vnms balanced scorecard

BỘ GIÁO DỤC VÀ ĐÀO TẠO HANOI UNIVERSITY

@ ĐẠI TRƯỜNG ĐẠI HỌC HÀ NỘI FACULTY OF MANAGEMENT AND TOURISM HANOI

Pham Thi Ha 1804010030 15%

Hanoi, 26" April, 2021

TABLE OF CONTENTS

Abstract

1 Background of the company

1 Introduction about Vinamilk

2 Vision 3 Mission 4 Products 5 Current goals Il Analysis of VNM’s strategy

1 Industry analysis

a Number and strength of competitors b Potential entrants to the market c Availability of equivalent products d Bargaining power of customers e Bargaining power of input suppliers 2 Company strategy analysis

III Strategy map and balanced scorecard for VNM 1 Strategy map

2 Structural analysis of strategy map

3 Balanced scorecard for VNM

4 Links between objectives and VNM’s strategies IV Assumptions and hypotheses

ABSTRACT

The balanced scorecard (BSC) is a strategic management and planning system that organizations use to transform their vision and strategies into business operations Besides, the application of BSC also has many benefits such as bringing structure to business strategy, improving external and internal communication and facilitating

better alignment (Hearpace, 2020) Based on the data collected about Vietnam's dairy

industry and Vinamilk’s current situation, this paper provides information about the background of VNM as well as analyzes the dairy industry and VNM’s strategy From these analyses, a balanced scorecard for the company is developed with four distinct perspectives including financial perspective, customer perspective, internal process perspective, and learning and growth perspectives In addition, we also make some assumptions to estimate the target performance of VNM in 2021 as the necessary data is not provided.

1 Background of the company

1 Introduction about Vinamilk

Vinamilk was founded in 1976 as state-owned Southern Coffee-Dairy Company It was not until 2003 that the company legally changed its name to Vietnam Dairy Products Joint Stock Company After more than 40 years of development in the dairy industry, Vinamilk has become one of the leading enterprises in Vietnam and the only representative of Vietnam in the top 50 largest dairy companies in the world (Vietnamnews, 2020) Also, the company has made a great contribution to the growth of the country and Vietnamese people

2 Vision

Vinamilk’s vision is “To become a world grade brand in the food and beverage industry, where people put all their trust in nutrient and health products” (Vinamilk’s annual report, 2020) Thus, the company understands that quality and innovation are its most important companions Also, VINM acts with a customer-centered approach and commits to respond to all their needs

3 Mission

“Vinamilk commits to deliver valuable nutrition to community with our respect, love and responsibility” (Vinamilk’s annual report, 2020)

4 Products

The main products of VNM are condensed milk, fresh milk, yogurts and other dairy products

Besides, Vinamilk extended the market by launching a variety of other products such as ice

cream, roasted rice milk, soymilk and bottled coffee 5 Current goals

Vinamilk has scheduled to complete 13 farms with an output of 1,000 tons to 1,200 tons of milk per day, ensuring domestic and export milk material supplies Moreover, their biggest goal is to become one of the 30 largest dairy companies In order to achieve the goal, Vinamilk has identified a development strategy including leading in innovations, maintaining the leading position in Vietnam and becoming the most valuable dairy company in Southeast Asia

Il Analysis of VNM’s strategy 1 Industry analysis

a Number and strength of competitors

According to Vietnam Credit (2020), competition between firms in the dairy industry are likely

to be more fierce since existing big enterprises become larger through M&A (Vinamilk acquired

Moc Chau Milk, Blue Point and VietCapital bought IDP) Also, more new players are entering

the market such as Masan Group, B’fast, Vitadairy, etc

However, the game is still under the control of big brands In 2020, Vinamilk held the largest market share in the dairy industry with 43.3% After it became the parent company of Moc Chau Milk through the acquisition last year, the total market share of Vinamilk and Moc Chau Milk was more than 45% In second place was FrieslandCampina with 15.8% market share

b Potential entrants to the market

According to Euromonitor (2020), Vietnam's dairy industry was worth VND135 trillion with a growth rate of more than 8% compared to 2019 Although this market is certainly attractive, companies that want to enter the market have to deal with numerous entrance barriers The first barrier is product differentiation As most big dairy companies have existed in the market, new brands that want to enter the market will have to develop products that stand out enough to allure customers and gain their loyalty Besides, new competitors also have to acquire a huge amount of capital for recruiting employees, building a qualified dairy system to meet the

