Binh Phat Mechanical Joint Stock Company

8/12/2019 Binh Phat Mechanical Joint Stock Company

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CONTENTS

Figures and Tables .......................................................................................................... 3

I. Introduction to the Company ..................................................................................... 41.1. The history of the company ................................................................................. 4

1.2. The companys structure ...................................................................................... 4

1.3. The companys salesand 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. Longterm objectives ........................................................................................ 11

4.2. Shortterm objectives ........................................................................................ 11

4.3. Business strategies ............................................................................................... 12

V. Strategic Performance ............................................................................................... 15

5.1. Shortterm operating plans ................................................................................ 15

5.2. Longterm 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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Figure 1: The management structure

1.3. The companys sales and profitBinh 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 firms 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 2009 2010 2011 2012Sales 4,420,592,422 10,456,481,438 4,340,469,089 13,825,811,476 16,282,100,868

Profit 436,803,690 639,844,867 298,926,757 371,534,532 557,749,625

Regarding the companys 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.

Director

Deputy Director Deputy Director

Business

Deparment

Technical

Deparment

Accounting andFinance Administrationand Personel Material Unit andWarehouse Factory andWorkshop


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Figure 2: Sales and Profit over five years

According to those figures, the companys profitmargin 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.

0

2,000,000,000

4,000,000,000

6,000,000,000

8,000,000,000

10,000,000,000

12,000,000,000

14,000,000,000

16,000,000,000

18,000,000,000

2008 2009 2010 2011 2012

Sales and Profit of the Company

Sales

Profit


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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 startup businesses complete satisfaction.

With stateoftheart 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 costeffective 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 envi ronment:

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 envir onment:

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 unfaircompetitiveness, 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, thefirms own funds and credit capital are still limited.

The size of the company is still small as well as restricted resources ininnovation, research and development.

Machinery and equipment is in poor condition and not applied moderntechnology following international standard.

Most of the workers have no professional skills.3.2.3. Opportuni ties:

The economy is recovering after the recession in 2008, and the loan interest isgetting lower during the years.

Domestic investment has increased in recent years, especially the investment inmechanical industry.


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In a rapidly changing economy, demand for mechanical engineering productswill be soaring.

There are many chances to learn new technology through cooperating withforeign companies.

3.2.4. Threats:

The high level of competition in the mechanical industry, not only domesticenterprises but also big foreign companies.

Government policies are too unspecific to support the industry in general andsmall domestic companies in particular.

Table 2: SWOT Analysis

Helpful Harmful

InternalOrigin

S (Strength) W (Weakness)

+ 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

+ The firms own funds and credit

capital are still small and limited

+ Small size, restricted resources in

innovation, research and development

+ Machinery and equipment is in poorcondition

+ Most of the workers have no high

professional skills

ExternalOrigin

O (Opportunity) T (Threat)

+ 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

+ The high level of competition in

mechanical industry

+ Government policies are too

unspecific to support the industry and

small domestic companies


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STRATEGIC ANALYSIS AND CHOICE

4.1. Longterm Objectives

Develop Binh Phats prestigious brand name by diversifying fairly pricedproducts 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 employeess 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 companys profit margin was2.69%, which increased to 3.43% in 2012. Therefore, we expect the profitmargin will remain 5% in the next five years.

Invest in new modern machinery and equipment to enhance the quality of theproducts; develop mechanical products that foreign companies do not have

advantages to foster the core competencies.

Improve management skills to advance the companys business efficiencyandcompetitive 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, especiallyintermediary 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. Shortterm Objectives

o Develop a wider range of products which will meet the demand of individualcustomers. We intend to increase the sales from this new market to 1% of the

companys total revenue in 2013.

o The sales and profit of the company are expected to achieve VND 18,000million 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% atthe end of 2013.

o Create good conditions for the employees to buy shares to refine theircontrolling 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 stateowned 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 firms operations in the future.

4.3.2. Long term strategies:

Lowcost 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 lowcost 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 oftransportation 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 inbound 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.

