Xây dựng chiến lược kinh doanh công ty cổ phần EDH

Rechecking business environment conditions and selected strategies 14 Chapter 2: REAL SITUATION OF BUSINESS ACTIVITIES AND BUSINESS STRATEGIES OF EDH TECHNOLOGY DEVELOPMENT JOINT STOCK

Xây dựng chiến lược kinh doanh công ty cổ phần EDH

BUILDING BUSINESS STRATEGY IN 2011-2020

PERIOD FOR EDH TECHNOLOGY DEVELOPMENT

JOINT STOCK COMPANY

TABLE OF CONTENTS

Page

1 General context, the necessity and implication of the research project 6

1.3.2 Analyzing affecting factors to business strategy 12

1.4.2 Rechecking business environment conditions and selected strategies 14

Chapter 2: REAL SITUATION OF BUSINESS ACTIVITIES AND

BUSINESS STRATEGIES OF EDH TECHNOLOGY

DEVELOPMENT JOINT STOCK COMPANY IN

17

2010-2020 PERIOD

2.1 Overview of EDH Technology Development Joint Stock Company 17

2.1.1 Process of establishment and development of the Company 17

2.2.1 Business performance of EHD in 2008-2010 period 222.2.2 Analyzing production capacity and products of EDH 28

2.3.3 Analyzing sectorial environment and competitors 35

2.3.4 Analyzing internal capacities and SWOT analysis 41

2.5.3.3 Product distribution and consumption policy 52

2.5.3.5 Advantages in developing strategy and forming thinking

2.5.3.6 Some shortcomings in developing business strategy of

2.5.4.1 Stabilizing and maintaining the existing personnel 57

2.5.4.2 Training and developing human resources 57

2.5.6 Financial strategy and budget estimate for doing the business

Chapter 3: SOME SOLUTIONS AND INITIATIVES TO

IMPLEMENT BUSINESS STRATEGY OF EDH TECHNOLOGY

3.2 Some solutions and initiatives to implement business strategy of

3.2.2 Increasing financial resources, improving infrastructure and building the factory manufacturing electric equipments 653.2.3 Selecting strategic products, reforming the sale method and

3.2.3.2 Identifying strategic customers to establish suitable policy 66

3.2.3.4 Solutions about organization and human resources 69

3.2.3.6 Intensifying checking and monitoring strategy implementation 71

Table 1.2- Structure of capital stock on December 31, 2010 19

Table 1.4- Summary of the Company’s income statement 23

2 LIST OF FIGURE

Figure 2.2- Some images of Golden cups and symbols of EDH 21

3 LIST OF ABBREVIATIONS

EDH EDH Technological Development Joint Stock Company

GDP Gross Domestic Products

EVN Electricity of Vietnam

FDI Foreign Direct Investment

IEC International Electrotechnical Commission

ODA Official Development Assisstance

WTO World Trade Organization

INTRODUCTION

1 General context, the necessity and implication of the research project

According to the development plan of electricity industry in 2015- 2025 period approved by Ministry of Industry and Trade, average growth rate of

production value of this industry is about 17%-18%/year and the growth of electric export 18%/year to make Vietnam’s electric industry reach an advanced level in the region in the technology for producing transformers, electric motors, generators, medium-voltage (MV) and high-voltage (HV) electrical instruments, electric wire & cable, multi-tariff meters for domestic consumption and export Electricity and electrical equipment manufacturing industry is one of the most attractive industries

After joining WTO, a big market is opened but competition is tougher WTO

is a playing field in which competitors are foreign companies, Multi-national Corporations with many years of experience, and strong resources; therefore,

domestic enterprises need to be reinforced and need to have suitable “Business

strategies” to meet the requirements of the new market.

At present, most enterprises in this industry of Vietnam have the same weaknesses which are developing and growing from a very specific context of the market - centrally planned, not pursuant to the demand-supply regulation of the market, having no competitive factors, and most companies do not have methodical

“business strategies” to make the most use of opportunities and overcome

challenges to enhance the competitiveness in a new business environment and optimize the work performance

After 15 years of establishment and growth, EDH Technology Development Joint Stock Company has made strong progress such as winning projects worth billions of VND Nonetheless, in the current deep international integration process and fierce competition, if the Company does not upgrade

itself fully and does not have good “business strategies”, it will go backwards

and lose market share in Vietnam

With that idea, our group has chosen the topic “Building business strategy in

2011-2020 period for EDH Technology Development Joint Stock Company” to

complete the MBA course - GAMBA and also made contribution to the sustainable development of EDH Technology Development Joint Stock Company

2 Objective of the study

The study “Building business strategy for EDH Technology Development

Joint Stock Company” aims at clarifying the strengths (core capacities),

weaknesses of, opportunities and threats awaiting the Company Applying theories

to build, analyze, and select competitive strategy, at the same time put forth necessary solutions to implement those strategies in 2011 - 2020 period to help the Company develop sustainably and become a leading enterprise in producing electrical equipments in Vietnam

3 Methodology of the study

Method of approach: Dialectical materialism and historical materialism

Primary documents include original document on enterprise management, financial statements, annual review reports and regulations of the Company;

