BUSINESS DEVELOPMENT STRATEGY OF FERROLI VIETNAM

INTRODUCTION AND ANALYSIS OF ACTUAL COMPANY STATUSAnalysis of external environmentAnalysis of external environmentBuilding the Company’s development strategySUGGESTION or PROPOSED SOLUTION AND CONCLUSIONFundamentals of new business targetsAnalysis and Selection of strategiesSolutions to implement strategies

BUSINESS DEVELOPMENT STRATEGY OF FERROLI

VIETNAM Co., Ltd

ACKNOWLEDGEMENTS

We commit that the content of this assignment has not been submitted to any degree granting program yet

We pledge that this report is made of all four members’ effort All the analysis findings and conclusions except for certain quotations are born by the whole group’s working results

Signature of members in the group:

TABLE OF CONTENTS

2.6 Building the Company’s development strategy 50

CHAPTER III: SUGGESTION or PROPOSED SOLUTION

AND CONCLUSION

51

Table 2.1 Estimated total sales of the storage water heaters in 2008 35 Table 2.2 Total turn-over of the instant water heaters market in 2008 36 Table 2.3 Some achievement of Ferroli in the past few years 43 Table 3.1 SWOT matrix of Ferroli is described as follows 54 Table 3.2 QSPM Matrix of Ferroli Viet Nam Co.ltd 61

LIST OF FIGURES & GRAPHS

Graph 1.1 Analysis model of building and selecting strategies 10

INTRODUCTION

1 Necessities for studying the theme

For more than 20 years of renovation and integration into the world, Viet Nam has been an active developing country With the average growth of over 7% in the past

5 years, Viet Nam is considered to have a high growing rate in the region and in the world

The economic development not only brings out a large number of local and foreign investment projects but also raises the demands for facilities of people, among which water heater (For bathrooms) are an indispensable need Thus, many enterprises including Ferroli Viet Nam Co., Ltd have imported, assembled and distributed the water heater in the Viet Nam market

Viet Nam has been fulfilling its commitments in the Asean Free Trade Agreement (AFTA) together with regulations of World Trade Organization, bringing a lot of opportunities as well as challenges for enterprises As a result, the Company has to determine its short-term and long-term development plan in order to take full use of such opportunities and minimize the challenges to keep the business running and developing In this context, Group No 6 decided to choose: “Business development strategy of Ferroli Viet Nam Co.ltd in the period of 2009 - 1012 and the business plan till 2015” as the theme of our graduation report

2 Objectives for studying the theme

- Enlighten the theory on business strategy and building business strategy to the practice of Viet Nam Ferroli Co.ltd

- Clarify the relationship between business strategy and operation results

- Apply the theory on the building of business development strategies into Ferroli Viet Nam Co., Ltd

3 Scope of study

The theme takes Viet Nam Ferroli Co.ltd as an example for study Due to lack of

time and other resources, our Group has focused merely on studying the business development strategies of Ferroli

4 Method of study

Our Group has used the flowing methods in studying:

- Historical materialistic dialectics

- Expert and direct investigation method

- Statistics and economic analysis method

5 Practical meaning of the theme

- Systematizing, summarizing matters and methodologies about the business development strategy and clarify all the specific characteristics of Ferroli Viet Nam Co., Ltd

- Providing Ferroli with a panorama picture of its business environment so that the Company’s Board of Management (BOM) can build up and choose an optimal strategy to utilize its advantages and minimize it drawback to achieve its short-term as well as long-term goals

- Making a contribution into the theoretical treasure of business development strategy

6 Diagram of study

Graph 0.1

7 Content lay-out

Apart from the introduction, appendix and list of references, the assignment structure is divided into three chapters

Chapter I: Basis for theory

Theoretical fundamentals and concepts of strategic planning

Chapter II: Analysis of Ferroli’s current status, business environment and the Company’s development strategies

OBJECTIVES FOR STUDY

(PRIMARY AND SECONDARY)

