ACKNOWLEDGEMENT We would like to express our gratitude to all the lecturers of Griggs University and Hanoi National University who gave us the valuable knowledge in business administration to conduct this capstone project We would like to thank Power company N03, all PC3’s Staff and Departments for giving us necessary information, providing business data and giving us the chance to make a survey on the company’s activities which are foundation for our project The capstone project report is by no means a perfect paper on the issues discussed here Due to limited time and knowledge, inappropriateness is unavoidable We would highly appreciate any comments from our professors, colleagues and readers Thank you very much i TABLE OF CONTENTS ACKNOWLEDGEMENT i TABLE OF CONTENTS ii ABBREVIATIONS iii LIST OF TABLES iv LIST OF FIGURES AND GRAPHS v PREFACE 1 - Necessity of the research topic: - Research’s objectives: - Main contents of the report: CHAPTER 1: THEORETICAL BACKGROUND ON BUSINESS STRATEGY 1.1 - THEORETICAL BACKGROUND: 1.1.1 - Business strategy: .4 1.1.2 - Building up business strategy and the procedure of building up: 10 1.1.3 - Procedure for building up business strategies: .12 CHAPTER 2: CURRENT SITUATION OF POWER COMPANY No.3 24 2.1 - OVERVIEW ON POWER COMPANY (PC3): 24 2.1.1 - HISTORY AND DEVELOPMENT OF PC3: 24 2.1.2 - CURRENT ORGANIZATIONAL STRUCTURE OF PC 3: 26 2.1.3 - PC3 SCOPE OF ACTIVITIES: .29 2.1.4 - PROPERTIES, LABORS MANAGED BY THE COMPANY 30 2.1.5 - PRODUCTION AND BUSINESS RESULTS FROM 1995 - 2009: 33 2.1.6 - GENERAL EVALUATION OF BUSINESS ACTIVITIES OF PC3 IN RECENT YEARS: 35 2.2 - ANALYSIS ON ENVIRONMENTAL INFLUENCES ON BUSINESS ACTIVITIES OF PC 3: 42 2.2.1 - P.E.S.T Analysis: 42 2.2.2 - Porter’s Five - forces analysis: .46 ii 2.2.3 - IFE Matrix: 50 2.2.4 - EFE Matrix: 50 2.2.5 - S.W.O.T analysis: 53 CHAPTER - STRATEGIC ORIENTATIONS FOR PC3 AND SOLUTIONS 61 3.1 - Vision and strategic objectives of the Power Company 3: 61 3.1.1 - General orientation: .65 3.1.2 - New business entity: 66 3.1.3 - Organization and Management Structure of the Parent Company Corporation: 67 3.1.4 - Fundamental functions and responsibilities of Parent Company Central Region Power Corporation: 68 3.1.5 - Organization Structure of Central Region Power Corporation: 69 3.1.6 - Organization and management structure of branch offices under the Parent Company: 73 3.1.7 - Operation Mechanism of the Central Region Power Corporation 77 3.2 - Development of strategic orientations for PC3 during 2010 - 2020: 82 3.3 - Basic solutions for implementation of PC3’s business strategy during 2010 -2020: 83 3.4 - Recommendations for PC3 itself: .87 CONCLUSIONS AND RECOMMENDATIONS 89 - CONCLUSIONS: 89 - RECOMMENDATIONS: .90 REFERENCES 92 iii ABBREVIATIONS EFE EVN IFE PC3 PEST R&D SWOT VND : : : : : : : : External Factor Evaluation Electricity of Vietnam Corporation Internal Factor Evaluation Power Company No.3 Politic - Economic - Socio - Technology Research and development Strengths - Weakness - Opportunities - Threats Vietnamese dong iv LIST OF TABLES Table 1.1 - External factors eveluation Matrix (EFE) 16 Table 1.2 - Internal factors evaluation Matrix (IFE) 19 Table 2.1 - Fixed properties managed by Power Company .31 Table 2.2 - Working capitals, actual value of Power Company .32 Table 2.3 - PC3’s current situation of land using and workshops .32 Table 2.4 - Human resources conditions of Power Company No.3 33 Table 2.5 - Electricity commercial activities of PC3 (1995 - 2009) 34 Table 2.6 - Telecommunications and IT business of PC3 (2006 - 2009) .34 Table 2.7 - Five - force analysis model of Porter of PC3 49 Table 2.8 - Internal factors evaluation Matrix (IFE) of PC3 .50 Table 2.9 - External factors eveluation Matrix (EFE) of PC3 51 Table 2.10 - SWOT analysis of PC3 60 v LIST OF FIGURES AND GRAPHS Figure 1.1 - D.Abell’s Three - dimensional Framework 13 Figure 1.2 - M.Porter’s Five Forces framework 15 Figure 1.3 - Business strategy controlling model 22 Figure 2.1 - Current organization structure of PC 27 Graph 2.2 - Graph for customer growth (households) of PC3 (1995 - 2009) 35 Graph 2.3 - Graph for commercial electricity growth (1995 - 2009) of PC3 35 Graph 2.4 - Graph for Revenue growth (109 VND) of PC3 (1995 - 2009) 36 Graph 2.5 - Graph for portion of electricity consumed by power transmission activities (1995 - 2009) of PC3 36 Graph 2.6 - Electricity retail sales (106kWh) growth of PC3 (2004 - 2009) 37 Graph 2.7 - Ratio of electricity retails sale (%) of PC3 (2004 - 2009) 37 Figure 2.8 - IFE and EFE of PC3 52 Figure 3.1 - Organization structure of Central Region Power Corporation 70 vi PREFACE - Necessity of the research topic: Vietnam economy after the integration period has witnessed a great deal of positive changes From a Planned Economy which is inflexible, passive and lacks of the linkage between producers’ interest and consumers’ interest, Vietnam has shifted towards a market economy with the Government’s orientation Production grows, electricity consumption grows accordingly because almost all socioeconomic activities need electricity Because of that advantage, there raise some issues in the organizational system of the electricity industry Are changes in business strategies necessary while there is only one supplier in the industry and the supply is always lower the demand? In addition, due to limitations of the old economic system, the supplying of electricity in Vietnam