ESTABLISHMENT OF BUSINESS STRATEGY OF THANH HOA MEDICAL MATERIALS PHARMACEUTICAL JOINT STOCK COMPANY (THEPHACO)

Capstone project

DISSERTATION MBA

ESTABLISHMENT OF BUSINESS STRATEGY OF THANH HOA
MEDICAL MATERIALS PHARMACEUTICAL JOINT STOCK
COMPANY (THEPHACO)

Hanoi, August 2011

TABLE OF CONTENTS
ACKNOWLEDGEMENT
LIST OF ABBREVIATIONS
LIST OF TABLES AND GRAPHS
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FOREWORD
I. Necessity of the topic
II. Purpose of research of the topic
III. Object, scope and method of research
IV. Structure of the topic
CHAPTER 1: THEORETICAL BASIS OF BUSINESS STRATEGY
1.1 Concept of business strategy
1.1.1 Concept of business strategy
1.1.2 Classification of business strategy
1.2 Role of business strategy
1.3 Business strategies in reality
1.4 Process of establishing business strategy

1.4.1 Environmental research
1.4.1.1Analysis of macro environment
1.4.1.2Analysis of micro environment
1.4.2 Analysis inside the enterprise
1.4.2.1Analysis and evaluation of resources:
1.4.2.2Analysis of operation of functional divisions of the Company
1.4.2.3Internal factor evaluation matrix (IFE)
1.4.3 Establishment and selection of strategy
CHAPTER 2: ANALYSIS OF BUSINESS ENVIRONMENT OF THANH HOA MEDICAL
MATERIALS PHARMACEUTICAL JOINT STOCK COMPANY

2
2.1 General introduction about Thanh Hoa Medical Materials Pharmaceutical Joint
Stock Company
2.1.1 Formation and development
2.1.2 Organizational structure of Thephaco
2.1.3 Operation result of Thephaco over the past years
2.1.3.1 Business result and market share
2.1.3.2 Growth
2.2 Analysis of external environment impact on the operation of Thephaco


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2.2.1 Analysis of macro environment
2.2.1.1 Political and law factor
2.2.1.2 Socio-cultural factor
2.2.1.3 Economic factor
2.2.1.4 Natural factor
2.2.1.5 Inhabitant factor

2.2.1.6 Technological factor
2.2.2 Operation environment of the company (micro)
2.2.2.1 Economic characteristics of the industry
2.2.2.2 Pressure from the suppliers
2.2.2.3 Customers
2.2.2.4 Competitors
2.2.2.5 Pressure and threat from potential competitors
2.2.2.6 Substitute products
2.2.3 Competitive image matrix
2.2.4 External factor evaluation matrix (EFE)
2.3 Analysis of internal environment impact on the business activities of Thephaco
2.3.1 Analysis of Management Model
2.3.2 Analysis of human resources
2.3.3 Marketing activities
2.3.4 Financial - accounting analysis
2.3.5 Manufacturing
2.3.6 Technology
2.3.7 Market research and development
2.3.8 Internal factor evaluation matrix (IFE)
CHAPTER 3: ESTABLISHMENT OF BUSINESS STRATEGY OF THANH HOA
MEDICAL MATERIALS PHARMACEUTICAL JOINT STOCK COMPANY
(THEPHACO) IN THE PERIOD 2011 - 2015
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3.1 Establishment of development objective to 2015


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3.1.1 Determination of position, vision and objective of Thephaco
3.1.2 Basis for objective determination

3.2 Analysis of business strategies
3.2.1 According to SWOT matrix
3.2.2 According to strategic posturing and action evaluation (SPACE)
3.2.3 According to internal - external factor matrix (IE)
3.3 Preliminary selection of strategy schemes
3.4 Quantitative strategic planning matrix (QSPM)
3.5 Follow-up of strategies
3.5.1 Thephaco market development strategy
3.5.2 Product development strategy
3.5.3 Marketing and communication strategy
3.5.4 Human resources management strategy:
3.5.5 Capital source development strategy
3.5.6 Production technology strategy
CONCLUSION
REFERENCES


