Running Head: JOINT STOCK COMPANY VINAMILK

Business Study Report:

Joint Stock Company Vinamilk

Subject Name: Economics for a Sustainable World (LB5229)

Lecturer and Tutor: Dr. Lisa Tombalakian

Student name: Vo Ngoc Thanh

Student ID: 13344398

May 1st, 2016

JOINT STOCK COMPANY VINAMILK

Table of Contents
1.0

Micro Business Environment...................................................................................3

1.1

Introduction to Joint Stock Company Vinamilk..................................................3

1.2

Competitors................................................................................................. 4

1.3

Products...................................................................................................... 5

1.4

Customers and Locations................................................................................ 6

1.5

Market Share............................................................................................... 7

1.6

Competitive environment...............................................................................8

1.7

Demand and Supply Curve.............................................................................8

2.0

Production Costs and Scales...................................................................................11

3.0

Macro Business Environment.................................................................................12

3.1

Stability of Political system...........................................................................12

3.2

Inflation and interest rate.............................................................................12

3.3

Unemployment........................................................................................... 12

3.4

Exports..................................................................................................... 13

3.5

Effects of Recession..................................................................................... 14

4.0

Sustainability............................................................................................................15

5.0

Conclusion................................................................................................................16

6.0

References.................................................................................................................17

1.0 Micro Business Environment

JOINT STOCK COMPANY VINAMILK

1.1 Introduction to Joint Stock Company Vinamilk

This business report discusses the biggest dairy company in Vietnam-Vietnam Dairy
Products Joint Stock Company Vinamilk, with abbreviated name is Vinamilk. Its headquarter
located on No.10 Tan Trao Street, Tan Phu Ward, District 7, Ho Chi Minh City.
Vinamilk and their subsidiary work in many sectors:

Manufacturing and supply milk, processed milk and others beverage and processed

dairy food.
Raising cow milk, supply breeding cattle and breeding technology and facilities.
Producing and supply plastic products and packages.
Health care service
Real estate business
Supply logistics service.
Based on those activities that Vinamilk work on, there are some main business areas

such as: Vinamilk is the manufacture, trading of milk and other dairy products in Vietnam. It
was founded in 1976 under the name of Southern coffee-Dairy Company. Vinamilk started
from a small scale dairy operation, which mostly have infant formula powered milk (Hayes,
2007). After that, company rename in 1978 and the last once is in 1993 with the name
Vietnam Dairy Company.
Depend on UNDP (2007); Vinamilk was awarded about the WIPO Trophy for
Innovative Enterprises. In the same year, top Vietnamese dairy company is Vinamilk, which
make profit of 923 billion dong in the first 11 months (Vinamilk profit exceeds target, 2008).
In 2010, the first company was achieved in 200 top performing small and mid-sized
companies with annual revenue under US$ 1 billion, is Vinamilk.

1.2 Competitors

JOINT STOCK COMPANY VINAMILK

Source: Vinamilk Annual Report, 2014

Milk processing is an industry which has highly competitive level both in foreign
market and domestic market.
For foreign market, Vinamilks competitors are Abbott, Nestle and Mead Johnson and
so on. Vinamilk is not a big brand name in international market. That is the reason why enter
the foreign markets, Vinamilk has to join and follow distribution channels of big distributors.
Therefore Vinamilk will be high pressure and the high quality standard required in
international market also put high pressure on Vinamilk.
In domestic market, currently Vietnam has about 23 businesses providing milk to the
market, such as Vinamilk, Dutch Lady Vietnam (Friesland Campina), Nutifood, TH True
Milk The main focused products are milk powder, condensed milk, liquid milk and
yoghurt. In this industry, Vinamilk is the largest company, the main competitor-Dutch. The
potential and vast demand for milk in Vietnam should lead to competition which is becoming
more and more strongly.

1.3 Products

JOINT STOCK COMPANY VINAMILK

Vinamilk has provided more than 200 products in 5 main segments:

Liquid milk: including UTH long-life milk and Pasteurized milk. Vinamilk has the
biggest proportion in liquid milk with 40% market share.

