Binh Phat Mechanical Joint Stock Company
Content
VIETNAM NATIONAL UNIVERSITY – HCMC INTERNATIONAL UNIVERSITY SCHOOL OF BUSINESS ADMINISTRATION
STRATEGIC MANAGEMENT
BINH PHAT MECHANICAL JOIN STOCK COMPANY
Student’s name: Le Tran Nguyen Nhung Student’s ID: MBA06022 Lecturer: PhD. Truong Quang Duoc
02/05/2013
1
CONTENTS
Figures and Tables .......................................................................................................... 3 I. Introduction to the Company ..................................................................................... 4 1.1. The history of the company ................................................................................. 4 1.2. The company’s structure...................................................................................... 4 1.3. The company’s sales and profit .......................................................................... 5 II. Business Mission and Vision ...................................................................................... 7 2.1. Mission................................................................................................................. 7 2.2. Vision ................................................................................................................... 7 III. External and Internal Assessment........................................................................... 8 3.1. External assessment ............................................................................................. 8 3.2. Internal assessment .............................................................................................. 9 IV. Strategic Analysis and Choice .................................................................................. 11 4.1. Long – term objectives ........................................................................................ 11 4.2. Short – term objectives ........................................................................................ 11 4.3. Business strategies ............................................................................................... 12 V. Strategic Performance ............................................................................................... 15 5.1. Short – term operating plans ................................................................................ 15 5.2. Long – term business plans .................................................................................. 16 5.3. Compensation plans ............................................................................................. 17 VI. Conclusion and Recommendation ........................................................................... 18 6.1. Conclusion ........................................................................................................... 18 6.2. Recommendations ................................................................................................ 19 References......................................................................................................................... 21
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FIGURES AND TABLES
Figure 1: The management structure Figure 2: Sales and profit over five years Table 1: Sales and profit from 2008 to 2012 Table 2: SWOT analysis Table 3: Operations in the year of 2013 Table 4: Business plans in the next three to five years Table 5: Compensation selection
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INTRODUCTION TO THE COMPANY
1.1. The history of the company
Binh Phat Mechanical Join Stock Company (BIPHA. J.S.C.) was transformed from a state – owned company which specialized in producing mechanical devices for textile fabric in 2007. At the present, the company’s main business is manufacturing and installing steel composition, hydraulic seals, irrigational works, industrial architectural structures. The headquarter is in Thu Duc District, Ho Chi Minh City. The charter capital is VND 3,500 million in which the state owns 27.85%, the management and employees own 22.54%, and the rest owned by the outside investors. In addition, the total number of employees of the company was 68 working people in 2012, and there has been an increase in the number of skilled workers in the future. Binh Phat runs its business mainly in the South of Vietnam, especially in the Mekong Delta. With respect to the production inputs, the firm has bought raw materials from domestic companies as well as imported from foreign partners. For example, there are several important suppliers such as Diep Doanh Metal Company (chrome steel), Dai Minh Trading Company (steel plate), Thanh Huyen Private Enterprise (light sheet), Kuang Tai Limited Liability Company (welding inox stick), etc. Moreover, the key customers of the company includes Vietnam Textile Fabric Corporation, Project Management Board 1, Management Board of Investment and Irrigation Construction 10, Asia Polimer Resin Company. The firm also has some major competitors in the water seal market like the Construction 40 company of the Ministry of Agriculture, the Irrigation 276 corporation, Song Hong Corporation, Song Than Building Company. Currently, the company has applied Vietnamese standard semi – automatic technology for manufacturing its products.
1.2. The company’s structure
Binh Phat has one general director who is responsible for functional units such as accounting, administration, factory, etc., and two vice directors who are in charge of business and technical operations. The following figure shows the single business management structure of the company.
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Figure 1: The management structure
Director
Deputy Director
Deputy Director
Business Deparment
Technical Deparment
Accounting and Finance
Administration and Personel
Material Unit and Warehouse
Factory and Workshop
1.3. The company’s sales and profit
Binh Phat has operated rather well with positive sales and profits during the recent five years. The company gained over VND 4,400 million sales in 2008, which sharply increased 137.89% in 2009. However, the sales decreased considerably 58.73% in 2010 due to the bad effect of the economic recession. Since receiving more contracts from partners and delivering products for old transactions, the firm’s sales went up dramatically to nearly VND 14,000 million in 2011, and rose more 17.77% in 2012 comparing to the previous year. Table 1: Sales and Profit from 2008 to 2012
Unit: VND
2008 Sales Profit 436,803,690
2009 639,844,867
2010 298,926,757
2011 371,534,532
2012 557,749,625
4,420,592,422 10,456,481,438
4,340,469,089 13,825,811,476 16,282,100,868
Regarding the company’s profit, it fluctuated over the years. The net income grew from about VND 436 million in 2008 to VND 639 million in 2009, then suddenly declined 53.28% in 2010. In constract, it went up again to over VND 371 million in 2011, and continued increasing substantially 50.12% in 2012.
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Figure 2: Sales and Profit over five years
Sales and Profit of the Company
18,000,000,000 16,000,000,000 14,000,000,000 12,000,000,000 10,000,000,000 8,000,000,000 6,000,000,000 4,000,000,000 2,000,000,000 0
Sales Profit
2008
2009
2010
2011
2012
According to those figures, the company’s profit margin declined dramatically from 9.88% in 2008 to 3.43% in 2012, especially in 2011 the profit margin reached the lowest point which was 2.69%. In the year of 2010, Binh Phat came up against general economic difficulties that made its administrative and interest expenses rise 31.89% and 56.74% respectively. As a result, the net income decreased sharply. From 2011 to 2012, the company accomplished several big contracts, so both sales and profit went up again, but sales rised with a bigger percentage than profit. Because of the inflation of the material prices, the cost of goods sold increased considerably which also caused to the reduction in the profit margin of the company.
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BUSINESS MISSION AND VISION
2.1. Mission
We are in the business for the purpose of manufacturing and installing high – quality industrial architectual structures with professional integrity, dedication, and expertise in order to ensure our Southern customers from large corporations, local organisations to small start – up businesses complete satisfaction. With state – of – the – art technology and mechanical systems, we strive to provide the society many steel construction which can be utilized and appreciated throughout the life of the buildings. We also design engineering solutions that generate economic development for the communities and the country.