government’s standards, renting manufacturing space, carrying out R&D, launching marketing campaigns, etc Also, because of the limitations of domestic technology, dairy firms have to import technology, equipment and raw input materials from overseas that can significantly increase the production cost Moreover, new dairy enterprises will face difficulties in finding

distribution channels, especially when the dairy market’s distribution networks are being

dominated by big existing brands like Vinamilk or TH true milk Thus, the risk of potential entrants to the dairy market is not high

c Availability of equivalent products

In the current market, there are some dairy alternatives such as plant-based milk (made from soy, nuts, barley, rice, etc), cereal powder, energy drink, functional food Generally, these all contain vitamins and nutrients that help to keep the body healthy; however, they cannot replace dairy products completely since milk products are still the best source of necessary vitamins and minerals (BBC news, 2019) Therefore, this threat of substitute products is moderate

d Bargaining power of customers

In Vietnam’s dairy market, it can be said that the bargaining power of end-users is actually

strong With a variety of dairy brands available in the country, consumers have no difficulty in

switching from one brand to another to satisfy their needs Currently, price is not the main

concem of customers anymore but instead is the product’s brand, the differentiation of the

products In general, Vietnamese customers tend to try different brands instead of just being loyal to familiar ones As reported by Kantar World Panel consumer survey (2016), 72% of Vietnamese buyers are open to trying new products and satisfied with the increased variety of products available in the market

e Bargaining power of input suppliers

The production of the dairy industry depends on the source of cow milk Although Vietnam is an agricultural country, dairy farming is not a traditional industry As reported by Ken Research (2016), most dairy cows are raised on a small scale in households while only a small number are

fed in specialized farms When raising cows on a small scale, local cow farmers face many

difficulties such as lack of knowledge and technical skills to raise cows, which leads to a high

chance of diseases in dairy cows, etc Therefore, it is hard for them to ensure the quality of milk

produced In fact, 20-50% of the fresh milk collected from farmers does not satisfy the quality requirements (Institute of Policy and Strategy for Agriculture and Rural Development, 2016).

Consequently, lots of farmers are unable to sell their milk to dairy firms or suffer great losses when companies reduce the purchase price of fresh cow's milk Thus, the bargaining power of domestic suppliers is weak

On the other hand, according to Vietnambiz (2019), as the production of raw milk from domestic

cattle currently only meets about 40% of total dairy demand in Vietnam, Vietnam’s dairy

industry highly depends on imported raw milk and milk powder from main supplier countries

such as New Zealand, the USA, Australia, Netherlands and EU This dependence on foreign raw

materials creates a risk to the profit margin of Vietnam dairy companies due to the fluctuations in global raw milk prices Although raw milk powder prices have continued to decline since the global outbreak of Covid-19, in the long term, the Food and Agriculture Organization (FAO) forecasts that world milk prices will grow at a rate of 3.1% per year (period 2019 — 2023) Therefore, the risk for power of international suppliers is considerable

2 Company strategy analysis: Product differentiation

According to 2020 annual report, Vinamilk has recently changed its sales mix toward value-added products and premiums that are not only unique from other brands but also suitable

for different needs and beneficial for consumers’ health For instance, VNM promotes users to a

healthier and natural lifestyle by introducing the first organic fresh milk produced from the first dairy farm with the EU Organic Standard in Vietnam Moreover, the brand launched the first super-premium baby formula product, Organic Gold which has superior vitamin content and brings many benefits for young children such as boosting their immune system and protecting

them from harmful free radicals Also, Vinamilk was the first domestic brand that produced

100% A? fresh milk As claimed by Dairy Reporter (2018), this type of milk differs from regular milk as it only contains only Beta — Casein A2, which is scientifically proven to improve digestion Regarding the high-end segment, UHT fresh milk with bird’s nest was launched in 2020 and received positive responses from domestic customers (Vietnamnet, 2021) This product is special because of the combination of oat milk and nutritious swallow nest as well as luxurious packaging Currently, VNM has exported this fresh milk to Singapore as there are no similar products in Singaporean market From the analysis above, it can be concluded that VNM follows a strategy of product differentiation