is monopolized by the electricity industry in general and EVN in particular This leads to non-market oriented way of thinking in many staffs within the industry However, after Vietnam joined in WTO, according to Vietnam’s commitment, economic activities monopolized by the Government must be socialized and more than that, the Government have to be more open, creating a fair playground for all the domestic and foreign forces Like tele-communication, finance, banking, insurance…, the electricity industry is opening doors to welcome investors so that both domestic and foreign companies can produce and sell the electricity energy When the market is formed and goes into operation, the Government only control the main transmission gridline, the other activities are outsourced to any competent company To catch up with this trend, local large corporations in Vietnam like PetroVietnam, Song Da Corporation, Vinashin…, started to produce and deliver electricity In addition, a lot of small companies also invested money in generating electricity and then sell it to EVN or deliver it to vii distribution network in the rural or distant areas The electricity has become more heated and competitive Therefore, changes or adjustments in business strategy are extremely necessary The matter of the agreement between the business strategy and the trend has concerned not only the industry’s leaders but also the Governmental leaders because electricity plays a vital role in the national economic development The question is how to make good profit while meeting the whole national demand for electricity and also how to compete successfully with other competitors? The importance of business strategy has been recognized in real business operation A business will thrive and succeed with a right business strategy and a good vision On the contrary, without good strategy and vision, a business may suffer ineffectiveness or go into bankruptcy Therefore, building up a right business strategy is of very importance, it also helps to create a strong competitive advantage for the company Originated from the real necessity, we have decided to conduct the research on: “Development of Strategic Orientations for Power Company No.3 during the period 2010 - 2020” - Research’s objectives: * Research’s objectives: Power Company No.3 (PC3) is a subsidiary of Electricity of Vietnam Corporation (EVN) The main functions of the company is to produce electricity, invest on building up power sources, gridlines and related infrastructures in order to sell it to end-users in the areas that the company is in charge of and also to other Power companies in EVN Because of the industry’s history, the company’s operating area is fixed in provinces and cities in the Central Region of Vietnam and the Central Highlands (Tay Nguyen) However, the operating area of other activities rather than electricity supplying is not limited Due to time and resources limitations, we only focus on analyzing the business strategies for the company during the period from viii 2010 to 2020 With this research, we hope to help the management of PC3 have a clearer insight into their company, strengths and weaknesses This research is also to answer questions: where is the company at this moment? Where it is going to? How to get there? After that, we can set up goals and objectives, build up more appropriate and effective business models for the company to face challenges and further thrive in the future * Subject of the research: Issues relating to building up a business strategy at Power Company No.3 *Methodology: Desk study and collection of secondary information Collect primary data at Power Company No.3 and EVN Based on strategic management theories, we will analyze and examine the collected data to form our opinions and evaluations on the research topics Both qualitative and quantitative studies are used - Main contents of the report: This report contains key parts: Preface, Contents and Conclusion The main body of our research is made up of the 03 chapters: Chapter 1: Theoretical Background on Business Strategy Chapter 2: Current situation of Power Company No.3 Chapter 3: Strategic orientations for PC3 and solutions ix CHAPTER 1: THEORETICAL BACKGROUND ON BUSINESS STRATEGY 1.1 - THEORETICAL BACKGROUND: 1.1.1 - Business strategy: 1.1.1.1 - Definitions of business strategy: The notion of “strategy” stems from the Ancient Greek This term is long originated from military to imply big plans built on the basis of anticipations and expectations of the opponent’s reactions in the future to achieve the final victory in wars Like military strategies, competitive strategies of an organization are towards the conformability between the company’s ability to differentiate and the external environment in which the company operates However, in comparison with military strategies, business strategies are much more complicated The term “strategy” has been used largely in many fields, especially in the economic field in both macroeconomic and microeconomic scale In macroeconomic management, “strategy” means long-term and all-sided plans on main orientations of industries, fields or strategic geographic regions In microeconomic, strategy aims at the development in a business approach Therefore, in enterprises by “strategy”, people often mean “business strategy” of enterprises There are a lot of different definitions of business strategy, including: * According