(TIỂU LUẬN) INDUSTRIAL ORGANIZATION REPORT ASSESSMENT OF THE MARKET SHARE IN THE FOOD MANUFACTURING AND PROCESSING INDUSTRY IN VIETNAM IN 2018

FOREIGN TRADE UNIVERSITY FACULTY OF INTERNATIONAL ECONOMICS -*** INDUSTRIAL ORGANIZATION REPORT ASSESSMENT OF THE MARKET SHARE IN THE FOOD MANUFACTURING AND PROCESSING INDUSTRY IN VIETNAM IN 2018 Name: Lê Đc An Student code: 1814450008 Classe: KTEE408(2.2/2021)CLC.1 Promotion: 57 Instructor: Dr Chu Thi Mai Phuong Assoc Prof Tu Thuy Anh Hanoi, july 2021 TABLE OF CONTENTS ABSTRACT INTRODUCTION CHAPTER THEORETICAL BASIS 1.1 Theoretical Framework 1.1.1 Structure, conduct, performance model 1.1.2 Market share 1.1.3 Concentration measures 1.1.4 Barriers to entry 11 Descriptive analysis of food processing industry 12 2.1.1 Classification 12 2.1.2 Industry characteristics 13 2.1.3 Roles of the industry 17 CHAPTER PROCESSING AND CALCULATING INDICATORS 18 2.1 Data analysis techniques 18 2.2 Assessment of business size and industry concentration 18 2.2.1 Enterprise size 18 2.2.2 Enterprise ownership 20 2.2.3 Industry concentration 21 2.3 Model testing 22 2.1.1 Table: Correlation test 23 CHAPTER RECOMMENDATIONS FOR THE INDUSTRY 25 CONCLUSION 29 REFERENCES 30 ABSTRACT In economics, industrial organization is a field that builds on the theory of the firm by examining the structure between firms and markets It adds real-world complications to the perfectly competitive model, complications such as transaction costs, limited information, and barriers to entry of new firms that may be associated with imperfect competition Besides that, it also analyzes determinants of firm and market organization and behavior as between competition and monopoly, including from government actions Knowing about the importance of Food Production and Processing Industry in Vietnamese economic development, we decide to have a thorough research about this industry In this report, we include an empirical research about structure, behavior and performance in food markets in Vietnam We conduct this research on the basis of theoretical framework on industrial organization in order to analyze the structure and competitiveness of Food Production and Processing sector in Vietnam INTRODUCTION With the successful signing of trade agreements, most recently the EU-Vietnam Free Trade Agreement (EVFTA), our country is facing countless opportunities to make its own mark on the world market international markets This is an opportunity for domestic enterprises, an opportunity to move, an opportunity to access export markets, and a driving force to promote the development of enterprises In addition, Vietnamese enterprises will also face many difficulties such as risks from the competition of international product lines spilling into the country, risks from the domestic market and the economic structure, institutions requires businesses to have a good "health" to survive and develop before the fluctuations of the market According to the data of VPS Securities Joint Stock Company, in the period 2010-2015, Vietnam's food processing industry achieved a compound annual growth rate of 12% Besides, shopping trends and consumer concerns have also changed quite clearly To survive and develop, businesses must constantly mobilize to meet the above changes Therefore, businesses in the industry need to have the most overview of their entire manufacturing industry, thereby identifying strengths and weaknesses that need to be overcome to contribute to the growth of the manufacturing industry Food processing and production is considered a spearhead industry with many advantages of Vietnam When analyzing industry performance, indicators of market share, market concentration and indicators related to business performance play an important role in the analysis process These indicators will be useful tools to help policy makers for the market to ensure the interests of consumers Therefore, the quantification of these measures into indicators that are easy to calculate, independent of the market size is very important for the process of interpreting the market reality of enterprises themselves, thereby helping them development-oriented construction industry Recognizing the urgency from the above reasons, the group decided to choose the topic: “Report on the market share of enterprises in the food manufacturing and processing industry in Vietnam in 2018” as the topic for the thesis subject industry position The report uses the data provided by GSO, the analysis is carried out on the basis of statistics, comparing the data returned by Stata software The thesis layout consists of parts: Chapter Theoretical basis: General theories on measuring market concentration and market performance, overview of the food and beverage industry Chapter Processing and calculating indicators: Methods, results and comments on indicators related to industry performance Chapter Recommendations for the industry CHAPTER THEORETICAL BASIS 1.1 Theoretical Framework 1.1.1 Structure, conduct, performance model The Structure - Conduct - Performance (SCP) paradigm, first published by economists Edward Chamberlin and Joan Robinson in 1933, and developed by Joe S Bain is a model in Industrial Organization Economics which offers a causal theoretical explanation for firm performance through economic conduct on incomplete markets The Structure - Conduct - Performance (SCP) Paradigm comprises of three major elements:  Structure refers to market structure The variables that are used to describe market structure include seller concentration, degree of product differentiation and barriers of entry  Conduct refers to a firm's behavior The variables used to capture firm behavior include pricing strategies, collusion, advertising, research and development and capacity investment Some have interpreted conduct as whether firms collude or compete  Performance refers to outcome or equilibrium assessed in terms of allocative efficiency The variables mostly used to measure performance are profitability and pricecost margin The SCP paradigm posits specific causal relationships between market structure, conduct and performance In particular, market structure determines conduct and conduct in turn determines performance: Structure → Conduct → Performance The SCP approach assumes that there is a stable, causal relationship between the structure of an industry, firm conduct, and market performance Since this relationship is assumed to be stable, a direct link between the two sets of more easily observed variables, structure and performance, is usually assumed The basic idea is to establish relationships between structural variables and market performance that generalize, or hold, across industries The typical SCP exercise consists of specifying a measure of market performance and a set of observable structural variables that are thought to explain interindustry differences in market performance The aspect of market performance that has attracted almost exclusive interest