INTRODUCTION TO INTERNATIONAL TRADE AND FINANCE CASE STUDY: TRUNG NGUYEN LEGEND GROUP ENTERS CHINESE MARKET

BANKING ACADEMY OF VIETNAM FACULTY OF INTERNATIONAL BUSINESS  INTRODUCTION TO INTERNATIONAL TRADE AND FINANCE CASE STUDY TRUNG NGUYEN LEGEND GROUP ENTERS CHINESE MARKET Lecturer Class Group Nguyễ.

BANKING ACADEMY OF VIETNAM FACULTY OF INTERNATIONAL BUSINESS - - INTRODUCTION TO INTERNATIONAL TRADE AND FINANCE CASE STUDY: TRUNG NGUYEN LEGEND GROUP ENTERS CHINESE MARKET Lecturer : Nguyễn Thu Hương Class : BUS12A05 Group : 05 May 23rd, 2021 MEMBERLIST Number Full name Student ID Dang Thi Diu 21A4050073 Nguyen Xuan Huy 21A4050182 Duong Hoang Linh 21A4050226 Le Thi Mai 21A4050274 Bui Thi Tuyet Mai 21A4050272 Nguyen Dieu Linh 21A4050236 Nguyen Thi Giang 21A4050110 Dao Thi Thu An 21A4050002 TABLE OF CONTENTS A INTRODUCTION B CONTENTS I Company Background Mission and vision Current market Products and services Certification and trophies .10 Infiltrating into the Chinese market 10 II Reason for finding a new foreign market 10 Reasons from domestic market 11 Reason from the international market 12 2.1 Market Overview 12 2.2 Key Market Trends 12 III PESTEL ANALYSIS 14 PESTEL ANALYSIS .14 1.1 Political Factors 14 1.2 Economic Factors 15 1.3 Social Factors 16 1.4 Technology Factors .17 1.5 Ecological Factors .18 1.6 Legal Factors .19 IV Methods of entering Chinese Market .19 Direct exporting .19 Indirect exporting 20 Joint venture 21 Licensing/ Franchising 22 Subsidiary companies 23 The main reasons why Trung Nguyen should choose direct exporting 24 C CONCLUSION 25 REFERENCES 26 A INTRODUCTION In the process of strong globalization integration of the world's economies, many companies and corporations not only conduct business within the domestic scope but increasingly expand to large foreign markets This is a huge transformation for Vietnamese enterprises, both in terms of their size, revenue, profit and competitive position Therefore, researching and coming up with a suitable way to penetrate foreign markets is an extremely important step to expand production scale and improve product quality in business Many Vietnamese enterprises not only focus on developing the domestic market but also penetrate into the international market to enhance their brand and reputation Trung Nguyen Legend, it can be said that Trung Nguyen Legend is the number one coffee brand in Vietnam today The company is rated as the top largest private enterprises in Vietnam (according to Vietnam Report) Realizing that China is a potential for the coffee industry With the ambition to achieve $ 1.6 billion in revenue from China's $ billion coffee consumption market In fact, in 2020, Trung Nguyen Legend Group's G7 coffee achieves a strong growth rate of 24% in the offline market and holds the 2nd largest market shares in the online coffee market, becoming the leading coffee brand and is the most popular in China To better understand the success of Trung Nguyen Legend's penetration, we will discuss the following issues: - Why did Trung Nguyen Legend choose the Chinese market? - How does Trung Nguyen Legend enter the Chinese market? B CONTENTS I Company Background Born in the middle of 1996 - Trung Nguyen is a fledgling coffee brand of Vietnam, but has quickly built up a reputation and become the most familiar coffee brand for consumers both at home and abroad In just 10 years, from a small coffee company located in the middle of the coffee capital Buon Ma Thuot, Trung Nguyen has risen to become a powerful corporation with member companies: Trung Nguyen Joint Stock Company, the company Trung Nguyen Instant Coffee Joint Stock Company, Trung Nguyen Coffee Company Limited, G7 Trading and Service Joint Stock Company and Vietnam Global Gateway Joint Venture Company (VGG) with main industries including: production, processing processing and trading tea and coffee; franchise and modern distribution and retail services In the future, Trung Nguyen Group will develop with 10 member companies, dealing in a variety of industries Pioneering in applying the franchise business model in Vietnam, Trung Nguyen now has a network of nearly 1,000 franchised cafes nationwide and stores overseas such as the US, Japan, Singapore, Thailand, China, Cambodia, Poland, and Ukraine Trung Nguyen coffee products and G7 instant coffee have been exported to 60 countries around the world with key markets such as the US and China Besides, Trung Nguyen has also built a system of more than 1000 convenience stores and G7 Mart distribution centers nationwide Mission and vision - Vision: To become a corporation that promotes the rise of Vietnam's economy, maintains the autonomy of the national economy and arouses and proves a desire for Dai Viet to discover and conquer - Mission: Building a leading brand by bringing coffee drinkers creative inspiration and pride in Trung Nguyen style imbued with Vietnamese culture Current market In 2020 is considered a difficult and challenging year for the world economy as well as for