to Porter: Strategy is the art of building up strong competitive advantages to defense * According to Alfred Chandler: Strategy includes basic and long-term objectives of the organization as well as ways and action plans chosen to allocate resources to achieve those objectives * According to Alain Charler Martinet: x Making decision on adjusting the Chartered capital as suggested by the President of the single-member Ltd Company; Making decision on whether to transfer all or part of the Chartered capital of the single-member Ltd Company to other organizations or individuals The transferring is implemented following the rules stipulated the single-member Ltd Company’s Terms of Constitution Making decision on the management model and organization structure; promotion and discontinuance of employment, salary, bonus and other benefits of the President, the Controller and the Director of the single-member Ltd Company; Making decisions on the investment, purchase, sale, lease, lending, borrowing contracts with value greater than 50% of total assets reported in the most recent publicized quarterly financial statements of the single-member Ltd Company or another smaller ratio as regulated in the Constitutions of the single-member Ltd Company; Organizing, supervising and evaluating the business operating results and management activities of the single-member Ltd Company; Reviewing and approving the annual financial reports and making decision on profit appropriations or loss treatments as suggested by the single-member Ltd Company Making decision on the organizational models and structures of the singlemember Ltd Company as suggested by the single-member Ltd Company and as stipulated in the Constitution of the single-member Ltd Company; Carrying out other rights and responsibilities as stipulated by laws and the Constitutions of the single-member Ltd Company; The member companies which are One-Member Ltd Companies have the right to decide on the investment projects, purchasing, borrowing and lending contracts with values being no greater than 50% of the total asset reported in the most recent publicized quarterly financial statements of the single-member Ltd 84 Company or another smaller ratio as regulated in the Constitutions of the singlemember Ltd Company 3.1.7.4 - The relation between the Corporation (Parent Company) and the member companies having controlling share stocks and capital of the Corporation: A member company (or a subsidiary) can be a joint stock company or a Ltd Company having more than two members, a joint venture having foreign investment, an alien company having its shares, controlling capital or other influential powers possessed by the Corporation (later called controlled company) It is established, organized and operated following the due laws The Corporation implements the rights, duties and responsibilities of its shareholders or members, joint - venture partners, and those holding controlling capital in the underlying companies as stipulated by laws and the company’s own Constitution The Corporation manages the controlling shares and equity capital in the subsidiaries through a representative of the Corporation in each member company The Members’ Council of the Corporation has the following rights and responsibilities: Promoting, sacking, complementing, criticizing, making decision on the benefits of the Corporation’s representatives at the member companies Requesting the Representatives periodically or unexpectedly report on the financial situation, business results and other issues in the member companies Assigning tasks and requesting the Representative to generate suggestions on the important issues before voting at the member company; reporting on the situation of using shares and equity capital to support the development direction and goals of the Corporation Collecting interest and bearing any possible risk in the equity capital of the Corporation in the subsidiary companies 85 Supervising and checking the efficiency, maintenance and development the current equity capital in the subsidiary companies The member companies of the Corporation have the rights and responsibilities as stipulated by laws and Regulations as followed: Being able to participate in the business coordination plans on the basis of the economic contracts with the Corporation and other member companies of the Corporation Being provided with information, professional orientation by the Corporation; attending interim and general meetings held by the Corporation Carrying out the rules, processes and norms, standards, economic and technological requirements and relevant instructions issued by the Government, EVN and the Corporation Implementing the commitments in economic contracts with the Corporation and other measures to ensure security, safety in business operations and productions in accordance with related Laws; Formulating the production, business plan based on directions made by the Corporation 3.1.7.5 - The Relation between the Corporation with its associated companies: Associated companies with the corporation are the ones whose equity is owned by the Corporation and its ownership is under the controlling level These companies are structured as joint stock companies, more-than-2-member limited companies, joint-ventures with foreign companies or the others as stipulated by the Law The Corporation is the official owner of equity and equity capital at its