Methodology and framework of the study

Chapter 1
Introduction
If we could first know where we are
and whither we are tending, we could
better judge what to do and how to do it.
Abraham Lincoln.
The purpose of this chapter is to introduce the major problem of this study, formulating a
development strategy for Binh Minh Plastic Company in the long-term. Research objectives,
scope and limitations, methodology and framework, as well as organization of the study are
also presented accordingly.
1.1. Background
Thanks to the “open door” economic policy, as other industries, the Vietnam Plastic Industry
has developed quickly in recent years. Never before have household plastic products been so
abundant and cheap. This situation benefits the consumers but reduces the profit of
producers. Because of strong competition, profits drawn from plastic production have
plummeted from 5-7% of sales to 1-2% presently. If this competition of prices keeps up, the
customer may in turn be adversely affected if poor-quality and low-grade products are put on
the market. Besides, there are signals of surplus of many plastic items: PP bags, foamed
plastic containers and PET bottles, resulting in a wasted investment capital. A few products
have large capital investment which has led to the overabundant production capacity in the
short-run. Other products lines have not been affected. The general conclusion of the Plastic
Industry’ s managers concerning this situation is that it is the logic consequence of the
development of the open market resulting from lack of the management at the macro level.
What needs to be done to correct and improve this situation? Clearly, the Vietnam Plastic
Industry needs a development strategy in the long-run. This problem will be illustrated more
clearly through the case of Binh Minh Plastic Company.
Although considered as one of the successful companies in the plastic industry, Binh Minh
Plastic Company has also faced with various difficulties, particularly the lack of the vision for
a strategy in the long-term.
1.2. Problem Statement
Based on the examination and analysis the external and internal environment, this study will

formulate a development strategy for the Binh Minh Plastic Company in the long term.
1.3. Objectives
This study aims to establish a development strategy for the Binh Minh Plastic Company.
Specifically, it aims to accomplish the following:
1
1. To identify strengths and weaknesses as well as opportunities and threats that the Binh
Minh Plastic Company has been faced with.
2. To assess the current strategic situation of the company in order to develop its
competitive profile.
3. To establish a strategy to develop the Binh Minh Plastic Company in the long term.
1.4. Scope and limitations of the study
This study is about the Binh Minh Plastic Company, specifically about PVC pipes, the main
product of the company. It focuses on the formulation the development strategy for the
company in the long-term.
The depth of this study depends partly on the availability of the key data of the Vietnamese
economy and the Plastic Industry in general, especially of Binh Minh. It also depends on
cooperation from the company and faces resources constraints.
1.5. Methodology and framework of the study
This study will begin with a review of literature which concerns the strategic management
process, particularly the process of strategy formulation. It also mentions to the concepts and
principles of the Porter Model to analyze the competitive environment of the industry.
Necessary data for this study were collected from 2 main sources:
• Primary data: Interviews in-depth with managers, key persons of the Vietnam Plastic
Association (VINAPLAST), Binh Minh Plastic Company as well as other specific plastic
companies. Annual reports and other relevant data were also collected.
• Secondary data: Relevant data about the plastic industry and the Vietnam economy will
be collected from the National Statistics Office, Ho Chi Minh City Statistics Office, Ministry
of Industry, Ho Chi Minh City Department of Industry as well as from newspapers, media,
etc.
The framework of this study can be illustrated by Figure 1.1.

2
3
GENERATION, EVALUATION, AND SELECTION OF THE BEST STRATEGY
CONCLUSIONS AND RECOMMENDATIONS
PROBLEM
STRATEGY FORMULATION PROCESS
PORTER’ S INDUSTRY ANALYSIS MODEL

S I T U A T I O N A N A L Y S I S
Scan external
environment
Evaluate current
performance results
Scan internal
environment
Opportunities
Threats
Strengths
Weaknesses
Figure 1.1 Framework of the study
Analyze the
competitive
environment
L I T E R A T U R E R E V I E W
4
1.6. Organization of the study
The study is organized as follows:
Chapter 1 provides an introduction including the rationale of the study, the identification of
the problem, the objectives, the scope and limitations as well as the methodology and
framework of the study.

Chapter 2 shows the literature review of the topic being considered. This will encompass the
fundamental ideas on strategy, strategic management, strategy formulation process as well
as the Porter Model for analyzing industry.
Chapter 3 provides an analysis of external factors that help to indicate the company’s
strategic position. The main contents of the chapter will deal with the current situation and
strategic orientation for the Vietnam Plastic Industry in the future. It also mentions about the
structural analysis of the pipe industry, the main area of competition of Binh Minh Plastic
Company.
Chapter 4 deals with the current analysis of the Binh Minh Plastic Company in terms of
organizational structure, production, sales, marketing and finance. The ultimate goal of the
chapter is to identify strengths and weaknesses of the company in order to locate its present
competitive position.
Chapter 5 is devoted to the expected outcome of the study to develop the strategic
alternatives based on the analysis from previous parts, that will help the company achieve
outstanding performance in the next few years.
Finally, Chapter 6 deals with practical recommendations on the implementation of the
selected strategy.
Chapter 2
Literature Review
Strategy is when you are out of
ammunition, but you keep right on firing
so that the enemy won’t know.
Author Unknown.
The chapter mentions major theoretical bases to apply for analyzing practical situation of Binh
Minh Plastic Company and then formulating the development strategy for it in the following
chapters. The section consists of the strategy management process, structural analysis of the
competitive environment and selection of development strategies.
2.1. Strategic Management Process
Strategic management is a fast-developing field of study. It looks at the corporation as a
whole and attempts to explain why some firms develop and thrive while others stagnate and