ANALYSIS OF

EXTERNAL

ENVIRONMENT

ANALYSIS OF INTERNAL ENVIRONMENT

SOLUTION, SUGGESTION AND CONCLUSION SETTING AND SELECTING

STRATEGY

- Overview of the Company

- Operation results of Ferroli from 2006 to 2008 and the first 6 months of

- Shortcomings and causes

- Business targets from 2009 to 2012 and development plan till 2015

Chapter III: Solution, suggestion and conclusion

Represent solutions and suggestions to fulfill the selected business strategies

We have tried our best to study the theory and reality; however, due to lack of time, references and survey together with the limitation of analyzing and consolidating capability of the Group’s members, the assignment still has certain restrains We therefore would like to have comments and suggestions from the lecturers as well as students in the class to make this graduation report better

We are especially indebted to Mr./Mrs.… who enthusiastically instructed and supported our group during the time we conducted this presentation Thank all the members for their enthusiastic and timely collaboration to complete the report Appreciation is also expressed to the Board of Directors and employees in Ferroli Viet Nam Co.ltd for their provision of important information and creating the most favorable conditions for us to learn about the Company

1.2 ROLES OF STRATEGY

Strategy plays a special important role in the operation of an enterprise Strategy also makes an organization more active in forecasting the environmental changes then based on that to make control of its operation in the current market economy, strategy helps to raise the competitiveness of the enterprises An Enterprise that has good strategies will have good business and vice versa

1.3 STRATEGY PLANNING

Strategy planning is the first stage in the strategic administration Strategy setting is

a process of setting up the business tasks, examining and reviewing the internal strengths and shortcomings as well as the opportunities and the risks from the external environment, establishing the long-term targets and building up and choosing appropriate strategies

1.4 STRATEGIC PLANNING PROCESS

The view of an individual or a team who determine the strategy, is considered to be the most important factor in the establishment and selection of the strategies This factor is dependent on individual’s intuition, the analysis of which enables to

generate decisions about the establishment of appropriate strategies to the business environment In the fluctuating business environment, a good intuition and precise vision will enable the enterprise to comprehensively analysis and approach the business environment, find out the advantages and disadvantages that really affected its operation to build up and implement the high feasible strategies which is suitable

to the environment and mission of the company

Graph 1.1 Analysis model: building and selecting the strategies

1.4.1 MISSION OF THE ENTERPRISE

Every enterprise organization has its own mission or task no matter they officially announced or not Generally, the founders and the leaders of enterprises shall determine a mission to lead the company to fulfill certain targets Defining the current tasks, objectives and strategies of an enterprise is the first step in the strategic management

Mission

Build up strategies

to point out strengths and shortcomings

Select strategies

When the enterprise has developed and in the event of an extremely fluctuating business environment, managers obviously realize that it is important for them to re-determine the initial goals, the aims of which are to:

- Ensure that the enterprise’s objectives are suitable to the new situations and missions

- Provide a base or standard to distribute the company’s resources

- Determine the enterprise’s objectives which will be evaluated and managed

by means of expenditure, time and operation parameters

1.4.2 ANALYSIS OF EXTERNAL ENVIRONMENT

The external environment which consists of a macroscopic environment and an analytical sectorial environment enables to point out opportunities and threatens to the company’s operation

1.4.2.1 Macroscopic environment

Due to constant changes of the local and foreign competitive market, the determination of fluctuations of external factors is of great importance in the strategy development of a company The macroscopic environment includes elements of economy, politics, society, nature and technology The analysis of the macroscopic environment supports the enterprise in defining opportunities and risks

to its operation in the future

1.4.2.2 Economy

Among different factors of the macroscopic environment, economy is considered to

be the most important Economy puts direct impacts on the potential attraction of various strategies During the world economic crisis, Vietnam has still achieved the positive growth rate in 2008 and early 2009 The unemployment rate slightly increased due to the decrease in export, inflation rate and bank interest rate together with demand stimulating policies of the government to encourage the investment in

infrastructure construction, social housing construction and consumer…might speed

up the domestic consumer to slightly increase Export is decreased, it is time for enterprises to focus on the domestic market