2.2. Vision
We aim to build our reputation for excellent value and superior performance as well as play a preeminent leadership role in the mechanical manufacturing industry. Our commitment is to provide cost – effective solutions to our customers, which will make us become one of the finest pioneers in the engineering field in the future.
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EXTERNAL AND INTERNAL ASSESSMENT
3.1. External Assessment
3.1.1. Remote environment: The sustained industrial growth is put into a new context which have some significant features such as rapid technological progress, crucial international competitiveness, and increasing production effectiveness. Because of the prolonged economic recession since 2008, hundreds of big and small mechanical companies has had to shut down their activities or go bankrupt. In addition, the interest rate was too high, especially it reached to 20% per year in past times as well as the credit procedures were difficult and complicated. That resulted to not any firms can borrow money from the banks. In 2009 and 2011, the inflation escalated alarmingly, so the goverment had to propose tightening policies for investment and consumption. The loosely managed regulalions on investment such as the government do not mention product origin, domestic – equipment percentage, etc. in an auction sale which makes local enterprises hardly compete with foreign companies. 3.1.2. Industry environment: No barrier to entry, so there are around 3,100 mechanical companies nationwide, of which about 156 companies are 100% foreign invested corporation. As a result, the competitive rivalry level is really high, and substitute products are always available, particularly the good quality products of overseas competitors. In addition, the shortcomings of market control enable products with unclear origin, insufficient quality, and low price to spread out the mechanical market. This causes to unfair competitiveness, especially for internal enterprises. On the other hand, with respect to big projects which are owned by the government, buyer power is extremely significant that leads bidding companies to bring out as low price as possible. 3.1.3. Operating environment: Many companies are in undercapitalized because of the high interest rate. In other words, this is a problem from the lack of financial resources. The result is that the investment in high value added products is inefficient. The unreasonable level of
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inventory and the shortage of demand make the production meet many difficulties. Moreover, the resources for research and development from consultancy, technology and manufacturing design to leading experts as well as skilled workers are deficient and weak in capabilities. The quality of training courses for mechanical engineers is still low and not satisfy the market demand. The next issue is that if the customer is the government, the manufacturing contracts will be very big so that the project must be divided into several smaller packages. Therfore, the competitiveness could be increasing fiercely.
3.2. Internal Assessment
3.2.1. Strengths: The company has experiences and prestige in providing high quality products. The management structure is simple and flexible as well as the board of director is proactive, creative, and dedicated. The managers and workers have close solidarity. The company has good traditional relationships with customers and suppliers. 3.2.2. Weaknesses: The demand of business and investment capital is rather large, meanwhile, the firm’s own funds and credit capital are still limited. The size of the company is still small as well as restricted resources in innovation, research and development. Machinery and equipment is in poor condition and not applied modern technology following international standard. Most of the workers have no professional skills. 3.2.3. Opportunities: The economy is recovering after the recession in 2008, and the loan interest is getting lower during the years. Domestic investment has increased in recent years, especially the investment in mechanical industry.
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In a rapidly changing economy, demand for mechanical engineering products will be soaring. There are many chances to learn new technology through cooperating with foreign companies. 3.2.4. Threats: The high level of competition in the mechanical industry, not only domestic enterprises but also big foreign companies. Government policies are too unspecific to support the industry in general and small domestic companies in particular. Table 2: SWOT Analysis Helpful S (Strength) + Experiences and prestige in providing high quality products + Simple and flexible management structure as well as proactive, creative, and dedicated board of director + Close solidarity between managers and workers + Good relationships with customers and suppliers O (Opportunity) + The economy is recovering and the interest is getting lower + Domestic investment has increased, especially in mechanical industry + The demand of mechanical products and services is climbing + Chances to learn new technology through foreign cooperation External Origin Harmful W (Weakness) + The firm’s own funds and credit capital are still small and limited + Small size, restricted resources in innovation, research and development + Machinery and equipment is in poor condition + Most of the workers have no high professional skills T (Threat) + The high level of competition in mechanical industry + Government policies are too unspecific to support the industry and small domestic companies
Internal Origin
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STRATEGIC ANALYSIS AND CHOICE
4.1. Long – term Objectives
Develop Binh Phat’s prestigious brand name by diversifying fairly – priced products and building long – term relationships with customers for which we can contribute strategic services and maintenance priorities. Utilize capital employed effectively to increase 20% of employees’s salaries, gain 50% more on returns for shareholders, and contribute to the development of the country. Accept low, but stable profit margin. In 2011, the company’s profit margin was 2.69%, which increased to 3.43% in 2012. Therefore, we expect the profit margin will remain 5% in the next five years. Invest in new modern machinery and equipment to enhance the quality of the products; develop mechanical products that foreign companies do not have advantages to foster the core competencies. Improve management skills to advance the company’s business efficiency and competitive strengths. The personel department need to provide managerial development training for 5 supervisors per year over the next five years. Increase labour productivity as well as reduce production costs, especially intermediary costs, to lower product prices. Each contract normally lasts from one to two years, which causes to the increase in inventory. We aim to fulfill the contract within one year to minimize the risks from fluctuating material prices and high inventory.
4.2. Short – term Objectives
o Develop a wider range of products which will meet the demand of individual customers. We intend to increase the sales from this new market to 1% of the company’s total revenue in 2013. o The sales and profit of the company are expected to achieve VND 18,000 million and VND 900 million respectively. In other words, the sales will rise 10.55% and the profit will go up 61.36% compared to the year of 2012.
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o Reduce the operating costs by 3% to support a product price decrease of 1% at the end of 2013. o Create good conditions for the employees to buy shares to refine their controlling roles to the company. The expected percentage of total shares that the employees will own is 24% in this year. o Attract working people with high – technical knowledge, good capability, professional skills, and promote excellent individuals to management positions. In addition, the company will send 2 or 3 core workers studying abroad with short – term traing courses to help them operate new production line with modern technology effectively.