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ACKNOWLEDGEMENT!
First of all, our group would like to present our most sincere thanks to the
Program Leadership, lecturers of the Center for Educational Technology and Career
Development, Postgraduate Faculty - Vietnam National University - Hanoi; USA
Griggs University for creating favorable conditions and helping us during the course
as well as completing our Graduation assignment with the assigned research topic to
the best result. At the same time, we are also thankful to the Leadership and related
Departments of Thanh Hoa Medical Materials Pharmaceutical Joint Stock Company
for enthusiastically providing necessary figures and creating all favorable conditions
for us to do this topic. However, due to limited time, shortcomings in the analysis of
the topic are inevitable. For this very reason, the group 11 does wish to receive

contributive ideas from the Lecturers so that our topic is better and applied
effectively in the reality of the Company.
We hereby undertake that this topic is our independent research. The figures
and results included in the Assignment are true and of clear origin.
GROUP OF AUTHORS


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LIST OF TABLES - CHARTS

Table 1-1
Chart 1-2

Phases in the strategy construction process
SWOT matrix

Table 1-3
Table 2-1
Table 2-2
Table 2-3
Chart 2-4
Chart 2-5
Chart 2-6
Chart 2-7
Chart 3-1
Table 3-2
Table 3-3
Chart 3-4
Table 3-5

Table 3-6
Table 3-7

Space matrix
Management apparatus diagram of Thephaco
Analysis of financial targets through years
Competitive image matrix in the field of pharmaceutical products of Thephaco
External factor evaluation matrix of Thephaco
Product distribution market ratio
Production capacity of groups of products of Thephaco
Internal factor evaluation matrix of Thephaco
Objectives for each year in the period 2011 - 2015
SWOT matrix of Thephaco
Space matrix of Thephaco
Overall shape of Space matrix
Internal - external factor matrix (IE)
Strategy proposals in each matrix
QSPM of pharmaceutical products - Centralized growth strategy group

LIST OF ABBREVIATIONS

In this work, terms are understood as follows:
Thephaco

Thanh Hoa Medical Materials Pharmaceutical Joint Stock Company

DN

Enterprise

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IFE

Internal factor evaluation matrix

EFE

External factor evaluation matrix

SPACE

Strategic posturing and action evaluation matrix.

QSPM
GMP

Quantitative strategic planning matrix
Good Manufacturing Practice

GLP

Good Laboratory Practice

GSP

Good Storage Practice

GDP

Good Distribution Practice

GPP

Good Pharmacy Practice

WHO

World Health Organization

TRAPHACO

TRAPHACO Joint Stock Company

PHARBACO

Central Pharmaceutical Joint Stock Company No. 1 - PHARBACO

DHG

Hau Giang Pharmaceutical Joint Stock Company


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FOREWORD
I. Necessity of the topic
Vietnam has approached the market economy for more than 20 years, a sufficient
period for the enterprises to adopt management methods of market mechanism. Strategy

management has been regarded as one of the important business philosophies that help the
enterprises to gain successes in the long term. However, the adoption of this theory must
still be considered with most Vietnamese enterprises.
Thanh Hoa Medical Materials Pharmaceutical Joint Stock Company (Thephaco) was
formerly known as Thanh Hoa Pharmaceutical Company, established in 10/4/1961,
designed to produce, trade, import and export medicine all over the province and the
country. For many years of formulation and development, with the motto of highlighting
product quality, Thephaco has invested and built the factory to the standard GMP - WHO,
GLP and created confidence in the national market. The trademark THEPHACO is
increasingly firm in the pharmaceutical market, some articles have been exported to Russian
and Laos.
Yet, in the present competitive context, especially the participation of foreign
companies, Thephaco realizes that it is necessary to prepare necessary resources to adapt to
change and sustainable development. With such significance, the topic “Business strategy
in the period 2011 - 2015 of Thanh Hoa Medical Materials Pharmaceutical Joint Stock
Company” is selected the group 11 for the graduation assignment of Master of Business
Administration. We do hope to receive contributions from the Lecturers in the council and
all of classmates so that the strategy is actually persuasive and can be applied into real life.
II. Purpose of research of the topic
The topic focuses on researching the following issues:
- Basic theories about strategy and strategy management.
- Useful analysis models for strategy formation and selection.
- Actual performance of strategy of Thephaco.
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- Analysis of internal and external environment factors that impact the strategy performance
of the company.

