unit 1 business and business environment

In general, the barriers to entry into the beer, alcohol and beverage industry are quite large.. Brand barriers are also quite large in this industry, with well-known suppliers such as H

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Qualification BTEC Level 4 HND Diploma in Business

Unit number and title Unit 1: Business and Business Environment

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Table of Contents

A Introduction 5

B Positive and negative impacts the macro environment of SABECO 5

I Porter’s five forces 5

1 Threat of new entrant: 5

2 Bargaining Power of Suppliers 6

3 Bargaining Power of Buyers 8

4 Rivalry among existing firms 8

5 Threat of Substitute products 10

II Six factors of Marco Environment (PESTLE) 11

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4 Technology 22

5.Legal 23

6 Environment 25

III Internal and External Analysis – Sabeco’s Potential 25

1 Influence Internal Environment 25

1.1 Vision Mission Core value – – 25

1.1.1 Vision 26

1.1.2 Mission 26

1.1.3 Core value 26

1.8 Technology-based or research and development 36

2 Influence of external environment 37

III Strengths Weaknesses Opportunities Threats Analysis– – – 38

1 SWOT Analysis 38

4 Strengths and weaknesses interrelate with external macro factors 38

C Conclusion 40

D References 41

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• Commercial factors: Distribution system, brand, customer system

• Specific resources: Input materials (controlled), recipes, packaging designs, human resources,

The greater the barriers, the smaller the number of potential competitors for the company In general, the barriers to entry into the beer, alcohol and beverage industry are quite large In the industry, there are many small and medium enterprises, in the Northern region, there are 13 enterprises

In terms of capital and technology, this is an industry that applies increasingly modern technology along with traditional processing recipes that require large investment capital to transfer technology accordingly To participate in the industry, the company must have large capital to innovate processing technology At the same time, to ensure product quality, the company has to buy imported materials from countries with world famous raw materials, so the price of raw materials is quite high For example, malt that cannot be produced must be imported from abroad

5 (Denmark, Germany ) at $100/20kg, houlon flowers imported from abroad (Denmark, Germany ) at $500/ton The human factor, especially the use of qualified employees to ensure the work and use of technology in the industry is still not up to the mark, especially now that the industry is actively innovating and applying modern technologies While the number of workers involved in this industry is very large, the skills are not high enough to operate these technologies properly

Brand barriers are also quite large in this industry, with well-known suppliers such as Hanoi Beer Alcohol Beverage Company (Habeco), Tribeco, Viet Ha Beer, Southeast Asia Brewery, Beer Group Asia - Pacific Vietnam is also the favorite choice of many consumers

=> The competitive pressure of Sabeco's barriers to entry is quite large

2 Bargaining Power of Suppliers

The protracted Covid-19 pandemic has resulted in unprecedented disruption of global supply chains Labor shortages, goods stuck at ports and high freight rates have caused material prices to increase significantly since the beginning of 2021, typically aluminum prices have increased and there has been no sign of any signs of improvement cooling down in 2022 In addition, in May 2021, the southern provinces of Vietnam suffered the devastating 4th wave of the Covid-19 epidemic and fell into a strict blockade throughout the whole period more than 3 months, making it even more difficult to transport materials In order to limit the above impacts, SABECO has pre-purchased many types of key materials at the right time to avoid being affected by price fluctuations In addition, the Corporation continues to maintain supplies from many different suppliers to minimize the risk of input shortages, actively coordinate between regions, and at the same time change delivery methods to ensure sufficient supply for production

Supplier information:

The source of raw materials always causes difficulties for the beverage industry in general, the most feasible solution for businesses is to prepare carefully in the signing of the purchase and sale of raw materials, learn about market movements, not only With imported raw materials, but also with domestic raw materials such as rice, fruit, etc With the beer industry in particular, our country has no raw material areas due to unsuitable soil and climate conditions and unsuitable investment proper investment Although the Vietnam Institute of Alcohol and Beverage had previously had a pilot project to plant Dai Man in Cao Bang, the results were quite positive, but it has not been implemented on a large scale but only in pilot form Therefore, at present, Sabeco 60-70% of the raw materials must be imported such as malt, houblon flowers, enzymes, which are imported from the world's leading raw material suppliers in Europe, Australia and the US

