Factors affecting effectiveness of petroleum market development of cagico in ho chi minh city and the neighboring provinces, vietnam masters of business administration

MEIHO UNIVERSITY Graduate Institute of Business and Management MASTER THESIS Factors affecting Effectiveness of Petroleum Market Development of CAGICO in Ho Chi Minh City and the Neighb

MEIHO UNIVERSITY Graduate Institute of Business and Management

MASTER THESIS

Factors affecting Effectiveness of Petroleum Market Development of CAGICO in Ho Chi Minh City and the Neighboring

Provinces, Vietnam

In partial fulfillment of the requirements for the degree of

Masters of Business Administration

Advisor: Dr Kuo-Hung Tseng Co-advisor: Dr Nguyen Trung Truc Graduate Student: Nguyen Duc Thao

December, 2010

ACKNOWLEDGMENTS

At first, I would like to say many thanks so much to the Boards of Rector of both Meiho University, Taiwan and Ho Chi Minh City University of Industry, Vietnam for giving me the opportunity participating EMBA program in the last two years

Secondly, I would like to express my great thanks to Prof & Dr Kuo-Hung Tseng, Chair of Graduate Institute of Business and Management, Meiho University, Taiwan; Dr Nguyen Trung Truc, Professor of Business Administration Faculty, Ho Chi Minh City University of Industry, Vietnam for useful guide and advice to finish the thesis

Special thanks to Associate Prof & Dr Nguyen Minh Tuan, lecturer of Department

of Business Administration, Ho Chi Minh City University of Industry; Dr Wei-Shuo Lo, Head of Department of Finance, Meiho University for much valuable remarks and evaluation on my thesis

Many thanks to Professors and Administrative Staffs of both of universities, EMBA2 classmates, and colleagues at CAGICO for helps, supports and encouragement throughout the study duration

Sincerely thank to Mr Nguyen Quang Vinh, PhD candidate at the National Sun sen University, College of Management, Taiwan for consulting and sharing experience of doing research

Yat-Finally, a deep thanks to my wife, my children and family’s people for all things sacrified to my study during the last two years, when I was in Vietnam and in Taiwan So much appreciation to all of you!

Factors affecting Effectiveness of Petroleum

Market Development of CAGICO in Ho Chi Minh City and the Neighboring Provinces, Vietnam

ABSTRACT Can Gio Trading Services Joint Stock Company (CAGICO) is a 40 percent-state-

owned company However, 96 percent of total sales revenues were from doing petroleum business Innovation process accompanying with global integration and national economic development have created fierce competition among enterprise doing petroleum business The Company 2009 Annual Report has clearly identified some strategic and managerial problems in which petroleum market development strategy was paid much attention by top management

By clarifying such effects via Internal Factor Evaluation (IFE) matrix and external factors via External Factor Evaluation (EFE) matrix as well as via SWOT matrix, the research findings showed that external factors as Economy, Social-Cultural-Demographic-Environmental, Political-Governmental-Legal, Technology and Competition have positive significant effect on the development of petroleum market of CAGICO The research also showed that internal factors as Personnel Management, Marketing, Finance/Accounting, Production/Operation, Research & Development and Management information system have positive significant effect on the development of petroleum market of CAGICO However, only the external factors including Society/Culture Demography/Geography and Competition caused significant effects on Effectiveness Furthermore, only two internal factors including Management and Research & Development caused significant effects on Effectiveness In conclusion, there are four factors have a significant effects on the Effectiveness of petroleum market development The corresponding strategies designed according to the analysis of TOWS matrix are 1) Implying good management to take advantages of current Society-Culture-Demography-Geography; 2) Implying good management to against competition; 3) Society-Culture-Demography-Geography promotes the development of R&D; and 4) Investing more to R&D to other product and service that other competitors do not offer

Keywords: CAGICO, petroleum business, strategy, market development, SWOT analysis

Factors affecting Effectiveness of Petroleum

Market Development of CAGICO in Ho Chi Minh City and the Neighboring Provinces, Vietnam