- Appropriate solutions to establish development strategy of Thephaco.
III. Object, scope and method of research
- Object and scope: The thesis focuses on researching present strategy management
activities for the products of Thephaco and putting forth solutions in the coming time.
- Method of research: The thesis uses two main types of information, namely primary
information and secondary information. Secondary information is collected from various
sources, remarkably reports on operation and marketing supplied by Thephaco. Besides,
secondary information coming from open sources in the Internet is also used in the report.
IV. Structure of the topic
Chapter 1: Theoretical basis about business strategy
Chapter 2: Analysis of business environment of Thanh Hoa Medical Materials
Pharmaceutical Joint Stock Company
Chapter 3: Establishment of business development strategy of Thanh Hoa Medical
Materials Pharmaceutical Joint Stock Company in the period 2011 - 2015

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CHAPTER 1: THEORETICAL BASIS ABOUT BUSINESS STRATEGY
1.1.

Concept of business strategy:

1.1.1. Concept of business strategy:
There are many different definitions of strategy, each of them has many different
points depending on the viewpoint of each author.
According to traditional viewpoint, “Strategy is the direction and scope of an
organization in the long term: strategy will bring about advantage to the organization

through optimal arrangement of resources in a competitive environment in order to meet the
market demand and expectation of the capital contributors”
According to Alfred Chandler (1): “Strategy includes long-term basic objectives of
an organization, concurrently choosing way or process of action, allocating essential
resources to carry out such objectives”.
According to Fred R. David (2): “Strategy is defined as means to achieve long-term
objectives.

Business

strategy

may

include

geographical

development,

activity

diversification, ownership, product development, market penetration, cost reduction,
liquidation and joint venture”.
According to Michael E. Porter (3): “Strategy is the art of establishing stable
competitive advantages for defense”.
1.1.2. Classification of business strategy:
There are many kinds of strategies used in an organization, yet basically, there are
three applicable levels of strategy:
-

Strategy at company level: Putting forth objectives and business activities of the
company, creating basic policies and plans to achieve objectives.

-

Strategy at business level: Determining business market of the company, dividing
segment and product for each type of market.

-

Strategy at functional level: Determining solutions and plans for each field of business.

1.2.

Role of business strategy:

The management of business strategy will enable the Enterprises:
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- To specify purpose, position to find out proper direction as a basis for all specific action
plans, guideline for all production and business activities of the enterprise.
- To determine opportunity and threat from external environment as well as internal strength
and weakness to promote strengths, minimize weaknesses, grasp opportunities and prevent
external risks.
- To select appropriate competitive advantage in the changing business environment, find
out how to enhance efficiency of using resources for survival, enhance competitive position

and enable the Enterprise to gain sustainable development.
- Business strategy is a stable ground to put forth decisions for the enterprise in accordance
with the market change.
1.3.

Business strategies in reality:
- Market share consolidation strategy: Consolidating position, enhancing image and

prestige of the Enterprise, expanding scope of production, enhancing labor productivity and
further penetrating into the market.
- Product and service diversification strategy: Diversifying product and orientating
product to the customer’s demand. Investing in modern production line to put forth many
types of products for domestic market and export, especially specialized products.
- Distribution network expansion strategy: Diversifying and expanding distribution
channels of the Enterprise, expanding locality to provide the customer with the most
convenience in transaction, thereby attracting customers and increasing competitiveness.
- Concentration strategy: The enterprise concentrates its all resources in order to
achieve growth objective and high efficiency.
- Differentiation strategy: Establishing the plan based on the available and typical
strength of the enterprise to achieve the objective.
1.4.

Process of establishing business strategy:
Establishing of business strategy is the process of determining basic objectives and

duties in the business operation of enterprise, the best methods to carry out key objectives
and duties. It is possible to summarize phases and activities during the strategy
establishment through the following table:
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Steps

Content

Step 1

Systemizing information

Step 2

Combining information to put forth collection of feasible business strategies

Step 3

Using all general evaluation information to select the best business strategy for
the enterprise.
Table 1-1: Phases in the business establishment process

