Đề tài Valuating & Adjusting Strategy For Construction Installation & Industrial Material Company Limited

ernal Threats (T) Internal Strengths (S) SO"Maxi-Maxi" StrategyStrategies that use strengths to maximize opportunities ST"Maxi-Mini" StrategyStrategies that use strengths to minimize threats Internal Weaknesses (W) WO"Mini-Maxi" Strategy Strategies that minimize weaknesses by taking advantage of opportunities WT "Mini-Mini" Strategy Strategies that minimize weaknesses and avoid threats II.1.2.2. Formulation Formulation, the second phase in the strategic management process produces a clear set of recommendations, with supporting justification, that revise as necessary the mission and objectives of the organization, and supply the strategies for accomplishing them. In formulation, we are trying to modify the current objectives and strategies in ways to make the organization more successful. This includes trying to create "sustainable" competitive advantages -- although most competitive advantages are eroded steadily by the efforts of competitors. A good recommendation should be: effective in solving the stated problem(s), practical (can be implemented in this situation, with the resources available), feasible within a reasonable time frame, cost-effective, not overly disruptive, and acceptable to key "stakeholders" in the organization. It is important to consider "fits" between resources plus competencies with opportunities, and also fits between risks and expectations. There are three primary steps in this phase: Identifying the directional strategy (grand strategy) for the company It should be either (1) growth strategy: company can be promoted internally by investing in expansion or externally by acquiring additional business divisions or (2) stability strategy (pause strategy): the organization wants to remain the same size or grow slowly and in a controlled fashion or (3) retrenchment strategy: the organization goes through period of forced decline by either shrinking current business units or selling off or liquidating entire business. Identifying the portfolio strategy for the company After having the clear direction, it is the time to decide the portfolio strategy of the company which pertains to the organization’s mix of SBUs and product lines that fit together in such a way as to provide the corporation with synergy and competitive advantage. Define new mission, goals for the company After analyse all aspect of the business and select which businesses the company should develop, it is necessary that the new corporate strategy should have a new mission and goals. Mission Statement The new mission statement is the organization's new vision translated into written form. It makes concrete the leader's view of the direction and purpose of the organization. This mission statement should be a short and concise statement of goals and priorities. Setting Goals The major outcome of strategic road-mapping and strategic planning, after gathering all necessary information, is the setting of goals for the organization based on its vision and mission statement. A goal is a long-range aim for a specific period. It must be specific and realistic. Long-range goals set through strategic planning are translated into activities that will ensure reaching the goal through operational planning. Chapter 3 – Environment analysis III.1 The societal environment (PEST Analysis) Political forces Infant industry policy: Steel in general and steel products for construction and shipping industry in detail are strategy material for a country especially developing one like Vietnam. Government naturally always tries to protect domestic production. Before 2004, steel industry in Vietnam mainly concentrated on finished-good manufacture, which served construction industry. The input material for this manufacturing was mild foil. Almost kind of the foil was imported from outside, up to 90% of demand. Government implemented infant industry policy through tariff tool. Bellow is the table that describes movement of tariff policy from 2001 to 2009 Year 2001 2002 2003 2004 2005 2006 2007 - Dec 2008 Nov- 2008 2009 product  March  July Foil 10% 5-10% 3-5% 0% 10% 10% 2% 5% 0% 8% Rebar 40% 5-40% 5-20% 0% 20% 20% 10% 10%  15% 15% Figurers 2: Tariff on foil & rebar from 2001 to 2009 (Source: Gathered by author through VSA website) The unstable tariff policy shows very clearly on the table. Rates changes from year to year or even increases and decreased in the same year. Especially in 2004 the tariff rates was down to zero percent in March and rose up again 10% for foil and 20% for rebar in July. The same story happened in November 2008 when tariff rate on foil decreased from 5% to 0% and increased to 8% in 2009, just one month after. There are 03 situations leading decision of Government to increase or decrease tariff on foil and rebar - a) Shortage foil or domestic price higher: reduce