go bankrupt. Strategic management typically focuses on analyzing the problems and
opportunities faced by people in top management. Before mentioning in detail about the
process of strategic management, specially the strategy formulation stage, firstly, we try to
answer the question: “What is strategy ?”
2.1.1. Definition of strategy
Starting from its military root, strategy, ever considered as “the science of planning and
directing military operations”, is not a new term. However, applications of this concept into
business area is a breakthrough idea took place in the later half of this century. In the
decades of 1960s and 1970s, most management definitions of strategy by many authors was
emphasized on the planning theme as an important component. Alfred Chandler has defined
strategy as “the determination of the basic long-term goals and objectives of a enterprise, and
the adoption of course of action and the allocation of resources necessary for carrying out
these goals”. The main idea in Chandler’s definition is that strategy involves a rational
planning process. The organization is depicted as choosing its goals, identifying courses of
action (or strategy) that best enable it to achieve its goals, and allocating resources
accordingly. Similarly, Quinn defined strategy as “the pattern or plan that integrates an
organization’s major goals, policies and action sequences into a cohesive whole”. Finally,
Glueck defined strategy as “a unified, comprehensive, and integrated plan designed to
ensure that the basic objectives of the enterprise are achieved.” (Hill / Jones, 1989)
However, definitions of strategy based on planning have been criticised. Hill and Jones
indicated a new approach based on Henry Mintzberg’s definition of strategy as “a pattern in a
stream of decisions or actions” (Hill / Jones, 1989), the pattern being a product of whatever
intended (planned) strategies are actually realized and of any emergent (unplanned)
strategies. Mintzberg’s concept of strategy suggests that strategy involves more than just
planning a course of action.
In the decades of 1980s and 1990s, “strategy” becomes more and more essencial in
business domain. Thereby, the concept of strategy has received a great attention by various
authors.
By 1991, Hax and Majluf pointed out that strategy can be seen as a multidimensional concept
that involves all of the critical activities of the firm, providing it with a sense of unity, direction,

and purpose, as well as facilitating the necessary change caused by its environment. (Glueck
/ Janch, 1986)
In 1993, Johnson and Schole have stated the nature of corporate strategy by the
characteristics usually associated with the word “strategy” or “strategy decision”.
In summary, according to them, strategy is a unified, comprehensive, and integrated plan that
relates the strategic advantages of the firm to the challenges of the environment and that is
designed to ensure that the basic objectives of the enterprise are achieved through proper
execution by the organization. (Glueck / Janch, 1986)
The concept of strategy has become one of the everyday words of managers during the past
twenty years, and the practice of strategic planning is now widespread among large and
medium-sized companies. This interest in strategy was caused by growing realization that the
company’s environment has become progressively changeable and discontinuous from the
past and that, as a result, objectives alone are insufficient as decisions rules for guiding the
company’s strategic reorientation as it adapts to changing challenges, threats and
opportunities.
Applying corporate strategy concept to Vietnamese business conditions now is extremely
important in order to enhance the building up of a strategic vision for the managers who are
operating all the domestic companies, especially for manager of state companies. Business
environment in Vietnam now is likely different from that of the previous planned-economy
where all of the resources and the output were set up by central government and where the
predetermined yearly plan was merely a subjective compulsory without any environment
considerations. Actually, the managers today are faced with the uncertainty and the fast
change of the business environment as well as with the competitive forces surrounding their
companies.
2.1.2. Process of strategic management
Strategic management is a stream of decisions and actions which leads to the development
of an effective strategy or strategies to help achieve corporate objectives. The strategic
management process is the way in which strategists determine objectives and make strategic
decisions.
However, strategic management is not simply the management of the process of strategic

decision making. According to Chakrvarthy (1986), strategic management is the process
through which managers ensure the long-term adaptation of their firm to its environment. It
should be also emphasized that strategic management process is continuous - it never really
stops within the organization. Certo and Peter (1990) defined strategic management as “a
continuous, integrative process aimed at keeping an organization as a whole appropriately
matched to its environment”.
The process of strategic management involves 3 basic stages: (1) strategy formulation, (2)
strategy implementation, and (3) evaluation and control. Different stages of the strategic
management process at business level are visualized by the Strategic Management Model in
Figure 2.1.
Task
Environment
Societal
Environment
Figure 2.1 Strategic Management Model
Based on the context of this study, the focus will be on the strategy formulation process.
Strategy formulation is often referred to as strategic planning or long-range planning.
Regardless of the term used, the process is primarily analytical, not action-oriented. As
shown in the Strategic Management Model, the formulation process is concerned with
developing a corporation’s mission, objectives, strategy, and policies. In order to do this,
corporate strategy makers must scan both the external and internal environments for needed
information on strategic factors.
The first six steps commonly found in strategy formulation are a series of interrelated
activities:
1. Evaluation of
a. the corporation’s current performance results in terms of return on
investment, profitability, etc., and
b. the corporation’s current mission, objectives, strategies, and policies.
2. Examination and evaluation of the corporation’s strategic managers - board of directors
and top management.

