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

y 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 1.12 0.90 0.97 1.11 0.93 Cash & cash equivalents 0.85 3.30 2.80 3.10 2.60 18.70 2.50 Short term dept 19.2 23.9 110.1 220.0 177.7 215.5 363.0 Acid test 0.04 0.14 0.03 0.01 0.01 0.09 0.01 Figures 7: Leverage & liquidity ratios of Cim Co., Ltd Using high finance leverage is a particular point of steel trading company but Cim has abused this tool for the purpose of fast growth. As can be seen in the table above the average dept-equity ratio is 9.5, which is too high compared normal ratio. For example two leading listed steel groups: Hoa Phat has the ratio from 0.3 to 0.5, Hoa Sen Group has the ratio from 1.3-1.5 Almost current assets were inventories and current ratio nearly is 1. This shows a fact that the company maintains their business base on liabilities. The dept-equity ratio of Cim has trend of increasing, which shows that the company intent to continue using liabilities as main source to finance its business operating. In 8 years of doing business, Cim has increased equity 3 times in 2003, 2004 and 2006. If increasing equity in 2003 and 2004 originated from requirements of developing business, then the increasing in 2005 was a dynamic with purpose decreasing the big loss of 41 billions. IV.3.2 Human resource At present Cim is a quite big company with revenue over 1000 billions, around 250 employers (office staffs & direct workers), two branches in Hai Phong and Ho Chi Minh cities. The company also owned a 100.000 m2 factory operating but it dose not have human resource department and even not have a person in charge of human resource management. Recruitment: There is no process or any standard in recruitment process. Staffs almost recruited through presentation and relationships, which were a character of family company. Cim has not yet build up a test process to valuate capacity or technical requirements applied for each position. This recruitment just was implemented by interviewing or decided by chief of department without following any rules or specification. This is a kind of test on work, which wastes time and expense of both company and employee. It also caused unstable situation in the company organization. Education: From establishment in 2002, during 8 years doing business only accounting department has been sent to join some short-term courses on tax policies and other concerning tax matters. Lacking of education and re-education Cim cannot have long-term source of human for higher developing phase. Inside conflicts: - Conflicts between teams, accounting against sale - Conflicts between sale staffs The most frequently conflict was among chief accountant & sale staffs because the scope of works appointed by CEO was unclear: Sale staffs due the case but accountant carry out contract drafting; Sale allowed clients for delay payment but accountant was in charged of demanding clients to pay back. Accountant keeps the connection with banks, almost of’ Cim’s goods are mortgaged for loan, so whenever sale staff got a success selling he must negotiate with chief accountant for mortgage removing authorities. Such kind of works require good coordinating between teams but actually the bad relationships among internal staffs gave the delay to works. In the developing phase, although the revenue increased amazingly after two years the management activities was still simply. CEO can supervise his sale team closely & every member in company could know well about other’s activities. Cim’s leaders kept management power inside their family members. Between family members and other persons who keep management positions also appear conflicts. Key persons losing: Originated from inside conflicts and lacking of human resource strategy management, Cim has been paid expensive prices both in finance and market share. From 2002 to 2004 the CEO has recruited an excellent sale team of 5 persons. This team has extended the client network along country from the Lao Cai province (border with China) to Tay Ninh province (border with Cambodia) and increased revenue from 25 billions in 2002 to 256.8 billions just after one year. But inside conflicts and unsuitable treating mechanism were the causes for the leaving one after one of three sale staffs. Two in these persons, after quit their job in Cim, has created their own business and became competitors of the company. The second losing has been caused damages to company both in finance & market share. That’s position of chief accountant. It was so dangerous for a trading company if the chief accountant was allowed to sale the goods while she has responsibility of finance and receivables control. The chief accountant has established her own company which bought goods from Cim in cheaper price and good condition in delay payment. The chief accountant has quitted the company in 2007, leaving behind a mess of books and finance damage estimated equal Cim’s equity at that time. Through these facts, it is clear that human resource also was a weakness which should be considered seriously for Cim leaders. IV.3.3 Physical resources In 2008, the crisis has created a wonderful chance to own cheap assets for who has cash in hand. Cim base on its abundant cash flow born from trading activities has accumulated a fund of land around 500,000 m2 distributed in Hai Phong, Hai Duong and Bac Ninh provinces. Its running factory in Hai Phong located in area of 100.00 m2 can be regarded as the background for