1.4.2.3 Politics and law

The stability or instability of the political institution and law is an important factor that put impacts on both short-term and long-term plans of an enterprise Vietnam is looked at as a country with a stable politic environment, a safe place to invest with the favorable conditions for penetrating into the Asean market and other countries

in the region

1.4.2.4 Culture and society

Changes in the culture and society include of: life style, consumption habits, employment desires, population growth level, population migration, tradition, customs… all of which take a slow but wide and deep impact on organizations and enterprises Socio-economy developed causing the considerable changes in the people’s life style and consumer habit especially in the water heater In the past, people showered with cold water, boil water for shower by wood or coal while now they use the water heater With more than 80 million citizens, Vietnam is a potential market for the water heater manufacturers

1.4.2.5 Technology

Technology has developed continuously which not only creates opportunities and challenges for enterprises but also improves the living standard of people The water heater manufacturing technology has developed with new materials which is better, nicer, stronger, safer and more economic for the user

1.4.2.6 International environment

Viet Nam has been in the wide and deep integration into the world It is the good opportunities and makes it easier for the water heater manufacturers in Vietnam to export their products to other countries but it is also a challenge for them as the more imported products will come into the market

1.4.2.7 Sectorial environment

The sectorial environment takes a direct influence on a company, which demonstrates the competitive quality and level in one business There are five major forces affecting the operation of an enterprise

Graph 1.2 Five - force model

Source: Michael E Porter, 1980

POTENTIAL COMPETITORS

COMPETITORS

ALTERNATIVE PRODUCTS

- Sectorial competitors

Existing competitors are companies who are taking business in the same industry and directly compete with an enterprise A company always has its own strength and weak points As a result, the identification of all competitors takes a very important role in defining their advantages, shortcomings, opportunities, risks, targets and strategies so that the company can plan its strategies positively

- Customers

It is obvious that customers are the reason for the existence of an enterprise The more the quantity of customers increases, the more successful the company becomes The trust of customers may be the most valuable property of an enterprise Thus, it is necessary to study their taste, habit, payment capability, shopping behavior, possibilities of changing products and their thinking of the company

- Suppliers

The study of suppliers of materials, equipment, labor, finance together with fluctuations and trends of such factors makes a company active in its business strategy Currently, the domestic demand of the water heater is still small while there are 10 manufacturers competing with each other severely in the market Therefore, the big investor might not enter into the market but there will have more imported products

- Potential competitors

The study of companies who will participate in or withdraw from the market and the influence level to the enterprise helps to determine risks or opportunities brought by that appearance or withdrawal

- Alternative products

It is known that alternative products restrain the profit of a company The enterprise who does not pay much attention to potential alternative products may lose its initiative position in the market In order to be successful, it is necessary for an enterprise to understand the alternative products, apply new technologies or marketing strategies aiming at creating the distinction or its own advantages Especially the solar heater will be a very competitive product and being developed well in the Vietnam market

1.4.3 INTERNAL ENVIRONMENT

Strategic management planning and controlling in internal activities of a company are significantly important Internal elements of an enterprise including marketing, production management…are controllable ones The analysis of the internal environment helps to find out strengths and shortcomings of the company

1.4.3.1 Culture:

Every enterprise has its own culture Culture is defined as a collection of values, belief, attitude, habit, rule and personality Cultural is the basis for the stability and development of the company

1.4.3.2 Human resource

Human resource plays a very important role in the success of a company Man provides inputs to set up objectives, analyze the market context, select, implement and check the company’s strategies No matter how good the strategy and plan is, it shall not be effective to the company if you don’t have the right people for implementing that

1.4.3.3 Technology and equipment

The study of technology and equipment is important to recognize the actual condition of existing machines of an enterprise as well as to be aware of trends and development of technology of the region and the world so that technological strategies can be established to ensure the competitiveness

1.4.3.4 Finance

The functions of finance are demonstrated as analyzing, planning, mobilizing, implementing and checking the performance of the financial plan of a company All activities of an enterprise are closely linked with the finance sources; therefore, it is necessary to analyze such elements under the financial prism

