Strategic planning for business development of mekong Petroleum joint-stock company (PETROMEKONG) during 2011 - 2015 vision to 2020

CAPSTONE PROJECT REPORT

STRATEGIC PLANNING FOR BUSINESS
DEVELOPMENT OF MEKONG PETROLEUM
JOINT-STOCK COMPANY (PETROMEKONG)
DURING 2011 – 2015, VISION TO 2020

Group No.: 5
LE THI THANH GIANG
TRAN TUAN VU
NGUYEN CHI HUNG
NGUYEN THANH XUAN
NGUYEN VAN PHUONG

CLASS: GaMBA01.C0110
Ho Chi Minh City, 2011

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ACKNOWLEDGEMENTS

The members of Group 5, Class C0110 are deeply indebted to our teachers,
teaching assistants and staffs of ETC under the National University of Hanoi who
have created favorable conditions for us to approach the most advanced knowledge
foundations of business management, and helped us complete well the entire
training program of Master of Business Administration organized by the Center.

In addition, the Group 5 also would like to thank brothers, sisters in charge
of the affiliate programs of ETC in Ho Chi Minh (Gasa), our classmates of
GaMBA01.C0110 for your concern, encouragement and suggestions for our group
to complete this Capstone.

We would like to express our sincere appreciation to the Leaders of Mekong
Petroleum Joint Stock Company (PetroMekong) for supporting, providing us with
the Company’s important data to complete this Report.



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CONTENT
LIST OF FIGURES 7
LIST OF TABLES 8
PREFACE 10
CHAPTER I 12
LITERATURE REVIEW 12
1.1 Defining Strategy and Strategic Management: 12
1.2 Planning concept 12
1.3 Business strategic planning concept 13
1.4 Roles of business strategic planning 13
1.5 Strategy classification 14

1.5.1 Corporate level strategies 14
1.5.2 Business level strategies 14
1.5.3 Functional level strategies 14
1.6 Stage of Strategic Management 15
1.6.1 Determining strategic objectives 16
1.6.2 External environment research for determination of opportunities and major
threats 16
1.6.3 Internal evaluation on an enterprise for identification of strengths and
weaknesses 17
1.7 Building and choosing strategy 19
1.8 Theories related to strategic planning 20
1.8.1 Michael Porter’s Five’s - Forces Model 20
1.8.2 Marketing Theory 22
1.8.3 Distribution channel theory 23
1.9 Tools and methods for building and selecting strategies 24
1.9.1 Matrix of Internal Factor Evaluation (IFE) 24
1.9.2 Matrix of External Factor Evaluation (EFE) 25
1.9.3 Competitive Profile Matrix (CPM) 26

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1.9.4 Matrix of Strengths - Weaknesses - Opportunities – Threats (SWOT) 27
1.9.5 Grand strategy matrix (GSM) 28
1.9.6 Quantitative Strategic Planning Matrix (QSPM) 30
CHAPTER 2 31
BUSINESS OPERATION OF PETROMEKONG 31
2.1 Overview of the field of petroleum production and business 31
2.1.1 Petroleum and the wholesalers participating in petroleum business 32
2.1.2 Petroleum market situation in the Mekong Delta (MD) 33
2.1.3 Forecast on development trend of the petroleum industry 35
2.1.3.1 Development prospects of petroleum business 35

2.1.3.2 Forecast of PetroMekong’s petroleum yield: 36
2.2 Company introduction 37
2.2.1 PetroMekong’s establishment history 37
2.2.2 PetroMekong’s functions and duties 38
2.2.2.1 Functions 38
2.2.2.2 Duties 38
2.2.3 Organizational structure and operating scale 38
2.2.3.1 Organizational structure 38
2.2.3.2 Operating scale 40
2.2.4 Business field: 40
2.3 Analysis of the current status of PetroMekong’s production and business
activity. 40
2.3.1 Petroleum distribution system 40
2.3.2 Warehouse system 41
2.3.3 Transportation system 43
2.3.4 Capability of producing and blending 44
2.3.5 Current business products 44
2.3.6 Sales methods and customers of the Company 44
2.4 PetroMekong’s strategic planning for business development 45

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2.4.1 Company Mission 45
2.4.2 Strategic objective: 45
2.4.3 Internal environment analysis 46
2.4.3.1 Finance situation: 46
2.4.3.2 Marketing activities 52
2.4.3.3 Company petroleum distribution channel: 54
2.4.3.4 Promotion 55
2.4.3.5 Human resources 56
2.4.3.6 Research and Development (R&D) 57

