The reason to choose the research topic
The pharmaceutical industry plays a crucial role in public health and is heavily regulated by government authorities Recent economic growth has led to improved living standards, resulting in increased healthcare spending While this presents significant opportunities for the pharmaceutical sector's expansion, it also poses challenges in meeting the rising demand for healthcare products and services.
Vietnam is currently integrating into the World Trade Organization (WTO), presenting both opportunities and challenges To remain competitive, companies across various industries, including the pharmaceutical sector, must engage in thorough preparation in all areas.
TRAPHACO Joint Stock Company, founded in 1999 and based in Hanoi, specializes in the production and distribution of pharmaceuticals, food, chemicals, and medical equipment, alongside offering technical consultation services With over a decade of experience, TRAPHACO has established a strong reputation in the pharmaceutical industry, earning the trust of both partners and consumers.
In the face of intense competition in the pharmaceutical market, particularly following Vietnam's accession to the WTO, TRAPHACO recognizes the necessity of reassessing its business environment and internal resources Developing a suitable business strategy is crucial for the company's survival and growth Consequently, the group has chosen to focus on this important topic.
“Developing the business strategy of TRAPHACO Joint Stock Company for the period 2011 - 2015".
The object and scope of research
Studied object: Activities of TRAPHACO JSC.
Scope of research: Research focuses on the company's operations nationwide.
The purpose of the research topic
This research focuses on reassessing the business environment of TRAPHACO Joint Stock Company, leading to the formulation of a new business strategy tailored to current conditions Additionally, the study offers practical solutions for the effective implementation of these strategies.
Research Methodology
To achieve the mentioned objectives, the group has used the following research methodologies: dialectical materialism, analysis and correlative comparison, collection, statistics, theory and practice combination.
The report’s structure
This report consists of three chapters:
- Chapter 2: Analyzing the business environment of TRAPHACO JSC.
- Chapter 3: Developing business strategy of TRAPHACO JSC for the period of 2011 – 2015.
The concept of strategy
1.1.1 The concept of strategy, business strategy and strategic management
The term "strategy," originally linked to military operations and derived from the Greek word "strategos," which signifies the role of army generals, has evolved in the business context Scholars have redefined this concept, attributing new meanings and implications to it within the realm of business strategy.
According to Chandler (1962), strategy involves establishing an enterprise's fundamental long-term goals and objectives, along with selecting the appropriate actions and allocating resources essential for achieving those objectives.
Business strategy is "a series of commitments and activities that a company uses to win a competitive advantage by exploiting core competencies in a specific market."
Business strategy management is both a science and an art focused on developing an organization's direction and objectives It involves implementing short-term and long-term plans based on available resources, ultimately aiming to help the organization achieve its long-term goals.
1.1.2 The role of business strategy
Business strategy plays the orientation role for the enterprise’s business activities, identifying the major objectives of the firm and how to achieve that goal.
A business strategy outlines development trends and identifies essential resources, offering guidance on how to effectively combine these resources to maximize the firm's potential and optimize available assets.
The strategy will enable the enterprise to proactively adapt to market changes, capitalize on emerging opportunities, and effectively mitigate risks by leveraging its available resources.
1.1.3 The classification of business strategy
Business strategies can be categorized based on various criteria, and this article focuses specifically on the classification of business strategies according to their hierarchical levels within an organization.
Accordingly, three are three levels of business strategy as follows:
Corporate level strategy focuses on the comprehensive scope of an organization, aiming to define its missions and objectives This strategy is crucial for determining the types of businesses an enterprise should engage in and for effectively managing and coordinating its portfolio.
Business unit level strategy focuses on positioning, aiming to enhance the firm's value by boosting brand awareness and customer value perception This strategy applies to divisions or production lines that can operate independently, emphasizing the development and maintenance of a competitive advantage for the enterprise's products or services.