1.4.4 TOOLS FOR STRATEGIC PLANNING

Strategies are built on the basis of analyzing and evaluating the business environment to recognize internal strengths and shortcomings of a company as well

as opportunities and risks directly influencing its existence and development After that, strategic plans are set up to reach the targets Important tools for strategic

planning include the aggregate analysis of external elements and the summary table

of internal factors, SWOT matrix, major strategic matrix

1.4.4.1 Summary table of external business environment

The summary table of external business environment allows strategists to summarize and evaluate information on economy, culture, society, government, technology and integration that influence the operation of a company

Table 1.1 Summary table of external business environment

Environmental

factors

Importance level

of factors to the sector

Influence on the Company

of each factor

4 Very important 3.Important

2 A bit important

1 Unimportant

Classify influence level

+= positive -= Negative

Multiply the number in the

(Importance level) to the

(Influence level) and place (+) or (-) in front of the result

Source: Garry D Smith 2003 Business strategy and policy

1.4.4.2 Summary table of internal business environment

The summary table of internal business environment enables strategists to summarize and assess internal factors of an enterprise so as to determine its strengths and shortcomings

Table 1.2 Summary table of internal business environment

Environmental

factors

Importance level

of factors to the sector

Influence

on the Company

of each factor

4 Very important 3.Important

2 A bit important

1 Unimportant

Classify influence level of each factor

to the Company

4 = very much

3 = much

2 = little

1 = no

Describe the influence

+= positive -=

Negative

Multiply the number in

(Importance level) to the

(Influence level) and place (+) or (-) in front of the result

Source: Garry D Smith 2003 Business strategy and policy

1.4.4.3 SWOT matrix

Every enterprise has its external opportunities and risks as well as internal strengths and shortcomings, all of which are arranged into a matrix, by which feasible strategies are established

Table 1.3 SWOT matrix

SWOT MATRIX

Strengths (S) 1…

WO strategies

Make good internal shortcomings to take full use of opportunities

WT strategies

Minimize weak points and avoid risks

Source: Fred R David, 2000 Concept of strategic management

The SWOT analysis technique is considered to be a helpful tool that helps strategists to consolidate the study results of environment and set up strategies scientifically It is important for strategists to define opportunities, risks, strengths and shortcomings that a company needs to take notice of

The same event may have different effects on different companies Certain events of which probability is small, their influence level is very significant In this case, it is important to pay attention to make provision in the strategic planning Opportunities and risks are different concepts; however, they have an organic relation Opportunities which have not been exploited may become risks of a company if its competitors develop them Similar to the analysis of external environment, the analysis and evaluation of internal environment of an enterprise shall find out major factors that have considerable influence on its competitiveness

After listing main elements of internal and external conditions on the SWOT matrix, it’s time to combine such elements with each other This combination is considered

to be the most difficult task in the development of a SWOT matrix with the following pairs:

S+O: Establish strategies to use strengths and shortcomings of a company to take advantage of external opportunities

S+T: Build up strategies to employ strengths of a company to cope with external risks

W+O: Build up strategies to make good shortcomings to take full use of external opportunities

W+T: Build up strategies to make good shortcomings and reduce external risks Finally, combine all the factors to set up some strategies by which a company can use its strengths to exploit opportunities, reduce risks and fulfill shortcomings

1.4.4.4 Major strategic matrix

A major strategic matrix is a tool for organizations to determine its competitive position in the market The matrix is represented in the two main axes: Vertical axis demonstrates the growth potentials of the sectorial market and horizontal axis shows competitive strength of a company All enterprises may be located in one of the four strategic right angles of the major strategic matrix It can be referred from this matrix that the position of a company is defined on the basis of the analysis results

of the macroscopic environment and competitive environment

Companies which are located in the 1st quadrant have a significant strategic position The company’s growth rate is on a high level The company also has a competitive position

Companies which are situated in the 2nd quadrant should be careful with their present strategies Although the company is having high growth rate, its competitiveness is still limited