2.4.3.7 Information activity: 57
2.4.3.8 Management situation and quality control: 58
2.4.4 External environment analysis: 58
2.4.4.1 Macro environment analysis: 58
2.4.4.2 Micro-environment analysis 66
2.4.5 Analysis of the Matrices for choosing a strategy 70
2.4.5.1 Matrix of Internal Factor Evaluation (IFE): 70
2.4.5.2 Matrix of External Factor Evaluation (EFE): 72
2.4.5.3 Competitive profile matrix: 74
2.4.5.4 Matrix of Strengths - Weaknesses - Opportunities – Threats (SWOT): 76
2.4.5.5 Grand Strategy Matrix: 77
CHAPTER III 80
SOLUTIONS TO TRATEGIC PLANNING AND BUILDING FOR
PETROMEKONG’S DEVELOPMENT DURING 2011-2015,VISION TO 2020
80
3.1 Strategy choice: 80
3.1.1 Bases for strategy choice: 80
3.1.2 Quantitative strategic planning Matrix (QSPM): 80
3.1.2.1 S-O strategy group: 80
3.1.2.2 S-T strategy group: 84

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3.1.2.3 W-O strategy group 89
3.1.2.4 W-T strategy group 94
3.1.3 Selected strategies 98
3.1.4 Strength of chosen strategies 99
3.2 Measures to implement selected strategies 101
3.2.1 Solution to financial autonomy strategy 101
3.2.2 Solutions for implementation of governance restructure strategy 104
3.2.3 Solutions to implement new product development strategy 105

3.2.4 Solutions to implement market development strategy 105
3.2.5 Solutions to implement market penetration strategy and forward integration
strategy: 106
3.3 Specific actions to manage risks of exchange rate and interest rate 109
3.3.1 Exchange rate risk management 109
3.3.2 Interest rate risk management 109
3.4 Conclusion 109
3.5 Recommendation: 110
3.5.1 For the State: 110
3.5.2 For PetroMekong Company 111
REFERENCES ERROR! BOOKMARK NOT DEFINED.
APPENDIX ERROR! BOOKMARK NOT DEFINED.

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LIST OF FIGURES

Figure 1-1: Comprehensive strategic management model 15
Figure 1-2: General diagram of the micro environment 177
Figure 1-3: Michael Porter’s Five - Forces Model 20
Figure 1-4: Grand strategy matrix 29
Figure 2-1: Vietnam petroleum business system at present 32
Figure 2-2: Chart of Mekong Delta Petroleum Market Share 34
Figure 2-3:Chart of forecast of demand for petroleum in Vietnam until 2020 36
Figure 2-4: PetroMekong’s organizational chart 39
Figure 2-5: Diagram of Company distribution channel system at present 55

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LIST OF TABLES

Table 1-1: Matrix of Internal Factor Evaluation (IFE) 25

Table 1- 2: Matrix of External Factor Evaluation (EFE) 26
Table 1- 3: Competitive Profile Matrix 27
Table 1- 4 : SWOT matrix 28
Table 1- 5: QSPM matrix 31
Table 2-1: The petroleum market share in the MD in 2010 34
Table 2-2: Amount of PetroMekong’s petroleum consumption 37
Table 2-3: PetroMekong’s petroleum distribution system 41
Table 2-4: PetroMekong’s storage system 42
Table 2-5: PetroMekong’s transportation capacity 43
Table 2-6: Gasoline blending products in recent years 44
Table 2-7: Results of PetroMekong’s business operations during 2007-2010 46
Table 2-8: Balance Sheet 46
Table 2-9: Short-term ratio 48
Table 2-10: Quick ratio 49
Table 2-11: Debt -to -total -assets ratio 49
Table 2-12: Inventory turnover 50
Table 2-13: Average collection period 50
Table 2-14: Payables turnover 50
Table 2-15: Average retail price during 2007-2010 53
Table 2-16: Petromekong’s distribution system 53
Table 2-17: Discount rate (pay rate including transportation costs) Error!
Bookmark not defined.
Table 2-18: Qualification of employees of PetroMekong 56
Table 2-19: Vietnam economic factors during 2007- 2010 59
Table 2-20: Base price on August 30, 2010 as per Decree No. 84/2009/ND-CP 63
Table 2-21: Budget revenues from petroleum 64