Strategy formulation is the process of establishing business task, conducting
investigation and research to determine internal and external limitations, set long-term
objectives and select among substitute strategies. It is also possible to call this strategy
establishment phase. Accordingly:
Step 1: Collecting data, combining with intuition, analyzing actuality and choosing
feasible substitute strategies by some strategy management techniques such as external
factor evaluation matrix (EFE) and internal factor evaluation matrix (IFE).
Step 2: By using and arranging the factors collected from the internal and external
environment of the enterprise, putting forth feasible business strategies by using some tools

such as SWOT matrix and SPACE matrix.
Step 3: Using information in the phase 1, evaluating the phase 2 objectively to select
a key business strategy through some tools such as QSPM matrix and GREAT matrix.
To ensure the highest efficiency in the operation, strategies must decide the strategies
that will be most beneficial to the company. The decisions in the strategy formulation phase
will associate organization with products, markets and technologies in a prolonged time.
Long-term competitive advantages are defined in the strategies. This is the very important
phase because strategy decisions will exert permanent or better or worse influences on the
organization.
1.4.1. Environmental research:
1.4.1.1.

Analysis of macro environment

PEST model focuses on researching the factors of external environment impacting
the enterprise. Such factors include: Political; Economic; Socio-cultural and Technological
These four factors exert direct influence on the economic sectors. These are external
factors of the enterprises and the industry and must bear its impacts as an objective factor.
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Based on such impacts, the enterprises will put forth suitable business policies and
operations.
1.4.1.2.

Analysis of micro environment

Analysis of industry environment based on the model by Michael Porter with 5

impacts on the enterprise or 5 competitive forces is as follows:
 Power of the supplier.
 Power of the customer.
 Potential competitor.
 Threat from substitute products.
 Present competitors.
External factor evaluation matrix (EFE):
EFE matrix is established orderly in 5 steps:
• Prepare the list of factors with deciding role in the business line traded by the enterprise,
including opportunities and challenges.
• Evaluate importance of each factor based on the mark scale from 0.0 to 1.0 (increased
importance) with total marks of factors being 1. This importance is based on the
business lines operated by the enterprise.
• Give mark from 1 to 4 for each factor with mark showing the enterprise’s response to
such factor. Mark 4 is good response. Mark 3 is above average response. Mark 2 is
average response and mark 1 is the least response.
• Determine total marks for each factor (by the product of step 1 and step 2).
• Determine total marks in the importance of the enterprise by total marks gained in step
3.
Total highest mark is 4 and total lowest mark is 1. Average is 2.5. The higher the mark
is, the better the enterprise has response to external factors.
Competitive image matrix:

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This matrix identifies main competitors of the enterprise. This matrix is the
expansion of EFE matrix with degrees of importance of the factors, mark significance of

each factor and total important marks of the same significance.
Competitive image matrix is different from EFE matrix as follows: Some internal
factors with deciding importance are also included for comparison. Total evaluation marks
of competitors will be compared with those of the sample enterprises.
1.4.2. Analysis inside the enterprise:
Internal environment includes visible and invisible factors, existing in the operation
processes of the enterprise or organization and directly affecting strategy management
process. Each enterprise has different internal environment, both strengths and weaknesses
and changes with the time.
1.4.2.1.

Analysis and evaluation of resources:

Resources of an enterprise include: human resources, physical resources and
invisible resources. This is the group of factors deciding on the operation ability of the
enterprise and on the success or failure in the market; in which the most important resources
are human. In each period, each resource has its own strength and weakness compared with
competitors in the industry. Therefore, senior managers must always have information about
present resources and analysis potential to evaluate strictly and take advantage of their
available resources properly in order to create advantage in long-term competition.
Human resources
Human resources are quite important from supplying input data and play key role
throughout periods from strategy formulation, implementation and control.
Human is the core factor in all activities of various enterprises, deciding on the
success or failure of the enterprises. All decisions related to strategy management are
decided by human, strong or weak competitiveness in the market and good or bad
organizational culture all come from human.
Physical resources
Physical resources include such factors as production capital, workshop, equipment,
goods in stock, information about business environment, etc. Each enterprise has their own

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characteristics about private physical resources, including strengths and weaknesses
compared with competitors in the industry. Therefore, the proper analysis and evaluation of
physical resources are important basis to help enterprise managers understand potential
physical resources and limitations to make management decisions in accordance with the
reality.
Invisible resources
Apart from the above resources, each enterprise or organization has other resources
that the human identifies only through perception. They are invisible resources. Invisible
resources are shown through many factors and managers at various levels should be
equipped with sufficient knowledge to be clearly aware of the presence and know the
importance of this resource.
In short, resources of each enterprise are quite diversified. Depending on
characteristics, operation, scope, structure and typicality of these resources in the enterprise
have difference. The proper analysis, comparison and evaluation of present and potential
resources in each period will help enterprise managers clearly see their progress during the
development, put forth effective competitive strategies, decide on grasping opportunities,
limiting potential threats.
1.4.2.2.

