats to the industry or the enterprise

Demographic factors: Demographic segment in the macro environment

related to population, age structure, geographic distribution, ethnic communities andincome distribution These factors need to be analyzed on the global scale becausetheir potential impacts are beyond the national borders and there are manyenterprises competing in the global scale

Technological factors: Technology is a critical factor to the competitive

advantage of an enterprise, it is the driving force in globalization Technology allowsproducts and services to be produced at a lower cost and higher quality standards.New technology changes the distribution of products in the business system

Global factors: Global segment includes related global markets, current

markets which are changing, the important International political events, and basic

institutional and cultural characteristics on the global market Due to globalization,business market creates both opportunities and challenges, so enterprises should bewell aware of different characteristics in cultures, societies and institutions of theglobal market

* Sectorial environment:

Michael Porter has modeled businesses and supposed that all businesses have

to bear in the impact of five competitive forces Strategists who are searching forthe outstanding advantages compared to their competitors can use this model tobetter understand the environment of their business This model is considered auseful tool to find out the source of profits More importantly, the model alsoprovides competitive strategies to maintain or increase profits or enterprises can usethe model to analyze whether they should join or operate in a certain market or not

The intensity of competition in the market of any industry is affected the fivecompetitive forces as follows:

Figure 1.4 Five forces model

Bargaining power of buyers

Threats of having new competitors

Competitive rivalry within an industry

The competition of existing enterprises

Threat of new entrants

Ability to generate pressure of suppliers Ability to generate pressure of

customers

Threats of substitute products

and services

Threats of new entrants: Potential rivals of an enterprise are enterprises that

prepare to enter the industry and may have influence on the structure of the industry

in the future

Bargaining power of suppliers: The power of suppliers is the ability to

determine the conditions for their transactions with the enterprise The determinants

of suppliers’ power is expressed via the concentration of suppliers, thestandardization level of input, the expense for changing suppliers, the threat ofstrengthening the consolidation among suppliers and productions units and power ofpurchasing units

Bargaining power of buyers: is the influence of the buyers on a certain

industry Customers have great bargaining power when they are highlyconcentrated; in other words, there are a small number of customers accounting for

a large market share Customers who buy a large quantity of products in the contextthat distribution channels or products have been standardized or likely to be merger

or even an acquisition of the producing firms

Threat of substitute products: Substitute products are referred to products of

another manufacturing industry The threats of substitute products occur when thedemand for a product is affected by changes in the price of an alternative product.Price elasticity of demand of a product is affected by changes in the price of thesubstitute product

Intensity of competition in the industry: Not only current rivals in the

industry can create threats to enterprises in an industry, but the capacities of newentrants of the industry can also affect the competition

In a nutshell, the main goal of the macro-environment analysis is to identify

the changes and the projected trends from the factors of the external environment toidentify opportunities and threats to help an enterprise orient its strategy in thefuture

1.2 2 Building matrix to select business strategy

1.2 2.1 External Factor Evaluation Matrix

External factor evaluation matrix aims at evaluating external factors havinginfluence on the Company’s operation, including opportunities and threats of ToanPhat Construction Industry Joint Stock Company

Method of building the matrix: Establishing a list of all externalenvironmental factors that affect the Company's activities, assessing the influence orthe importance of each factor marking weights, total marks of weights of all thefactors equal to 1 or 100%

Assess the Company's response to these factors by sorting the factors from(1) to (4), in which (4) is the strongest response by the Company and (1) is theweakest Next, mark the importance of each factor by multiplying the weight withthe corresponding points of classification, then add up the points again to find outthe total mark of the importance of the Company The highest, average and lowestmarks of importance are (4), 2.5 and (1), respectively

If the total mark of importance is (4), it shows that the Company is bestcapturing opportunities and best controlling threats from external environment Iftotal mark is (1), it shows the company cannot grasp opportunities and controlthreats from the external environment

Table 1.1: External factor evaluation matrix

External factors (listing)

Levels of importance (weight)

Classification Important point

1.2.2.2 Internal Factor Evaluation Matrix

Internal factor evaluation matrix is the matrix for evaluating internal factorsinfluencing the Company’s operation, including strengths and weaknesses of theCompany