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Table 2-22: PetroMekong’s IFE Matrix 71
Table 2-23: PetroMekong’s EFE Matrix 72

Table 2-24: Competitive Profile Matrix 75
Table 2-25: PetroMekong’s SWOT matrix 76
Table 2-26: Grand Strategy Matrix 78
Table 3-1: QSPM of PetroMekong Company: S-O Group 81
Table 3-2: QSPM of PetroMekong Company: S-T Group 85
Table 3-3: QSPM of PetroMekong Company: W-O group 90
Table 3-4: QSPM of PetroMekong Company: W-T Group 94
Table 3-5: Shareholder structure after share issuance 103



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PREFACE

In any countries, petroleum always plays an important role in econo-political
life, is the input of lots of production industries, is the essential item in social
spending and ensures security and defence. Petroleum is the extremely sensitive
item which is affected by political, economic, and social factors of the country, the
region and the world.
Petroleum business in Vietnam has been strongly influenced by the executive
policy of the Government. Therefore, any changes in the policy have a direct and
profound impact on the business environment of petroleum enterprises. Thus, the
State’s transition from the subsidy mechanism to the market mechanism from
September 16, 2008 had a huge impact on the business-operating environment of
petroleum enterprises. Due to the great change of the business-operating
environment the enterprises are obliged to research, reevaluate and come up with a
business strategy to suit the new situation.
Over the years, the business activities of Mekong Petroleum Joint Stock
Company (PetroMekong) have been constantly developing and growing. However,
the business in the new period, especially in the current period and subsequent years

will face many difficulties and challenges.
The problem is that the company wants to survive and remain stable and
long-term development in the current period, the Company is required to promptly
adapt to all problems arising in the fiercely competitive and sensible business
environment. Therefore, in order to ensure the stable, sustainable and healthy
development of the Company, the strategic planning and business development in
the new situation is extremely urgent.
The overall target of the research is strategic planning for business
development and proposal of implementation solutions to suit the specific condition
basing on research, analysis, evaluation of the current status and the business-
operating environment of PetroMekong Company in the past.

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To resolve the above target, the research uses the quantitative and qualitative
methods of synthesis, analysis and comparison for review and evaluation of the
current status of PetroMekong’s business-operating situation. Simultaneously, the
author group analyzed the Matrices of Internal Factor Evaluation (IFE), External
Factor Evaluation (EFE), Competitive Profile Matrix (CPM) to evaluate
PetroMekong’s strengths and weaknesses and identify its opportunities and
challenges that the business environment created as well as its position and
competitive level in the area. From the above research results, the author group
synthesizes, analyzes and uses the SWOT matrix to build business strategies and
simultaneously uses the QSPM Matrix to evaluate and select a strategy and propose
practical solutions.
After analysis, evaluation, comparison and quantification; the research
proposes business development strategies and solutions to PetroMekong during
2010-2015, vision to 2020.
Finally, the author group of the research also advances their ideas with state
agencies to orient the petroleum market operation in accordance with law of market.
Due to objective and subjective conditions, within the research’s scope, the

author group just goes into analysis of some key factors affecting the business-
operating environment of PetroMekong. In addition, the research only focuses on
the analysis and detailed research for the Company’s major business item that are
petroleum products (gas and oil).
Strategic planning and business development is a field of economic science
which is relatively new in our country. In fact, today, few Vietnam petroleum
companies build a development strategy seriously and scientifically. This research
is expected to contribute further practical experience in applying the strategic
planning for the petroleum business, which contributes to create strategic
management experience in different fields.


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CHAPTER I
LITERATURE REVIEW

1.1 Defining Strategy and Strategic Management:
There are many different concepts of strategy:
Strategy is a unified, comprehensive and integrated plan that is designed to
ensure that the basic objectives of the enterprise are achieved.
1

Strategy is a wide range of complex actions in order to mobilize all the
resources of the organization to achieve a certain goal.
According to Alfred Chandler of Harvard University, Strategic management
is the process of the determination of long-term goals of an enterprise, the adoption
of courses of action; the allocation of resources necessary for carrying out these
goals.
According Fred R.David, Strategic management can be defined as the art and
science of formulating, implementing and evaluation cross-functional decisions that

enable an organization to achieve its objectives.
In short, Strategy is an overall plan of actions to determine the basic long-
term goals of an enterprise, select operating guidelines and executive policies on
collection, use and allocation of the resources to achieve the particular objectives to
strengthen most effectively and to achieve the sustainable advantage compared with
other rivals.
1.2 Planning concept
Planning can be understood as following concepts:
Planning is a preparation process for a commitment of resources by the most
economic way and this preparation allows these commitments to be carried out
faster.


