international business strategy report year 2020 vinamilk business strategy

Vietnam Dairy Products Joint Stock Company was established on October 1, 2003 by the Ministry of Industry on the transformation of the State-owned Vietnam Dairy Company into Vietnam Dair

VIETNAM GENERAL CONFEDERATION OF LABOUR

TON DUC THANG UNIVERSITY FACULTY OF BUSINESS ADMINISTRATION

ĐẠI HỌC TÔN ĐỨC THẮNG INTERNATIONAL BUSINESS STRATEGY REPORT YEAR 2020

VINAMILK BUSINESS STRATEGY

HO CHI MINH CITY AUGUST, 2020

LIST OF MEMBERS

LIST OF TABLES

Table 1.2 The development stages of Vinamilk (since equitization - 2019) 13

Table 2.1 China’s top eight dairy-processing ©nf€TpDTISGS .- ca tt tre, 32 Table 2.2 The total sales of the top-ten dairy-processing enterprises (unit: US$ million) 32 Table 2.3 Value of daily product exports for China’s major dairy suppliers, 2014-16 37

Table 5.1 Work plan

LIST OF FIGURES

Figure 1.5 Organizational and managerlal hieraTCÌy cá xxx nitrsekekrisrske 16

Figure 1.7 Total Domestics Sales of milk and yogurt products in China 19 Figure 1.8 Market share of plant protein beverage In China 2018 sex 20

Figure 2.1 Balanced diet pagoda for Chinese COISUITS xài, 29 Figure 2.2 China dairy production and net import (tons of raw milk equivalent) 30

Figure 2.10 Compare between Tetra Pak package and Combibloc package 43 Figure 2.11 Yogurt selling area of Vinamilk at Hop Ma supermarket (under Alibaba) in

Figure 2.12 At Hop Ma supermarkets, buyers can pay directly by themselves using a

Figure 2.13 The interface of Vinamilk's online store on Tmall, a major Chinese e-

Figure 2.14 Increase In Income and consumption of VinamÏÌk .- -sscs-s+cx++ 47

Figure 3.1 Some types of milk 49

Figure 4.2 Relationship between timing of entry, entry mode and international market

Figure 4.3 Evaluating strategies (Exploring Strategy: Text and Cases, 2017) «v.00 69 Figure 4.4 Business report third quarter/20 19 of VinamiÏÌk ¿-¿ + cccsxcec 70 Figure 4.5 New packaging of seed milk for Lunar New Year in China -.- - 71

Figure 4.8 In 2019, VInamilk has successfully maintain these certIficafes 75

CONTENTS

1.3.1 Operation model in the Vietnamese market óc cà ssxssererrrsrree 14

2.5.3 The threat from substitute products

2.5.4 Bargaining power of supplier

2.5.5 Bargaining power of buyer

3 CHAPTER 3: ASSESSMENT OF INTERNAL CAPABILITIES 3.1 Core competencies

3.2 Leverage Core Competencies

3.2.1 Leverage resources and capabilities

4.3.5 Monitor Progress

CHAPTER 1: LITERATURE REVIEW

1.1 Overall Information of Vinamilk

In recent years, milk has become one of the fast-growing food industries in Vietnam and a staple in people's lives Milk is considered as a nutritious and energy supplement One of the leading companies in the Vietnamese market is Vinamilk Vietnam Dairy Products Joint Stock Company was established on October 1, 2003 by the Ministry of Industry on the transformation of the State-owned Vietnam Dairy Company into Vietnam Dairy Products Joint Stock Company (VINAMILK) Certificate of business registration by the Department of Planning and Investment of Ho Chi Minh City on November 20, 2013

© VINAMILK

Figure 0.1 Vinamilk logo

« Company name: Vietnam Dairy Products Joint Stock Company (VINAMILK)

« Head office: Vinamilk Building - 10 Tan Trao - Tan Phu Ward - District 7 — Ho Chi Minh City

e Phone: (+84.028) 54 155 555

e Fax: (+84.028) 54 161 226

« Website: https://vinamilk.com.vn

More specifically, in 2019, Vinamilk has a charter capital of 17,416,877,930,000

VND with a total revenue of 56,400,000,000,000 VND, an increase of 7.17% compared to

