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HANOI UNIVERSITY

FACULTY OF MANAGEMENT AND TOURISM

COMPANY ANALYSIS REPORT


INTERNAL ENVIRONMENT
Company Name: Vinamilk Company

Subject INTRODUCTION TO MANAGEMENT

Tutorial 4

Tutor Phan Hoàng Quân

Group member Student’s full name Student’s ID

1 Trần Mai Phương 1604040093

2 Nguyễn Thị Thanh Huyền 1604040056

3 Bùi Hà Thu 1604040108

4 Phan Hà Anh 1604040014


EXCUTIVE SUMMARY

In recent years, Vietnam has shift toward a more integrated and interdependent
worldwide economy. It can be clearly seen that Vietnam market has been more open than
ever, connecting domestic market economy with regional and world markets via bilateral
relations on trade investment, … This shift is supposed to be a good sign but as a matter
of fact it makes the market as a whole get more and more competitive. Domestic firms in
Vietnam; consequently, have been facing a lot of difficulties in developing their
businesses, one name can be mentioned is Vinamilk Company.

When it comes to the dairy market in Vietnam, Vinamilk Company is the name that
cannot be forgotten. The company has been around for more than 40 years and is
presently driving the dairy business in Vietnam, accounting for 53% of the domestic
market for liquid milk, 84% for yogurt and 80% for condensed milk (asiannikkei.com,
2016). Even though the data in annual financial statement still represents a positive trend
of development, Vinamilk has to face some obstacles which prevent its old empire from
expanding. Knowing that the apex of environmental scanning with regard to competition
can only be found in Porter’s Five Forces model, the aim of this report is to assess the
application of the five forces model in terms of analyzing Vinamilk Company’s case.
This study is expected to provide a large amount of knowledge on Porter’s five forces
model and a meaningful evaluation of the Vinamilk Company. At the end of the paper,
we also propose some potent suggestions that Vinamilk Company can apply to upgrade
its performance.

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Table of Contents

EXCUTIVE SUMMARY ............................................................................................................. ii


1. Introduction ........................................................................................................................... 1
2. Literature Review .................................................................................................................. 1
3. Application of Porter’s Five Forces Model : Vinamilk Company .................................... 1
3.1. The Bargaining Power of Suppliers .......................................................................................... 2
3.2. The Bargaining Power of Buyers ............................................................................................... 3
3.3. Threat of New Entrants .............................................................................................................. 4
3.4. Threat of Substitutes................................................................................................................... 5
3.5. Current Rivalry ........................................................................................................................... 6
4. Recommendations.................................................................................................................. 7
5. Conclusion .............................................................................................................................. 8
REFERENCE ................................................................................................................................ 9

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1. Introduction
Established in 1976, Vinamilk started as the state-owned Southern Coffee-Dairy
Company. After experiencing some changes, the company was legally renamed to
Vietnam Dairy Products Joint Stock Company (Vinamilk.com). Since 1976, it has
expanded to become the leading ventures of the dairy industry, comprising of
approximately 50% of the market share (Tomimaya, 2015). With the assorted variety of
products, Vinamilk dominates the Vietnamese dairy industry ranging from condensed
milk, powdered milk, fresh milk to ice-cream, cheese, fruit juice, coffee and other
products. However, with the world trade integration and the shift in consumers’ tastes, a
huge number of new entrants, competitors, substitutes has invaded the market which is
supposed to belong to Vinamilk. If Vinamilk wants to maintain the crown in the dairy
industry, Five Forces Analysis should be considered in its process of making a strategy.
Therefore, this project will investigate the application of Porter’s five forces model to the
Vinamilk Company amidst the rapidly changing competitive environment of Vietnamese
dairy market.

2. Literature Review
First published in 1979 in Harvard Business Review, Five Forces Analysis Framework is
one of the most well-known works of Michael Porter - the momentous doyen of the
economic field. It is a tool made for the purpose of examining the five crucial forces that
conclude the intensity of competition hence determine the profitability of any industry.
These five key forces are: Bargaining power of suppliers, bargaining power of buyers,
threat of new entrants, threat of substitutes and current rivalry. The intensity of these
forces highly determines the average expected level of profitability in an industry and
their thorough understanding, both individually and in combination, is beneficial in
deciding what industries to enter, and in assessing how a firm can improve its
competitive position (McGanan, 1997)

3. Application of Porter’s Five Forces Model : Vinamilk Company

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3.1. The Bargaining Power of Suppliers
Building long-term and unshakeable development with both domestic and foreign
suppliers is the fundamental purpose of Vinamilk to maintain the source of raw material,
which is not only high in quality but also reasonable in price.