Companies in the 3rd quadrant belong to the industry with slow growth rate and insignificant competitiveness It is important for such enterprises to constantly renovate to avoid big losses

Companies which belong to the 4th quadrant have a strong competitive position but

a low growth rate These enterprises should apply strategies of diversification in the promising fields

Graph 1.3

Major strategic matrix

Source: Garry D Smith 2003 Business strategy and policy

Rapid growth of the market

n

Slow growth of the market

1.4.5 TYPICAL STRATEGIES

Enterprises can select a great number of strategic measures: keynote, distinction in products, diversification, vertical connection, collaboration, repurchasing a company or withdrawal, each of which may be appropriate to per company at a specific time

1.4.5.1 Priority strategies

Such strategies are applied when a company takes much notice of a particular segment such as customers, products or geological regions These strategies acknowledge the diversity of the market As soon as an enterprise has chosen the market segment, it is right time for the company to carry out its major strategies via the general ones

1.4.5.2 Distinct strategies

Such strategies are understood that a company pursues the establishment of customers’ awareness better than its competitors like the distinction in product quality, service, technology, prestige or trademark

1.4.5.3 Vertically connected strategies

Forward combination is towards the increase in control right of distributing functions so as to approach the market and customers Such strategies help the company be positive in the consumption of products and approach the customers

Backward combination is to strengthen the control of a company to the materials suppliers Such strategies enable the company to be stable in the competitive environment but it requires a great deal of investment

1.4.5.4 Co-operation strategies

Co-operation strategies are to look for the control right to competitors by joint venture forms Such strategies help the company to raise its influence scale on the market

Table 1.4 QSPM matrix model Factors influencing the

strategies

Influence level Strategies for selecting

Strategy 1 Strategy 2 Strategy 3 ĐQT TSĐ ĐQT TSĐ ĐQT TSĐ Internal factors

Total attraction points

ĐQT: Important point TSĐ: Total points Source: Fred R David 2000.Concept of strategic administration

The building of QSPM is implemented with the following steps:

- Step 1: List external opportunities and risks together with internal strengths and shortcomings in the left column of QSPM matrix Such information is extracted from SWOT matrix

- Step 2: Classify internal and external important success factors

- Step 3: Study matrices in the 2nd period, determine alternative strategies that an organization should consider to implement

- Step 4: Define the attraction points which are represented in numbers demonstrating the relative attractiveness of each strategy in the alternative group

- Step 5: Calculate the total attraction points which are the results of multiplying the classifying point (Step 2) with the attraction point (Step 4) in each array The higher the total is, the more attractive the strategy becomes

- Step 6: Calculate the total attraction points which are the addition of all the total attraction points in the strategy column of QSPM matrix It is known that all the internal and external factor, to some extent, influence the strategic decisions The higher the point is, the more attractive the strategy becomes

1.4.6.2 Selection of matrices

Strategies of a company must be selected according to the subsequent principles:

- Fulfilling the financial target of the enterprise

- Having the feasibility - SMART GOAL

- Exploiting the strengths and overcoming the internal shortcomings; at the same time, taking full use of the opportunities and avoiding the external risks

The strategy with the highest attraction point in QSPM matrix generally satisfies the above-mentioned requirements

CHAPTER II

INTRODUCTION AND ANALYSIS OF ACTUAL SITUATION OF THE

COMPANY

2.1 OVERVIEW OF FERROLI VIET NAM CO., LTD

Ferroli Viet Nam Co.ltd is a 100% foreign investment company which was established on 28th July, 2005 and belongs to Ferroli Group in Italy

Lines of business: importing, assembling, manufacturing and distributing household and industrial water heaters

Investment capital: One (01) million USD, and since 2008, another two million USD has been supplemented to construct the assembly plant in the Thach That industrial zone, Quoc Oai, Ha Noi