 This is the limitation of the beer industry in general and above all, Sabeco - The leading bird of the Vietnamese beer industry

Figure 1: The company's exclusive raw material supplier in 2017 (source: planning and sales department)

For traditional (old) suppliers: These are NCUs (Supplier) that both the Company and the NCU are quite knowledgeable about and have a stable and long-term cooperative relationship A long-term relationship can bring benefits such as always being prioritized in ensuring production of raw materials, saving costs of searching for markets, trading, ordering, and risk costs Sign annual contracts with NCUs to reduce the risk of price increases, while also stabilizing product prices in the long run

For new suppliers: The purpose of choosing to develop a new NCU is to reduce pressure from the old NCU on prices, on payment conditions, and to increase supply capacity, services or incentives When supplying materials, the company has the ability to supply materials in large volumes, with guaranteed quality If there are fluctuations in prices and demand for raw materials in the market, the company can still supply goods at the most reasonable

7 prices On the other hand, the company is also advantageous in supplying raw materials thanks to the competition among NCUs such as: cheaper price, better quality The main activity of company 20 is the production and sales of Saigon Beer which is directly related to the health of customers Therefore, product quality not only starts from the production and inspection process of the corporation, but also depends on the quality of input materials of each NCU

In general, the Company's search and selection of raw material suppliers usually only prioritizes selecting and working with old suppliers This can help save time getting to know each other because both parties already know how each other works However, this will make the company dependent, passive and have little choice when there are fluctuations from suppliers

=> The competitive pressure of suppliers for Sabeco is huge

3 Bargaining Power of Buyers

Customers are a competitive pressure that can directly affect the entire production and business activities of the industry Customers are divided into 2 groups: Retail customers and agents (distributors)

Both groups put pressure on businesses in terms of price, product quality, accompanying services, and they themselves are the drivers of competition in the industry through purchasing decisions

Similar to pressure from suppliers, we consider the effects of competitive pressure from customers on the industry: • Scale

=> Competitive pressure from customers for Sabeco is moderate

4 Rivalry among existing firms

Enterprises doing business in the industry will compete directly with each other, creating pressure on the industry to create an intensity of competition In an industry, the following factors will increase competitive pressure on competitors:

Sabeco's beer, wine and beverage industry is a fragmented industry, with many businesses competing with each other, but none of them has the ability to dominate the rest, so there are advantages and disadvantages that are: :

8 Advantages: equal business environment, no state monopoly or protection for any competitors,

Difficulties: Sabeco is not yet a big enterprise, with limited resources, and a small market, so it will face many difficulties when competing on an equal footing, without state protection

The market for supplying beer, wine and beverage in Vietnam has many suppliers Up to now, a number of enterprises have had the leading modern equipment lines in the country, no less than joint venture enterprises, besides, Hanoi Beer or Saigon Beer brands are also quite famous, quality, Food safety and hygiene are guaranteed, so the competitiveness is very good But the competition among enterprises in the industry is still quite high Among the businesses competing with Sabeco, there is strong competition from Habeco because these are the two leading enterprises in the production of beer, wine and beverage in Vietnam Besides, there are also traditional competitors in the market such as: Heniken, Tiger a joint venture between Zorok, a link between Vinamilk and SAB Miller

Vietnam But, there is one point where Sabeco's heavyweight rival Heineken does much better than other beer businesses That is: Optimal distribution system

Figure 2: Distribution chart of Heineken Vietnam Brewery (source: VCSC)

Other than Sabeco and Habeco, Heineken Vietnam Brewery effectively manages selling prices at about 250 distributors and retailers in which distributors enjoy a profit margin of 3-4% This allows Heineken to avoid price competition among distributors Meanwhile, Heineken Vietnam Brewery's system is designed to ensure that distributors focus on their own regions instead of trying to penetrate each other's regions

