Situation analysis report phu nhuan jewelry joint stock company

Situation Analysis Report Phu Nhuan Jewelry Joint Stock Company Phan Quoc Thinh Han Trung Kien Nguyen Hong Nhung Nguyen Thu Thao Le Quang Thai Nguyen Dang Quang 22 November 2015... Sit

Situation Analysis Report Phu Nhuan Jewelry Joint Stock Company

Phan Quoc Thinh Han Trung Kien Nguyen Hong Nhung Nguyen Thu Thao

Le Quang Thai Nguyen Dang Quang

22 November 2015

Situation Analysis Report

Phu Nhuan Jewelry Joint Stock Company (PNJ)

• Phan Quoc Thinh – Leader

Table of Contents

Company profile 2

Micro-environment 4

1 The company 4

2 Suppliers 4

3 Marketing intermediaries 4

4 Customers 5

5 Competitors 5

6 Publics 5

Macro-environment forces 6

1 Demographic forces 6

2 Economic forces 6

3 Technological forces 7

4 Political forces 7

5 Cultural forces 8

SWOT analysis 8

Strengths 8

Weaknesses 9

Opportunities 9

Threats 9

Market segmentation 10

Market targeting 11

Positioning 11

Differentiation 11

Product differentiation 11

Service differentiation 12

Channel differentiation 12

Image differentiation 12

Conclusion 13 Bibliography Error! Bookmark not defined.

Company profile

Name PHU NHUAN JEWELRY JOINT STOCK COMPANY

Address 170E Phan Dang Luu Street, Ward 3, Phu Nhuan District,

Ho Chi Minh City, Vietnam

Sector and Industry Consumer Cyclical and Luxury goods

Core business Fine gold (bar), gold and silver jewelry

Business lines

 Trading watches and gold bar

 Testing diamond, gemstone and precious metals

 Real Estate house leasing

 Business Law Raw materials Raw gold and silver materials, gems, gemstones, diamonds Charter capital (2014) VND 755,970,355,000

Mission PNJ brings customer pride with elegant, outstanding quality

 Doji Jewelry Corporation (Doji)

 Sai Gon Jewelry Company Limited (SJC)

 Bao Tin Minh Chau Jewelry and Gemstone Co.Ltd

 Sacombank Jewelry (SBJ)

Sources: (FPT Securities, 2014) (PNJ Annual Report, 2014)

hu Nhuan Jewelry Joint Stock Company, better known with abbreviation name as PNJ, is one

of the most renowned and respected jewelry retailers in Vietnam Not only is PNJ domestically successful, but the company is also honored in Asia by Retail Asia magazine (Singapore) as one among top 500 retailers in Asia Pacific between 2004 and 2009 Officially established on 28 April 1988 by twenty progressive like-minded people in Phu Nhuan district, PNJ has been since showing strong and consistent development and performance, and has consolidated its position as the biggest player in the Vietnamese jewelry sector With more than 173 stores spanning across the nation, employing nearly 2,500 employees, and even becoming the only Vietnamese company that has the capability to export gold and jewelry to the international market, PNJ has not only established its dominant presence nationwide but also advance to do business internationally In order to have today success, it is the diligence, persistence and smart moves sanctioned by the board of management over the last 30 years, with special regard to Ms Cao Thi Ngoc Dung, who simultaneously served as the chief executive director and the chairwoman ever since (Bloomberg, 2015)

The tale of this enterprise began in 1988 and the formative stage lasted 4 years During that time, Vietnam jewelry market was of tender ages, which posed many challenges and innumerable difficulties regarding human resources, financial supports and lackluster governmental subsidies The next developing period was between 1993 and 2000, when PNJ expanded its business to reach Hanoi by opened a ramification in the capital in 1994, together with many different strategic locations That were also memorable years as the company had its products exported for the very first time, but more importantly, it started gaining customers’ trust and reputation Moving on, January 2004 marked the next milestone in the company’s history because of the participation to the stock market, which effectively raised capital and promoted equalization Since then, the company has always been improving and diversifying its products, aiming to fulfill high customer's satisfaction by delivering superior quality items and services, as accorded to the company mission statement PNJ also furthers its business by providing sponsorship to many beauty competitions,

such as the Miss Universe 2008 and Miss Earth 2010, Nevertheless, in 2012, the claimed Asian

biggest jewelry manufacturing factory was built to accelerate the firm’s productivity to the next level (Young Tiffany, 2012)

