Measures to enhance competitiveness of vinamilk in vietnam s dairy market

U N I V E R S I T Y SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF BACHELOR OF ARTS IN BUSINESS ENGLISH Student: Nguyễn Hoàng Vân Class: A3 - K41 - BBE Supervisor: Nguyễn Thị Hồng Hải (M.A) O F F O R E I G N Hanoi, November 2006 TABLE OF CONTENTS T ACKNOWLEDGEMENTS I R A D E OF ABBREVIATIONS III LIST ABSTRACT II F LIST A OF FIGURES AND TABLES IV C INTRODUCTION U L1 BACKGROUND TO THE STUDY T2 OBJECTIVES OF THE STUDY Y RESEARCH QUESTIONS O4 METHODOLOGY .2 F SCOPE AND FOCUS OF THE THESIS B6 STRUCTURE OF THE THESIS U CHAPTER I: LITERATURE REVIEW S I1.1 CONCEPTS OF COMPETITION AND COMPETITIVENESS .4 N 1.1.1 Competition and the role of competition .4 E S 1.1.2 Competitiveness of a firm S1.2 FACTORS DETERMINING COMPETITIVENESS OF A FIRM E N Measures to enhance competitiveness of Vinamilk in Vietnam’s dairy market 1.2.1 Profitability 1.2.2 Production capacity .8 1.2.3 Product competitiveness 1.2.4 Market share .11 1.2.5 Technology 11 1.2.6 Human resources 12 1.2.7 Management 13 1.3 FACTORS LINKAGES – VALUE CHAIN ANALYSIS 15 CHAPTER II: VINAMILK’S POSITION AND ITS COMPETITIVENESS IN VIETNAM’S DAIRY MARKET 19 2.1 OVERALL PICTURE OF VIETNAM’S DAIRY MARKET 19 2.1.1 Overview 19 2.1.2 Key players in the market 21 2.2 DIAGNOSTIC OF VINAMILK’S SITUATION .24 2.2.1 Overview of the company history and development 24 2.2.2 Business activities of the company 25 2.2.3 Analysis of the company’s competitiveness 27 2.2.3.1 Profitability 27 2.2.3.2 Production capacity .30 2.2.3.3 Product competitiveness 33 2.2.3.4 Market share 41 2.2.3.5 Human resources 43 2.2.3.6 Management 45 CHAPTER III: MEASURES TO ENHANCE COMPETITIVENESS OF VINAMILK IN VIETNAM’S DAIRY MARKET .49 3.1 CRITICAL ISSUES RELATING VIETNAM’S DAIRY SECTOR DEVELOPMENT 49 3.1.1 The sector’s drawbacks .49 3.1.2 Policies influencing the current shape and future prospect of the dairy sector in Vietnam 51 3.1.3 Impacts of WTO integration on Vietnam’s dairy sector .54 Nguyen Hoang Van - A3 - K41 - BBE Measures to enhance competitiveness of Vinamilk in Vietnam’s dairy market 3.2 MAJOR OBSTACLES TO VINAMILK’S DEVELOPMENT 56 3.3 VINAMILK’S GUIDELINE FOR ITS LONG-TERM GROWTH 57 3.4 SOLUTIONS TO THE IMPROVEMENT OF VINAMILK 57 3.4.1 On the part of the government 58 3.4.1.1 Streamlining bureaucratic procedures 58 3.4.1.2 Broadening financial and technological support 60 3.4.1.3 Performing sound management and training task 61 3.4.2 On the part of the company 63 3.4.2.1 Creating stable material supply sources 63 3.4.2.2 Promoting technological innovation 64 3.4.2.3 Reducing production cost 64 3.4.2.4 Enhancing product quality .65 3.4.2.5 Improving human resources and management .65 3.4.2.6 Increasing cooperation with domestic and foreign partners 67 REFERENCES .70 APPENDIXES 72 APPENDIX 1: THE PROSPECTUS OF VIETNAM DAIRY PRODUCTS JOINT STOCK COMPANY .72 APPENDIX 2: INSTITUTIONS INVOLVED IN THE EXTENSION OF THE DAIRY INDUSTRY IN VIETNAM 74 APPENDIX 3: THE DECISION NO.167/2001/QD-TTG OF OCTOBER 26, 2001 ON A NUMBER OF MEASURES AND POLICIES TO DEVELOP MILCH COW FARMING IN VIETNAM IN THE 2001-2010 PERIOD (SOURCE: OFFICIAL GAZETTE NO.45 (08-12-2001)) 75 Nguyen Hoang Van - A3 - K41 - BBE Measures to enhance competitiveness of Vinamilk in Vietnam’s dairy market ACKNOWLEDGEMENTS I am deeply grateful to all those who contributed to my thesis in many ways, including their critical comments and ideas as well as their wholehearted encouragements and supports First of all, I would like to express my special thanks to my supervisor, Mrs Nguyen Thi Hong Hai (M.A) for her great support, guidance and precious advice during my process of thesis writing The thesis is impossible to be fulfilled without her help I also feel indebted to all of my teachers in Hanoi Foreign Trade University for their valuable lectures given to the students including me during the time we study at the university Heart-felt thanks are extended to the Faculty of Business English who has provided me a good chance to study this topic Many thanks also go to all staffs of Hanoi Foreign Trade University Library, the Vietnam Development Information Center, and the Vietnam dairy products joint-stock company….who enthusiastically provided me with materials and data related to the topic Last, but not least, I would like to express my warm thanks to all members of my family and my