Factors affecting effectiveness of petroleum market development of cagico in ho chi minh city and the neighboring provinces, vietnam masters of business administration

MEIHO UNIVERSITY
Graduate Institute of Business and Management

MASTER THESIS

Factors affecting Effectiveness of Petroleum
Market Development of CAGICO in Ho
Chi Minh City and the Neighboring
Provinces, Vietnam

In partial fulfillment of the requirements for the degree of
Masters of Business Administration

Advisor: Dr. Kuo-Hung Tseng
Co-advisor: Dr. Nguyen Trung Truc
Graduate Student: Nguyen Duc Thao
December, 2010




ACKNOWLEDGMENTS
At first, I would like to say many thanks so much to the Boards of Rector of both
Meiho University, Taiwan and Ho Chi Minh City University of Industry, Vietnam for
giving me the opportunity participating EMBA program in the last two years.
Secondly, I would like to express my great thanks to Prof. & Dr. Kuo-Hung Tseng,
Chair of Graduate Institute of Business and Management, Meiho University, Taiwan; Dr.
Nguyen Trung Truc, Professor of Business Administration Faculty, Ho Chi Minh City
University of Industry, Vietnam for useful guide and advice to finish the thesis.
Special thanks to Associate Prof. & Dr. Nguyen Minh Tuan, lecturer of Department
of Business Administration, Ho Chi Minh City University of Industry; Dr. Wei-Shuo Lo,

Head of Department of Finance, Meiho University for much valuable remarks and
evaluation on my thesis.
Many thanks to Professors and Administrative Staffs of both of universities, EMBA2
classmates, and colleagues at CAGICO for helps, supports and encouragement throughout
the study duration.
Sincerely thank to Mr. Nguyen Quang Vinh, PhD candidate at the National Sun Yatsen University, College of Management, Taiwan for consulting and sharing experience of
doing research.
Finally, a deep thanks to my wife, my children and family’s people for all things
sacrified to my study during the last two years, when I was in Vietnam and in Taiwan. So
much appreciation to all of you!

I


Factors affecting Effectiveness of Petroleum
Market Development of CAGICO in Ho Chi Minh
City and the Neighboring Provinces, Vietnam
ABSTRACT
Can Gio Trading Services Joint Stock Company (CAGICO) is a 40 percent-stateowned company. However, 96 percent of total sales revenues were from doing petroleum
business. Innovation process accompanying with global integration and national
economic development have created fierce competition among enterprise doing
petroleum business. The Company 2009 Annual Report has clearly identified some
strategic and managerial problems in which petroleum market development strategy was
paid much attention by top management.
By clarifying such effects via Internal Factor Evaluation (IFE) matrix and external
factors via External Factor Evaluation (EFE) matrix as well as via SWOT matrix, the
research findings showed that external factors as Economy, Social-CulturalDemographic-Environmental,

Political-Governmental-Legal,

Technology

and

Competition have positive significant effect on the development of petroleum market of
CAGICO. The research also showed that internal factors as Personnel Management,
Marketing, Finance/Accounting, Production/Operation, Research & Development and
Management information system have positive significant effect on the development of
petroleum market of CAGICO. However, only the external factors including
Society/Culture Demography/Geography and Competition caused significant effects on
Effectiveness. Furthermore, only two internal factors including Management and
Research & Development caused significant effects on Effectiveness. In conclusion, there
are four factors have a significant effects on the Effectiveness of petroleum market
development. The corresponding strategies designed according to the analysis of TOWS
matrix are 1) Implying good management to take advantages of current Society-CultureDemography-Geography; 2) Implying good management to against competition; 3)
Society-Culture-Demography-Geography promotes the development of R&D; and 4)
Investing more to R&D to other product and service that other competitors do not offer.
Keywords: CAGICO, petroleum business, strategy, market development, SWOT analysis

II


Factors affecting Effectiveness of Petroleum
Market Development of CAGICO in Ho Chi Minh
City and the Neighboring Provinces, Vietnam
Contents
ACKNOWLEDGMENTS ......................................................................................................... I
ABSTRACT..............................................................................................................................II
Contents .................................................................................................................................. III
Tables....................................................................................................................................... V