Operational level strategy focuses on effectively implementing corporate and business unit strategies by optimizing an enterprise's resources and capabilities This strategic level emphasizes business processes and the value chain, encompassing marketing, research and development, human resources, and financial strategies It plays a crucial role in the success of higher-level strategies by enhancing resource development, process design, and the firm's activity network.
Analysis for business strategy development
Analyzing the external environment is essential for businesses to develop effective strategies and make necessary adjustments This analysis helps enterprises identify opportunities to seize and challenges to mitigate Commonly used tools for this analysis include the PEST model and the EFE matrix.
PEST model is applied for analyzing and evaluating the political, economic, cultural, social and technological factors which have certain impact on the enterprise‘s performance.
The political environment encompasses the stability and governmental policies that influence the economy and specific industries Political decisions significantly impact critical areas for businesses, including health, education, and infrastructure Companies must analyze various policies, such as tax regulations, labor laws, environmental legislation, and trade barriers, to assess how these factors affect their operations.
The economic environment is assessed through key indicators such as interest rates, economic growth, inflation, and exchange rates, all of which significantly influence a firm's operations and income Interest rates determine capital costs for businesses, while exchange rates impact the expenses associated with importing and exporting goods Economic growth indicates shifts in consumer spending patterns, and inflation affects overall economic stability by influencing these three critical factors.
The socio-cultural environment encompasses factors such as population demographics, age distribution, and social attitudes, which can significantly influence the demand for a company's products and services Shifts in societal trends may alter consumer preferences and impact the available labor force within various sectors of the business Additionally, changes in population structure can drive demand for certain products while reducing it for others, highlighting the importance of understanding these dynamics for effective market strategy.
Advancements in technology significantly enhance production and business practices, leading to cost reductions, improved quality, and the development of innovative products and processes As technology's role in enterprises grows, its influence has the potential to transform the competitive landscape across various industries.
1.2.1.2 External Factor Evaluation Matrix (EFE)
The EFE matrix is a strategic management tool used to evaluate a company's current business environment by identifying external opportunities and threats This matrix assesses various factors, including political, economic, social, and legal elements, that impact the organization.
- Make a list of external factors affecting the firm These factors are divided into two groups of Opportunities and Threats.
In evaluating the significance of various factors, each is assigned a weight ranging from 0 to 1, where a score of 0 indicates minimal importance and a score of 1 signifies a substantial impact on the firm The cumulative total of all weights must equal 1, ensuring a balanced classification of importance across all factors.
When evaluating each factor, assign a rating from 1 to 4, where 1 indicates a poor response, 2 signifies below average, 3 represents above average, and 4 denotes a good response This rating system allows for a clear assessment of the firm's performance across various factors.
- Multiply the weight of each factor with its rating to get the weighted score for each factor
- Add all scores of the factors to determine the total weighted score for the firm.
Assessment: Total highest points in the EFE matrix is 4.0, the lowest is 1.0 and average is 2.5
A total score of 4 indicates that the enterprise is effectively addressing external opportunities and threats This strong performance reflects the company's ability to capitalize on available opportunities while minimizing the impact of external threats.
- If the total score is 2.5, the enterprise’s response is of average level for the opportunities and threats.
A total score of 1 indicates that the enterprise's ability to address external opportunities and threats is weak Consequently, the strategies implemented by the enterprise fail to capitalize on available opportunities and do not effectively mitigate external threats.
1.2.1.3 The model of five competitive forces
Developed by Michael E Porter in 1980, the five competitive forces model is a crucial tool for analyzing industry environments This framework encompasses the power of suppliers, the threat of substitute products, the threat of new entrants, the power of buyers, and rivalry among existing competitors Together, these forces influence the level of competition, as well as the profitability and attractiveness of a sector, providing valuable insights into the specific characteristics of a business industry.
The power of suppliers significantly influences an industry’s dynamics, characterized by the concentration of suppliers and their differentiation This power affects input costs and product differentiation, while the availability of alternative providers can alter firms' cost structures Additionally, suppliers' ability to unite can lead to higher prices, especially in industries with minimal entry barriers.
