business plan quality inspection certification service for used car in ho chi minh city (2014 2023) Kế hoạch kinh doanh dịch vụ và chứng nhận chất lượng xe ô tô đã qua sử dụng tại thành phố Hồ Chí Minh (20142023)

business plan quality inspection certification service for used car in ho chi minh city (2014 2023) Kế hoạch kinh doanh dịch vụ và chứng nhận chất lượng xe ô tô đã qua sử dụng tại thành phố Hồ Chí Minh (20142023) luận văn: business plan quality inspection certification service for used car in ho chi minh city (2014 2023) Kế hoạch kinh doanh dịch vụ và chứng nhận chất lượng xe ô tô đã qua sử dụng tại thành phố Hồ Chí Minh (20142023)

VIETNAM NATIONAL UNIVERSITY, HANOI

SCHOOL OF BUSINESS

LE THI PHUONG NHI

BUSINESS PLAN: QUALITY INSPECTION

CERTIFICATION SERVICE FOR USED CAR

IN HO CHI MINH CITY (2014-2023)

Major: Business Administration

Code: 60 34 05

MASTER OF BUSINESS ADMINISTRATION THESIS

Supervisor: Dr Vu Anh Dung

Ha Noi, 2012

TABLE OF CONTENTS

ACKNOWLEDGEMENTS i

ABSTRACT iii

TABLE OF CONTENTS vii

LIST OF ABBREVIATIONS x

LIST OF TABLES xi

LIST OF FIGURES xiii

LIST OF CHARTS xiv

INTRODUCTION 1

Research Rationale 1

Problem identification 2

Research Objectives 3

Scope & Limitation of the thesis 3

Research Methodology 3

Structure of the Research 4

CHAPTER 1: LITERATUAL REVIEW OF A BUSINESS PLAN 5

1.1 What is Business Planning? 5

1.2 What is a Business Plan? 5

1.3 The importance of a Business Plan 5

1.4 What are the key aspects of a Business Plan? 6

CHAPTER 2: BUSINESS PLAN OF UCC COMPANY 16

2.1 OVERVIEW OF THE COMPANY 16

2.1.1 Introduction 16

2.1.2 Vision and Mission 16

2.1.3 Current status and key milestones of the company in near term (2013-2014) 17

2.2 INTRODUCTION OF THE SERVICE - USED CAR QUALITY

INSPECTION CERTIFICATION 18

2.2.1 Description 18

2.2.2 Why used-car quality certificate? 19

2.2.3 Who will use this service? 21

2.2.4 How to gain trust? 22

2.2.5 Business Model of Used-car Quality Certification service 23

2.3 MARKET ANALYSIS 23

2.3.1 Target customers 23

2.3.2 Market identification and segmentation 24

2.3.3 Competition Analysis 28

2.4 MARKETING ACTIVITIES 31

2.4.1 Service’s substitutes? 31

2.4.2 Pricing 31

2.4.3 Promotion and Brand Development 32

2.4.4 Marketing budget planning 37

2.5 DEVELOPING SALES CHANNELS 38

2.5.1 Direct sales team 39

2.5.2 Strategic sales distributors 41

2.6 MANUFACTURING PLAN 42

2.6.1 Licensed with top used-car certification service company 42

2.6.2 Service procedures 42

2.6.3 Facilities and Equipment required 46

2.7 DEVELOPING HUMAN RESOURCE AND MANAGEMENT 52

2.7.1 Funtional and organizational structure 52

2.7.2 Headcount planning 55

2.7.3 Recruitment and Training 56

2.7.4 Salary and bonus scheme 57

2.8 FINANCIAL ANALYSIS AND PROJECTION 58

2.8.1 Assumption 58

2.8.2 Cost calculation and funding plan 62

2.8.3 Revenue Projection 64

2.8.4 Profit and Loss (P&L) Forecast 66

2.8.4 Cash Flow Analysis 68

2.8.5 Sensitivity Analysis 70

CONCLUSION AND RECOMMENDATION 77

REFERENCES 79

APPENDIX 1: Sample of Inspection Report 81

APPENDIX 2: Cost Projection (2014 – 2023) 84

APPENDIX 3: Capital Funding Structure 87

LIST OF ABBREVIATIONS

IRR Internal Rate of Return

NPV Net Present Value

UCC Used Car Certificate

WACC Weighted Average Cost of Capital

LIST OF TABLES

Table 2.1 Some key miletones at the start (2013 – 2014) 17

Table 2.2 Summary of some key figures of cars market in HCMC 25

Table 2.3 Cost break-down projection of marketing activities in 2014 38

Table 2.4 Number of sales headcounts in 2014-2023 39

Table 2.5 Monthly sales target for sales team and individuals (2014) 40

Table 2.6 Bonus scheme for ―sales center‖ 41

Table 2.7 Decision No 14/2012/QD UBND regarding Percentage of Land Rental Pricing (Clause 1.1.b) 48

