1217 BULLDING A BUSTNESS STRATEGY FOR THE RETAIL CONSULTING DIVISION OF VIETMAI SOLUTIONS

and the internal environment of the company to develop an ap-propriate business strategy for the retail consulting division.. The study begins with an in-depth analysis of the external e

SUPERVISOR’S APPROVAL

I hereby certify that this dissertation, submitted by Mr Tran Quoc Viet, conforms to ble standards and is fully adequate in scope and quality to fulfill the dissertation requirements for the degree of Master of Business Administration

accepta- _

Dr Bui Thanh Trang Date

Supervisor

during the execution of the study’s survey; Mr Le Phong Dinh and Mrs Bui Thi Hong Hai ậ

my classmates ậ for reviewing my thesis and proposing corrections

Thirdly, thanks also my staff at VIETMAI Solutions, especially Mr Pham Quang Vinh, Mr Nguyen Manh Tuong and Mrs Nguyen Ngoc Suong for helping me interview retailers and

synthesize survey’s results

Last but not least, I would like to take this opportunity to express my deep gratitude and knowledgement towards my family, especially my mom, my dad and my grand-mother for being a constant source of love and moral support

ac-EXECUTIVE SUMMARY

VIETMAI Solutions is an information technology company established and operating since

2006 with two main business areas, which are hardware reseller and software development The company's customers are mainly domestic customers and some are outsourcing oversea customers Activities of these two businesses in recent years have become stable and achieved high growth rates In 2009 and in 2010 the company achieved the ROE growth rates of 14.7 percent and 21.5 percent

Beginning in 2010, recognizing the great potential of Vietnam's retail market, the company opened a new business area This business is retail consulting, starting with a POS software and an inventory management software to support retailers In 2010, though there were only two contracts with modest values, the business still showed a very positive signal for the fu-ture development

In the business plan for the period 2011 - 2015, the company aims to penetrate stronger into the market To achieve this goal, the company needs to examine, analyze the market in details

to develop an effective business strategy, and this is why the study is about

The primary objective of the study is to analyze the external environment (markets, ers, products, competitors ) and the internal environment of the company to develop an ap-propriate business strategy for the retail consulting division The secondary objective of the study is to provide recommendations for revising the company’s corporate strategy based on

custom-findings from the analysis

The study begins with an in-depth analysis of the external environment (including the macro environment, the Vietnam's retail market, the technology solutions market for retailers, cus-tomers and competitors) to identify opportunities and threats After analyzing, the study con-tinues with an overview of current operational status and performance of the company Inten-sive internal environmental audits are carried out to identify strengths and weaknesses of the company Based on the analysis of the current situation, the study provides recommendations for revising the company’s mission and long-term objectives Alternative business strategies

are evaluated to choose an appropriate strategy for the retail consulting division

Research results show that the market of technology solutions for retailers is really a potential and attractive market To penetrate this market, the company needs to focus on completing the current POS software and inventory management software in the direction of a differentiation strategy, and enhance marketing and sales activities to penetrate the market Target customers

of the company are FMCG and fashion retailers because these customers are much more in needs of value creation solutions from the company

Although this study only focused on the retail consulting division, the way the research is conducted and the results achieved will be a good basis for the company to carry out similar studies for other divisions in the future The study still has some limitations such as restric-tions on data collection, detailed information about competitors However, the influence of these limitations to the results of the study was not high and can be eliminated when the com-pany has more information during the strategy implementation process