4.3. Business Strategies
4.3.1. Core competencies: + Be transformed from a state – owned company which was established in 1989, Binh Phat has long – term experiences and good capabilities in production as well as competition in the mechanical engineering industry. + The company can manufacture and install mechanical products with lower costs than its main competitors with the same quality. + The factory covers an extensive area of 500 square meters that plays an important role in expanding the firm’s operations in the future. 4.3.2. Long – term strategies: Low – cost leadership: The key product of Binh Phat is hydraulic seals which is mainly produced by about 12 companies in the whole country. This is a mature industry, so the company need to focus on low – cost strategy to compete successfully. With good engineering abilities, our company should emphasis on operational efficiencies and process innovation in product design, manufacturing methods, and distribution synergy. Since both the product is likely standardized in the markets and the rate of change is slow, the company can minimalize delivered costs by requiring customers to take charge of transportation by themselves. Another better way is that the company may accept to
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buy a new truck to deliver products for customers instead of hiring outside services. The expense will be rather high at the beginning but transportation costs may reduce a lot in the long run, especially when the company intends to expand its business. On the other hand, because of traditional relationships with the suppliers, the company can have sufficient control over in – bound supplies and logistics. The most important thing which needs to be paid attention is effective cost control system. That means we must implement cost – cutting technologies, stress reduction in administrative and overhead expenses as well as take full advantage of maximizing economies of scale. Finally, the firm should have positive acitivities to motivate its employees so that they can perform in their full potential to increase productivity and revenue without increasing costs. Speed – based strategies: Binh Phat can hold existing market share and build customer loyalty quickly with a rapid response policy either to their needs or to market and technological changes. The company has some merits when applying this strategy including a number of technical people in sales and customer service, flexible manufacturing capabilities, strong cooperation from suppliers of major components of the products, and corporate reputation of closeness to the key customers. The main activities must be done is that providing current products quicker, accelerating product improvement and production processes as well as making decisions quickly. To implement these ones successfully, the firm needs to do several things following: Improve coordition among fuctional departments in research and development, production, marketing, and sales. In other words, an information processing system is necessary to be highly develop automated and integrated so that the communication between the departments would be better than before. Establish self – managed operating teams and delegate powers to them to develop decision making at the lowest levels to increase responsiveness. Build one more warehouse and set up customer facilities in the Mekong Delta, which is the vital market of the company, to minimize delivery time and speed up technical services.
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Create a company website and email to receive customers’ orders and contact with them during delivery time. This website will be considerd as the main effective information channel between the company and its customers, which will save a lot of transaction expenses because it helps the firm shorten the order process and sales cycle.
Concentrated growth and market development strategies: The further strategies for Binh Phat are concentration and market development, which are based on the internal emphasis for growth and profit with a desire to maximize its strengths. On the basis of low – cost leadership and quick – response policy, the company has an opportunity to increase its market share of the present products in the present market. To hold key customers as well as to attract competitors’ ones, our firm can establish brand differentiation by giving price incentives for the increasing percentage of purchase size, initiating low prices so as to win government contracts through bidding, building good relationships with start – up businesses, advertising more on our new website and applying special promotional programs. In addition to the concentrated growth, Binh Phat is able to develop its business to new markets, especially individual customers. At the present, the company already has big factory and modern technology to manufacture and install civil architectural structures. It is a crucial advantage that helps our firm succeed with this strategy. The first thing we need to do is that restructuring to expand our operations to resolve the demands for individual customers. The business department should be divided into two small units with each will focus on corporate customers and individual ones. The human resources is required to recruit more skillful workers who will perform separate tasks for each division. The technical department plays a supporting part to develop product versions to appeal to new market. Second, the company can add more channels of distribution including buying new truck as mentioned ealier or transporting by motobike with regard to small and light structures. Finally, by changing the content of advertising, our company may put up advertisement in newspapers, posters, and leaflets in local areas. Futhermore, the promotional appeals are very vital with interesting programs like big discounts at the three first times, free distribution, long warranty period, etc.
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STRATEGIC PERFORMANCE
5.1. Short – term Operating Plans
Table 3: Operations in the year of 2013 This year’s Objectives Time Period (2013) Activities Speed up obtaining contracts from The increases of sales and profits are 10.55% and 61.36% respectively 01/07 – 30/09 01/10 – 31/12 Product price decrease of 1% due to the reduction in operating costs 02/05 – 31/12 02/05 – 31/12 small and start – up businesses which will complete in less than or equal one year Increase sales to 3% and profits to 16% for the two last quarters Reduce administrative cost and costs from suppliers as well as transporters by embracing close partnerships Penetrate new market through 02/05 – 31/07 Sales from individual market cover 1% of total revenue 01/06 – 31/12 advertising campaigns, website, and product introduction at each house in local areas Plan to restructure the company which will take place in one and a half years Employees’ total shares are expected to 24% Provide stock options for the 01/06 – 30/11 employees so that they can buy shares with low prices 02/05 – 30/06 Workers’ technical – skill enhancement 01/07 – 31/12 Encourage the employees to
increase their English skills Send 2 or 3 qualified workers studying abroad
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5.2. Long – term Business Plans
Table 4: Business plans in the next three to five years Long – term Objectives Time Period Activities Increase the key products’ market The development of Binh Phat’s brand name and the steady growth of the profit margin 2013 – 2018 share through fairly low prices, quick services, good relationships with
traditional customers. At the same time, strengthen the position in the individual market by increasing public awareness Utilize long – term capital employed effectively in manufacturing new
Employees’s shareholders’
salaries returns
and rise 2015 – 2017
products and extending a variety of investment. After the restructure of the company completes at the end of 2014, the salaries and returns will hopefully go up in the next 3 years
20% and 50% respectively
Investment in new modern machinery, and in research and development 2014 – 2016
Invest about 5% of total capital in new machinery which applies international technological standards and set aside 2% of total sales for technical services
Improvement in managerial and organisational skills of key employees 2015 – 2018