Figures....................................................................................................................................VII
Chapter 1 Introduction .............................................................................................................. 1
1.1 Research Motivation ....................................................................................................... 1
1.2 Research Purpose............................................................................................................ 2
1.3 Research Scope and Limitations..................................................................................... 2
1.4 Definition of Terms ........................................................................................................ 3
Chapter 2 Literature Review..................................................................................................... 4
2.1 Strategic Management and Market Development Strategy ............................................ 4
2.2 External Environment ..................................................................................................... 5
2.2.1 Vietnam economic environment. ............................................................................. 7
2.2.2 Vietnam social, cultural, demographic, and environmental forces.......................... 8
2.2.3 Vietnam political, governmental, and legal forces. ................................................. 8
2.2.4 Vietnam technological forces. ................................................................................. 9
2.2.5 Vietnam competitive forces. .................................................................................. 10
2.3 Internal Environment .................................................................................................... 12
2.3.1 Personnel Management.......................................................................................... 13
2.3.2 Marketing............................................................................................................... 14
2.3.3 Finance/Accounting. .............................................................................................. 15
2.3.4 Production/Operation............................................................................................. 16
2.3.5 Research and Development (R&D). ...................................................................... 17
2.3.6 Management Information System.......................................................................... 17
2.4 Threats – Opportunities – Weaknesses – Strengths (TOWS) Matrix ........................... 18
2.5 Effectiveness of Development of Petroleum Market.................................................... 20
Chapter 3 Research Methodology........................................................................................... 21

III


3.1 Research Framework .................................................................................................... 21
3.2 Research Process........................................................................................................... 24

3.3 Research Sample........................................................................................................... 25
3.4 Research Instrument ..................................................................................................... 26
3.5 Validity and Reliability................................................................................................. 29
3.6 Data Analysis................................................................................................................ 30
Chapter 4 Analysis and Results .............................................................................................. 31
4.1 Analysis of Demographic Data..................................................................................... 31
4.1.1 Frequency analysis of gender, position and working field variables..................... 31
4.1.2 Descriptive analysis of age and working time variables........................................ 32
4.2 Hypothesis Testing ....................................................................................................... 32
4.2.1 Testing of hypothesis H1. ...................................................................................... 32
4.2.2 Testing of hypothesis H2. ...................................................................................... 33
4.2.3 Testing of hypothesis H3. ...................................................................................... 33
4.2.4 Testing of hypothesis H4. ...................................................................................... 34
4.2.5 Testing of hypothesis H5. ...................................................................................... 35
4.2.6 Testing of hypothesis H6. ...................................................................................... 35
4.2.7 Testing of hypothesis H7. ...................................................................................... 36
4.2.8 Testing of hypothesis H8. ...................................................................................... 36
4.2.9 Testing of hypothesis H9. ...................................................................................... 37
4.2.10 Testing of hypothesis H10. .................................................................................. 38
4.2.11 Testing of hypothesis H11. .................................................................................. 38
4.3 Analysis on Relationship between External Factors and Effectiveness of Petroleum
Market Development .................................................................................................... 39
4.4 Analysis on Relationship between Internal Factors and Effectiveness of Petroleum
Market Development .................................................................................................... 40
4.5 Threats – Opportunities – Weaknesses – Strengths (TOWS) Matrix ........................... 41
Chapter 5 Conclusions and Recommendations....................................................................... 43
5.1 Conclusion .................................................................................................................... 43
5.2 Discussion and Recommendation................................................................................. 43
References............................................................................................................................... 45
Appendix 1 English Questionnaire ......................................................................................... 46

Appendix 2 Vietnamese Questionnaire .................................................................................. 52

IV


Tables
Table 2-1 The Threats – Opportunities – Weaknesses – Strengths (TOWS) Matrix ........19
Table 3-1 Reference of Questionnaire Design...................................................................27
Table 3-2 Cronbach’s Anpha Values Calculated...............................................................30
Table 4-1 Analysis on Variable of Gender, Position and Working Field..........................31
Table 4-2 Analysis on Variable of Age and Working Time..............................................32
Table 4-3 Model Summary of Relationship between Economy and Effectiveness...........32
Table 4-4 Linear Regression between Economy and Effectiveness..................................32
Table 4-5 Model Summary of Relationship between
Social/Cultural/Demographic/Environmental and Effectiveness ........................33
Table 4-6 Linear Regression between Social/Cultural/Demographic/Environmental and
Effectiveness ........................................................................................................33
Table 4-7 Model Summary of Relationship between Political/Governmental/Legal and
Effectiveness ........................................................................................................34
Table 4-8 Linear regression between Political/Governmental/Legal and Effectiveness ...34
Table 4-9 Model Summary of Relationship between Technology and Effectiveness.......34
Table 4-10 Linear Regression between Technology and Effectiveness ............................34
Table 4-11 Model Summary of Relationship between Competition and Effectiveness....35
Table 4-12 Linear Regression between Competition and Effectiveness ...........................35
Table 4-13 Model Summary of Relationship between Personnel Management and
Effectiveness ........................................................................................................35
Table 4-14 Linear Regression between Personnel Management and Effectiveness..........36
Table 4-15 Model Summary of Relationship between Marketing and Effectiveness .......36
Table 4-16 Linear Regression between Marketing and Effectiveness...............................36
Table 4-17 Model Summary between Finance/Accounting and Effectiveness .................37