Table 2.8 Technical equipments required 50

Table 2.9 Office equipments and furniture 52

Table 2.10 Scope of work of functional divisions 53

Table 2.11 Headcount plan (2014 – 2023) 55

Table 2.12 Base salary scheme for key accounts (2014) 57

Table 2.13 Financial Assumptions 58

Table 2.14 Assumption on basic fixed cost 59

Table 2.15 Assumptions on cost associated with manpower 61

Table 2.16 Assumptions on other operations fee and contingency fee 61

Table 2.17.Cost of the first 3 years (2013-2015) 62

Table 2.18 Capital funding plan 63

Table 2.19 Revenue Projection (2014-2023) 64

Table 2.20 Productivity management and Sales target (2014-2023) 65

Table 2.21 Projected Profit and Lost (2014-2023) 66

Table 2.22 Analysis of cash flow, NPV, IRR and break-even time 68

Table 2.23 Sensitive analysis of IRR vs Construction Unit Price and Sales Price 70

Table 2.24 Sensitive analysis of IRR vs Annual Salary Growth Rate and Sales Price 72

Table 2.25 Sensitive analysis of NPV vs Annual Salary Growth Rate and Sales Price 74 Table 2.26 Sensitive analysis of IRR vs Annual Salary Growth Rate and Sales Price 75

LIST OF FIGURES

Figure 2.1 : Business model of used car quality inspection certification 23

Figure 2.2: Customer Engagement Cycle 33

Figure 2.3: SK ENCAR’s home site 36

Figure 2.4 Key steps of service procedures 43

Figure 2.5 Car status report format 44

Figure 2.6 The value chain of used car quality certification service 46

Figure 2.7 Organization structure (2014) 54

LIST OF CHARTS

Chart 2.1 Sensitive analysis of IRR vs Sales price and Construction Unit Price 71 Chart 2.2 Sensitive analysis of IRR vs Sales price and Annual Salary Growth 73 Chart 2.3 Sensitive analysis of NPV vs Sales price and Annual Salary Growth 74 Chart 2.4 Sensitive analysis of IRR vs Licensing cost and Sales price 76

ABSTRACT BUSINESS PLAN: QUALITY INSPECTION CERTIFICATION SERVICE FOR USED CAR IN HO CHI MINH CITY (2014 – 2023)

Le Thi Phuong Nhi

MBA Candidate, 2007-2019 School of Business

Vietnam National University, Hanoi Supervisor: Dr Vu Anh Dung

December 2012, 86 pages

Taking the development trend of developed countries as well as emerging markets in Asia as a benchmark, it is no doubt that motorbikes will be constantly replaced by cars and public transportation towards the development of the socio-economy of the nation

The Vietnam’s car market, with its recent increase in demand and supply regardless of economics down-turn, also re-emphasize this trend Going in parallel with this development is the business transactions of used-cars And one of the key concerns when people buy used car is the reflection of the true value and the true picture of its quality behind while the sellers tends to hide the defects or damages of the car Therefore, used-car quality inspection service provider as a reliable third-party can help connecting the buyers and sellers via TRUST and, more importantly, to reduce unexpected accidents/ damages due to insufficient understanding or mistakes on the quality of the used car

The idea of used car qualily inspection certification service comes from the demand of using good-quality used car So far there is no one in Vietnam provides this service yet Used Car Certificate (UCC) Company will be set up

in Q4-2013 to service this untapped market demand And it is critical to have

a business plan with which serves as an essential roadmap for UCC to break into the target market in near term, gain sustainable foundation for business success in the next 10 years (2014 – 2023) and earn good return on investment

In order to work out the business plan for UCC in the period of 2014-2023, the author has studied and summarized the literature review of business plan, analyzed the market of this service, worked out the sales and marketing plan, manufacturing and human resource planning and management, as well as financial analysis and projection

The analyzed statistics are collected from a number of sources The primary data is gathered from the Department of Transportation and Police of Ho Chi Minh and the Ministry of Transportation One of the major sources of primary data is also from the interview using qualitative research methodology with target end-users and key auto-dealers in Ho Chi Minh On the other hand, the secondary data is collected and enquired from reports of top used car quality inspection certification service provider and from the internet

The thesis serves as a roadmap for UCC to penetrate in the Vietnam’s used-car market and position itself as a pioneer in the market The study has figured out a positive financial figures and ratio based on key aspects of the business Hence, this is a feasible business plan which is worth to pursue and invest

INTRODUCTION

Research Rationale

Taking the development trend of developed countries (US, Japan, NATO countries, etc.) as well as emerging markets in Asia (such as Singapore, South Korea, China, Malaysia, etc.) as a benchmark, it is no doubt that motorbikes will be constantly replaced by cars and public transportation

Talking about the Vietnam’s car market, its recent increase in demand and supply regardless of economics down-turn also re-emphasize this trend And the development of the car market will lead to the growth of both new car and used-car market segment, which are always in parallel

