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Vinamilk is the largest dairy company in Vietnam, was established on August 20, 1976 on the basis of three dairy factories from the old regime: Thong Nhat Dairy Factory, Truong Tho Dairy Factory, Dielac Powdered Milk Factory. It was also the 15th largest company in Vietnam and formerly the most valuable public company listed in Vietnam. In 2010, it was the first company in Vietnam to be included in the Forbes Asias 200 Best Under A Billion list that highlights 200 topperforming small and midsized companies with annual revenue under US 1 billion.
CONTENTS PART 1: OVERVIEW OF VINAMILK 1.1 Overview of Vinamilk Vinamilk is the largest dairy company in Vietnam, was established on August 20, 1976 on the basis of three dairy factories from the old regime: Thong Nhat Dairy Factory, Truong Tho Dairy Factory, Dielac Powdered Milk Factory It was also the 15th largest company in Vietnam and formerly the most valuable public company listed in Vietnam In 2010, it was the first company in Vietnam to be included in the Forbes Asia's 200 Best Under A Billion list that highlights 200 top-performing smalland mid-sized companies with annual revenue under US $1 billion Transactions under English name: VIETNAM DAIRY PRODUCTS JOINT STOCK COMPANY The principal activities of the Vinamilk are to produce and distribute condensed milk, powdered milk, fresh milk, soya milk, yogurts, ice-cream, cheese, fruit juice, coffee and other products derived from milk Vinamilk products such as powdered milk and condensed milk are also exported to the Middle East, Cambodia, the Philippines and Australia Exports accounted for USD 180 million in 2012 Vinamilk's main competitors are Dutch Lady Vietnam, Nestlé Vietnam, Abbott, Mead Johnson, Friso and Nutifood In September 2016, Vinamilk signed a strategic cooperation agreement with Chr Hansen to develop probiotics 1.2 Vinamilk’s mission statement Vision: To become a world grade brand in food and beverage industry, where people put all their trust in nutrient and health products Mission: Vinamilk commits to bring best-quality nutrition to communities that reflects our respect, love and responsibility for the people, life and society Core Values: - Integrity: Integrity and transparency in actions and transactions Respect: To have self-respect and respecting colleagues, Company, partners - To cooperate with respect Fairness: To be fair with employees, customers, suppliers and other parties Compliance: To comply with legal regulations and the Company’s Code of - Conduct, regulations and policies Ethics: To respect the established ethical standards and act accordingly PART 2: ENVIRONMENT ANALYSIS 2.1 Macro Environment and Industry Environment 2.1.1 Macro Environment (PEST Model) a Political Factors The influence of the political environment on business activities takes place in two directions: encouraging and creating favorable conditions; restrain and limit the development of the market Positive impacts: - The political background of Vietnam is relatively stable, the policy of reducing import tax to 0% creates peace of mind for foreign businesses to invest, support learning and development For the dairy industry, the government plans to invest in dairy farms and milk processing technology to increase domestic fresh milk production and reduce dependence on imported - powdered milk The advent of more and more consumer associations makes business activities more closely scrutinized The Dairy Association was established to link members to cooperate, support in production techniques, business, service, improve the value of product quality Negative impacts: - The management of market prices by state agencies is still lax The process of - enforcing competition law against unfair competition has not really effective Milk inspection is still lax, only stopping at food safety inspection, but not controlling the content of substances that cause difficulties for dairy - businesses Vinamilk are also affected by the legal system and political security situation in the countries in the export market More than 90% of export revenue comes from Iraq However, the economic and political situation in this country has adversely affected the company's revenue, so Vinamilk is expanding export markets to Australia, USA, Canada b Economics Factors Positive impacts: - Globalization and international economic integration are deepening, especially when Vietnam's accession to the WTO brings many opportunities for many businesses to cooperate with foreign partners, including dairy The price of dairy products in the world tends to increase, creating favorable conditions for price competition for Vietnamese dairy businesses to expand to foreign markets At the same time, domestic dairy enterprises have conditions to be exposed to new advanced technologies, and the opportunity to - constantly improve and perfect themselves in a competitive environment The economy's growth is maintained at a relatively high level, Vietnam's growth rate is estimated by the World Bank in 2014 to be 5.4%, the average income of the population increases, leading to the demand for consumer - including milk also increased Vinamilk is trying to develop product groups suitable for domestic consumption needs, especially the strength from "fresh" products such as yogurt, ice-cream Vinamilk will implement a series of customers care programs with the desire to make Vietnamese people proud when using Vietnamese products Negative impacts: - Despite the ability to compete on price, Vietnamese dairy enterprises face difficulties in product quality with foreign enterprises Many Vietnamese consumers accept 