Sabeco's distribution system is concentrated in Sabeco trading, which is 100% owned by Sabeco Sabeco trading will then allocate inventory to 10 subsidiaries in each region, who will then negotiate with 1,200 distributors All operations such as transportation will be carried out by these 10 commercial subsidiaries

Figure 3: Distribution system of Heineken (source: VCSC)

Thereby, the direct shipping rate of Heineken distributors increased by more percentage, thus reducing distribution costs

In addition, a unique advantage of Heineken Vietnam Brewery is taking advantage of marketing strategies from the parent company By leveraging its global scale while adapting to the domestic market, Heineken Vietnam Brewery has advantages in marketing and branding Example: UEFA tournament campaign in which the company holds the tournament in major cities while the special edition is extended to retail locations

Besides, Heineken Vietnam Brewery benefits from Heineken's global cooperation with facebook Heineken has

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become the most popular brand in Vietnam thanks to its investment in sponsoring big music events or New Year's Eve parties

=> Competitive pressure from businesses for Sabeco is quite high

5 Threat of Substitute products

Unpredictability and unpredictable nature of substitute products: Even within the industry, with the development of technology, it is possible to create substitute products for their industry Substitute products in the beer, wine and beverage industry are many, and the beverage products are substitutes for alcohol products Enterprise Sabeco is facing substitute products of other businesses Beer and alcohol products with different flavors meet different needs of consumers, making substitutes more and more diverse Currently, soft drinks produced from natural ingredients are being chosen by many consumers as an alternative to alcohol products

Most of Sabeco's customers are men, because men have a preference for drinking alcohol to satisfy their main needs, which are:

• Meet partners • Friends gathering • Discuss, exchange work

So the substitute of beer, wine is a good or service that can satisfy the above needs Some goods and services can be substituted for alcohol, such as: drinking coffee, drinking tea, playing sports, These services can satisfy the above needs and add an additional benefit supportive sisters To maintain stability and development, Sabeco needs more strategies to invest in expanding production and diversifying beverage products

 Competitive pressure from substitute products is great

II Six factors of Marco Environment (PESTLE) 1 Political Enviroment

1.1 Stability of government

Vietnam has a single party that controls the whole country, the Communist Party of Vietnam With the one-party system, Vietnam is showing stability in its politics, in the sense that there are no frequent street protests, no protracted political controversies that lead to deadlocks for example such as government formation, policy making, etc In democratic countries, this is always a great advantage compared to other countries in the world

=> Opportunities: Vietnam is a one-party country, has a stable political and security background, is suitable for diplomatic relations with one-party countries, no conflicts or wars Enterprises operating in the territory of Vietnam do not have to bear political and security risks

1.2 Foreign investment

The current situation of attracting FDI in Vietnam in recent years

11 Over the past 25 years, the FDI economic sector has increasingly played an important role and made significant contributions to the socio-economic development of Vietnam

25 years of attracting 211 billion USD of foreign investment

The leader of the European - American Market Department said that Vietnam is a country with a very high economic openness, deeply integrated into the global economy Therefore, it will be significantly affected by market fluctuations; to growth, economic development, economic and trade cooperation, as well as import and export of goods

As for the Russian and Ukrainian markets, the leader of the Europe-America Market Department said that both Russia and Ukraine are traditional and important trade partners of Vietnam in the Asia-Europe region In terms of trade turnover, Russia ranked 1st, Ukraine ranked 6th

Therefore, if the Russia-Ukraine conflict continues for a long time, it will certainly seriously affect bilateral trade between Vietnam and the two countries

Because, this conflict is the cause of increasing prices in the market for some fuel products, raw materials for production and consumption such as gas - petroleum, wheat, aluminum, nickel, corn due to market share The production and export of the above countries is very large