Head office address: Lot 21, TT4, My Dinh-Song Da, Tu Liem, Ha Noi

Phone: +84 37876025 /6/7/8/9/30 Fax: +84 37876024

2.2 ANALYSIS OF EXTERNAL ENVIRONMENT

2.2.1 Macroscopic environment

- Economic growth: According to Vietnamnet, the article was published on 30th

June, 2009 In the newspaper published on 22nd June, 2009, it was stated by the World Bank that the global economy has degraded more severely than the forecast

at the beginning of the year This organization also warned that the withdrawal of capital of investors from the markets of developing countries would put negative impacts on the poor and raise the unemployment It was forecasted that the world economy would reduce by 2,9% in 2009

On 24th June, 2009, the Organization for Economic Cooperation and Development (OECD) for the first time provided its forecast of the world’s economic prospect during the past two years According to OECD, the economy of industrial countries

is growing at the speed of – 4.1% in 2009 and this rate will be 0.7% in 2010 The growth rate of American economy is thought to be -2.8% and 0.9 % in 2009 and

2010 respectively while Japan’s economy is forecasted to grow at the speed of 7.7% and 9.3% in 2009 and 2010 in turn

The global financial crisis lower Viet Nam’s economy; however, Viet Nam is one

of few countries whose economy has grown positively in the early 6 months of this year, which brings certain objective signals to create the basis for the judgement that Viet Nam economy will grow at the rate of over 4% in 2009 Nevertheless, due

to the general difficulties of our economy, demands for water heaters may decrease

or not increase in Viet Nam market in 2009

- Inflation: Although the economy faces a lot of difficulties due to the global

financial crisis, thanks to the demand stimulating packages of the Government, business activities such as the assistance of funds borrowing, particularly the exemption from personal income tax in the early 6 months which is thought to be a lever stimulating the big consumption and slightly raising the consumer price index

In the late 6 months of 2009, personal incomes are not exempted any more Meanwhile, petrol price may go up, but not as high as that of 2008 Other essential commodities have not expressed any tendency of increase yet; thus, it is possible that the consumer price index in 2009 will rise at the rate of less than 10%

- Unemployment: The reduction of exports and investment due to the world’s

economic and financial crisis led to the increase in the unemployment rate during the early 6 months of 2009

- Foreign investment: With the rapid economic growth during the past few years

and the steady political environment, Viet Nam has attracted a great deal of foreign direct investment (FDI) which reached 20.3 billion USD in 2007 In 2008 the investment reached its peak of 64 billion USD and Viet Nam has drawn 8.87 billion USD in the early 6 months of 2009 It is expected that the investment in 2009 will

be 20 billion USD It can be seen from these figures that Viet Nam is still an attractive place of FDI in the global financial crisis However, the disbursement capital for projects are still limited; thus, it is necessary to make appropriate policies

so as to reach the higher rate of capital on the basis of the committed capital There may not have any foreign investors who take large-scaled investment into the production of water heaters of Viet Nam this year

- Political environment: Political environment in Viet Nam is assessed to be stable

In the innovation process, Viet Nam has expanded diplomatic relationships with more than 200 countries and regions over the world, especially Asean members as well as boosted the co-operation with developed countries like United State of America, Japan, Korea, EU….This creates a big chance for the socio-economic development The opening, exchange and collaboration have brought about not only many opportunities for local enterprises to expand their business but challenges as well

- Scientific and technological environment: The rapid development of science and

technology, particularly Internet has enabled people to integrate quickly to the culture, economy and society Certain scientific and technological advances may have created a considerable number of opportunities and risks for some enterprises

In the production of water heaters, many new technologies make products stronger and help customers to use their products more safely and conveniently, all of which are Ferroli’s advantages to compete with other companies in the market

- Natural environment: For products having long life cycles, the influence of nature

may cause some difficulties to the enterprise In addition, water source has not been well-treated in Viet Nam It cannot be denied that, salted or alum water and limestone can reduce the life expectancy of products However, new technologies will be able to process and overcome the typical limitations of the natural environment

2.2.2 Forecast of demand

The influence of the global economic degradation on the export and import of products has been clearly reflected In particular, the demands for building materials reduce sharply due to the freezing real estate a considerable number of real property projects have been suspended or cancelled However, Viet Nam economy is still on the development and the income of local citizens tends to go up; thus, the demands for water heaters may reduce slightly or not increase