Substitute products pose a significant threat in the market due to the availability of similar items offered at lower prices or with superior features Key factors influencing this threat include customer loyalty, the strength of relationships with customers, the costs associated with switching products, and the perceived correlation between the price and quality of substitutes.
Potential rivals are companies that are not yet involved in the industry but could influence it in the future The threat posed by these potential entrants is influenced by several factors, including barriers to entry such as economies of scale, initial investment and fixed costs, conversion costs associated with changing business lines, access to input resources, distribution channels, and relevant government policies.
Buyers, including retailers and distributors, exert significant influence over companies regarding pricing, quality, and service Their power is determined by factors such as the volume of purchases, the total number of buyers, the differentiation of products, the availability of substitute goods, and the conversion costs associated with switching products.
- Tel: (04) 38430076, Email: info@traphaco.com.vn
- Website: http://www.traphaco.com.vn
- Certificate of business registration No 0100108656 issued for the first time by the Hanoi Department of Planning and Investment dated 24 December, 1999, and changed the 13 th dated 30 December, 2010.
- Producing and trading pharmaceutical products, food, cosmetics, chemicals and medicinal materials and equipment;
- Consulting technical services on production, technology transfer in the medicine and pharmacy;
- Researching, collecting, growing and processing medicinal herbs;
- Importing and exporting medicinal materials and products;
- Other lines of business according to the registration.
- Headquarter is located on area of 800m 2 in Yen Ninh, Ba Dinh district, Ha Noi.
+ GMP-WHO Western medicine production factory is located on area of 10,000m 2 in Hoang Liet, Hoang Mai district, Hanoi
+ GMP-WHO herbal medicine production factory is located on the area of40,000m2 in Van Lam, Hung Yen.
+ Hi-tech TRAPHACO JSC (TRAPHACO CNC)
+ TRAPHACO Sapa Company Limited in Lao Cai
Our network includes branches in key locations across Vietnam, such as Ho Chi Minh City, Vinh Long, Binh Thuan, Dong Nai, Da Nang, Nghe An, Thanh Hoa, Nam Dinh, and Hai Phong, ensuring comprehensive coverage and accessibility for our clients nationwide.
Vision: Bbecome a strong economic corporation involved in trading and providing health care products and services by 2020.
- Provide contemporary products - services which are rich in traditional values in order to improve the quality of life.
- Always satisfy customer needs, create meaningful works and offer promotion opportunities for employees.
- Consider science and technology as center, market as orientation for business, growth as motivation and quality as its commitment for customer.
- Sustainable development is based on continuing improvement of product quality, service quality, business development associated with environmental protection and construction of corporate culture.
- Product’s orientation: "New technology & traditional characters"
- Market: Increasing export while meeting domestic demand, contributing to the national drug strategy which emphasizes in increasing the rate of domestic drug use.
- Multi-functional development focusing on scientific research work, training and development for human resource.
- Quality of products and services to decide the existence of the firm.
- Adding value to society, customers, employees and shareholders is the goal and motivation of sustainable development.
- Creativity is foundation of development.
- Cooperation, sharing, commitment and commitment implementation are fundamental of corporate culture.
- Innovation and tradition are identity of TRAPHACO.
TRAPHACO operates with the confidence of customers and shareholders, with the principle "Faith and Prestige based Business"
+ Knowing ourselves, knowing others: To create quality products, fully understand the characteristics and advantages of the product policy of the company compared to the same products on the market.
+ Self-assertion: Engrave image of the company and its products on customers' mind.
+ Self-perfection: Respect and listen to the customers in order to satisfy their requirements.
Figure 2.1 - Organizational chart of the company
Vietnam's economy has experienced significant growth in recent years, with projections indicating that this trend will continue from 2010 to 2015 According to BMI, the expected growth rate during this period is between 5.5% and 7.0%, signaling a robust economic outlook for the country.