friends whose patience and love have carried me through many difficult times from conception to completion of the thesis Nguyen Hoang Van - A3 - K41 - BBE i Measures to enhance competitiveness of Vinamilk in Vietnam’s dairy market ABSTRACT Recent years have witnessed an explosive growth of Vietnam’s dairy market resulting from impressive performance of the dairy sector and dramatic increase in the domestic demand The market is, therefore, of great attraction for many dairy processors, both domestic and foreign ones Among them, the Vietnam dairy products joint-stock company (Vinamilk), as a key player, makes its strong presence known by holding a dominant share of 75% of the country’s dairy market In an attempt to discover in what ways Vinamilk can survive in such a competitive market and which factors drive behind its rapid development, this study is carried out The answers to the above questions express the capability of Vinamilk which is called the company’s competitiveness The study, first of all, tries to make it clear what “competitiveness of a firm” really means in economic theory and what are major indicators of it Then, attention is devoted to thorough analysis of Vinamilk’s position and its competitiveness in Vietnam’s dairy market Finally, the study heavily focuses on drawing practical suggestions to the enhancement of Vinamilk’s competitiveness in the home market Nguyen Hoang Van - A3 - K41 - BBE i i Measures to enhance competitiveness of Vinamilk in Vietnam’s dairy market LIST OF ABBREVIATIONS BOD: Board of Directors BTC: Belgian Technical Cooperation BTC/CTB: Belgian Technical Cooperation, Coopération Technique Belge BIDV: Bank for Investment and Development of Vietnam DARDs: Department of Agriculture and Rural Development FAO: Food and Agriculture Organization FDI: Foreign Direct Investment HACCP: Hazard Analysis and Critical Control Point HCMC: Ho Chi Minh City HSBC: The Honkong and Shanghai Banking Corporation IAS: Institute for Agricultural Sciences IFCN: International Farm Comparison Network ISO: International Standard Organization MARD: Ministry of Agriculture and Rural Development MoI: Ministry of Industry NIAH: National Institute of Animal Husbandry PR: Public Relations R&D: Research and development RRTC: Ruminant Research and Training Centre SM: Shareholders Meeting SOEs: State-owned Enterprises UHT: Ultra High Temperature VINAMILK: Vietnam dairy products joint stock company VND: Vietnam Dong WTO: World Trade Organization Nguyen Hoang Van - A3 - K41 - BBE i i i Measures to enhance competitiveness of Vinamilk in Vietnam’s dairy market LIST OF FIGURES AND TABLES Figure 1: Activities performed when a firm competes in a particular industry 16 Figure 2: National milk production ………………………………………….20 Figure 3: Milk purchased by companies…………………………………… 22 Figure 4: Fresh milk annual purchase of Vinamilk………………………… 31 Figure 5: Company managerial structure…………………………………….46 Figure 6: Total dairy cattle herd population and its production in Vietnam in 2001, 2005 and projections for the year 2010 … 52 Figure 7: Flow of services/information/inputs in the dairy industry in Vietnam…………………………………………………………… 59 Table 1: Milk purchased by companies…………………………………… 21 Table 2: Financial indicators of Vinamilk’s business for the year ended 31 December 2005…………………………………………………… 28 Table 3: Stocks listed on Ho Chi Minh City Securities Trading Center…… 29 Table 4: Fresh milk annual purchase of Vinamilk (tons)……………… ….31 Table 5: Comparison of products’ price between Vinamilk and Dutch Lady……………………………………………………………… 35 Table 6: Vinamilk’s labour structure in 2005……………………………… 43 Table 7: Effective and planned production, consumption and export of dairy products (expressed in liquid milk equivalent) according to the MoI……………………………………………………………… 53 Nguyen Hoang Van - A3 - K41 - BBE i v Measures to enhance competitiveness of Vinamilk in Vietnam’s dairy market INTRODUCTION Background to the study Competitiveness is a hotly-debated topic among policy-makers and businessmen throughout the world Yet it is of vital significance when assessing a firm’s performance in today’s increasingly competitive market Vietnam’s dairy market has expanded massively over the past few years, showing enormous potentials for dairy processors to make inroads into At present, the pie is divided by a great deal of business entities, in which the Vietnam dairy products joint-stock