Method of building the matrix: Setting up a table to list all the internalfactors influencing the Company’s operation, evaluating the influence or theimportance of each factor by marking weights

Assess the Company's response to these factors by sorting the factors from

(1) to (4), in which (4) is the strongest response by the Company and (1) is theweakest

Next, mark the importance of each factor by multiplying the weight with thecorresponding points of classification, then add up the points again to find out thetotal mark of the importance of the Company

The highest, average and lowest marks of importance are (4), 2.5 and (1),respectively

Table1.2: External factor evaluation matrix

Internal factors (listed

Level of importance (weight)

Classification Important point

Total

1.2.2.3 Competitive Profile Matrix

Of external factors, competition is the most important one Competitiveprofile matrix helps us recognize major competitors as well as their strengths andweakness to help the Company has a more appropriate strategy Competitive profilematrix is represented in the following table:

Table1.3: Competitive Profile Matrix

Competitor 1 Competitor 2 Competitor 3

Classi ficati on

Impor tant point

Classi ficati on

Impor tant point

Classi ficati on

Impor tant point

Classi ficati on

Important point

Table 1.4 SWOT Matrix

Using all strengths by making use

of opportunities

Strategies WO

Overcoming weaknesses by making use of all opportunities

Using strengths to avoid threats

Strategies WT

Minimizing weaknesses and avoiding threats

S-O strategy: Pursuing the most suitable opportunities with the Company’s

strengths, orienting business in the market (Attacking)

W-O strategy: Overcoming weaknesses to pursuing opportunities

(Competing)

S-T strategy: Clearly defining the methods that the Company can utilize its

advantages to reduce losses caused by external threats (Being careful)

W-T strategy: Forming a defense plan to prevent the Company’s weaknesses

from the threats of external environment (Defending)

On the basis of summarizing the strategies identified by combiningstrengths-opportunities, strengths-threats, weaknesses-opportunities, weaknesses-threats, using GREAT model to outline the basic features of selecting key businessstrategy that the Company can pursuit:

Table 1.5 Table of selecting strategy

Step 1: Considering, selecting and working out factors related to the

development plan of the Company for analysis in the first column, which is listingthe criteria for analysis (First column)

Step 2: To assess the impact of these factors to the overall strategy, we use

the impact indicators implying the importance and influence of factors to strategies.This coefficient is calculated by marking from 0 to 1 and the total mark of weights

is always equal to 1 (Second column)

Step 3: In this step, implementing the assessment and marking for in each

analyzed factor of each strategy Assessing marks are calculated by marking from

10 to 50, the lowest is 10 and the highest is 50 (corresponding to levels: low,average, pretty average – concentrated, quite good and good) These assessingmarks show the completion level of the analyzed target (Third column)

Step 4: Converting coefficients which are the products of the two columns

(the second and the third columns) of each strategy, then accumulating those results

to find out the final result which is the sum of above products Selecting about 03strategies with highest total marks for implementing

1.2.3 Select business strategy

Cost-leadership strategy: is all activities to supply products or services

having characteristics accepted by customers with the lowest cost in the industry It

means that the Company has known to make full use of its capabilities to supplyproducts or services with lower cost than its competitors Since then, the Companycan gain significant advantages compared to its competitors It is a tool to attractcustomers to occupy greater market share This strategy brings the Companyadvantages of low prices compared to its competitors, but it still has the same profitlevel, even higher and the Company will have a firmer position in the fiercecompetition with rivals in the industry, including new entrants and not beingaffected much by the bargaining power of suppliers, bargaining power of buyers aswell as substitute products To achieve this, the Company may have advantages interms of high technology, preferential in approaching input materials, goodproduction capacity, appropriate policies, etc

Product differentiation strategy: That is the Company seeks for

opportunities to become the only enterprise in supplying the unique products orservices in the eyes of the buyers under a certain aspect This strategy chooses one

or several attributes of the products that buyers assess important and then positionthe Company itself as unique in meeting that demand

Concentrated growth strategy: Is built on the basis of selecting narrow

competitive scale in the industry By optimizing the strategies aiming targetedsegments, enterprises having concentrated growth strategy concentrate on seekingand attaining competitive advantages right in the target segment, although generallythey do not hold any advantage