The personel department will select 3 or 5 supervisors per year to take part in managerial development training courses for the next five years Reduce intermediary costs like trading
The
increase
in
labour 2013 – 2018
and transporting, etc. as well as fulfill most of the contracts within one year to minimize the risks from fluctuating material prices and high inventory
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productivity and reduction in production costs
5.3. Compensation Plans
To motivate key value organisational members who can probably link strategic goals and operational actions successfully, Binh Phat Company will improve incentive compensation in a balanced with benefit policies. Table 5: Compensation Selection Strategic Goal Bonus Compensation Explanation Provide the excutives with the right to purchase stocks at VND Take full advantage of growth opportunities Stock options 10,500 compared to the current price of VND 12,000 per stock due to risks associated with growth strategies Award a bonus of 10% of the managers’ total salaries and 5% Improve operational and production efficiency Cash of salaties for each related employees every quarter. This plan will come into effect from the fourth quarter of 2013 Offer organisational members 10% discount from the current Restructure organisation Stock options price of the company’s stocks at a future time period after the restructuring is completed Extend the reselling period of the executives’ intially gifted Streamline operations Restricted stock plans stocks one year longer. It can be seen as long – term rewards on efficiency and cost control
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CONCLUSION AND RECOMMENDATION
6.1. Conclusion
Be privatized from the state – owned mechanical engineering company, Binh Phat has gained several achievements including the average increases of sales and profit from 2008 to 2012 are 78.87% and 16.90% respectively, the scale of production is expanded and the employees’ living conditions are much better than before. The company has built its brand name in manufacturing high – quality products with fairly – low prices, and good relationships with traditional customers and suppliers. This is such an advantage that the company can utilize to compete and develop along with many external opportunities such as recovering economy, increasing domestic investment, climbing demands for mechanical products, etc. However, because of its limited capital, weak research and development activities, old – fashioned machinery and equipment, and unskilled professionally workers, the company has to face a number of difficulties in survival and growth, especially in the context of intense competition and the government’s loosely managed regulations. In addition, Binh Phat’s core competencies that are long – term experiences and good capabilities in production with lower costs play an important role in implementing its business strategies. In the short – term, the company intends to develop a wide range of products to meet the demand of new individual market, increase sales and profit as well as reduce operating costs, and attract more skillful workers with highly technical knowledge. Our firm aims to achieve stable growth and development of its prestigious brand name, invest in new modern machinery, increase labour productivity, enhance managerial skills for key organisational members, and make our shareholders wealthier in the next three to five years. To accomplish these long – term goals, the company will perform some main strategies that are low – cost leadership, quick response, concentrated growth, and market development. The activities that need to be given priority are increase the key products’ market share, strengthen the position in the individual market, utilize capital employed effectively, extend investment activities into various porforlios, reduce intermediary costs like trading and transporting, and try to fulfill most of the contracts within one year to minimize risks from high inventory.
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6.2. Recommendation
6.2.1. Budgeting: In 2012, the company has total debt of VND 5,200 million in which long – term debts cover 48.56%. The capital that finances for its operations is about VND 11,500 million with 54.78% of shareholders’equity. Therfore, the ratio between total debt and capital is 45.22%, which is not bad but not so good as well. The purpose is to reduce the borrowings from banks to VND 4,650 million in 2013 that causes to the above ratio will fall to 42.5%. This belongs to grade – A scale according to Standard&Poor’s. The expected short – term debts are VND 2,390 million which percentage will be set for each activity is 50% of working capital, 35% of operating and advertising expenses, and 15% of developing the employees’ skills. With respect to long – term financing, the borrowings could be increased to support technology and fixed assets (machinery, truck, etc.) investment, increase in public awareness of the company’s products, managerial capability enhancement for managers. However, the ratio between long – term debts and total capital should not be exceeded 40%. This ratio can fluctuate from 28% to 35% which would be the best. The company also needs to spend at least 5% of total borrowings for restructuring the business and 10% for incentive compensation funds. Finally, the most important thing to be most focused on is that the capital must be utilized effectively by all levels of managements and functional departments in order to make sure that the company can implement the business strategies and achieve its promising goals. 6.2.2. Controlling: After carrying out the above – mentioned strategies, we need to do the performance review process periodically to ensure that timely preventive and corrective actions are taken to keep the company on track. First of all, we should control our activities systematically against some premises about environment and industry factors such as the economy has good signs for recovering, the investment in mechical industry is likely to increase, the interest rate will fall during this year, the traditional suppliers probably maintain relationships with us, or the trend of new local competitors is emerging, etc. Second, an implementation controlling program has to be executed every three months towards short – term objectives and every six months or nine
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months for long – term goals. This action will help the company determine whether the strategy is continuously progressing as beginning schedule or needs any major adjustments by giving feedbacks from actual performance. Some criteria that need to be managed are budgets, operating costs, product quality, employee evaluation, and customer satisfaction. Finally, the corporate managers must usually reconsider the firm’s strategies to respond with unexpected events such as spreading bad rumours from competitors, suddenly breaking off relations by suppiers, or rapidly declining demands of customers, etc. Regular forecasts could be very necessary to predict that kind of events as well as to propose corrective actions timely so that the company can thoroughly solve predicted problems. We will perform the strategies successfully if all of the business operations are controlled effectively.
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REFERENCES
1. Binh Phat’s financial statements from 2009 to 2012, Internal documents. 2. John A. Pearce II, Richard B. Robinson, “Strategic Management: Planning for Domestic and Global Competition”, 13th Edition, International Edition, 2013. 3. Grigore Ana-Maria, Bagu Constantin, Radu Catalina, “The strategic performance management process”, JEL Code, 2008. 4. ASME Strategic Issues Committee, “2028 Vision for Mechanical Engineering”, The Institute for Alternative Future, Global Summit, July 2008. 5. Industrial Competitiveness Group (ICG), “Viet Nam Industrial Competitiveness Report 2011”, The Ministry of Industry and Trade of Vietnam and The United Nations Industrial Development Organisation (UNIDO), 2011. 6. The Ministry of Transport of Vietnam, “Vietnam’s mechanical engineering industry development strategy until 2010 and vision to 2020”, published online at http://chinhphu.vn, accessed on 8th April, 2013. 7. To Tuan, “Vietnam’s mechanical engineering industry targets industrialization by 2020”, published online at http://vovworld.vn, accessed on 8th April, 2013.