General Meeting of Shareholders Management Board
Deputy General Director of Quality
Deputy General Director of Quality
Deputy General Director of Business
Deputy General Director of Business
Deputy General Director of Finance
Deputy General Director of Finance
Deputy General Director of Organization and Administration
Deputy General Director of Organization and Administration
- GMP –WHO Factory -Planning Dept
- Dept of import and export
- GMP –WHO Factory -Planning Dept
- Dept of import and export
Nam Dinh Branch Hai Phong Branch Nghe An Branch Thanh Hoa Branch
Ho Chi Minh Branch Vinh Long Branch Binh Thuan Branch Dong Nai Branch
Nam Dinh Branch Hai Phong Branch Nghe An Branch Thanh Hoa Branch
Ho Chi Minh Branch Vinh Long Branch Binh Thuan Branch Dong Nai Branch
The Financial Accounting Department plays a crucial role in managing and reporting financial data, while the Marketing Department focuses on promoting products and services to enhance brand visibility Additionally, the Management Administration Department oversees organizational operations, and the Personnel Organization Department is responsible for human resources and employee management Together, these departments contribute to the overall efficiency and success of the organization.
M an ag em en t A dm in is tr at io n D ep t P er so nn el o rg an iz at io n D ep t.
Figure 2.2 - GDP forecast of Vietnam
Inflation significantly raises input costs for businesses, including expenses for electricity, water, fuel, raw materials, and interest rates Government measures aimed at curbing inflation primarily affect industries subject to price controls, notably the pharmaceutical sector Prolonged inflation and adjustments to the State Bank's interest rates further escalate input costs, while companies are unable to raise their product prices correspondingly This imbalance ultimately undermines the efficiency of enterprises.
In February 2011, the exchange rate rose by 9.3%, yet the depreciation of the VND did not adversely impact industry or firm profitability, as many businesses were already purchasing dollars at the free exchange rate for material imports Anticipating a second government adjustment of the exchange rate in 2011 to reduce the disparity between the free and official USD exchange rates, enterprises remain largely unconcerned about exchange rate fluctuations this year.
- Oil price continues to escalate and is expected to reach the average of 100 -130 USD per barrel in 2011, a 38% increase compared with the average level of 75-
In 2010, the price of oil reached 80 dollars per barrel, contributing to a broader trend of rising costs for raw materials in the pharmaceutical industry This increase is exacerbated by a shortage of essential medicinal resources and a growing demand for medical treatments, highlighting the ongoing challenges faced by the sector.
To stabilize the macro-economy, the Government has implemented policies including monetary tightening, stringent public spending controls, and initiatives to boost exports while reducing the trade deficit These measures have proven to be remarkably effective, as evidenced by the gradual decrease in the Consumer Price Index (CPI), which is expected to remain constrained below 2% per month.
TRAPHACO consistently updates its understanding of the economic landscape and forecasts, while strategically managing financial resources and fostering strong relationships with banks and financial institutions to ensure flexible payment options Additionally, the company optimizes its product sales mix to maximize overall benefits.
The Government's Decree No 68/2009/ND-CP, effective from October 1, 2009, amends the regulations on sales discounts and promotions, specifically clarifying that medicines cannot be used for promotional purposes for individuals, except for drug traders This update to the Commercial Law allows producers to implement more flexible sales promotion methods, particularly for wholesale distributors.
The shift to more flexible promotion forms in pharmaceutical firms has led to reduced costs, as promotional expenses are lower than direct commissions to distributors Consequently, the profit ratio has improved since the fourth quarter of 2009 Some companies have opted to replace direct commissions for distribution agents with price reductions While this change does not affect the overall benefits for sellers and buyers from an accounting perspective, it may result in decreased turnover for pharmaceutical companies, despite a positive increase in actual consumption.