Table 4-18 Linear Regression between Finance/Accounting and Effectiveness...............37
Table 4-19 Model Summary of Relationship Production/Operation and Effectiveness....37
Table 4-20 Linear Regression between Production/Operation and Effectiveness.............37
Table 4-21 Model Summary of Relationship between Research & Development and
Effectiveness ........................................................................................................38
Table 4-22 Linear Regression between Research & Development and Effectiveness......38

V


Table 4-23 Model Summary of Relationship between Management Information System
and Effectiveness .................................................................................................39
Table 4-24 Linear Regression between Management Information System and
Effectiveness ........................................................................................................39
Table 4-25 Model Summary of Relationship between External Factors and Effectiveness
..............................................................................................................................39
Table 4-26 Linear Regression between External Factors and Effectiveness.....................40
Table 4-27 Model Summary of Relationship between Internal Factors and Effectiveness
..............................................................................................................................40
Table 4-28 Linear Regression between Internal Factors and Effectiveness ......................41
Table 4-29 The Threats – Opportunities – Weaknesses – Strengths (TOWS) Matrix ......42

VI


Figures
Figure 2-1 The Firm’s External Environment .....................................................................5
Figure 2-2 Relationships between Key External Forces and an Organization ....................6
Figure 2-3 Hypothesis 1.......................................................................................................7
Figure 2-4 Hypothesis 2.......................................................................................................8

Figure 2-5 Hypothesis 3.......................................................................................................9
Figure 2-6 Hypothesis 4.....................................................................................................10
Figure 2-7 Hypothesis 5.....................................................................................................12
Figure 2-8 Hypothesis 6.....................................................................................................14
Figure 2-9 Hypothesis 7.....................................................................................................15
Figure 2-10 Hypothesis 8...................................................................................................16
Figure 2-11 Hypothesis 9...................................................................................................17
Figure 2-12 Hypothesis 10.................................................................................................17
Figure 2-13 Hypothesis 11.................................................................................................18
Figure 3-1 Research Framework........................................................................................23
Figure 3-2 Research Steps .................................................................................................25

VII


Factors affecting Effectiveness of
Petroleum Market Development of
CAGICO in Ho Chi Minh City and the
Neighboring Provinces, Vietnam
Chapter 1 Introduction
This chapter includes four sections: (1) research motivation: introducing reasons of
conducting the study, (2) research purpose: stating what the study aims to, (3) research
scope and limitation: mentioning scope and limitation of the study, and (4) definition of
terms: referring to the definition of CAGICO, strategy, and Market Development
Strategy.
1.1 Research Motivation
Petroleum business is a special type of business in Vietnam. The business is affected
by global petroleum price and is strictly controlled by government agencies (Qui Long &
Kim Thu, 2010, p.5). In Vietnam, petroleum industry is recognized as one of the crucial
industries of the country, one of the most important components of the national energy

security, and one of the essential types of consumer product. Vietnamese economic
development experiencing the stage of entering global integration has consequently
resulted in the great demand of petroleum consuming. It has also sharpened competition
between enterprises associating with petroleum industry. Therefore, a good examination,
evaluation and control to both internal and external factors affecting business operation
would certainly be much necessary for the consolidation of every enterprise.
CAGICO – Can Gio Trading Services Joint Stock Company – does business in Ho
Chi Minh City with different products and services. However, 96% of total sales revenues
are from doing petroleum business. There are 155 employees working at different
business establishments. The company runs as a general agency (GA) for many primary
importers of petroleum such as Petrolimex Saigon, PETEC Trading and Investment
Corporation, SaiGon Petro, PMT Company, etc., There are 30 retail agencies located in
Ho Chi Minh city and the neighboring provinces such as Vung Tau, Binh Duong, Dong
Nai province. Company’s customers are big manufacturing plants in industrial zones that

1


often consume great volume of petroleum such as Thu Duc Electric Power and Can Tho
Electric Power. With the two company-owned petroleum bonded warehouses and the one
rent in Petrolimex Saigon establishment, the company assures a quick meet great demand
by its customers.
According to The 2009 Business Information Report, in 2009, total revenues was
appropriately equal to US$ 87.00 million, achieved 165.32% of the year’s objective plan.
Much of efforts have been done in seeking new customers for expanding market to
increase profitability. Such achievement could be recognized as an evidence of great
effort by all management and staff in the condition of being badly affected by global
economic recession. Also, according to the report, there were many managerial issues still
remained without effective solutions, such as in expanding market share and filling the
gaps of lack of qualified staff, still remained without effective solutions. The fiercer the