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STRATEGIC MANAGEMENT
BINH PHAT MECHANICAL JOIN STOCK COMPANY
Student’s name: Le Tran Nguyen Nhung Student’s ID: MBA06022 Lecturer: PhD. Truong Quang Duoc
02/05/2013
1
CONTENTS
Figures and Tables .......................................................................................................... 3 I. Introduction to the Company ..................................................................................... 4 1.1. The history of the company ................................................................................. 4 1.2. The company’s structure...................................................................................... 4 1.3. The company’s sales and profit .......................................................................... 5 II. Business Mission and Vision ...................................................................................... 7 2.1. Mission................................................................................................................. 7 2.2. Vision ................................................................................................................... 7 III. External and Internal Assessment........................................................................... 8 3.1. External assessment ............................................................................................. 8 3.2. Internal assessment .............................................................................................. 9 IV. Strategic Analysis and Choice .................................................................................. 11 4.1. Long – term objectives ........................................................................................ 11 4.2. Short – term objectives ........................................................................................ 11 4.3. Business strategies ............................................................................................... 12 V. Strategic Performance ............................................................................................... 15 5.1. Short – term operating plans ................................................................................ 15 5.2. Long – term business plans .................................................................................. 16 5.3. Compensation plans ............................................................................................. 17 VI. Conclusion and Recommendation ........................................................................... 18 6.1. Conclusion ........................................................................................................... 18 6.2. Recommendations ................................................................................................ 19 References......................................................................................................................... 21
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FIGURES AND TABLES
Figure 1: The management structure Figure 2: Sales and profit over five years Table 1: Sales and profit from 2008 to 2012 Table 2: SWOT analysis Table 3: Operations in the year of 2013 Table 4: Business plans in the next three to five years Table 5: Compensation selection
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INTRODUCTION TO THE COMPANY
1.1. The history of the company
Binh Phat Mechanical Join Stock Company (BIPHA. J.S.C.) was transformed from a state – owned company which specialized in producing mechanical devices for textile fabric in 2007. At the present, the company’s main business is manufacturing and installing steel composition, hydraulic seals, irrigational works, industrial architectural structures. The headquarter is in Thu Duc District, Ho Chi Minh City. The charter capital is VND 3,500 million in which the state owns 27.85%, the management and employees own 22.54%, and the rest owned by the outside investors. In addition, the total number of employees of the company was 68 working people in 2012, and there has been an increase in the number of skilled workers in the future. Binh Phat runs its business mainly in the South of Vietnam, especially in the Mekong Delta. With respect to the production inputs, the firm has bought raw materials from domestic companies as well as imported from foreign partners. For example, there are several important suppliers such as Diep Doanh Metal Company (chrome steel), Dai Minh Trading Company (steel plate), Thanh Huyen Private Enterprise (light sheet), Kuang Tai Limited Liability Company (welding inox stick), etc. Moreover, the key customers of the company includes Vietnam Textile Fabric Corporation, Project Management Board 1, Management Board of Investment and Irrigation Construction 10, Asia Polimer Resin Company. The firm also has some major competitors in the water seal market like the Construction 40 company of the Ministry of Agriculture, the Irrigation 276 corporation, Song Hong Corporation, Song Than Building Company. Currently, the company has applied Vietnamese standard semi – automatic technology for manufacturing its products.
1.2. The company’s structure
Binh Phat has one general director who is responsible for functional units such as accounting, administration, factory, etc., and two vice directors who are in charge of business and technical operations. The following figure shows the single business management structure of the company.
4
Figure 1: The management structure
Director
Deputy Director
Deputy Director
Business Deparment
Technical Deparment
Accounting and Finance
Administration and Personel
Material Unit and Warehouse
Factory and Workshop
1.3. The company’s sales and profit
Binh Phat has operated rather well with positive sales and profits during the recent five years. The company gained over VND 4,400 million sales in 2008, which sharply increased 137.89% in 2009. However, the sales decreased considerably 58.73% in 2010 due to the bad effect of the economic recession. Since receiving more contracts from partners and delivering products for old transactions, the firm’s sales went up dramatically to nearly VND 14,000 million in 2011, and rose more 17.77% in 2012 comparing to the previous year. Table 1: Sales and Profit from 2008 to 2012
Unit: VND
2008 Sales Profit 436,803,690
2009 639,844,867
2010 298,926,757
2011 371,534,532
2012 557,749,625
4,420,592,422 10,456,481,438
4,340,469,089 13,825,811,476 16,282,100,868
Regarding the company’s profit, it fluctuated over the years. The net income grew from about VND 436 million in 2008 to VND 639 million in 2009, then suddenly declined 53.28% in 2010. In constract, it went up again to over VND 371 million in 2011, and continued increasing substantially 50.12% in 2012.
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Figure 2: Sales and Profit over five years
Sales and Profit of the Company
18,000,000,000 16,000,000,000 14,000,000,000 12,000,000,000 10,000,000,000 8,000,000,000 6,000,000,000 4,000,000,000 2,000,000,000 0
Sales Profit
2008
2009
2010
2011
2012
According to those figures, the company’s profit margin declined dramatically from 9.88% in 2008 to 3.43% in 2012, especially in 2011 the profit margin reached the lowest point which was 2.69%. In the year of 2010, Binh Phat came up against general economic difficulties that made its administrative and interest expenses rise 31.89% and 56.74% respectively. As a result, the net income decreased sharply. From 2011 to 2012, the company accomplished several big contracts, so both sales and profit went up again, but sales rised with a bigger percentage than profit. Because of the inflation of the material prices, the cost of goods sold increased considerably which also caused to the reduction in the profit margin of the company.
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BUSINESS MISSION AND VISION
2.1. Mission
We are in the business for the purpose of manufacturing and installing high – quality industrial architectual structures with professional integrity, dedication, and expertise in order to ensure our Southern customers from large corporations, local organisations to small start – up businesses complete satisfaction. With state – of – the – art technology and mechanical systems, we strive to provide the society many steel construction which can be utilized and appreciated throughout the life of the buildings. We also design engineering solutions that generate economic development for the communities and the country.