Contents

ACKNOWLEDGMENTS I ABSTRACT II Contents III Tables V Figures VII

Chapter 1 Introduction 1

1.1 Research Motivation 1

1.2 Research Purpose 2

1.3 Research Scope and Limitations 2

1.4 Definition of Terms 3

Chapter 2 Literature Review 4

2.1 Strategic Management and Market Development Strategy 4

2.2 External Environment 5

2.2.1 Vietnam economic environment 7

2.2.2 Vietnam social, cultural, demographic, and environmental forces 8

2.2.3 Vietnam political, governmental, and legal forces 8

2.2.4 Vietnam technological forces 9

2.2.5 Vietnam competitive forces 10

2.3 Internal Environment 12

2.3.1 Personnel Management 13

2.3.2 Marketing 14

2.3.3 Finance/Accounting 15

2.3.4 Production/Operation 16

2.3.5 Research and Development (R&D) 17

2.3.6 Management Information System 17

2.4 Threats – Opportunities – Weaknesses – Strengths (TOWS) Matrix 18

2.5 Effectiveness of Development of Petroleum Market 20

Chapter 3 Research Methodology 21

3.1 Research Framework 21

3.2 Research Process 24

3.3 Research Sample 25

3.4 Research Instrument 26

3.5 Validity and Reliability 29

3.6 Data Analysis 30

Chapter 4 Analysis and Results 31

4.1 Analysis of Demographic Data 31

4.1.1 Frequency analysis of gender, position and working field variables 31

4.1.2 Descriptive analysis of age and working time variables 32

4.2 Hypothesis Testing 32

4.2.1 Testing of hypothesis H1 32

4.2.2 Testing of hypothesis H2 33

4.2.3 Testing of hypothesis H3 33

4.2.4 Testing of hypothesis H4 34

4.2.5 Testing of hypothesis H5 35

4.2.6 Testing of hypothesis H6 35

4.2.7 Testing of hypothesis H7 36

4.2.8 Testing of hypothesis H8 36

4.2.9 Testing of hypothesis H9 37

4.2.10 Testing of hypothesis H10 38

4.2.11 Testing of hypothesis H11 38

4.3 Analysis on Relationship between External Factors and Effectiveness of Petroleum Market Development 39

4.4 Analysis on Relationship between Internal Factors and Effectiveness of Petroleum Market Development 40

4.5 Threats – Opportunities – Weaknesses – Strengths (TOWS) Matrix 41

Chapter 5 Conclusions and Recommendations 43

5.1 Conclusion 43

5.2 Discussion and Recommendation 43

References 45

Appendix 1 English Questionnaire 46

Appendix 2 Vietnamese Questionnaire 52

Tables

Table 2-1 The Threats – Opportunities – Weaknesses – Strengths (TOWS) Matrix 19

Table 3-1 Reference of Questionnaire Design 27

Table 3-2 Cronbach’s Anpha Values Calculated 30

Table 4-1 Analysis on Variable of Gender, Position and Working Field 31

Table 4-2 Analysis on Variable of Age and Working Time 32

Table 4-3 Model Summary of Relationship between Economy and Effectiveness 32

Table 4-4 Linear Regression between Economy and Effectiveness 32

Table 4-5 Model Summary of Relationship between Social/Cultural/Demographic/Environmental and Effectiveness 33

Table 4-6 Linear Regression between Social/Cultural/Demographic/Environmental and Effectiveness 33

Table 4-7 Model Summary of Relationship between Political/Governmental/Legal and Effectiveness 34

Table 4-8 Linear regression between Political/Governmental/Legal and Effectiveness 34

Table 4-9 Model Summary of Relationship between Technology and Effectiveness 34

Table 4-10 Linear Regression between Technology and Effectiveness 34

Table 4-11 Model Summary of Relationship between Competition and Effectiveness 35

Table 4-12 Linear Regression between Competition and Effectiveness 35

Table 4-13 Model Summary of Relationship between Personnel Management and Effectiveness 35

Table 4-14 Linear Regression between Personnel Management and Effectiveness 36

Table 4-15 Model Summary of Relationship between Marketing and Effectiveness 36

Table 4-16 Linear Regression between Marketing and Effectiveness 36

Table 4-17 Model Summary between Finance/Accounting and Effectiveness 37

Table 4-18 Linear Regression between Finance/Accounting and Effectiveness 37

Table 4-19 Model Summary of Relationship Production/Operation and Effectiveness 37

Table 4-20 Linear Regression between Production/Operation and Effectiveness 37

Table 4-21 Model Summary of Relationship between Research & Development and Effectiveness 38

Table 4-22 Linear Regression between Research & Development and Effectiveness 38

Table 4-23 Model Summary of Relationship between Management Information System

and Effectiveness 39 Table 4-24 Linear Regression between Management Information System and

Effectiveness 39 Table 4-25 Model Summary of Relationship between External Factors and Effectiveness

39 Table 4-26 Linear Regression between External Factors and Effectiveness 40 Table 4-27 Model Summary of Relationship between Internal Factors and Effectiveness

40 Table 4-28 Linear Regression between Internal Factors and Effectiveness 41 Table 4-29 The Threats – Opportunities – Weaknesses – Strengths (TOWS) Matrix 42

Figures

Figure 2-1 The Firm’s External Environment 5

Figure 2-2 Relationships between Key External Forces and an Organization 6

Figure 2-3 Hypothesis 1 7

Figure 2-4 Hypothesis 2 8

Figure 2-5 Hypothesis 3 9

Figure 2-6 Hypothesis 4 10

Figure 2-7 Hypothesis 5 12

Figure 2-8 Hypothesis 6 14

Figure 2-9 Hypothesis 7 15

Figure 2-10 Hypothesis 8 16

Figure 2-11 Hypothesis 9 17

Figure 2-12 Hypothesis 10 17

Figure 2-13 Hypothesis 11 18

Figure 3-1 Research Framework 23

Figure 3-2 Research Steps 25

Factors affecting Effectiveness of

Petroleum Market Development of

CAGICO in Ho Chi Minh City and the Neighboring Provinces, Vietnam

Chapter 1 Introduction

This chapter includes four sections: (1) research motivation: introducing reasons of conducting the study, (2) research purpose: stating what the study aims to, (3) research scope and limitation: mentioning scope and limitation of the study, and (4) definition of terms: referring to the definition of CAGICO, strategy, and Market Development Strategy