TABLE OF CONTENT

TABLE OF CONTENT VI LIST OF FIGURES VIII LIST OF TABLES IX LIST OF ABBREVIATIONS X 1 CHAPTER 1 INTRODUCTION 11

1.1 Rationale of the study 11

1.2 Problem statement 11

1.3 Objectives 12

1.4 Methodology 12

1.4.1 Research methodology 12

1.4.2 Conceptual framework of the study 12

1.5 Scope, assumptions and limitations 13

1.6 Structure of the study 14

2 CHAPTER 2 LITERATURE REVIEW 15

2.1 Strategy 15

2.2 Strategic management 16

2.3 Strategic analysis tools 17

2.3.1 SWOT analysis 17

2.3.2 PEST analysis 18

2.3.3 Porter’s five forces 19

2.3.4 Value chain analysis 21

2.4 Porter’s generic strategies 22

2.4.1 Cost leadership 23

2.4.2 Differentiation 24

2.4.3 Focus 24

3 CHAPTER 3 EXTERNAL ANALYSIS 25

3.1 Environmental analysis 25

3.1.1 Political, governmental, and legal factors 25

3.1.2 Economic factors 26

3.1.3 Social, cultural, demographic and environmental factors 29

3.1.4 Technological factors 30

3.2 Retail sector in Vietnam 30

3.2.1 High potential 30

3.2.2 Foreign retailers 31

3.2.3 Challenges for domestic retailers 32

3.2.4 Trends 32

3.3 The market of technology solutions for retail sector 33

3.3.1 Products and services 33

3.3.2 Define the market 34

3.3.3 Market attractiveness 35

3.4 Customer analysis 37

3.4.1 Research design 37

3.4.2 Findings 39

3.5 Competitor analysis 47

3.6 Summary of opportunities and threats 48

4 CHAPTER 4 INTERNAL ANALYSIS 50

4.1 Company overview 50

4.1.1 Overview 50

4.1.2 Vision and mission 50

4.1.3 Products and services 51

4.1.4 Target market 51

4.1.5 Organizational structure 51

4.1.6 Business performance 52

4.2 Corporate level analysis 53

4.2.2 Marketing audit 56

4.2.3 Finance / accounting audit 58

4.2.4 Production / operations audit 59

4.2.5 Research & development audit 62

4.2.6 Management information systems audit 63

4.3 Specific analysis for the retail consulting business 63

4.3.1 The team 63

4.3.2 Products 64

4.3.3 Pricing 64

4.3.4 Marketing and sales 64

4.4 Summary of strengths and weaknesses 64

5 CHAPTER 5 STRATEGY FORMULATION 66

5.1 Revising corporate strategy 66

5.1.1 Redefining mission statement 66

5.1.2 Redefining and prioritizing long-term objectives 66

5.2 Business strategy for the retail consulting division 68

5.2.1 Mission and objectives 68

5.2.2 Key success factors 69

5.2.3 Strategic directions 69

5.2.4 Product strategy 70

5.2.5 Marketing strategy 74

6 CHAPTER 6 CONCLUSIONS AND RECOMMENDATIONS 75

6.1 Conclusions 75

6.2 Recommendations 76

6.2.1 Leadership 76

6.2.2 Structural design 77

6.2.3 Performance management 77

6.2.4 Information systems 78

6.2.5 Human resources 78

6.2.6 Finance 79

6.2.7 Linkage 79

6.2.8 External alliances 80

APPENDIX 1 QUESTIONNAIRE (ENGLISH VERSION) XII APPENDIX 2 QUESTIONNAIRE (VIETNAMESE VERSION) XVI BIBLIOGRAPHY XX

LIST OF FIGURES

Figure 1.4-1 Conceptual framework of the study 12

Figure 2.2-1 Strategic decision making process 16

Figure 2.3-1 PEST analysis 18

Figure 2.3-2 Porter's five forces diagram 19

Figure 2.3-3 Value chain analysis 21

Figure 2.4-1 Porter's generic strategies 22

Figure 3.3-1 Retail functionality 33

Figure 3.4-1 Sample distribution 37

Figure 3.4-2 Responses for the “inventory management” operation 39

Figure 3.4-3 Responses for the “touch-screen” operation 40

Figure 3.4-4 Responses for the “scanners and barcodes” operation 40

Figure 3.4-5 Responses for the “invoice printing” operation 40

Figure 3.4-6 Responses for the “daily sales management and reporting” operation 41

Figure 3.4-7 Responses for the “monthly sales management and reporting” operation 41

Figure 3.4-8 FMCG stores’ responses for the importance of retail operations 42

Figure 3.4-9 Fashion stores’ responses for the importance of retail operations 42

Figure 3.4-10 F&B stores’ responses for the importance of retail operations 43

Figure 3.4-11 Responses for the uses of softwares to modernize stores 43

Figure 3.4-12 Reasons to use technology (for those already used technology) 44

Figure 3.4-13 Reasons not using technology (for those not using technology) 44

Figure 3.4-14 Purchasing criteria of retailers 45

Figure 3.4-15 Factors that most impact purchase decision 45

Figure 3.4-16 Timing plan to modernize stores 46

Figure 3.4-17 Maximum acceptable investment levels 46

Figure 4.2-1 Basic process flow of the hardware reseller division 59

Figure 4.2-2 Basic process flow of the software development division 60

Figure 4.2-3 Basic process flow of the consulting division 60

Figure 5.2-1 Retail value chain 71

Figure 5.2-2 Value chain of retail consulting division and potential sources of uniqueness 72

Figure 6.2-1 New organizational structure 77

LIST OF TABLES

Table 2.3-1 SWOT analysis 17

Table 3.1-1 Per capita income (unit: USD / year) 28

Table 3.1-2 Consumer income and spending of Vietnam (unit: million USD) 28

Table 3.1-3 Unemployment rates 29

Table 3.2-1 Retail sales of Vietnam (unit: billion USD) 31

Table 3.5-1 Competitors classified based on product approach 47

Table 4.1-1 Business performance by years (unit: million VND) 52

Table 4.1-2 Detailed net revenue structure (unit: million VND) 53

LIST OF ABBREVIATIONS

1 CHAPTER 1

INTRODUCTION

"To be successful, you have to have your heart in your ness, and your business in your heart.” - Thomas Watson, Sr

busi-1.1 Rationale of the study

Survival and growth are the most important objective of businesses In the competitive ness environment today, to achieve this objective, businesses must be innovative and improve themselves to become stronger To accomplish this, businesses need to have effective strategy formulation and implementation

busi-This study is carried out to analyze strategic factors outside and inside VIETMAI Solutions Co., Ltd to develop a business strategy for the retail consulting division a new business area

of the company as well as to give recommendations to revise the company’s corporate

strategy

1.2 Problem statement

VIETMAI Solutions, founded in late 2006, is a company in the information technology field Since 2007, it operates with two main business areas hardware reseller and software devel-opment These two businesses have achieved positive results and become more and more sta-ble