There are some names can be called when it comes to foreign dairy suppliers such as
Fronterra. Holding 1/3 the world’s dairy consumption, Fronterra, is the main supplier of
high-quality milk powder for Vinamilk Company (Vinamilk.com). In Vinamilk
Company’s case, almost all production materials of the firm are imported in order to
ensure the highest quality of the products, which explains why the bargaining of suppliers
might have a huge effect on the firm as a whole. The suppliers can easily impose huge
threats to Vinamilk by withholding or reducing the quality of material supplies. In recent
years, milk powder price, which is supported by the difference between supply and
demand, has increased 60% in the last 12 months to 2608 USD per ton for SMP and 3314
USD per ton for WMP in February 2017, leading to the risk of declining profit margin
(Dong, 2017). As a result, there has been a sharp rise in production cost of Vinamilk.

About domestic supplier, the limited company Perstima Viet Nam is also one of the
Vinamilk’s strategic partners. They provide steel cans for Vinamilk’s products
(Vinamilk.com). Another big domestic supplier is Tetra Pak Vietnam which provides
paper packing such as carton boxes for Vinamilk. Besides, milk farms are very important
strategic partners of Vinamilk, which provide raw ingredients for the final products. It is
widely known that the dairy industry depends a lot on ingredients that are essentially
provided from domestic companies such as packages, farming products, which makes it
hard to ignore the importance of indigenous suppliers.

To lower the bargaining power of suppliers, in 2016, Vinamilk first developed


sucessfully organic milk farm in Lam Dong with cultured technology that required
rigorous technical standards from Europe and America, keeping pace with the trend of
consuming organic products in the world. In October 2017, Vinamilk successfully took
over Vietsugar with the aim to expand Vinamilk’s source of raw material. By doing so,

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Vinamilk can reduce the high dependence from foreign suppliers. Nonetheless, Vinamilk
has a good contractual policy and strong commercial relationship with its suppliers so the
bargaining power of suppliers can be seen as not worrisome. To tackle the
unpredictability of raw milk market, which is one of Vinamilk Company’s troubles, the
firm has developed its material along with dairy farm. It also controls imported goods
from abroad and establishes milk distribution network.

3.2.The Bargaining Power of Buyers


Customers of Vinamilk are classified into two main groups: individuals and big
distributors such as supermarkets, malls, … Each kind has different way to put the
pressure on firm like Vinamilk.

In terms of retail customers, for there is a diversity of dairy brands in the market,
consumers tends to be more picky. They expect not only better quality but also better
visual packaging and cheaper. Follow the demand, Vinamilk has launched many projects
to better its products including farmented apricot drinking but still keeps customary
Vietnamese taste, Optimum Mama milk powder “supplemented with fiber, nutrients in
order to enhance resistance, boost the immunity for mothers”, … (Vinamilk.com). As a
matter of fact, the company predominantly focus on improve brand power by carefully
investigating their customers, especially children to promote suitable and attractive
advertisements making consumers interested in.

In terms of distributors, in order to compete with foreign dairy companies and other
domestic rivalries, Vinamilk has to discount and share commission for retail agents like
supermarkets, local grocery stores, ... Such distribution points have significant bargaining
power because they affect consumers’ purchasing decision by deciding whether or not
they should introduce firm’s products to local residents. They would use that to gain
some more percent of discount, which reduces the accountant profit that firm is supposed
to have.

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From all above reasons, we can clearly see that the bargaining power of buyers is
considered to be high.

3.3.Threat of New Entrants


The Vietnamese milk industry, in recent years, has been developed rapidly. The growth
rate has increased by 17% per year in average in the period from 2011 to 2015, the
turnover achieved 81,7 thousand billions VND at the end of 2016. It is predicted that this
rate will rise by 9% and the annual average amount of milk will reach to 27-28 liters per
person in 2020 (VDA.org.vn, 2015). From the giving details, it is clearly shown that the
future of milk market in Viet Nam is shiny bright with high profitability rate and stable
growing demand for fresh milk, which results in entry of many firms in this industry.

Figure 1: Dairy sales in Vietnam 2010 - 2016

In spite of high profitability rate, new entrants still face many barriers to entry. There are
four main ones: capital and minimum efficient scale, technology, transmission and
distribution system, consumers’ loyalty for previous brand names. To win over Vinamilk
Company, new entrants have to solve all of these problems.

The first problem for new entrant is advanced technology. A few years ago, the malamine
scandal (a harmful substance for human body) was exposed, which left an unhealable

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scar on Vietnamese consumers then the customers’ trust in domestic milk products was
wobbled. New businesses must invest more in technology such as production chains,
preservation systems due to keep high quality of products and safety food. After that they
may got a place in this industry.