With the vision of becoming the leader in jewelry fashion industry in Vietnam, incorporate with the proposed philosophy “Customer benefits is our commitment”, PNJ has received many praiseworthy

achievements and is well on the way to approach its prospects According to Bloomberg: “For the

period [the first half of 2015], the company reported revenue of VND 3.846 billion, up 6%, gross profit of VND 546 billion, up 43% and net profit before tax was VND 228 billion, up 46% over the same period last year, completed 60% annual target” This report is written with care and

dedication giving readers an insight about the business operation at PNJ, and to give detailed explanations to many factors that affect the company, as well as the brand’s value proposition Diagrams, charts, and further information are written under Appendices section

P

1 The company

The board of Directors at PNJ has been working closely to implement action plans for both production and business operations To begin with, the department of human resources has been ordered to improve the labor productivity by running additional training and helpful workshops, reorganizing organizational structure and increase the ratio of junior to senior staffs with the ambition to rejuvenate the workforce Next is R&D, which is PNJ backbone department that has been received huge subsidies and financial support from the top management in order to accomplish

a sole mission of meeting customers’ increasingly stringent requirements of jewelry products The department has done well by regularly hitting the market with new exclusive jewelry collections, employing and well-treating proficient artisans, and running competitions to recruit innovative design ideas as well as adapting production line with advanced technology Last but certainly not least, the sales department is strengthened by regularly opening short staff-training courses, running incentive programs to give attractive bonuses and create “PNJ Common Home” for team-building and relaxation A strong culture identity is PNJ biggest asset, said by the company CEO, as it can be extremely beneficial for the development of the organization by providing the much-needed motivation to increase productivity and improve employee morale as well as personal wellbeing In addition, the well-developed culture creates a participative and cooperative workplace, where people enjoy working, willing to work hard and they, therefore, can increase responsibility to deliver better customer services (PNJ Annual Report, Annual Report 2014, 2014)

2 Suppliers

The inputs used in manufacturing jewelry are precious metal, i.e gold and silver, and gemstone with prices are often highly responsive to changes in the global market, often unpredictable and even unprecedented Therefore, PNJ applies strict control to minimize the negative effect this may have on the company business

• Raw gold input: Due to the government strict policy upon gold importation, PNJ speculates its warehouse by collecting raw gold from local suppliers whose gold are taken from various sources A large proportion of this kind of gold is not trademarked, also known as not SJC, is abundantly available and sold at a cheaper price

• Raw silver input: With no restrictions of the government, the firm imports silver directly from MatalLor (Belgium)

• Raw gemstones are imported mainly from Creative Gems BKK (Thailand) and RMC (Hong Kong) while diamond inputs are bought from multiple international accredited sources, such

as Yakubov, Forte and Fischler (Belgium) (Phong, 2013)

3 Marketing intermediaries

• Resellers: Strictly, the products manufactured by PNJ are only sold in PNJ-owned outlets across the country There are 173 stores in every major city and suburban area across 44 provinces in Vietnam (PNJ, 2014) Most of the outlets are situated in main streets, as well as

in shopping malls, supermarkets and airports, such as Aeon Malls, Parkson C&T, BigC and Tan San Nhat international airport

• Physical distribution firms: PNJ accepts home delivery option and thus the customers’ ordered products are protected by the representative of the authority during the transport PNJ has four warehouses operating at highest security and when there is a need for airline transport, the cargo is airlifted under the protection police force (FPT Securities, 2014)

• Marketing services agencies: In 2011, PNJ signed a contract with Value Partners

Management Consulting, a consulting firm from Italia, to help PNJ deal with market

research, decision-making at management level, business operations and expectation for future jewelry market On the other hand, since PNJ is a powerful jeweler in the domestic market, the firm receives much attention from the media and the government Most of the

business-related newspapers are conveying updates about PNJ operations while magazines publish new collections worn by the brand ambassadors, who are usually public celebrities Furthermore, the firm also delivers its brand image through the sponsorship of many beauty competitions and actively maintains a Facebook page with promotions updates as well as products exhibition (Doanhnhansaigon, 2014) (Tan Viet Securities, 2015) (VNexpress, 2015)