Analysis of operation of functional divisions of the Company:

Depending on the scope of operation, the allocation of units and functional divisions
of each enterprise is different, in accordance with duties and strategies in each period.
Typical functional divisions may include marketing, personnel, finance - accounting,
research and development, production.

Marketing division:
Marketing is the system of activities related to researching, forecasting and
identifying demands and expectations of target customers and effectively meeting such
demands compared with competitors in each period or in each market area. Clearly
understanding marketing activities, the managers will specify duties, functions and things to
do in each period to manage the work effectively.
Internal management organization factor:
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•

Existing organizational structure of the Enterprise

•

Prestige of the Enterprise

•

Internal communication information system organization

•

Internal control, inspection and auditing system

•

Ability to control and prevent business risks of the Enterprise

Personnel division:
Personnel management means activities concerning recruitment, training, utilization,
treatment, evaluation and encouragement of loyalty of the labors to the organization.
Personnel management plays a very important role that decides on the success or failure of
the organization. Without proper employee utilization and treatment policy, the company
can not attract and maintain good employees in the long term. On the other hand, personnel
management also contributes to developing organizational cultural values, creating motive
force to promote the enthusiasm and creativeness of the members in the organization.
Finance - accounting division
Finance and accounting function is related to mobilizing and using physical
resources of the enterprise in each period, carrying out economic accounting in all steps in
the operation. Concurrently, it is associated closely with the activity of other functional
divisions, decides on the feasibility and efficiency of many other strategies and policies of
the enterprise in order to put forth basic grounds for the Management to work out timely
policies.
Research and development division
Research & development plays an important role in discovering and applying
updated technologies to create competitive advantage in the market, develop new products
ahead of competitors, enhance product quality and improve production process to reduce
costs.
Information system in the enterprise
The information system is designed to collect, classify, analyze, evaluate and timely
provide valuable data about internal and external factors to managers. Data of the
information system shows information about competitors, shows the opportunities that the
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company can grasp in the order and threats to be prevented or limited during the operation.
The information system shows the managers how to respond to the business environment
effectively. As such, internal enterprise analysis will help the enterprise realize their
strengths and weaknesses in order to identify potential resources as well as existing
resources to create competitive advantage for the enterprise. At the same time, identifying
obstacles in maintaining competitive advantage.
1.4.2.3.

Internal factor evaluation matrix (IFE):

The establishment of IFE matrix is carried out in 5 steps:


Prepare the list of deciding internal factors.



Evaluate degree of importance of each factor based on the mark scale from 0.0
to 1.0 (increased importance degree) with total marks of factors being 1. This
degree of importance is based on the importance of such factors for the
enterprise, whether this factor is strength or weakness of the enterprise.



Give mark from 1 to 4 to each factor with the mark showing internal
characteristics of the enterprise for such factor.

Mark 1 is the biggest

weakness, mark 2 is the smallest weakness, mark 3 is the smallest strength
and mark 4 is the biggest strength.


Determine total marks of importance for each factor (by the product of marks
gained in step 2 and step 3).



Determine total marks of importance of the enterprise (by total marks gained
step 4).

Total highest mark is 4 and total lowest mark is 1. Average is 2.5. The mark of
importance lower than 2.5 shows that the enterprise is weak internally, the mark of
importance higher than 2.5 shows that the enterprise is strong internally.
1.4.3. Establishment and selection of strategy:
Use internal and external factors (IE) to determine present position of the enterprise.
This means using total mark of importance of EFE matrix reflected on the vertical axis and
IEF matrix reflected on horizontal axis. The intersection between EFE matrix and IEF
matrix of the enterprise will show us present position of the enterprise and future strategies
to be used by the enterprise such as “development and construction strategy” (market
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penetration and product development) or “maintenance strategy”, “crop and rejection
strategy”.
Use SWOT matrix to evaluate in order to determine strengths (S), weaknesses (W),
opportunities (O) and threats (T) from the impacts of business environment on the enterprise

to work out strategies and solutions in order to bring into full play strength, overcome
weakness, take advantage of opportunity and control threat.
Through SWOT matrix, it is possible to plan the following basic strategies:


SO strategy: Using strengths inside the enterprise to take advantage of and
exploit opportunities coming from external environment.