Vietnam, strongly affecting most businesses globally With a creative spirit, steadfastly pursuing strategies different, special, unique, Trung Nguyen Legend has made a difference in 2020, continues to be the Top leading brands in Vietnam, becomes the most favorite coffee brand, according to the results Survey results "Top 1,000 Asian Brands" in 2020 conducted by Campaign Asia and Nielsen In the international market, Trung Nguyen Legend strives to maintain outstanding growth rates in China, Korea, Japan, the US, Russia, the EU market and continues to expand into new markets in Asia Up to now, Trung Nguyen Legend has successfully joined the system of major global supermarket chains such as Metro in Russia, Costco in Australia and Costco Business Center in the US, 7-Eleven in Thailand, Lotte and Homeplus Korean Trung Nguyen Legend has marked with many great awards such as: International Marketing and Innovation Award for the G7 Digital Marketing Campaign (G7 Digital Campaign) in China; Top favorite instant coffee brands shopping on Korean online sales channels for G7 black instant coffee (Nielsen) Trung Nguyen Legend has made efforts to diversify online sales channels through e-commerce channels to increase the conversion rate of potential customers as well as reach customers in the new situation In 2020, Trung Nguyen Legend opened Coffee World on global e-commerce platforms Amazon and Alibaba, China (Taobao.com, Tmall.com, Yihaodian.com, JD.com,…) and cooperate with more than 30 largest e-commerce sites in Korea, China and leading e-commerce sites in Vietnam (Lazada, Tiki, Shopee) The Group also applies technology on online shopping platforms such as Grab, Now, Go Food, Loship, etc., promotes cooperation with online payment partners, and combines door-to-door delivery for Chinese chain stores Nguyen Legend and Trung Nguyen E-Coffee, helping to optimize the customer experience Trung Nguyen Legend also achieved a growth rate of nearly 200% in the Asian market, covering supermarkets, trade centers, convenience store chains, e-commerce channels, pharmacy systems, etc Especially at the leading supermarket chains in Korea: Lotte mart, Homeplus, Emart,… Products and services The above types of Trung Nguyen coffee all have different characteristics, catering to the preferences of each separate customer group It is from the development of a variety of products that Trung Nguyen has quickly dominated the coffee market of the country Trung Nguyen brand goes into consumers' subconscious about genuine coffee products From high-end to popular lines, from the purpose of enjoying a cup of coffee in the morning to gifting each other quality coffee boxes Trung Nguyen coffee meets all the needs of users - Premium Trung Nguyen Coffee + Weasel coffee + Creation - Coffee Roasters + Group of popular roasted and ground products + Group of innovative products 1, 2, 3, 4, - Pure coffee beans + Arabica beans + Coffee beans Culi Robusta - G7 instant coffee + G7 coffee includes 3in1, 2in1 (Iced Black), Instant Black, Strong Gu X2 (2in1 and 3in1), Cappuccino, Passiona and White Coffee + G7 3in1 + G7 2in1 (Stone Black): + G7 Soluble black (sugar free) + Strong G7 Gu X2 + G7 Cappuccino: + G7 Passiona: + G7 White coffee - Natural coffee + Traditional fresh coffee with rich, popular flavor + Stylish fresh coffee with a smooth, characteristic aroma - Thick cream with Brothers sugar Brothers sugar condensed cream also adds Vitamin B1, B6 which is very good for health Certification and trophies The recognition and honor of a series of leading media during the past 25year journey is a testament to Trung Nguyen Legend Group's constant creative efforts and the trust, companionship and support of coffee lovers around the globe This will be the driving force for Trung Nguyen Legend to continue to bring sustainable multi-benefit values to society through different - special - unique products - models - services, affirming the brand position No coffee from Vietnam - the world's best Robusta coffee powerhouse - Certified FSSC 22000 - National Brand Award - National Quality Gold Award 2011 - Vietnam Gold Star Award 2010 - High Quality Vietnamese Goods Award - Trung Nguyen Coffee was selected by the Ministry of Foreign Affairs as "Cultural Diplomatic Ambassador" - Certificate of Excellence in Asia - Pacific Enterprise 2014 Infiltrating into the Chinese market China is a large market, with a large population, large coffee consumption (equivalent to a market that uses a lot of coffee, the US) with Eastern culture that has many similarities with our country At the same time, China is also a thriving emerging market with a convergence of populations from all over the world This is not only an opportunity but also a challenge for Trung Nguyen when entering a "difficult" market like China II Reason for finding a new foreign market Coffee consumption in east and south-east Asia is steadily increasing as more households reach middle-income status and move to coffee-consuming regions like Europe and the