1.2.3.1 Organization and implementation

When business strategy is build, organizing and implementing the strategy isreviewing the goals of the strategy and the base to build strategy, annual goals,system of policies and plans; work out programs, suitable budget and procedures;allocate resources (human resource, finance and infrastructure); select and complete

a suitable organizational structure with the strategy; establish steering board andmanagement mechanism;, commit to implement the strategy; gradually implementthe strategy and finally, check, control and adjust the process of implementing the

1.2.3.2 Evaluate the effectiveness of the strategy

+ Checking the suitability of business strategy before officially deploying it

As mentioned above, business strategy is a decisive factor the success or failure ofthe Company

+ Assessing the work performance of the Company in each period ofimplementing business strategy to find out weaknesses and shortcoming of thestrategy to timely revise and supplement

+ Process of checking and evaluating the effectiveness of the strategyincludes determining the content of the checking and assessing, working outstandards and criteria for the checking and assessing, quantifying the results ofstrategy implementation, comparing and evaluating the results and identifying thereasons for the differences to find out measures for improving

Chapter 2 ANALYZING REAL SISTUATION OF PRODUCTION AND BUSINESS OF TOAN PHAT CONSTRUCTION INDUSTRY JOINT STOCK COMPANY

Among issues mentioned in Chapter 1, we provide theoretical concepts andbasic terminology as the basis of building business strategies for the company.These are the concepts of business strategies of scholars for a comprehensive view

of business strategy ; giving roles, characteristics of business to understand why thecompany should build business strategy ; providing the process of building businessstrategy, including these steps : identify the company’s mission and objective, makeanalysis of internal and external environment, offering measures to build matrix toselect business strategy, the ways to implement business strategy, and lastlyimplementation evaluation

Our group has applied these above theories and methods to make analysis ofoperational environment and build business strategy for Toan Phat ConstructionIndustry Joint-Stock Company (Topaco)

2.1 GENERAL INTRODUCTION OF THE COMPANY

2.1.1 The process of establishment, organizational structure and

apparatus

Nhat Minh Design Consulting, Construction and Trading Joint-StockCompany is the predecessor of Toan Phat Construction Industry Joint-StockCompany, set up on August 3rd, 2005 The company is founded by a group ofshareholders of experienced, competent individuals with enthusiasm, and maturityfrom Song Da Corporation The company renamed as Toan Phat Construction,Industry Joint-Stock Company on November 18th, 2007 International transaction

name : TOAN PHAT CONSTRUCTION INDUSTRY JOINT STOCK COMPANY, Abbreviation: TOPACO Headquarter : Room 1003B, Ha Thanh

Plaza, #102 Thai Thinh Str., Trung Liet Ward, Dong Da Dist., Hanoi Charteredcapital: VND 15 billion

The administration apparatus of the company is organized as the model ofonline function Head of the company is General Director, responsible to GeneralAssembly of Shareholders and Board of Directors of the business performance ofthe company Functional Directors do the task of supporting General Director withoperating The company consists of 5 Departments, and a geodetic team:Department of administration-Human Resources; Department of Economics-Planning; Department of Technical Management; Department of Finance-accounting; Department of Material-Equipment; and Geodetic team Branches,Subsidiary company and associated company include: Topaco-Urban DevelopmentJoint-Stock Company (Topaco – UDC); David Duc Real Estate Trading Joint-StockCompany (David Duc Land); Someco 1 Energy Joint-Stock Company; TOPACOTay Bac Branch; TOPACO Dong Bac Branch; TOPACO Ha Giang Branch;TOPACO Central Region Branch All staff of the company is 364 persons,including: MA of 1.9%, Engineer of 10.9%, BA of 4% and others

(Source: Topaco)

Figure 2.1: Model of Organizational structure

Since its establishment and development, the company has continuallydeveloped and completed in all aspects such as: organization scale, function, tasks,