On the other hand, transmission and distribution system is like blood vessels, through it
producers can introduce their products to consumers. Vinamilk owned strong
transmission and distribution system with about 212000 sale points for wholesale and
retail. It is difficult for new faces to develop their own system that can win over the
current system of Vinamilk.

The next barrier is consumers’ loyalty. Vinamilk has been around for 30 years and its
products have their own position in consumers’ hearts which is irreplaceable. Because of
that, this problem is considered to be the biggest barrier for new firms to entry.

In term of capital and minimum scale, as given information, business must hold a great
potential financial to set up all the plants and marketing strategies and discard all above
barriers. And they also have to calculate the efficiency of the business profit or loss.

3.4. Threat of Substitutes


Switching cost is the cost that a consumer incurs as a result of changing brands, suppliers
or products. Threat of substitutes of Vinamilk gets high when the switching cost is low
and vice versa. To determine the level of threat of substitute, we will investigate into the
switching cost between milk and other choices of drink which is divided into two groups
based on their purposes: for health and for ease the thirst only.

Theoretically, if substitutes are almost as good as the firm’s product but sold at a cheaper
price, the switching cost will be low and consumers tend to switch to those substitutes
because they want to save their money rather than spend it. As the obesity rate is getting
higher, consumers opt to consume different kinds of drink that low in fat. As a result,
people are making their own drink with their own recipe or buying substitutes that are not

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dairy, which is not only cheaper but also healthier. There are many types of substitutes
can replace dairy products’ position in consumers’ hearts for instance roasted grain drink,
detox water (water that has been infused with the flavors of fresh fruits, vegetables or
herbs), …

The consumer’s switching cost between beverage and Vinamilk’s products is low for
they have the same purpose is ease the thirst so customers don’t really care if they change
from purchasing a Vinamilk’s bottle to a soft drink from other brands. Moreover, the
price difference between these two kinds of product is slight (Vinamilk’s products are
sold at 7,000 VND while that of Coca Cola or other brands’ is 8,000 VND). Therefore,
the threat is high.

3.5.Current Rivalry
In this section, we considered four main products that account for a high proportion in
annual revenue of the company: liquid milk, milk powder, condensed milk and yogurt to
analysis the current rivalry of Vinamilk.

Vinamilk accounts for 48.7% of the market share of liquid milk, followed by Dutch Lady
with 25.7%. Therefore, we can clearly see that the biggest current competitor of Vinamilk
in this liquid milk market is Dutch Lady. The market shares of Dutch Lady is lower as
their products are mainly made from paper box milk, sold at higher prices. While
Vinamilk penetrated mainly into the market with dairy products finely packed with Fino,
sold at cheaper price.

There is an increased competitive pressure of imported products to Vinamilk as demand


for foreign dairy products are becoming more popular. However, the potential growth of
the powdered milk market in Vietnam is still high (the long-term CAGR is estimated at
8%) (VCBS, 2017). The customer segmentation Vinamilk can aim to is the low and
middle one. With the diversification of dairy products for different ages, competitive
price and the widely recognized brands, VCBS researchers believe that it is attainable for
Vinamilk to expand the market shares in these segments.

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Yoghurt is a segment which had a great growth potential with an average rate of 31% in
sales and 14% in output from 2010 to 2015. Vinamilk is now the leading company in this
sector, accounting for 73% market shares.

The market for condensed milk is forecasted to have a slower developed rate than other
types of milk. This is also a barrier for Vinamilk when condensed milk is one of the three
main products of the business. (Vietstock, 2009)

Vinamilk in the industry is still the leading business although the growth of sales has
slowed down for over the past two years as competition pressure has forced businesses to
increase sales costs to maintain market shares.

4. Recommendations
To conquer difficulties, we have some suggestions for Vinamilk Company’s future
direction:

Firstly, it is necessary to improve the product quality. Increasing the value of the product
for the sake of consumers such as provide and produce a wider range of milk with extra
vitamin, DHA, calcium, low fat, low cholesterol, low lactose milk for poorer digestion,

Secondly, the marketing team should step up their game and make the brand stand out
from the crowd. Implementing trial programs in public places : supermarkets, schools... is
also a suggestion because it is an effective way to promote their brand.Developing the
design of the milk bottle and packaging, making them more attractive to customer is one
of many things that should be done. Advertising via television and Internet should be
invested more in terms of content and visual.

Lastly, the company should pay attention to social activities such as charity, scholarships
and giveaway for underprivileged families, ... to gain public recognition as well as
affection.