competition is, the harder CAGICO faces to be alive and developed. So, identifying and
understanding factors that significantly affect the effectiveness of enhancing petroleum
market share is much necessary for CAGICO. That is also the motivation of this study.
1.2 Research Purpose
This study aims to identify and evaluate factors affecting effectiveness of petroleum
market development strategy of CAGICO. The research findings would be considered as
a basis for evaluating the existing market development as well as introducing a new
market development strategy for CAGICO to achieve its new business objectives.
Research objectives of the study are:
1. Identify and evaluate external factors affecting the effectiveness of petroleum
market development to CAGICO.
2. Identify and evaluate internal factors affecting the effectiveness of petroleum
market development to CAGICO.
3. Introduce solutions of enhancing effectiveness of petroleum market development
of CAGICO.
1.3 Research Scope and Limitations
As mentioned earlier, CAGICO does business in Ho Chi Minh City with different
products and services, however, 96% of total sales revenues are from doing petroleum
business. This research mainly focuses on petroleum business area. Furthermore,
considering the real business activities at present real market, the study also focus on Ho
2


Chi Minh City and its neighboring provinces such as Dong Nai, Binh Duong, Vung Tau,
etc., located in southern Vietnam.
1.4 Definition of Terms
CAGICO
CAGICO is the abbreviation of Can Gio Trading Services Joint Stock Company.
Founded in 1978 by Ho Chi Minh City People’s Committee (Decision No. 102/QĐ–UB
27/05/1978). The company has changed its name, business function as well as

organization structure many times since then by its Governing Body – Ho Chi Minh City
People’s Committee. In 2002, the company was officially named Can Gio Trading
Services Joint Stock Company by Ho Chi Minh City People’s Committee (Decision No.
14/QĐ-UB 03/01/2002). The company offers a variety of different products and services;
however, purchasing and selling petroleum is its major business.
Strategy
A strategy is a long-term direction that is made by the top manager of an
organization. David (2003) stated that strategies are means to meet the long-term goals. A
good and clear strategy can help the organization with knowing its position, ways, what,
who, where, when, and how (Sirisavan Phathaphone, 2002). A strategy of the corporation
forms a comprehensive master plan starting how the corporation will achieve its mission
and objectives. It maximizes competitive advantage and minimizes competitive
disadvantage (Wheelen & Humger, 2002).
Market Development Strategy
According to Robinson (1994), “Market development allows firms to practice a kind
of concentrated growth by identifying new users for existing products and new
demographically, psycho graphically, or geographically defined markets”. David (2003)
defined market development strategy as: “Introducing present products or services into
new geographic area”.

3


Chapter 2 Literature Review
This chapter includes five sections: (1) strategic management; (2) external
environment; (3) internal environment; (4) the threats – opportunities – weaknesses –
strengths (TOWS) matrix; and (5) research framework and hypotheses.
2.1 Strategic Management and Market Development Strategy
Robinson (1994) states that strategic management was a set of decisions and actions
that result in the formulation and implementation of plans designed to achieve a

company’s objectives. Strategic management comprises nine critical tasks. Among them,
three of them concerning the assess of internal and external factors: (1) developing a
company profile that reflects its internal conditions and capabilities, (2) assessing the
company’s external environment, including both the competitive and general contextual
factors, and (3) analyzing the company’s options by matching its resources with the
external environment.
The process of strategic management consists of three stages: strategy formulation,
strategy implementation, and strategy evaluation (David, 2003). Tasks of developing a
vision and mission, identifying an organization’s external opportunities and threats,
determining internal strengths and weaknesses, establishing long – term objectives,
generating alternative strategies, and choosing particular strategies to pursue are
considered as the contents of strategy formulation. In addition, David mentioned that
strategic formulation issues included deciding what new businesses to enter, what
businesses to abandon, how to allocate resources, whether to expand operations or
diversify, whether to enter international markets, whether to merge or form a joint
venture, and how to avoid a hostile takeover.
David (2003) also identified and exemplified fourteen types of strategies for actions
in terms of the difference of business environment in which market development strategy
was defined as “introducing present products or services into new geographic area”. To
CAGICO, strategic management, in general speaking, has not been properly performed
although the analysis and assessment of operation, advantages and disadvantages from the
outside environment are performed every year in order to build up a plan and solutions

4


for performance in the next year, relating to strategic direction and setting up long term
goals to perform (CAGICO, 2007, 2008, 2009, 2010).
2.2 External Environment
According to Robinson (1994), a firm’s external environment consists of all the

conditions and forces that affect its strategic options and define its competitive situation.
David (2003, p.80) said “The purpose of an external audit is to develop a finite list of
opportunities that could benefit a firm and threats that should be avoided”. The strategic
management model shows that the external environment has three interactive segments:
operating, industry, and remote environments. Figure 2-1 depicts the interrelationship
between those segments:
Remote Environment
(Global and Domestic)
ƒ Economic
ƒ Social
ƒ Political
ƒ Technological
ƒ Ecological