Secondary documents such as annual document (copy versions) of Vietnam Trade Association, documents from the Government and relevant agencies, information from newspaper, website, etc

Conducting direct interviews with the Board of Directors and heads of Departments

Method of analyzing and processing data: Analyzing, summarizing and comparing

4 Structure of the Capstone project

Apart from the introduction, conclusion and references, the contents of the capstone project is divided in to three main chapters as follows:

Chapter 1: Theoretical background to the development and business strategy

for EDH Technology Development Joint Stock Company

Chapter 2: Real situation of business and business strategies of EDH

Technology Development Joint Stock Company in 2010-2020 period

Chapter 3: Some solutions to implement business strategy of EDH Technology Development Joint Stock Company

Chapter 1 THEORETICAL BACKGROUND TO BUSINESS STRATEGY

1.1 Business strategy

1.1.1 Concept and role of business strategy

Strategy

The term “strategy” originated from Greek and was initially used in the field

of military to imply big and long-term plans which were set out based on the certainty about what the opponent could and could not do

Strategy is a plan consisting of long-term (3;5;10 years, etc.) goals to point out the development orientations of an organization in the long-run, big and important policies to attract, allocate resources and make the most use of those resources; and major decisions to realize those goals

There are different definitions of strategy, but in the most general way, strategy is defined as “a series of complex actions aiming at mobilizing resources

so that an organization can attain a certain purpose”.1

Business strategy

According to D.Bizrell and the group of author, “Business strategy is a general plan leading or orienting enterprises to the expected target It is the basis to work out policies and procedures of operations” 2

In enterprises, “Business strategy is an art of designing, organizing means to achieve the long-term goals of an enterprise and has a relation with the changes in business and competitive environment”

Role of business strategy

Helping enterprise to be well-aware of their purposes and orientations to set the basis and the guideline for all business and production activities of the enterprise

1 Source: Document of “Strategic Management”, Global Advanced Master of Business Administration Program (B1 - T1)

2 Source: Document of “Strategic Management”, Global Advanced Master of Business Administration Program (B2 - T1)

Helping enterprises grasp and make use of opportunities and take active measures to overcome risks and threats in the competitive market.

Contributing to raising efficiency of resource use, enhancing competitive position to ensure the sustainable development of the enterprise

Providing firm bases for mapping out appropriate policies and decisions on business with the changes of the market

1.1.2 Basic characteristics of business strategy

Business strategy helps define the basic goals and business orientations of enterprise in each period

The characteristic of orientation of strategy ensures that enterprise can develop continuously and sustainably in the changing business environment

Maximally mobilizing and optimally exploiting and using resources of the enterprise at present and in the future, promoting its advantages and grasp opportunities to gain competitive advantages, having emulative thought and achieving success

Business strategy of enterprise is reflected during a continual process and often formed in a long period (3; 5; 10 years, etc.)

1.1.3 System of enterprise’s strategy

Level of business strategy in an enterprise

Functional level strategy: it is the strategy aiming at improving the efficiency

of basic activities in the Company such as production, marketing, material management, research & development of human resource

Business level strategy: it is the overall commitments and actions helping enterprise gain competitive advantages by tapping its core capacities into value of specific products and reflecting the belief of enterprise in the destination and the modes that it can gain competitive advantages compared to its competitors

Global strategy: it is the strategy in which Company sells its products or services to the outside of its domestic market The expansion into the global market allows the Company to raise profitability by new methods which domestic companies do not have

Corporate level business strategy: determines actions that Company implements to gain competitive advantage by selecting and managing a group of different business strategies in some sectors and markets of products.

Types of enterprise’s business strategy

The system of enterprise’s business strategies includes growth strategy of enterprise, business strategy of SBUs and functional strategy

Three main business strategies that are often used include cost-leadership strategy, product differentiation strategy and centralization strategy

Growth strategy consists of concentrated growth strategy (market penetration strategy, market development strategy, product development strategy); Integration growth strategy (Merging strategy, acquisition strategy and joint venture strategy); Strategy for diversifying activities of enterprise (concentric diversification strategy, horizontal diversification strategy, mix diversification strategy)

1.2 Factors affecting business strategy

1.2.1 Institution - politics

Political stability is the foundation for economic activities to develop, creating

an attractive investment environment for business sectors with the engagement of both national and international investors

1.2.2 Economy

The underdeveloped or developed economy has a strong influence on business operations of enterprises It decides the purchasing power (demand) and via that, more or less affecting supply The developed economy also helps enterprises grow and vice versa, underdeveloped economy constrains the development of enterprises

1.2.3 Socio-culture

The population, structure, age, custom, standard and income have a significant influence on the development of enterprises Vietnam’s population is approximately of 86 million people with the average income per capita of 1.200 USD/person/year GDP of Vietnam over the past years had high growing rate with the average growth rate of 7-8%; therefore, the demand for using electrical

machines, equipments and facilities has increasingly required substantial and diverse sources of supply.