tariff to encourage import (this normally lobbied by finished-goods manufacturers) - b) Surplus imported foil or cheaper price: increase tariff to protect domestic foil manufacturers (lobbied by foil manufacturer) -c) Shortage finished-good because a “fever” rebar and too high domestic foil price: decrease both of tariffs. The unstable situation above caused by depending on outside resources and by conflicts between domestic manufacturers. The unstable tax policy strongly effected to market price and of course effected to trading companies. It brings opportunities of super profit and brings serious threats to a company like Cim Co whose revenue almost came from import and distribution activities. Steel industry development policy: The orientation to export: As said above, according to the Development Planning of VN Steel Industry in the year from 2010 to 2015 duration, Vietnam shall become steel export country. As planed in 2010, Vietnam shall export the first 500.000 tons steel products, which manufactured from domestic iron ore exploiting & processing industry. Currently there are three huge complex projects on sifting - refining -laminating processes under construction in Vietnam: Thach Khe with capacity of 2.2 million tons, Van Phong 8 million tons, Vung Tau 2 million tons. When these projects fully come to operation with 100% capacity, domestic demand on input materials shall be sanctified. Therefore, if the imported product price is not competitive, market share of importers shall be narrow strongly. Cim Co., Ltd with over 90% revenue from trading shall face to a threat of fierce competition. In addition, in long term, infant industry policy of Government shall really uphold because domestic producers supply enough crude material for inputs. Economic forces Monetary policy: In the year 2009, State Bank used primary interest as a tool to control monetary supply. The Bank issued ceiling loan rate equal 150% primary rate. In the first quarter of 2009, the rate was 7% it means commercial bank can not loan with rate over 10.5% and mobilizing rate was in range from 7% to 8%. This rate was not enough attractive to encourage people to deposit their saving money. From June commercial banks started a rising rate competition, at the end of the year mobilized rate maximum at 10.5% and bank system has to face with solvency problem. State Bank has reacted by increasing primary rate up to 8% from the first January 2010. This dynamic aimed to improvement the ability of mobilizing of banks. After this action, in February State Bank issued a document allowed commercial banks to loan with negotiable rate for medium and long term period and in March the Bank has shown its intend of remove primary rate regime. Immediately, loan rate on the market rose up to 18-20%. With this high rate, enterprises use the more loans will take the more burdens from capital expense. Cim Co., Ltd is a company which use high finance leverage; higher interest brings more difficulties for its business and investments. Exchange rate: Right before the Traditional Holiday of Tet (February 2010), State Bank has issued an unexpected decision: Increasing exchange rate from 17.941 VND/USD to 18.544 VND/USD , this was the second time the Bank increased the rate and widen adjustment range for commercial bank within 6 months. The free market rate at April 2010 shall be around 19.400 and seem to have an up trend in 2010. This dynamic of State Bank shows quite clearly the trend of free exchange rate policy in the near future, which is the hot topic during years. This trend shall effect to whole economy in two aspects: Increasing press to inflation & burdens of national dept. Being importer Cim Co., Ltd shall get more difficult in competition with domestic producers about price in long term and in sort term it must pay more for payables in USD. Inflation: In the two months at beginning of the year CPI indicator was 3.35 %, increased 8.04% compared same period last year. This increasing was not much worried because of in these months CPI was influenced strongly by Tet holidays. CPI in March can effect to Government for adjust policy but the Government, in term of reliving investor’s mind, has announced that inflation still be in its controlling. In the positive scenario, CPI March shall be around 0.5 %, in the negative one it shall be nearly 1% or more. But even the negative scenario happens; it is very difficult for Government to implement again credit tightening policy. Instead of that Government probably will try to control inflation by decreasing common expenditure and closely control pushing expenses. GDP growth: GDP target designed by Government for 2010 modestly is 7% but according to Goldman Sachs, GDP of Vietnam can reach 8.2% this year. A positive fact supported this forecast is that GDP in the first quarter firmly increases 5.7-5.9% compared the same period last year, much higher the growth of