3. Scanning of the external environment to locate strategic opportunities and threats.
External
Environment
Internal
Environment
Structure
Culture
Resources
Strategy Formulation
Objectives
Strategy
Strategy Implementation
Programs
Budgets
Decisions
Actions
Evaluation
& Control
Performance
Mission
4. Scanning of the internal corporate environment to determine strategic strengths and
weaknesses.
5. Analysis of the strategic factors from step 3 and 4 to
a. pinpoint problem areas, and
b. review and revise the corporate mission and objectives as necessary.
6. Generation, evaluation, and selection of the best alternative strategy appropriate to the
analysis conducted in step 5.
(Source: Wheelen / Hunger, 1988)
The above strategy formulation process can be divided into 2 substages, as illustrated in
Figure 2.2:

• The first substage is the situation analysis. Beginning with an evaluation of current
performance and ending with the review and possible revision of mission and objectives,
this substage includes step 1 through 5.
• The second substage is the process of generation, evaluation, and selection of the best
alternative strategy. This substage is step 6.
In order to construct an appropriate competitive strategy, a “picture” of the competitive
environment is always a useful basic. In other words, there is clearly a need for competitive
environment analysis, an industry structure analysis.
2.2. Structural analysis of the competitive environment
Competitive environment analysis or Industry analysis is an important skill related to the
environmental scanning step in the strategic management process. Periodically, managers
need to develop a formal comprehensive analysis - a strategic industry analysis. The analysis
includes an overview of strategic forces affecting a target industry, an analysis of various
companies in the industry, forecasts and recommendations.
A formal strategic industry analysis is useful in management and planning positions. It helps
managers understand their company’ s current strategic position. Specifically, it should define
the scope and direction of competitor actions so that the company could focus and target. It
should pinpoint and analyze the general threats and opportunities facing all the companies in
an industry. This can provide an advantage for managers to respond appropriately, to catch
timely the available opportunities while minimizing or avoiding the threats facing firms in the
industry. The strategic industry analysis aids managers in deciding whether to enter or leave
a particular industry. Finally, it aids managers in understanding the strategies and behavior of
specific competitors.
A useful guide for strategic industry analysis is provided by Porter. He created a model,
calling it the five forces model of competition, as a strategic management technique for
established profit-seeking companies, as shown in Figure 2.3. This is essentially a structural
method of examining an organization or industry in order to provide a clear understanding of
the factors that affect a business. Porter argues that “competition in an industry is rooted in its
underlying economics, and competitive forces exist that go well beyond the established
combatants in a particular industry” (Porter, 1980). He further suggests that to compete

effectively a company should strive to find a position where it is best able to defend itself
against these competitive forces or can influence them in its favour. So, the task of the
strategist is to determine which of these forces are of greatest importance to the organization
and which can be influenced by the strategic decisions of management. Each of these forces
is now considered in greater detail.
1. The Threat of Entry
New entrants to an industry tend to make it more competitive. The additional competitiveness
may be due to a number of factors including: the additional capacity which they bring with
them, their attempts to build market share, or increased costs due to the building up of the
costs of the factors of production.
However, the effects of new entrants materialize, it is frequently in the interests of existing
competitors to deter potential new entrants by making their prospects look as unattractive as
possible. This can be done in two major ways - through the erection of barriers to entry and or
through the threat of severe retaliation.
Clearly, it is in the interests of existing firms to have as high entry barriers as possible. Porter
(McNamee, 1987) lists major barriers to entry which are:
• Economies of scale
• Product differentiation
• Capital requirements
• Switching costs
• Access to distribution channel
• Cost disadvantages independent of scale, for example: proprietary knowledge, etc.
• Government policy.

Figure 2.3 A model for Industry Structural Analysis
(Source: Porter, 1980)
The importance of entry barriers to strategic planning can be illustrated by two contrasting
examples as follows:
The U.K aircraft engine manufacturer Rolls Royce has erected around it substantial entry
barriers in the form of economies of scale, product differentiation, capital requirements,

switching costs, proprietary knowledge, experience advantages and government support. It
seems extremely unlikely that the threat of new entrants pose a threat to this company. The
competitive threat that Rolls Royce faces come from other quarters.
By way of contrast, an “industry” that has grown rapidly in the early 1980s and which faces
continuous threats from new entrants, because of the extremely low entry barriers, is retail
domestic video rental libraries. In this industry, many small independent entrepreneurs with
limited resources have opened such business. They have been able to do so because of the
low entry barriers: low capital requirements, low switching costs, immediate distribution and
no major economies of scale being possible.
(Source: Johnson / Scholes, 1993)
COMPETITIVE
RIVALRY
SUPPLIERS
Bargaining Power
BUYERS
Bargaining Power