2.2.3 Customers

Customers are divided into three major groups:

- Consumers: Hard economy leads to the reduction in house construction and repairing; however, water heaters do not cost much (only around 100 USD) while average income per person is on the rise As a result, the demands of households tend to increase

- Large construction projects: The financial crisis lowers the capability of borrowing capital and disbursement for projects or construction of new buildings This group is considered to be customers who will decrease their demands most

- Intermediate distribution channel (agencies): Perfunctorily trading to ensure the finance or not to borrow money

2.2.4 Competitors

Due to the stretching of Viet Nam geology and weather characteristics, the water heater market is divided into two apparent extremes There are four seasons from the North to the Northern Central; particularly, it is cold in winter, requiring a great deal of hot water for bathrooms; thus, people normally use storage water heaters In contrast, the South and highland merely have two seasons (sunny season and rainy season) The typical weather of both seasons is warm and hot; therefore, Southern people mainly use instant water heaters except for high-grade hotels still used the storage water heaters

As a result, the water heater market in Viet Nam competes between two regions by means of various products described as follows:

2.2.4.1 Storage water heater:

Such products are sold from Northern to Central provinces with 70% of the total output while the South only accounts for 30% mainly for big buildings and projects Apart from Ferroli, there are 10 manufacturers of storage water heaters with the subsequent trademarks:

- Ariston: The trademark belongs to Viet Nam MTS Company which is totally

invested by Italy Ariston water heaters are imported and distributed in Vietnam since 1990 Ariston is a familiar trademark with Viet Nam customers Currently, Ariston is leading the market with about 40% of the market shares of storage water heaters in Vietnam MTS Viet Nam Co., Ltd is located in Tu Son Industrial Zone, Bac Ninh Its operating model is similar to that of Ferroli Co., Ltd : importing, assembling and distributing their products into the market Ariston products are direct rivals of Ferroli in the middle and high-grade market segment of the water heater market Before Ferroli entered the market (in 2005), Ariston has not had any real competitors for more than 20 years, accounting for 70% of the market share Ariston must have been subjective; in other words, it

let Ferroli rapidly penetrate into the market In almost 4 years, Ferroli has reached the same competitiveness in the north However, Ferroli cannot surpass Ariston in the South because it neither produces instant water heaters nor boost the marketing in this region Currently, Ariston products make up of 40% the national market share, in which 28% belongs to the North and 80% is reserved for the South Before 2005, Ariston controls the whole Vietnam market through its two main distributors in Hanoi and Hochiminh They used to spend a very small budget for promoting their brand However, by the end of 2005 Ferroli joined the market with a noisily promoting campaign which has forced Ariston

to immediately look at Ferroli as its real competitor in the market Both companies have come from Italy and competed for 55 years in many countries in the world Ariston therefore had to invest to build an assembly factory in Tien Son, Bac Ninh; strengthen its advertising activities; change the distributing system and do promotion program directly to the buyer to maintain its top position in the market

- Picenza: Picenza Viet Nam Co., Ltd is a 100% domestic investment company

Picenza imports the production line then assemble and distributing into the market Picenza is the first domestic company which produces and distributes water heaters In early 2001, Picenza introduced the products with Inox (chrome steel) inner tanks and rapidly developed because its only competitor at that time was Ariston who owned around 90% of the storage water heater market share In

2005, Picenza possessed about 25% of the market share while Ariston was increasing the quantity but decreasing its market share because the economic development led to the rise in demand Seeing that Ariston is the leader in the market but not attach importance to marketing and customer service, Picenza has invested in promoting its brand since first day it joined the market However Picenza has used the “skim strategy”, after 3 year operating they has got back all their investment and made profit Then they did not concentrate on advertising

the water heater but widen their business in other fields such as building the ceramic tile factory….The Picenza water heater use the inox inner tank which is not very strong and the product design is like a copy of Ariston together with the limitation in management and marketing, Picenza gradually lost its market shares and up to now its products only account for 6% of the market