2.2. Vision
We aim to build our reputation for excellent value and superior performance as well as play a preeminent leadership role in the mechanical manufacturing industry. Our commitment is to provide cost – effective solutions to our customers, which will make us become one of the finest pioneers in the engineering field in the future.
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EXTERNAL AND INTERNAL ASSESSMENT
3.1. External Assessment
3.1.1. Remote environment: The sustained industrial growth is put into a new context which have some significant features such as rapid technological progress, crucial international competitiveness, and increasing production effectiveness. Because of the prolonged economic recession since 2008, hundreds of big and small mechanical companies has had to shut down their activities or go bankrupt. In addition, the interest rate was too high, especially it reached to 20% per year in past times as well as the credit procedures were difficult and complicated. That resulted to not any firms can borrow money from the banks. In 2009 and 2011, the inflation escalated alarmingly, so the goverment had to propose tightening policies for investment and consumption. The loosely managed regulalions on investment such as the government do not mention product origin, domestic – equipment percentage, etc. in an auction sale which makes local enterprises hardly compete with foreign companies. 3.1.2. Industry environment: No barrier to entry, so there are around 3,100 mechanical companies nationwide, of which about 156 companies are 100% foreign invested corporation. As a result, the competitive rivalry level is really high, and substitute products are always available, particularly the good quality products of overseas competitors. In addition, the shortcomings of market control enable products with unclear origin, insufficient quality, and low price to spread out the mechanical market. This causes to unfair competitiveness, especially for internal enterprises. On the other hand, with respect to big projects which are owned by the government, buyer power is extremely significant that leads bidding companies to bring out as low price as possible. 3.1.3. Operating environment: Many companies are in undercapitalized because of the high interest rate. In other words, this is a problem from the lack of financial resources. The result is that the investment in high value added products is inefficient. The unreasonable level of
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inventory and the shortage of demand make the production meet many difficulties. Moreover, the resources for research and development from consultancy, technology and manufacturing design to leading experts as well as skilled workers are deficient and weak in capabilities. The quality of training courses for mechanical engineers is still low and not satisfy the market demand. The next issue is that if the customer is the government, the manufacturing contracts will be very big so that the project must be divided into several smaller packages. Therfore, the competitiveness could be increasing fiercely.
3.2. Internal Assessment
3.2.1. Strengths: The company has experiences and prestige in providing high quality products. The management structure is simple and flexible as well as the board of director is proactive, creative, and dedicated. The managers and workers have close solidarity. The company has good traditional relationships with customers and suppliers. 3.2.2. Weaknesses: The demand of business and investment capital is rather large, meanwhile, the firm’s own funds and credit capital are still limited. The size of the company is still small as well as restricted resources in innovation, research and development. Machinery and equipment is in poor condition and not applied modern technology following international standard. Most of the workers have no professional skills. 3.2.3. Opportunities: The economy is recovering after the recession in 2008, and the loan interest is getting lower during the years. Domestic investment has increased in recent years, especially the investment in mechanical industry.
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In a rapidly changing economy, demand for mechanical engineering products will be soaring. There are many chances to learn new technology through cooperating with foreign companies. 3.2.4. Threats: The high level of competition in the mechanical industry, not only domestic enterprises but also big foreign companies. Government policies are too unspecific to support the industry in general and small domestic companies in particular. Table 2: SWOT Analysis Helpful S (Strength) + Experiences and prestige in providing high quality products + Simple and flexible management structure as well as proactive, creative, and dedicated board of director + Close solidarity between managers and workers + Good relationships with customers and suppliers O (Opportunity) + The economy is recovering and the interest is getting lower + Domestic investment has increased, especially in mechanical industry + The demand of mechanical products and services is climbing + Chances to learn new technology through foreign cooperation External Origin Harmful W (Weakness) + The firm’s own funds and credit capital are still small and limited + Small size, restricted resources in innovation, research and development + Machinery and equipment is in poor condition + Most of the workers have no high professional skills T (Threat) + The high level of competition in mechanical industry + Government policies are too unspecific to support the industry and small domestic companies
Internal Origin
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STRATEGIC ANALYSIS AND CHOICE
4.1. Long – term Objectives
Develop Binh Phat’s prestigious brand name by diversifying fairly – priced products and building long – term relationships with customers for which we can contribute strategic services and maintenance priorities. Utilize capital employed effectively to increase 20% of employees’s salaries, gain 50% more on returns for shareholders, and contribute to the development of the country. Accept low, but stable profit margin. In 2011, the company’s profit margin was 2.69%, which increased to 3.43% in 2012. Therefore, we expect the profit margin will remain 5% in the next five years. Invest in new modern machinery and equipment to enhance the quality of the products; develop mechanical products that foreign companies do not have advantages to foster the core competencies. Improve management skills to advance the company’s business efficiency and competitive strengths. The personel department need to provide managerial development training for 5 supervisors per year over the next five years. Increase labour productivity as well as reduce production costs, especially intermediary costs, to lower product prices. Each contract normally lasts from one to two years, which causes to the increase in inventory. We aim to fulfill the contract within one year to minimize the risks from fluctuating material prices and high inventory.
4.2. Short – term Objectives
o Develop a wider range of products which will meet the demand of individual customers. We intend to increase the sales from this new market to 1% of the company’s total revenue in 2013. o The sales and profit of the company are expected to achieve VND 18,000 million and VND 900 million respectively. In other words, the sales will rise 10.55% and the profit will go up 61.36% compared to the year of 2012.
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o Reduce the operating costs by 3% to support a product price decrease of 1% at the end of 2013. o Create good conditions for the employees to buy shares to refine their controlling roles to the company. The expected percentage of total shares that the employees will own is 24% in this year. o Attract working people with high – technical knowledge, good capability, professional skills, and promote excellent individuals to management positions. In addition, the company will send 2 or 3 core workers studying abroad with short – term traing courses to help them operate new production line with modern technology effectively.