1.1 Research Motivation

Petroleum business is a special type of business in Vietnam The business is affected

by global petroleum price and is strictly controlled by government agencies (Qui Long & Kim Thu, 2010, p.5) In Vietnam, petroleum industry is recognized as one of the crucial industries of the country, one of the most important components of the national energy security, and one of the essential types of consumer product Vietnamese economic development experiencing the stage of entering global integration has consequently resulted in the great demand of petroleum consuming It has also sharpened competition between enterprises associating with petroleum industry Therefore, a good examination, evaluation and control to both internal and external factors affecting business operation would certainly be much necessary for the consolidation of every enterprise

CAGICO – Can Gio Trading Services Joint Stock Company – does business in Ho

Chi Minh City with different products and services However, 96% of total sales revenues are from doing petroleum business There are 155 employees working at different business establishments The company runs as a general agency (GA) for many primary importers of petroleum such as Petrolimex Saigon, PETEC Trading and Investment Corporation, SaiGon Petro, PMT Company, etc., There are 30 retail agencies located in

Ho Chi Minh city and the neighboring provinces such as Vung Tau, Binh Duong, Dong Nai province Company’s customers are big manufacturing plants in industrial zones that

often consume great volume of petroleum such as Thu Duc Electric Power and Can Tho Electric Power With the two company-owned petroleum bonded warehouses and the one rent in Petrolimex Saigon establishment, the company assures a quick meet great demand

by its customers

According to The 2009 Business Information Report, in 2009, total revenues was

appropriately equal to US$ 87.00 million, achieved 165.32% of the year’s objective plan Much of efforts have been done in seeking new customers for expanding market to increase profitability Such achievement could be recognized as an evidence of great effort by all management and staff in the condition of being badly affected by global economic recession Also, according to the report, there were many managerial issues still remained without effective solutions, such as in expanding market share and filling the gaps of lack of qualified staff, still remained without effective solutions The fiercer the competition is, the harder CAGICO faces to be alive and developed So, identifying and understanding factors that significantly affect the effectiveness of enhancing petroleum market share is much necessary for CAGICO That is also the motivation of this study

Research objectives of the study are:

1 Identify and evaluate external factors affecting the effectiveness of petroleum market development to CAGICO

2 Identify and evaluate internal factors affecting the effectiveness of petroleum market development to CAGICO

3 Introduce solutions of enhancing effectiveness of petroleum market development

of CAGICO

1.3 Research Scope and Limitations

As mentioned earlier, CAGICO does business in Ho Chi Minh City with different products and services, however, 96% of total sales revenues are from doing petroleum business This research mainly focuses on petroleum business area Furthermore, considering the real business activities at present real market, the study also focus on Ho

Chi Minh City and its neighboring provinces such as Dong Nai, Binh Duong, Vung Tau, etc., located in southern Vietnam

1.4 Definition of Terms

CAGICO

CAGICO is the abbreviation of Can Gio Trading Services Joint Stock Company

Founded in 1978 by Ho Chi Minh City People’s Committee (Decision No 102/QĐ–UB 27/05/1978) The company has changed its name, business function as well as organization structure many times since then by its Governing Body – Ho Chi Minh City

People’s Committee In 2002, the company was officially named Can Gio Trading

Services Joint Stock Company by Ho Chi Minh City People’s Committee (Decision No

14/QĐ-UB 03/01/2002) The company offers a variety of different products and services;

however, purchasing and selling petroleum is its major business

Strategy

A strategy is a long-term direction that is made by the top manager of an organization David (2003) stated that strategies are means to meet the long-term goals A good and clear strategy can help the organization with knowing its position, ways, what, who, where, when, and how (Sirisavan Phathaphone, 2002) A strategy of the corporation forms a comprehensive master plan starting how the corporation will achieve its mission and objectives It maximizes competitive advantage and minimizes competitive

disadvantage (Wheelen & Humger, 2002)

Market Development Strategy

According to Robinson (1994), “Market development allows firms to practice a kind

of concentrated growth by identifying new users for existing products and new demographically, psycho graphically, or geographically defined markets” David (2003) defined market development strategy as: “Introducing present products or services into new geographic area”

Chapter 2 Literature Review

This chapter includes five sections: (1) strategic management; (2) external environment; (3) internal environment; (4) the threats – opportunities – weaknesses –

strengths (TOWS) matrix; and (5) research framework and hypotheses

2.1 Strategic Management and Market Development Strategy

Robinson (1994) states that strategic management was a set of decisions and actions that result in the formulation and implementation of plans designed to achieve a company’s objectives Strategic management comprises nine critical tasks Among them, three of them concerning the assess of internal and external factors: (1) developing a company profile that reflects its internal conditions and capabilities, (2) assessing the company’s external environment, including both the competitive and general contextual factors, and (3) analyzing the company’s options by matching its resources with the external environment

The process of strategic management consists of three stages: strategy formulation, strategy implementation, and strategy evaluation (David, 2003) Tasks of developing a vision and mission, identifying an organization’s external opportunities and threats, determining internal strengths and weaknesses, establishing long – term objectives, generating alternative strategies, and choosing particular strategies to pursue are considered as the contents of strategy formulation In addition, David mentioned that strategic formulation issues included deciding what new businesses to enter, what businesses to abandon, how to allocate resources, whether to expand operations or diversify, whether to enter international markets, whether to merge or form a joint venture, and how to avoid a hostile takeover