associated companies The corporation’s Board of members will appoint its members to be liable for carrying out rights, responsibilities of a shareholder, general partner or joint 86 venture member as regulated by the joint-venture’s Charter or carrying out responsibilities, rights ruled in the joint contract 3.1.7.6 - The relation between the Corporation and voluntary associated companies: Voluntary associated companies include domestic and foreign companies who not own any equity of the Corporation but they want to join with the Corporation under economic agreements or contracts The voluntary associated companies are bound to rights, responsibilities to the Corporation and other member of the Corporation as regulated by the agreement or contract The Corporation interacts with the voluntary associated companies through orientations on technological choices, R&D and new technologies, public telecommunications system, information system, partnership in scientific researches and human resources development; the use of Corporation’s brand in business and other activities 3.2 - Development of strategic orientations for PC3 during 2010 - 2020: Development Strategy: Based on the above SWOT analyses and the fact that the competitive pressure in the industry which lies mainly in electricity production is not strong enough, Development Growth Strategy would be a good choice The strategy includes: Providing electricity products of high quality, safety and stability to serve for development of Vietnam economy To build up the company’s image as a leading company of EVN, and step-bystep develop the company with the diversifying direction Maximizing the exploitation of the existing resources, innovating and developing the Corporation sustainably, stably and effectively Focusing on diversification of industries and ownership, to make out high value products, in which electricity power trading must be the major trade 87 Building strong and comprehensive unions, continuously improving the livelihood of workers both in material and spiritual aspects Ascending the accumulation to improve the potentiality, step-by-step developing the Corporation to become a powerful corporation in the EVN Training and improving the capacity of the labor force and in the future, combining with the material resources to create aggregate power as the foundation of success 3.3 - Basic solutions for implementation of PC3’s business strategy during 2010 - 2020: Base on the formulation of business strategy for Power Company No.3, our group would like to suggest the following basic solutions for implementation of PC3’s business strategy during 2010 - 2020: Comprehensive development to dominate the market: Besides the reinforcing the current markets in the urban and rural areas which have developed greatly over recent years, the company should focus on electricity-free markets in the mountainous areas where the main electricity distribution channel is through electricity cooperatives Industrial zones are expected to be built in these areas in the future Joint-venture strategy for development: Continue investing on member companies (regional hydropower companies), increase the joint capital at hydropower companies of high ROE Find opportunities to join with producers and distributors of electric equipments which contribute to the construction and development of the company’s electricity system and infrastructure Diversification: Maintain the diversification in the company business and operation Besides, the company should re-assess its portfolio of current activities and investments to figure out which items need more investment and which ones are ineffective and should be reduced 88 In our opinion, the production of electronic meters and meter accessories needs to be focused in only one research and production center which totally belongs to EVN where all highly qualified human resources are combined to develop these advanced products The Company should advise with EVN for the issue, and in development policy, production of electronic meters should be removed from current portfolio of the Company Restructuring strategy: Telecommunication is one of the most lucrative industries However, the use of human capacities at the company is not reasonable as required The fact that electricity-specialized staffs are responsible for sales positions (collecting the telecommunications bills, consulting for customers to choose the services …) brings the inefficiency and amateur services This business model will not work effectively in the long run For the long term and sustainable development, we suggest building up a Central Region Power Telecommunications Company which is a member of the Central Region Power Corporation In the future, once EVNTelecom is turned into a corporation, the subsidiary will also belong to the corporation accordingly Functional Strategies: Financial strategies, human resources strategy, technological strategy, marketing strategy, production strategy, investment strategy of the Corporation should be shaped as follows: Financial strategy: because of the industry’s characteristics, the investment of power sources, power grid system and electricity distribution channels requires a very huge amount of capital and time as well as long payback periods In the meantime, the corporation’s capital is limited and confined to spending approvals from EVN In addition, the capital mobilization from local