4.3. Business Strategies
4.3.1. Core competencies: + Be transformed from a state – owned company which was established in 1989, Binh Phat has long – term experiences and good capabilities in production as well as competition in the mechanical engineering industry. + The company can manufacture and install mechanical products with lower costs than its main competitors with the same quality. + The factory covers an extensive area of 500 square meters that plays an important role in expanding the firm’s operations in the future. 4.3.2. Long – term strategies: Low – cost leadership: The key product of Binh Phat is hydraulic seals which is mainly produced by about 12 companies in the whole country. This is a mature industry, so the company need to focus on low – cost strategy to compete successfully. With good engineering abilities, our company should emphasis on operational efficiencies and process innovation in product design, manufacturing methods, and distribution synergy. Since both the product is likely standardized in the markets and the rate of change is slow, the company can minimalize delivered costs by requiring customers to take charge of transportation by themselves. Another better way is that the company may accept to
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buy a new truck to deliver products for customers instead of hiring outside services. The expense will be rather high at the beginning but transportation costs may reduce a lot in the long run, especially when the company intends to expand its business. On the other hand, because of traditional relationships with the suppliers, the company can have sufficient control over in – bound supplies and logistics. The most important thing which needs to be paid attention is effective cost control system. That means we must implement cost – cutting technologies, stress reduction in administrative and overhead expenses as well as take full advantage of maximizing economies of scale. Finally, the firm should have positive acitivities to motivate its employees so that they can perform in their full potential to increase productivity and revenue without increasing costs. Speed – based strategies: Binh Phat can hold existing market share and build customer loyalty quickly with a rapid response policy either to their needs or to market and technological changes. The company has some merits when applying this strategy including a number of technical people in sales and customer service, flexible manufacturing capabilities, strong cooperation from suppliers of major components of the products, and corporate reputation of closeness to the key customers. The main activities must be done is that providing current products quicker, accelerating product improvement and production processes as well as making decisions quickly. To implement these ones successfully, the firm needs to do several things following: Improve coordition among fuctional departments in research and development, production, marketing, and sales. In other words, an information processing system is necessary to be highly develop automated and integrated so that the communication between the departments would be better than before. Establish self – managed operating teams and delegate powers to them to develop decision making at the lowest levels to increase responsiveness. Build one more warehouse and set up customer facilities in the Mekong Delta, which is the vital market of the company, to minimize delivery time and speed up technical services.
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Create a company website and email to receive customers’ orders and contact with them during delivery time. This website will be considerd as the main effective information channel between the company and its customers, which will save a lot of transaction expenses because it helps the firm shorten the order process and sales cycle.
Concentrated growth and market development strategies: The further strategies for Binh Phat are concentration and market development, which are based on the internal emphasis for growth and profit with a desire to maximize its strengths. On the basis of low – cost leadership and quick – response policy, the company has an opportunity to increase its market share of the present products in the present market. To hold key customers as well as to attract competitors’ ones, our firm can establish brand differentiation by giving price incentives for the increasing percentage of purchase size, initiating low prices so as to win government contracts through bidding, building good relationships with start – up businesses, advertising more on our new website and applying special promotional programs. In addition to the concentrated growth, Binh Phat is able to develop its business to new markets, especially individual customers. At the present, the company already has big factory and modern technology to manufacture and install civil architectural structures. It is a crucial advantage that helps our firm succeed with this strategy. The first thing we need to do is that restructuring to expand our operations to resolve the demands for individual customers. The business department should be divided into two small units with each will focus on corporate customers and individual ones. The human resources is required to recruit more skillful workers who will perform separate tasks for each division. The technical department plays a supporting part to develop product versions to appeal to new market. Second, the company can add more channels of distribution including buying new truck as mentioned ealier or transporting by motobike with regard to small and light structures. Finally, by changing the content of advertising, our company may put up advertisement in newspapers, posters, and leaflets in local areas. Futhermore, the promotional appeals are very vital with interesting programs like big discounts at the three first times, free distribution, long warranty period, etc.
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STRATEGIC PERFORMANCE
5.1. Short – term Operating Plans
Table 3: Operations in the year of 2013 This year’s Objectives Time Period (2013) Activities Speed up obtaining contracts from The increases of sales and profits are 10.55% and 61.36% respectively 01/07 – 30/09 01/10 – 31/12 Product price decrease of 1% due to the reduction in operating costs 02/05 – 31/12 02/05 – 31/12 small and start – up businesses which will complete in less than or equal one year Increase sales to 3% and profits to 16% for the two last quarters Reduce administrative cost and costs from suppliers as well as transporters by embracing close partnerships Penetrate new market through 02/05 – 31/07 Sales from individual market cover 1% of total revenue 01/06 – 31/12 advertising campaigns, website, and product introduction at each house in local areas Plan to restructure the company which will take place in one and a half years Employees’ total shares are expected to 24% Provide stock options for the 01/06 – 30/11 employees so that they can buy shares with low prices 02/05 – 30/06 Workers’ technical – skill enhancement 01/07 – 31/12 Encourage the employees to
increase their English skills Send 2 or 3 qualified workers studying abroad
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5.2. Long – term Business Plans
Table 4: Business plans in the next three to five years Long – term Objectives Time Period Activities Increase the key products’ market The development of Binh Phat’s brand name and the steady growth of the profit margin 2013 – 2018 share through fairly low prices, quick services, good relationships with
traditional customers. At the same time, strengthen the position in the individual market by increasing public awareness Utilize long – term capital employed effectively in manufacturing new
Employees’s shareholders’
salaries returns
and rise 2015 – 2017
products and extending a variety of investment. After the restructure of the company completes at the end of 2014, the salaries and returns will hopefully go up in the next 3 years
20% and 50% respectively
Investment in new modern machinery, and in research and development 2014 – 2016
Invest about 5% of total capital in new machinery which applies international technological standards and set aside 2% of total sales for technical services
Improvement in managerial and organisational skills of key employees 2015 – 2018