1.3 Building business strategy for enterprise

1.3.1 Vision, mission and main goals

Vision of an organization is particularly important for managers to set the basis for setting long-term goals as well as defining specific functions for implementing them Vision can be introduced or stated under the form of a slogan

or a guideline

The common features of enterprises’ goals are expressing the expectation to reach certain results and associated with a specific period in a strategic period According to Philipte Lasserre, strategic goals include all things relating to the workload such as scale, growth rate, market share, etc and all related to interest such as revenue, cost, and profit, etc

To determine the functions of strategy: Enterprises have to answer the questions such as: who wants to be satisfied? When and how?

Strategic goal of business is the particularly important opening phase in implementing business administration That goal is defined obviously and specifically is an important factor bringing success for enterprises

Given goals must be adjustable to suit the changes of environment to avoid threats and make use of opportunities Nevertheless, when changing goals, we need

to be cautious as these changes have to be in line with corresponding changes in strategies as well as in action plans.

Table 1.1- Strategic vision and historic mission

- Strategic vision refers to business

orientation in the future of the Company

“Where will we go?”

- Mission declaration of almost companies focuses on current business activities “Who are we and what are

we doing?”

- Markets needed catching up with - Current products and services

- The future central is technology,

service or customers

- Customers’ demand

- The expected model - Technology and business capacity

1.3.2 Analyzing affecting factors to business strategy

Analysis of external environment factors

External environment is a system of complicated factors always having opportunities and threats to enterprise The fluctuation of these changes is out of the control of the enterprise and they have mutual influences to business management Therefore, to make use of opportunities, control threats, raise efficiency and reduce damages in strategy management process, businesses have to analyze carefully environment factors including: micro environment and macro environment

Macro environment includes five factors as: politics, law - government; economy; socio-culture; technology and nature (PESNT analysis)

Micro environment includes the analysis of new entrants; rivals; buyers;

suppliers; and substitute products

Internal environment factor analysis

Internal environment factor analysis is the foundation for business to understand their own strengths and weaknesses in comparison with competitors; furthermore, it also helps managers catch up with opportunities in each phase In the other words, internal environment factor analysis is to “understand yourself and other”, from that strategy managers have foundation to define mission, propose

goals and form strategies adapting to internal and external environment of organization

The analysis of strengths and weaknesses of internal environment is implemented by means of following basic contents: analyzing and evaluating resources as human resources, material resources as production capital, workshop, machines, material and information about business environment; Invisible resources include guidelines in business; business strategy and policy adapting to environment; effective organization structure; prestige of managers; prestige of business in development process; the confidence and faithfulness of customers; Analysis of functional departments in organization includes: marketing department; human resources management department; finance-accounting department

All enterprises have strengths and weaknesses in sectors Internal strengths and weaknesses together with external opportunities and threats are the basic features which enterprises need to pay attention to when building strategy If business wants

to define strengths, weaknesses; they have to compare with others in the same industry and base on the working results Strengths of business are the better features than competitors which competitors are not easy to own Furthermore, strengths create the competitive advantages for business Weaknesses are shortcomings of enterprises needing to be corrected when enterprises want to build strategy

1.3.3 Methods to evaluate business environment

Methods are usually used

- The summary table about business environment

- Internal and external factor evaluation matrices

- SWOT matrix analysis

- Opportunities and threats

SWOT analysis

Internal environment factors of an enterprise can be classified as Strengths (S), Weaknesses (W), external environment factors is classified as Opportunities (O) and Threats (T) This analysis in strategic environment is call as SWOT matrix analysis SWOT matrix analysis provides useful information in balancing resources and capacity of the Company with respect to competitive environment Therefore, it is a tool to select strategy

Strengths: Strengths of an enterprise are resources and capacity used as foundation in raising competitive advantages

Weaknesses: if enterprise does not have strengths mentioned above, enterprise will have weaknesses

Opportunities: The external context can create new opportunities to grow and develop

Threats: The changes of external environment can bring threats to the enterprise

SWOT analysis

S-O strategy: Pursues the most suitable opportunities with strengths

W-O strategy: Overcomes weaknesses to pursue opportunities

S-T strategy: Defines the ways which enterprise can use their advantages to mitigate damages with respect to external threats

W-T strategy: Establishes a defensive plan to prevent weaknesses of enterprises from the influence of external environment

Competitive capacity evaluation: Evaluates competitive capacity of business,

we usually use MC KINSEY matrix

1.4 Implementing business strategy

1.4.1 Checking goals of business strategy

The Company needs to consider and evaluate selected strategic goals whether suitable or not and the capacity to deploy it

1.4.2 Rechecking business environment conditions and selected strategies

In the current phase, there are many changeable environmental factors affecting a sector and businesses in sector such as demography, economy, politics, culture, science and technology, and globalization

With more and more competitive markets, value chain is an important tool to improve competitive capacity of each business Globalization and free economy brings a lot of uncertainties which strategy planning has to analyze

1.4.3 Organizing implementing apparatus

Organizing implementing apparatus is the process of defining the needed tasks; establishing departments, divisions and assigning for units and individuals; creating the relationship in internal organization to implement the strategic goals effectively Efficient organization is to ensure the good implementation of management capacity and serving for general targets of business