Reference to the successful business model of used-car quality investigation service in developed countries (US, Europe, Korea, Japan, etc), this demand

is driven by the development of the car market And it is in fact that used car market in Vietnam is still at a very early stage with no centralized and trusted hub of transaction Most buyers do not know how to identify whether a used car is still in good condition and how much % of quality remaining? Hence most of them will rely on recommendations from their relationships Some people will search on Internet or advertisements, and then ask their friends who are knowledgable enough about car to help identify its quality

It is also important to note down that one of the key concerns when people buy used car is the reflection of the true value and the true picture of its quality behind while the sellers tends to hide the defects or damages of the car Therefore, used-car quality inspection service as a reliable third-party can help connecting the buyers and sellers via TRUST and, more importantly, to reduce unexpected accidents/ damages due to insufficient understanding or mistakes on the quality of the used car

Problem identification

Since the car sellers tend to hide defects or damages of the car, most of the buyers do not trust the sellers if they don’t have any connections/ relationships with them In other words, identifying the current status and quality of the used car is important to the buyers With a trusted car quality investigation service, bow the buyers are able to qualify the used car before before making decision on a considerable deal in terms of value, and more importantly safety requirement To a broader view, it also helps to avoid unexpected accident/damages due to insufficient understanding or mistakes

on the true quality of the used car and its components’ replacement requirements

Towards such a fact, from business perspectives, there are two key issues that need to be addressed Firstly, there is a need of having a third-party who is capable and reputable to certify on the quality of used car As foresaid, this can help the buyers and sellers gain more confidence on each other Secondly, there is a need of an effective online used-car market where buyers and sellers can easily find each other and trust each other via a network of used-cars which are certified in terms of origin and quality

From social perspectives, it is important to note that the project Quality Inspection Certification of Used-car helps prevent unexpected accidents due

to improper understanding on the real quality of the car and its components’ replacement requirements

In conclusion, I firmly believe the project will add a considerable value to the sustainable development of the car market in Vietnam in particular, and the socio-economy in general

Research Objectives

To develop a strategic business plan as an entreprenership project, which is feasible and profitable, based on sufficient and reliable business plan and implementation, feasibility study, sensitive analysis and risk management

Project Objectives

The purposes of this research is to build up a feasible plan for a sustainable network of used car quality inspection certification service in Ho Chi Minh, targeting 3 centers in 2018

Scope & Limitation of the thesis

- Target market: The project will focus in Ho Chi Minh city first, which

is the most potential market for this kind of service in Vietnam The project can be developed further with expansion to key cities in Vietnam (Ha Noi, Hai Phong, Da Nang, Binh Duong, Dong Nai, Can Tho) to cover the entire market of Vietnam In long term, the project can be formulated to Laos and Cambodia based on competitive advantage of the Vietnam’s presence However, considering Ho Chi Minh as the key and also most potential market, within the scope of this project, Ho Chi Minh is taken as the primary focus and to paive for the expansion plan in the future which can be studied and executed separately and in parallel with this project

- The quality inspection certification service is limited for cars only

- Time frame: in 10 years (2014 – 2023)

o Target audience: those who are decision-makers on buying

used cars and those who are car dealers in Ho Chi Minh City

o Sample size: 10 in-depth interviews

o Response rate: 100%

o Interview method: face-to-face/ site visit

o Expected Outcomes:

 Pain-points when finding a good used car

 Significant criteria when choosing a used car

 Price sensitiveness

Structure of the Research

The research includes two chapters as follows:

Chapter 1: THEORATICAL OF BUSINESS PLANNING

This Chapter introduces key steps of a business plan which sets the foundation and structure of the following chapter on business planning of used car quality inspection certification service

Chapter 2: BUSINESS PLAN OF USED CAR QUALITY INSPECTION CERTIFICATION SERVICE

This Chapter develops a strategic business plan for this typical

entrepreneurship project – the used car quality inspection certification service, which includes:

- Section 2.1: Overview of the company

- Section 2.2: Introduction of the service

- Section 2.3: Market analysis

- Section 2.4: Marketing plan

- Section 2.5: Developing sales channels

- Section 2.6: Manufacturing plan

- Section 2.7: Human resource planning and management

- Section 2.8: Financial analysis and projection

CHAPTER 1: LITERATUAL REVIEW OF A BUSINESS PLAN

1.1 What is Business Planning?

Business planning is thinking and working out the details of your enterprise with the hope that you will be able to prevent problems, improve your business and thus earn more profit Engaging in planning helps you to analyse your potential for success Planning also enables you to identify what you will need to do on your way towards having a successful business [1]

1.2 What is a Business Plan?

A business plan is a tool which helps entrepreneurs to plan their businesses It

is a written summary that describes important aspects of the business [1] which serves as an essential roadmap for business success The plan works for

a business to look ahead, allocate resources, focus on key points, and prepare for problems and opportunities [2]