200% more expensive prices to use imported milk c Social Factors Positive impacts: - Vietnam's total population in 2020 is 97.5 million people, economic growth rate, bringing a potential and developing market for Vinamilk Vietnam’s - current average consumption of fresh milk is 26 liters/person/year With the improvement of living standards, people are turning to nutritional products for health care purposes In 2020, the output of fresh milk will reach 1500 thousand liters, powdered milk will reach 138000 tons With these positive forecasts, Vinamilk should invest in building factories and expanding capacity to meet market demand Negative impacts: - Vietnam is not a country with a tradition of milk production, so the majority of people not have the habit of consuming milk every day In addition, compared with the income of people in rural areas, the price of dairy products - is still quite high People still prefer foreign goods and not trust Vietnamese goods d Technological Factors Positive impacts: - Vinamilk has invested in developing technology to the world's advanced level Applying modern machinery systems, new management systems, and importing processes and raw materials have contributed to improving milk quality - All member units of Vinamilk have been investing in building a modern, synchronous wastewater treatment system that meets Vietnam's environmental standards Negative impacts: - More than 95% of dairy cows in Vietnam are now dispersed among smallholder farmers, with low professionalism, limited feed resources, high cost pressures, and unsatisfactory milk quality meet the demand for raw materials, causing difficulties for enterprises Therefore, Vinamilk continues to support farmers to develop dairy herds to take initiative in raw materials, support to form concentrated cow-raising areas for high productivity to reduce production costs for farmers and preserved in the industrial direction to be able to process many products with high added value 2.1.2 Industry Environment (Porter’s Five Forces Model) a Risk of Entry by Potential Competitors Economies of Scale: A milk production line has an average value of several tens of billions of dong, which is not a small investment, not counting the costs of factory construction, labor costs, raw materials costs Vinamilk has 10 large factories located in industrial parks in Hanoi, Bac Ninh, Ho Chi Minh City, Binh Duong Output in a unit of time of Vinamilk increased, reducing the cost of the product ⇒ Creates many difficulties and obstacles for companies who want to enter the industry because of the large-scale investment Brand Loyalty: Vinamilk has owned a certain market share with little variation in the Vietnamese dairy market In addition, the company's products also have differences, brand characteristics and customer loyalty ⇒ Competitors who want to join need to build a strategy to entice and gain the love of customers Absolute Cost Advantages: Most of input materials must be imported from abroad However, the input sources have not been strictly controlled, so the input quality of the companies is not high ⇒ Low competitiveness with foreign companies Government Regulation: The State has policies to promote the development of the dairy industry such as encouraging the opening of dairy farms, supporting the development of processing technology and gradually replacing input materials imported from abroad ⇒ The current dairy industry has great potential for development However, industry barriers are not small for companies, especially in terms of capital and processing technology In the future, Vinamilk will be able to face many new foreign competitors due to the market economy and superiority in technology, capital and input materials b Rivalry among Established Companies Vinamilk is currently facing relatively high competition from domestic and foreign brands In the future, the dairy market will continue to expand and the level of competition will increase Industry Competitive Structure: Vietnam's dairy industry is fragmented because there are many manufacturers such as Vinamilk, Dutch Lady; small-scale companies such as HanoiMilk, Ba Vi; foreign companies such as Abbott, Nestle But companies with large market shares such as Vinamilk and Dutch Lady are not strong enough to dominate the industry, increasingly facing strong competition from other firms, especially foreign dairy firms Demand Conditions: The consumer demand for dairy products is increasing, the annual growth rate is high and it is still tending to continue to increase rapidly Domestic competitors have reputable brands and understand consumer culture Although foreign competitors not fully understand the market, they have strong brands and diversify products with high quality Height of Exit Barriers: The initial investment cost of the dairy industry is very high, so when the company wants to withdraw from the market, it will be difficult to recover investment capital such as machinery and equipment In addition, there are ties to employees, government, strategies c Bargaining Power of Buyers Customers are a competitive pressure that can directly affect all production and business activities The dairy industry has a diverse customer base from children to the elderly, with great market potential But the requirements of consumers are increasing, so the dairy industry is under great pressure from the customer system Vinamilk's customers are divided into groups: Retail customers and Distributors Customers can compare products of the same type of many different brands, thereby creating price pressure on manufacturers The number of buyers directly affects revenue ⇒ Both distributors