Beginning in 2010, realizing the potential of the Vietnam retail market, the company has launched a new business segment to provide Point of Sales solutions for retailers The objec-tive of this business is to penetrate the market rapidly, achieve more competitive advantages and gain a leading market share The problem is that to achieve this objective effectively, the company needs to assess the current situation clearly to build an appropriate business strategy for the new division

1.3 Objectives

The primary objective of the study is to develop a business strategy for the retail consulting division of the company This objective can be achieved via specific objectives as follows:

 To understand clearly the potential and trends of Vietnam's retail market

 To understand clearly the market of technology solutions for retailers

 To analyze the current status of the company and of the retail consulting business

 To provide strategic directions for the development of the retail consulting business

The secondary objective of this study is to provide recommendations for the company to vise its corporate strategy, which includes the company’s mission and long-term goals

re-1.4 Methodology

1.4.1 Research methodology

Both qualitative and quantitative methods are used in this study to research about the market and customers The former is used with a focus group including business managers and ex-perienced retailers to provide directions and insight for the quantitative research The later

is used with two types of data: secondary data collected from desk-researches ing available information from the company, the Internet and various papers; and primary da-

us-ta collected from a survey with questionnaires

1.4.2 Conceptual framework of the study

This study is conducted based on the strategy formulation process First, the external ronment is scanned and assessed to determine factors that pose opportunities and threats to the business Next, every aspect of the internal environment is audited to identify factors that are the strengths and weaknesses of the company Then, strategic factors from the above analysis are reviewed so that the company can revise its corporate mission and long-terms objectives

envi-An appropriate business strategy is formulated for the retail consulting division Lastly, the study concludes with several recommendations for the implementation of the chosen strategy Figure 1.4-1 Conceptual framework of the study

Tools such as SWOT analysis, PEST, Porter's Five Forces are used in the strategic analysis process

1.5 Scope, assumptions and limitations

This study focused on the retail consulting business with a market of retailers in Ho Chi Minh City The company finds this new business very potential and expects to penetrate into the market The two existing businesses hardware reseller and software development are cur-rently operating well, and are assumed to have no need of revising business strategies

Because the business is relatively new in Vietnam, the collection of competitive information

of this study is thus limited There is little information about competitors such as their sales, profits, market shares, strengths, weaknesses and strategies

External analysis

Internal analysis

Analyze strategic factors

Revised mission and long-term objectives

Business strategy for the retail consulting

division

Recommendations for strategy implementation

1.6 Structure of the study

The study is organized as follows:

 Chapter 1 - Introduction This chapter introduces about the problem statement, objectives

of the study, how the study is carried out and its scope and limitations

 Chapter 2 - Literature review This chapter briefly presents about background theories and

models that are used in the study

 Chapter 3 - External analysis In this chapter, external environment factors are assessed

and analyzed to find if there are potential opportunities or threats to the business

 Chapter 4 - Internal analysis This chapter first presents an overview about the company

and its present performance, and later analyzes the internal environment of the company

to identify the company’s strengths and weaknesses

 Chapter 5 - Strategy formulation Based on the current situation analysis, different

busi-ness strategies are examined and evaluated to find an appropriate one for the retail sulting division This chapter also provides several recommendations for revising the

con-company’s corporate strategy

 Chapter 6 - Conclusions and recommendations This chapter concludes the study and

pro-vides detailed recommendations for the implementation of the business strategy

2 CHAPTER 2

“It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.” – Charles Darwin

The main objective of this study is to develop a business strategy for the retail consulting vision Therefore, in this chapter, we will review background theories related the strategy formulation process Specifically, this chapter will review the definition of strategy, different levels of strategies, how a strategy is formulated and what analysis tools could be used This chapter also presents an overview of some generic strategies and the situations they could be used

di-2.1 Strategy

Strategy is a deliberated search for a plan of action that will develop a business’s competitive

advantage and compound it For any company, the search is an iterative process that begins with recognition of where you are and what you have now (Henderson, 1989)

Strategy can be formulated and implemented at three different levels:

 Corporate strategy refers to the overarching strategy of the diversified firm It answers the

questions of "which businesses should we be in?" and "how does being in these businesses create synergy and/or add to the competitive advantage of the corporation as a whole?" (Walker et al., 1999)

 Business strategy refers to the aggregated strategies of a single business firm or a business

unit of a diversified corporation According to (Porter, 1980), a firm must formulate a business strategy that incorporates either cost leadership, differentiation, or focus to achieve a sustainable competitive advantage and long-term success

 Functional strategy such as marketing strategy, product development strategy, human

resource strategy emphasizes on a short and medium term plan, and is limited to the

domain of each department’s responsibility Each department attempts to do its part in

meeting overall company's objectives, and so its strategies, in some extent, are derived from the broader corporate (Hunger & Wheelen, 2006)

2.2 Strategic management

According to (Wheelen & Hunger, 2009), strategic management is the set of managerial sions and action that determines the way for the long-range performance of the company Figure 2.2-1 Strategic decision making process

deci-A strategic decision making process involves the following seven steps (M.Thenmozhi, 2010):