Business plans may also target changes in perception and branding by the customer, client, taxpayer, or larger community When the existing business

is to assume a major change or when planning a new venture, a 3 to 5 year business plan is required, since investors will look for their annual return in that timeframe

A simple startup plan includes a summary, mission statement, keys to success, market analysis, and break-even analysis This kind of plan is good for deciding whether or not to proceed with a plan, to tell if there is a business worth pursuing, but it is not enough to run a business with

1.3 The importance of a Business Plan

A Business Plan helps to [1]:

* Prevent mistakes

* Identify strengths and weaknesses/challenges

* Spot and correct errors before they occur * Communicate your ideas to investors and lenders

* Clarify your product or service

* Establish the break even point of the business and prepare cash flow

forecasts

* Identify any other requirements or needs such as training and finance

* Identify objectives for the upcoming year

* Reveal the timing and location of business development

* Guide the start up of the business

* Evaluate the progress of the business

* Build the entrepreneur’s confidence

* Redirect the entrepreneur to new and or better ideas

* Identify potential customers and strategies to communicate with them

1.4 What are the key aspects of a Business Plan?

Business Plans may differ in the sections that are included However, there are some general sections that are required These include [1, 2, 3, 4]:

- An Executive summary: This is a summary of the information included in the business plan

- Company Description: Legal establishment, history, start-up plans, etc

- Description of the Product/Service: Describe what you are selling Focus on customer benefits

- Market Analysis: You need to know your market, customer needs, where they are, how to reach them, etc

- Developing Marketing activities: Includes an outline of the marketing plan and information on competitors

- Developing Sales team: Includes an outline of the type of sales person that you need, how you structure the team and develop them

- Operations planning: A strategic plan time tabling business activities, how and when these would be carried out

- Financial Management & Projection: Outlines profit and loss, cash flow, balance sheet, break-even analysis, assumptions, business ratios, etc

- Conclusion: May be used to express reservations about the business idea, amount of finance required, etc

To a complete and thorough view, a business plan should aim to have the following sections

1.4.1 Executive summary

The executive summary summarizes the key points of the business plan It should define the decision to be made and the reasons for approval The

specific content will be highly dependent on the core purpose and target

audience To get a sense of the difference the purpose and target audience can make, here are three different sets of key points for an executive summary - one for a loan request, one for a start-up seeking venture finance, and one for

an internal plan:

A loan request executive summary might contain the following information:

 Company information: name of company, years in business, legal

structure, minority and majority owners

 Brief description of project

 Amount and length of loan

 Objective reasons why the bank should be confident that the loan will

be paid back This likely will include

o Financial track record

o The future revenue stream

o Any contracts in place that might guarantee the revenue stream is more than just a forecast

For a new venture, the executive summary might contain:

 Company information: name of company, proposed legal structure, current legal structure, minority and majority investors

 Amount of investment requested

 Expected terminal value

 Description of market opportunity

 Objective reasons why the market opportunity can be exploited by this particular team

For an internal project plan, the executive summary might look like this:

 Company information: not applicable

 Description of project

 Project mandate: who requested the proposal, who is being assigned to carry it out

 Strategic, tactical and financial justifications

 Summary of resources needed: staff, funds, facilities

In some cases information will overlap For example, some of the reasons why a loan is likely to be repaid might equally as well be used as justification for the kind of extraordinary return expected by venture capitalists

In some cases the business plan as a whole contains similar information, but for one type of plan it is mere detail and for another it is a key decision

making factor For instance, both start-ups and internal projects need staff and facilities However the staffing and facilities needs are considered details in a plan for start-up financing In a plan for internal projects they are key

elements and, in fact, may be the only resources needed

1.4.2 Organizational background

In a written plan, information may appear in a separate section, an appendix,

or may be omitted all together depending on the nature of the plan If the plan

is directed at people outside of the company, a brief synopsis may appear in the executive summary This will be supplemented with a more detailed discussion elsewhere in the plan

a Current status

 Number of Employees

 Annual sales figures (if it is a business plan for an on-going business)

 Key product lines

 Location of facilities

 Current stage of development (start-ups)

 Corporate structure: Options are Sole proprietors; Partnership; Joint Venture; Publicly traded corporation; Private corporation; Limited liability company; Public utility; Non-profit organization;

If the product is a new product with no existing market, one must identify all substitute products For each significant substitute product one must explain:

 Name, features, why substitute, why proposed product better

 Switching costs and why new product justifies switching

 Expected adoption dynamics

 Expected role once market begins to develop (see above for existing products)

b Pricing

 Chosen Price points

 Proposed Pricing strategy

c Demand management

In economics, demand management is the art or science of controlling

economic demand to avoid a recession The term is also used to refer to management of the distribution of, and access to goods and services on the basic of needs An example is social security and welfare services Rather than increasing budgets for these things, governments may develop policies that allocate existing resources according to a hierarchy of need

d Distribution/Positioning

 Distribution strategy

 List of major distributors

 Current status of negotiations

e Promotion and brand development

 Promotion strategy

1.4.4 Operational plan

The plan outlines how one would service their clients cost effectively

a Manufacturing/deployment plan

 Supply chain requirements

o Operations: Billing, HR, SCM, CRM, Knowledge bases, etc

o Websites: internal, public

 Security and privacy requirements

 Hardware requirements

 Off-the-shelf software needed

 Custom development requirements

c Staffing needs

 List of roles

 Management structure

 Head count approval

 For each role

Training requirements should look to address two issues - a benefit to

motivate staff and developing the capability of the organisation to deliver the

business objectives Ideally all training requirements should be based on as an assessment of the business plan objectives, the required competence and capability to deliver these objectives and understanding of the current

capacity and capability of the organisation Simple question to ask to assess the appropriateness of the training - as a result of the training how much

better will the organization be at delivering its objectives Remember that training covers a wide range of activities from project work and on the job training to professional qualifications Most learning takes place outside of formal training activities

e Intellectual property plan

 Intellectual property inventory

 Portfolio development plan

When acquisitions form a major part of the business strategy, the acquisition plan needs to be included in the business plan

 Acquisition strategy

 Proposed acquisition targets

 Effect on market structure (if consolidation plan is being proposed)

g Organizational learning plan

The organizational learning plan discusses what lessons will be learned from the marketing, operational, and finance plans and how those lessons will be consolidated to gain strategic advantage

 Market sensing - organization's method for collecting information about customers (George Day)

 Strategic Staircase - the accumulation of future competencies by

building on existing competencies (Michael Hays, Costas Markides)

h Cost allocation model

If variable costs play an important role in the business plan, it may be helpful

to include a cost allocation model This is particularly true if one has a unique business model that creates competitive advantage by transforming

traditionally fixed costs into variable costs

 Fixed cost

 Variable costs Operational plan

The plan outlines how one would service their clients cost effectively

1.4.5 Financial plan

a Current financing

 Key investors or owners

 Angels, friends, and family

 Existing loans and liabilities

o Cash flow statement

 1-3-5-7 year projections (depends on length of project)

o For loans, repayment period determines length of projections, i.e

a six month loan doesn't need seven year forecasts

o For investments point at which returns stabilize (terminal value) determines length of forecast

 Annual, quarterly, and monthly versions should be provided

 Graphs of key values often helpful: gross revenue, EBITDA, NPV, etc

 Financial portions of the marketing, asset development, and operations are often placed in this section rather than in the section discussing the plan They are viewed as elaboration on the various line items in the pro-formas

d Risk analysis and Risk evaluation

Parts of this section are from an analysis of a business plan

 Market risks - lack of surgeons; large geographical area so that we don't compete against our own clients;

o New entrants to market

 Ease of entry

 Potential threat to market share- advertising companies

o Slower than expected adoption

 Operational risks

 Staffing risks- imbedding the right candidate for the right surgeon

o Availability of skilled workforce- x-pharma reps, x-equipment reps

o Lack of follow-on funding to complete project

 Managerial risks

o Poor board or investor dynamics

o Agency risk particular to the venture

f Risk management plan

Detailed plans are more often found as part of internal plans Plans written for funders may need to include a high level of description if there are significant controllable risks

 Methods and procedures to limit liabilities

 Reserve funds

 Continuity of operations plan

CHAPTER 2: BUSINESS PLAN OF UCC COMPANY

2.1 OVERVIEW OF THE COMPANY

This service is completely new in Vietnam In a developing country with high economic & population growth rate like Vietnam, this untapped opportunity

is an advantage for whom who are well-prepared and fast enough to position itself as a pioneer in the market

* Investment:

Total investment is 12 billion VND spreading in 5 years In addition to the owner’s equity is 6 billion VND, the company is seeking for an investment of

4 billion VND from co-investors and another 2 billion VND as bank loans

* Legal form of ownership:

The company is to be set up under a joint stock agreement with authorized capital of two billions VND

*Transaction name:

UCC – Used Car Certificate

2.1.2 Vision and Mission

Vision:

UCC is the No.1 trusted used-car quality investigation certification service

and the leading used car dealer portal in Vietnam in the next 5 years

Mission:

UCC ―protect‖ your family’s safety through our PROFESSIONAL and RELIABLE quality investigation service of used cars and a TRUSTED used car dealer portal

2.1.3 Current status and key milestones of the company in near term

The project is also looking for people who have a desire of car industry In addition, as I am a type of risk-taking person, it’s good if the core team also have people who are neutral or a bit conservative to keep balance

Table 2.1 Some key miletones at the start (2013 – 2014)

Quarter 3&4 –

2013

- Capital mobilization and investment

- Forming core team

- Company registration & obtaining business license

Quarter 1&2–

2014

- Renting land (1000sqm) at District 12 and starting construction

- Obtaining business cooperation agreement (or at least MOU) with banks, insurance companies and top car dealers in Vietnam