United States According to Euromonitor International, Asia's consumption will rise at an annual rate of 18 percent between 2014 and 2019 Reason from the international market 2.1 Market Overview The overall Chinese coffee market has been least effective after the advent of COVID-19, as per the analysis, in 2020 an average of one new coffee shop opened every day in China's Chengdu City That pushed the total number of coffee shops in the city to over 4,000 – just after Shanghai and Beijing Moreover, with the strict lockdown measures being imposed in the country, the consumers in China have been resorting to at-home coffee consumption thus, increasing the sales of instant coffee in the country during the COVID-19 times According to the data from the China Coffee Association Beijing (CCAB), coffee consumption is increasing at an annual rate of 15% 2.2 Key Market Trends China lacks in the production of coffee, owing to which, the country is dependent on imports For instance, in 201d7, the United States exported 1,800 metric tons of roasted coffee and coffee products to China, worth over USD 22 million Data Source: International Coffee Organization, ‘Coffee bean exporters to China’ + Increasing Consumption of Instant Coffee in China The instant coffee segment held a significant amount of share in the market studied, owing to the convenience provided by it Online retailing has remained a minor distribution channel for instant coffee for the past few years in China It is likely to gain prominence in the market during the forecast period, owing to the convenience it provides to the consumers, as they find it easy to choose their preferred brands from the vast variety of product choices available III PESTEL ANALYSIS As a trade consultant, after researching, we decided to choose China to become the new exporting market for Trung Nguyen Legend Group This is an overview of this market With a population of about 1.3 billion people and a gradual shift from tea to coffee, China is a potential export market for Vietnam's coffee industry Coffee consumption in China grows at an average annual rate of about 20%, the coffee market size is forecast to reach billion USD by 2020 Besides, the community of more than 50 million overseas Chinese living and working in continents will be an important factor for Trung Nguyen Legend Group to realize the aspirations of global Vietnamese brands in the coming time PESTEL ANALYSIS 1.1 Political Factors - Political institutions The political stability factor is an opportunity to expand the scope of the market as well as the size of the coffee market However, it also has barriers and limits its ability to export if the political situation is not stable At this point, it can be considered that China is a relatively safe business investment environment Due to Chinese politics under a republican, democratic, single-party regime, there is almost no conflict within the nation At the same time, the national security situation is well guaranteed, that makes the foreign companies feel secure when they choose to invest in this country - In diplomatic relations: China has reasonable diplomatic policies to promote cooperation with other countries, the country has engaged in several bilateral and multilateral trade agreements that have opened new markets for its products A Free Trade Agreement (FTA) between China and the ASEAN nations came into effect in January 2010, which created the world’s third largest free trade area in terms of nominal GDP China also established, among others, FTA with countries such as, Australia, Chile, Costa Rica, Korea, Pakistan, Peru, New Zealand, and Singapore Moreover, there are other FTAs under negotiation with the Gulf Cooperation Council, Japan, Norway and Sri Lanka - The political relationship between China and Vietnam: In recent years, the relationship between Vietnam and China has continuously developed strongly, the two countries regularly exchange visits to each other, exchange trade and sign investment cooperation agreements, Create conditions for two countries’ businesses to develop business cooperation From January 1, 2010, when the China ASEAN free trade area agreement came into effect The two sides implementing import and export tax reduction is an opportunity for businesses to enter the Chinese market Trade relations between Vietnam and China are increasingly expanding This is a very favorable thing for Trung Nguyen Legend Group in introducing products, promoting brands as well as seeking Chinese partners 1.2 Economic Factors In recent years, the Chinese economy has continuously grown rapidly and has become the second largest economy in the world - GDP in China: In 2020, the gross domestic product (GDP) of China amounted to around 14.72 trillion U.S dollars In comparison to the GDP of the other BRIC countries India, Russia and Brazil, China came first that year and second in the world GDP ranking In 2020, per capita GDP in China reached around 10,484 U.S dollars According to the projections at