first quarter 2009. FDI was estimated to increase 10% this year. Total number shall be in range from USD 22 billons to 25 billions in 2010. After crisis global investment shall again increase while Vietnam has been appreciated as an upstart economy in South East Asia. Increasing FDI shall bring more works opportunities for construction industry not only in real estate but also in manufacture field. The more FDI capital flow in to economy the more factories, buildings have been constructed as well as more jobs have been created. Cim has advantages to join construction market (detail analysis in Chapter 4). The growth of this industry shall be a support factor for Cim to develop its new business line in construction field. Socio-cultural forces Investment & accumulation asset through real estate is a traditional wish of Vietnamese people. Real estate market has been in the first steps of development from year 2000. This industry is the biggest consumer for steel product. Habit and traditional wish of people on real estate owning was an important support in long time development of construction and steel industry. Technical forces Technology is the key for Vietnam steel industry to compete with foreign competitors. Steel industry requires big investments, large scale and high technology. As the Diagram1 in the first Chapter, there are many sub-industries in steel production field and each steel product requires a specific technology. A remarkable character of steel industry in Vietnam is that all equipments & technologies are imported. Beside the first complex in Thai Nguyen province, which has used Russian technology, almost technologies imported from three countries: China, Italia and Australia. Technology from China has cheaper price but it produced lower quality products. Furthermore, second hand equipments & backward technologies have been used popularly in small private companies. This strongly affects domestic competition capacity and the development of the industry in long term. Vietnam is rich in steel resource (iron ore mines) but the problem is how to exploit and produce itself finished-good products from its resources with competitive price compared foreign products. The price would be competitive if technology satisfies conditions on capacity & expense. Choosing technology to balance capacity, quality & expense is very difficult for Vietnam manufacturers who have litter experience, just in around 10 years of development. Three huge steel complexes projects in Thach Khe, Vung Tau and Van Phong with modern technologies will improve the background of technology for steel industry in the near future. III.2 Steel industry analysis In this part of study, the author shall analyze highlight characters of steel industry through collected data what were published from different sources but mainly from internet and press. The statistic figures and information are quoted from VSA and online source of Commercial & Industrial Ministry. The various usages of secondary data from online-newspaper enable researcher to access quite numerous amount of data that otherwise, may difficult to obtain due to the limitation of time and budget. The 5-forces model of M. PORTER shall be used in this part to analyze the industry. III.2.1 Industry Competitors In this part, analysis focuses on import market because import & distribution are still being main business line of Cim, which took over 90% of revenue. Trading: Competition structure: Bellow is the quantity of imported steel products in 2009. Three biggest amounts belong to hot mill plate used for ship building industry & industrial construction, hot mill thin plates used in electric equipment & light industrial industry, hot mill roll used in pipe producing & machinery industry. Figures 3: Imported quantity 2009 Using hot mill plate product market as an example to analyze competition structure in the industry, we can see that this industry competition is non-concentrated. The table bellows show the market share of each company in top 20, which imported hot mill plate most. No Company name Quantity % Total quantity industry 652,537 0.05% 1 Hoang Dat trading & Manufacturing JSC 47.062 0.007% 2 Trading JSc 35.159 0.005% 3 Vinashin import-export 26.053 0.004% 4 Hong Ha JSC 16.134 0.002% 5 Truong An Trans & Trading Ltd 14.314 0.002% 6 Trading & Manufacturing Viet Steel 16.071 0.002% 7 Trading & Commercial Anh Tuan 15.375 0.002% 8 State Own Kien Port Ltd 11.96 0.002% 9 Kim Dai Vuong metal Co., ltd 13.355 0.002% 10 Tan An Trading & Sealine Tan An 12.213 0.002% 11 Metal & Material Hai Phong JSC 11.68 0.002% 12 Construction materual No 1 12.186 0.002% 13 Thanh Binh HTC Co.,Ltd 11.806 0.002% 14 Dung Hai Trading Co., Ltd 10.467 0.002% 15 Ha Long Ship building 7.931 0.001% 16 Hai Yen Commercial 9.876 0.002% 17 An Hai Ship building 8.935 0.001% 18 Thanh Long Ship 7.343 0.001% 19 Nam Trieu ship building 8.396 0.001% 20 Kien Trung 