2018 (52,629,000,000,000 VND) The huge sales volume shows that Vinamilk is the brand

that consumers choose to buy the most compared to other brands (2013-2020) Not only

that, Vinamilk in turn achieved the goal of the 1st in the best 50 brands of 2019, the best-

selling brand and triumph in liquid milk and powdered milk

LIQUID MILK THE =,

i AND POWDERED IN THE BEST 50

DẪN ĐẦU TOP 1000 THƯƠNG HIỆU

MẠNH NHẤT TẠI VIỆT NAM NĂM 2020

Vietnam Strongest

TT Theo Campaign Asia-Pacific & Nielsen

THƯƠNG HIỆU' THUONG HIEU NGƯỜI TIÊU DUNG

eo Brand Fecterint 2020 cis Workdpane! (Kanter)

Figure 0.3 Vinamilk achievement (Vietnam's most chosen FMCG brand owners and

brands 2020, 2020)

Number of shares Ownership rate (%)

Table 0.1 Statistics of Shareholders in 2019

(Annual Report of Vinamilk , 2019)

1.2 History and development

1.2.1 History and development

Vietnam Dairy Products Joint Stock Company, also known with the abbreviated name Vinamilk - was established in 2003 As a company mainly produces and sells dairy products According to a report by VNCS Research Center in 2018, Vinamilk is the largest dairy company in Vietnam and has continued to affirm its leading position in the dairy industry nationwide

Vietnam Dairy Products JSC

Vinamilk was officially listed on HOSE on 19/01/2006

managed information online in Vietnam

In November, Vietnam Dairy Cow One-Member Ltd., was established

Vinamilk contributed USD 10 million, as equivalent to 19.3% of Miraka

subsidiary to 22.81%

Vietnam beverage factory was inaugurated and put into operation

Vietnam powdered milk factory and Vietnam dairy (Mega) factory were inaugurated and put into operation

with 96.11% of share capital owned by the Company In 2017, it became

a wholly owned subsidiary of Vinamilk

Contributed 18% share capital of APIS JSC

Vinamilk acquried 70% share capital of Driftwood Dairy Holdings Corporation in California, USA and officially owned 100% of stake in May 2016

2017

Cu Chi Raw Milk Center was going under operation

Invested in sugar industry by acquiring 65% share capital of Vietnam Sugar JSC

Acquired 25% share capital of Asia Coconut Processing JSC

Invested a 51% share of Lao-Jagro Development Xiengkhuoang Co., Ltd

2019

Started construction Phase 1 of Laos’ 5,000-hectare Organic dairy farm

with 24,000 head cows

Doubled the capital at Driftwood Dairy Holding Corporation, from USD

10 million to USD 20 million

Completed the acquisition of 75% share capital of GTNFoods JSC, thus controlling Moc Chau Milk JSC whose total head cows are 25,000 ones

Table 0.2 The development stages of Vinamilk (since equitization - 2019)

(Annual Report of Vinamilk, 2019) 1.2.2 Develop strategy of Vinamilk

By 2021, Vinamilk's goal is to continue maintaining and leading the No 1 position

in the entire dairy market in Vietnam At the same time, try to grow to be in the Top 30's

of Largest Dairy Companies' revenue To achieve those great goals, Vinamilk has set out three small goals as follows: (Annual Report of Vinamilk , 2019)

« Focusing mainly on dairy such as industries and related products

« Continue to maintain the research and development of new products, diversify to suit each needs and tastes of consumers At the same time, it helps customers to have more experience about the product Make the process of understanding the customer easier

« Prioritize exploitation of the domestic market

« For urban areas: focus on promoting high-end product segments

« Entering and expanding market in rural areas with popular product segment

« Build and develop a nationwide distribution system to become more widespread and stronger and increase market share

« Becoming the most valuable dairy company in the Southeast Asia

« Ready for M&A activities and expand cooperative relationships with partners

« Look for M&A opportunities with dairy companies around the world

« Continue to penetrate new export markets with the strategy of converting the traditional export model to other forms

1.2.3 Distribution network

Vinamilk owns a variety of products to distribution channels Along with its reputation for quality and prestige, the business activities spread across the country (64 provinces) have further confirmed Vinamilk's position in the Vietnamese market Apart from big cities, Vinamilk strengthens its distribution to rural areas Most of the communes have agents of Vinamilk, the rest appear in grocery stores, etc Through this diversified form of distribution, Vinamilk has succeeded in increasing awareness and coverage product and market share thanks to consumers (Annual Report of Vinamilk , 2019)