WO strategy: Taking advantage of opportunities from external environment to
limit weaknesses of the enterprise.



WT strategy: Overcoming internal weaknesses to limit the threats of the
enterprise and external environment.



ST strategy: Taking advantage of and enhancing internal strength of the
enterprise in order to exceed or reduce impact from the threat of external
environment.

SWOT matrix

Strengths (S)

Weaknesses (W)

Opportunities
(O)

SO strategy: Using strengths to
take advantage of opportunities

WO
strategy:
Overcoming
weaknesses by taking advantage of
opportunities

Threats (T)

ST strategy: Using strengths to WT
strategy:
Minimizing
avoid threats
weaknesses and avoiding threats

Table 1-2: SWOT matrix
Strategy selection is an important step of the entire business strategy planning
process. Strategy planners will base on the analysis result from the input phase to choose
optimal strategies to apply into reality. The analysis and selection of strategy are mainly
making subjective decisions based on objective information in order to determine selectable
operation processes whereby the company can fulfill its responsibility and objective. There
are many methods and tools to support the strategy selection effectively, namely SPACE
matrix and GREAT matrix. In which, Space matrix is an effective tool to determine factors
deciding on strategic position of the organization.
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FS
Prudent strategy

6

Attack strategy

5

4

CA

-6

-5 -4

-3 -2

3

-1

0

1

2

3

4

5

6

IS

-1

-2

-3

Table 1-3: Space matrix.
In short, overall concepts about strategy and strategy management are grounds to
establish, select and carry out the strategy. These are necessary theoretical grounds to
research the actuality of Thanh Hoa Medical Materials Pharmaceutical Joint Stock
Company (THEPHACO) and will be analyzed in the next chapters.
CHAPTER II: ANALYSIS OF BUSINESS ENVIRONMENT OF THANH HOA
MEDICAL MATERIALS PHARMACEUTICAL JOINT STOCK COMPANY
(THEPHACO)
2.1.
2.
2.1.

General introduction about Thanh Hoa Medical Materials Pharmaceutical
Joint Stock Company (THEPHACO):

2.1.1. Formation and development:
Name of the enterprise: Thanh Hoa Medical Materials Pharmaceutical Joint Stock Company
Address: No. 232 - Tran Phu Road - Lam Son Ward - Thanh Hoa City - Thanh Hoa
Province , Website: www.thephaco.com.vn
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Tel: 0373 852 286; 0373 757 986; 0373 852 691; Fax: 0373 855 209
Thanh Hoa Medical Materials Pharmaceutical Joint Stock Company is a State-owned
enterprise under the management of the People's Committee of Thanh Hoa province,
designed to produce, trade, import and export medicine all over the province and the
country. Thanh Hoa Medical Materials Pharmaceutical Joint Stock Company (Thephaco)
was formerly known as Thanh Hoa Pharmaceutical Company, established in 10/4/1961.
During the formation and development, the company was separated, merged and renamed
for many times in accordance with operation conditions in each historic time:
-

In January 1981, it was merged with the Medicinal Company into “Thanh Hoa
Pharmaceutical Company”.

-

Decision No. 789/UBTH-TC dated 25/6/1992 by the Chairman of the People's
Committee of Thanh Hoa province, Thanh Hoa Pharmaceutical Company merged with
independent accounting units in the districts to unify distribution and circulation with

main function of trading in medicine, pharmaceutical products and culturing medicine.

-

Decision No. 1053/QD-UBTH dated 11/5/1997 by the Chairman of the People's
Committee of Thanh Hoa province: Merging Thanh Hoa Medical Equipment and
Materials Company with Thanh Hoa Pharmaceutical Company and renamed: “Thanh
Hoa Medical Equipment and Materials Pharmaceutical Company” with main functions
of trading in, supplying medicine - medical equipment and materials, chemicals and
medical tools.

-

Decision No.143/UBTH- DMDN dated 20/1/1998 by the Chairman of the People's
Committee of Thanh Hoa province on consolidating the Pharmaceutical Factory and
Thanh Hoa Medical Equipment and Materials Pharmaceutical Company into “Thanh
Hoa Medical Materials Pharmaceutical Company”.