General Assembly

of Shareholders

Administration Board

General Director

Representative of capital of Cooperation Company

Board of

Control

Topaco Urban Development Joint-Stock Company

David Duc Real Estate Trading Joint-Stock Company

Someco Energy Joint-Stock Company

Director of Human Resources

Director of Business Director of Finance

Director of Technique

Tay Bac Branch

Dong Bac Branch

Ha Giang Branch

The Central Branch

Department of Administration and

Human Resources

Department

of Economics and Planning

Department

of Accounting and Finance

Department

of Material and Mechanism

Department of Technical management

Mechanism

construction

team 1:3

Booming team 1:5 team 1:3Drilling

Industrial Construction team 1:3

Plaster Mixing Station

Stone workshop 1:2

Installation

and

construction

team 1:11

structure of sector, scope of activities, etc Along with development of businessactivities, the company is very keen on training, building a team of qualifiedengineers, technicians, and management staff good at all fields, and high-skilledworkers with intensive technique In the past years, the company has hiredconsultant of professors, doctors, local and foreign managers in the fields offinancial management, human resource management, building strategy, buildingand developing the trade name, etc to improve the quality, efficiency of businessand production, and create professional working environment to attract talentedpersons, etc To date, the company has created strong competence in constructingmedium-sized, and small-sized hydropower plants, industry, civil works,transportation, infrastructure works, etc

Identifying the importance of technology, machinery and equipment, thecompany is also interested in investing in machinery, equipment imported fromrenowned firms in Europe, and Asia to serve as construction for labor reduction,cost savings, increased productivity, quality, and ensuring the progress of the work

Currently, the company is applying ISO 9001:2008 quality managementsystem, the infrastructure for management The company always takes socio-economic efficiency, quality of works as key gauge for sustainable developmentand always wants to be trusted partner in operating fields

2.1.2 Situation and business performance from 2008 to 2010

According to Business license No 0103008652 granted by Division ofBusiness Registration -Hanoi Department of Planning and Investment, TOPACOoperates in the fields such as: Design Consulting of general site planning,architecture, interior and exterior for and industrial and civil construction works;management consultancy of Construction Investment Project; Constructing civiland industrial works, works of transportation, irrigation scheme; Topographic andgeological survey of construction works, general site construction; procurementconsultancy, construction supervision of equipment installation; processing ofinstallation of water equipment, non-standard steel structure; Producing, trading in

construction materials, interior and exterior decoration equipment; Trading, leasingmachinery, equipment of spare parts for construction, industry, and agriculture;trading handicraft, fine art, and garment; goods transport, passenger transport;exporting and importing goods of associated companies; building transmission lineand up to-35KV transformer; making construction investment project ofhydropower works, industrial urban area; Trading School equipment; investmenttrust; consulting quality management system, internal control system; consultancy

of marketing, business strategy, selling and distributing goods; Researching anddeveloping organizational structure and leadership in the enterprises; assessing realestate; real estate business In 5 years of development, Toan Phat ConstructionIndustry Joint-Stock Company has made changes in business sectors to suit thetrend of social development and market economy

Since its foundation, the company has already participated in constructionmany national key works such as: Son La, and Ta Co Hydropower Work (Sop CopDistrict, Son La Province), Nam Chien 1 &2 Hydropower Work, Bac Giang 1Hydropower Work (Lang Son province), Nam Ly 1 Hydropower Work (Ha Giangprovince), Bac River Hydropower Work, Da River kindergarten, Jimex RefrigeratorPlant project-Quang Minh industrial zone, Model Factory Fancy Creation Vietnam-Pho Noi industrial zone-Hung Yen province, Road of Xa La urban area in

Ha Dong-Hanoi, Administration Office-Thanh Hoa paper factory, etc

Table 2.1: Performance of Production and Business in 2008, 2009, and 2010

Revenue analysis shows that 2010’s revenue increases by 128%, comparedwith 2009, but profit does not grow The reason is that the company invests much inmachinery, equipment in 2010 which are much depreciated to a quick capitalrecovery; however, workers’ average income rises 131%, so the workers keep theirmind on the work and work long-term with the company Nevertheless, 2010 is apivotal year for great development pace of TOPACO, ensuring resources: humanresources, equipment, and job.