ƒ
ƒ
ƒ
ƒ
ƒ

Industry Environment
(Global and Domestic)
Entry barriers
Supplier power
Buyer power
Substitute availability
Competitive rivalry

ƒ
ƒ

ƒ
ƒ
ƒ

Operating Environment
(Global and Domestic)
Competitors
Creditors
Customers
Labor
Suppliers
THE FIRM

Figure 2-1 The Firm’s External Environment
(Source: John A. Pearce & Richard B. Robinson, The external environment, 1994, p.63)

5


It is important for a company to assess external factors. David (2003, p.80) noted
that “Identifying and evaluating external opportunities and threats enables organizations
to develop a clear mission, to design strategies to achieve long – term objectives, and to
develop policies to achieve annual objectives”. He also pointed out the five categories of
external forces: (1) economic forces, (2) social, cultural, demographic, and environmental
forces, (3) political, governmental, and legal forces, (4) technological forces, and (5)
competitive forces. The relationships among these forces and an organization are shown
in Figure 2–2. External trends and events significantly affect all products, services,
markets, and organizations in the world.

Economic forces

Social, cultural,
demographic, and
environmental forces
Political, legal, and
governmental forces
Technological forces

Competitors
Suppliers
Distributors
Creditors
Customers
Employees
Communities
Managers
Stockholders
Labor unions
Governments
Trade associations
Special interest groups
Products
Services
Markets
Natural environment

ORAGANIZATION’S
OPPORTUNITIES
AND THREATS

Figure 2-2 Relationships between Key External Forces and an Organization

(Source: Fred R. David, The Nature of an External Audit, 2003, p.80)
To perform an external audit, a company first must gather competitive intelligence
and information, such as economic, social, cultural, demographic, environmental,
political, governmental, legal, and technological trends. Petroleum industry are also
impacted by most of the mentioned external factors, although each factor has different
levels of impact, the main impact results from economic cultural/social, political/ legal,
technical

and

technological,

demographic,

international

economic

(globalization), and environment of the industry. Therefore, this study

6

integration

focuses on the


analysis of these factors in order to determine the major opportunities and challenges for
CAGICO.
2.2.1 Vietnam economic environment.

Robinson (1994) argued that economic factors concern the nature and direction of
the economy in which a firm operates; while David (2003) claimed “economic factors
have a direct impact on the potential attractiveness of various strategies”. Because the
relative affluence of various market segments affect consumption patterns, in its strategic
planning, each firm must consider economic trends in the segments that affect its
industry. In company with integrating trend of international economy in recent decade,
many of these economic organizations and trading organizations were founded,
effectively. Nations’ open-door economy level worldwide is improved considerably.
From 1986, Viet Nam has spent nearly thirty years to carrying out economic
renovation, and has attained rather high growth rate. In recent decade, Vietnamese GDP
increases in averaged 7%. Although being impacted by global economic depression,
Vietnam keeps its growth rate of GDP in 2008 and 2009 as 6.18% and 5.32% respectively
(General Statistics Office of Vietnam). Viet Nam is one of the twelve countries in the
world with positive GDP growth in 2009. The expected GDP rate from 2010 to 2015 is
expected to be 7.2%. Growth of economy leads to the increase of the petrol consumption
demand. It brings out opportunity to petroleum companies on sale as well as on profit.
After joining WTO, a large number of big foreign groups go to Vietnam for investment.
Moreover, developing of Industrial zones and Export processing zones also create further
convenience for petroleum trading enterprises to develop this potential market.
From above notes, the study proposes Hypothesis 1 that is depicted in Figure 2-3:
H1: Economy has a positive effect on the effectiveness of petroleum market
development to CAGICO.

Economy

H1

Figure 2-3 Hypothesis 1

7

Effectiveness of
Development of
Petroleum Market


2.2.2 Vietnam social, cultural, demographic, and environmental forces.
Factors such as social, cultural, demographic, and environmental are considered
causes of major impacts upon virtually all products, services, markets, as well as
customers when changing (David, 2003). The social factors that affect a firm involve the
beliefs, values, attitudes, opinions, and lifestyles of persons in the firm’s external
environment, as developed from cultural, ecological, demographic, religious, educational,
and ethnic conditioning (Robinson, 1994). Viet Nam now is a populous country and
located in the third place of ASEAN and the thirteenth place in the world with current
population nearly eighty-seven million (General Statistics Office of Vietnam, 2009).
Population increasing rate in average is 1.2% per year. In urban areas, population density
reaches 29.6%. Total population increases 3.4% per year in average.
In 2015, the forecasted population of Vietnam will be ninety-three million.
Consequently, petroleum demand will increase gradually. It is an opportunity for petrol
trading company, such as CAGICO, to enlarge market share. In cultural-social aspect,
CAGICO brought into Western culture positively in operation via environmental
adaptation policy, including policy of ensuring quantity, quality and services; creating
trade-mark reputation, satisfying customers’ needs, obeying environmental matters
strictly, preventing fire and fighting fire, and social security. The cultural environment
shows that more services quality needs to improve. It is an opportunity for CAGICO in
competition with other competitors, and in attracting customers.
From above notes, the study proposes Hypothesis 2 that is depicted in Figure 2-4:
H2: Social/Cultural/Demographic/Environmental factor has a positive effect on the
effectiveness of petroleum market development to CAGICO.