Depending on functions of business, organization model will be selected to establish as: on line model, functional model and complex model After that, managers will implement the organization of machinery including 7 steps: defining target of business; analyzing jobs; founding departments; appointing officials; allocating mission; cooperating to formulate functions; assessing and reorganizing

1.4.4 Resource allocation and adjustment

Resources are a Company’s assets including tangible and intangible ones such

as capital, machine, skill, trade mark, human capital, finance, manager with relations Therefore, enterprises have to adjust human capital suitably and scientifically Enterprises should also define criteria which are rare, value and difficult to imitate Core capacity is resources and capacity bringing competitive advantages for a Company It creates the competitive differences and shows characteristic of them

As a result, the Company will know how to balance challenges and make use of opportunities in the future

1.4.5 Forming implementation plan

Comprehensive business strategy of enterprises has the orientation for all of activities and it contains following steps:

Strategy planning: defining mission, vision and core value; analyzing and forming strategy

Strategy concretizing: defining strategic target and key ideas; defining targets and measurement tools as well as strategic initiatives

Planning: Improving operation process, sale, resource capacity and budget providing

Deploying: Action plan of functions

Monitoring and evaluating: evaluating strategy and deployment work

Testing and correcting strategy

Analyzing strategies: using the analysis model of factors of strategy

1.5 Summary and evaluation

Enterprises have to sum up and evaluate the process of setting up and implementing business strategy annually to find out factors for the success as well

as limitations for necessary adjustments

Chapter 2 REAL SITUATION OF BUSINESS ACTIVITIES AND BUSINESS STRATEGIES OF EDH TECHNOLOGY DEVELOPMENT JOINT

STOCK COMPANY IN 2010-2020 PERIOD

2.1 Overview of EDH Technology Development Joint Stock Company

2.1.1 Process of establishment and development of the Company

Process of establishment and development

The Company was established with the first name of Hoang Ha 1 Co., Ltd established on July 15, 1995 with the charter capital of VND 1.2 billion and 10 employees working in the field of officially trading and distributing low-voltage (LV) electric equipment of Siemens and Schneider firms

3 Source: www.edh.vn

In 1997, producing and launching first panels to Vietnam market, at the same time building 450m2 of factory on the area of 1300m2 in Thanh Xuan, Hanoi to install panels and substations.

In 1998, the number of employees rose to 40 people, income was over US$ 1 million and it was the first year when the Company implemented from designing, supplying equipment to producing panels and installing a big project: The System

of electricity supply of 04 MBA 1000kVA and 02 current generators 750kVA of Vietnam Television

In 2000, the Company was renamed EDH Technology Development Joint Stock Company, raising the charter capital to VND 10.2 billion, producing and supplying primary equipment, secondary equipment and installing electric works up to 110kV The Company implemented the quality control under ISO 9001:1994 Standard issued certificate by AFAQ ASCERT (France)

In 2005, The Company built a factory for producing electric equipment over the area of 6,600m2 and invested in new production and outsourcing line of light sheet mental and EDH Electric Equipment Factory on the area of 14,000 m2 in Ngoc Hoi Industrial Zone, Thanh Tri, Hanoi and signed contract with Siemens Group (Germany), Siemens Sales Region, licensed to use information and intellectual property right to manufacture SIVACON type tested panels in Vietnam, raising annual income to US$ 7 million

In April 10, 2007, the Company was equitized, raising the charter capital to VND 126 billion, the number of employees to 250 people and revenue in 2010 to over US$ 25 million

2.1.2 Organizational structure of the Company

EDH is operated under the form of a joint stock Company The Company’s charter was approved by the Shareholders’ General Assembly for the Company’s establishment in April 30, 2007

Table 1.2- Structure of capital stocks on December 31, 2010

(Source: Accounting Department of EDH)

(%)

Founding shareholders 6,624,901 66,249,010,000 52,58Stocks of external shareholders 4,050,000 40,050,000,000 32,14Stocks of internal shareholders 1,925,099 19,250,990,000 15,28

Figure 2.1- Management apparatus of EDH

(Source: General & Administration Dept of EDH)

(Source: EDH TECHNOLOGY DEVELOPMENT JOINT STOCK COMPANY)

Technical Director

Factory Director

R&D Director

Manager

of Project

Chief Accountant Director of Lab

2.1.3 Business functions and missions

Main business lines of the Company are as follows:

Producing and trading in machines, equipment, cables and wires;

Producing, trading and distributing electric, electronic and refrigeneration electric equipment;

Producing and trading in machines, equipment and materials of agriculture, construction and traffic;

Installing electric works up to 110kV; Consulting and investing in electric works;

Designing power lines and substations for electric works;

Producing, outsourcing, installing and repairing mechanical and electric products;

Trading real estate, leasing offices, housing and yards;

Purchasing, selling and installing equipment for construction works

2.1.4 Awards of the Company

ISO Golden Cup 2007 awarded by Vietnam General Confederation of Labor and Ministry of Science and Technology

Golden Lotus Cup 2007 awarded by Vietnam Union of Science and Technology Associations

Golden Cup "Trademark - Brand" 3rd time in 2008 awarded by Vietnam Fatherland Front, Vietnam association of small & medium enterprises; and Radio the Voice of Vietnam