© More than 200 distributors

® 251 retail locations

* Coverage at most supermarkets and convenience stores

e 430 chain stores "Vietnamese dream milk"

« Building e-commerce channels to reach customers more easily

1.3 Organizational structure

1.3.1 Operation model in the Vietnamese market

Nang and Can Tho

Branches and subordinate units in Vietnam

02 logistics enterprises in Hanoi and Ho Chi Minh City

Figure 0.4 Operation model of Vinamilk

1.3.2 Organizational and managerial chart

Figure 0.5 Organizational and managerial hierarchy

1.3.3 Business field

Currently, Vinamilk is the leading nutrition group in Vietnam Owning a system of

12 GLOBAL G.A.P farms and 13 factories with modern technology Vinamilk has a wide range of businesses such as liquid milk, baby formula & adult formula, nutritional powder, yogurt, drinking yogurt, energy drinks and soft drinks, condensed milk, and ice cream, etc meet all the needs of consumers in the Vietnamese market (Annual Report of Vinamilk , 2019)

« Integrity: Integrity, honesty in conduct and all transactions

« Torespect: Respect Yourself, Respect colleagues, Respect the Company, Respect partners, Cooperation in respect

« Fair: Be fair to employees, customers, suppliers and other stakeholders

« Morality: Respect the standards that have been set and act in a manner morality

« Compliance: Comply with Laws, Code of Conduct and Company rules, policies, and regulations (Vinamilk)

1.4 Vinamilk enter in China market

After successful exports, they are sold in supermarkets and shops and have been well received by consumers in difficult markets such as the US, Japan, etc Vinamilk continues to place China as the market target field Because it's not hard to realize that China's dairy consumption is on the rise

“China's dairy industry has shown positive growth for the first time after experiencing a three-year low, and the industry has begun to recover China's dairy industry will fully recover from 2018,” said Song Liang, senior dairy analyst, on the first Chinese Brand Yogurt Innovation Development Forum More specifically, according to 2018 data, China's average milk consumption was only 17.67 kg This is a low number compared to other developed countries It is reported that milk consumption in Japan is 47% higher and South Korea 65% higher Because the level of milk consumption is not large, the dairy market is still very spacious to welcome new participants (Marketing to China, 2018) The reason for the stronger growth of milk consumption in recent years is because people seem to be aware of the benefits that dairy products bring, such as nutrition, high protein content, increased immunity, aiding in digestion, suitable for all ages

According to daxueconsulting (2020), China's total dairy market revenue in 2017 was 359,041 billion yuan, an increase of 7.85% over the same period last year Accordingly, the most consumed products are fresh milk, powdered milk, and yogurt 1.4.1 Yogurt

According to China Daily, in 2017 yogurt sales were higher than milk sales As the chart below shows, total yogurt sales in the domestic market increased by 108.6% from

2003 to 2017, while milk sales increased by only 18%

1.4.2 Plant-based milk

From 2015 to 2017, sales of plant-based milk increased 17% (Daxueconsulting, 2020; Chemlinked, 2018) The introduction of this product has changed the consumption habits of most of the old generation who are not used to consuming dairy products Stems from the mentality of consuming plant products will be beneficial for health and this product is also suitable for vegetarians So, when plant-based dairy products came into being, its consumption increased

ENE

= Others = Coconut Paim sø Yangyuan (welnut milk) « Vitasoy (soymilk)

daxuÈonsuing

8 Yinli (peanut milk) 8 Dali Foods (soymik) ® Lulu (almond milk)

Figure 0.8 Market share of plant protein beverage in China 2018

of the main products of Vinamilk and has been exported to countries around the world Therefore, Vinamilk has seized the opportunity to boost exports to China and affirm Vietnam's market position (Datviet, 2020)

2019 is a year marking a milestone for Vinamilk in particular and Vietnam's dairy industry in general Due to the impact of the Covid-19 epidemic, in October 2019, Vinamilk participated in the "Vietnam dairy product launch program in China" and had cooperation with partners in China This helps to shorten the distance with consumers, while increasing brand awareness for them

Only 2 months after being granted the official export code, in April 2020, Vinamilk successfully exported the first batch of condensed milk to the Chinese market Not stopping there, 5 containers of condensed milk have been exported more in the early days of 2021 This is a good signal for bringing Vietnamese products to the world's largest consumer market (Vietnam plus, 2021)