Liquit Milk Production

Vinamilk
Friesland
2%

18%

Nestle
Hanoi Milk

3%
3%
5%
7%

39%

Mead Johnson
Fonterra
F&N Vietnam

24%

Others

Figure 1. Liquid milk production, 2014

(Source: Agribusiness report BMI)
Powder milk: this segment is quite belong to foreign company, just for 4 foreign
company Abbott, Friesland, Mead Johnson, Nestle account for 61% of market share.
Vinamilk occupy 19% for this segment. However, the tendency of people nowadays moves to
choose the Vietnams product is the good signal for Vinamilk.

JOINT STOCK COMPANY VINAMILK

Powdered Milk Production

Abbott
Vinamilk

20%

24%

Mead Johnson
Friesland

8%

Nestle Vietnam
19%

14%

Others

15%

Figure 2. Powder milk production, 2014

(Source: Agribusiness report BMI)
The yogurt segment: drinking yogurt and spoon able yogurt. Vinamilk has more than
73% market share including 95% market share on spoon able yogurt.
Condensed milk: Condense milk is strength area of Vinamilk with took up 85%
market share and no other companies can face with Vinamilk. However, the consumption for
this segment is more and more decrease every year.
Others products: Vinamilk has some products such as soya milk with the brand name
Gold Soy and others beverage such as fruit juice, pure water and so on. This is contributed
the least amount to total revenue.
1.4 Customers and Locations
Vinamilk became the best Vietnamese company in customer satisfaction of product
quality, reasonable price and good distribution network. Vinamilks customer not only buy
product for themselves but also buy for their kids. Therefore to satisfy the consumers needs
it is not easy. They achieved those of things. They have to diversify and optimize the product
portfolio and service of Vinamilk. Besides that, nowadays in Vietnam market have the wide
range of flavor, package create variety choice for customers. Vinamilk has been always
confident about the ability not only offer consumers product but also ensure the safety and

JOINT STOCK COMPANY VINAMILK

nutritional quality by international standard. That is the reason why Vinamilk as a leading
brand in dairy industry in general and milk industry in particularly.
For detail, Vinamilk customers quite diverse: Liquid milk segment of Vinamilk
include a lot of product lines that have ability to meet needs and requirements of various and
large number of consumers, such as: UHT 100% non-fat fresh milk for people who are diet or
want to avoid fat, fresh milk plus calcium low fat for lack of calcium or overweight people,
etc.
There are various locations where Vinamilk are manufactured. It is as shown in the
map mentioned below:

Source: Annual Report, 2014

1.5 Market Share
Vinamilk is the biggest dairy company in Vietnam make up of 39% domestic market
share, the second one is Dutch Lady that account for 25 % (Annual report, 2014). The
remains are others domestic company such as Mocchaumilk, IDP, Hanoi milk, so on and
foreign company: Abbott, Nestle, Mead Johnson and so on. Vinamilk confirm to give their
consumers the fresh product with high value.

JOINT STOCK COMPANY VINAMILK

Vietnam dairy market share

Vinamlik
Dutch Lady

16%
5%
5%

Mocchaumilk
39%

Hanoimlik
IDP

10%

others
25%

Figure 3. Vietnam dairy market share, 2014

(Source: BMI)
1.6 Competitive environment
A competitive environment is the dynamic external system in which a business
competes and functions. The more sellers of a similar product or service, the more
competitive the environment in which you compete. In a perfectly competitive market there
are a lot of producers and consumers. There are no barriers property rights which are welldefined, goods which are homogeneous and no restrictions to entry or exit in the market.
While in monopoly there is only one producer and a lot of consumers (Allan Layton, Tim
Robinson & Irvin B. Tucker, 2009). Considering the case of Vinamilk, the industrys
Competitive structure: the market has the monopoly enterprise therefore they have less
competition.
1.7 Demand and Supply Curve
Vietnamese dairy industry depends much on imported raw material in long term and
will continue this dependence in the future. The raw materials of fresh milk, milk powder and
sugar, Vinamilk has a diversified supplier domestic and oversea network. Vinamilk can
improve the quality of product thanks to high quality input. Vinamilk do not sign long-term
contracts with any suppliers of milk materials, milk powder, sugar or any others materials.
This policy will significantly reduce switching costs in changing suppliers. If there is an