Golden Cup of "Talented and Moralistic Businessmen” Prize, 2nd time in

2008 awarded by Vietnam Fatherland Front, Vietnam Association of Small & Medium Enterprises and; Radio the Voice of Vietnam

Golden Cup of “Vietnam Typical Enterprises” Prize 1st time, Golden Cup of

“Outstanding leader” Prize 1st time, Golden Cup of “Outstanding leader” Prize 2nd time in 2009 awarded by Ministry of Trade and Industry, Ministry Health, MoLISA, Ministry of Culture, Sports and Tourism; and Radio the Voice of Vietnam

Figure 2.2: Some images of Golden cups and symbols of EDH

2.2 Business activities of EDH in 2008-2010 period

The company specializes in

trading in electric equipment including super high voltage, high voltage, medium voltage, lower voltage, digital relays, electronic meters;

manufacturing switchboards, panels, and substations at all voltage levels for interested sectors and industries;

supplying automatic monitoring system for electric industry and other domestic and foreign electricity producers;

manufacturing mechanical products and processing thin metal plates;

manufaturing single and three-phase electronic meters;

2.2.1 Business performance of EHD in 2008-2010 period

The evaluation of the Company’s achievements is implemented via calculating and considering some important financial ratios Based on the data collected from the balance sheets and income statements of the Company in 2008-

2010 period, some important financial targets are determined to generally evaluate financial capacity of the Company as follows:

Table 1.3- Balance sheet

(Source: Accounting Dept of EDH)

Currency unit: VND million

- Other loans from credit institutions 78.434 119.930 142.123

Table 1.4- Summary of the Company’s income statement

(Source: Accounting Dept of EDH)

Currency unit: VND million

16 Deferred business income tax charge

Analyzing the income statement

Revenue in 2008 of the Company was VND 381.6 billion Revenue in 2009 reached VND 448.6 billion, up 17% compared to 2008 Revenue in 2010 of the Company was VND 561.5 billion, up 25% compared to the same period in 2009 Especially, 2008 was a very difficult year owing to the great influence of financial changes on the operation of enterprises However, with the experience of the Board

of Directors as well as the staff, the Company’s operation was still stable and developed The growth of revenue year-by-year showed that the market of the Company has been expanded Average income in 2010 was nearly VND 47 billion/month

Cost of goods sold

Table 1.5- Cost of goods sold

(Source: Accounting Dept of EDH)

Currency unit: VND million

Cost of goods sold/Gross

The cost of goods sold in 2008 and 2009 accounted for 84% of revenue In

2010, the cost of goods sold made up 85% due to the rise in prices of the input materials; however, the cost of goods sold increased insignificantly and profit after taxes rose year-by-year In 2008, profit after taxes of the Company was VND 19.639 million In 2009, profit after taxes of the Company reached VND 27.013 million thanks to the efforts and market expansion In 2010, the Company still sustained a growth in revenue; however, its profit after taxes only grew by 3.6% compared to 2009, profit in 2010 of the Company was VND 27.987 million (because in 2009, the Company was supported with 4% of the short-term interest rate, so financial activities expenses decreased significantly and profit after taxes of the Company rose)

Financial activities expenses

Other expenses apart from the cost of goods sold were mainly financial activities expenses, making up 3.5% in 2008; 3.3% in 2009 and 3.2% in 2010 in the structure of revenue In financial activities expenses, the majority was interest expenses It is reasonable because when the Company’s structure of working capital is mainly loans from banks Overall, expenses in the Company’s revenue-profit structure are reasonable and grow stably in line with the growth in revenue

Profitability

Performance

FINANCIAL INDICATORS 2008 2009 2010

The number of days to complete a business period (day) 82 148 136

Solvency ratio

Financial structure

Financial leverage ratios

Leverage adjustment ratio (Loans from credit

The level of ensuring fixed capital (VND million)

Solvency of the Company

Current ratio: was 1.4 in 2008 and 1.0 in 2009 and 2010 It shows that the

financial situation of the Company was relatively stable; the short-term assets were much greater than short-term demand, so the financial situation of the Company was healthy The Company’s short-term assets that were mainly inventories were VND 25.686 million in 2008, accounting for 14.9% of the liquid assets and short-term investment In 2009, inventories accounted for 8.3% In 2010, inventories were VND 33.245 million, accounting for 7.7% However, inventories are mainly

in the form of materials and work in progress, goods were often produced under orders and contracts; therefore, the liquidity was high Such ratios are suitable with

the characteristics of the industry because to implement projects and signed contracts, the Company needs to collect enough materials to serve production as well as to implement projects.