1.5 PESTEL analyze

1.5.1 Political

Overall, the political situation in China has been stable, with the Chinese

Communist Party (CCP) firmly in power After assuming these functions in 2012-13, he was reappointed to them in 2017-18 In 2020, the Chinese government reinforced its official political rhetoric and control, both internally and in terms of foreign policy Weak global demand and strained foreign relations are expected to intensify calls for economic self-sufficiency emphasizing the importance of the domestic market In 2021, China’s most immediate challenges are related to addressing the economic, social, and public health impacts of the COVID-19 pandemic

The only political party in the country is the CCP (Chinese Communist Party) There are eight other registered small parties, but they are all controlled by the CCP China is one

of the most powerful countries in the world It is a permanent member of the Security Council of the United Nations It is also the 4th largest country in the world by land area Beijing is the capital of China

The Communist Party of China is the founding and ruling political party of the People’s Republic of China Although China enjoys a stable political environment, the lack

of political freedom is an area of concern Many analysts question the lack of openness of China’s political system (Howandwhat, 2020; Worldbank, 2020)

2019, due to the impact of the COVID-19 pandemic The 2019 context was already the result of a structural slowdown, as the economy moves away from an investment-led growth model and the government implements policies to reduce financial vulnerabilities New sectors like e-commerce and online financial services are gaining momentum in an economy dominated by export-oriented sectors

By the end of 2020, inflation reached 2.9% and it should remain stable at 2.7% and 2.6% in 2021 and 2022 Public debt is a reason for concern in China Although the official figure for 2020 was 61.7%, the real number is thought to be much higher and is expected

to rise in coming years According to a report published by the Institute of International Finance, the total stock of corporate, household and government debt in the nation now exceeds 303% of gross domestic product and accounts for about 15% of all global debt Nonetheless, IMF anticipates an increase in the government debt in the future, reaching 66.5% in 2021 and 71.2% in 2022 Due to the COVID-19 pandemic, government Budget balance reached a record low of -10.2% of GDP in 2020 compared to -5.9% the previous

year, a trend that is expected to remain in 2021 and 2022, when it's estimated to reach - 10.9% and -10.3%

In 2021, the country’s most immediate challenge is related to the economic, social, and public health impacts of the COVID-19 pandemic Furthermore, China has to face many challenges: an ageing population and shrinking workforce, the lack of openness of its political system and issues of competitiveness in an economy dependent on high capital spending and the expansion of credit A large gap remains between the living standard of the cities and the countryside, between urban zones on the Chinese coast and the interior and western parts of the country, as well as between the urban middle classes and those who have not been able to profit from the growth of recent decades

Main Indicators 2018 | 2019 | 2020 (e) | 2021 (e) | 2022 (e) GDP (Billions USD) 13.00| 14.00 | 15.00 | 16.00 | 18.00 GDP

e Note 1: (e) Estimated Data

« Note 2: The GDP growth projections for 2021 and 2022 (Constant Prices, Annual % Change) were updated by the IMF in January 2021

1.5.3 Social

The social and social perspective of China plays a critical part as the socioeconomics continually alter For case, populace development and age conveyance vary These can change social patterns and social values Family measure and social behaviors frequently affect how choices are taken Other social components are shopper ways of life, instruction, religion, and displacement China could be a collectivistic culture, based on Geert Hofstede’s esteem dimensions

Chinese culture is profoundly tied in with its Communist political setting This implies that products are frequently controlled, and the populace is generally in back of such directions The current wave of urbanization is additionally influencing the social behavior of China and financial analysts claim that there will be a solid surge towards internet-based buying within the close future

on instruction and larger part of the country are proficient

There are 420 million Web clients within the nation As there's a web get to, Chinese individuals regularly shop online Taobao is the biggest neighborhood e-commerce site, and numerous individuals spend a parcel of their things from the location Boston Counseling Bunch predicts that the volume will increment in close future

E-commerce has changed how nearby shoppers see shopping In any case, there's still a gather who wish to maintain a strategic distance from the seen chance related with online shopping They favor physical shopping and just like the confront-to-confront contact (Marketingtutor, 2019)

1.5.4 Technological

China has the world’s biggest online populace with 829 million clients (CNNIC,

2019) There are a few enormous tech mammoths in China e.g., Baidu, Alibaba, and

Tencent to title but some In reality, these companies and a few others are so capable that numerous enormous companies from other nations have fizzled in China