and foreign sources is facing many difficulties due to low profit and the real electricity price fixed by the Government is much lower than the market price To overcome these obstacles, we suggest some solutions as follows  Find opportunities to approach ODA 89  Thanks to good relationships with local authorities, the corporation may work as a coordinator between investors and power-related projects like hydraulic projects, construction of local gridline, gridline reformation  Focus financially on the most profitable projects especially hydraulic ones  Financial decentralization: Once each member company has its own legal personality, financial decentralization should be applied to create flexibility for member companies in borrowing capital as well as approaching domestic and foreign capital sources Human resources strategy: The improvement and reformation of transmission and distribution system require advanced technologies This leads to the demand for highly qualified and skilled human forces However the fact is that the company’s human forces seem to be abundant, solutions to this problem is described as follows: Technical workmen: Further increase the recruitment the technical workmen, focus on the internal training for adjacent staffs to both avoid the growing average employment age and prepare them with knowledge and skills required for the operation of high tech assembly lines Re-train current technical workmen to ensure their good adaptation to changes Technical engineers and experts: To this group, the corporation may appoint some technical engineers to go abroad for training courses This choice is quite expensive but it really works and the company’s overall competency may be improved sharply after they finish and come back to re-train the other staffs This solution keeps the company on the active side in the maintenance and development of highly skilled people, ensuring the objective achievements Besides, local short-courses and night classes are also good options The education and training partnership between the corporation and all 90 member companies should be built up Managers: Managerial staffs should be trained to improve their managerial skills, reinforce their moral and political conceptions, creating highly competent managers with independent problem solving skill Boost the use of IT to save time and money in human resources management With the appearance of PetroVietnam Power Corporation, a member of PetroVietnam Corporation, and other power suppliers like Song Da, Vinashin…as well as their high offered salary, the phenomenon of “brain drain” is really a huge problem within EVN Therefore, the corporation needs to change its human resources policies for key high quality staffs especially in terms of incentives and bonuses Technological strategy: The government requires that EVN manages all the low-voltage gridline in the rural areas This brings opportunities for the company to reinforce and upgrade the current gridline system The company should further adopt advanced and high technologies from developed countries to improve the electricity products like the quality of electric tension, frequency, and electrical continuity and to reduce electric losses Out-of-date and obsolete equipments including transformers, switches, spark-gaps, safety devices, operating system, conductors…should be replaced Encourage the use of digital devices to increase the automation in operating and safety system, ensuring the creditability in power distribution Marketing strategy: The corporation should sharply invest on the branding, changing negative images conceived by some people This is done through solutions as follows:  Improve customers’ experience through good customer care services  Invest on public welfares in the distant and underprivileged areas 91  Improve the product quality by stabilizing the electrical voltage parameters, electric continuity and the creditability of the supplying system Production strategy: The corporation’s main product is electricity; the focus thus should be placed on quality improvement and electric loss reduction The production should also be prioritized in order to be active in power source supplying, hydropower projects in the Central Region are worth investing Medium and low voltage gridlines in the rural areas are totally out-of-date with low-creditability equipments These systems really need repairing and consolidating to ensuring the reduction of electricity loss and the increase in creditability in power supply Investment Strategy: Some hydropower projects seem to make huge amount of money, they should be thus further invested In the Central Region and Middle Highlands, the corporation’s main operating areas including Quang Nam, Quang Ngai, Binh Dinh, Phu yen, Khanh Hoa, Gia Lai, Kon Tum, Dak Lak, Dak Nong, there are a large number of rivers, ponds which assist technically the construction of hydropower plants Such projects should be considered and poured money into by the Corporation Invest on some hydropower projects in Laos and Cambodia because the relationship between these nations and the Corporation is very good They are also the company’s current customers for electricity supply In addition, the corporation should further pour money into the equipment upgrade to cut electric losses in transmission and distribution Advanced devices like balancing capacitors, operating system, automatic safety devices should