4 Customers

• Consumer markets: On average, 91% of PNJ total revenue and 87% gross profit in the period between 2007 and 2013 came from retailing services There are four differentiated jewelry brands, namely PNJ Gold, PNJ Silver, JEMMA and CAO Fine Jewelry, are made

to satisfy different needs of individuals whose age are from 15 to 45+

• Business markets: PNJ supplies gold and silver jewelry to many smaller enterprises, which

do not have the capability of large-scale jewelry production and the technology required This wholesale gold and silver have lower quality, less delicacy and usually do not interfere

with PNJ products sold in-store Some names in this partnership include Vietinbank Gold

and Jewelry, Phu Quy Gemstone and Jewelry and Phuong Nam Jewelry Commercial Corporation (FPT Securities, 2014)

• International markets: Only contributing a tiny fraction to PNJ net profit PNJ is the only jeweler in Vietnam who has the ability to export products However, experts expect that this segment will not grow by much since PNJ is using resources to focus in the domestic playground (FPT Securities, 2014) (PNJ Annual Report, Annual Report 2014, 2014) (PNJ Annual Report, 2013)

5 Competitors

• Three main competitors are “Sai Gon Jewelry Company Limited (SJC), Doji Jewelry Corporation (Doji) and Bao Tin Minh Chau Jewelry and Gemstone Co Ltd (BTMC)”

(FPT Securities, 2014)

• All of these big four jewelry companies, including PNJ, however, accounts for a merely

20% of market share according to Mr Huynh Trung Chanh - vice president of Viet Nam

Gold Traders Association (FPT Securities, 2014) Small traditional family-owned business,

minor manufacturers and small retailers scattering across the country own the rest 80% of market share

6 Publics

A Financial publics

• By participating to the stock market, PNJ has effectively raised its market capitalization to 3,144.8 billion VND and 49% foreign ownership (MorningStar, 2015) This has brought huge amount investment for PNJ to spend on its business operations, brand expansion and facility development

• Internal shareholders still hold the highest share capital percentage, of 40%

• Vietnam Azalea Fund Limited (Mekong Capital) owned 565,500 shares (Vietcombank Securities, 2011)

• Vietnam Enterprise Investments Limited (Dragon Capital) owns 6.57% shares

• Route One Investment Company owns 5.04% shares

• Deutsche Bank AG & Deutsche Asset Management (Asia) Ltd owns 4.83% shares (FPT Securities, 2014)

B Government publics

• The jeweler has received much governmental recognition for its achievements in terms of business running, customers’ satisfaction and society contributions Some of most prominent

awards included the Vietnam Value Award by the Vietnamese government in 2010, First

Labor Medal by the President in 2003, Vietnam Excellent Brand 2006 -2009 by the Ministry

of Commerce and the Top 50 Best Performing Companies in Vietnam in 2012 (PNJ, PNJ

achievements, 2015)

• However, the influence of government policy on PNJ operations and marketing strategy is substantial, often unpredictable and can be either favorable or disadvantageous Further detail is discussed in Macro-environment and Appendices section

C The general publics

• According to a market research published by (VNExpress, 2014), PNJ brand image in the eyes of customers is quality-oriented and trustworthy and company products are served by courteous and professional staffs Founded in 1988, PNJ has been building a strong accountable entity with personnel who have high responsibility and eager for building profitable relationship with customers

• PNJ outreaches to help community through the operation of PNJ Charity Fund In 2014, PNJ spent 4.5 billion VND on charity budget alone, gave out hundreds scholarships to poor but studious students, and brought thousands gifts to highlanders and habitants in sparsely areas (VietnamNet, 2015) (PNJ, Mái ấm của những tấm lòng, 2015) All of these meaningful activities to society have contributed positively on the public image and customers’ perception of PNJ

Macro-environment forces

1 Demographic forces

• In July 2014, Vietnam had an estimated population of 93,421,835 and the number of people whose age between 15 and 54 accounts for the greatest proportion of 62.6% (CIA World Factbook, 2015) This is a big market and, as the result, PNJ can take this young, large and rapidly growing population to its advantage