1
Source: J. Glueck, 1980, Business Policy and Strategic Management, McGraw Hill.

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Planning or scheduling is the most basic function of an administrator.
Planning is to set goals and the best method (the optimal method) to perform that
goal.
Planning is to research the past to decide the present on what to do in the
future in order to do well the objectives fixed by an administration organization.
In general, we can understand, planning is an implementation process to the last
with the goals set forth. Planning is related to the future but not like a forecast. Planning
can be stated as a process of decision on the allocation of all resources of an enterprise to
perform the goals as scheduled in the future.
1.3 Business strategic planning concept
Business strategic planning is to determine business situations in the future
related specifically to a state of product - market, profitability, scale and innovation
rate, relationships with leaders, employees and business.

Business strategic planning is a process of decisions on the goals of an
enterprise, changes in the goals, use of resources to achieve these goals, policies to
manage the current achievements, use and arrangement for resources.
1.4 Roles of business strategic planning
In business-manufacturing operations, the roles of strategic planning are:
- Planning: business strategy helps the enterprise to realize clearly opportunities
and advantages in business, take advantage of them to bring forth strategies,
appropriate development policies to achieve the objectives set forth.
- Forecasting: business strategy helps managers forecast uncertainties, risks
occurring in the present and the future. Since then, basing on the potentiality it
is easy for the enterprise to proactively deal with these unforeseen situations.
- Controlling: business strategy helps managers use efficiently the available
resources of the enterprise and allocate them appropriately. In addition,
business strategy combines the functions of an organization in the best way to
reach the overall goals of the organization.

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1.5 Strategy classification
There are many ways to weight strategies. In view of the strategy level, an
enterprise has a minimum of three levels of strategies: corporate level, business
level and functional level.
1.5.1 Corporate level strategies
Corporate level strategies aim at the purpose and the overall scope of the
organization. This strategy often aims at the basic long-term goal so there are many
corporate level strategies with different names. According to Fred R. David, there
are 14 kinds of basic corporate level strategies that are weighed into four following
groups:
+ Integrated strategy group: forward integration, backward integration,
horizontal integration.
+ Intensive strategy group: market penetration strategy, market development,

product development, related diversification, unrelated diversification.
+ Other strategy group: joint venture, retrenchment, divestiture, liquidation,
combination.
1.5.2 Business level strategies
Business level strategies are concerned with the successful competition
method on the specific market. According to Michael E. Porter, the business level
has three overall competitive strategies: cost leadership, product differentiation and
focus.
1.5.3 Functional level strategies
Functional level strategies are the strategies of functional areas such as
marketing, finance, human resources, operation/production, technique/technology
and information resources.

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1.6 Stage of Strategic Management
2

The process of strategic management consists of three stages: strategy
formulation, strategy implementation and strategy evaluation. Strategy formulation
includes developing a vision and mission, identifying an organization’s external
opportunities and threats, determining internal strengths and weaknesses,
establishing long-term objectives, use the matrices (IFE, EFE, SWOT, CPM, GTM,
QSPM) to evaluate, generating alternative strategies, and selecting particular
strategies to pursue.

Figure 1-1: Comprehensive strategic management model



2
Source:: Nguyen Thi Lien Diep, 2003, Business Stratergy and Policy
Feedback

Strategy
formulation
Strategy
execution
Strategy
evaluation
Distribution information
Performance of environment
research for determination of
opportunities and major threats
Long-term
goal

formulation
Short-term
goal
formulation

Internal analysis for
identification of strengths
and weaknesses
Establishment,
choosing
performance
strategy
Setting out
policies
Consideration of
mission, goal and the
current strategy
Determination
of mission
Resource
distribution
Measurement
and evaluation
of results

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The focus of the research is the strategic planning for an enterprise, therefore
the author group will go into research on the stage of strategy formulation.
1.6.1 Determining strategic objectives
Determining strategic objectives, also known as vision - mission of an

enterprise, we must point out what mission in our business is. What we need to
achieve in the future.
1.6.2 External environment research for determination of opportunities and
major threats
The evaluation of external factors has indicated opportunities and major
threats that an organization encountered so that the manager can draft strategies to
capture opportunities and avoid or lessen influences of threats.
The operating environment of an enterprise is divided into two categories:
macro-environment and micro-environment.
 Macro-environment of an enterprise: The huge impacts of the macro-
environment are:
- Legal, governmental and political forces.
- Economic forces.
- Socio-natural forces.
- Technological forces.
 Micro-environment of an enterprise includes internal factors of the industry
and is external factors of an enterprise, which decides the nature and the
competitive level of the business-manufacturing industry. There are 5 basic factors:
competitors, customers, suppliers, new entrants and alternative products.