SUBSTITUTES
Threat of
Substitutes

POTENTIAL ENTRANTS

Threat of
Entrants
In the Vietnam plastic industry, the majority of plastic companies is small-scale production
with low level of product differentiation. At present, the Vietnam plastic industry is still
characterized with low technology and obsolete equipment and the majority of plastic
products produced in Vietnam is household plastic wares. So, entering the field of producing

plastic products does not require so much capital. In addition, the Vietnam plastic industry still
has been let to develop spontaneously, lack of the management at the macro level.
Therefore, it is possible to say that, in general, entry barriers for the Vietnam plastic industry
are low.
2. The Power of Buyers
Buyers can be viewed as a competitive threat when they force down prices or when they
demand higher quality and better service (which increases operating costs). Whether buyers
are able to make demands on a company depends on their power relative to that of the
company. According to Porter, buyers are most powerful in the following circumstances:
• Buyers are few in number and large relative to sellers
• Buyers purchase in large quantities.
• The supply industry depends on them for a large percentage of its total orders.
• Buyers can switch orders between supply companies at a low costs, thereby playing off
companies against each other to force down prices.
• It is economically feasible for them to purchase the input from several companies at once.
• Buyers have the potential for backward integration.
• The buyers’ product is not strongly affected by the quality of the suppliers’ product
• The buyer has full information.
(Source: Hill / Jones, 1989)
As mentioned earlier, the main product of the Vietnam plastic industry is household plastic
wares. In this field, there are many small producers that compete strongly against each other.
As a result, there is a variety of plastic products in the market and the customers have many
options in choosing plastic products. So, it can be said that the buyers are quite powerful.
3. The Power of Suppliers
Powerful suppliers can have the same adverse effects upon profitability as powerful buyers.
The big difference is the sources of their power - it is really the opposite of the sources of
buyer power. Thus suppliers tend to be powerful when the following conditions obtain:
• There are few of them.
• There are few substitutes.
• The industry supplied is not an important customer

• The suppliers’ product is an important component to the buyer’ s business
• The supplier’s product is differentiated
• Suppliers can integrate forward.
Presently, Vietnam can not produce raw materials for its plastic industry. Thus, the Vietnam
plastic industry depends completely on sources of raw materials from abroad. Therefore, it is
clear that the supplier power is so strong.
4. The Threat of Substitutes
Substitutes, or alternative products that can perform the same function, limit the price that an
industry can charge for its products. Substitutes are not always perceived by an industry to be
present, and indeed may only be noticed when it is too late to arrest their dominance. One
typical example, which illustrates the rise of a substitute product, is the current increasing
proliferation of low cost microcomputers plus low cost easy to use business packages in such
areas as accounting, data base management and word processing. This “product” has
adversely affected the “industry” of specialist programmers and specialist computer bureaux.
It seems likely that this trend will continue.
It is possible to say that we are living in the era of plastic products which can be seen
everywhere and used in various fields: construction, decoration, serving other industries, etc.
Clearly, with regards to plastic products, the threat of substitutes is very low.
5. The Extent of Competitive Rivalry
Competitors will also be concerned with the degree of rivalry between themselves in their
own industry. How intense is this competition? What is it based on? Is it likely to increase or
decrease in intensity? How can it be reduced? All these are questions which need to be
thought about in the process of strategic analysis. The degree of rivalry is likely to be based
on the following:
• The extent to which competitors in the industry are in balance. What ever their number,
where competitors are of roughly equal size there is a danger of intense competition as
one competitor attempts to gain dominance over another. Conversely, the most stable
markets tend to be those with dominant organizations within them.
• A market in slow growth - particularly one which is entering its maturity stage and where
competitors are keen to establish themselves as market leaders - is likely o be high

competitive.
• High fixed costs in an industry, perhaps through high capital intensity or high costs of
storage, are likely to result in competitors cutting prices to obtain the turnover required.
This can result in price wars and very low margin operations.
• If the addition of extra capacity is in large increments then the competitor making such an
addition is likely to create at least short term over-capacity and increased competition.
• Again the importance of differentiation is clear. If a product or service is not differentiated
then there is little to stop customers switching between competitors, which in turn raises
the degree of rivalry between them. This is sometimes referred to as a “commodity
market” situation.
• Where there are high exit barriers to an industry, there is again likely to be the persistence
of excess capacity and consequently increased competition. (Source: McNamee, 1987)
As mentioned, there are a lot of producers in the Vietnam plastic industry at present. Product
produced in Vietnam is not differentiated so much, so customers have many choices for a
certain plastic product. Moreover, the Vietnam plastic industry still develops so spontaneously
resulting in the oversupply of many products such as household plasticwares, PP bags, PET
bottles, etc. Consequently, the competition between competitors in the industry, particularly in
the field of producing products that the demand for them has been at the saturation point,
becomes more and more aggressive.
In summary, the current structure of the Vietnam plastic industry can be depicted through
Porter model as in Figure 2.4.
Figure 2.4 The Porter model applied for the Vietnam plastic industry
A reflection on the combined impact of exit and entry barriers on the profitability of an industry
is presented in Table 2.1.
COMPETITIVE
RIVALRY
SUPPLIERS
Bargaining Power
BUYERS
Bargaining Power