A major mechanical issue in China is that the advancement of the B2C industry does not have a secure and steady online installment framework As Chinese buyers are on tall Vulnerability Shirking level and Long-Term Introduction, the issue is strengthened

With the explosion of payment technology and the strong entry of giant e-commerce businesses such as Alibaba, Tencent up to now, China is the world's largest market for digital payments, accounting for nearly 50% of the global market share Mobile payments

in China have grown into a $ 16 trillion market dominated by China's two biggest tech giants Tencent and Alibaba In terms of market share, Alipay accounts for 54% compared with 40% of WeChat Pay With market dominance with the largest market share, Alibaba's Alipay and Tencent's WeChat Pay outstrip international competitors like Samsung Pay or Apple Pay However, the battle for the dominant position of the mobile payments industry

is only just starting to heat up Recently, research company CLSA predicted that the size

of electronic payments in China will quadruple to 300 trillion yuan by 2021

The greatest mechanical calculation helping the Chinese showcase is its web utilization There are nearly 450 million web clients in China, and this directs their acquiring design But at the same time there are barely any steady online installment strategies in China and scarcely insignificant credit card infiltration E-commerce is another colossal figure that has helped the Chinese population’s obtaining control The site Taobao is China’s greatest e-commerce store and a colossal percent of the populace gets

to all their products from this stage

What is more, based on the viewpoint of Ortolani (2005) there had been as it were

1 percent credit card entrance in China proposing that the foremost broadly utilized installment strategy had moo acknowledgment in China and the installment framework to back online credit card exchange is additionally confronting moo utilization And the need

of a secure online credit card installment framework is one of the key reasons for this moo

utilization and penetration (Howandwhat, 2020; Vietnam Financial Magazine, 2019)

1.5.5 Environmental

Economic growth in China is remarkable thanks to its booming domestic economy and growing foreign investment However, after years of industrialization, China's environmental problems have become more and more serious

China has suffered from the effects of the environment worsening In parallel with power plants and power plants promoting economic growth, the pollute the air, water, and

soul, to the point where environmental hazards can lead to significant social and economic consequences if not overcome in time Air pollution and damage to local ecosystems have undermined the living standards of local people, and Chinese policymakers are increasingly focusing on protecting the environment On the continental level, this is paving the way towards a “green Asia" where economic growth and environmental sustainability go hand in hand At the local level, developing environmental initiatives are demanding rapid and full compliance from businesses and households

To address these challenges, China has come up with notable remedies such as China is working to improve policies on conservation, anti-climate change, and anti- pollution In fact, the Chinese government officially declared a "war against pollution" in

2014 and introduced a number of concepts of a green economy with three main contents: less coal, cleaner air; New rules, funding a green economy The noteworthy point in the content "funding a green economy" is China's Belt and Road Initiative, a major global program to improve connectivity between countries, inspired by Ancient Silk Road, to promote trade and economic growth in Asia and beyond

National leaders have implemented regulations and strengthened the enforcement

of environmental policies Protecting the environment has also become a pervasive policy

in political campaigns, prompting more and more Chinese to consider how their activities affect the environment New priorities in China's fight against pollution have been quickly put in place A new Chinese environmental law was enacted: In 2015, China updated the Environmental Protection Law - China's first major environmental policy reform in more than two decades Improved environmental enforcement throughout China, with its determination to protect the environment, China has created even stricter standards and regulations than the international one In fact, some of the new missions are beyond the capabilities of current science and technology, which inadvertently creates challenges for companies forced to adjust

By leveraging internal and external resources, attorneys can also notify suppliers and customers of a policy change Overall, this will help to minimize or eliminate disruptions and additional costs caused by China's developing environmental law

(Mondaq, 2020; World Economic Forum, 2018)

1.5.6 Legal in China

State requirements require business entities to meet them when doing business in conditional business lines called business lines It is also seen as a tool to manage the

economy in each country in the world In China, the regulations on business conditions are very strictly concerned by the State, providing many regulations suitable to socio-economic conditions in highly effective laws such as: Law on Companies 2005, The Business Licensing Act of 2004 and other specialized statutes Business conditions in China are also presented in the form of written approvals or business conditions that do not require written approval from the competent authority An enterprise must meet the business requirements both before registration of a business establishment and after it comes into operation TRQs ( for example, a two-stage tariff, allowing a lower tax rate to be imposed upon the importation of a certain initial quantity of goods ) is applied to wheat, corn, rice, sugar, wool, wool, cotton fiber and some fertilizers, Chinese companies wishing to import goods having lower TRQs must apply for a license from MOFCOM between October 15 and October 30 of the previous year (or re-license the quota unused between September | and September 15 of the same year of export) Check/import license Complicated import licensing and inspection requirements are relatively consistent, requiring excess shipments

to be inspected at the destination and/or accompanied by an official permit recognized by the Chinese government ( for example CCC and RoHS for electronic goods, or certificate

of a pest-free for agricultural products) Goods that fail to meet the inspection criteria and/or do not accompany a specified license may be confiscated or returned