manufacturing development. Factories, lands, fixed assets help Cim to create a good image in banks valuation although its business results were negative numbers. This is a strength point of Cim, which base on it, the company can keep ability to approach bank loans and easier develop other business lines in manufacturing field. IV.3.4 Technological resources Currently technology which Cim has used for steel pipe manufacturing has been backward. Designed, fabricated & installed by a Vietnam company in the South, these machinery lines cannot reach design capacity and satisfy quality requirements. As shown on the table 4, the revenue of steel pipe has been decreased from 57.3 billions in 2006 to 25 billions in 2009. IV.3.5 Strategy relationship resources As described in part IV.2.1, even Cim got a big negative profit in 2005 (41 billions), the company still could keep high finance leverage in 2009 with the high dept-ratio of 7.8. So the question here is: Why the company can have a high leverage ratio like that while its business results negative? Answering this question will show a Cim’s strength which was the background for its developing at the beginning and also in the future. That is strategic relationships which brought by the former Chairman - the father of current CEO. The former Chairman before 2002 was the General Director of a state owned corporation. The corporation has over 20 subsidies companies and branches located along the country. He has relationships with Government officers in many levels inside and outside the industry, in which banks are the most important partners. The former Chairman had close friendships with many state owned commercial banks leaders. CEO who created the company inherited these relationships very efficiently and lastingly. Although the Chairman has been retired from 2002, his strategic relationships have been maintained closely by his son. For example, 04 electrical installation & construction companies under the corporation still are main clients for steel angle products with thousands ton per year. His elder brother who at present is holding two important positions in the corporation: the director of a design subsidy company and the chief of Planning Department of the corporation. This man instead of his father to be a VIP in the system and can help Cim to get construction & pre-fabricated steel structure contracts in many projects. In 2010, from a cement factory construction project he can bring construction & fabrication works with amount of 4000 tons steel structure equal revenue around 100 billions. The CEO himself has relationships with some Government officers who can help him to join and develop in infrastructure market. IV.4. Strengths and Weakness Table 4: Strengths and Weaknesses of CIM CO., LTD Strengths Weakness Having strong ability to mobilize credit resources Unbalanced structure in finance resources Solvency losing risk Having useful strategic relationships to develop construction market Potential fabrication market  Bad management in human resources Unstable organization Inside conflicts Big fund of land Accumulation fixed assets Inventories Bad receivables . Backward technology in steel pipe producing Low output capacity Above is the table that collects Cim’s strengths & weakness for easier viewing the company from inside out. IV.5. Currently Strategy Hot growing by liabilities: Year Revenue Growth Liabilities Growth 2002 25.9 0% 19 0.0% 2003 256.8 892% 32.0 68.4% 2004 513.4 100% 110.0 243.8% 2005 304 -41% 222.0 101.8% 2006 382.1 26% 195.0 -12.2% 2007 606 59% 238.0 22.1% 2008 1334.8 120% 383.0 60.9% 2009 2534.2 76.30% 648.0 69.2% Figures 8: Revenue & liabilities growth of Cim Revenue growing so fast, after 8 years it increased from 25.9 billions to 2534.2 billions with average growth of 154% per year. Liabilities also increased with speed of 79.1% per years. The hottest duration, from 2003 to 2005, the average growth on liabilities was 138%. After big loss in 2005, the liabilities growth decreased in 2005 and 2006 but from 2007, it again increased. The fast growing strategy also was pointed out through business results in the table bellow: Year Equity Return earning ROE 2002 1,800 150 8% 2003 8,000 177 2% 2004 16,000 2,933 18% 2005 16,000 (41,222) -258% 2006 25,000 (38,669) -155% 2007 25,000 (19,685) -79% 2008 25,000 (5,349) -21% Figures 9: ROE of Cim from 2002 to 2008 Although revenue increased very impressively, return earning has shown very bad results. The maximum ROE in 2004 was just only 18% and was negative from 2005 to 2008. Cim leaders seemed did not put benefit as targets for the company operating. Through trading activities company leaders aimed to create a strong cash flow to finance for all activities including long-term investments. Vision, Missions and Value: The Vision concept at the beginning is unclear. The company even did not choose a benchmark for their plan of developing although there are many companies in the same field, which were successful and well - known at that time such as: Van Loi, Hoa Phat, Nam Vang . There was no survey, research, or listing in rank competitors, no specified target or plan for going forward. While Vision and Mission was not clearly, company’s leaders have regarded Value of Trust as the first priority. Company always tries to pay back in time every bank loans despite any finance situation. Company’s leaders have established the value of trust at the beginning, and this goes along the company life in years after. The company