Quick ratio: is suitable with the business situation Quick ratio was 1.2 in

2008, 1.0 in 2009 and 2010 That quick ratio is ensured Moreover, in fact, quick ratio has been excluded the item of inventories, but in fact, inventories of the Company are mainly qualitative materials and work in progress having quick turnover capability

The indicators above show that the solvency of the Company is in line with that of other production and business units Based on the current revenue and capital progress, we can see that the Company can be completely able to pay debts

on due dates

Debt ratio of the Company

Financial leverage ratio: was 0.8 in 2008, 1.2 in 2009 and 1.6 as of

December 31 Leverage ratio tended to increase slightly because the Company has signed contracts to implement big projects; therefore, to ensure the material expenses for producing and executing projects, the Company used the loans from financial institutions to supplement for the working capital of the Company The debt ratio only has periodical characteristic

The level of ensuring fixed and working capital is on a good trend because the Company does not have significant and long-term debts

Capital turnover

Average accounts receivable turnover ratio was 6.5 revolutions in 2008 corresponding with the average number of collection period of 56 days; was 4 revolutions in 2009; and 5.4 revolutions by the end of 2010, corresponding with the average number of collection period of 67 days

Inventories turnover ratio was 25.1 revolutions in 2008, 13.6 revolutions in

2009 and 15.2 revolutions as of December 31, 2010 Besides, that accounts payable

turnover ratio decreased over time is absolutely suitable with the demand for reserving inventories and payable to sellers to ensure the development growth rate

of the Company’s business which has become stronger

The capital turnover ratio was 4.4 revolutions in 2008, down to 2.5 revolutions in 2009 and 2.7 revolutions in 2010 The capital turnover ratio tended

to decrease in 2009 and 2010 because in 2009 and 2010, the Company participated

in big projects such as Northern Power Corporation, Central Power Corporation, Southern Power Corporation and some projects of Vinaconex, Lilama, Song Da Corporation and some projects of other foreign partners; therefore, the period of executing is long, resulting in the fact that liquidation progress of liquidation depends on the checking and taking over of projects This is completely suitable with the business characteristics of the Company

Profitability: profitability ratios have increased continuously over time;

therefore, the operation of the Company has become more effective

The level of ensuring fixed capital: the level of ensuring fixed capital is

always ensured year by year As of December 31, 2010, total long-term capital was VND 207.886 million It is not only enough for supporting fixed assets and long-term investment but also for liquid assets Thus, we can see that the financial situation of the Company is completely healthy

2.2.2 Analyzing production capacity and products of EDH

Production capacity

Up to now, all high-tech electric products used in the processes of producing, transmitting and distributing electricity and even the automatic system of substations 500kV which control panels, protection panels and other equipment used to be imported, are now designed, manufactured and assembled in domestic market EDH Company has made a significant contribution to above changes From the position of an outsourcing Company for foreign firms, EDH has accumulated experience and tried to design and manufacture electric products by itself So far,

the Company has provided lump-sum solution for “Substation controlled system” for electricity industry and domestic as well as foreign electricity suppliers Annually, EDH’s Electric Equipment Manufacturing Factory exports and delivers tens of types of products with hundreds of different products and brings about full satisfaction to customers.

automation-Thanks to what, does EDH have products designed, manufactured and tested under International Electro Technical Commission Standard (IEC)? They are the renovations in thinking and technological investment into production, the cooperation with foreign firms and the enthusiastic support from partners and customers of EDH over the past years EDH always knows to combine mutual interests to develop and benefit itself, its customers and the country

The industrial production and service sector for the sake of “mutual” interests of EDH has brought about consensus, convenience and satisfaction to customers

Professional staff of design engineers who have been trained and grown under

a market mechanism is always creative in finding suitable alternatives for customers That alternative is optimal in technique, reasonable, economical and convenient in operating, but rational in investment

Staff of workers who are trained with basic skills and always try to improve themselves has made good products; staff of managers who always listen and make sound decisions is the key to the current success of EDH

That the light sheet metal process machines and equipment supported by Computerized Numerically Controlled (CNC) from the G7 countries have made a breakthrough in precision of outsourcing and technological competence of EDH is

an illustration for all

EDH Company has taken advantage of above opportunities to invest in machines and equipment for manufacturing thin-covered mechanical products used

in the field of producing and supplying electricity Therefore, EDH Company has quickly become the country’s leading sub-contractors in providing high-quality products for foreign firms as well as for domestic market and spot export

Computerized Numerically Controlled Equipment and production line for processing light sheet metal at EDH’s Electric Equipment Manufacturing Factory

in Ngoc Hoi Industrial Zone, Thanh Tri, Hanoi has come into operation since 2006 CNC TRUMATIC 3000R cutting and punching machine, Trumbend C110 bending machine and CNC Novopress (Germany) have made EDH become the leading designer and manufacturer of switchboards and panels in Vietnam

The synchronously specialized equipment such as hydraulic punching machines and MIC, MAX, TIC welding machines are selected to support the production line Thus, the mechanical products outsourced at EDH’s Factory easily, simply but perfectly thanks to the preeminence of machine and technology

The processes of treating metal surface before painting, cleaning and phosphatizing are done by a close stage Furthermore, the processes of drying before painting, spraying electrostatic paint and heating after drying are monitored strictly and ensured painting quality, adhesion duration, the density and color The equipment for testing the density of the paint coat is made by Elcometer, a U.K producer will help products of EDH always satisfy the expected standard