According to statistics, Russia currently exports about 5 million barrels of crude oil per day, accounting for about 12% of global trade, and about 2.5 million barrels per day for petroleum products, accounting for about 10% of turnover global trade Russia is also a leading natural gas producer and its largest customer is Europe;

For aluminum and nickel products, Russia is also the world's third largest supplier As for wheat, Russia and Ukraine account for a quarter of the world's wheat export supply Therefore, if the tension between Russia and Ukraine continues to persist, it may cause many countries (including Vietnam) to face difficulties in the supply of these raw materials and fuels in the near future

Regarding payment of commercial contracts, for Russia, in recent times, the US and Western countries have introduced a series of sanctions targeting the banking - financial system of Russia These sanctions, in the immediate future, will affect the payment of many contracts using the US dollar as the payment currency

In addition, the ruble exchange rate fluctuated, depreciating very strongly, causing some Russian importers to propose to suspend payment for 2-3 weeks to wait for the situation to stabilize

Regarding transportation and circulation of goods, currently some shipping lines have refused to accept orders to transport goods from Vietnam to Russia Freight rates will continue to soar along with shipping delays that will severely affect trade in goods

The air embargo will also lead to airlines having to choose longer routes, increased costs, increased pressure on the global logistics system and the price of goods

1.3 Diplomatic relations with other countries

Besides, there is one country that has the same and established diplomatic relations that is Cuba

12 The Cuban Communist Party is currently the only officially recognized political party in Cuba The Vietnam - Cuba relationship is a bilateral and intimate relationship between the two Socialist Republics of Vietnam and the Republic of Cuba Diplomatic relations between the two countries were established between the Government of the Republic of Cuba and the Government of the Democratic Republic of Vietnam As of January 2018, Vietnam has become the second largest trading partner in Asia investing in Cuba, after China The Vietnam - Cuba cooperation relationship has continuously developed over the years in all fields from politics and diplomacy to economy, trade, investment, science, technology and culture In recent years, with the efforts of the Vietnam - Cuba Intergovernmental Committee, the cooperation activities between the two sides have been continuously expanded and developed, especially in trade and investment cooperation positive results Cuba is geographically far away, but that is no longer a big problem hindering trade and investment cooperation between the two countries On the contrary, in the context of Vietnam's increasingly integrated integration and towards more distant target markets, Cuba is one of the effective investment options With its strength in the production of consumer and household goods, Vietnam can promote production to exploit the Cuban market and many other South American countries

 Threats: The main raw materials are mainly imported, especially beer cannot lack wheat, which Russia and Ukraine account for a quarter of the world's wheat export supply Therefore, if the tension between Russia and Ukraine continues to persist, it may cause many countries (including Vietnam) to face difficulties in the supply of the above raw materials and fuels in the near future, especially the indispensable wheat of Vietnam beer market in particular and Sabeco in general 2 Economic Environment

Vietnam's economic growth rate directly and strongly affects the growth rate of business lines In recent years, according to the General Statistics Office of Vietnam, Vietnam's economy has experienced strong growth The country's economic development rate in 2018 reached 7.08%, the highest in the past 10 years, decreased slightly to 7.02% in 2019 and in 2020 reached an estimated economic growth rate of 2.9% but is one of the few countries in the world with positive economic growth due to the impact of the covid pandemic According to the report, Vietnam's GDP is expected to grow by about 4.8% for the whole year of 2021 As a result, GDP for the whole year 2021 is estimated to increase by 2.58% compared to 2020 The reason is due to the Covid-19 epidemic seriously affected all sectors of the economy, especially in the third quarter of 2021, many key economic localities had to implement prolonged social distancing to prevent epidemics

It shows that in the years before the pandemic happened, the income of each individual was at a stable to increasing level, creating a demand for buying consumer goods, and the entertainment trend also developed significantly

13 The consequences of the current COVID-19 outbreak, which is affecting the economic growth of many countries, including Vietnam, should be restored and stabilized the demand for goods for Vietnamese people