9.606 0.001% Figures 4: Top 20 hot plate importers in 2008 The total hot mill plate imported quantity of whole market was 652,537 tons. Top 20 companies took only 0.05% imported quantity. It shows that there is no monopoly in the market. - Industry demand: According to VSA statistics, in 2009 Vietnam has imported around 6 millions tons of various steel products. Except rebar used for construction, other steel products used in shipping, infrastructure, heavy industry, electric industry were from outside resources. In about 5 years, until three huge complex projects said above operating, demand for imported goods is still increasing, especially the economy is in recovering phase. However, under long-term view, demand for imported steel products will decrease because of importers must face to strong competitive from domestic producers. - Withdraw barrier: Facing with threat of future decline in import market, if a company make a strategy plan to withdraw it shall get such kind of barriers: fixed asset investment (warehouse, transportation equipments..), direct expense for leaving, relation between strategic business unit, company value and history, social expense (manpower fire, re-education…). With Cim, the most difficult barrier is relationship between strategic business units. At present, trading bring almost revenue and cash flow to fund not only long-term investments (new business lines) but also to finance daily operating activities. Before new business lines come to operating and create cash flow enough, Cim cannot quickly narrow down size of import business or withdraws out of the import market. III.2.2 Supplier power China is the biggest exporter and consumer in worldwide steel market. In 2009, the output of China was 586 million tons, increasing 13% than 2008 output. To be a neighbor of China, Vietnam naturally strongly effected by its economy policy. Each change in export tax, output or demand of this country quickly & deeply effect to Vietnam market. In other word, China is the most important supplier for Vietnamese market. The year 2007 is the typical evidence for China policy’s influence on steel price in Vietnam market. Figures 5: Price of Steel in 2007 (Source: Vietnam GSO) From the above chart, it is quite obvious that the change in export policies of China - the most influential exporter in the world – affected in the forming of 2 levels of steel price in Vietnam. The first level is around 560USD/tone from February to June that matches with the change in policy of refund export tax of China. The second policy of changing export tax rate from 5-10% to 10-15% made steel price come to 675 USD/ton. The example analysis above shows a fact that: power supply is so strongly effecting to Vietnam market. III.2.3 Power of buyer In the range of products which Cim Co., Ltd imports: steel plate, hot & cold mill roll, cheap coin, foil, shaped-rod the power of buyer appears in market for shaped-rod. This product almost used for ship building & electric transportation. While buyer in ship building industry includes many private companies, market of electric transportation concentrates in some state owner enterprises under Electric Viet Nam (EVN). Some enterprises are whole market for a kind of product creates buyer power. III.2.4 Implicit competitors For importers, domestic producers are implicit competitors. At the present except rebar, steel pipe, roofing, low strength shaped rods the remaining steel products are imported. But in the near future, according to Government planning to 2015, this situation shall be changed soon because of new supply from under construction complex projects. Have enough crude material, steel industry shall become more stable and this encourages new investments in steel manufacturing to compete imported products. These implicit competitors have been supported by Government in tax policy, preferential energy price and other advantages in land fund or infrastructure development. The power of implicit forces firmly influenced market share and profit of existing importers. III.2.5 Threat of Entry With bumming development of steel industry from 2004-2007 and a mechanism of easy credit, the entry of capital got lower and many small trading companies could open L/C contracts directly with banks. 