David (2003) also identified and exemplified fourteen types of strategies for actions

in terms of the difference of business environment in which market development strategy was defined as “introducing present products or services into new geographic area” To CAGICO, strategic management, in general speaking, has not been properly performed although the analysis and assessment of operation, advantages and disadvantages from the outside environment are performed every year in order to build up a plan and solutions

for performance in the next year, relating to strategic direction and setting up long term goals to perform (CAGICO, 2007, 2008, 2009, 2010)

2.2 External Environment

According to Robinson (1994), a firm’s external environment consists of all the conditions and forces that affect its strategic options and define its competitive situation David (2003, p.80) said “The purpose of an external audit is to develop a finite list of opportunities that could benefit a firm and threats that should be avoided” The strategic management model shows that the external environment has three interactive segments: operating, industry, and remote environments Figure 2-1 depicts the interrelationship between those segments:

Figure 2-1 The Firm’s External Environment

(Source: John A Pearce & Richard B Robinson, The external environment, 1994, p.63)

Remote Environment (Global and Domestic)

It is important for a company to assess external factors David (2003, p.80) noted that “Identifying and evaluating external opportunities and threats enables organizations

to develop a clear mission, to design strategies to achieve long – term objectives, and to develop policies to achieve annual objectives” He also pointed out the five categories of external forces: (1) economic forces, (2) social, cultural, demographic, and environmental forces, (3) political, governmental, and legal forces, (4) technological forces, and (5) competitive forces The relationships among these forces and an organization are shown

in Figure 2–2 External trends and events significantly affect all products, services, markets, and organizations in the world

Figure 2-2 Relationships between Key External Forces and an Organization

(Source: Fred R David, The Nature of an External Audit, 2003, p.80)

To perform an external audit, a company first must gather competitive intelligence and information, such as economic, social, cultural, demographic, environmental, political, governmental, legal, and technological trends Petroleum industry are also impacted by most of the mentioned external factors, although each factor has different levels of impact, the main impact results from economic cultural/social, political/ legal, technical and technological, demographic, international economic integration (globalization), and environment of the industry Therefore, this study focuses on the

Competitors Suppliers Distributors Creditors Customers Employees Communities Managers Stockholders Labor unions Governments Trade associations Special interest groups

Products Services Markets Natural environment

analysis of these factors in order to determine the major opportunities and challenges for CAGICO

2.2.1 Vietnam economic environment

Robinson (1994) argued that economic factors concern the nature and direction of the economy in which a firm operates; while David (2003) claimed “economic factors have a direct impact on the potential attractiveness of various strategies” Because the relative affluence of various market segments affect consumption patterns, in its strategic planning, each firm must consider economic trends in the segments that affect its industry In company with integrating trend of international economy in recent decade, many of these economic organizations and trading organizations were founded, effectively Nations’ open-door economy level worldwide is improved considerably From 1986, Viet Nam has spent nearly thirty years to carrying out economic renovation, and has attained rather high growth rate In recent decade, Vietnamese GDP increases in averaged 7% Although being impacted by global economic depression, Vietnam keeps its growth rate of GDP in 2008 and 2009 as 6.18% and 5.32% respectively (General Statistics Office of Vietnam) Viet Nam is one of the twelve countries in the world with positive GDP growth in 2009 The expected GDP rate from 2010 to 2015 is expected to be 7.2% Growth of economy leads to the increase of the petrol consumption demand It brings out opportunity to petroleum companies on sale as well as on profit After joining WTO, a large number of big foreign groups go to Vietnam for investment Moreover, developing of Industrial zones and Export processing zones also create further convenience for petroleum trading enterprises to develop this potential market

From above notes, the study proposes Hypothesis 1 that is depicted in Figure 2-3:

H1: Economy has a positive effect on the effectiveness of petroleum market development to CAGICO

Figure 2-3 Hypothesis 1

Effectiveness of Development of Petroleum Market

2.2.2 Vietnam social, cultural, demographic, and environmental forces

Factors such as social, cultural, demographic, and environmental are considered causes of major impacts upon virtually all products, services, markets, as well as customers when changing (David, 2003) The social factors that affect a firm involve the beliefs, values, attitudes, opinions, and lifestyles of persons in the firm’s external environment, as developed from cultural, ecological, demographic, religious, educational, and ethnic conditioning (Robinson, 1994) Viet Nam now is a populous country and located in the third place of ASEAN and the thirteenth place in the world with current population nearly eighty-seven million (General Statistics Office of Vietnam, 2009) Population increasing rate in average is 1.2% per year In urban areas, population density reaches 29.6% Total population increases 3.4% per year in average

In 2015, the forecasted population of Vietnam will be ninety-three million Consequently, petroleum demand will increase gradually It is an opportunity for petrol trading company, such as CAGICO, to enlarge market share In cultural-social aspect, CAGICO brought into Western culture positively in operation via environmental adaptation policy, including policy of ensuring quantity, quality and services; creating trade-mark reputation, satisfying customers’ needs, obeying environmental matters strictly, preventing fire and fighting fire, and social security The cultural environment shows that more services quality needs to improve It is an opportunity for CAGICO in competition with other competitors, and in attracting customers

From above notes, the study proposes Hypothesis 2 that is depicted in Figure 2-4:

H2: Social/Cultural/Demographic/Environmental factor has a positive effect on the effectiveness of petroleum market development to CAGICO

Figure 2-4 Hypothesis 2

2.2.3 Vietnam political, governmental, and legal forces

Factors, such as “Political, governmental, and legal factors, they “can represent key opportunities or threats for both small and large organizations” (David, 2003, p.87) Political constraints are placed on firms through fair-trade decisions, antitrust laws, tax

Society/Culture/Demo

graphy/Environment

Effectiveness of Development of Petroleum Market H2

programs, minimum wage legislation, pollution and pricing policies, administrative jawboning, and many other actions aimed at protecting employees, consumers, the general public, and the environment (Robinson, 1994)

Viet Nam International political status on the one hand in recent years has changed complicatedly Ethnic group conflicts and religious conflicts have appeared in plenty of countries Constantly revolutions led many countries to an insecure condition, which affected petrol market worldwide largely On the other hand, in Viet Nam, under the direction of Communist Party, political and social security situation are stable Politic and social security creates a convenience environment for investment, manufacture and trading Hence, Viet Nam gets advantage in attracting domestic and foreign investment

“Be friends of all countries” is the convenience condition for investment and trading environment in Viet Nam It brings out opportunity to company in expanding trading cooperation, market, and new customers Bui (2009) mentioned that Government’s role affects petrol industry greatly and directly via specific operating policy There are following positive points: (1) Break monopolistic import position of units with material base that invested in prior, and got long accumulated time, (2) Keep price stable in long time including fluctuant price of international petrol to speed up economic growth, and to stabilize domestic political-economic situation, (3) Establish competitive market between enterprises and take necessary social fee for petrol trading

From above notes, the study proposes Hypothesis 3 that is depicted in Figure 2-5:

H3: Political/Governmental/Legal factor has a positive effect on the effectiveness of petroleum market development to CAGICO

Figure 2-5 Hypothesis 3

2.2.4 Vietnam technological forces

“Technological forces represent major opportunities and threats that must be considered in formulating strategies” (David, 2003, p.93) Technological advancements can dramatically affect organizations’ products, services, markets, suppliers, distributors, competitors, customers, manufacturing processes, marketing practices, and competitive

Politic/Government/Le

gal

Effectiveness of Development of Petroleum Market H3

position In order to avoid obsolescence and to promote innovation, a firm must be aware

of technological changes that might influence its industry (Robinson, 1994) Creative technological adaptations suggest the possibilities for new products, and for improvements in existing products, and in manufacturing and marketing techniques

Vietnamese Government encourages transferring activities and renovating technology Creating convenience condition in organizations and individuals for renovating technology will serve developing country’s demand rapidly and stably Nowadays, science and technology has developed rapidly to support petroleum industry’s technology improvement unceasingly It creates a large pressure for petrol trading units But it is also an opportunities for applying modern technology to provide new services with high quality Automating and versatility of technology are more and more modern Changing technology to modern trend will enhance enterprise’s competition, attract more customers, decrease expenses, and ensure quality and quantity CAGICO now has used some modern equipment and machines such as electronic pump, storage system, pipeline, and … etc On the other hand; low-waste technology, environmental friendliness, and low-price substitutive products cause competitive pressure to company

From above notes, the study proposes Hypothesis 4 that is depicted in Figure 2-6:

H4: Technology has a positive effect on the effectiveness of petroleum market development to CAGICO

Figure 2-6 Hypothesis 4

2.2.5 Vietnam competitive forces

David (2003) cited the Porter’s 5-forces model of competitive analysis that is widely used for developing strategies in many industries Intensity of competition is highest in lower-return industries According to Porter, the nature of competitiveness in a given industry can be viewed as a composite of five forces: (1) rivalry among competing firms, (2) potential entry of new competitors, (3) potential development of substitute products, (4) bargaining power of suppliers, (5) bargaining power of consumers

Development of Petroleum Market H4

Potential entry of new competitors Participating in petrol trading in Ho Chi Minh

City area now includes public sector, joint-stock, private citizen, and joint-venture with 3,348 registered enterprises (Planning and Investment Department of Ho Chi Minh City, 2010) In petrol market of Ho Chi Minh City, CAGICO has plenty of competitors Among them, Saigon Fuel Joint Stock Company (SFC) and Petrol-Material Joint Stock Company (COMECO) are the two biggest competitors Both of companies are main imported petrol companies in Ho Chi Minh City market

Potential development of substitute products Enterprises of petrol trading industry

have to compete with substitutive product manufacturing industries Energy resources, such as electricity, gas, coal and fuel, especially with gas and fuel, have replaced petrol as energy source gradually Gas and fuel both are important energy resources to people’s daily life, furnace industry, and industrial production These are challenges and threat that petrol trading enterprises concern about In recent years, due to the increasing of fuel price, many petroleum-consumed factories (including some CAGICO customers) have had a change of using alternative fuel such as coal or natural gas The development of such complementary products with competitive prices has caused a great impact on CAGICO revenue Those impacts predictably continue in near future