III Strategy map and balanced scorecard for VNM 1 Strategy map

Financial perspective

Focal point

Customer perspective

Internal business process perspective D

Learning and growth

perspective 2 Structural analysis of strategy map

a Strength of Ties: Strong ties are indicated with red arrows and the remaining are moderate ties which are indicated with grey arrows In the strategy map, three strong ties are identified, including increase safe and quality products => increase customer satisfaction; raise employee qualifications => optimize production capacity; apply digital technologies in value chain => increase safe and quality products

b Focal points: Increase customer satisfaction is a focal point because five other strategic

objectives (increase customer care, extend distribution network, increase safe and quality

products, develop healthy product lines and diversify product portfolio), should be done before VNM sees increased customer satisfaction Increase domestic market share and increase revenue are also focal points with four other strategic objectives that have links funneling into each

c Trigger points: Expanding the distribution network means more chances to approach more distributors and customers This obviously leads to the increasing domestic market share, customer satisfaction and foreign markets Another point is diversification of product portfolio Similarly, it results in gaining more foreign customers, raising domestic market share and

satisfying customers as creating more products means giving customers more choices The ultimate trigger point is the improvement of employee qualifications Apparently, this will help the company have a strong and skillful staff network, thus, boosts the capacity of the management team and increase the use of IT In addition, the upswing of employee proficiency benefits the customer care and employee satisfaction Indeed, having more excellent employees supports the company to gain customer trust and create a professional working environment

d Distinctive objectives: Vinamilk follows differentiation strategy that sets VNM apart from its competitors The key objectives to accomplish this strategy are developing healthy product lines, using green energy and applying digital technologies in the value chain As customers are more health-conscious, launching more healthy products helps VNM become a wellness brand in consumer’s mind and differentiate from others Moreover, the utilization of green energy not only results in cost savings but also contributes to differentiate products that appeal to ethically-concerned consumers Last but not least, the application of digital technologies in the value chain gives VNM a distinctive competitive advantage

3 Balanced scorecard for VNM

profitability Revenue - Change sales mix toward value-added products and premiums by 4.1% » | Increase value Š - Maintain leading position in the market

2 brought to Earnings per - Expand into the international market

shareholders share (VND) - Optimize both traditional and moder sale channels 5,489

& | and investors

= Gross profit - Decrease raw milk material cost by reducing dependence on 46.3%

=| Improve cost - - Use energy efficiently for production =| effectiveness seg general | _ Use modern technology and equipment

administrative - Applying high technology and optimizing transport routes in 26% expense margin distribution

- Seek M&A opportunities with dairy companies in other

foreign exporting - Cooperate deeply with distribution partners in new market Data not markets countries and _| instead of traditional goods export model available

territories - Penetrate in huge, potential foreign market such as China,

value - Attend international fairs and exhibitions to introduce products available Increase - Exploit the domestic market: Rural areas: mainstream products,

domestic % Market Urban areas: high-end and added value products

market share | share in - Continue to build a strong nationwide distribution network Data not and maintain | domestic - Develop online purchase channels along with traditional available

position - Deploy the "School Milk program" nationwide - Stage 1: Research, development and production stage

+ Diversify portfolio based on preferences and demands + Supply products with high quality, nutritional value Increase % Customer - Stage 2: Distribution stage

customer satisfaction + Publish transparent information about products 99.6% satisfaction index + Provide easily-accessible and affordable products

- Stage 3: After-service stage

+ Provide quick respond to questions and complaints

+ Conduct surveys about customer satisfaction

% effective - Support customers online & hotline

Increase reply to - Listen and survey consumer tastes 100%

customer care | fomers - Handle 24/7 complaints, questions from customers - Specialized switchboard for Nutrition care

Diversify Number of - Continue to R&D to develop more new products 25

portfolio relaunching atoning an - Develop healthy product lines Products % Products - Ensure quality of raw milk material:

HN C cunt’ and select reputable domestic and international 100%

Increase safe TT = — + Establish technical requirements for input raw materials

and quality °P II - Production: Apply modern food hygiene and safety management 0

rated for safety |” Preservation & distribution: build a system of storing, preserving 100% and quality and distributing food in compliance with safety standards

healthy products —— suitable for Vietnamese physical health "

product lines % of probiotic | - Selecting good materials with natural origins — 5 65% products - Develop product that facilitate people's digestive system in a

% of vitamin natural way

products