2006 was a year of steel trading. This became a social phenomenon and persons who have experiences in the field commented a sentence to describe this “every family trading steel, every body trading steel”. III.3. Opportunities and Threats After external environment analysis above, opportunities & threats maybe come to Cim at present and in near future listed in the table bellow: Table 3: Opportunities and Threats Opportunities Threats - Opportunity get super profit by strongly fluctuation in price - strongly fluctuation caused by unstable environment creates threat of huge loss as happened in 2005 - Policy forward export narrow market share of importer as CIM - Loosening credit policy help Cim more easily approach new loans. - Floating interest policy makes more burdens of dept which financing Cim’s activities. - Tendency devaluating VND makes Cim Co., Ltd pay more expensive for imported goods and declining competitive ability. - Recovering economy, FDI increasing create opportunities in construction field & material production to develop new business line - Recovering and growth brings threat of increasing inflation which leads to a monetary tightening policy. - Low power of buyer except shaped-rod market. - High power supply increases depending on foreign partner - Threat of implicit competition seriously narrow market share of Cim’s main business. - Low entry for new joining market leads harder competition. Chapter 4 –Company Analysis IV.1 Brief Information Name: Construction Installation & Industrial Material Company Limited Address: No two, Plot B, Dam Trau Area, Hai Ba Trung District, Hanoi city Branches: Hai Phong Branch - Tam Bao Machinery Factory Address: Kien Port Industrial Zone, An Duong District, Hai Phong city Ho Chi Minh Branch Address: LL5 Ba Vi Street, Bac Hai Area, District 10 Founder Member: A father and two sons Main business: Trading & manufacturing steel products, Import & export, Construction. Average revenue 03 latest years: Over 1000 VND billions. Number of office staff and direct worker: 250 IV.2 Business structure At present, the company has business lines include: Trading: This business takes over 90% total revenue of the company. The activities are importing steel products from foreign (mainly from China) and distributing in domestic market. It also buys from other domestic suppliers to sell the other clients. The main products are mill foil, hot mill roll, cold mill roll, cheap coins, V-shaped rod, and steel plates. Steel pipe manufacturing: From 2006, Cim Co., Ltd started to produce steel pipe. This technology can be simply understand as described bellow: Forming & wedding Cutting & packing Steel pipe Input material Cheap coins In this producing process, the quality & output capacity depend on machine much more on labor. The tasks of worker are fixed by time. To keep line running as designed, tasks appointed to each position are very clear, timely & interactive. The designed capacity for this business of Cim was 150.000 tons per year equal design revenue of 240 billions. Construction & Installation: From 2008, the company started construction business, firstly for internal demand. Originated from the first project management unit, a new team was established to manage & implement construction works for open phase of existing factory. In 2009, Cim got some small projects as a sub-contractor with modest revenue, around 20 billions. Pre-fabricated steel structure manufacturing: This is a planning business line, which is considered as a new business for Cim. Fabrication belongs to engineering industry, which produces steel structure by fabrication and combination steel columns & beams. This kind of structure popularly used in industrial housing such as factories, warehouse, bridges, heavy industries steel structures…etc. Bellow is the table what describes structure of revenue from 200 to 2009. It shows very clearly that trading up to 2009 still keeps the role as the most important business line in Cim operating. Unit: VND billions Business Year 2002 2003 2004 2005 2006 2007 2008 2009 Total revenue 25.8 256.8 513.4 304 382.1 606 1369 2534.2 Trading 25.8 256.8 513.4 304 324.8 557.7 1334.8 2489.7 Pipe production 57.3 48.3 34.2 25 Construction 19.5 Figures 6: Revenue structure of Cim Co., Ltd There is a noticeable thing in the table above. It is revenue growth of steel pipe manufacturing. The revenue has decreased by the time. In the fist year operating, this business brought revenue of 57.3 billions while plan was 240 billions (actual revenue equivalent 24% compared planning). After 4 years operating, in 2009 the revenue was only 25 billions, being far from plan. This very bad result came from both producing & marketing activities. Backward technology caused lower capacity than designed, higher energy using, more labor using, which cause higher production cost. More expensive price and lower capacity were two factors that influenced sale ability. This business line in fact did not create benefit for the company, on the contrary it caused losses and wasted other resources. IV.3. Internal Resources IV.3.1. Financial Resources Finance resources include equity & liability. The table bellow shows how Cim’s finance resources are mobilized through years. Descriptions Year 2002 2003 2004 2005 2006 2007 2008 Equity (billions) 1.8 8 16 16 25 25 25 Liabilities 19 24 110 222 195 238 383 Dept-Equity ratio 10.56 3.00 6.88 13.88 7.80 9.52 15.32 Current asset 20.3 27.9 123.7 198.2 171.7 238.7 337.4 Short term dept 19.2 23.9 110.1 220.0 177.7 215.5 363.0 Current ratio 1.06 1.17 1