- Recruiting and training key staffs to be on board

by Jan-2014 Quarter 1 –

2014

- Grand opening and starting operation

2.2 INTRODUCTION OF THE SERVICE - USED CAR QUALITY INSPECTION CERTIFICATION

2.2.1 Description

Car quality investigation is a service to provide detailed investigation report

on the status of the car Based on such report, a quality investigation certification will be issued to qualify for the current status of the used car The report will highlight key points as below:

- Whether there is any problem or deficiency of the car, which includes odometer manipulation, status of lack, detailed evaluation of the engine and sufficient parts of the car

- Whether there is any accident/damage before

- Current performance of the car in overall

- List up the items need to be repaired or replaced (if any)

Based on an overall examination, we will identify whether the car meets our standard criteria which means the car is in good condition to be sold A certificate will be issued upon such For those cars which are not good enough

to be sold, we still provide report but do not issue guarantee certificate

With our certification, the seller can get a better deal since the buyer has a certain trust on the status of their used car At the same time, it is an objective

evidence to help the buyer have a better evaluation to make decision Furthermore, it helps preventing unexpected accident due to mistaken understanding about the used car

UCC also aims to offer buyers a bird's-eye-view of the various types and diverse kinds of used cars in the Vietnamese market We also build up a website where people can browse our complete inventory with details including car descriptions (brand name, model, ages, etc.), pictures (captured

in different angles), inspection results and prices on this site Those information will be categorized in a user-friendly manner, allowing a variety selection of criteria for searching The information will be expired within 60 days or when the car was being sold, depending on which condition comes first

The website also allows active interaction as a social media network where people can be able to not only raise questions and get feedback from UCC but also communicate with other members on the site

We also affiliate with insurance companies to offer warranty insurance for our certified used car Customers can ask the compensation to insurance company

if later on the vehicle has any issue which is against with our certification report within the warranty period

2.2.2 Why used-car quality certificate?

Most often late-model, they differ from other used cars by having been inspected, refurbished, and certified by a manufacturer or other certifying authority They often cost more than vehicles certified by independent authorities, and are higher priced than a non-certified used vehicle Independent programs can represent good value and an alternative to an OEMprogram Independents may hold a vehicle to a higher standard than an OEM,

or may be less stringent in their inspections Dealer-certified programs

represent a third category, as they are often promoted as Certified Pre-Owned These vehicles generally have not been inspected by anyone outside the dealership, but do typically carry a warranty or extended service contract to provide some protection to the consumer [5]

Reference to successful business model of used-car quality investigation service in developed countries (US, Europe, Korea, Japan, etc), this demand

is driven by the development of the car market and thus used-car plays an important part of such a development Used car owner wants to sell their car

to buy a new one At the same time, people who want to buy a car may consider a used car instead of new one due to lack of finance, especially in business down-turn which is projected to continue until 2014 at the earliest Even some people who can afford for a new car also prefer used car since they have just got familiar with driving They may tend to buy a used car to exercise their driving skills (in case there is any damanges or defects due to lack of skills, it’s just no problem) until they are confident to take a new one Whereas some people who have bought used cars to get familiar with driving will sell their used car to buy a new one when they are confident enough and get used to driving Or it’s just simply that they are trendmedous people Owning brand-new and modern cars is just a style

It is no doubt that there is such a high demand and supply of used cars in Vietnam However, the used car market is still at a very early stage of the development without a centralized hub Most of the buyers do not know how

to identify whether a used car is still in good condition and how much % of quality remaining? Hence most of them will rely on recommendations from their relationships Some people will search on Internet or advertisements, and then ask their friends who are knowledgable enough about car to help identify its quality

With any certified pre-owned program, it is important to note who does the actual inspection and reconditioning repairs, if any Both OEM and dealer-certified program vehicles are typically inspected by employees of the selling dealer- not by the manufacturer as may be assumed Independents may employ a disinterested third-party inspector to ensure objectivity, or may allow the dealer to inspect their own vehicles [6]

In short, both buyers and sellers need a so-called ―Quality Assurance Agency‖ where they can trust when they want to buy/sell a used-car Buying

a certified used car provides peace of mind to a buyer, as it signifies that the used vehicle was inspected and repaired (where necessary) to be in optimal condition before being offered as a certified used car for sale [7] For example, in United States, people are very familiar with Edmunds, Enterprise Car Sales, etc In Japan, some typical names includes RamaDBK, The JAAI (Japan Auto Appraisal Institute Another typical example is ENCAR - the largest and most popular used-car quality certification agency in Korea where the demand is not primarily from buyers who want to get Encar to help them check on the car to buy But it has seen a lot of people come to get certified for their used-cars before getting it on sales So the benefits of purchasing a certified pre-owned car versus a used car from a private party or used car lot are obvious You have the factory standing behind the certified pre-owned car The only downside to certified pre-owned cars is that they are generally more expensive than other used cars But in this case, the benefits may outweigh the cost — for many buyers, the peace of mind alone is enough to justify the extra money [8]