Bargaining power of suppliers In 2009, Vietnam consumed approximately 15

million tons of petrol (2 million tons produced and 13 million tons imported) There were nine government-assigned petroleum importers: (1) Petrolimex, (2) Petec, (3) PV Oil (Petro Vietnam), (4) Military Petroleum Company, (5) Saigon Petrol Company, (6) Aviation Petroleum Company Vinapco, (7) Maritime Petroleum Import-Export Company PMT, (8) Thanh Le Import-export Company, and (9) Petimex CAGICO is now running

as the general agent for petroleum importers, Petec and Saigon Petrol The company has also signed commercial sale contracts with Petrolimex, PV Oil, Military Petroleum Company, Maritime Petroleum Import-Export Company PMT, and Petimex One of CAGICO’s advantages is to have many suppliers with profuse supply CAGICO uses price as criteria for selecting suitable supplier

Bargaining power of consumers Company’s customers are classified into three

categories: (1) Direct consumers are people whom the petrol company provides for all

objects with demand of using petrol directly to Furthermore, customers are inhabitants,

officers, agencies, and factories that need for transportation; (2) Agents and commercial

customers both is important channel of CAGICO to distribute petrol indirectly to

consumers Company has expanded this channel unceasingly to form stable and effective

retail petrol system in cooperation There are mutual benefits for Petrol Company and commercial customers These customers have a few outlets (1 or 2 outlets), without enough scale to become general agents According to governmental regulations, dealers sign agent contract with company to get fee, discount as well as preferred policy and

other support from company; (3) Industrial customers use petrol directly for

manufacturing, transportation, and services In Vietnam, industrial customers are companies, factories, enterprises, workshops, co-operative society, and projects in Ho Chi Minh City area and neighboring provinces Main distributing items for industrial customers are black oil and all types of diesel These are customers with large and stable demand

From above notes, the study proposes Hypothesis 5 that is depicted in Figure 2-7:

H5: Competition has a positive effect on the effectiveness of petroleum market development to CAGICO

Figure 2-7 Hypothesis 5

2.3 Internal Environment

Most of the organizations have their strengths and weaknesses in the functional areas

of business (David, 2003) No enterprise is equally strong or weak in all areas Some researchers emphasize the importance of the internal audit part of the strategic management process by comparing it to the external audit The internal audit requires gathering and assimilating information about the firm’s management, marketing, finance/accounting, production/operations, research and development (R&D), and management information systems operations (David, 2003) Performing an internal audit requires gathering, assimilating, and evaluating information about the firm’s operations (David, 2003) Critical success factors are consisting of both strengths and weaknesses Besides examining external factors to identify opportunities and threats, the examination of internal factors to identify strengths and weaknesses was paid much attention when designing strategies and setting up objectives According to David (2003), components of examining internal factors include:

Development of Petroleum Market H5

• Management includes five basic functions: planning, organizing,

implementing, promoting, and controlling

• Marketing includes nine basic functions: customer analysis, buying, selling,

product and service planning, price setting, distribution, market research, opportunity analysis, and social responsibility

• Finance/Accounting includes solvency, leverage, capital flow, profit, capital

use, cash flow, equity

• Production includes all activities of a process of transforming inputs into

product and services

• Research and development (R&D) still play an important role to many

enterprises, especially to hi-tech ones

• Information system that links all business functions and offers basis for

managerial decision making process

on competence and ability of every position Company’s conditions and policies carry out

in equal or higher than governmental regulations The higher wage policy aims to raise employees’ innovation in the increase of productivity CAGICO has put forward commending and rewarding policy punctually to have appropriate reward to employees’ contribution However, CAGICO is facing with the problem of lacking skilled and experienced management for both senior and junior positions None of existing managers are post-graduated So, to the objectives of enhancing business competitive capability to meet the increasing market demand of manufacturing and trading, competency of existing employees are considered not qualified enough (CAGICO Annual Report, 2009)

From above notes, the study proposes Hypothesis 6 that is depicted in Figure 2-8:

H6: Personnel Management has a positive effect on the effectiveness of petroleum market development to CAGICO

Figure 2-8 Hypothesis 6

2.3.2 Marketing

Marketing can be described as the process of defining, anticipating, creating, and fulfilling customers’ needs and wants for products and services There are seven basic functions of marketing: (1) customer analysis, (2) selling products/services, (3) product and service planning, (4) pricing, (5) distribution, (6) marketing research, and (7) opportunity analysis Understanding these functions helps strategists identify and evaluate marketing strengths and weaknesses (David, 2003) In addition, Evans and Bergman (1982: p 17) introduced two new functions: (8) buying products and (9) social responsibility

CAGICO has assigned specific departments to update information of competitors’ sale price in Ho Chi Minh City and other regions According to this information, CAGICO decides suitable sale price with subject of customer (retailers, wholesalers) Following up and analyzing competitors’ resources decides output, customers, investment and development of channel Then governmental macroscopic policies are followed up by tax, trading management viewpoint, developing rate of industries in cement, thermoelectric plants, and transportation CAGICO has organized periodic customer conference annually to evaluate customers’ cooperated product concurrently to announce engagements about trading policy in coming years

As the General Agent of two key petroleum importers, the source of supply is often plentiful with stable price; sometimes the actual price is lower than market price Petroleum price is under the control of government Hence, CAGICO has to comply with regulations fully and strictly To customers such as factories, direct customers, or company’s agents, there are different sale price set for according to subject, changing of each market, season to ensure competitive ability and operational efficiency CAGICO has established agent system in Ho Chi Minh City and neighboring provinces such as Dong Nai, Binh Duong With wider channel, customers are able to make a deal with the company or agent system directly From these channels, customers will recognize