company (Vinamilk) occupies the lion’s share of 75% of the total This strong growth, in the context that Vietnam has no tradition in dairy production and competition from multinational dairy corporations operating in Vietnam is tough, is regarded as “a miracle” It is, therefore, worthy to study what the competitiveness of Vinamilk lies in In addition, time for Vietnam to become the 150 th member of the World Trade Organization is counted down Next to ample opportunities this organization may bring to the country, domestic enterprises have to face with harder competition from foreign rivals rushing into Vietnam’s market due to favorable condition In that circumstance, enhancing competitiveness of domestic enterprises is the most urgent task, especially in such infant industry as the dairy one The Vietnam dairy products joint-stock company, formerly owned by the state, is on the list of enterprises that should be examined to build up their real strengths This study, for those reasons, is partly responsive to pressing needs highlighted by the government and the sector Objectives of the study The primary goals of this thesis are to: (i) grasp the whole picture of Vietnam’s dairy market (ii) analyse in depth Vinamilk’s position and its competitiveness in Vietnam’s dairy market, point out major factors that fuel the company’s efficiency as well as limitations which should be overcome Nguyen Hoang Van - A3 - K41 - BBE Measures to enhance competitiveness of Vinamilk in Vietnam’s dairy market (iii) propose appropriate measures to enhance Vinamilk’s competitiveness in the domestic market, then to improve performance of Vietnam’s dairy sector Research questions Through the thesis, the following questions are to be answered and discussed: (i) What does the term “competitiveness of a firm” really mean? What are factors determining competitiveness of a firm? (ii) How does the overall picture of Vietnam’s dairy market look like? How strong is Vinamilk’s position in the market? (iii) What factors indicate competitiveness of Vinamilk? (iv) What are some of measures that should be taken to enhance competitiveness of Vinamilk in Vietnam’s dairy market? Methodology The thesis relies on relevant documents, economic reports of the Vietnam dairy products joint-stock company and the related ministries and sectors such as: the dairy sector, the Ministry of Industry, Ministry of Planning and Investment, Ministry of Agriculture and Rural Development…In addition, data collection in communication network is used to give supplementary ideas for the thesis Key documents are mostly collected from Vinamilk branch in Hanoi, Foreign Trade University library, National library, the Vietnam Development Information Center (World Bank) and many other sources Among many different ways to look into the competitiveness of a firm, this thesis adopts the approach that focuses on factors determining competitiveness of a firm in the home market The recommendations in the final part of the thesis are based on detailed study of the whole paper, concerning the participation of both the government and the company Scope and focus of the thesis As implied in the title, the thesis only focuses on measures to enhance competitiveness of Vinamilk in the domestic market It, therefore, narrows the scope of study To compete in the global market, much more factors might be taken into account The thesis puts high stress on Vinamilk’s situation; Nguyen Hoang Van - A3 - K41 - BBE Measures to enhance competitiveness of Vinamilk in Vietnam’s dairy market operation of the whole sector is no more than an overview and the mention of other players in Vietnam’s dairy market is just in comparison The thesis strongly emphasizes introducing necessary measures to improve the current situation of Vinamilk, increase the company’s real power, then strengthen its position in Vietnam’s dairy market Structure of the thesis Apart from Introduction and Conclusion, the thesis consists of three chapters The first chapter clarifies the concepts of competitiveness at firm level and its major indicators In the second chapter, special attention is devoted to analyzing Vinamilk’s position and its competitiveness in Vietnam’s dairy market Finally, the third chapter will propose practical measures to develop Vinamilk’s capability to compete in Vietnam’s increasingly competitive market Nguyen Hoang Van - A3 - K41 - BBE