Speedbased 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 processingsystem 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 todevelop 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 contactwith 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 competitorsones, 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. Shortterm Operating Plans

Table 3: Operations in the year of 2013

This years Objectives Time Period (2013) Activities

The increases of sales and

profits are 10.55% and

61.36% respectively

02/0531/12

Speed up obtaining contracts from

small and start up businesses

which will complete in less than

or equal one year

01/0730/09

01/1031/12

Increase sales to 3% and profits to

16% for the two last quarters

Product price decrease of

1% due to the reduction

in operating costs

02/0531/12

Reduce administrative cost and

costs from suppliers as well as

transporters by embracing close

partnerships

Sales from individual

market cover 1% of total

revenue

02/0531/07

Penetrate new market through

advertising campaigns, website,

and product introduction at each

house in local areas

01/0631/12

Plan to restructure the company

which will take place in one and a

half years

Employees total shares

are expected to 24%01/0630/11

Provide stock options for the

employees so that they can buy

shares with low prices

Workers technical skill

enhancement

02/0530/06Encourage the employees to

increase their English skills

01/0731/12

Send 2 or 3 qualified workers

studying abroad


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5.2. Longterm Business Plans

Table 4: Business plans in the next three to five years

Longterm Objectives Time Period Activities

The development of Binh

Phats brand name and the

steady growth of the profit

margin

20132018

Increase the key products market

share through fairly low prices, quick

services, good relationships withtraditional customers. At the same

time, strengthen the position in the

individual market by increasing public

awareness

Employeess salaries and

shareholders returns rise

20% and 50% respectively

20152017

Utilize long term capital employed

effectively in manufacturing new

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

Investment in new modern

machinery, and in research

and development

20142016

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

20152018

The personel department will select 3

or 5 supervisors per year to take part

in managerial development training

courses for the next five years

The increase in labour

productivity and reduction in

production costs

20132018

Reduce intermediary costs like trading

and transporting, etc. as well as fulfill

most of the contracts within one year

to minimize the risks from fluctuatingmaterial prices and high inventory


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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

Take full advantage of

growth opportunities

Stock options

Provide the excutives with the

right to purchase stocks at VND

10,500 compared to the current

price of VND 12,000 per stockdue to risks associated with

growth strategies

Improve operational and

production efficiencyCash

Award a bonus of 10% of the

managers total salaries and 5%

of salaties for each related

employees every quarter. This

plan will come into effect from

the fourth quarter of 2013

Restructure organisation Stock options

Offer organisational members

10% discount from the current

price of the companys stocks at

a future time period after the

restructuring is completed

Streamline operations Restricted stock plans

Extend the reselling period of

the executives intially gifted

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 stateowned 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 highquality products with fairlylow 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 governments loosely managed regulations.

In addition, Binh Phatscore 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 shareholderswealthier 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 shareholdersequity. 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 gradeA scale according to Standard&Poors.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 companys products, managerial capability enhancement for

managers. However, the ratio between longterm 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. Control li ng:

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

firms 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 Phats financial statements from 2009 to 2012, Internal documents. 2.John A. Pearce II, Richard B. Robinson, Strategic Management: Planning forDomestic and Global Competition, 13th Edition, International Edition, 2013.

3.Grigore Ana-Maria, Bagu Constantin, Radu Catalina, The strategic performancemanagement process, JEL Code, 2008.

4.ASME Strategic Issues Committee, 2028 Vision for Mechanical Engineering, TheInstitute for Alternative Future, Global Summit, July 2008.

5.Industrial Competitiveness Group (ICG), Viet Nam Industrial CompetitivenessReport 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, Vietnams mechanical engineering industrydevelopment strategy until 2010 and vision to 2020, published online at

http://chinhphu.vn,accessed on 8th April, 2013.

7.To Tuan, Vietnams mechanical engineering industry targets industrialization by2020, published online athttp://vovworld.vn,accessed on 8th April, 2013.
http://chinhphu.vn/http://chinhphu.vn/http://vovworld.vn/http://vovworld.vn/http://vovworld.vn/http://vovworld.vn/http://chinhphu.vn/

Binh Phat Mechanical Joint Stock Company

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