and consumers have a high position in the process of driving competition from their purchasing decisions Vinamilk has been able to limit the pressure from customers by reasonably pricing its product lines and providing accurate product information while creating differentiation for products competitors and other substitutes d Bargaining Power of Suppliers Vinamilk has dairy farms in Vietnam that provide more than 50% of the company's raw milk, the rest is purchased from farmers Regarding powdered milk, because the facilities are not qualified and technical, it still depends on foreign supply Vinamilk can be self-sufficient in raw milk, only depending on the source of milk powder Moreover, the company has put pressure on suppliers on the quality of raw materials, ensuring good quality for products ⇒ Vinamilk is not under pressure from suppliers due to its size and possession of high-quality raw materials and creates a higher position than suppliers, ensuring fair competition for retail suppliers but products are of high quality From the above issues, it shows that Vinamilk is in an equal position compared to its suppliers e Threat of Substitutes The dairy industry bears little risk from substitute products For liquid milk, the substitutes that are likely to reduce the company's market share are nut milk, soy milk, cereal drinks or milk-based beverages from many other brands in the market 2.2 Distinctive Competencies of Vinamilk The advantage of scale results from a large market share in most dairy and dairy product segments, with over 45% market share in liquid milk market, over 85% market share in edible yogurt and condensed milk market, in which the two main products, liquid milk and edible yogurt, have a continuous growth rate of more than 30% per year The active and nationwide distribution and sales network allows Vinamilk's key products to be present at more than 141,000 large and small retail stores nationwide, over 220 distributors, in all 63 provinces and cities of the country Vinamilk branded products are also present in the US , France, Russia, Germany, China, Middle East, Laos, Cambodia Having a sustainable strategic partnership with suppliers, ensuring a stable and reliable source of raw materials at the most competitive prices in the market As the largest milk collector in the country, it has the ability to bargain with farmers Professional management systems and processes are operated by a team of managers with competence and experience proven through the company's sustainable business results Experienced sales team of 1,787 salesman across the country Modern and advanced production equipment and technology according to international standards Ability to research and develop new products according to market trends and consumer needs PART 3: STRATEGY ANALYSIS 3.1 Corporate – Level Strategy of Vinamilk 3.1.1 Expansion Strategy a Market Penetration Condensed milk, yogurt, liquid milk are all products that have had a foothold in the market, appeared very early and are occupying a market share of 35-79%, accounting for most of the revenue structure, market share in the business increased continuously Vinamilk focuses on investing in technology, constantly improving product quality to create trust for customers, maintain market share, expand markets and increase sales Strengthening the distribution system, advertising activities to gain more market share in markets where Vinamilk has a low market share, especially in rural areas and small urban areas b Market Development Besides the comprehensive development of dairy products, Vinamilk also expand production and business through the beverage market is good for health through brands VFresh In order to meet the rapidly increasing consumption trend for natural and healthy beverage products Not only stopping at the domestic market, Vinamilk is expanding markets in a number of countries in Europe, however, penetrating in these markets still has some barriers In the long-term development strategy, Vinamilk will combine with some of the world's leading food corporations to invest and promote the company's market expansion internationally 3.1.2 Backward Integration Strategy Vinamilk supports farmers to borrow money to buy breeders to develop dairy farming, provides technical support to farmers to help farmers improve the quality of breeding stock, barns, pastures and commit to cover all fresh cow's milk products for farmers Investing in developing a model dairy farm model with modern techniques, as a learning destination for dairy farms and households Support capital and cooperate with localities to create advanced technology dairy farming areas Vinamilk continues to support farmers to develop dairy herds to take initiative in raw materials, in which support to form concentrated cow-raising areas with high productivity to reduce production costs for farmers and storage in industrial direction to be able to process many products with high added value 3.1.3 Evaluation Strategies a Expansion Strategy Advantages: - Sales volume and revenue have both increased over the years The growth in domestic sales is the result of the policy towards the domestic - market and the change in customer approach The expansion of foreign markets makes working style, serving more professional and efficient Disadvantages: - Compared to the actual potential of the market, the growth rate of market - share of some products is still low and unsustainable Some products also have weaker competition than similar products in the - market For the domestic market, the organization and management of distribution - channels and evaluation of sales promotion programs are