SUBSTITUTES
Threat of
Substitutes

Threat of
Entrants
POTENTIAL ENTRANTS
AGGRESS
IVE
High
High
High
Low
EXIT BARRIERS
Low High
High and stable
profit
High but possibly
unstable profit
Low and stable
profit
Low and unstable
profit
Table 2.1 The impact of entry and exit barriers over industry profitability
(Hax / Majluf, 1991)
In conclusion, it is in the context of the above five dimensional competitive environment that
strategic decisions should be made. The context for each firm and industry tends to be
different and therefore the types of strategic action necessary for success will be shaped by

the overall industry structure. Therefore, one of the first steps in strategic analysis should be
an industry structure analysis, with the objective of locating the firm in its competitive
environment. Henderson (Ansoff, 1987) made a similar point about the importance of the
competitive environment when he talked about Competitive Mapping. He has suggested that
companies will only be able to evolve effective strategies after they have plotted their own
and their competitors’ locations on a competitive map. Once an individual company has done
this, then its strategy should be to move against the weakest sectors in its competitive map.
2.3. Selecting development strategy
As soon as completing the tasks of identification of the most relevant competitors, of selection
of the critical success factors and of developing a competitive profile, companies have to
select a strategy that is most appropriate for their development. Options about development
strategies involve decisions about three elements that are depicted in Figure 2.5.
Figure 2.5 Development strategies
(Source: Johnson / Scholes, 1993)
ENTRY
BARRIERS
DEVELOPMENT STRATEGIES
High
ALTERNATIVE
METHODS
Internal development
Acquisition
Joint
development/alliances
GENERIC
STRATEGIES
Cost leadership
Differentiation
Focus
ALTERNATIVE

DIRECTIONS
Withdrawal
Consolidation
Market penetration
Product development
Market development
Diversification
• related
• unrelated
Low
How?Which
direction?
What basis?
2.3.1. Generic strategies
According to Porter, the competitive strategies will be designed based on the choice from
three basic competitive approaches: cost leadership, differentiation, and focus (Porter, 1985).
These strategies are shown in Table 2.2.
A cost leadership strategy, where “a firm sets out to become the low-cost producer in its
industry ... a low-cost producer must find and exploit all sources of cost advantage. Low-cost
producers typically sell a standard product and place considerable emphasis on reaping scale
or absolute cost advantage from all sources... If a firm can achieve and sustain overall cost
leadership, then it will be an above-average performer in its industry provided it can
command prices at or near the industry average” (Porter, 1985)
A differentiation strategy, which Porter defines as seeking “to be unique in its industry along
some dimensions that are widely valued by buyers... It is rewarded for its uniqueness with a
premium price... A firm that can achieve and sustain differentiation will be an above-average
performer in its industry if its price premium exceeds the extra costs incurred in being
unique... The logic of the differentiation strategy requires that a firm choose attributes in
which to differentiate itself that are different from its rivals” (Porter, 1985)
Cost leadership Differentiation

Cost focus Differentiation focus
Table 2.2 Generic strategies
(Source: Porter, 1985)
These two generic ways can be combined with the market scope in which the firm try to
achieve competitive advantage. This leads to the focus strategy, according to Porter, which is
based on “the choice of a narrow competitive scope within an industry. The focuser selects a
segment or group of segments in the industry and tailors its strategy to serving them to the
exclusion of others.” (Porter, 1985) There are two variants here, “in cost focus a firm seeks a
cost advantage in its target segment, while in differentiation focus a firm seeks differentiation
in its target segment” (Porter, 1985)
Broad
target
Narrow
target
COMPETITIVE
SCOPE
COMPETITIVE ADVANTAGE
Each of the above generic strategies results from the company’s making consistent choices
on product, market, and distinctive competences - choices that reinforce each other. Table
2.3 summarizes the choice appropriate for each generic strategy.
Low (principally
by price) High (principally
by uniqueness)
Low to High
(price or
uniqueness)
Low (mass
market)
High (many
marketing

segments)
Low (one or few
segment)
Manufacturing
and materials
management
Research and
Development
Sales and
Marketing
Any kind of
distinctive
competence

Table 2.3 Product / Market / Distinctive competence choice and generic
competitive strategy
(Source: Hill / Jones, 1989)
2.3.2. Strategic development directions
Based on sets of “product/market” choice, there are different directions for companies’
strategy development. These directions are shown in Table 2.4.
PRODUCT
Present New
Withdrawal
Consolidation
Market penetration
Product development
Market development Diversification

Table 2.4 Alternative directions for development
(Source: Ansoff, 1987)

MARKET
Present
New

Focus Differentiation Cost leadership
Product differentiation
Market segmentation

Distinctive competence

Chapter 3
External Environment Analysis
Strategic management is trying to
understand where you will sit in
tomorrow’s world, not where you hope to sit;
assessing where you can be and deciding where
you want to be.
John F. Welch, JR, Chief Executive
Officer, The General Electric Co.
This chapter focus on the issue of identifying opportunities and threats for Binh Minh Plastic
Company (BPC) in the future. First, it begins with an analysis about the macro-environment in
which BPC operates. This section concentrates on the purpose of analyzing the current
situation as well as showing strategic orientations and investment opportunities for the
Vietnam plastic industry in the coming years. It also mentions about the trend of investment of
the plastic industries in Asian nations. Next, the chapter moves on to apply the Porter model
for examining the pipe industry environment, the main business that BPC is being involved.
Finally, the chapter is ended with the findings on opportunities and threats for BPC.