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Figure 1-2 : General diagram of the micro environment

1.6.3 Internal evaluation on an enterprise for identification of strengths and
weaknesses
The internal circumstances of an enterprise including 7 key factors such as
management, marketing, finance-accounting, production, research and
development, human resources and information systems.
3

Management: including 4 contents: (1) Planning: consists of all the
managerial activities related to preparing for the future such as forecasting,
establishing objectives, devising strategies, developing policies, setting goals; (2)
Organizing: includes all those managerial activities that result in a structure of task
and authority relationships. The specific areas include organizational design, job
specialization, job descriptions, job specifications, span of control, unity of
command, coordination, arrangement, job design, and job analysis; (3) Motivating:
involves efforts directed towards shaping human behavior, namely leadership,


3
Source: Fred R. David, 2006, Strategic Management Concepts
Supplier
Custom-
ers
New entrants
Substitutes

Rivals of internal competion
Rivalry of the existing
enterprises in the industry
Bargaining
Power
Bargaining
Power

The threat of new
entrants
Threat of substitute
products or services


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communication, work groups, behavior modification, delegation of authority, job
enrichment, job satisfaction, needs fulfillment, organizational change, employee
morale and managerial morale; (4) Controlling: refers to all those managerial
activities directed toward ensuring that actual results are consistent with planned
results, namely quality control, financial control, sales control, inventory control,
and expense control, analysis of variances, rewards, and sanctions.
Marketing: can be described as the process of defining, anticipating, creating,
and fulfilling customers' needs and wants for products and services. Marketing
includes 04 basic functions: (1) Marketability analysis; (2) Choosing a target
market; (3) Drafting marketing mix (including basic components: product, price,
place and promotion) and (4) Conducting marketing activities.
4

Finance-Accounting: Financial condition is often considered the single best
measure of an enterprise's competitive position and overall attractiveness to

investors. The main functions of Finance-Accounting includes investment decision,
financing decision and dividend decision. Analysis of balance sheet of an enterprise.
Production-Operations: consists of all those activities that transform inputs
into goods and services. Production/operations management deals with inputs,
transformations, and outputs that vary across industries and markets. The process of
production-operations comprises 3 decisions (functions) related to inventory
(managing the level of raw materials, work in process, and finished goods),
workforce (managing the skilled, unskilled, managerial employees), quality
(ensuring that high-quality goods is produced).
Research and Development (R&D): is aimed at development of new products
before rivals do, improving product quality, good cost control, improving
manufacturing processes to reduce costs. Quality of R&D efforts can help an
enterprise take a leading position or lag behind compared to top rivals in the
industry.


4
Source: Philips Kotler, 1997, Marketing Management

19
Human resources: plays a major role in an enterprise’s success. However
right the strategy is, it cannot bring efficiency if there are no employees working
effectively. The enterprise must prepare human resources so as to achieve the
objectives as set forth. The main functions of personnel management include
recruiting, interviewing, testing, selecting, orienting, training, developing, caring
for, evaluating, rewarding, disciplining, promoting, transferring, demoting, and
dismissing employees.
Information system: is a major strategic resource because it receives raw
material from both the external and internal environments of an organization; helps
monitor environment changes, identify competitive threats and assist in the

implementation, evaluation, and control of strategy. In addition, an effective
information system allows enterprises to have special capability in other fields such
as low costs and services satisfying consumers.
1.7 Building and choosing strategy
5

The process of formation and choice of a strategy includes three stages:
(1) Input stage: This stage summarizes the basic input information necessary
for strategy formation of. Here, we will build the Internal Factor Evaluation (IFE)
Matrix, the External Factor Evaluation (EFE) Matrix, and Competitive Profile
Matrix (CPM).
(2) Matching stage: The techniques used in stage 2 include the Strengths-
Weaknesses-Opportunities-Threats (SWOT) Matrix and the Grand Strategy Matrix
(GSM). The matrices use the input information from stage 1 to match the external
opportunities and threats with internal strengths and weaknesses, thereby to form
selected feasible strategies.
(3) Decision stage: only includes one technique, the Quantitative Strategic
Planning (QSPM) Matrix. The QSPM matrix uses the input information from stage
1 to objectively evaluate the selected feasible strategies in stage 2. This matrix