developed TRUST concept with not only bank but also supplier, clients & partners. In this chapter, the author has pointed out the strengths, weakness as well as current business strategy of the company. To answer the question if the strategy suitable for company’s development currently and in the future or not, the author put the weakness in to threats context through external & internal environment analysis Threats Unstable environment creates threat of big loss (as happened in 2005) Policy forward export narrow market share of importer Floating interest rate policy makes more burden of dept which financing all activities of Cim Tendency devaluating VND makes company pay more for imported goods and decline competitive ability Weakness Unbalance structure in finance resource Depend deeply on liability Solvency losing ability High amount of inventories bad irrecoverable receivables Depending on debts, unbalance structure of finance resource, high ability of solvency losing, high inventories requirement, and bad irrecoverable debts risk put Cim in serious finance problems, especially while environment will bring threats as listed above. The higher finance leverage will be used the more strongly threats affect to the company safety. Cim’s leaders should adjust their strategy of fast growing by debts to avoid threats and ability of bankrupt as once happened in 2005. What is a adjusted strategy and how is it implemented? These questions shall be answered in the next Chapter Chapter 5: Adjusting strategy & implementation V.1 SWOT matrix In this Chapter, the author will use SWOT/TOWS matrix to choose applied Corporate Strategy for Cim. The Strategy chosen must satisfy four criteria: - Avoid/ reduce impact of Threats - Take full advantages of Strengths - Develop Opportunities which environment brought - Overcome Weakness Table 6: SWOT/TOWS matrix of MSA VN Internal Strengths Strong credit resources Abundant cash flow Having useful strategic relationships to develop construction market Potential fabrication market Big fund of land Accumulation fixed assets Internal Weakness Unbalanced structure in finance resources Solvency losing risk Bad management in human resources Unstable organization Inside conflicts Backward technology in steel pipe producing Low output capacity External Opportunities Opportunity get super profit by strongly fluctuation in price Loosening credit policy help Cim Co., Ltd more easily approach new loans. Recovering economy, FDI increasing create opportunities in construction field to develop new business line SO Strategies (Widen business scope) Take advantages of strategic relationships to develop new business lines: Construction and steel structure fabrication. Increase revenue ratio of new business. Create more stable & long-term finance resources. WO Strategies(Overcome weaknesses) Opportunities cannot be used to overcome weakness. External Threats Unstable environment Market share narrows down Monetary policies caused disadvantages for steel importer Floating exchange rate causes interest burden High power of supplier Low entry for new competitors Inflation & retightening monetary policy ST Strategies(Avoid threats) Try to increase revenue ratio of new business to lower role of trading Liquidate valuable assets to improve solvency risk. WT Strategies(Avoid & Overcome) Reducing depending on debts as much as possible Develop other trading market (export, domestic distribute) Improve management activities Solve inside conflicts Stabilize organization Use finance professional tool to avoid risk of exchange rate (SWAP, Reserve plan, insurance, hedging) To choose Strategy applied for Cim, the author use pointing method with criteria above. The scale point is 03 in which: 3 - Sure; 2 - Maybe; 1 - Not Table 7: Choosing Strategy Valuating criteria Strategy SO ST WO WT Avoid/ reduce impact of Threats 1 2 1 2 Take full advantages of Strengths 3 2 1 2 Develop Opportunities 3 1 1 1 Overcome Weakness 2 1 1 3  Total 9 6 4 8 Base on the total point, Strategy SO and WT can be applied for Cim to adjust its strategy. V.2 Adjusting Business Strategy Through analysis in Chapter III and Chapter IV, if Cim keeps the strategy of hot growing base on liabilities through trading business, the company could get the risk of solvency losing or lasting loss. In sort-term, if Government changes the tax, monetary policies in bad impacts trend to importer or environment suddenly has become strongly unstable Cim shall get the risk of solvency. In long-term when market share of imported steel products narrow, Cim shall get the risk of losing lastingly and decreased revenue. Adjusting strategy from hot growing by liabilities to growing but satisfy these conditions: Growing firmly in balanced way Minimizing risks, maximize profit Fixed asset accumulation V.3. BCG matrix Applying SO strategy, Cim should design a plan to develop two new business lines what it has advantages in market and background on fund of land. Industrial Construction & Installation Pre-fabricated steel structure manufacturing Implementation this strategy can be understood as to implement diversify business portfolio to reduce role of trading (reduce depending on liabilities), to stabilize business result, to create positive profit for finance reserves. To identify roles, which each business takes in the company operating, the author use BCG matrix. Table 8: BCG matrix Market Growth Rate 0 5 10% - Industrial & infrastructure construction STAR - Pre-fabricated steel structure manufacturing ? QUESTION COW - Steel trading (import & distribute) DOG - Civil steel pipe manufacturing Relative market share 10 1 0.1 COW - Trading From establishing in 2002 to 2006, trading was the only business line of Cim. The company imported these kinds of products: mill foil, steel plate, hot mill roll, cold mill roll and cheap coins. In each period, Cim focused on one or two kind of products as the table below: Year Main product Clients Main competitors 2002-2003 mill foil Viet Italy Steel, Viet Australia Steel, Thai Nguyen Steel, Vinakasai Steel, (rebar manufacturers) Hoa Phat Trading, Van Loi Steel, Nam Vang Steel and other importers (Other importers) 2004 Steel plate, V-shaped rod Vinashin shipping, Nam Trieu Shipping, Electrical Construction Number 4 (ship building companies, EVN members) Hoa Phat Trading, AN Khanh Steel, Nam Vang Steel and other importer 2005-2006 Cheap coins, cold mill roll Vinapipe, Vietduc pipe, Hoa Phat pipe Nam Vang Steel, Dung Hai Steel and other importers. Mill foil is the input material for rebar manufacturers, which counted in the North: Viet Australia Steel, Viet Russia Steel, Nam Do Steel, Thai Nguyen Steel, Hoa Phat Steel, Viet Italy Steel, Vinakansai Steel. These factories used around 1.5 millions ton of foil per years. To be mill foil importer at that time, Cim supplied to almost manufacturers as listed on the table with output over 50.000 tons per years, equal 3.3% of total consuming number. Although steel trading brought high revenue but the profit margin is very low from 1% to 3%. To be among biggest supplier in each product was a strategic marketing plan of Cim. It matched with target of growing as fast as possible strategy of the company. From establishment in 2002 to now Trading always takes the most important business of Cim. It contributed almost company’s revenue. Profit & cash flow created by trading activities has been used to finance directly for investments in fixed assets & construction projects. The cash flow from trading also helped to create corresponding capitals for bank loans in producing factories projects. Before 2006 all operating activities of Cim have been financed by trading. From 2006 to now, besides trading revenue Cim has revenue from other business but trading still keep over 90% of total revenue. Cim should apply Hold strategy for this business line in adjusting time but consider reducing its role in company’s overall business to minimize threats brought by environment changing. DOG -Steel pipe manufacturing Steel pipe manufacturing took small ratio in total revenue & has negative growing. The year 2006 was the first year CIM join the civil pipe market which leading by many big competitors such as Hoa Phat Steel Pipe, Viet Duc Steel Pipe, Vina Steel Pipe, 190 Steel Pipe. There are also hundreds small companies which have the same capacity like Cim dose. According to VSA, only in February 2009 the member’s total output of steel pipe was 236.8 thousands ton while Cim’s average output was just 53 tons equal 0.02% market total output. In 2006, to join the market the company has used the strategy of lower price but in fact, the company could not keep the market share when it stopped down price policy in the next year 2007. Negative growth and no benefit were reasons why the author suggests the company to remove this business line. The recommend method is liquidation as quick as possible. ? Question- Industrial Construction & Installation Construction was a traditional profession of CEO’s family. His father and his elder brother kept high position in a state owned corporation and have many year experiences in this industry. Abilities of approaching, joining construction market as well as building up forces are very high & easily. That is why just after two years, the company has impressive revenue growth on construction business. The labor force in this business and fabrication in 2009 increased up to 31 engineers, which a medium size company in the same industry requires. This business above is located in “?” place because of these aspects: - The construction industry has quite high margin rates 15-20% and can grow very fast with advantages what the company has. - The construction industry in general shall continue develop strongly in Vietnam. This industry has been regarded as motive power for GDP growth in 2009 and coming years. - In the near future, Cim can increase role of this business to reduce relatively role of trading. This business has higher profit margin and requires less capital demand. Profit and stable cash flow created by this business will help the company to balance its risky finance statement as before. START - Pre-fabricated Steel Structure Although this business line is under set up phase, the author still put it in the START place in the matrix because these reasons: - Developing market: Vietnam is in the beginning of industrialization, the factory demand shall kept increasing stably in long term - Cim has advantages to join this market and develop market share as analyzed in Chapter IV. The company has enough fun of land for a factory of over 100.000m2 and has abundant input material resource. With normal size and capacity around 15000 tons per year, this business can create revenue of 300 billions with high margin. - This manufacturing business has high margin, around 30%. This business line shall take full advantages of company’s strengths to catch opportunities brought by environment. With very high profit margin, this business shall create strong