1 Evaluate the present performance in terms of return on investment, profitability in the

light of current mission, objectives and policies

2 Scan and assess the external environment to determine the strategic factors that pose

op-portunities and threats

3 Scan and assess the internal corporate environment to determine the strategic factors that

are strengths and weaknesses

Current performance

External analysis

Internal analysis

Analyze strategic factors

Alternative strategies

Strategy implementation

Strategy evaluation

4 Analyze strategic factors to pinpoint a) problem areas and b) review and revise the

corpo-rate missions and objectives as necessary

5 Generate, evaluate and select the best alternate strategy in light of the analysis conducted

in step 4

6 Implement selected strategies via programs, budgets, and procedures

7 Evaluate implemented strategies via feedback systems and the control of activities to

en-sure their minimum deviation from plans

2.3 Strategic analysis tools

Table 2.3-1 SWOT analysis

STRENGTHS

 What does your organization do better

than others?

 What are your unique selling points?

 What do your competitors and customers

in your market perceive as your

strengths?

 What is your organization’s competitive

edge?

WEAKNESSES

 What political, economic, social-cultural,

or technology (PEST) changes are taking place that could be favorable to you?

 Where are there currently gaps in the

market or unfulfilled demand?

 What innovation could your organization

bring to the market?

than you?

 What elements of your business add little

or no value?

 What do competitors and customers in

your market perceive as your weakness?

or technology (PEST) changes are taking place that could be unfavorable to you?

 What restraints to you face?

 What is your competition doing that could

negatively impact you?

2.3.2 PEST analysis

PEST analysis is a scan of the external macro-environment in which an organization exists It

is a useful tool for understanding the political, economic, socio-cultural and technological vironment that an organization operates in It can be used for evaluating market growth or de-cline, and as such the position, potential and direction for a business

en-Figure 2.3-1 PEST analysis

 Political factors These include government regulations such as em-ployment laws, environmental regula-tions, tax policy Other factors are trade restrictions and political stability

 Economic factors These include economic growth, interest rates, infla-tion and currency exchange rates These factors affect the cost of capital and purchasing power of an organization

 Social factors These factors have impacts on the consumer’s need

and the potential market size for an organization’s goods and services Social factors

in-clude population growth, age demographics and attitudes towards health

 Technological factors These influence barriers to entry, “make or buy” decisions and

in-vestment in innovation, such as automation, inin-vestment incentives and the rate of ogical change

Social Political

PEST factors can be classified as opportunities or threats in a SWOT analysis It is often ful to complete a PEST analysis before completing a SWOT analysis

use-2.3.3 Porter’s five forces

Porter's five forces model was developed in 1979 by Michael Porter as a simple framework for assessing and evaluating the competitive strength and position of a business organization This theory is based on the concept that there are five forces, which determine the competitive intensity and attractiveness of a market The model helps to identify where power lies in a business situation This is useful both in understanding the strength of an organization’s cur-

rent competitive position, and the strength of a position that an organization may intend to move into (Downey, 2007)

Figure 2.3-2 Porter's five forces diagram

Strategic analysts often use the Porter’s five forces model to understand whether new products

or services are potentially profitable By understanding where power lies, the theory can also

be used to identify areas of strength, to improve weaknesses and to avoid mistakes (Downey, 2007) The five forces are:

 Supplier power An assessment of how easy it is for suppliers to drive up prices This is

driven by: the number of suppliers of each essential input, the uniqueness of their product

or service, the relative size and strength of the supplier, and the cost of switching from one supplier to another

 Buyer power An assessment of how easy it is for buyers to drive prices down This is

dri-ven by: the number of buyers in the market, the importance of each buyer to the

 Buyer price sensitivity

 Buyer switching costs

tion, and the cost to the buyer of switching from one supplier to another If a business has just a few powerful buyers, they are often able to dictate terms

 Competitive rivalry The key driver is the number and capability of competitors in the

market Many competitors, offering undifferentiated products and services, will reduce market attractiveness

 Threat of substitution Where close substitute products exist in a market, it increases the

likelihood of customers switching to alternatives in response to price increases This duces both the power of suppliers and the attractiveness of the market

re- Threat of new entry Attractive markets attract new entrants, which erodes profitability

Unless incumbents have strong and durable barriers to entry, for example, patents, omies of scale, capital requirements or government policies, then profitability will decline

econ-to a competitive rate

2.3.4 Value chain analysis

Value chain analysis is a comprehensive technique for analyzing an organization’s source of

competitive advantage It is based on the principle that organizations exist to create value for their customers In the analysis, the organization’s activities are divided into separate sets of

activities that add value The organization can more effectively evaluate its internal ties by identifying and examining each of these activities Each value adding activity is consi-dered to be a source of competitive advantage (Downey, 2007)

capabili-Figure 2.3-3 Value chain analysis

The three steps for conducting a value chain analysis are:

1 Separate the organization’s operations into primary and support activities

2 Allocate cost to each activity Activity cost information provides managers with valuable

insight into the internal capabilities of an organization

3 Identify the activities that are critical to customer’s satisfaction and market success There

are three important considerations in evaluating the role of each activity in the value chain

 Company mission This influences the choice of activities an organization undertakes

 Industry type The nature of the industry influences the relative importance of activities