• The middle-class is to burgeon in Vietnam (Foreign and Commonwealth Office, 2015) states that Vietnam has the fastest regional growth rate regarding middle-class among other Southeast Asian countries, i.e a consistent 12.9% year-to-year in the period 2012-20 With regard to the particular traits of the jewelry industry, the emerging middle-class brings prosperity and opportunities to PNJ

• (Foreign and Commonwealth Office, 2015) also points out there is a geographical shift in distribution map of jewelry-consuming The demand for premium quality jewelry has now expanded beyond the Vietnamese two most populous cities, i.e Hanoi and Ho Chi Minh, to

smaller cities and many “new provincial pockets of affluence” across the nation (Le Chi,

2014) consolidated this claim with a report published by ANZ Anticipate this ongoing trend, PNJ has planned to open 35 new stores at the end of 2015, effectively increase the

firm’s presence to 44 provinces nationwide (PNJ, 2015)

2 Economic forces

• Despite many challenges, the economy of Vietnam has recovered substantially and even become the bright spot in Asian’s gray picture According to (World Bank, 2015), GDP in the first two-quarters of Vietnam witnessed the greatest increase in the last 5 years, reached 6.28% The inflation rate has been maintained low, at 4.1% and the unemployment rate has decreased substantially by 10.91% (International Monetary Fund, 2015)

• The Prime Minister sanctioned the increase in Vietnam’s monthly salary, which took effect from January 2015 that allowed wage floor to reach up to VND 3.1 million, depending on region (Wageindicator, 2014) Furthermore, the government has recently approved a further

raise of 12.4% on minimum wage, which take effect on January 1 2016 (IndustriALL , 2015)

• PNJ believes this robust domestic economy will increase the proportion of middle to upper middles-class and that will effectively increase the market share of the firm Since jewelry

has high income elasticity of demand, as incomes rise, customers ‘’will likely use their

increased income to purchase more luxury goods and services” (Investopedia, 2015)

• Vietnam joined World Trade Organization (WTO) more than 8 years ago, on 11 January

2007 (WTO, 2007) According to the article “10 benefits of the WTO trading system”

written by (VCCI, 2010), PNJ could gain many advantages once joined this international playground, most notably, including market transparency, foreigner investment, raise in general population incomes and encouragement of good governmental operation This trade agreement, together with FTA, AEC and TPP, however, also come with great challenges and cost, as to compete against rivals that are more powerful

3 Technological forces

• (FPT Securities, 2014) shows that research, technology and manufacturing are the underlying part of PNJ business and are what differentiate the firm from others PNJ has achieved its first position today primarily because of superior innovative products and cutting-edge technology

• December 2012, PNJ established the largest jewelry-manufacturing factory in Vietnam, storey heights and total floor area of 12,500 m2, employed 1,000 workers at that time All equipment and machinery are imported directly from Italy and Germany The factory has increased the productivity of PNJ dramatically to 4 million product units per annum

six-• ERP system – a unique inventory management and selling-control software used by PNJ that allow real-time communication between the Board, the departments, and the stores This software makes top-down operations easy and optimizes risk controlling PNJ named

the software Xman, short for eXtra MANagement, and was built upon 3-tier client/server

architecture (FPT Securities, 2014)

• Jewelry design processes at PNJ are done by creating 3D models from specialized software, such as the famous Cad-cam modeling, Jewel Cam or Matrix After that, the computerized models are produced using Resin molding technology (Huy Truong, 2014)

• 42.97% of the Vietnam population is internet users (Internet Live Stats, 2014) In order to catch the boom of the internet, PNJ has acknowledged and invested heavily on the firm website to achieve professional glittering layout, clear-cut information on every product and launch attractive advertisements PNJ also has online shopping, credit card payments, bank transfer and allows a purchaser to order through mobile phone by sending a text (PNJ Shopping, 2015)

4 Political forces

According to (BaoViet Securities, 2013), the biggest risk associated with PNJ business is the unpredicted changes in the government policies Jewelry accessories and gold in particular, are very sensitive and susceptible to changes made by policy makers

• Circular 22/2013/TT-BKHCN effective on 01/06/2014 was a blessing to PNJ in the market that was once highly scattered The circular states that all business units in jewelry industry must list the amount of gold in each of their product explicitly This contributes to the transparency of jewelry quality in the market, which had been allowed to float freely for a long time, and effectively put an end to fraud in determining the age of gold (FPT Securities, 2014) (PNJ Annual Report, 2014)