cash flow to finance other investments instead of liabilities as currently. In summary, Cim’s leaders should seriously are aware of threats which company is facing not only from outside but also from internal problems. Instead of concentration growing by trading which requires many liabilities, the company should apply a new strategy portfolio and diversify its business. Build up a new strategy, Cim’s leaders also should pay attention to clear company’s basic concepts on Strategic Management for long - term development such as Vision, Mission and the Value. V.4 Implementation V.4.1 Build up Vision From trading company, the main activities are quite simple: Import and sale product with assistance activities as warehouse, logistic, securities…When diversify business lines, the activities are more complicated in three field: Trading, manufacturing, construction engineering. Cim is no more a trading company simply, in near future it will be like a group of companies in which each sub-company doing business in a different industry. From internal aspect, Cim’s leaders must let their employees to recognized and understand about company to forward a common target. From external aspect, the company should position itself in the markets. These require the company has clear Vision. Vision: CIM - LEADING GROUP IN STEEL INDUSTRY & CONSTRUCTION Mission: To achiever leading position in each business line: - Construction and pre-fabricated manufacturing: ONE solution for WHOLE industrial construction with full services such as design, project management, construction, structure fabrication & installation. - Trading: Professional & trusted distributor with various & quality products. Value: Develop the traditional VALUE OF TRUST as at the beginning: TRUST with Clients (Banks, customers, and supplier) TRUST with Staff V. 4.2 Strategic Business Unit (SBU) Construction and pre-fabricated steel structure factory should has been organized a sub-company of Cim what initiatively set up marketing plan, business plan, production process, quality policy, human organization. Finance resources and finance indicators are planned and controlled by Cim’s finance Department. This step should be finished within 2010 to take advantages in market share and fluent environment brought by recovering economy. Set up specific strategic targets for each SBU in accordance with Cim’s targets. Evaluate potential market according to strengths analyzed in Chapter IV. From there build up procedure for SBUs increase their roles in whole Cim business. V. 4.3 Reduce role of Trading Trading currently take the role of financing and create cash flow for whole Cim business activities and investment. This means that Cim still be in unstable situation especially in finance. Cim must prepare the plan of withdraw for in five years future before the market share really impacted by domestic producers. V. 4.4 Liquidate steel pipe manufacturing business Liquidation this business shall bring to Cim an amount cash of about 16 billions equal 64% its equity in 2008. The cash can be used to construct factory for pre-fabricated steel structure. Liquidation also can help Cim saving cost and land fund for other purpose. This action should be done as soon as possible in the second quarter 2010. Chapter 6: Conclusion, limitation and further researches This section will address the research’s objective, summarize the findings of this research work and offer conclusions based on the findings. More importantly, the contribution of this research to the development of corporate strategy in steel industry will be clarified. VI.1. Conclusion This study has answered all research questionnaires in Chapter 1. Current strategy of Cim is that growing as fast as possible through high finance leverage, using liabilities to fund all operating activities. The company did not have clear vision and mission. In context of environment changing, the Cim’s current strategy is not suitable any more and can cause serious damages to the company so it is necessary to adjust the strategy. The strategy should been adjusted in the way to reduce threats and utilize strengths to catch other business opportunities. So the author choose the solution: Diversify business portfolio. To implement this strategy, Cim must restructure its business lines, liquidate the bad one and develop potential ones. This work requires time and carefully preparing so the timing is not mentioned in this study. VI.2. Contribution This study aims to help Cim leaders recognize the current strategy not suitable for the future. It also warns company leaders about the threats coming from changing environment and the solution to avoid them. Through internal analysis with objective view, the study points out weakness inside company organization and in finance structure V.3. Further researches Corporate strategy itself is a broad topic, therefore, this research is too broad and may be too general for non-marketer to thoroughly understand and absorb, the future research could be more specific and focused on a particular matter in business strategy or functional strategy. The author also has plan to do research about implementing and evaluating the corporate, business and functional strategy. V.4. Thanks word Finally, the author one more time would like to express his thankful to all the professors in Vietnam-Belgium MBA course who have imparted knowledge as well as experience carefully and full of enthusiasm. 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