JOINT STOCK COMPANY VINAMILK

increase in milk materials, milk powder, sugar price then the demand of milk will decrease.
Therefore the curve will move from D1 to D2 (Figure 4). Conversely, if the price of raw
materials is reduced then the demand of milk will increase. Therefore, the curve will move
from D1 to D2 (Figure 5). The demand of milk will also depend on the number of people
who will prefer TATA Motors as compared to other companys cars available in the market.

Figure 4. Decrease in demand of Vinamilk

Figure 5. Increase in demand of Vinamilk

If the supply of Vinamilk is increasing then the supply curve will shift rightwards
from S1 to S2 (Figure 6). The company will realize that it is producing more product than
required. This will result in increase in the sales of milk and vice versa.(Figure 7)

JOINT STOCK COMPANY VINAMILK

Figure 6. Increase in supply of Vinamilk

Figure 7. Decrease in supply of Vinamilk

2.0 Production Costs and Scales

10 9

JOINT STOCK COMPANY VINAMILK

11

Economies of scale are a term that refers to the reduction of per-unit costs through an
increase in production volume. (Allan Layton, Tim Robinson & Irvin B. Tucker, 2009)
Production Cost estimate by two factors: fixed costs and variable costs. It mainly
depends on three main factors: Land, Labor and Capital (Okpighe S. O., 2015). For the case
of Vinamilk, land, labor and capital being used will be included in the fixed costs. In detail,
Vinamilk fixed cost included: tangible fixed cost (Land use right, Software) and intangible
fixed cost (Building and Structure, Machinery and Equipment, Livestock, Motor vehicles).
The variable costs of Vinamilk will include raw materials, package and employees.
These fixed costs will be affected by the increase or decrease in sales of the company.
Vinamilk invested 2.9 VND billion in 2009 for upgrade and maintenance. Therefore, the
assumption is made that Vinamilks expense on upgrade and maintenance software will
increase at rate of 20% from 2009 (Annual report, 2010). It means sale of the company is
increasing. Variable costs will depend on output. More people will be employed with increase
in production and less with the decrease in production.

Figure 8. Production costs of Vinamilk

A firm's total cost can be divided between fixed costs and variable costs. Fixed costs
do not change when more outputs are produced, while variable costs do. Fixed costs of
Vinamilk are those that do not vary with output, so regardless of the quantity a firm will
produce the fixed costs will remain constant. The Total variable costs (TVC) curve will slope
in upward direction at an accelerating rate according to law of marginal returns. Total costs
(TC) of Vinamilk will vary according to the Total Variable Costs and Total Fixed Costs.

JOINT STOCK COMPANY VINAMILK

12

3.0 Macro Business Environment

3.1 Stability of Political system
Vietnam is a country with a stable political institution that facilitate doing business in
Vietnam. Moreover, Vietnam is a peaceful country without war and terrorism. Top five of
happy countries in the world. The government has many policies to support milk industry for
running business. However, Vietnam mixed economy so government still play the big role in
market. Vietnam government decrease the foreign trade barrier to attract more investment.
Especially the government have more tax policy to support the milk industry because
agricultural development is aided by a number of tax-free or reduced taxes from the
Government. This is opportunities for Vinamilk to invest in local projects, helping farmers to
improve their life standard and ensure the firm a stable supply.
3.2 Inflation and interest rate
The rapid economic growth has caused high inflation in Vietnam. Averaging around
7.31% from 1996 to 2014, the inflation rate climbed to an all-time record of 28.24% in
August 2008. This called for actions by the government and consequently the inflation rate
was successfully reduced to below 6% in 2013 (Trading Economics, 2014). To reduce the
inflation rate and simultaneously target at an economic growth of 5-6%, the Central Bank of
Vietnam increased the interest rate to 15% and tightened lending policies (Bloomberg 2012).
This was a difficulty for foreign investors to access fund in Vietnam. Recently, however, the
Central Bank is gradually cutting interest rates down. This is to support business and bolster
the economy.
Besides that, the inflation rates also high that mean the cost of production will
increase. It will effect on the price of Vinamilk product market. Vietnam is a member WTO is
a big pressure for local business to compete other foreign competitor. In addition, it is also
help company to expand the business scales and attract more foreign investment.
3.3 Unemployment
According to Central Statistics Office of Vietnam (2015), Unemployment Rate in
Vietnam decreased to 2.31 percent in the fourth quarter of 2015 from 2.36 percent in the third
quarter of 2015. Unemployment Rate in Vietnam averaged 2.40 percent from 1998 until
2015, reaching an all-time high of 4.50 percent in the fourth quarter of 1998 and a record low
of 1.81 percent in the fourth quarter of 2012. Number of unemployed persons in Vietnam