« Labeling / packing requirements

China has regulations on the labeling and packaging of goods In particular, these regulations are extremely important to consumer goods

« Currency control

Chinese importers are free to exchange their yuan into foreign currency in order to purchase imported goods but must complete the necessary procedures at The State Administration of Foreign Exchange to demonstrate that all foreign currency will be used for the import process and not for any other purpose of sending it abroad (Service, 2018)

China has some quotas related to trade barriers that the government uses to impose

a quantitative limit on imported products to protect the domestic industry Those quotas are generally self-imposed by China against other countries, acting as a barrier to foreign firms

The food industry of China is especially notorious for the non-tariff barriers imposed Chinese government enforces strict sanitary rules, requiring significant

administrative requirements consisting of vast amounts of documents and health certificates For the illustration, with others including strict labeling requirements consisting of detailed nutritional components as well as the Chinese language being mandatory However, quotas are progressively becoming rescinded in China.

CHAPTER 2: CHINA MARKET ANALYSIS

2.1 Grow Rate & Demand Forecast

China's government has long aimed to increase dairy consumption in order to improve public health In 2006, Prime Minister Wen Jiabao said: “I have a dream that every Chinese person, especially children" The 2009 Dairy Industry Policy stated that per capita milk consumption was a key indicator of the country's standard living China's per capita dairy consumption is currently less than 100g per day, compared to the national daily recommendation of 300g, the equivalent of 109.2 kg per year With these goals in mind, government policies aim to increase domestic production by nearly 50% by 2025 (Wan Samie, 2019)

@ N Balanced Diet Pagoda for Chinese Consumers (2016)

Salt <6 grams

8 25~30 grams Milk and dairy products 300 grams Legumes and nưls 25~35 grams Meat and poultry 40-75grams Seafood 40-75 grams Eggs 40-50 grams

e Vegetables 300~500 grams

Fruit 200-350 grams

i

cS Cereals and tubers 250~400 grams

Wholemeal and multigrain 50-150 grams Tubers 50- 100 grams

Source: Chinese Nutrition Society

Figure 2.1 Balanced diet pagoda for Chinese consumers

Between 1980 and 2006, China's raw milk production increased by more than 2000% from 1.4 million tons to over 30 million tons Production peaked at 33 million tons

in 2012 Consumption has continued to increase, but dairy production has declined In 2010

- 2018, more than 30% of China's dairy products (measured in raw milk equivalents) now come from imports, compared to about 5% in 2007

Pa H

a

E

$ dj® d® dŸŠ d°

Domestic raw milk production # Dairy imports

of dairy not part of the traditional Chinese diet In addition, the milk price is relatively high (the average price is about 12.5 RMB per kg or about $2.00 USD) However, with urbanization, “healthy” initiatives and growing incomes, China’s per capita milk consumption will continue to rise, especially in the third and fourth tier cities

In general, the dairy market in China has entered a slow-speed development stage and is shifting from scale growth to product upgrade The dairy consumption in China has been fluctuating in the past decades, yet the market’s total value and volume are huge Compared with western countries, China possesses a large amount of fresh milk and milk powder but a lower amount of butter and cheese

There already exists a great number of domestic and foreign brands in the market and several local brands such as Shengmu, Xinxiwang, Junlebao, Huishan are rising quickly These young brands took share from the largest players and therefore lowered the concentration of the top brands It is true that low loyalty is a macro trend in FMCG as consumers are provided with even more options As a result, dairy players need to identify and cater to the diversified yet changing needs of consumers and apply the corresponding marketing strategy

Table 2.2 The total sales of the top-ten dairy-processing enterprises (unit: US$ million)