3.1. Macro – environment analysis
3.1.1. Overview of Vietnamese economy

Political & legal factors
Political and legal factors have a major effect on the level of opportunities and threats in the
environment. Vietnam is considered as a peaceful and stable politic environment.
Implementing the “renovation and open door policy”, Vietnam has expanded and
consolidated its political and economic relations with many countries in the world. Along with
this, the lifting up of US embargo in 1994 and the participation of Vietnam in ASEAN in the
last year have improved the restoration and development the economy in Vietnam to be more
favourable. This also facilitates the VN’s international trade, encourages foreign and domestic
investors as well as creates chances and challenges for domestic businesses.
To support the economic liberalization and encourage the private sector, the Vietnamese
Government has promulgated a series of economic laws such as Law of Foreign Investment,
Company Law, Law of Private Business, etc. This has formed a quite favourable environment
for doing business.
With regards to the plastic industry, the investment environment is now more favourable and
attractive to both domestic and foreign investors. The legal system is now much refined,
procedures are simplified, the level of knowledge of the management organizations and
officers in charge of investment are now improved. The consolidation of the former SCCI and
SPC into one Ministry, which is now the Ministry of Planning and Investment of Vietnam, is
aimed at coordinating and processing effectively foreign and domestic investments. In
addition, a development strategy for the Vietnam Plastic Industry to the year 2005 has been
approved by the Ministry of Industry in the middle of 1995.
Year by year, the competition in the plastic industry has became fiercer and fiercer. However,
this has not been the big problem yet. The problem now is the control of plastic products’
quality. Many plastic products with bad, unstandardized quality have been marketed with
cheap prices. Inability to assess precisely the quality between different brands of a certain
product, price becomes the main criterion used by customers to evaluate the product, thus
they often prefer brands with cheaper price. Usually, that is a poor quality product. This is
clearly unfair competition resulting in the losses of customers and genuine producers. Binh
Minh Plastic Company has also been faced with the similar situation occurring in the field of
producing PVC pipes. Therefore, on the legal aspect, one of the problems for the Vietnam

plastic industry now is issuing documents for standardizing and controlling the quality of
plastic products. As Mr. Pham Gia Duoc, Director General of Vietnam Plastic Corporation,
said “Standardization of the local plastic production is a major problem that we will have to
overcome in order to increase our output and improve our products. The Vietnam Plastic
Manufacturers Association will have to issue rules banning all production of plastic that do not
meet national standard.” (Vietnam Investment Review, 1 August 1994)
Economic growth
The rate of growth in the economy also has a direct impact on the level of opportunities and
threats that companies face. The Vietnamese economy has gained remarkable results in the
first half of the decade 1990. With the annual growth rate of 8.67%, as presented in Figure
3.1, GDP has increased from USD 12.8 billion in 1990 to USD 19.4 billion in 1995. Especially,
in 1995 GDP has marked a 9.5% increase from 1994. This is the highest growth rate in the
period 1990-1995 (see Figure 3.2) which enables Vietnam to be ranked in the group of
countries that achieved the highest growth rate in the world. According to economic experts,
the Vietnamese economy still grows highly in years ahead - in 1996, the growth rate of GDP
is predicted from 9.5-10%. It is believed that this expected high economic growth rate actually
creates opportunities for industries to develop, especially for the plastic industry, a “core”
industry to provide the impetus for growth of the manufacturing sector as well as of the entire
economy.
Inflation rate
Inflation can destablize the economy, producing slower economic growth, higher interest
rates, and volatile currency movements. The key characteristic of inflation is that it makes the
future less predictable (Hill / Jones, 1989). In Vietnam, inflation which was lowered from
17.5% in 1992 to 5.2% in 1993 is still at high degree. It was 12% in 1994 (Economic
Development Review, Dec. 15, 1994) and has increased a little in 1995, around 12.7%. This
shows that although gained high growth rate, actually the Vietnamese economy has not been
stable. In an inflationary environment, it may be impossible to predict with any accuracy the
real value of returns that can be earned from business. Such uncertainty makes companies
less willing to invest (Hill / Jones, 1989). Thus high inflation is a threat to businesses in
general, to Binh Minh Plastic Company in particular, in their plans of investment.