JOINT STOCK COMPANY VINAMILK

13

diminished to 2.3 million in 2006 from 1 million in 2014. In Vietnam, the unemployment rate
measures the number of people actively looking for a job as a percentage of the labor force.
2.5

1.5
Column1
1

0.5

0
2006

2007

2008

2009

2010

2011

2012

2013

2014

Figure 9. Vietnam Employed Persons (Million), 2015

Source: www.tradingeconomics.com, Central Statistics Office of Vietnam
Vinamilk is one of the largest-scale public companies in Vietnam at present. Vinamilk
is providing jobs to the people of Vietnam. In 2013, total number of permanent employees
has 5,570 people (Sustainable development, 2013).
3.4 Exports
Export sales contribute about 10% of total revenue. Key export products are
powdered milk and sweetened condensed milk. In 2014, the Company exports
to 29 nations and regions. Vinamilks main exported products are milk powder and sweet
condensed

milk.

The

Company

still

maintains

exports

to

its

traditional

markets in Middle East and South East Asia, neighboring Cambodia, Laos and looks for new
markets in Africa and Central America. According to market research company Nielsen,
Vinamilk takes the lead in sales and revenue in the group of fresh milk brands in Viet Nam.

Table 1:

JOINT STOCK COMPANY VINAMILK

14

Vinamilk exported, 1998-2012

Exports
US$ million
% of Revenue
1998
10
7.9%
2000
60
33%
2002
260
54%
2004
33
14%
2006
40
17%
2008
53
22.5%
2010
96
40.75%
2012
180
76%
(www.tradingeconomics.com, Central Statistics Office of Vietnam)
Vinamilk entered the export market in 1998 when it won contracts to export powdered
milk to Iraq based on the milk petroleum exchange program supervised by the United
Nations. Export value peaked in term of both the absolute value and in percentage of total
revenue in 2002. The sharp falls in the export component in 2004 were as a result of the war
in Iraq. The company was unable to fulfill many contracts after the war broke out in Iraq as
transport to the region became difficult. Exports to Iraq accounted for more than 90% of total
exports. In term of profitability, exports accounted for 47.7% of total net profit in 2002;
however this fell to 15% in 2004. As will be seen later, from 2006 revenue of export
increasing, the Company was able to offset the collapse in export earnings through significant
earnings improvements in the domestic market. In addition, Vietnam dong (VND) is stronger
as compared to the currency of Cambodia, Laos. This would be beneficial as it would
increase the foreign profitability of the company. But at the same time the exchange rates can
change anytime. Therefore, the company needs to take care about that.
3.5 Effects of Recession
Generally, Vietnam attracts foreign investments by its solid economic growth,
political stability, an inexpensive workforce, a gradually more open and transparent market,
abundant natural resources and a good geographic position in the region. However, there are
a number of challenges in Vietnam such as corruption, low levels of education and skills,
poor infrastructure, bureaucracy and the lack of transparency and predictability. (CTCS
2011.)
The economic slowdown is the main reason for the recession. In order to solve
recession, Vinamilk adopted a strategy of offering a huge discount to their customers and
flooding the business sector with their products. Recession effects in the domestic and