is the exercise of market power The structural variables have typically been measures of seller concentration and barriers to entry The typical SCP study involves estimating the following equation: πi = α + β1CONC + β2B.Ei1 + β3B.Ei2 +···+ βN+1B.EIn + i (Where πi is a measure of market power in industry i, CONC is a measure of seller concentration in industry i, and the B.Ei’s are measures of the N barriers to entry in industry i.) Econometric techniques are used to estimate the coefficients on the structural variables (the betas, β’s) The interpretation of each of the betas is the effect on market power from marginal changes in each of the structural variables For instance, β1 is the increase in market power associated with a small increase in concentration (however measured) in an industry The a priori SCP hypothesis is that each should be positive and statistically different from zero 1.1.2 Market share Market share is the proportion of a particular business in the total consumption or output of a market Market share data are used to calculate the concentration of sellers in a market Market share = sales of firm / total market sales or Market share = Number of products sold by the firm / Total market consumption products Besides, we also consider relative market share: Relative market share = Firm’s sales share / Competitor's sales share or Relative market share = Number of products sold by firm / Product number sold by its competitor If the market share is relatively larger than 1, then the competitive advantage belongs to the business If the relative market share is less than 1, then the competitive advantage belongs to the competitor If the market share is relatively equal to 1, then the competitive advantage of the business and its competitors are the same Investors and analysts monitor the increase and decrease of market share very carefully, because this can be a sign of the relative competitiveness of the company's products or services When the total market for a product or service increases, a company that maintains its market share will increase revenue at the same rate and speed as the total market A company that is growing its market share will increase revenue faster than its competitors Increasing market share may allow a company to achieve a larger scale of operation and improve profitability A company may try to expand its market share by reducing prices, using advertising or introducing new or different products In addition, it can also increase its market share by attracting other audience or demographics There are several common methods to increase market share:  Innovation is one method by which a company may increase market share When a firm brings to market a new technology its competitors have yet to offer, consumers wishing to own the technology buy it from that company, even if they previously did business with a competitor Many of those consumers become loyal customers, which adds to the company's market share and decreases market share for the company from which they switched  By strengthening customer relationships, companies protect their existing market share by preventing current customers from jumping ship when a competitor rolls out a hot new offer Better still, companies can grow market share using the same simple tactic, as satisfied customers frequently speak of their positive experience to friends and relatives who then become new customers Gaining market share via word of mouth increases a company's revenues without concomitant increases in marketing expenses  Companies with the highest market share in their industries almost invariably have the most skilled and dedicated employees Bringing the best employees on board reduces expenses related to turnover and training, and enables companies to devote more resources to focus on their core competencies Offering competitive salaries and benefits is one proven way to attract the best employees; however, employees in the 21st century also seek intangible benefits such as flexible schedules and casual work environments  Lastly, one of the surest methods to increase market share is acquiring a competitor By doing so, a company accomplishes two things It taps into the newly acquired firm's existing customer base, and it reduces the number of firms fighting for a slice of the same pie by one A shrewd executive, whether in charge of a small business or a large corporation, always has his eye out for a good acquisition deal when his company is in a growth mode These methods are also applied in the Iron and Steel market in Vietnam, leading to intensive competition among Iron and Steel corporations 1.1.3 Concentration measures In economics, market concentration is a function of the number of firms and their respective shares of the total production (alternatively, total capacity or total reserves) in a market Industrial organization attempts to identify the factors that influence or determine seller concentration The Herfindahl - Hirschman Index (HHI) is a commonly accepted measure of market concentration It is calculated by squaring the market share of each firm competing in a market and then summing the resulting numbers HHI = (Where Si is the market share percentage of firm i) HHI varies between (perfect competition) and (monopoly) The closer a market is to a monopoly, the higher the market's concentration (and the lower its competition) The primary advantage of the Herfindahl - Hirschman Index (HHI) is the simplicity of the calculation necessary to determine it and the small amount of data required for the calculation The primary disadvantage of the HHI stems from the fact that it is such a simple measure that it fails to take into account the complexities of various markets in a way that allows for a genuinely accurate assessment of competitive or monopolistic market conditions Another way to calculate the degree of concentration is the concentration ratio The concentration ratio, in economics, is a ratio that indicates the size of firms in relation to their industry as a whole Low concentration ratio in an industry would indicate greater competition among the firms in that industry, compared to one with a ratio nearing 100%, which would be evident in an industry characterized by a true monopoly The concentration ratio indicates whether an industry is comprised of a few large firms or many small firms The four-firm concentration ratio, which consists of the market share of the four largest firms in an industry, expressed as a percentage, is a commonly used concentration ratio Similar to the four-firm concentration ratio, the eight-firm 10 CHAPTER PROCESSING AND CALCULATING INDICATORS 2.1 Data analysis techniques To process the 2018 dataset and calculate concentration metrics of the industry, I the following steps:  Step 1: Use Stata to open the file 2018_1A_reduced (1).dta  Step 2: Use the command "tab thanh_kd" "destring ngan_kd, replace"  Step 3: Use the command "keep if nganh_kd >10401&nhanh_kd