Figure 3.1 GDP during the period 1990-1995
(Source: Vietnamese Statistics Office)

1990 1991 1992 1993 1994 1995
Year
12.8
13.6
14.8
16
17.7
19.4
0
5
10
15
20
Billion USD
1990 1991 1992 1993 1994 1995
Year
Year
%
0
1
2
3
4
5
6
7
8

9
10
1991 1992 1993 1994 1995
6
8.6
8.1
8.8
9.5
Figure 3.2 GDP growth rate in the period 1990-1995
(Source: Vietnamese Statistics Office)
Interest rate
Interest rates also determine the cost of capital for a company. This cost can be a major
factor in deciding whether a given strategy is feasible (Hill / Jones, 1989). In recent years,
interest rates are relatively stable. Moreover, in the early of 1996, the Vietnamese Central
Bank had just issued the decision of decreasing interest rates. The current rates are 1.75%
per month for short-term loans, 1.7% per month for long-term loans (the former rate was 2.1%
and 2.2%) and 9% per year for loans in USD. This decreased interest rates aim to bring a
more favourable environment for companies, particularly companies operating in the plastic
industry which often have large loans from banks to afford their businesses that often require
significant capital.

3.1.2. Current situation and Trend of investment of Plastic Industries in Asian
nations
Plastic is still the high growth industry
In 1994, except Philippines and Japan, most of the plastic industries belonging to the Asian
Plastic Association achieved high growth rates. In Philippines, the decline of the plastic
industry is entirely objective, because of the electricity deficiency up to 10 hours per day. In
Japan, the recession has begun since 1993. In 1993, the Japan’s plastic output was 5.27
million tons, decreasing 1.8% compared with that of 1992; the output of raw materials is
12.17 million tons, marking a 3.3% decrease from 1992. The reasons of this recession are

that the demands for plastic materials of the other industries such as car, electronic industry,
etc. have considerably decreased and the markets for export have been shortened. In
addition, according to the Japan Plastic Association the reason of the continuous decline in
the past two years is likely due to the overinvestment in production in the period before 1993.
Vietnam is still the country that its plastic industry achieves the highest growth rate, with the
annual growth rate of 27%. One VN’s neighbour, Thailand, also has a strong plastic industry
with the annual growth rate up to 15%. The increasing demand for plastic has created a
crowded investment in plastic production. Thailand has about 3,000 plastic enterprises,
increasing 2 times compared with the middle of the decade 1980s. According to the Thai
Plastic Association, the annual growth rate of the Thai plastic industry will be 15% within the
next 5 years. The investment in production is still continuous, with the trend of concentration
to the large capacity enterprises.
Malaysia also has a plastic industry that has developed very quickly, the growth rate was
20% in 1993. This fast development has been indicated by the fact that the size of the
Malaysian plastic industry has been multiplied by 10 times within only 20 years. In 1993, the
turnover of the plastic industry in Malaysia is USD 800 million and the reinvestment for plastic
is also up to USD 500 million at the same time. In 1994, with the total output of 827,000 tons,
marking a 15% increase from 1993, the Malaysian plastic industry reached the turnover of
USD 1.8 billion. Malaysia has begun to export plastic since the early of 1980s. The export
turnover is about USD 200 million in 1992.
It is worth to mention about Singapore, a nation that the population is only about 3 million but
its output value in the plastic industry rose to USD 2.63 billion in 1993, increasing 31.5%
compared with that of 1991, in which the part devoted to export is up to USD 1.22 billion.
Singapore mainly exports raw material for plastic production, accounted for 80% raw material
produced in this country; while this rate in the finished products is 20%.
Raw materials for plastic industry.
Among the members of the Asian Plastic Association, up to now only Vietnam still has to
import 100% raw materials for its plastic industry. In other countries, the Government has
much concerned with the investment for producing raw materials. Many projects valued at
billions and billions of USD have been carried out. Japan is an exception, it seems that the

investment to produce raw materials for plastic industry has been halted after a period of wild
increases resulting in the superabundant production capacity.
In Malaysia, since 1972 the raw material industry has been installed with 2 enterprises that
produce about 6,000 tons PVC/year. In the late 1980s, the Malaysia Government has carried
out many projects to develop the petrochemistry industry with investment capital up to USD 2
billion. These projects have been finished or planned to be finished at the end of 1995. With
this large investment, Malaysia will be able to produce about 1 million tons of raw material per
year, consisting of 320,000 tons ethylene, 200,000 tons PP, 200,000 tons PE, 60,000 tons
PVC, 60,000 PS, 50,000 tons EPS... Most of these projects are in the form of joint-ventures.
Also in the 1980s, with an investment of over USD 1.3 billion Singapore has established a
large group of petrochemistry enterprises. This was a start for projects that will produce raw
material for plastic industry later. The main raw materials produced in Singapore are LDPE,
PP, HDPE, PVC, PAC, PF, UF... At the beginning of 1994, Singapore has established a
project of expanding the group of petrochemistry enterprises valued at nearly USD 2.3 billion.
Up to now, this is the largest project of foreign investment in Singapore that consists of well-
known companies: Shell, Philips Petroleum, Singapore Chemicals, Denka Singapore, Seraya
Chemicals Singapore and other Japanese companies. The purpose of this project is to
increase the enterprises that currently produce raw materials in Singapore, leading to the
double of its production capacity.
In Indonesia, many enterprises are planning to invest largely into production PE, PP, PET...
The capacity of producing raw materials for plastic industry in Indonesia now is over 1 million
ton per year. Up to 1995-1996, the raw material output of this country has been planned to
increase 1 million tons more. The majority of raw materials to be produced are to satisfy the
demand of the domestic plastic industry.
The petrochemistry industry in Thailand is on the way to development. The first petrochemical
enterprise of this country began operating in 1989. A second one has also been established.
Thailand now produces 10 kinds of main raw material and in case of full capacity the output
will be over 2 million tons in 1995.
In Philippines, up to now although the petrochemistry industry has not been installed yet the
Government is still pursuing the aim of establishing some large enterprises. There has been 4