 Value system This includes the value chains of an organization’s upstream and

down-stream partners in providing products to end customers

2.4 Porter’s generic strategies

(Porter, 1980) has proposed three generic strategies to cope with competitive forces and to outperform other companies in the industry

Figure 2.4-1 Porter's generic strategies

TYPE OF STRATEGY Cost leadership Differentiation Focus

 Type 1: Cost leadership ậ Low cost

 Type 2: Cost leadership ậ Best value

 Type 3: Differentiation

 Type 4: Focus ậ Low cost

 Type 5: Focus ậ Best value

2.4.1 Cost leadership

Cost leadership ậ low cost is a strategy that offers products or services to a wide range of

cus-tomers at the lowest price available on the market

Cost leadership ậ best value is a strategy that offers products or services to a wide range of

customers at the best price-value available on the market

Cost leadership strategy is effective when:

 There is vigorous price competition among rivals

 Products of competitors are essentially identical and are readily available

 There are few ways to achieve product differentiation

 Most buyers use the product in the same way

 There are low switching costs for buyers

 Buyers are powerful and bargain down prices

 Newcomers use low prices to attract buyers

2.4.2 Differentiation

This is a strategy aimed at producing goods and services considered unique industry wide and directed at consumers who are relatively price-insensitive

Differentiation strategy is effective when:

 There are many ways to differentiate the product or service and buyers perceive these

dif-ferences as having the value

 Buyer needs and uses are diverse

 Few rival firms are following a similar differentiation approach

 There is fast paced technological change and competition revolves around rapidly

evolv-ing product features

2.4.3 Focus

Focus ậ low cost is a strategy that offers products or services to a small range of customers at

the lowest price available on the market

Focus - best value is a strategy that offers products or services to a small range of customers

at the best price-value available on the market

Focus strategy is effective when:

 The target niche is large profitable and growing

 Industry leaders do not consider the niche to be crucial to their success

 Industry leaders consider it too difficult or expensive to meet the needs of the target

mar-ket niche

 When there are many different niches and segment in the industry

 There are few rivals attempting to specialize in the same target niche

3 CHAPTER 3

“You can’t change the wind but you can just the direction of your sails.” - Jonathan Swift

ad-In this chapter, the external factors are reviewed and analyzed to determine the opportunities

or risks that may pose to the company The analysis starts with the macro factors such as tics, economy, society and technology Next, the retail market in Vietnam is analyzed to iden-tify its potential and development trends Then, the chapter continues to present about the market of technology solutions for retailers and analyze its attractiveness and competitive forces Finally, it concludes with a market survey about customers and presents findings from the obtained results

poli-3.1 Environmental analysis

3.1.1 Political, governmental, and legal factors

Vietnam has a stable political environment and a sound national security It has increasingly important role and influence in the international arena Currently, the country has diplomatic relations with other 178 countries and 224 economic and trade organizations It was also the Chair of the Association of Southeast Asian Nations and the host of several important interna-tional events

Regarding to the institutional framework, though its administrative procedures and policies are still inadequate and cumbersome, Vietnam is trying to reform towards creating a more open and transparent environment for businesses

Conclusion: Positive factors for boosting national economic development as well as ing foreign investment

attract-3.1.2 Economic factors

3.1.2.1. Economic growth

Vietnam is among countries with fast economic growth in the world In the period from 2000

to 2010, GDP growth averaged over 6 percent According to the economic and social opment plan for the period 2011-2015, annual GDP growth is aimed at 7.5-8.5 percent This is

devel-a fdevel-airly high growth rdevel-ate compdevel-ared with the overdevel-all 3.3 percent growth rdevel-ate of the world in recent years

Table 3-1 Vietnam’s real GDP growth in the period 2005 - 2011

(est.) Real GDP growth 8.4% 8.2% 8.5% 6.3% 5.3% 6.7% 7.5%

Source: GSO

In spite of high economic growth rates, the quality and sustainability of the growth are still low The economic development has created a pressure on the environment, leading to eco-logical imbalance and an increasing frequency of natural disasters If environmental issues are not resolved, then the achievements gained so far can be ruined

Conclusion: High economic growth rates, but with low quality and sustainability there are the needs for productivity improvement and green economic development

3.1.2.2. Foreign investment

After joining WTO, Vietnam has attracted strong investment from abroad Registered FDI soared from 21 billion USD in 2007 to 71 billion USD in 2008 However, the amount of ac-tually disbursed FDI just increased from 8 billion to 11.5 billion USD

Table 3-2 FDI data from 2005 (unit: million USD)

(est.) FDI registered 6839 12004 21347 71726 23107 18600 20000

FDI disbursed 3308 4100 8030 11500 10000 11000 11500

Source: GSO, DTZ and others

Regarding to the structure of capital allocation, the registered FDI in the period 1988 - 2009 focused mainly on sectors of manufacturing, property management sector, restaurants and ho-tels

Table 3-3 Registered FDI by sectors (from 1988 to 2009, total of 194429,5 million USD)

Conclusion: There are rises in FDI but not significant and still ineffective So, for domestic businesses, there are low competitive threats from foreign competitors, and they could have enough time to improve and strengthen themselves