(Source: Topaco)

Figure 2.2: Chart of Revenue, Profit Target

Chart of Revenue, Profit Target of TOPACO shows that in two years of 2009and 2010, there is a dramatic increase in revenue, and no change in profit, whichexplains development strategy set for the company by Board of Directors eventhough the world is entering a serve currency crisis (economic downturn), State-owned bank tightens credit for lending at this time However, TOPACO has theadvantage of key product which is located in Hydropower Works of Ta Co, BacGiang, Bac River, main product of the company gaining the most revenue Thecompany allocated its capital to invest in real estate, electricity, marketing of

construction of urban transportation infrastructure, a future-oriented product of thecompany’s development These above data show that Production and Business ofTOPACO has developed strongly, effectively, and has the development trend infuture.

2.2 ANALYZING SITUATION AND BUSINESS SITUATION OF TOPACO COMPANY

When TOPACA was newly formed, it is only a sub-contractor, responsiblefor constructing supplementary items Nevertheless, with the commitment to ensurethe progress, quality, engineering- art of the works, the company has graduallygained prestige, and its trade name, and become the main contractor, responsible forconstructing big hydropower works In addition, the company heavily invests insome works, takes, Bac Giang Hydropower in collaboration with Song Da SomecoJoint-Stock Company, with Dai Viet Dien Duc Limited Company to establish DavidDuc Real Estate Trading Joint-Stock Company (David Duc Land), establishment ofTopaco Urban Development Joint-Stock Company-Topaco’s subsidiary company.Currently, on the basis of contract signed with customers in 2010, TOPACO’scommitment value of the progress to customers is VND 331 billion, together withits efforts to look for its jobs; the company is aiming at revenue target of VND 400billion in 2011 Besides, in 2010, the company has already built business &production direction toward 2015 Nevertheless, planning of the company heavilydepends on market impact factors If the company do not make situation analysis ofthe company during current period, and market impact to build specific businessstrategy, it will be likely to be taken market share by competitors

Using strategic tools (SWOT analysis) to find out strengths and weaknesses of TOPACO:

2.2.1 Analyze external environment

2.2.1.1 Macro environment

* Economic environment

- Pace of economic growth: international integration tendency, or called

globalization, is an indispensable development one, which no country cannot takepart in Vietnam’s economy is developing according to this tendency In recentyears, Vietnam’s economy takes place significant development with annual growth

of about 8% This is a favorable factor that has great impact on nationwide commondevelopment of all economic sectors, causing high demand of development oftransportation, infrastructure, and construction As a result, Vietnam’s construction

in general and Topaco in particular is having bright prospects of employmentresources

- Interest: In Vietnam interest is very high compared with in region and the

world Because in general, customers of construction mostly use high proportion ofloans to invest, investment efficiency of many projects is low As a result, localprivate investment is stalled On the other hands, the field of installation ofhydropower works often accounts for high rate of loans capital of the company inbusiness capital This is generally basic characteristic of installation sector inoperating process Therefore, fluctuations in interest always have direct impacts oncurrent cost of business, and production of enterprises At the point of increasinginterest rate, costs of growing loans will probably decrease business performance ofthe company during operating period

- Inflation rate: According to General Statistics Yearbook, inflation rate in

2007, 2008 was respectively 12.63% and 19.89% Average Consumer Price Index(CPI) in 2009 only increased by 6.88%, compared with average CPI in 2008, and

inflation was controlled fewer than 7% in 2009 When input cost grows due to

inflation, output price will grow respectively Therefore, when signing constructioncontract, the company always focus on factor of modifying input cost of material.Thus, the inflation impact on production & business will be a certain level, and can

be controlled

- Exchange rate: Fluctuations in exchange rate always have direct impact on

enterprises in the field of construction because fluctuations in exchange rate will

affect prices of key material such as steel, cement, fuel, etc, main materials ofenterprise in construction field Therefore, they will have effect on increasingproduction cost of these enterprises.