• Decree No.24/2012/NĐ-CP published on 25/05/2012 is another strongly favorable enactment toward big jewelers such as PNJ and SJC Overall, the circular was issued to apply stricter control over the gold and jewelry business, only a handful of strictly qualified

companies are permitted to operate in the market Individuals who wish to run this kind of business will have to apply to open company (Nguyễn Thị Cúc, 2015)

• Decree No.36/2015/TT–BTC, took effect on 07/05/2015, was, however, a strike on PNJ

The exportation tax was raised from 0% to 2% on all “gold jewelry product, craft and other

gold products with the gold content of 95% and above” (PNJ News, 2015) This heavy blow

led to the abandonment of the entity’s gold exportation

5 Cultural forces

Gold has long been a part of Vietnamese culture and the demand for gold is ever-growing in here In daily life, gold can be used as blessing gifts in wedding ceremonies, such as wedding ring,

bracelets and wedding bands The article “Analyzes on Gold and US Dollar in Vietnam's

Transitional Economy” by (Vuong Quan Hoang, 2004) states that gold can also be utilized as kind

of savings, “a notion of guarantee”, a hedge against currency depreciation and for investment In addition, according to (FPT Securities, 2014), the average annual demand of gold and gold jewelry

in Vietnam is very large, 52 tones and 19 tones respectively and seemingly showing no sign to halt This can be viewed as promising opportunities for PNJ to expand its business as the demand for gold, jewelry in special occasions is substantial, and the market is still young

SWOT analysis

Strengths

 More than 25 years of experience in jewelry manufacturing, retailing and services PNJ is

currently the biggest, the most renowned and influential jewelry enterprise in Vietnam With more than 25 years striving for excellence, gaining invaluable customers’ trust and building long-run profitable customers’ bonding, PNJ can easily outpace domestic competitors, have

a tremendous advantage over newcomers and advance gradually to the international market

 Strong R&D department Realizing the utmost importance of R&D in running jewelry

business, PNJ has invested heavily on to this department in terms of human resources and technology As expected, PNJ new innovative collections and products are highly appreciated by both the public and the critics Jewelry made by PNJ is differentiated and is bespoken for specifically targeted segments Furthermore, what makes R&D department in PNJ outstanding is the presence of a team of four jewelry experts among twenty artisans who work closely together on each item

 Attractive and beneficial PNJ’s policy issued for customer services PNJ has the policy that

allows customers to sell their bought jewelry and accessories back to PNJ at very good prices, often equal to at least 70% of the purchased price, and even up to 98% if it is diamond products The highest price a customer can resell elsewhere is only 70% (FPT Securities, 2014)

 Established retailers in strategic locations and large standardized retail network

nationwide PNJ makes outlets easy to locate, to find and to remember, which effectively

raise brand awareness PNJ launches standard store model, which standardize the way a

store is operated, including “image, colors, light, decorations, product display and

professional service manner” (PNJ Annual Report, 2014)

 With strong financial capability, PNJ can equip cutting-edge technology to increase overall

productivity, outpace competitors in terms of mass production and product sophistication The amount of raw gold material wasted is significantly reduced to an impressive 1% To be specific, each year PNJ uses approximately 5 tons of raw gold input, 1% gold wasted due to

inefficient production is 50 kg and would cost the firm 44 billion VND This number is unimaginably costly for other companies (FPT Securities, 2014)

Weaknesses

 Not focus on exploiting the potential of the enormous demand for gold bar It is estimated

that during the period between 1997 and 2013, Vietnam imported 890 tons of gold bars and the annual demand for gold bar is 52 tons However, contradict to the appealing sound, PNJ gold bar business is dreary due to low gross profit margin (0.17%) and only contributes 0.2% to the company’s gross profit

 PNJ is not as favorable in the North as it is in the South Bao Tin Minh Chau (BTMC) is

still holding the number one position in the Northern market, particularly Hanoi This is partly because BTMC established its presence long before PNJ came Besides, according to researchers, people in Hanoi are more traditional and enjoy jewelry of nostalgic style as well

as the aversion to change

 All raw materials are mostly imported This is arguably due to the characteristics of jewelry

manufacturing that require high quality processed materials and the skill level in Vietnam is not up to that point yet However, too much importation can make PNJ’s contracts severely vulnerable to external factors such as political tension, fluctuated exchange rate, and inflation