As of January 1, 2011, all pharmacies in Vietnam are mandated to adhere to Good Pharmacy Practices (GPP) standards for their operations While the implementation date may be subject to delays, the long-term impact of these regulations is expected to significantly enhance the quality of drug delivery across the country.
The Ministry of Health has yet to establish regulations defining the business scope for both non-prescription and prescription medications Currently, only pharmacies that meet Good Pharmacy Practice (GPP) standards are permitted to distribute prescription drugs Consequently, drugstores that do not comply with GPP standards must partner with compliant pharmacies or transition to alternative business models if they wish to continue selling prescription medications.
On June 1, 2009, the Health Ministry issued Circular No 03/2009/TT-BYT, outlining the organization and management of Good Pharmacy Practice (GPP) drugstore chains To qualify as a GPP pharmacy chain, an enterprise must operate a drug distribution and retail system with at least five GPP-standard pharmacies nationwide, adhering to Good Manufacturing Practices (GMP) and Good Storage Practices (GSP) Such enterprises are authorized to retail various products, including registered and unregistered drugs, rare medications, and prescription drugs Additionally, they receive priority in procurement for supplying national drugs and medicines to state-funded hospitals.
The pharmaceutical industry is significantly impacted by regulations requiring firms to register their import and export activities with the Ministry of Health Additionally, companies must obtain import quotas for specific drugs, creating a structured framework for pharmaceutical transactions Typically, drugstores that are not affiliated with distribution companies engage in authorized import and export activities.
Enterprises engaged in export, import, and drug distribution through GPP drugstores stand to gain significantly in the future They will benefit from direct import/export and distribution, which will reduce import costs Additionally, they will receive priority for distributing prescription drugs as forthcoming regulations are expected to favor them, even though such laws are not yet enacted Furthermore, these enterprises will have an advantage in bidding to supply hospitals However, establishing successful retail chains and implementing the new regulations for GPs may take time.
DEVELOPING BUSINESS STRATEGY OF TRAPHACO
IN THE PERIOD 2011 - 2015 3.1 Selection of business strategy
Chapter II discusses the external environmental factors impacting TRAPHACO To quantify these factors, we utilize the EFE matrix outlined in Chapter I, allowing us to visualize TRAPHACO's responses effectively.
Table 3.1 - External Factor Evaluation Matrix
2 Requirements of the law regulations 0,15 4 0,60
3 Increasing average drug spending per person 0,15 4 0,60
4 People's awareness about health care, especially medicines derived from natural sources
7 Development of science and technology 0, 15 3 0,45
8 Effect of weather on material resources in the country 0,12 3 0,36
10 The entry of foreign companies 0,05 3 0,15
In conclusion, the total weighted score of TRAPHACO's Internal Factor Evaluation (IFE) matrix stands at 3.38, indicating that the company is relatively strong in relation to its external environment The group has carefully selected and evaluated various factors based on this assessment.
Classification in column (2) and rating in the column 3 is explained as follows:
(1) Political environment: Vietnam has a stable political environment The factor is weighted at 0.05 and TRAPHACO reaches the rating of 4.
Legal regulations regarding business and promotional methods are becoming increasingly stringent, particularly concerning GMP standards for opening pharmacies Companies must demonstrate flexibility in their promotional strategies and prioritize technological investments to align with WHO GMP standards This factor is weighted at 0.15 and receives a rating of 4.
To bridge the gap between Vietnam's average per capita drug spending and the global average, it is essential to increase this expenditure This factor is significant, carrying a weight of 0.15, and has been rated a score of 4.
TRAPHACO's key strength lies in its focus on producing herbal medicines, complemented by its ability to self-source the largest quantity of raw materials in Vietnam The growing public awareness and preference for natural-derived healthcare products significantly influence TRAPHACO's production development strategy This factor is weighted at 0.15 and has received a rating of 4.