* Science, technology environment

Dramatic development of science and environment has made enormousimpacts on construction field in the past few years The introduction of modernmachinery, and equipment, and advanced construction technology gradually replacelabor of human beings A lot of new materials with more preeminent features areresearched and manufactured replacing old materials The explosion of informationtechnology and internet create favorable conditions for management of enterprises.Significant development of science and technology both is an opportunity fordynamic enterprises catching up with technology, and a threat for enterprises thatare backward, and have little renovation Topaco, particularly, leaders and keylabors are young, enthusiastic, and usually promoting the spirit of creativity,dynamism to catch up with global technology, taking technology as one ofspearheads to achieve breakthrough for the company

* Political and legal environment

Vietnam has prominent strength as stable political environment, nationaldefense luring investment for economic development Vietnam is creating a level-playing environment of investment in business by improving legal framework,especially finance, land, labor, and simplifying administrative procedures andreforming state-owned enterprises However, Law system on constructioninvestment of Vietnam continues changing, affecting much local and foreigninvestors

Moreover, Vietnam’s legal system has not tightened yet Enterprises canflexibly applied stipulations, used relationship with authorities to create favorableconditions for development Topaco is also one of the entities maintaining a goodrelationship with authorities and government agencies

* Social and Cultural

The highlight of Vietnam’s consumer culture on real estate is to keen onproperty Psychology of Vietnamese people is that they want to own a privatehouse, generating high demand of infrastructure This is an excellent opportunity forenterprises operating in construction in general and Topaco in particular On theother hand, Vietnamese people also have psychological dominance, and likedifferences Therefore, this is an opportunity for Topaco to make breakthrough ifTopaco identifies target of product strategy as making difference

*Global environment

Thanks to the outbreak and development of information technology,especially internet, globalization under the impact of advance in science, &technology, relationship among regions in the world is much closer, and anincreasing in exchanging information, and mutual understanding, along withdevelopment cooperation relations among countries, creating a global civilization

Besides, Vietnam has official jointed WTO since 2006 This is a conditionfor foreign enterprises in the field of construction increasingly penetrating intoVietnam market, causing a threat of severe competition in construction field inVietnam, and it is probably to be defeated in local playing field if enterprises do notselect a right strategy Nevertheless, Vietnam’s integration into WTO is a goodopportunity for calling for foreign investment capital, opening up opportunity topenetrate into foreign markets

2.2.1.2 Sectorial and competitive environment

* Competitive rivalry within the industry

Construction field is currently considered as one of the fiercest fields Inrecent years, there have been enterprises investing in new technology of machinery,equipment to promoting products which have competitive advantages, and thenobtaining trade name of enterprises For example, SONG DA brand name is alwaysassociated with constructing hydropower works, or LICOGI with buildinginfrastructure, transportation, or VINACONEX with civil construction What isTOPACO associated with? It is a young company growing up with Son La

Hydropower In 5 years of development, it has become a well-known company inthe field of constructing hydropower since an unknown company TOPACO isfamous for progress, quality, engineering- arts of works and a commitment tosatisfy customers’ demands This is a foundation for development of hydropowerworks, urban transportation infrastructure With these abilities, TOPACO can makeanalysis of some competitors capable of competing in the field of hydropower,urban transportation infrastructure at the region that the company is expected topromote all of its resources, strengths to see strengths and weaknesses ofcompetitors and TOPACO

Specifically, we have selected 04 enterprises with similarities of operatingfield, products, time frame, etc to compare:

- Ha Giang 1 Construction Joint-Stock Company

Name: Ha Giang 1 Construction Joint-Stock Company; Address: No 310, TranPhu Str., Tran Phu ward, Ha Giang Town, Ha Giang Province; Telephone: 02193

860 967; Fax: 02193 868 829; Chartered capital: VND 28.800.000.000

Construction Company is the precursor of Ha Giang 1 Construction Stock Company, founded on July 1st, 2005 under Certificate of businessRegistration and joint-stock company registration No 1003000014 issued by HaGiang Department of Planning and Investment dated 1/7/2005 (Currently withenterprise code number of 5100100800) The company operates mainly in the fieldssuch as building civil works, housing, transportation, irrigation scheme, housingrenovation, up-to 35KV transformer, constructing small and medium-sizedhydropower works, exploiting and processing mineral for export

Joint-Total employees on the payroll of the company: 91 persons

Strengths of Ha Giang 1 Construction Joint-Stock Company:

- is a joint-stock company mainly operating in Ha Giang Province, takingadvantage of constructing civil works and transportation

- Have a long-term relationship with authorities, banks, suppliers at communities