2.2.3 Who will use this service?

Car quality investigation service will help those two main target groups:

Used car seller:

Used car seller is the key target of the project It is driven by the demand of having a so-called ―Quality Assurance Agency‖ to guarantee their used car quality so as they can gain trust from the buyer to get a better deal

This group consists of both individuals and corporations (car dealers)

Used car buyer:

Since the car sellers tend to hide defects or damages of the car, most of the buyers do not trust the sellers if they don’t have any connections/ relationships with them In other words, identifying the current status and quality of the used car is important to the buyers The in-depth interview with respective 8 interviewees who intend to buy used cars also shows that they are very much afraid of the quality of the used cars if they merely search on Internet or via recommendation of people who they don’t have a direct relationship with With our car quality investigation service, we can help the buyers identify its quality before making decision Especially when buying a car is a considerable deal in terms of value, and more importantly safety requirement To a broader view, it also helps to avoid unexpected accident/damages due to overvalue of the car status

2.2.4 How to gain trust?

Apart from the concept itself and marketing activities to promote this service (section 3.2), UCC’s certificate is licensed from the most trusted used-car quality certification of Korea (SK Encar) so as UCC can leverage the reputation of those partners to strengthen our new service An important part

of the project is the licensing negotiation and pocedures with one of the above trusted partners Section 3.4.1 will provide more details on this

2.2.5 Business Model of Used-car Quality Certification service

Figure 2.1 : Business model of used car quality inspection certification

2.3 MARKET ANALYSIS

2.3.1 Target customers

Target customer is defined through identifying from which channels used cars

are often sold? Hereafter are the major channels:

(1.) The first channel, which is also the most popular, is through the car

dealers In fact, most car dealers get profits from car consignment

fee and the margin from buying the used-car at low price and selling

at a considerable higher price after repairing and ―make up‖ of the

used-car Therefore, people tend not to completely trust on car

dealers This is where the role of used-car quality investigation

service becomes so important to gain the trust of the buyers The

in-depth interview with 2 car dealers in Ho Chi Minh city also shows

that they are interested in this service And to the fact that there is

just no cost to them, but it also generate extra revenues and build

their own trust, we believe this is a good channel that UCC can leverage on to promote our quality certification service to a wide coverage in the market

(2.) The second channel is people who want to sell used-cars Used cars

are also often sold between individuals One of the most trusted sources is from recommendations of friends and relatives, which is obvious due to the fact that most people are lack of professional knowledge and techniques on car quality Whereas it is popular that people don’t know each other while the sellers tend to hide the car defects In this case, used-car quality certificate as a reliable independent third party becomes critical to gain the confidence from

the buyers

(3.) The third channel is whom who want to buy used-cars As explained

previously, investigation whether a used-car has ever been damaged due to accident is not easy at all for most people Normally people just rely on their own feeling and the appearance of the car to make decision, however they are afraid that it’s not the true status of the car Having said that the demand of used-car quality certification service is rooted from the buyers

In short, target customers of the project includes: (1) Car dealers ; (2) Use-car owners who want to sell car; (3) Used-car buyers (both individuals and companies)

2.3.2 Market identification and segmentation

a By Geography: Ho Chi Minh City (HCMC)

HCMC is the most dynamic economic centres of Vietnam which contributes the most to the country GDP Just within HCMC, the number of cars is exceeding half of the total cars of the country Therefore, the project is

focused on HCMC market at the start in Vietnam The service, however, will also serve a customer base from nearby cities (Binh Duong, Dong Nai, Long An) with the fact that approximately 60,000 cars from nearby cities come to HCMC on daily basic

b Market size and segmentation

According to Auto Registration office (Dangkiemoto.com), the contribution

of car (automobile), truck, passenger car and other four-wheel vehicles are 40%, 30%, 20% and 10% relatively to the total cars in Vietnam as well as key cities including HCMC [9]

Based on recent statistics of the Auto Registration Office (Dangkiemoto.com), as of 2012 there are approximately 1,500,000 four-wheel vehicles in which 600,000 are cars (4-7 seats) And according to the Department of Land Transportation Police of HCMC belonging to the HCMC Police, the total cars in HCMC accounts for 40% of the Vietnam market Hence, the total cars in HCMC as of 2012 is approximately 240,000 This can

be considered as the universe market volume of the project in HCMC, not to mention that approximately 60,000 cars from nearby cities come to HCMC on daily basic [9,10,11]

Taking the average rate of newly registered cars of 108 cars/day (2012, Department of Land Transportation Police of HCMC) into consideration, we can estimate that the number of cars will have an increase of approximately 16.5% per year Assuming this rate will keep constant until 2014 (when the project officially starts) then the total cars in HCMC as at 2014 will be 325,300 cars