Opportunities

 The rising of middle and upper middle class in Vietnam Vietnam has been doing relatively

well in terms of economic growth rate and inflation control among other regional countries According to Chief Analyst of ANZ, Mr Glenn B.Maguire, the per capita income in Vietnam can be able to reach up to $3,000/year by 2020, along with the increase in average monthly salary at a relatively stable rate of about 10% per year (Bizlive, 2014) Clearly, the proliferation of middle class brings tremendous opportunity to PNJ, as this is the main segmentation of customers that PNJ focuses on traditionally

 Targeting segments of customers that have huge potential to grow demographically

According to CIA World Factbook, the number of people aged between 15 and 54, which is the targeting age group of PNJ, makes up over 60% current population of Vietnam Besides, ANZ estimates the number of people belonged to consumer class will increase from a current

of 17 million people to 32 million people by the end of this decade With this ever-increasing population growth rate, PNJ has an enormous room to snowball its business

 With the current reputation of the brand, the expansion to acquire more market share is

highly feasible On the one hand, as mentioned in Microeconomic section, big jewelry

manufacturing companies control only 25% of the jewelry market, and PNJ holds 20% of that 25%, making a total of 5% jewelry market acquisition by PNJ On the other hand, PNJ has built a domestically strong brand image and has imprinted its products with quality and satisfaction, all of which contribute to massive support from its customers, let alone any favorable governmental interventions

Threats

 Vietnam gold-jewelry market is also, however, a delicious pie for foreign investors

Potential competitors are inevitable as Vietnam joined WTO in 2007, agreed to open domestic market to the world and reduce tax It is even more promising for outside investors when the Vietnam jewelry industry owns $3.5 billion worth of turnover and 25% annual growth rate In fact, retailers from France, Hong Kong, Thailand, and Malaysia have

been doing market research and some have even begun to invest Nevertheless, PNJ also has the domestic pressure due to the presence of DOJI and SJC

 Unstable and even unprecedented global gold price The price of diamond and gold in the

world is fluctuating, the price can escalate but also can drop dramatically, making severe lost for PNJ due to the exchange rate

 Internal threat of losing experienced and proficient artisans to the hand of competitors PNJ

has to deal with the loyalty of a group of workers and technicians who are indecisive and attracted to work at other firms because of appealing offers and promotions Losing key personnel, especially skillful craftsmen can harm the company’s productivity and working attitude and can be costly due to budget spent for scouting and training new workers from scratch

 Massive long-term investment and running multiple diversified businesses The final threat

of PNJ comes from its long-term investment in operations on real estate, watches, petroleum, and banking PNJ is running a high risk if these big investments in unfamiliar businesses do not yield the expected outcome DongA Bank, for example, causes PNJ to have to make a cumulative provision budget for loss of 55 billion VND and even be on the verge of losing all capital (Đan Nguyên, 2015)

Market segmentation

Geographic Country region Northern Vietnam - Red river delta, North central coastal; Southern Vietnam – Central Highlands, South central coastal, South Eastern, Mekong river delta Density Urban, Suburban

Demographic Age 15-25, 25-45, 45+

Gender Female

Family life cycle Young, single/married, with/without children; Older, married with children Income Middle income (B+ 6 to 13 million VND/month) to high income (class A 13 to 20 million VND/month) Occupation Professionals, white collars; celebrities, affluent businessmen, businesswomen, senior executives Generation Generation X, Generation Y

Nationality Vietnamese, foreigners occasionally

Psychographic Social class Middle class to upper class

Lifestyle Succeeders, aspirers, mainstreamers

Personality Confidence, materialistic, acquisitive, self-expression

Behavioral Occasions Special occasions: Wedding, engagement, prom, formal meeting, diner gala party and celebration Benefits sought Aesthetically pleasing, symbolize wealth and social status, express personality, increase self-esteem and boost confidence User status Potential user, first-time user, occasional users and ex-users

User rates Occasional, light to medium

Loyalty status Somewhat loyal

Attitude toward

product Positive, increasing level of customers’ satisfaction