Society/Culture/Demo
graphy/Environment

H2

Effectiveness of
Development of
Petroleum Market

Figure 2-4 Hypothesis 2
2.2.3 Vietnam political, governmental, and legal forces.
Factors, such as “Political, governmental, and legal factors, they “can represent key
opportunities or threats for both small and large organizations” (David, 2003, p.87).
Political constraints are placed on firms through fair-trade decisions, antitrust laws, tax
8


programs, minimum wage legislation, pollution and pricing policies, administrative
jawboning, and many other actions aimed at protecting employees, consumers, the
general public, and the environment (Robinson, 1994).
Viet Nam International political status on the one hand in recent years has changed
complicatedly. Ethnic group conflicts and religious conflicts have appeared in plenty of
countries. Constantly revolutions led many countries to an insecure condition, which
affected petrol market worldwide largely. On the other hand, in Viet Nam, under the
direction of Communist Party, political and social security situation are stable. Politic and
social security creates a convenience environment for investment, manufacture and
trading. Hence, Viet Nam gets advantage in attracting domestic and foreign investment.
“Be friends of all countries” is the convenience condition for investment and trading
environment in Viet Nam. It brings out opportunity to company in expanding trading
cooperation, market, and new customers. Bui (2009) mentioned that Government’s role

affects petrol industry greatly and directly via specific operating policy. There are
following positive points: (1) Break monopolistic import position of units with material
base that invested in prior, and got long accumulated time, (2) Keep price stable in long
time including fluctuant price of international petrol to speed up economic growth, and to
stabilize domestic political-economic situation, (3) Establish competitive market between
enterprises and take necessary social fee for petrol trading.
From above notes, the study proposes Hypothesis 3 that is depicted in Figure 2-5:
H3: Political/Governmental/Legal factor has a positive effect on the effectiveness of
petroleum market development to CAGICO.

Politic/Government/Le
gal

H3

Effectiveness of
Development of
Petroleum Market

Figure 2-5 Hypothesis 3
2.2.4 Vietnam technological forces.
“Technological forces represent major opportunities and threats that must be
considered in formulating strategies” (David, 2003, p.93). Technological advancements
can dramatically affect organizations’ products, services, markets, suppliers, distributors,
competitors, customers, manufacturing processes, marketing practices, and competitive
9


position. In order to avoid obsolescence and to promote innovation, a firm must be aware
of technological changes that might influence its industry (Robinson, 1994). Creative

technological adaptations suggest the possibilities for new products, and for
improvements in existing products, and in manufacturing and marketing techniques.
Vietnamese Government encourages transferring activities and renovating
technology. Creating convenience condition in organizations and individuals for
renovating technology will serve developing country’s demand rapidly and stably.
Nowadays, science and technology has developed rapidly to support petroleum industry’s
technology improvement unceasingly. It creates a large pressure for petrol trading units.
But it is also an opportunities for applying modern technology to provide new services
with high quality. Automating and versatility of technology are more and more modern.
Changing technology to modern trend will enhance enterprise’s competition, attract more
customers, decrease expenses, and ensure quality and quantity. CAGICO now has used
some modern equipment and machines such as electronic pump, storage system, pipeline,
and … etc. On the other hand; low-waste technology, environmental friendliness, and
low-price substitutive products cause competitive pressure to company.
From above notes, the study proposes Hypothesis 4 that is depicted in Figure 2-6:
H4: Technology has a positive effect on the effectiveness of petroleum market
development to CAGICO.

Technology

H4

Effectiveness of
Development of
Petroleum Market

Figure 2-6 Hypothesis 4
2.2.5 Vietnam competitive forces.
David (2003) cited the Porter’s 5-forces model of competitive analysis that is
widely used for developing strategies in many industries. Intensity of competition is

highest in lower-return industries. According to Porter, the nature of competitiveness in a
given industry can be viewed as a composite of five forces: (1) rivalry among competing
firms, (2) potential entry of new competitors, (3) potential development of substitute
products, (4) bargaining power of suppliers, (5) bargaining power of consumers.