5
Source:: Nguyen Thi Lien Diep, 2003, Business Stratergy and Policy

20
represents the relative attractiveness of the selected possible strategies, thus provides
an objective basis for selection of particular strategies.
Because the resources of the enterprise are always limited, we cannot
implement all selected feasible strategies but select some best strategies for
implementation.

1.8 Theories related to strategic planning
1.8.1 Michael Porter’s Five’s - Forces Model:
According to Michael Porter, competitive forces in the market of any enterprises
are affected by 5 competitive forces as follows:













Figure 1-3: Michael Porter’s Five - Forces Model

Supplier Power: A production enterprise requires materials, labor,
components and other supplies. This requirement leads to buyer-supplier
relationships between production industries and the firms providing the raw
materials used to create products. The supplier power shows the ability to decide
Rivalry among
competing firms


Rivalry of the existing
enterprises in the industry

Customers

Substitutes
product

The threat of new
entrants

Threat of substitute
products or services

Potential entry
Supplier

Bargaining
Power

Bargaining
Power



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their business conditions for an enterprise. Weak suppliers probably have to accept
the terms requested by the enterprise, so the enterprise can reduce costs and increase
profits in production, on the contrary, powerful suppliers can pressurize on the
producing industry in many ways, e.g. selling raw materials at a high price to share
profits in the industry.
Threat of Substitutes: In Porter's model, the term "substitute products" refers
to products in other production industries enabling to change consumption selection.

According to economists, a threat of substitutes exists when a product's demand is
affected by the price change of a substitute product. A product's price elasticity is
affected by the price changes of substitute products. Therefore, the existence of
alternative products limits the ability to raise prices in a particular industry.
Buyer Power: The power of buyers is the impact that buyers have on a
producing industry. In general, when buyer power is strong, buyer-supplier
relationship is near to what an economist terms a monopsony - a market in which
there are many suppliers and one buyer. In such the market condition, buyers are
able to impose price. Buyers, if powerful, can exert their influences to drop the
product’s price, causing a price decrease in the profit rate of the industry. In reality
few monopsonies exist, but frequently there is some asymmetry between a
producing industry and buyers.
Barriers to Entry: It is not only incumbent rivals that pose a threat to
enterprises in an industry; the possibility that new enterprises may enter the industry
also affects competition. In theory, any enterprise should be able to enter or exit a
market, and if “free entry and exit” exists, then profits always should be nominal. In
reality, however, industries possess their own ways to protect the high profit levels
of enterprises in the market and inhibit additional rivals from entering the market.
These are barriers to entry.
Competitive pressures in the industry: Enterprises in the industry shall
compete directly with each other to exert back pressure on the industry leading to a

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competitive strength. In an industry, the following factors will increase the
competitive pressure on rivals.
1.8.2 Marketing Theory
Marketing can be described as a process of identifying, anticipating, setting
and satisfying demands of the customer for products or services. Joel Evans and
Barry Berman suggest that there are 9 basic functions of marketing: customer
analysis, buying, selling, product and service planning, pricing, distribution;

marketing research; opportunity analysis; social responsibility.
Customer analysis is examination and evaluation of customer needs, desires;
which involves administering consumer surveys, analyzing consumer information,
evaluating market positioning strategies, developing customer profiles, and
determining optimal market segmentation strategies.
Buying means obtaining the goods and services needed to produce and sell a
product or service. Buying consists of evaluating alternative suppliers, choosing the
best supplier, arranging acceptable terms with suppliers, and procurement.
Selling: the success of strategy performance depends on the ability to sell
products or certain service. Selling includes many marketing activities such as
advertising, sales promotion, publicity, customer relations etc. These activities are
particularly important when market penetration strategies are being pursued.
Product and service planning includes marketing survey, product and brand
positioning, warranties, packaging, alternative products, product features, product
style, product quality, and customer service. Product and service planning is
particularly important when product development or diversification is being
pursued. Planning products and services is especially important when enterprises
are pursuing strategies to develop or diversify products.
Pricing: 4 major factors affect pricing decisions: consumers, governments,
suppliers, and rivals. Sometimes an enterprise will pursue forward integration
strategy to gain better control over prices charged to consumers.