According to the General Statistics Office, compared with the same period last year, core inflation in the first nine months of 2021 increased by 0.88%; 10 months' average is estimated to increase by 1.81%-1.83% over the same period last year, core inflation in 10 months is estimated to increase by 0.82%-0.86% Regarding inflation in 2022, according to the Ministry of Finance, from assessing the high inflation pressure from the beginning of the year, controlling inflation according to the target set by the National Assembly (continued at about 4%) will face many challenges challenge, difficulty Inflation not only increases the company's cost of capital, but also has a direct impact on input costs such as raw materials, labor, transportation costs, etc., leading to an increase in product costs great influence on the consumption process and market expansion

Unemployed rate:

Data on employment and labor situation shows that unemployment is increasing in most countries around the world, especially in major economies such as Canada, the US, and China with unemployment rates in May 2020 is 13.7% respectively; 13.3%; 5.9%, much higher than the same period last year

Domestic situation: The labor force decreased by more than 2 million people compared to the previous quarter and the same period last year, the unemployment rate among working age in urban areas was the highest in the past 10 years (4.46%)…

The whole country has 30.8 million people aged 15 years and over who are negatively affected by the Covid-19 epidemic, 28.7 million people have jobs; 897.5 thousand people are unemployed and 1.2 million people are outside the labor force (not participating in economic activities).

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15 Employed workers aged 15 and over in the second quarter of 2020 were 51.8 million people, down 2.4 million people compared to the previous quarter and down nearly 2.6 million people compared to the same period last year the largest decrease in the past 10 years Female workers decreased by 1.2 million people compared to the previous quarter and by 1.5 million people compared to the same period last year Wage workers decreased by nearly 1.2 million people compared to the previous quarter; disadvantaged workers (self-employed and family workers) decreased by 1.1 million people compared to the previous quarter

The Service sector was hardest hit by the Covid-19 epidemic with 72.0% of employees affected, followed by Industry and construction with 67.8% of employees affected; the percentage of affected laborers in the Agriculture, forestry and fishery sector is 25.1%

 Threats: The three-way paradoxical relationship between economic growth - unemployment and inflation always exists in the market economy- The economic growth rate (GDP) decreases, the unemployment rate increases and inflation increase accordingly; on the contrary, the growth rate (GDP) increases unemployment will decrease, leading to a decrease in the inflation rate This relationship needs to be taken into account when influencing socio-developmental factors

People's income: Beer is a beverage product whose consumption depends heavily on people's income as well as the development of the economy Along with the crisis of the global economy and the decline of the economic growth rate, our country has made rapid development steps Per capita income is increasing When people's living standards are improved, the market demand for alcohol and soft drinks will also increase, requiring more satisfactory quantity and quality, richer designs and ensuring food safety and hygiene Products

=> Threats: The income gap is a challenge for the company, because when the income changes correspondingly the output must change, the product is suitable for the pocket of each customer group

Regarding interest rates: Although located in the Asian monetary crisis area, in general, in the past years, the management of monetary policy has had an impact on the money market The interest rate adjustment level of commercial banks is significantly different The change of interest rates has a great impact on the consumption and saving behavior of the industry in particular, when the interest rate is high, they will switch to saving, whereas when the interest rate is low, it will have a positive impact on consumption Besides, in terms of Sabeco's capital structure, loans account for a large part, so the increase in borrowing costs when market interest rates increase is a difficulty for the company Reducing competition as well as somewhat limiting development plans In addition, when input costs increase, prices increase, the company's purpose is to control the increase in selling price - keep it at a stable level

3 Social

Vietnam’s Demography

16 Demography is the study of population in term of overall size and structural characteristics

• For example: age structure, gender balance, geographic distribution, ethnicity etc

• This factor has an important implication for both the demand and supply side of the economy

3.1 Demography of Vietnam

Population chart of Vietnam 1950 2020– (Nguồn: https://danso.org/viet-nam/)

Vietnam's current population was 98,786,913 as of April 14, 2022, according to the latest figures from the United Nations Vietnam's population now accounts for 1.24% of the world's population Vietnam is ranked 15th in the world in the population ranking of countries and territories The popul ation density of Vietnam is 319 people/km2 With a total land area of 310,060 km2 38.05% of the population lives in urban areas (37,198,539 people in 2019) The average age in Vietnam is 33.3 years old.