3.1.2.3. Trade deficit, currency value, inflation and monetary policy

In recent years, Vietnam has to face a major problem of trade deficit This issue has caused great pressure to Vietnam to devalue its currency From mid 2008 to early 2011, Vietnam has carried out six times of currency devaluation, raising the exchange rate from 16400 VND/USD up to over 20,700 VND/USD

The currency devaluations have further strained the inflation problem, which is already an increasingly serious problem (in 2010 inflation reached 11.75 percent, much higher than the target of 7 percent)

To control the inflation, the government has restricted the money supply in the market by ducing credit growth and raise interest rates Lending rates in mid 2010 to the early months of

re-2011 is increased up to 20 percent, a rate that is too high for businesses to have effective erations and/or investment performance

op-Conclusion: There are threats of high inflation and economic instability that may cause stacles for business growth and business investment

ob-3.1.2.4. Consumer income and consumer spending

Since 2008, Vietnam began to transform from a low-income country to a mid-income country, with an average per capita income exceeded 1,000 USD/year This income, however, is just among the lowest in the world

Table 3.1-1 Per capita income (unit: USD / year)

in-Table 3.1-2 Consumer income and spending of Vietnam (unit: million USD)

Annual Gross Income 56,504.03 75,119.69 79,094.74 84,333.77 90,568.87 Annual Disposable Income 47,679.20 63,433.52 66,931.68 71,277.65 76,490.12 Consumer Expenditure 45,591.50 60,840.77 63,982.68 68,170.22 73,153.30 Expenditure on Food 16,447.94 21,739.75 22,616.87 24,010.41 25,700.40 Source : Euromonitor

Conclusion: Vietnamese people have a low income level but a high ratio of consumer ing on commodities (food and clothing) This ratio is a positive factor for the retail industry

spend-3.1.2.5. Unemployment and workforce productivity

Vietnam has a relatively low unemployment rate The average unemployment rate in recent years was 4.6 percent Government aims to maintain this rate below 5.1 percent in the coming years

Table 3.1-3 Unemployment rates

Unemployment rate 5,31 4,82 4,64 4,65 4,60 4,65

Source : GSO

Vietnam has a high number of labors but the professional level of labors is low and the level

of job training is limited This leads to the problem of limited performance of the human sources This is also one of the three big issues the other twos are institutions and infra-structure issues for the economic development of Vietnam

re-Conclusion: The abundance of labors, but with low productivity The is the need for uctivity improvement (via training and technology investments)

prod-3.1.3 Social, cultural, demographic and environmental factors

Vietnam has a population of over 88 million people (until 2011), ranked 13th out of 228 tries and territories Vietnam has a young population structure with more than 50 percent of the population is under 30 years old

coun-Although Vietnam has abundant labor resources and a high number of people in the working age, the productivity of labor is still low Currently there is a huge shortage of skilled labors About 30 percent of the population (i.e about 26 million people) live in urban areas 70 per-cent of the remaining population (i.e about 62 million people) live in rural areas

In recent years, Vietnam has a tendency to strong urbanization However, there are many gestions that the urbanization rate in Vietnam is overheating and lack of sustainability leading

sug-to serious pollution of ecological environment

Along with the urbanization process, the Vietnamese people in rural areas are also

increasing-ly familiar with modern lifestyles, such as shopping in supermarkets, paying more attention to health issues and food hygiene

Conclusion: 1) Vietnam has a young population with an abundance of labor resources These are attractive factors for economic development; 2) There is a strong urbanization process

and the shift to modern lifestyles of people This will encourage the development of modern retailing concepts

3.1.4 Technological factors

Technology infrastructure in Vietnam is still underdeveloped In most enterprises, the tion of technology in business is very limited so businesses do not achieve high efficiency (due to low labor productivity and high cost)

applica-Research and development activities are currently underdeveloped Businesses do not pay much attention to the application of technology as well as do not have enough resources for research and development activities

In recent years, in Vietnam there is a strong growth of the Internet This network has widely covered urban areas and is expanding strongly in rural areas

Recognizing the importance of information technology and communications, the government

of Vietnam has made policies to encourage and support the development of this sector In

ear-ly 2011, the government of Vietnam began a major project to develop Vietnam to become a country with strong information technology and information communication in the world in the next 10 years

Conclusion: There are the needs for technology infrastructure development This is a good opportunity for the development of the technology consulting business

3.2 Retail sector in Vietnam

3.2.1 High potential

Vietnam is among the most attractive retail markets in the world The huge retailers, such as Wal-Mart (the USA), Carrefour (France) and Tesco (the UK) are very interested in Vietnam’s

retail market prospects.(VOV News, 2011)

In 2009, due to the economic recession the total retail sales of goods and services increased by only 18.6 percent However, in 2010, it surged by 24.5 percent year on year to 1,561 trillion VND ($77.8 billion), or 1,100 trillion VND higher than the target The figure is expected to reach $85 billion by 2012

Sectors such as food, beverage and fashion achieve the highest annual growth in the retail dustry

in-Table 3.2-1 Retail sales of Vietnam (unit: billion USD)

Retail sales 45.7 54.3 64.8 77.8

Growth rate 23.3% 20.5% 18.6% 24.5%

Source: MoIC, GSO, Reuters

The retail industry annually contributes more than 15 percent of the country’s GDP and

em-ploys more than 5.4 million workers, representing over 10 percent of the total workforce