JOINT STOCK COMPANY VINAMILK

15

international market of Vinamilk. Furthermore, there are a lot of competitors in the market;
company is successful in satisfying the customers needs, therefore, the demand of product
can increase. Thus, it would be challenging environment for Vinamilk in the future years.
4.0 Sustainability
With its legitimate interests and practical activities, Vinamilk has been known as the
"Brand for the Community". The concept of sustainable development defined by common
consent: "Sustainable development is the development that meets the present needs without
compromising the ability of future generations to meet their own needs." (Brundtland
Commissio)
As one of the leading companies in Vietnam, Vinamilk is highly aware of its influence
to the community and the sustainable development of the society. They understand that the
success of a business is reflected in not only its financial performance in each annual report
but also, and more importantly, in the prominent and sustainable values that it could bring to
people.
Vinamilk invest in intellectuality and health is invaluable investment for human. Thus,
Vinamilks product is a long-term commitment to international quality standards. In 2014,
Standard and Poors (S & Ps) put Vinamilk into the list of 100 Asean largest enterprises on
capitalization value with the recognition of revenues in 2014 reached VND35,800 billion.
This success demonstrates strong and stable potential of Vinamilk in the investment strategy
of comprehensive development, toward one of the 50 largest dairy companies in the world
with revenues of USD3 billion in 2017 (Vinamilk annual report, 2014).
Top priority of Vinamilk is identifying food safety, they guarantee that each of its
products is the best result of a closed-loop production cycle which meets one of the most
rigorous requirements for the quality, including:

JOINT STOCK COMPANY VINAMILK

Explicit
and
thorough
informati
on fo
rconsume
r

16

Research
and
design for
sale and
nutrtious
products

Managem
ent and
Quality
control in
complianc
e with the
ISO
standard

Safe
materials

Modern
equipment
and
technologi
es

Source: https://www.vinamilk.com.vn, Vinamilk

5.0 Conclusion
In this business study, I have analyzed about the macro and micro economics of
Vietnam dairy products joint stock company (Vinamilk). Micro and Macro factors a very
important part for economic analysis of a particular company. I choose Vinamilk because of
its strong position in the market. Vinamilk is the leader in Vietnam dairy industry and they
has the appropriated strategy to maintain the market position and get the high growth in the
net sales by building the new factories to expanding the capacity, invest strongly in material
resources both in Domestic and foreign country, widen the distribution channel to approach
new customers, by doing that Vinamilk can save the cost of goods sold and take the
advantages of economic of scale.

JOINT STOCK COMPANY VINAMILK

17

6.0 References

Allan Layton, Tim Robinson & Irvin B. Tucker. (2009). Economics for Today. South
Melbourne: Thomson.
Annual Report. (2014). Retrieved April 28, 2016, from Vietnam Dairy Product Joint
Stock Company: http://vinamilk.com.vn
Hayes, D. (2007). Vinamilk performs. In Dairy Industries International (Vol. 72,
pp. 26-27).
Hayes, D. (2008). Vinamilk profit exceeds target. In Dairy industries International
(Vol. 73, p. 11).
Okpighe. (2015). The Seven Factors of Production. British Journal of Applied
Science & Technology, 3-5.
Okpighe, S. O. (2015). The Seven Factors of Production. British Journal of Applied
Science & Technology, 217 - 232.
Saenger, C., M. Qaim, M.Torero, A. Viceisza. (2013). Contract farming and small
holder incentives to prduce high quality: Experimental evidence from the
Vietnamese dairy sector. Agricultural Economics, 101-104.
Sustainable development. (2013). Retrieved April 29, 2016, from Vietnam Dairy
Product Joint Stock Conpany: http://www.vinamilk.com.vn
Vietnam Dairy Product Joint Stock Company. (2007). Financial Content. Retrieved
April 30, 2016, from Vinamilk: http://www.vinamilk.com.vn
Vietnam Inflation Rate. (2014). Retrieved April 29, 2016, from Trading Economics:
http://www.tradingeconomics.com/vietnam/inflation-cpi