The mechanical outsourcing parts designed with 3D software and programmed to be outsourced by specialized software of digital controlling machines have helped EDH provide customers with standardized and small-sized products and modules The equipped machines and technologies have made the production process of the Factory easy, simple and speed up outsourcing process, catching up with the technology and the precision to each hole is up to (± 0.1) mm With the gained achievements, EDH cannot help mentioning the support, trust and technology transfer of Siemens, ABB, Areva and Trump during the development and cooperation process over the past years as well as the trust of customers EDH is always “Towards customers - Provide improved products so as

to satisfy all requirements of customers”

Products which EDH has been manufacturing

Mechanical products: we would like to mention mechanical products with typical manufacturing technology - namely light sheet metals Light sheet metal manufacturing industry has been developed quickly and dramatically recently when the digital control technology comes into life Furthermore, the outsourcing of light sheet metal has become easier and more perfect since it is implemented with digital-controlled cutting machines, punching machines and bending machines Light sheet metal products should be mentioned are switchboards and panels with specific sizes and functions which are widely applied in life, especially, in the area of designing, processing MV and LV equipment, substation automation-controlled technology in HV transformer substations 110kV, 220kV and 500kV.Electric products: EDH has been providing customers with LV switchboards, SIVACON, information switchboard, control and protection panels, AC switchboards, DC switchboards, Marshling kiosk and MV switchboards MV/LV Outdoor kiosk, one-pillar transformer substations and Outdoor Control Protection Substation kiosk used for substation 500kV Furthermore, the special cubicle IP 65panels used in ship manufacturing and mining industry, cable tray system and accessories, industrial racks of the Company always bring satisfaction to customers

2.3 Auditing the Company’s position

2.3.1 Analyzing business environment

Political and legal environment

The stable politics of Vietnam are the base for the development of economic activities and create an attractive investment environment for both domestic and foreign investors including those investing in electric equipment manufacturing industry The Government has clear policies and development strategies for the mechanical industry in general and electric equipment manufacturing industry in particular to 2010 and vision up to 2020

The Decision No.186/2002/QD-TTg dated December 2002 of the Prime Minister: Building a modern electric equipment manufacturing industry, reaching

an advanced level in the region by 2020; quickly enhancing the capacity of manufacturing electric equipment, raising competitiveness of products, meeting a large proportion of domestic demand, replacing import equipment, boosting the export of products to the region and the world In the short run, there must be vertical investment and production expansion for existing establishments in order to manufacture big transformers up to 125 MVA with the voltage of 220 kV, distribution and transmission equipment of electric industry as well as other electric equipment for industry and civil construction

Decision No.176/2004/QD-TTg dated October 5, 2004 of the Prime Minister

in 2004 - 2010 period with vision to 2020: reducing import and striving for basically meeting the demand for electric equipment with the voltage of below 110 kV; by 2010, partially meet the demand for transformers 220 kV and equipment with 220 kV In the long-term, there must be research and manufacturing of products in conformity with the International and regional standards to meet domestic demand and partly for export

According to the development plan of electric equipment manufacturing industry by 2015 and 2025 approved by Ministry of Industry and Trade, the average production value growth rate of the industry in 2011-2015 period is 17-18%/year, striving to meet 70% of domestic demand for wires, transformers, 55% domestic demand for electric engines and common type of generators By 2025, Vietnam can produce all equipment in the power lines and transformer substation, electric engines, generators, medium and high-voltage electric instruments, wire and cables for domestic use and export

Economic environment

According to General Statistics Office, Vietnam economy in 2011 is forecast

to grow above 7.5% GDP of Vietnam continues to rise high in the context of

global economic recession Vietnam will be one of the few Asian countries achieved a high growth rate; the third quickest countries recovering from economic crisis only after China and India and quicker than South East Asian countries The FDI capital flow is still stable at over 10 billion USD/year This is a favorable condition and factor for business development in general and electric equipment business in particular.

Socio-culture environment

To date, Vietnam’s population is nearly 86 million people with the average income of nearly 1.200 USD/person/year The living standard of the people has become better, the demand for using electric equipment from big projects for factories to civil demand like air-conditioners, hot water tanks, hot water jugs, irons, etc., leading to the substantial and urgent possibility to invest in HV, IV and

LV substations of EVN and enterprises Up to now, Vietnam Electricity has not caught up with the demand of the market to timely invest in electric infrastructure

to serve the electricity demand of enterprises and the people

Technological environment

The world is in an industrial revolution A series of new technologies have been introduced and integrated in services and products Vietnam is rated as one of nations having quick growing rate in applying technology for human, especially in areas of information technology and telecommunication The application of digital technology into business activities of electric industry has created substations with the SCADA remote control system, central control system or modern buildings with the intelligent building control system in which the owner of the building can know the current situation at the building as well as monitoring and supervising all the activities in the building although he/she is very far from the building Besides,

we should also mention the influence of information technology such as the Internet and globalization-related factors that have become a macro affecting factor

to electric industry

2.3.2 Analyzing customers and customer segments

Target market: EDH’s customer segments are businesses in electric industry, construction contractors, factories in industrial zones, etc The company identifies its target market basing on the market it currently has and is going to develop, covering a lot of areas throughout the country and neighbouring countries such as Laos, Cambodia, etc