10


Potential entry of new competitors Participating in petrol trading in Ho Chi Minh
City area now includes public sector, joint-stock, private citizen, and joint-venture with
3,348 registered enterprises (Planning and Investment Department of Ho Chi Minh City,
2010). In petrol market of Ho Chi Minh City, CAGICO has plenty of competitors.
Among them, Saigon Fuel Joint Stock Company (SFC) and Petrol-Material Joint Stock
Company (COMECO) are the two biggest competitors. Both of companies are main
imported petrol companies in Ho Chi Minh City market.
Potential development of substitute products Enterprises of petrol trading industry
have to compete with substitutive product manufacturing industries. Energy resources,
such as electricity, gas, coal and fuel, especially with gas and fuel, have replaced petrol as
energy source gradually. Gas and fuel both are important energy resources to people’s
daily life, furnace industry, and industrial production. These are challenges and threat that
petrol trading enterprises concern about. In recent years, due to the increasing of fuel
price, many petroleum-consumed factories (including some CAGICO customers) have
had a change of using alternative fuel such as coal or natural gas. The development of
such complementary products with competitive prices has caused a great impact on
CAGICO revenue. Those impacts predictably continue in near future.
Bargaining power of suppliers In 2009, Vietnam consumed approximately 15
million tons of petrol (2 million tons produced and 13 million tons imported). There were
nine government-assigned petroleum importers: (1) Petrolimex, (2) Petec, (3) PV Oil
(Petro Vietnam), (4) Military Petroleum Company, (5) Saigon Petrol Company, (6)
Aviation Petroleum Company Vinapco, (7) Maritime Petroleum Import-Export Company

PMT, (8) Thanh Le Import-export Company, and (9) Petimex. CAGICO is now running
as the general agent for petroleum importers, Petec and Saigon Petrol. The company has
also signed commercial sale contracts with Petrolimex, PV Oil, Military Petroleum
Company, Maritime Petroleum Import-Export Company PMT, and Petimex. One of
CAGICO’s advantages is to have many suppliers with profuse supply. CAGICO uses
price as criteria for selecting suitable supplier.
Bargaining power of consumers Company’s customers are classified into three
categories: (1) Direct consumers are people whom the petrol company provides for all
objects with demand of using petrol directly to. Furthermore, customers are inhabitants,
officers, agencies, and factories that need for transportation; (2) Agents and commercial
customers both is important channel of CAGICO to distribute petrol indirectly to
consumers. Company has expanded this channel unceasingly to form stable and effective
11


retail petrol system in cooperation. There are mutual benefits for Petrol Company and
commercial customers. These customers have a few outlets (1 or 2 outlets), without
enough scale to become general agents. According to governmental regulations, dealers
sign agent contract with company to get fee, discount as well as preferred policy and
other support from company; (3) Industrial customers use petrol directly for
manufacturing, transportation, and services. In Vietnam, industrial customers are
companies, factories, enterprises, workshops, co-operative society, and projects in Ho Chi
Minh City area and neighboring provinces. Main distributing items for industrial
customers are black oil and all types of diesel. These are customers with large and stable
demand.
From above notes, the study proposes Hypothesis 5 that is depicted in Figure 2-7:
H5: Competition has a positive effect on the effectiveness of petroleum market
development to CAGICO.

Competition

H5

Effectiveness of
Development of
Petroleum Market

Figure 2-7 Hypothesis 5
2.3 Internal Environment
Most of the organizations have their strengths and weaknesses in the functional areas
of business (David, 2003). No enterprise is equally strong or weak in all areas. Some
researchers emphasize the importance of the internal audit part of the strategic
management process by comparing it to the external audit. The internal audit requires
gathering and assimilating information about the firm’s management, marketing,
finance/accounting, production/operations, research and development (R&D), and
management information systems operations (David, 2003). Performing an internal audit
requires gathering, assimilating, and evaluating information about the firm’s operations
(David, 2003). Critical success factors are consisting of both strengths and weaknesses.
Besides examining external factors to identify opportunities and threats, the
examination of internal factors to identify strengths and weaknesses was paid much
attention when designing strategies and setting up objectives. According to David (2003),
components of examining internal factors include:
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•

Management

includes

five

basic

functions:

planning,

organizing,

implementing, promoting, and controlling.
•

Marketing includes nine basic functions: customer analysis, buying, selling,
product and service planning, price setting, distribution, market research,
opportunity analysis, and social responsibility.

•

Finance/Accounting includes solvency, leverage, capital flow, profit, capital
use, cash flow, equity.

•

Production includes all activities of a process of transforming inputs into
product and services.

•

Research and development (R&D) still play an important role to many
enterprises, especially to hi-tech ones.

•

Information system that links all business functions and offers basis for
managerial decision making process.