Development of Petroleum Market H6

company’s trade name All selling products and services are guaranteed according to Vietnamese petroleum standards with control sample In case of having queries or complaints about products or services, CAGICO has examined and solved them properly CAGICO sets up department to resolve all customers’ query and complaint in many areas

to receive information and to response quickly Besides that, CAGICO has established the hot line, and the informing telephone number of backbone leaderships to customers Hence, CAGICO brings confidence and peace of mind to customers

From above notes, the study proposes Hypothesis 7 that is depicted in Figure 2-9:

H7: Marketing has a positive effect on the effectiveness of petroleum market development to CAGICO

Figure 2-9 Hypothesis 7

2.3.3 Finance/Accounting

Financial condition is often considered as one of the best measures for a firm’s competitive position and attractiveness to investors The reorganization of an organization’s financial strengths and weaknesses is essential in order to formulate strategies According to James Van Horne (1974) the functions of finance/accounting comprise three decisions: the investment decision, the financing decision, and the dividend decision CAGICO is always interested in financial management activities Financial management activities are highly associated with CAGICO’s business activities Accounting system inspects and monitors receipts, payments, sale debt, purchase debt, and taxes Cost accounting section calculates expenses properly to bring out suitable and competitive sale price to attain operational efficiency Integrated accounting section offers general data, analyzes financial index, finds out advantages and disadvantages, and provides information to leadership for strategic decisions

CAGICO has measures to control expenses, and to practice thrift Investment operation has been supervised and managed strictly Company has carried out all accounting activities by means of advanced software, which processes quickly and exactly State authorities evaluate company’s accounting activities annually CAGICO

Development of Petroleum Market H7

now has had relation with banks such as Eximbank, DaiABank, and has received great support from AgriBank CAGICO has borrowed one hundred billion from AgriBank with preferential interest rate and without mortgage Besides that, the company has raised capital from staffs’ idle money, and concurrently received great supporting capital from holding company SATRA Production/operations CAGICO is a financially healthy company

From above notes, the study proposes Hypothesis 8 that is depicted in Figure 2-10:

H8: Finance/Accounting has a positive effect on the effectiveness of petroleum market development to CAGICO

Figure 2-10 Hypothesis 8

2.3.4 Production/Operation

The production/operations function of a business consists of all those activities that transform inputs into goods and services Production/operations management deals with inputs, transformations, and outputs that vary across industries and markets (David, 2003) The main operation of CAGICO is domestic petrol trading CAGICO now is the general agent of two main units, Petec and Saigon Petrol CAGICO has signed the commercial commission contract with companies of Petrolimex, Petrol Vietnam, Military Petroleum Company, Maritime Petroleum Import-Export Company PMT, and Petimex One of CAGICO’s current advantages is to have many suppliers Depending on period and price, CAGICO selects suitable supplier in terms of their operations Hence, source of supply is often plentiful with stable price; sometimes it is lower than market price CAGICO has carried out resale to consumers and manufacturing units to receive spread Besides, CAGICO has traded in imported-exported aquatic products, coal, restaurant and tourism in low revenue Therefore, petrol trading efficiency decides CAGICO’s operational efficiency In recent years, CAGICO’s operation has been standardized gradually with proper policies applied in whole company Dealings with customer, purchase, sale, delivery, post sale services, and promotion carry out according to the

Development of Petroleum Market H8

policies From that point, management and trading activities attain high efficiency, and customers’ confidence

From above notes, the study proposes Hypothesis 9 that is depicted in Figure 2-11:

H9: Production/Operation has a positive effect on the effectiveness of petroleum market development to CAGICO

Figure 2-11 Hypothesis 9

2.3.5 Research and Development (R&D)

According to Fred R David (2003) many firms today conduct no R&D, and yet many other companies depend on successful R&D activities for survival With only the function of distribution (buy and sell), CAGICO now is not able to develop new products CAGICO owns two oil storages Therefore, CAGICO needs to do R&D about new item petrol containing in larger storages

From above notes, the study proposes Hypothesis 10 that is depicted in Figure 2-12:

H10: Research and Development has a positive effect on the effectiveness of petroleum market development to CAGICO

Figure 2-12 Hypothesis 10

2.3.6 Management Information System

Information ties all business functions together and provides the basis for all managerial decisions (David, 2003) Information is the cornerstone of all organizations The purpose of management information system is to improve the performance of an enterprise by improving the quality of managerial decisions CAGICO has applied, developed and improved informatics task All departments now have managed via

Research and

Development

Effectiveness of Development of Petroleum Market H10

Development of Petroleum Market H9

network CAGICO has set up policies for exchanging internal and external information All related information to customers has kept as records Every customer has his/her own record and has been saved in the computer Software of information management system

is preeminent so that they can manage huge database, access useful reports, save a lot of time, and perform high efficiency Internal information exchange uses local area network – Lan CAGICO has hand over meeting two times monthly on beginning and middle of month All of the relating departments have to report update information about trading operation Information system supports CAGICO in the decision making of trading From above notes, the study proposes Hypothesis 11 that is depicted in Figure 2-13:

H11: Management information system has a positive effect on the effectiveness of petroleum market development to CAGICO

Figure 2-13 Hypothesis 11

2.4 Threats – Opportunities – Weaknesses – Strengths (TOWS) Matrix

The Threats-Opportunities-Weaknesses-Strengths (TOWS) matrix is an important matching tool that helps managers develop four types of strategies: SO (strengths-opportunities) strategies, WO (weaknesses-opportunities) Strategies, ST (strengths-threats) strategies, and WT (weaknesses-threats) strategies Matching key external and internal factors is the most difficult part of developing a TOWS matrix and requires good judgment-and there is no one best set of matches Note in Table 2-5 that the first, second, third, and fourth strategies are SO, WO, ST, and WT strategies, respectively There are eight steps involved in constructing a TOWS matrix:

1 List the firm’s key external opportunities

2 List the firm’s key external threats

3 List the firm’s key internal strengths

4 List the firm’s key internal weaknesses

5 Match internal strengths with external opportunities, and record the resultant SO strategies in the appropriate cell

Management

information system

Effectiveness of Development of Petroleum Market H11

6 Match internal weaknesses with external opportunities, and record the resultant

4

5

(Source: Fred R David, Strategic Management – Concepts & Cases, Prentice Hall, 2003)

The SO STRATEGIES would be identified by matching opportunities to strengths in order to use strengths to take advantage of opportunities the ST STRATEGIES would be identified by matching threats to strengths in order to use strengths to avoid threats Besides that, the WO STRATEGIES would be identified by matching opportunities to weakness in order to overcome weakness by taking advantage of opportunities; the WT STRATEGIES would be identified by matching threats to weakness in order to minimize weaknesses, and avoid threats

2.5 Effectiveness of Development of Petroleum Market

The effectiveness of developing petroleum market was always mentioned in the annual reports of CAGICO by evaluating achievements of targeted objectives concerning the development of petroleum market every year For example, the 2009 Annual Report

of CAGICO stated that one of the targeted objectives to 2010 was increasing the number

of retail agencies from 30 to 40 (CAGICO Annual Report, 2009) in Ho Chi Minh city and the two provinces nearby Ho Chi Minh city as Long An province and Tay Ninh province The development strategy of Vietnam National Petroleum Corporation (Petrolimex) mentioned the effectiveness of operating business as the increase of petroleum stations, petroleum volume sold, revenue, return on assets, contribution to state budget, equipments supporting storage, transportation and sales, number of new employees employed, salary and fringe benefits, etc…

Chapter 3 Research Methodology

Chapter 3 includes sections of (1) research framework: presenting independent and dependent variable of the study, (2) research steps: describing steps done in conducting the study, (3) research subject: introducing subjects that are surveyed (4) research instrument (questionnaire): showing the structure and design of the questionnaire, (5) validity and reliability: establishing validity and reliability of the questionnaire, and (6) analysis methods: referring to some statistical procedure and methods used in analyzing data collected

3.1 Research Framework

A good control of external factors helps organizations recognize potential threats and opportunities that work as basis for management to create strategies of either maximizing strengths/opportunities or minimizing weaknesses/threats According to David (2003), external factors directly affect both suppliers and distributors Recognizing and evaluating such opportunities and threats also help organizations set

up clear objectives and corresponding strategies to achieve both short- and long-term objectives On the other hand, recognizing and evaluating organization’s strengths and weaknesses such as management, marketing, finance, production, research and development, information management system, and etc., affect market development David (2003) said “Internal strengths/weaknesses, coupled with external opportunities/threats and a clear statement of mission, provide the basis for establishing objectives and strategies”

Figure 3-1 illustrates research framework of the study Independent variables of the research are external factors and internal factors that are categorized as (1) external factors that refer to Economy, Society-Culture-Demography, Politics-Government- Legislation, Technology, and Competition; and (2) internal factors that refer to Management, Marketing, Finance\Accounting, Production, Research and Development, Information Management System The effectiveness of development of petroleum market of CAGICO is considered as the dependent variable of the study There are eleven hypotheses (H1~H11) developed from literature review that have been earlier mentioned in Chapter 2 above Those hypotheses are summarized below:

H1: Economy has a positive significant effect on the development of petroleum market of CAGICO

H2: Social, Cultural, Demographic, and Environmental factors have a positive significant effect on the development of petroleum market of CAGICO

H3: Political, governmental, and legal factors have a positive significant effect

on the development of petroleum market of CAGICO

H4: Technology has a positive significant effect on the development of petroleum market of CAGICO

H5: Competition has a positive significant effect on the development of petroleum market of CAGICO

H6: Personnel Management has a positive significant effect on the development

of petroleum market of CAGICO

H7: Marketing has a positive significant effect on the development of petroleum market of CAGICO

H8: Finance/Accounting has a positive significant effect on the development of petroleum market of CAGICO

H9: Production/Operation has a positive significant effect on the development of petroleum market of CAGICO

H10: Research and Development has a positive significant effect on the development of petroleum market of CAGICO

H11: Management information system has a positive significant effect on the

development of petroleum market of CAGICO

Figure 3-1 Research Framework

Economy

Effectiveness of Development of Petroleum Market