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5. Conclusion
After carefully analyzing and evaluating the pressures of Vinamilk by using the Five
Forces Model, we have come to the conclusion that the bargaining power of buyers is the
force that put the biggest weight on Vinamilk Company. Based on the findings of the
report, the study suggests that as purchasers get more cognizant about their dairy
decisions and market gets more competitive, product quality and branding plan are
apparently become more critical. The challenge that Vinamilk has to face right now is
that the firm needs a better strategy in terms of developing quality, marketing and
branding in order to improve its consumer identity as well as brand identity and win over
buyers’ hearts

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REFERENCE

asian.nikkei.com. 2016, Vinamilk Revenue Up 14% In 2015 On Strong Overseas Business,


Viewed 1 December 2017, https://asia.nikkei.Com/Business/AC/Vinamilk-Revenue-Up-14-In-
2015-On-Strong-Overseas-Business

Dong, Q. T. 2017, ‘CÔNG TY CỔ PHẦN SỮA VIỆT NAM - Tăng Trưởng Lợi Nhuận Bị Ảnh
Hưởng Từ Giá Nguyên Liệu’, Báo Cáo Cập Nhật, TVS Research.

Kevin. 2013, Tổng Hợp Số Liệu Các Công Ty Sữa Và Thị Trường Sữa Ở Việt Nam, viewed 4
December 2017, Https://vneconomics.com/Tong-Hop-So-Lieu-Cac-Cong-Ty-Sua-Va-Thi-
Truong-Sua-O-Viet-Nam/

Mcgahan, A. M & Porter, M. E. 1997, ‘How Much Does Industry Matter, Really?’, Strategic
Management Journal, Vol. 18, Pp. 15-30.

Tomimaya, A. 2015, Vietnam's No. 1 Dairy Company Eyes Global Rank, Viewed 5 December
2017, https://asia.nikkei.com/Business/AC/Vietnam-S-No.-1-Dairy-Company-Eyes-Global-Rank

VCBS. 2017, Vinamilk Report.

Vda.Ord.Vn. 2015, Ngành Sữa Việt Nam: Thách Thức Và Cơ Hội, Viewed 23 November 2017,
Http://Www.Vda.Org.Vn/Thong-Tin-Thi-Truong/Trong-Nuoc/Newsid/Nganh-Sua-Viet-Nam-
Thach-Thuc-Va-Co-Hoi-10/Moduleid/511

Vietstock. 2009, Vinamilk Stocks And Shares Analysis Report.

Vinamilk.Com, Vinamilk’s Official Website, https://www.vinamilk.com.vn/vi, viewed 30


November 2017.

Vinamilk.com. 2016, Annual Report 2016, Vinamilk Co.

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ITM REPORT MARKING SHEET

Group: 7 Lec: 2 Tut: 4 Date: 15 December 2017


Report Title: Application of Porter’s
Five Forces on Vinamilk Company Student name: Trần Mai Phương ID: 1604040093

Student name: Phan Hà Anh ID: 1604040014

Student name: Bùi Hà Thu ID: 1604040108


Student name: Nguyễn Thị Thanh Huyền ID: 1604040056

Criteria Max Actual


Executive summary: 5
• Important aspects 3
• Value of the report 2
Introduction (background information): 10
• Purpose and structure of the report 5
• Company information: name, logo, industry, product/service, target 5
customer, target market, market size/share, recent performance/reputation
Literature review: 10
Introduction & brief explanation of theories used in the report 5+5
Analysis: 40
• Application of suitable theories, good comprehension of chosen theories (10 each)
• Stating managerial activities (in accordance with selected topics)
• Identifying current issues
• Identifying current good practices
Conclusion: 10
• Restate the main ideas, summary of important points 8
• Leave a final impression (future orientation for the company, etc.) 2
Recommendations: 15
• Solutions for company’s issues and improvement on/maintenance of current (5 each)
good practices
• Strongly supported arguments (suggestions are based on exemplary/similar
cases, etc.)
• Implementation of suggestions, feasibility
Reference: 5
• Minimum compulsory sources (textbook and 02 newspaper sources) (1 each)
• Sufficient in-text reference (statistics, illustrations, citation, paraphrasing,
mentioning of theories, etc. must be referenced)
• Sufficient reference list
• Correct format of in-text and reference list

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Superficial quality: 5
• Format of the report is clear and neat 2
• Free of spelling and grammar mistakes 3
TOTAL MARK 100
* Bonus 5 marks: analysis is based on self-conduct interview of a business.
* Frauds: exact copying (from any source) means 0 for the copied parts.

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