- Its precursor is a state-owned company, with many years of experiences in

constructing civil and transportation works

- Great capacity of machinery, equipment The quality of machinery, equipment

of the company is high, and can be mobilized any time to serve with construction

Weaknesses of Ha Giang 1 Construction Joint-Stock Company:

- Finance: Return on equity capital is low; the company’s operation is not reallyefficient

- Workforce: thin The company has few numbers of employees on the payroll,mainly hire outside, causing difficulties for the company in mobilizing work force tomeet immediate demand of big projects that the company received

- Construction capacity: not high Recently, the company mainly takes part inconstructing civil & transportation works with low contract value

Area of operation, a long-term relationship with authorities, banks, suppliers atcommunities, etc are competitive advantages of Ha Giang 1 Construction Joint-StockCompany However, when penetrating into Ha Giang market, Topaco will focus oncompeting with Ha Giang 1 Construction Joint-Stock Company in managementcapacity, long-term vision, and construction experiences In addition, in future, it islikely that Ha Giang 1 Construction Joint-Stock Company is not a competitor worthyworrying of Topaco

- LICOGI 13 Joint-Stock Company:

Headquarter Licogi 13 Building Khuat Duy Tien Str Nhan Chinh ward Thanh Xuan Dist - Ha Noi LICOGI 13 Joint-Stock Company is formed anddeveloped from the cradle of Union of mechanized executing enterprises nowInfrastructure Development and Construction Corporation (LICOGI) The companyspecializes in constructing foundation works, infrastructure, civil and industrial works.Currently, LICOGI 13 has over 700 staffs, engineers, employees with passion, richexperiences, and system of modern machinery and equipment of construction, Localand oversea customers know LICOGI 13 as a leading unit in the fields of foundation,urban & industrial technical infrastructure Concurrently, it is a professional contractor

-in construct-ing -industrial, civil, and hydropower works It participated -in construct-ing

key national works such as Ho Chi Minh Mausoleum, National Conference Centre,Pha Lai I & II Thermal Power Plant, Bat Chat Hydropower Plant, Song Chanh IIHydropower Plant, Lai Chau Hydropower Plant, etc

Strengths of LICOGI 13

+ With a long history and experience of over 50 years of construction anddevelopment, Licogi 13 has gained its strengths and is considered as a leadingunit in the field of foundation construction in current period

+ Licogi 13 has lots of qualified management staff, technical staff, andskillful workers capable of inheriting and developing to take over managementand implement large-scale projects with special nature of national importance

Weaknesses of LICOGI 13

+ Machinery, equipment of LICOGI 13 is currently underdeveloped, andold, heavily affecting conditions, construction progress and quality of theseworks

+ Executive management is not peremptory with low consent, affecting thesystem, and consistency in managing

+ Work of self-employment, exploiting and expanding market of thecompany are limited

- Song Da 19 Joint-Stock Company:

Song Da 19 Joint-Stock Company is previous Factory of construction andinterior decoration, under Da Nang Construction & Installation Material andCement Company, a state-owned company, founded in 1997 under General CementCompany-Construction Ministry In 1997, it was transferred to Song Da GeneralCompany, and renamed Song Da 19 Company under Song Da General Company

On July, 2003, it carried out equitization, turning into Joint-Stock Companyoperating under Decision No 869/QĐ- BXD of Enterprise law by Ministry ofConstruction dated June 18th,2003, with traditional sector of constructing works oftransportation, and hydropower In recent years, Song Da 19 Joint-Stock Companyhas been constructing national key great works such as Ho Chi Minh Street work,

An Khe-Da Nang Road, Se San 3 hydropower Work (290MW), Se San 4hydropower Work(320MW), Nam Chien 2 Hydropower Work, Binh Dienhydropower work, Xekaman3 hydropower Work –in Lao People’s DemocraticRepublic, etc.