With a population of more than 88 million, Viet Nam’s retail market remains very attractive

to investors, especially those abroad (VietnamPlus, 2011)

A survey conducted recently by Grant Thornton Viet Nam revealed that the Vietnamese retail market had lured more foreign investors than any other market, with 70 percent of correspon-dents agreeing that retail was a more promising investment field than education, real estate and healthcare (VietnamPlus, 2011)

According to MoIT data, there have been more than 5,000 representative offices and 50 branches of foreign distribution, logistics and consultant enterprises set up in Vietnam to date Conclusion: 1) The Vietnam’s retail market is highly attractive with a strong growth; 2)

Food, beverage and fashion are sectors with the highest growth; 3) It is a more promising investment field than education, real estate and healthcare

3.2.2 Foreign retailers

After Vietnam became an official WTO member, it has opened the domestic market of many sectors From January 11, 2007 to January 1, 2009, Vietnam allowed foreign companies to invest in the Vietnamese distribution market by setting up joint ventures with domestic busi-nesses but their investment capital must be less than 100 percent Since January 1, 2009, Vietnam has allowed foreign distributors and retailers to do business in Vietnam with 100 percent of their own capital (Vietnam Econimic News, 2010)

Due to restrictive laws on distribution which won’t be lifted under WTO commitments until

2012, foreign retail chains with integrated distribution systems are not allowed under namese law to import and distribute goods as well as operate a chain of retail outlets (Vietnam Business & Economy News, 2010)

Viet-International giants like Wal-Mart, McDonald’s and Starbucks, haven’t come to Vietnam yet

Only 26 foreign retailers have established a foothold in the local market, accounting for 15 percent of the market share However, despite the modest number of retail outlets, the turno-ver of foreign supermarkets was large, equal to that of 30-40 domestic supermarkets (Vietnam News, 2011)

Conclusion: Many big foreign retail giants still haven’t entered the market yet This is a

chance for domestic retailers to enhance and strengthen themselves as quickly as possible if they want to survive the future fierce competition

3.2.3 Challenges for domestic retailers

The progress of the Vietnamese retail industry is being hindered by certain other factors like a low level of professionalism or small-scale style of doing business, poor quality of human re-sources and inexperience in management Two thirds of retailers have not applied information technology to their management activities and there remain many weaknesses in the industry infrastructure (Vietnam Business News, 2010)

Vietnamese firms are losing out to their foreign counterparts in the race for expanding their share of the lucrative retail market Vietnamese retailers, including Co-op Mart, Hapro, Phu Thai, Nguyen Kim or Tran Anh, have been growing well over the last few years However, with the limited financial capability, it is difficult for the domestic enterprises to access good retail premises (Vietnam News, 2010)

To keep the domestic market, Vietnamese retailers have no choice without enlarging their scale, perfecting services and improving administration management and technology (Vietnam Government Portal, 2010)

Conclusion: There are urgent needs of domestic retailers to improve and strengthen selves as quickly as possible This is a positive factor for the applications of technology in re-tailing

them-3.2.4 Trends

The Vietnam Retailers’ Association has forecasted some retail trends for the time to come In

big urban areas, large supermarkets will develop most strongly in 2011 and 2012 before ing down in the next years (Vietnamnet, 2011)

slow-Large supermarkets would peak at their highest development next year and then would slow

in major big cities while smaller branches, convenience stores and supermarkets specialized in food and foodstuff, specialized shops (clothes, footwear, household goods and electronics) would become more popular (VietnamPlus, 2011)

The retail market in rural areas is also believed to prosper in the next years Experts ipated that the demand in rural areas would triple that in urban areas Foreign retailers have found out niches in rural markets where 75 percent of the Vietnamese population are living (VCCI News, 2010)

antic-Modern retail outlets would continue to grow in Viet Nam antic-Modern retail chains currently count for only 20 percent of distribution in the country This is low, compared to the 90 per-cent in Singapore, 60 percent in Malaysia, 51 percent in China, and 34 percent in Thailand (VietnamPlus, 2011)

ac-The traditional retail sector, however, would continue to account for the lion’s share of the

retail market until 2015 because of its unique market niche (VietnamPlus, 2011)

Credit cards and electronic payment methods will also be used widely

Conclusion: Retail markets in rural areas will be booming, and there are the needs of nization of traditional retailers

moder-3.3 The market of technology solutions for retail sector

According to (Reid & Sanders, 2009), technology can be used as a tool for competitive tage For example, by acquiring technology a retailer can improve its quality, reduce costs, and improve product delivery This can provide an advantage over the competition and help gain market share

advan-3.3.1 Products and services

The table below presents an overall view of technology modules that a retailer can use to hance its business efficiency

en-Figure 3.3-1 Retail functionality

STORE SYSTEMS POS Integra-

tion

Returns Management

Item/Shelf Labeling Store Finan-cial Man-

Loss tion Barcode Sys-tem Integra-

Preven-agement tion

Distribution Warehouse Product Life Cycle

Management Replenishment MARKETING

Loyalty/Gift

Cards Promotions

Pricing and Discounting

Warranty Cards

Retail Sales Data Ware-house

Trend sis BACK-END

Re-Financial Management Source: Microsoft Dynamics NAV

In developed countries, POS systems and inventory management systems are widely used by retailers