be equipped for the company 3.4 - Recommendations for PC3 itself: In order to implement the selected business strategy well, initially, the following conditions are needed: The pre-requisition is that the Company from Board of 92 Directors to each staff and worker must aware the role of business strategy in general and the business strategy being followed by the Company; sufficient condition is that the implementation process of the business strategy must be carried out based on specific plans, in short run, the more specific the plans are; the better, the more timely and flexibly the implementation activities are done Thus, the Company should: Propagate the knowledge of business strategy, strategic administration in business to managerial force of the Company; improve the strategic mentality for this force Improve the production planning process for each stage, each specific period, the more exact the plans are, the more effectively the resources are used Continue implement the quality control system of ISO 9001:2000 Draw a plan to develop the human resources in future 93 CONCLUSIONS AND RECOMMENDATIONS - CONCLUSIONS: A business strategy can be framed in an organization-level or functional level Regardless the strategic level, the final outcomes are aimed at fulfilling the company’s objectives determined in a specific strategic period In order to build up a right business strategy, the strategy creation must be based on thorough and comprehensive analyses on business environment Analyses on customers, competitors and the company itself need are among the main researches The procedure of strategy creation and strategic choices or which analyses are employed depends on the characteristics and the industry a company operates in After our researches on the topic: “Building up a business strategy for Power Company No.3 during the period 2010 - 2020 as well as the proposal for the changes in operating model to Central Region Power Corporation”, the following conclusions have been drawn: Firstly, the building up a business strategy is of the company’s high concern but it seems not effective as expected mostly due to the knowledge limitations, especially in business strategy creation which at this moment bases on leaders’ real experience In addition, current centralized accounting systems cannot capitalize on the company’s advantages Secondly, in today’s business environment, with its current resources, the most appropriate strategy for the company is Hold and maintain Strategy This strategy is to maximize its volume of power, its main product, through improving the quality of product, supporting services and minimizing electric losses in transmission and distribution 94 Thirdly, groups of solutions should be made in a systematic and synchronized way Among those suggested solutions are marketing strategies, human resources solutions, technological improvement and replacement, financial strategies, information gathering and processing system development to synchronize and to cooperate forces, production capacity increase Actions should be taken continuously on the basis of a stable financial system and all-sided information system, ensuring the company’s final objectives that are to stabilize the growth rate and quickly adapt to changes in the market - RECOMMENDATIONS:  For the State Authorized Bodies:  State Authorized Bodies should support the approach that Electricity Industry should be developed under market mechanism, fair competition, and reach to the situation of removing monopoly and create legal corridor for operations of the businesses  Quickly put electricity power market into operation, and provide good conditions to attract other investors, that can reduce pressure of power shortage for socio-economic development, in which EVN is mainly responsible for  The State should draw a policy for electricity price adjustment so that the price is in accordance with production costs that help the power production units to have benefits for reinvesting and developing activities  Reinforce the policies to attract investing capitals, ODA resources, especially attracting investment into clean power production projects such as hydropower projects, infrastructure projects including power grid to remote and rural areas  Draw suitable policies to develop the poor provinces such as Quang Tri, Kon Tum, Đak Nong; so that such localities will have development conditions Particularly, in power source and power grid projects, large number of population is compensated and relocated for the site clearance of 95 the project  For Electricity of Vietnam Corporation: In order to support member companies of the Corporation, EVN should provide solutions both in short run and long run, that directs the enterprises’ development Besides aggregating, analyzing and providing the member companies with basic information of investment activities and development trend prediction, the Corporation should implement the following activities:  During the time while electricity market are not officially put into operation, EVN should draw a reasonable price mechanism for each customer group, in different regions, as well as apply a policy for compensating subsidy for Power Companies operating in rural, remote and underdeveloped areas Such policies will help these Companies at early stage of independent operations to avoid profit loss that cause 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