The personel department will select 3 or 5 supervisors per year to take part in managerial development training courses for the next five years Reduce intermediary costs like trading
The
increase
in
labour 2013 – 2018
and transporting, etc. as well as fulfill most of the contracts within one year to minimize the risks from fluctuating material prices and high inventory
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productivity and reduction in production costs
5.3. Compensation Plans
To motivate key value organisational members who can probably link strategic goals and operational actions successfully, Binh Phat Company will improve incentive compensation in a balanced with benefit policies. Table 5: Compensation Selection Strategic Goal Bonus Compensation Explanation Provide the excutives with the right to purchase stocks at VND Take full advantage of growth opportunities Stock options 10,500 compared to the current price of VND 12,000 per stock due to risks associated with growth strategies Award a bonus of 10% of the managers’ total salaries and 5% Improve operational and production efficiency Cash of salaties for each related employees every quarter. This plan will come into effect from the fourth quarter of 2013 Offer organisational members 10% discount from the current Restructure organisation Stock options price of the company’s stocks at a future time period after the restructuring is completed Extend the reselling period of the executives’ intially gifted Streamline operations Restricted stock plans stocks one year longer. It can be seen as long – term rewards on efficiency and cost control
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CONCLUSION AND RECOMMENDATION
6.1. Conclusion
Be privatized from the state – owned mechanical engineering company, Binh Phat has gained several achievements including the average increases of sales and profit from 2008 to 2012 are 78.87% and 16.90% respectively, the scale of production is expanded and the employees’ living conditions are much better than before. The company has built its brand name in manufacturing high – quality products with fairly – low prices, and good relationships with traditional customers and suppliers. This is such an advantage that the company can utilize to compete and develop along with many external opportunities such as recovering economy, increasing domestic investment, climbing demands for mechanical products, etc. However, because of its limited capital, weak research and development activities, old – fashioned machinery and equipment, and unskilled professionally workers, the company has to face a number of difficulties in survival and growth, especially in the context of intense competition and the government’s loosely managed regulations. In addition, Binh Phat’s core competencies that are long – term experiences and good capabilities in production with lower costs play an important role in implementing its business strategies. In the short – term, the company intends to develop a wide range of products to meet the demand of new individual market, increase sales and profit as well as reduce operating costs, and attract more skillful workers with highly technical knowledge. Our firm aims to achieve stable growth and development of its prestigious brand name, invest in new modern machinery, increase labour productivity, enhance managerial skills for key organisational members, and make our shareholders wealthier in the next three to five years. To accomplish these long – term goals, the company will perform some main strategies that are low – cost leadership, quick response, concentrated growth, and market development. The activities that need to be given priority are increase the key products’ market share, strengthen the position in the individual market, utilize capital employed effectively, extend investment activities into various porforlios, reduce intermediary costs like trading and transporting, and try to fulfill most of the contracts within one year to minimize risks from high inventory.
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6.2. Recommendation
6.2.1. Budgeting: In 2012, the company has total debt of VND 5,200 million in which long – term debts cover 48.56%. The capital that finances for its operations is about VND 11,500 million with 54.78% of shareholders’equity. Therfore, the ratio between total debt and capital is 45.22%, which is not bad but not so good as well. The purpose is to reduce the borrowings from banks to VND 4,650 million in 2013 that causes to the above ratio will fall to 42.5%. This belongs to grade – A scale according to Standard&Poor’s. The expected short – term debts are VND 2,390 million which percentage will be set for each activity is 50% of working capital, 35% of operating and advertising expenses, and 15% of developing the employees’ skills. With respect to long – term financing, the borrowings could be increased to support technology and fixed assets (machinery, truck, etc.) investment, increase in public awareness of the company’s products, managerial capability enhancement for managers. However, the ratio between long – term debts and total capital should not be exceeded 40%. This ratio can fluctuate from 28% to 35% which would be the best. The company also needs to spend at least 5% of total borrowings for restructuring the business and 10% for incentive compensation funds. Finally, the most important thing to be most focused on is that the capital must be utilized effectively by all levels of managements and functional departments in order to make sure that the company can implement the business strategies and achieve its promising goals. 6.2.2. Controlling: After carrying out the above – mentioned strategies, we need to do the performance review process periodically to ensure that timely preventive and corrective actions are taken to keep the company on track. First of all, we should control our activities systematically against some premises about environment and industry factors such as the economy has good signs for recovering, the investment in mechical industry is likely to increase, the interest rate will fall during this year, the traditional suppliers probably maintain relationships with us, or the trend of new local competitors is emerging, etc. Second, an implementation controlling program has to be executed every three months towards short – term objectives and every six months or nine
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months for long – term goals. This action will help the company determine whether the strategy is continuously progressing as beginning schedule or needs any major adjustments by giving feedbacks from actual performance. Some criteria that need to be managed are budgets, operating costs, product quality, employee evaluation, and customer satisfaction. Finally, the corporate managers must usually reconsider the firm’s strategies to respond with unexpected events such as spreading bad rumours from competitors, suddenly breaking off relations by suppiers, or rapidly declining demands of customers, etc. Regular forecasts could be very necessary to predict that kind of events as well as to propose corrective actions timely so that the company can thoroughly solve predicted problems. We will perform the strategies successfully if all of the business operations are controlled effectively.
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REFERENCES
1. Binh Phat’s financial statements from 2009 to 2012, Internal documents. 2. John A. Pearce II, Richard B. Robinson, “Strategic Management: Planning for Domestic and Global Competition”, 13th Edition, International Edition, 2013. 3. Grigore Ana-Maria, Bagu Constantin, Radu Catalina, “The strategic performance management process”, JEL Code, 2008. 4. ASME Strategic Issues Committee, “2028 Vision for Mechanical Engineering”, The Institute for Alternative Future, Global Summit, July 2008. 5. Industrial Competitiveness Group (ICG), “Viet Nam Industrial Competitiveness Report 2011”, The Ministry of Industry and Trade of Vietnam and The United Nations Industrial Development Organisation (UNIDO), 2011. 6. The Ministry of Transport of Vietnam, “Vietnam’s mechanical engineering industry development strategy until 2010 and vision to 2020”, published online at http://chinhphu.vn, accessed on 8th April, 2013. 7. To Tuan, “Vietnam’s mechanical engineering industry targets industrialization by 2020”, published online at http://vovworld.vn, accessed on 8th April, 2013.
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