Strengths of Song Da 19

+ Having experiences in constructing

+ Having advantage of trade name and works assigned by Song DaHoldings

+ Excellent capacity of finance

Thanh Son Construction Joint-Stock

Address: No.170 Ngo Quyen – Dong Kinh ward– Lang Son Province;Telephone: 025.3 717.884; Fax: 025.3 717.885

It was formed on November 18th, 2003 issued by Lang Son Department ofPlanning and Investment

Operating fields: Constructing civil and industrial works, transportation,irrigation scheme, transmission line and up-to 35kv transformer, and clearingconstruction ground, interior and exterior decoration, producing and tradingconstruction materials, installing electricity system in house, trading refrigerator andelectronic equipment

Thanh Son Construction Joint-Stock Company is currently considered as a goodcontractor in constructing in Lang Son

Strengths of Thanh Son Construction Joint-Stock Company:

- is a joint-stock enterprise operating mainly in Lang Son Province, havingadvantage of constructing civil housing

- Has a good relationship with provincial and local banks, and Provincial Bank’sProject Management Unit of constructing infrastructure

- Workforces: has a team of good key technical workers, high-skilled staff takingover up-to VND 30-billion infrastructure projects

- Finance: excellent capacity of finance, high revenue

- Product price is one of strengths of Thanh Son Construction Joint-StockCompany in procurement, looking for job Currently, it won civil constructionprojects, especially Lang Son Province State Treasury Project: State Treasury of LanQuang District, Cao Loc District, and Lang Son Province Bank of Agriculture andrural development

Weaknesses of Thanh Son Construction Joint-Stock Company:

- Construction machinery and equipment of Thanh Son Construction Joint-StockCompany is backward, mostly old used since 1994 The number of equipment is small,especially equipment of road construction, needing to hire equipment

- Progress of road construction is delayed, and the quality is not guaranteed Thequality of some items of civil work is low

- Few well-trained staff in road construction

- Its capacity only takes over district-and commune-level works

With strengths of reducing product price, and the quality of works is not good,

it is said that Thanh Son Construction Joint-Stock Company has not been a competitor

of TOPACO in the field of transportation, urban infrastructure in near future

Table 2.2: List of main supplier of material for Topaco

1 Thai Thanh Tung Trading and Service C Building, Electricity Design and All kinds of

Joint-Stock Company Survey Company Collective – TrungTu ward - Dong Da District – Ha Noi steel

2 Hong Trang Material Trading limitedCompany Ta Co Commune - Sop Cop District –Son La Province sand, stone

3 Someco 1 Energy Joint-Stock Company Binh Gia District – Lang Son Province sand, stone

4 Hoa Phuong Trading & Service Co-operative Na chi Commune – Xin Man District –Ha Giang Province sand

5 Thanh Vuong Mineral Service Joint-Stock Company Quang Binh District – Ha GiangProvince stone

6 Cao Son Transport Factory Bac Quang District – Ha GiangProvince Cement

7 Thanh Tien Limited Company Tam Diep District – Ninh BinhProvince Cement

8 Viet Nam Industrial Construction Joint-Stock Company- Quang Son Cement

Factory

Quang Son District – Thai Nguyen

9 Kim Chau Trading & Service LimitedCompany Hoan Kiem District – Ha Noi Cement

10 Son La Petrol Branch Sop cop District – Son La Province Petrol

11 Hong Phuc Private Enterprise Binh Gia District – Lang Son Province Petrol

12 Ha Giang Petrol Company Quang Binh District - Ha GiangProvince DO, FO Petrol

(Source: Topaco)

* Bargaining power of buyers

Customers of Topaco are Bac Minh Development Investment Joint-StockCompany, Dai Duong corporation, Someco Joint-Stock Company Gaining the tradename, Topaco is paid attention to and invited to construct hydropower works.However, big and small-scale hydropower plans were planned and constructed Ifcounting hydropower plant to 2012 in Vietnam, Lai Chau Hydropower Plant is thebiggest, ensuring most of jobs of Topaco during the period 2012-2015 After 2015,

it is very difficult for the company to sign a contract of constructing a hydropowerplant because there are not many construction of hydropower Plants Nevertheless,the trade name is increasingly gained, capacity of finance and equipment isincreasingly improved The progress, quality, commitment to customers of workswhich the company has been constructing is asserted With qualified personnel staffwith enthusiasm, especially dynamism of Board of Directors, General Director inthe past time, the company has continually won improved works in different fields

* Threat of new entrants