-

In particular, on 5/11/2002, based on the decision No. 3364/QD-CT by the Chairman of
the People's Committee of Thanh Hoa province on changing Thanh Hoa Medical
Materials Pharmaceutical Company into Thanh Hoa Medical Materials Pharmaceutical
Joint Stock Company from 01/12/2002.
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Registered business lines:

-

Producing traditional medicine and modern medicine

-

Trading in modern medicine and galenical medicine

-

Trading chemicals and medical tools, testing chemicals and cosmetics

-

Producing, trading in and repairing medical equipment and materials

-

Trading in Vietnamese traditional medicine and Chinese traditional medicine

-

Importing and exporting medicine, medicinal materials, medical equipment and
materials

-

Trading in scientific and technical equipment, household materials

-

Investing in clinics - medical practice;

-

Producing and trading in food medicine, nutrition products.

From 2002 up to now, with modern equipment, the company has produced many new
medicine with high value, increasing from 80 to 230 articles throughout the country,
product quality achieving class A and become the first unit in the North Vietnam and
Central Vietnam to have pharmaceutical production workshop under GMP and laboratory
under GLP.
The Company has expanded its sales network not only to 27 districts, towns and cities
in the province with 1260 pharmacies and pharmaceutical branches but also to other
provinces and cities throughout the country.
With long history, Thanh Hoa Medical Materials Pharmaceutical Joint Stock
Company has won many noble prizes: 6 labor medals (first class, second class and third
class), 4 certificates of merit and 3 emulation flags of the Government; 6 emulation flats of
the Ministry of Health and the People's Committee of Thanh Hoa Province. The Party Cell
has achieved the title of outstanding Party Cell for many years. Trade Union and Ho Chi
Minh Communist Youth Union always achieve excellent emulator title.
In particular, in 2007, the company held the ceremony of receiving the Peaceful Labor
Hero title conferred by the State President. This is a very big encouragement for all
employees in the company to bring into full play creativeness in production and business
and lead the company to new heights in the integration into the world economy.
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2.1.2. Organizational structure of Thephaco
General Shareholder’s Meeting
Supervisory Board
Management Board
General Director

Production Director
Quality Vice
Director

Production
Vice Director

QA Dept.

Workshop 1

QC Dept.

Workshop 2

R&D
Dept.

Sales Director

Personnel Dept.
Business Plan &
Market Dept.

Shops

Import &
Export Dept.

Branches

Workshop 3

Store
General clinic

Chart 2-1: Management apparatus diagram of Thephaco
2.1.3. Operation result of Thephaco over the past years:
Through nearly 50 years, the Company has always maintained its tradition, gradually
developed, grown year-on-year. In 2008, its revenue achieved 641.8 billion VND, in 2009,
its revenue achieved 836.5 billion VND, in 2010, its revenue was 866.5 billion VND.
Comment:

Total pre-tax profit of 2010 was 19,798,806,740 VND, increased by

1,259,418,225 VND compared with that in 2009. This is an encouraging result whereas a
wide of enterprises in the same industry were badly affected due to financial crisis but the
Company still operated stably and maintained relatively high gross profit. In 2010,
increased inflation led to the increase in the price of input materials including costs for input
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materials and labor. However, cost increase rate of the Company was still at relative level
compared with the inflation rate in 2010 because Thephaco controlled costs for input
materials and labor strictly. Besides, the Company has adopted many effective measures at
the same time to reduce production cost, take advantage of materials to avoid waste and
optimize capacity of the equipment, establish appropriate materials inventory plan, thus the
increase in materials price didn’t affect considerably.
The factors impacting operation result in 2010:
•

Advantages:
Obtaining the support from the Government in buying foreign currencies with

-

inter-bank average exchange rate to import materials during the production;
-

Export market is stable and on good growth;

-

Domestic revenue is increasingly improved because the bidding for pharmaceutical
supply at hospitals is considered and gradually brings about certain result;
Success in shifting goods structure with high profitability ratio.

•

Difficulties:
The market of antibiotic materials suffers fierce competition from foreign

-

competitors because the Government reduces materials import duty down to 0%;
In the export markets, China products faking the products of the Company affect

-

the prestige, image and revenue of Thephaco;
Domestic market of the Company is competed by domestic and foreign enterprises.