Table 2.2 Summary of some key figures of cars market in HCMC

Number of cars in HCMC – 2012 Car

240,000

108

325,326

Coefficient of cars per capita in HCMC – 2014

Car/ 1000 people 36

(Source: Department of Land Transportation Police of HCMC)

Taking into consideration the estimated number of cars in the next 10 years,

the project takes a careful assumption that the average increase rate of cars

will keep constantly grow at 10.5% per year In fact, it can even increase 1%

more in the next 5-10 years due to some reasons below:

First, the increasing demand of buying cars is obvious in the popularization of

cars in modern cities in developing countries Ho Chi Minh city, with the

current number of cars, is experiencing the final culve of the first period of

car popularization which consists of the 5 periods as below:

• Pre-motorization: the first period is applied for markets when the average

number of cars per capita is below 50 cars per 1,000 people Taking the

current number of cars in HCMC in comparison with total population, it’s

now standing at 27 cars/1,000 people which is far above the average rate of

Vietnam (7 cars/1,000 people) By 2014 (when the project starts), the

estimated number of cars in HCMC is 325,326 Whereas the total population

of HCMC is 9,000,000 people, the project take a conservative assumption that

this number keep contants till 2014 Hence, average number of cars per capita

in HCMC as of 2014 is about 36 cars/1,000 people

• Motorization: Cars is getting popular In average, there are 50 cars in every 1,000 people

• Saturated Motorization: this is when in average every family has a car And the average number of cars per capita reaches 250 cars/1,000 people

• Mass Motorization: every family starts buying another car The average number of cars gets to 400 cars/1,000 people

• Saturated Mass Motorization: every family has more than a car The average number of cars per capita attains to 500 cars/1,000 people

According to Mr Ngo Van Tru, Deputy Head of Department of Heavy Industry (Ministry of Industry and Trade (MoIT)), Vietnam is now in the Motorization period with the ratio of 18 cars/ 1,000 people The demand of cars (less than 10 seats), however, will dramatically increase from 2020 onwards thanks to economics development, an improvement of average income per capita and more developed transportation infrastructure

It is also no doubt that, from observation of developed countries, the ratio of bus and truck vs total four-wheeled vehicle will gradually decrease1 due to an

increase of cars According to MoIT’s projection based on GDP per capital,

Vietnam’s motorization period will start in between 2020-2025 Also as per MOIT’s projection, Vietnam will have 246.000 - 347.000 and 592.000 - 836.000 newly registered four-wheeled vehicles in 2020 and 2025 respectively,

in which bus and truck only account for 27% (vs current ratio is 46%) and the rest are cars This is projection for the whole country HCMC, with the ratio 36 cars/1,000 people which is now more close to the transformation point from Pre-motorization to motorization, will expect a sooner motorization period

which is estimated in between 2016-2017 This projection is also consolidated with the fact that more and more people in HCMC want to buy a car due to its convenience for family and the owner’s image that it may help to strengthen Furthermore, there are more and more people just learn how to drive a car and still not skillful enough to avoid knocks Hence, they also consider purchasing

a used car to get use of driving car

Talking about market segmentation, UCC focus on high-income individuals

or family According to statistics of AC Neilsen (2010), 8% of HCM population has high income among which 2% is affordable to buy anything they like and ready to buy cars, not to mention that one family can have more than one car

As UCC’s service is meant to used-cars for sales, we will focus on the key target segments of cars used for more than 2 years and less than 5 years based

on our key findings when conducting a market research using qualitative research methodology Firstly, most people do not sell the car if they have just bought and used it within 1-2 years even though in some cases they are not truly happy with the car Secondly, used cars from 3-5 years still remains good quality but the price is down up to 35% vs new car with the same model

2.3.3 Competition Analysis

There is no direct competitor at the moment as this is new service in Vietnam under licensing from top used-car certification company in developed countries As a result UCC can take advantage of the market pioneer to lift up

in the first 3 years of the project period Any later than that, it’s tough to win the market when the service is getting popular and more competitors enter the market

However, UCC may have some indirect competitors who can potentially become competitors in the future when they leverage on their distribution network to service such a qualification service Those might includes:

- Big car dealer shops, especially big chains with officies around the nation

- Big car repair shops

- Car related websites with large base of viewers/members, such as:

With the break-even point in approximately 3 years and positive net profit in the second year of the project, it’s estimated that others will take an eye on this business model in 2015-2016 and there will be a direct competitor in

2017 Therefore, the first 3 years of the project is very much important to win the market, and it’s critical to build up the core competencies within 2014-

2016 with the following key initiatives:

- As a pioneer of this industry, the project can gain the top-of-mind position in the market, and hence take this advantage forward for strong branding position and to grow the market share in the first 2 year of the project, and to continue such a growth even when there is a competitor as this industry is very dependent on the ―TRUST‖ which would not be easy to gain over night

- The project will focus on recruitment and training to build up a high-quality technician team This team also leverage on the techniques and know-how of the international used-car quality certification provider who UCC is licensed