EDH Company always directs to customers and listens to their diverse demand, on that basis, combines with the Company’s resources to generate new values and solutions to share and raise business value of customers as well as achieve the Company’s goals

Clearly understanding each type of customers and segmenting customers into group with the same criteria, characteristics and demand for products and services

of electricity system, at the same time working out different methods of evaluation

to position the demand of each group of customers in order to focus resources and supply appropriate products and services will be a very important start in building business strategy

Figure 2.3- Customer segments

With the principle 20/80, based on criteria in terms of location, economic sector, scale, trade, etc., demand for using electric equipment; with main products such as electric equipment, super HV equipment 500kV, HV equipment 220kV, 110kV, LV equipment, pole mounted substations, switchboards of all types -

Enterprises in electricity industry

Construction and installation contractors

Factories and enterprises in Industrial sector and industrial zones

Foreign enterprises and groups

The proportion of custormer segmerts

secondary, LV, etc remote control systems, SCADA, electronic meters, etc, the Company projects to concentrate on some segments of customers as follows:

Enterprises in electric industry: Electricity is one of key economic industry

of Vietnam and considered a high monopolistic industry in which Vietnam Electricity- EVN is both buyer and seller of electricity to consumers The growth rate of the industry always doubles GDP This group of customers includes: Northern, Central, Southern, Hanoi and Ho Chi Minh City Electricity Corporations; National Power Transmission and its members, hydroelectric plants such as Hoa Binh, Tri An, Sesan, etc

Construction and installation contractors: Vinaconex; Lilama; Song Da Corporation, Vietnam Industrial Construction Corporation; Housing and Urban Development Holdings (HUD); COMA, etc

Factories and enterprises in Industrial sector and in industrial zones: Enterprises in Thang Long Park, NOMURA, Binh Duong and plants of groups and corporation: Vinashin; Hoang Thach Cement; But Son Cement; Zamil Steel; Hoa Phat Steel; etc

Foreign enterprises and groups: Franco Pacific; Comin Asia; Siemens Indonesia; ABB India; Jacobsen Elektro As-Norway; Topfrank; Enerbensa; Kinden, etc

2.3.3 Analyzing sectorial environment and competitors

2.3.3.1 Analyzing sectorial environment

a) Sectorial environment of electric equipment manufacturing industry

With the development plan of electric equipment manufacturing industry to

2015 and 2025, Vietnam will become an attractive market to domestic and foreign investors However, very few domestic enterprises can produce product with high economic value, so the revenue gained is also not high The stages of approaching capital, market information, production sites, etc of enterprises are still very limited; therefore, it is difficult to expand the scale, improve technology and

invest in product research and development Market share of domestic companies are very small.

b) Affective factors to the industry

* Bargaining power of suppliers

Most companies producing and trading electric equipment import input materials and equipment from foreign countries Labor cost and general & administration expenses are still under control and do not have much influence

on the cost of goods sold of companies; therefore, the major input materials will have direct influence on production activities of companies producing and trading electric equipment Thus, the possibility of a predatory pricing of foreign suppliers on companies producing and trading electric equipment are very high

In fact, every year, big foreign companies and corporations like Siemens, ABB, Schneider, etc often raise selling price with a relatively large range from 3% to 20% Hence, the pressure coming from price dependence along with the influence of production progress due to the time consuming for importing equipment are very high

* Bargaining power of buyers

Buyer is a factor causing competitive pressure and likely to directly affecting the Company’s business The electric equipment trading still mostly focuses on main customers, such as Corporations and companies under Vietnam Electricity-EVN However, EVN is always in a stage of lacking capital for investing in infrastructure; therefore, the investment process often gives priority to low-price equipment, etc

Customers in industrial and commercial sectors also create a lot of pressure to us, they often want to sign contracts with a Company that is capable

of being a master contractor of a certain field such as general installation contractor, general construction contractor, general electric contractor, etc so that they can easily manage We are not directly benefited from master

investors and even we are suffering increasing impact from predatory pricing, resulting in a decrease in profit

* Competitive rivalry within the industry

Competitive pressure from rivals operating in electricity industry at present is very huge and fierce It is the competition among electric equipment traders of Vietnam and even with the foreign traders investing in Vietnam (for example, representative offices of foreign companies which have been turned to limited companies or foreign-invested companies having competitive advantage related to tax such as Franco Pacific, Comin Asia, etc.) One of main completive factors that current electricity traders often mention is price competition

* Threats of new comers

To participate in this industry, companies need to have a large amount of invested capital and strong financial potential, experienced staff with deep knowledge about electricity industry The procedures and legal framework to join the industry are conditional; therefore, they will be barriers to companies which want to operate in this field However, in the context that there are many economic sectors tend to be uncertain and regress, the electric equipment industry with a potential and attractive market will attract potential enterprises from other industries to invest in

* Threats of substitute products

Customers have never ever had many choices for using certain goods as at present There are a lot of firms supplying the same type of electric product with the same technical function but having many differences; for example, if customers want to buy a single-phase (or single-pole) circuit breaker, they can buy a Chinese one with the price of about VND 10,000 or European one with the price of over VND 80,000 Therefore, the price range around 8 times for a selection of the substitute product is too high