still not good For the export market, an international marketing system has not been established to bring products to the world in the fastest way b Backward Integration Strategy Advantages: - Improve the quality of breeding stock, the quality of barns and pastures Expand the model dairy farm model with modern technology to farmers Ensure a stable and reliable source of raw materials at competitive prices Create sustainable strategic partnerships with suppliers Vinamilk is the largest buyer in Vietnam, so it has the ability to bargain Disadvantages: - Management costs Expenses for investment in machinery and technology For small-scale farmers will be additional costs of training using technological devices 3.2 Business – Level Strategy of Vinamilk 3.2.1 Low Cost Strategy Vinamilk still stands firmly in the Vietnamese market by creating products at a lower cost than foreign companies The most obvious effect is that the market share of this brand is accounting for 79% of the national market share The main products are fresh milk, powdered milk, condensed milk, yogurt,… By cutting possible costs, restructured the brand, well controlled the retail stores so that sales not depend on the wholesale stores, the company has saved quite a lot of promotional costs When applying the strategy of retail stores, products will be shipped directly to dealers in the fastest time after production The phenomena of holding and discharging goods and competing on price, thanks to the promotional price advantages of big agents have been solved 3.2.2 Differentiation Strategy In 2020, Vinamilk has launched many products in the high-end segment such as Pasteurized fresh milk containing Bird's Nest, Grow Plus baby milk powder containing Bird's Nest, Love Yogurt and Love Fruit juices The company has focused on designing new and appropriate packaging designs In addition, the innovation and improvement of product quality, diversification of product, research into more new product lines to meet the needs of consumers Vinamilk has over 200 dairy products such as condensed milk, powdered milk, nutritional powder, fresh milk, yogurt The beverage products are also focused on production such as soy milk, juices, coffee, cakes By improving production technology, in conjunction with Nutrition Institutes, Vinamilk has succeeded in creating trust among consumers The power of communication is also fully utilized by Vinamilk The image of a Vietnamese dairy cow on Vinamilk's milk packaging has become very familiar to Vietnamese people, especially children Nearly any child can hum “We are happy cows” in the company's milk advertisement 3.2.3 Evaluation Strategies a Low Cost Strategy Advantages: - Create barriers that make it difficult for competitors to enter the market Increase operational efficiency for the company Having an advantage in accessing raw materials - Dairy products are brought to Vietnamese consumers, bringing practical - benefits to consumers Through retail stores, Vinamilk also quickly captures the feedbacks of consumers to quickly change, meet market needs quickly and best Disadvantages: - It is easy to cause a price war when there are many competitors in the - industry pursuing this strategy Easily imitated by competitors b Differentiation Strategy Advantages: - Vinamilk has created a difference that competitors not have (High-end - product lines contain bird’s nest) Bring high profits for the company (Profit after tax reach over VND 11,000 - billion in 2020) Gain customer loyalty Disadvantages: - Vinamilk needs to continuously research and develop more new products to - suit the needs of customers The products are likely to be imitated by competitors 3.3 Sustaining Vinamilk’s Competitive Advantages - Developing Vinamilk brand into the most reputable and reliable nutrition brand in Vietnam through the application of scientific research on the specific - nutritional needs of Vietnamese people Promote the company's green - clean product line (100% Organic Fresh Milk, - Green Farm Fresh Milk) Regularly change new advertising contents and forms to attract the attention - and interest of consumers Implement big promotions for customers such as increasing the volume of - milk at constant price, giving children toys Strengthen distribution system and quality to gain more market share in rural - and small urban areas Regularly change the design and packaging of products to meet the needs and aesthetics of customers - Building sustainable relationships with suppliers through evaluation policy, financial support for farmers PART 4: REFERENCES Charles W L Hill & Gareth R John (2006), Strategic Management: An Integrated Approach, South-Western College Pub, 7th Edition Vinamilk Annual Report 2019 Vinamilk Annual Report 2020 Quỳnh Khơi (2020) Tầm nhìn “tỉ đơ” Vinamilk thị trường xuất khẩu, https://tuoitre.vn/tam-nhin-ti-do-cua-vinamilk-o-thi-truong-xuat-khau20200729170952596.htm , accessed on May 29th Vinamilk website for information of Vinamilk Company, https://www.vinamilk.com.vn/ , accessed on May 29th ... Mission: Vinamilk commits to bring best-quality nutrition to communities that reflects our respect, love and responsibility for the people, life and society Core Values: - Integrity: Integrity and... Pub, 7th Edition Vinamilk Annual Report 2019 Vinamilk Annual Report 2020 Quỳnh Khôi (2020) Tầm nhìn “tỉ đơ” Vinamilk thị trường xuất khẩu, https://tuoitre.vn/tam-nhin-ti-do-cua -vinamilk- o-thi-truong-xuat-khau20200729170952596.htm... forecasts, Vinamilk should invest in building factories and expanding capacity to meet market demand Negative impacts: - Vietnam is not a country with a tradition of milk production, so the majority