1 Based on the current population growth, beer consumption will continue to increase over the next decade

3.2 Factors of Demography

3.2.1 Crude Birth rate and Crude Death rate

• Crude Birth rate: number of live births per thousand of population annually There are some countries with reducing number of births because :

✓ Smaller as people become better off and good healthcare

17 ✓ Availability of contraception

✓ Later marriage and child bearing ✓ Declining fertility rate

✓ Changing attitudes toward women and work

• Crude death rates are usually measured per thousand of the population annually

Factors contributing to a fallen death rates:

✓ Rising living standards, including better housing, sanitation and nutrition

✓ Developments in medical technology and practice ✓ Better education

✓ Improved working conditions

• Rate of natural increase = Crude birth rate Crude Death rate –

Look at the data table we have:

- The gross fertility rate has changed unevenly over the years and the highest is 19.5% in 2020 - Gross mortality rate tends to decrease from 6.5%-2015 to 4.8%-2020

- The rate of natural increase is equal to the raw birth rate - Raw death rate Trending down from 2015-2017 and trending up from 2018-2020

3.2.2 Net migration

• Net migration is the balance between those leaving and those entering a country in a period of time • Influences on the net migration are:

18 ✓ Legal barriers (e.g immigration laws)

Population figures by age (estimated):

23,942,527 adolescents under the age of 15 (12,536,210 males / 11,406,317 females) 65,823,656 people aged 15 to 64 (32,850,534 males / 32,974,072 females)

5,262,699 people over the age of 64 (2,016,513 males / 3,245,236 females)

Vietnam Age Structure 2009-2019

Source: https://www.statista.com/statistics/444599/age-structure- -vietnam/in

19 Notice that the top of the population tower increases over time, reflecting the increased proportion of the elderly Call people 65 years and older 'elderly' The proportion of elderly people in 2010 was only 6.49%; Ten years later, the rate is 7.87% and this is the least age of the three The age of under 15, also known as adolescence, the proportion of this age group has not changed much over the years and remains around 23% until 2020 Finally, the 15-64 age group, which is also the age that accounts for the most The rate tends to increase from 69.88%-2010 to 70.46%-2013 and tends to decrease by 70.31%-2015 to 68.94%-2020

Population's effects on Business

The first that can affect the company's business results is the population, since people are the force that makes up the market, the characteristics of consumption also depend on the education level of a residential cluster or the age structure also governs the company's beer consumption Research shows that people living in cities drink more beer than those who live in rural areas, and that people between the ages of 22 and 49 are the age of beer

consumption the most, which is the basis for the company to be able to direct marketing tools to these groups of customers more

In addition, gender factors also greatly affect the consumption of beer because Vietnam is open to the world but still has a strict view for women so beer and alcohol are not drinks for women as in developed countries But sabeco's "NSOM" light beer is targeting this group of people In Vietnam, it is forecasted that by 2050 the population will be 117.7 million people, the annual population growth rate is 0.3%, this is a large potential market with the most beverage market is the beer market

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Large-scale economic safety has emerged and is expanding.

The middle class is expanding as households are climbing one step further on the economic ladder Vietnam's consumer class is growing rapidly The number of households classified as economically safe rose from less than 50% in 2010 to 70% in 2016 About 70% of Vietnam's population can now be classified as economically safe, including 13.3% who are currently part of the global middle class (up from 7.7% in 2010) About 28% of the population moved to a higher economic class between 2014 and 2016, 63% remained in that economic class, while only 9% fell to the lower economic class, so the number of people moving up the economic ladder was three times higher than those who moved down the economic ladder The upward movement is even higher when not counting