 POS systems POS systems are used to track sales information Information is downloaded

into the program, and employees use the system to calculate total sales at the cash register Items are scanned and the information is all stored within the system This type of system can also generate various types of sales reports POS systems have advantages such as: to help increase revenue, prevent sales loss, increase customer traffic and improve customer satisfaction

 Inventory management systems Inventory management systems are used to maintain,

gather and keep track of items in businesses’ inventories This type of system allows

re-tailers to get information about a particular product's sale levels and whether it is time to reorder when the item reaches a predefined stock level Inventory management systems have advantages such as: to help prevent over-ordering, reduce inventory costs, optimize the merchandise mix, maintain inventory stock of fast moving items, reduce shrinkage and decrease administrative costs

3.3.2 Define the market

VIETMAI Solutions has determined the target market for the retail consulting division as

fol-“The market of the retail consulting division is the market of technology

solu-tions for domestic retailers to help them enhance their competitive advantages

 Threat of new entrants

Conclusion: Low threat of new entrants

 Threat of substitute products

Better quality, performance, and other attributes from

substitutes

Low

Conclusion: Low threat of substitute products

 Bargaining power of buyers

Conclusion: Low bargaining power of buyers

 Bargaining power of suppliers

Supplier’s products are key to buyers Yes

Conclusion: High bargaining power of suppliers

 Rivalry among existing firms

Customers’ costs to switch brands High

Conclusion: Low rivalry among existing firms

In general, the market is quite attractive for the company to enter However, the company needs to reduce the bargaining power of suppliers (including hardware suppliers and software vendors) The company can cooperate with major suppliers to increase its advantages and to reduce risks

3.4 Customer analysis

In this study, a market research is designed and conducted to find out details about the tomers The research results will be used by the company to segment the market and to under-stand customers of its target segments The following sections will show how the research is designed and conducted, and present findings from the obtained results

cus-3.4.1 Research design

3.4.1.1. Approach

First, a qualitative questionnaire for group interviews is designed Then, the author meets and talks with some representative retailers to collect additional insights about their motivation, attitudes and behaviors

Later, a quantitative questionnaire is designed, and survey samples are identified Retailers of the samples are interviewed, and the survey’s results are analyzed to obtain findings

3.4.1.2. Sample characteristics

The sample includes retailers with following characteristics:

 Locations: Ho Chi Minh City

 Segments: FMCG, F&B, fashion These are retail segments that may wish to use the

tech-nology solutions in their businesses

 Formats: traditional, modern

Figure 3.4-1 Sample distribution

Elements in the sample are distributed as following:

 FMCG retailers: 40 percent of the sample (i.e 60 elements)

 Fashion retailers: 33 percent of the sample (i.e 50 elements)

 F&B retailers: 27 percent of the sample (i.e 40 elements)

To cope with non-response cases or invalid responses, the survey is conducted on more than

150 elements so that valid responses satisfy the above distribution

3.4.1.5. Questionnaire design

The questionnaire was designed to find out the following information related to the retailer, needs, products and brand:

 Position / current profile of the retailer: type (grocery stores, convenience stores, fashion

stores, restaurants ), modernization level (traditional or modern)ầ

 Operational needs of retailers

 Technology products and services used by retailers

 Technology brands known or used by retailers

 The importance of business operations in the eyes of retailers

 Desires to modernize of retailers

 Desires to use technologies to modernize of retailers

 Purchasing criteria of retailers

 The determinants of vendor solutions selection

 Planning / level of readiness to use technology (six months, one year, two years or no

plan)

Details of the questionnaire are presented in the Appendix 1 (English version) and in the pendix 2 (Vietnamese version)

Ap-3.4.1.6. Survey method

This study uses the two following methods to conduct the survey:

 Direct interview: meetings are organized at retailers' sites to interview them

 Phone interview: this method is used for interviewing retailers who can be connected via

phone and are available for the survey

3.4.2 Findings

For the survey to receive at least 150 valid responses, there were 187 retailers contacted for the interviews Therefore, the incident rate of the survey is calculated as 150/187 = 80.2% Subjects participating in the survey and have valid responses include 56 grocery stores, 4 convenience stores, 50 fashion stores, 30 eateries and 10 restaurants

Touch-screen is not popular for FMCG and fashion stores, but popular for eateries and rants There is just about 1 percent of FMCG retailers who use touch-screen cash registers However, for eateries and restaurants, touch-screens are commonly used, with a penetration rate of 17 percent and 80 percent respectively

restau-Figure 3.4-3 Responses for the “touch-screen” operation

Bar code scanners are primarily used for FMCG and fashion stores Rate of using bar code scanners is 14 percent for groceries, 100 percent for convenience stores and 60 percent for fashion stores Eateries and restaurants do not use this type of equipment

Figure 3.4-4 Responses for the “scanners and barcodes” operation

Most retailers would like to be able to print invoices for customers Regarding to this demand, the response rate is 14 percent for grocery stores, 100 percent for convenience stores, 50 per-cent for clothing stores, 17 percent for eateries and 70 percent for restaurants

Figure 3.4-5 Responses for the “invoice printing” operation