Invalid source specified 2.3 Domestic competitor

Among the top 10 dairy milk companies, 9 are local brands Mengniu, Yili, Guangming, Wangzai, Wandashan, Weita Milk and Chenguang are the top seven Chinese domestic brands with two producers originating from Taiwan and Hong Kong

v

Yili ™ Mengniu ™ Yangyuan Zhihui ™ Want Want ™ Others

Figure 2.3 Company Shares of milk market in China (2019)

« Inner Mongolia Yili Industrial Group Co

Headquartered in Hohhot, Inner Mongolia Autonomous Region, Yili Group has consistently ranked first in the global dairy industry, ranked first in the Asian dairy industry for six consecutive years, and its revenue has continuously increased by more than 10 billion In 2019, the total operating income was 90.223 billion yuan

Inner Mongolia Yili Industrial Group Co., Ltd (hereinafter referred to as Yili Group or Yili) was founded in 1993 and is China’s largest dairy company with the most complete product lines It is the only dairy product company in China that meets the Olympic Games standards and provides services for the 2008 Beijing Olympic Games; it is also the only dairy product enterprise in China that meets the World Expo standards and provides services for the 2010 Shanghai World Expo Yili has become the only health food company

in China that serves both the Summer Olympics and the Winter Olympics According to the annual report of Yili Enterprise in 2019, the total operating income in 2019 was 90.223 billion yuan, an increase of 13.41% over the same period; the net profit was 7 billion yuan,

an increase of 7.73% over the same period, setting a new high in the Asian dairy industry, and ranking first in the Asian dairy industry for 6 consecutive years Revenue continues to exceed tens of billions of growths

Yili is signature product, Satine is positioned as the high-end brand as Yili has significant investment across different business units Shuhua is a lactose-free product and targets lactose-intolerant consumers School milk targets students and solely sells to

schools in China while QQ Star targets kids in China and Wei Ke Zi is the flavored milk product (Daxueconsulting, 2020)

ill , daxueconsulting

Figure 2.4 Yili, Milk Products of Yili

« Mengniu Dairy (Group) Co., Ltd

Mengniu Dairy (Group) Co., Ltd (Mengniu Dairy or Mengniu for short) was established in August 1999 and headquartered in Shengle Economic Park, Helinger County, Hohhot City, Inner Mongolia It is a national key agricultural industrialization enterprise and dairy industry Leading enterprise Mengniu is a leading dairy product supplier in China, focusing on the R&D and production of dairy products suitable for the health of Chinese people, and is ranked among the top 10 dairy products in the world Since the establishment of Mengniu Dairy, it has formed a product matrix series with liquid milk,

ice cream, milk powder and cheese, etc

Mengniu is the largest dairy milk company in China It possesses over 20 branches

in 15 provinces and exports its products to the US, Canada, Mongolia and South-East Asia Mengniu has developed various milk products to tailor to different competing with Yili According to Euromonitor, Mengniu and Deluxe are the pure milk and earned the first (7.9%) and second (7.4%) place respectively, in the brand shares of milk product (2019) Deluxe is the high-end pure milk product Future Star targets kid consumers in China while Xin Yang Dao targets lactose-intolerant consumers Mengniu has also developed flavored milk such as Zhen Guo Li and Nai Te Zhe Zhi Niu Lai (This cow) is the milk product that targets university students in China Mengniu has also expanded its product lines to fresh milk (ie., Shiny Meadow and Green House) which Yili has yet to focus on (Daxueconsulting, 2020)

Mengni Yili Mengni Vili Mengni Yili

Figure 2.6 Mengniu and Yili market share by product in China, 2016 2.4 International competitor

Since the resounding scandal of melamine milk in 2008 follow-up by another expired-milk scandal in 2013, Chinese citizens do no longer trust their own country’s production and rather choose imported milk, if possible, travel themselves abroad to bring back some liters from dairy farmer countries

These scandals stretch wide open the milk export into the territory; while Hong Kong, Australia, and New Zealand were overwhelmed by Chinese consumer purchasing milk items until leading them to stock shortages, European dairy industries prepare their marketing offensive

According to IBISWorld, due to the preference of milk consumers in China and demand for middle and high-end milk, import volume has increased steadily With rising import volume and average prices, the import value of milk in China reached $5.47 billion

in 2019, with a YOY growth of 7.6% (Daxueconsulting, 2020)

Figure 2.7 Import partners of milk market in China (2019)

Several international companies are leading the export of dairy products to China