hand, the Chinese economy will maintain a steady growth momentum Even though the growth rate of China’s real GDP gradually slowed down in recent years, year-on-year GDP growth still reached 6.1 percent in 2019 and is forecast to range at around 5.6 percent after the corona crisis Since 2010, China has been the world’s second-largest economy, surpassing Japan The impressive economic development in China has led millions of people out of poverty China’s emergence in the world’s economy has a lot to with its status as the ‘world’s factory’ Since 2013, China has been the largest export country in the world Some argue that it is partly due to the undervalued Chinese currency The Big Mac Index, a simplified and informal way to measure the purchasing power parity between different currencies, indicates that the Chinese currency yuan was roughly undervalued by 46 percent in 2019 - Exchange rate: According to the classification of exchange rate mechanism announced by the IMF in 2008, Vietnam and China belong to the adjusted exchange rate group (Crawling peg) However, in the following years, experts said that Vietnam and China are located in the Neo-exchange group with adjusted amplitude (Crawling band), because both countries apply a fixed exchange rate with a fluctuation range of 1% or higher With the exchange rate quite stable, Trung Nguyen Legend Group’s entrance to the Chinese market is very safe - Corruption problem: Corruption in China presents business operations or planning to invest in the country with high risks The Chinese government, led by President Xi Jinping, is in the midst of a sweeping anti-corruption campaign that has led to thousands of arrests, nonetheless, corruption continues to negatively influence the business environment Companies are likely to experience bribery, political interference or facilitation payments when acquiring public services and dealing with the judicial system Professor Andrew Wedeman of the University of Georgia (USA) summarized the development process of this corruption in “growth and corruption in China” as follows: “The pre reform period is not without corruption “However, at the same time with the increase in corruption, the Chinese economy also grew rapidly 1.3 Social Factors Social culture is also a factor influencing product variation - Habits: The Chinese drinking habits are caused by different weather variations If in the North there are extremely cold winters like the Arctic, the Central has a temperate climate, then the South has a tropical one Therefore, people in the North often have the habit of drinking hot drinks first to warm up their bodies in winter, while the South prefers colder drinks Thus, coffee in the South should add more sugar than in the North so they can drink it cold when they need The Chinese people attach great importance to the class difference and the gap between superiors and subordinates is very high.So we can rely on this characteristic to develop coffee products with a variety of quality and price categories and different design patterns to serve different objects In addition, we should note that the Chinese are very much against the number because it is the death number When packing coffee in China, be careful not to put small bags into a cup of coffee that can be or bags - Language: Many foreign brands have been unable to overcome the cultural barrier in China, because of the language barrier China is a multi-racial country with 56 ethnic groups The population is very unevenly distributed China has many different religions but all have the common feature of attaching importance to national traditions, family traditions, and thriftiness The Chinese language is different from the regular Latin language Therefore, any brand entering China must switch to the Chinese language, both in terms of pronunciation and image Language risks can occur in brand image building, product marketing advertising, and product packaging design of the company There is a risk that if Trung Nguyen Legend Group does not fully understand Chinese, it will make it difficult to access the market and promote the brand, sometimes causing objections 1.4 Technology Factors It can be seen that China's science and technology are developing like a storm, which is beneficial for Vietnam when exporting coffee to China is able to inherit the technological factor here However, according to the analysis of the US Embassy in Beijing, China focusing on research and development of science and technology is very specific, but the market-oriented applied research is still poor The rapid growth of advertising increases the interest in using "e-commerce" in China Although China is still a developing country, the demand for high technology has penetrated many forms of e-commerce (e-government) or between enterprises (B2B) 1.5 Ecological Factors Ecology refers to variables related to the physical environment It can affect many different important aspects of business Examples of ecological factors affecting business include: - Climate change: Climate change's China is happening faster than most other countries in the world, and impacts such as intense rain, extreme heat and melting glaciers and permafrost – are happening with increasing severity Accordingly, China is warming significantly faster than the world average, with an increase of 0.24°C per decade since 1951 Extreme heat waves increase significantly, typically in 2019, recorded temperatures up to 43 ° C and 64 meteorological stations reported record temperatures Like the global trend, glaciers in China are also shrinking at a worrying rate - Environment pollution: As the most populous country and moreover the "global factory", China produces the most plastic waste in the world, with a "huge" figure of about 60 million tons In second place in the United States with a long gap - 38 million tons According to data from China's State Bureau of Statistics, after 2014, China began to produce more than 70 million tons of plastic products per year China is to move towards phasing out non-biodegradable plastic containers in 2020 This is stated in the document issued by the State Development and Reform Commission together with the Ministry of Environmental Protection of the People's Republic of China It is expected that in the next year new measures will help reduce the use of household plastic by 30% The use of non-biodegradable plastic packaging bags will be banned in major cities of the country by the end of 2020, the measure will be implemented nationwide by 2022 In addition, according to the document, as soon as this year cafes and restaurants will have to stop using disposable plastic straws By the end of 2020, the ban will also include disposable plastic dishes, cotton swabs and some household chemicals 1.6 Legal Factors The Chinese Government has issued a decree on improving the business environment to synchronously implement drastic solutions, establish equal institutions with market entities, and promote the development of business environment towards completion and based on the law The country also affirmed the view of treating all market entities equally, including foreign investment enterprises, breaking down unreasonable barriers and restrictions, creating a healthy competitive environment This is extremely helpful for Trung Nguyen Legend Group in long-term brand development activities In addition, the Chinese Government commits to providing domestic and foreign investors and businesses with fair conditions in accessing human resources, capital, land, taxes, licensing , creating good conditions for foreign brands such as Trung Nguyen Legend Group to access resources and carry out production activities in a convenient way IV Methods of entering Chinese Market Direct exporting - Advantages: + It is easier to understand your target market, and make informed decisions whether to expand or reduce the size of target market + Having full control of pricing and brand + High chances of making greater profits since intermediaries are eliminated + Becoming easier to extend the market to other proximate countries + Build a closer relationship with its overseas customers - Drawbacks: + Competitors with a local presence will be perceived as lower risk to buy from + Difficult for companies with strong home-country currency + Depend on foreign import quota, tariff barriers + Remote troubleshooting may not be possible, requiring additional visits + After-sales commissioning and service may require local language capability Trung Nguyen Coffee enters the China market by direct exporting which creates chances of making greater profits and expanding the size of the target market The company mainly exports G7 instant coffee into the China market and G7 has made rapid development steps In 2020, after years of opening a representative office, G7 coffee grows more than 24% in the offline market and holds the 2nd largest market shares in the online coffee market, and is the most popular instant coffee brand of Asia in China Picture: G7 Coffee is popular in China Indirect exporting - Advantages: Provides a route to entering an overseas market without the risks and complexities Reduces risk for the supplying company: + The brunt of the work is handled by the intermediary, from international shipping to legal and financial aspects of the global trade + No exporting experience or knowledge is required, and no or very few extra hires is needed ... domestic market but also penetrate into the international market to enhance their brand and reputation Trung Nguyen Legend, it can be said that Trung Nguyen Legend is the number one coffee brand in... for Chinese chain stores Nguyen Legend and Trung Nguyen E-Coffee, helping to optimize the customer experience Trung Nguyen Legend also achieved a growth rate of nearly 200% in the Asian market, ... the US, Russia, the EU market and continues to expand into new markets in Asia Up to now, Trung Nguyen Legend has successfully joined the system of major global supermarket chains such as Metro