2.3.1 Personnel Management.
Personnel management is always considered as the most important by CAGICO and
much significantly influences company’s success. The total number of employees is 155
in which 35 one are administrative staff. CAGICO attaches special importance to training
and cultivating activities paid by CAGICO for employees in different forms. For wage
policy, CAGICO establishes private suitable policy with specific characteristics. It
ensures competitive principle, and protects talented persons. Salary and benefits are based
on competence and ability of every position. Company’s conditions and policies carry out
in equal or higher than governmental regulations. The higher wage policy aims to raise
employees’ innovation in the increase of productivity. CAGICO has put forward
commending and rewarding policy punctually to have appropriate reward to employees’
contribution. However, CAGICO is facing with the problem of lacking skilled and
experienced management for both senior and junior positions. None of existing managers
are post-graduated. So, to the objectives of enhancing business competitive capability to
meet the increasing market demand of manufacturing and trading, competency of existing
employees are considered not qualified enough (CAGICO Annual Report, 2009).
From above notes, the study proposes Hypothesis 6 that is depicted in Figure 2-8:
H6: Personnel Management has a positive effect on the effectiveness of petroleum
market development to CAGICO.

13

Personnel Management

H6

Effectiveness of
Development of
Petroleum Market

Figure 2-8 Hypothesis 6
2.3.2 Marketing.
Marketing can be described as the process of defining, anticipating, creating, and
fulfilling customers’ needs and wants for products and services. There are seven basic
functions of marketing: (1) customer analysis, (2) selling products/services, (3) product
and service planning, (4) pricing, (5) distribution, (6) marketing research, and (7)
opportunity analysis. Understanding these functions helps strategists identify and evaluate
marketing strengths and weaknesses (David, 2003). In addition, Evans and Bergman
(1982: p 17) introduced two new functions: (8) buying products and (9) social
responsibility.
CAGICO has assigned specific departments to update information of competitors’
sale price in Ho Chi Minh City and other regions. According to this information,
CAGICO decides suitable sale price with subject of customer (retailers, wholesalers).
Following up and analyzing competitors’ resources decides output, customers, investment
and development of channel. Then governmental macroscopic policies are followed up by
tax, trading management viewpoint, developing rate of industries in cement,
thermoelectric plants, and transportation. CAGICO has organized periodic customer
conference annually to evaluate customers’ cooperated product concurrently to announce
engagements about trading policy in coming years.
As the General Agent of two key petroleum importers, the source of supply is often
plentiful with stable price; sometimes the actual price is lower than market price.

Petroleum price is under the control of government. Hence, CAGICO has to comply with
regulations fully and strictly. To customers such as factories, direct customers, or
company’s agents, there are different sale price set for according to subject, changing of
each market, season to ensure competitive ability and operational efficiency. CAGICO
has established agent system in Ho Chi Minh City and neighboring provinces such as
Dong Nai, Binh Duong. With wider channel, customers are able to make a deal with the
company or agent system directly. From these channels, customers will recognize
14


company’s trade name. All selling products and services are guaranteed according to
Vietnamese petroleum standards with control sample. In case of having queries or
complaints about products or services, CAGICO has examined and solved them properly.
CAGICO sets up department to resolve all customers’ query and complaint in many areas
to receive information and to response quickly. Besides that, CAGICO has established the
hot line, and the informing telephone number of backbone leaderships to customers.
Hence, CAGICO brings confidence and peace of mind to customers.
From above notes, the study proposes Hypothesis 7 that is depicted in Figure 2-9:
H7: Marketing has a positive effect on the effectiveness of petroleum market
development to CAGICO.

H7

Marketing

Effectiveness of
Development of
Petroleum Market

Figure 2-9 Hypothesis 7

2.3.3 Finance/Accounting.
Financial condition is often considered as one of the best measures for a firm’s
competitive position and attractiveness to investors. The reorganization of an
organization’s financial strengths and weaknesses is essential in order to formulate
strategies. According to James Van Horne (1974) the functions of finance/accounting
comprise three decisions: the investment decision, the financing decision, and the
dividend decision. CAGICO is always interested in financial management activities.
Financial management activities are highly associated with CAGICO’s business
activities. Accounting system inspects and monitors receipts, payments, sale debt,
purchase debt, and taxes. Cost accounting section calculates expenses properly to bring
out suitable and competitive sale price to attain operational efficiency. Integrated
accounting section offers general data, analyzes financial index, finds out advantages and
disadvantages, and provides information to leadership for strategic decisions.
CAGICO has measures to control expenses, and to practice thrift. Investment
operation has been supervised and managed strictly. Company has carried out all
accounting activities by means of advanced software, which processes quickly and
exactly. State authorities evaluate company’s accounting activities annually. CAGICO
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