-

In order to maintain and develop sales revenue, the Company has promoted
marketing, thus leading to increased selling cost, greatly affecting the operation
result in the first 9 months of 2009.
2.1.3.1.

Business result and market share

From 2008 to 2010, although most of the domestic enterprises in general and
pharmaceutical enterprises in particular had a lot of difficulties due to the world economic

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Capstone project

crisis, increased domestic inflation, revenue, profit and annual economic targets of the
Company were still increased, which are shown in the following financial analysis table:
Unit: Thousand VND

Targets

2008

2009

Rate of
2009 to
2010
2008
+31.2% 405,796,538
+30.3% 866,495,748
+21.3%
16,086,266
-20.3%
2,364,932
+534.3%
3,712,540
+56%
19,798,806
+56%
19,798,806

Rate of
2010 to
2009
+9.2%
+0.34%
+21.8%

100.4%
-69.6%
+7.8%
+6.8%

Total assets
283,059,489 371,591,464
Net revenue
641,830,691 836,542,640
Operation profit
10,887,609 13,207,040
Financial revenue (*)
5,821,679
1,180,081
Other profit
997,934
5,332,348
Pre-tax profit
11,885,543 18,539,388
Total taxable income
11,885,543 18,539,388
Corporate income tax
3,276,359
4,618,242 +41%
4,849,447 +5.0%
payable
Post-tax profit
8,609,183 13,921,146 +61.7%
14,904,359 +7.06%
Basic earnings per share

2,197
3,543 +61.2%
2,752 -77.7%
(VND/share)
Dividend payment rate
16%
20% +25%
20%
0%
Source: Auditor’s reports in 2008, 2009 and 2010
Table 2-2: Analysis of financial indexes through years
(*) Profit dividend divided from investment in the Clinic.
2.1.3.2.

Growth

In 2009:
-

Net revenue in 2009 achieved 836.5 billion VND, increasing by 30.33% compared with
same period last year.

-

Post-tax profit in 2009 achieved 13.9 billion VND, increasing by 61.7% compared with
2008, financial situation of the unit ensured smooth operation.

-

Pre-tax profit in 2009 achieved 18.5 billion VND, increasing by 55.6% compared with

same period last year.

-

The Company still maintained its dividend payment at 20%/year.

In 2010:
17


Capstone project

-

Net revenue achieved 866.5 billion VND, increasing by over 3.6% compared with 2009.

-

Pre-tax profit achieved 19.79 billion VND, increasing by 7.83% compared with 2009.

-

Post-tax profit achieved 14.9 billion VND, increasing by 7.2% compared with 2009.

-

Although in 2010, Vietnam faced with high inflation, domestic enterprises had difficulty
in operation, the Company still maintained its dividend payment at 20%/year.

2.2.

Analysis of external environment impact on the operation of Thephaco

2.2.1. Analysis of macro environment:
2.2.1.1.

Political and legal factor

Representatives of pharmaceutical companies point out inadequacy in the
advertisement cost of the State that made Vietnam pharmaceutical manufacturers “lose right
on home ground”. While imported pharmaceutical products receive advertisement cost up to
30% of the revenue, domestically manufactured pharmaceutical products receive only 10%.
If this level is exceeded, they will be levied. For success, product should be popularized.
The limitation in advertisement cost makes the customers indifferent to domestic medicine.
Under the specific commitments when Vietnam joined WTO, common tax imposed on
pharmaceutical products would be only 0% to 5% compared with 0% - 10% in the past.
Average tax rate will be 2.5% after 5 years as from the date when Vietnam became a full
member of WTO (2012). On the other hand, market opening under WTO commitment will
promote commercial presence of foreign companies with stronger potential with famous
trademark and expanded trade rights together with the removal of trade barriers will be very
big challenges for domestic pharmaceutical industry including THEPHACO.
Faced by such situation, the Deputy Prime Minister required the Ministry of Health
to establish financial incentive programs for domestic pharmaceutical manufacturers,
establish reports on market scope forecast, enhance the use of domestic pharmaceutical
products and take advantage of domestically manufactured equipment and materials instead
of “favoring” imported goods at present in order to create motive force for Vietnam
pharmaceutical manufacturing industry to 2020. These issues will party remove difficulties
for domestic pharmaceutical enterprises in general and THEPHACO in particular in the
competition with imported medicine. In addition, in the future, the Government and the
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