projects to be passed, in which 3 projects are devoted to the production of polyolefin and the
rest deals with the enlargement of producing PVC.
Products for the future
In Vietnam, packages and building materials made by plastic are products that seem to be in
great demand. Similarly, in Thailand the demand for plastic packages and building materials
will be as high as that for PET bottles and plastic spare parts for electrical, electronic and car
industry; this demand is estimated to be increased by 15%/year. Even in Japan, where the
plastic industry is in recession, the demand for plastic products such as joints, pipes... still
increases, especially the demand for PET bottles which has increased up to 7.1% in 1993.
In Indonesia, the development is concentrated on PET, PP, spare parts for the electrical,
telecommunication and electronic industry. At the end of 10/1994, an enterprise with the
capacity of 30,000 tons PET/year has been operated. In the next few years, the PET output
of Indonesia will raise up to 180,000 tons. The Indonesia authorities also much concern about
the electrical and telecommunication industry, millions and millions of electrical meters and
communication devices will be produced each year.
In Malaysia, up to now the consumption market still concentrates on packages, accounting for
35% of the turnover in 1993. Electrical and electronic devices get the second position,
accounted for 25 %. Household plasticwares and building materials, each kind accounts for
10%. In the future, packages still plays the important role, but the demand for plastic products
of the constructions and other industries such as electricity, electronics and car will raise
quickly. The reasons are:
• The Government has decided to implement many projects on infrastructures, airports,
industrial zones...and these projects will be accompanied by water facilities systems.
• Foreign investment in electrical, electronic and car industry have increased rapidly.
In Singapore, at the present as well as in the future, plastic products serving for other
industries have always been the first requirement. They have accounted for nearly 50%.
Packages, building materials and household plasticwares have been the next major category.
On environmental issues, in Vietnam, most of the scraps of the plastic industry are treated by
the regeneration method. This is not the advantage of Vietnam in treating scraps but the
reason is quite simple: scraps in Vietnam are still little in quantity. In other countries, recycling

scraps is the first concern of the Government and producers. In Philippines, the plastic
package industry has been faced with strong oppositions from environment protection
organizations. In Thailand, Malaysia, Japan...there is also the same situation though the
opposition are less vigorous. Therefore, in addition to the investment to develop the plastic
industry, many Asia countries have done researches to reuse scraps in the most efficient way
instead of burning them as usual. In Vietnam, this issue has not been a concern yet.
However, if the Vietnamese plastic industry is not prepared for this problem now, it will face
environment challenges in the near future.
(Source: Saigon Economic Times, July 1944, p.44,48)
3.1.3. The update of Vietnamese plastic industry
Current situation of Vietnam plastic industry
Up till today, Vietnam plastic industry has not had yet the capability to manufacture plastic
materials, equipment and machinery, all are mainly imported. Thus it is still a plastic products
processing industry. In order to encourage the fast development of the plastic industry, the
Government applied a favourable tax incentive for the import of plastic materials, equipment
and machinery.
The Vietnamese Plastic Industry came into being half a century ago. It quickly developed in
the South, mostly in Saigon and Cholon. Many small and large establishments mainly
installed with capitalist countries’ equipment, chiefly to produce household appliances such
as basins, baskets, buckets, slippers. In 1970s there were some large factories with relatively
modern machines in comparison with the ones in the Southeast Asia. The durable
fashionable household products of these factories monopolized most of the domestic market
at that time. In 1975, the plastic output reached about 50,000 tons with a capita of 0.4 kg.
Following was a lasting recession, the plastic industry started to develop again in 1988.
However, until the end of 1989, the capacity reached the same level as of 1975 and then it
began to be a booming sector in line with the highly developed plastic industry in many
countries. Since 1990, with the renovation policy, Vietnam plastic industry has developed
strongly with an annual growth of 25% - 30%. In 1994, the output reached about 220,000
tons, increased 4 times compared with that of 1989, with a per capita of 2.8 kg. In 1995,
based on the uncompleted statistics, Vietnam plastic industry achieved around 250,000 tons

(3.3 kg per capita). The development of the Vietnam plastic industry in the period of 1990-
1995 and the plan for 2000 and 2005 are depicted in Figures 3.3 and 3.4.
Although Vietnam’s plastic industry has gained high development, because of its low start,
the per capita of 2.8 kg is still not comparable with that of 100-200 kg in developed countries
such as US, Japan, Germany, or in developing countries like Taiwan - 70 kg, South Korea -
36 kg, Malaysia - 28 kg, Thailand - 16 kg and Indonesia - 8 kg.
Not only is the per capita too low but the product structure indicates the low level of Vietnam
plastic industry in comparison with other countries. The major quantity of plastic products is
the household and consumer products (about 65%), the high technology plastic products
serving for other industries such as electrical, electronic and vehicular industries are not
sufficient.