- Prime: are products of Prime Corporation - Vinh Phuc, one of the greatest

facing Tiles & Ceramics producers in the world Prime manufactured more than

100 million m2 of facing Tiles of all types in 2008 At that time, Prime was a big producer of facing Tiles with a strong distribution system in Viet Nam However, in late 2005 and early 2006, Prime introduced its water heaters to the market, which are no longer well-known due to many reasons; for example, Prime is a Vietnamese trademark, a best-seller with cheap price, the quality of Prime’s water heater and technology is similar to other local manufacturers such

as Picenza, Funiki, and high price to compete with Ariston and Ferroli The distributing system of Tiles & Ceramics generally pays little attention to for the bathrooms’ facilities such as tanks or bath tubs In addition, Prime only care to the development of its trademark, Prime assigns the whole distribution to agencies Currently, Prime products account for less than 6% of the market share

- Olympic: are products of My Viet Co Ltd The Olympic trademark has been

closely connected with Olympic roof sheets since 2000 At that time Viet My Co., Ltd is the monopoly (sole) distributor of Ariston products in the North and Tan Hiep Phat Company in the South According to the unofficial information,

My Viet Co., Ltd has shares in Tan Hiep Phat Company My Viet has stopped its contract with Ariston and begun to produce and distribute the Olympic water heater by itself in early 2006 (3 months later than Ferroli) Even though it has more than 10 years distributing Ariston, understanding well the market and has

good relationship in the market but they have a wrong strategy to put their product at the same level with Ariston and Ferroli, two famous brand coming from Italy Olympic has confident that they understood market and had a good relationship with the Ariston distributing system However, Ariston has set a rule to any agents who wanted to sell their product would not be allowed to sell any other competitors’ products And so far, Olympic products make up of about 4% of the market share

- Funiki: are products of Hoa Phat Group At the end of 2005, Hoa Phat Group

introduced its products to the market with the trademark Venis which was not successful and later it changed to Funiki Funiki is the trademark for refrigerators and air-conditioners of Hoa Phat Group which is a powerful corporation with 6 member companies and has operated effectively for a long time However, the subsidiary which produces and distributes air-conditioners, fridges and water heaters is the most ineffective subsidiary of the Group “ According to the financial report of Hoa Phat Co., Ltd in 2007 Hoa Phat is the first local company that invests in the inner tank enameling coating production line which is the main part of the water heater Hoa Phat does many different things but not specialize in the building materials so they did not have a good understanding of the market Moreover their focus is not on the water heater therefore the Funiki storage water heaters only accounts for 5% of the market share

- Rossi: are products of Tan A Group Such products are cheap and are sold from

the group direct sales agencies around the country Two years after the products were firstly introduced, Rossi grew rapidly but it couldn’t attain its low price due to changes in materials, management and marketing ability In particular, Rossi lost its market due to its ineffective warranty service that reduced the trust

from customers and support of distributing channels However, Rossi products are quite cheap, they still make up 6% of the market share

- Appolo, Hera, Natusa, Tanzi and other imported products: Accounting for

9% of the market share These are mainly the imported finished products or only

do the very simple phase of assembling therefore these brands are unlikely developed much

Table 2.1 Estimated total sales of the storage water heaters in 2008

Source: Ferroli Viet Nam provided

2.2.4.2 Instant water heaters

Such products are mainly sold in the central and Southern provinces which are a market segment that Ferroli is pursuing Ferroli is planning to introduce its instant

water heaters to the market by the end of 2009 Currently, there are over 20 trademarks, mainly those imported from Malaysia and China in which the four following trademarks account for the most market shares: Centon 20%, Panasonic 16%, Ariston 18%, Legend 12% and about 34% for other trademarks

Instant water heaters make up 70% in the central and southern provinces while storage ones only account for 30% of the market share The market shares of the south are mainly owned by Ariston about 80% Ferroli about 15% and other brands 5% market shared

Table 2.2 Total turn-over of the instant water heaters market in 2008