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Distribution: most producers today do not sell their goods directly to
consumers but often through intermediaries. Distribution includes warehousing,
distribution channels, distribution coverage, retail site locations, sales territories,
inventory levels and location, transportation carriers, wholesaling, and retailing.
Distribution becomes especially important when an enterprise is striving to
implement a market development or forward integration strategy.
Marketing research is the systematic gathering, recording, and analyzing of

data about problems relating to goods or service selling. Through the marketing
research, critical strengths and weaknesses can be uncovered, so marketing research
activities support all of the major business functions of an organization.
Organizations that possess excellent marketing research skills have a definite
strength in pursuing generic strategies.
Opportunity analysis includes an appraisal of the costs, profits, and risks
associated with marketing-related decisions.
Social responsibility is the best decision to meet obligations to an
enterprise’s society. Social responsibility may include an enterprise’s obligation to
offer products and services that are safe and reasonably priced.
1.8.3 Distribution channel theory
Distribution channel can be defined as the flow of goods and the ownership
of goods from the raw-material supplier to the producer and to the final consumer. It
includes all intermediary organizations contributing to bring products to the
consumer.
Many producers lack financial resources to carry out direct marketing. In
some cases, the direct marketing is unable to be performed. The producers who do
not establish their own distribution channels often achieve higher revenue than
investment increase in their core business.
Distribution functions: information, promotion, products, orders, capital
supply, risk bearing, delivery, settlement, monitoring the ownership change of
products.

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The distribution channel in marketing includes strategic and tactical
decisions. The strategic decision consists of selection of a distribution channel and
an intermediary partner. All distribution strategies must be based on three criteria:
level of market coverage, distribution channel management and costs.
There are three types of distribution channels:
- Intensive distribution provides saturation coverage of the market to help

approach customers most.
- Selective distribution limits the number of outlets in an area. This
distribution is often used for specialized products, characterized by its high brand
awareness and loyalty.
- Exclusive distribution: Each area has only one distributor in charge. This
extreme form of selective distribution helps the producer keep a close eye on the
market. This strategy is used for specialized products that the producer wants to
ensure an appropriate brand image.
Selection of members for the distribution channel: members must be
carefully selected. Not that all distributors have the ability or will do their job well.
Therefore, entrepreneurs must use specific decision criteria in their section.
1.9 Tools and methods for building and selecting strategies
1.9.1 Matrix of Internal Factor Evaluation (IFE)
Tool for formation of this strategy is summarizing and evaluating major
strengths and weaknesses of functional business departments, also providing a basis
for identifying and evaluating relationships among these departments. The
IFE matrix is developed in 5 steps:
Step 1: List the critical success factors as determined during the internal
evaluation. This list consists of from 10 to 20 factors including the strengths and
weaknesses.
Step 2: Assign a weight that ranges from 0.0 (not important) to 1.0 (very
important) to each factor. This weight indicates the relative importance of the factor

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to being successful in the enterprise’s industry. The sum of all weights must equal
1.0.
Step 3: Assign a 1-4 rating to each factor, in which rating 1 represents a
major weakness, 2 a minor weakness, 3 a minor strength, 4 a major strength. Thus,
ratings are company based.
Step 4: Multiply each factor’s weight by its rating (= Step 2 x Step 3) to

determine a weighted score.
Step 5: Sum the weighted scores for each factor to determine the total
weighted score for the organization.
No matter how many factors the IFE matrix has, the sum of all highest
weighted score that an enterprise can get is 4.0, the lowest 1.0 and average 2.5. The
company total weighted score of above 2.5 is considered as strong in position, and
below 2.5 considered as weak.

Table 1-1: Matrix of Internal Factor Evaluation (IFE)
Major internal factors
Rating
Weight
Weighted
score
List major internal strengths and weaknesses of
the enterprise.



Total
1.00



1.9.2 Matrix of External Factor Evaluation (EFE)
Strategists will summarize and evaluate the information of economic, social,
cultural, demographic, geographic, political, governmental, legal, technological and
competitive factors. There are 5 steps in developing a Matrix of external factor
evaluation:
Step 1: List the factors playing a decisive role to the success as identified

during the assessment of macro-environment. This list consists of from 10 to 20
factors including opportunities and threats affecting the enterprise and his business
field.