« Fonterra Co-operative Group Limited

« Société des Produits Nestlé S.A

« Abbott Laboratories

@ Mead Johnson & Company

Value 2016 share 2016 ae" | Value 2015 share 2015 are" | Value 2014 share 2014 ame

Milk, not concentrate (HS 0401) Milk, concentrate (HS 0402)

US $1 million — Australia =— EU = New Zealand == United States 300- 3,000 -

0- 1 +! ' 1 0 1

2007 2010 2013 2016 2007 2010 2013 2016 Cheese (HS 0406)

2.5 Five forces

2.5.1 Competitors in the industry

Because China's dairy market is highly competitive and concentrated with the top three companies (Mengniu, Yili, Bright Dairy), accounting for nearly 50% of the market share in most product segments, except for other formula, which is dominated by imported brands Among the top 10 dairy milk companies, 9 are local brands Mengniu, Yili, Guangming, Wangzai, Wandashan, Weita Milk and Chenguang are the top seven Chinese domestic brands with two producers originating from Taiwan and Hong Kong

Founded in 1999, Mengniu is the largest dairy milk company in China It possesses over 20 branches in 15 provinces and exports its products to the US, Canada, Mongolia and South-East Asia Although it maintains a good reputation, not even Mengniu can escape from the melamine scandal As a 2008 Olympic Games sponsor, Yili, the second- largest dairy company, has explored a new way to market its product and overcome the scandal

In 2020, Mengniu and Yili have further consolidated their leading positions in China’s milk market, with more than 30% of market share Both firms have developed differentiated milk products to capture market share aggressively

Yili, the market leader in China with a 25% market share — Its representative

product, Yili and Satine, according to Euromonitor, earned the third (7.4%) and fourth

(6.7%) place respectively, in the brand shares of milk product (2019)

Likewise, Mengniu has developed various milk products to tailor to different competing with Yili According to Euromonitor, Mengniu and Deluxe are the pure milk and earned the first (7.9%) and second (7.4%) place respectively, in the brand shares of milk product (2019) Deluxe is the high-end pure milk product

Bright Dairy is a winner in the room temperature drinking yogurt category with its now famous Momchilovtsi, a brand inspired by the longevity of residents in a Bulgarian village However, its strength traditionally lies in Eastern China (from sales of fresh pasteurised milk) Whether it can expand outside that region ought to remain a key challenge for the company

The rivalry among competitors is high, but as China recently proposed to appoint six “giants” to establish a new structure of the dairy sector that consists of fewer competitors so that they can regulate the quality of the products, the rivalry is becoming

less intense and state controlled instead If Vinamilk want to expand in China will face stiff competition from domestic companies, such as China Modern Dairy, China Mengniu Dairy

Co and Yili There are many non-tariff barriers that make it difficult for foreign companies

to enter their markets

As in the domestic competitor, the pervious section already clearly defines the potential of each company Five forces: competitors only give out the final view about these China company

The rivalry among competitors is high, but as China recently proposed to appoint six “giants” to establish a new structure of the dairy sector that consists of fewer competitors so that they can regulate the quality of the products, the rivalry is becoming less intense and state controlled instead If Vinamilk want to expand in China will face stiff competition from domestic companies, such as China Modern Dairy, China Mengniu Dairy

Co and Yili There are many non-tariff barriers that make it difficult for foreign companies

to enter their markets (Daxueconsulting, 2020)

As in the domestic competitor, the pervious section already clearly defines the potential of each company Five forces: competitors only give out the final view about these China company

2.5.2 Potential competitors

According to information from the Ministry of Industry and Trade, on January 11,

2021, the General Department of China Customs announced to continue to grant a transaction code allowing 1 company and 1 factory (under Vietnam Dairy Products Joint Stock Company - Vinamilk) of Vietnam is allowed to export dairy products to the Chinese market

Specifically, Binh Duong Nutifood Nutrition Food Joint Stock Company (Binh Duong Nutifood Nutrition Food Joint Stock Company) is allowed to export pasteurized

milk, modified milk and flavored fermented milk to the Chinese market

Truong Tho Dairy Factory (Truong Tho Dairy Factory, under Vietnam Dairy Products Joint Stock Company - Vinamilk) is allowed to export pasteurized milk, modified milk, sweetened condensed milk and other condensed milk products to Chinese markets

Up to now, the Chinese authorities have issued a Transaction Code allowing 7 Vietnamese companies / factories to export a number of dairy products to the Chinese