The competitive landscape in the medicine manufacturing industry is notable, with 93 out of 98 Western medicine producers and 5 out of 80 herbal medicine manufacturers meeting regulatory standards TRAPHACO stands out as a company that has achieved GM certification, primarily focusing on herbal medicine, which constitutes 70% of its product line The competition level for TRAPHACO's products is average, leading to a weighted factor of 0.03 and a rating of 4.
The rapid population growth significantly influences the demand for new products, particularly in the herbal medicine sector This rising demand, coupled with the need to sustain market share, drives the capacity expansion of production facilities This factor is assigned a weight of 0.05 and receives a rating of 3.
The advancement of science and technology plays a crucial role in the pharmaceutical industry, influencing marketing strategies, corporate management, and the implementation of machinery for herb extraction This factor is assigned a weight of 0.15 and receives a rating of 3.
The impact of weather on material sourcing is significantly influenced by natural conditions Favorable weather promotes the growth of pharmaceutical resources, leading to improved quality of raw materials and reducing the need for extensive preliminary preservation efforts This factor is assigned a weight of 0.12 and holds a rating of 3.
The company, which sources the highest percentage of domestic raw materials in Vietnam, has experienced a reduced impact from exchange rate fluctuations compared to other pharmaceutical firms Consequently, this factor is assigned a weight of 0.05 and receives a rating of 3.
Foreign firms entering the Vietnamese market, particularly in manufacturing and services, hold an advantage over domestic companies in terms of capital and technology However, they face challenges regarding distribution systems and a lack of understanding of Vietnamese consumer preferences and habits This aspect is weighted at 0.05 and is rated 3.
Table 3.2 - Internal Factor Evaluation Matrix
1 Factory and the material planting area reaches standard GMP - GLP - GSP
2 The company has high credibility with partners and consumers
3 Its main products accounting for 70% are herbal medicine Raw materials are fully exploited to domestic sources of raw materials which are less affected on the import rate
5 Not yet built packaging factory 0.05 2 0.10
6 Export ratio is limited to countries of
Southeast Asia such as Laos,
7 South is a potential market but
TRAPHACO is not interested in trade promotion.
8 Marketing activities are increasingly professional Wide distribution network across the country
9 Company leaders are experienced, dynamic, and creative.
10 The company has a healthy finance 0.10 4 0.40
11 Consumers tend to return to herbal medicine because of the safety and virtually no side effects.
The total weighted score of the IFE matrix for TRAPHACO is 3.3, indicating a relatively strong internal environment Following a thorough discussion, the group has carefully selected and assessed the relevant factors based on this evaluation.
TRAPHACO benefits from having GMP, GLP, and GSP compliant factories and raw material areas, aligning with government regulations Companies with standard factories and distribution systems for quality medicines receive priority in distribution Currently, only registered businesses authorized by the Ministry of Health can perform import and export functions Additionally, companies must apply for import quotas to receive approval from the Ministry of Health for specific drugs, leading many drugstores not affiliated with pharmaceutical companies to rely on mandates for their import and export activities.
So, this factor is weighted at 0.1 and is rated of 3.
TRAPHACO has established a strong reputation and earned the trust of its partners and customers by implementing effective strategies such as prompt payments, attractive policies, and consistent promotions The company ensures high-quality drugs at reasonable prices, which contributes to its credibility in the market This aspect is significant, with a weighting of 0.1 and a rating of 3.
Herbal medicines constitute 70% of TRAPHACO's major products, with domestic raw materials fully utilized, meeting 70% of demand Currently, Sapa supplies 30% of the raw materials needed, while 40% is sourced domestically This reliance on local resources minimizes the impact of exchange rate fluctuations, providing TRAPHACO with a significant competitive advantage Consequently, this factor is assigned a weight of 0.25 and receives a rating of 4.
(4) Fake drugs, counterfeit goods: Traphaco is always the chasing targets of unfair competition such as fake imitation So, this factor is weighted at 0.05 and rated of 3.