Topic analysis of vinamilks competitive position and international business strategy in the italian market

ABSTRACT The report "International business strategy of Vietnam Dairy Products Joint Stock Company Vinamilk" in which the market scope is Italy.. With the goal of systematizing the theor

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International Finance (IBF301)

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INTERNATIONAL BUSINESS STRATEGY

TOPIC: Analysis of Vinamilk's competitive position and international business strategy

in the Italian market

Group members and ID Nguyen Minh Nhat CS140222 –

Nguyen Thanh Hue CS140488 –Nguyen Huu Doan Nhung - CS140461

Ho Ngoc Tran – CS140255

Le Nhat Thien Thy – CS140513

1.2 History of Vinamilk Company

1.3 Main areas of business activities

1.4 Vinamilk current internationalization strategy and scope

CHAPTER 2: TOOL APPLICATION

2.1 Analysis of dynamic strategy

2.2 Analysis of international business strategy of VNM

2.2.2.3 Porter's Five Forces Analysis

2.2.3 Strategic objectives when Vinamilk enters the Italian market

2.2.3.1 Market penetration method

2.2.3.2 Content of strategy implementation

2.2.3.3 Business partner information

2.2.3.4 Product development

2.3 Analysis of stakeholder strategy

2.4 Analysis of diversification strategy

CHAPTER 3: SYNTHESIS OF FINDINGS

CHAPTER 4: CONCLUSION

LIST OF ACRONYMS

VNM: Vinamilk

ASEAN: The Association of Southeast Asian Nations

CLC: Competitive Life Cycle

BC: British Columbia

UHT: Ultra- High Temperature

WTO: World Trade Organization

VAT: Value Added Tax

EU: European Community

GDP: Gross Domestic Product

HS: Harmonized System

IA: Industry Attractiveness

BUCA: Business Unit Competitive Advantage

NGO: Non-governmental organization

COO: Country of origin

LIST OF FIGURES

Figure1: CLC S-curve

Figure 2: Competitive Life Cycle Chart

Figure 3: CLC 3 phases table

Figure 4: Patterns of Internationalization

Figure 5: EU dairy tariff

Figure 6: Ansoff Matrix

Figure 7: McKinsey Diversification Matrices

LIST OF TABLES

Table 1 SWOT Analysis of Vinamilk Company

Table 2 Nutritional information per 100ml

Table 3 List of some major suppliers of Vinamilk

ABSTRACT

The report "International business strategy of Vietnam Dairy Products Joint Stock Company (Vinamilk)" in which the market scope is Italy With the goal of systematizing the theoretical basis of international business and business strategy in the international market of enterprises, analyzing the competitive position and international business strategy of Vinamilk in Italy, from which assessment of achievements and limitations in the implementation of the enterprise's strategy, in addition to proposing solutions to perfect the development strategy for Vinamilk in the Italian market in the future

CHAPTER 1: OVERVIEW OF VIETNAM DAIRY JOINT STOCK

COMPANY (VINAMILK)

1 GENERAL INFORMATION OF VINAMILK

Vietnam Dairy Products Joint Stock Company (VNM) (stock code VNM listed on HOSE), formerly known as Southern Coffee and Milk Company, was established in 1976 The company mainly operates in the field of processing, manufacturing, trading, importing and exporting dairy products and other nutritional products Vinamilk, officially operated under the model of a joint stock company since 2003, is the largest dairy company in Vietnam with a market share of more than 50% in the dairy industry in Vietnam The company has developed a nationwide distribution system with 202 distributors covering nearly 251,000 retail points Currently, there are over 3,250 supermarkets and convenience stores nationwide selling VNM products VNM's products are directly exported to 35 countries around the world

2 HISTORY OF VINAMILK COMPANY

• Vinamilk was established on August 20, 1976 on the basis of three dairy factories from the old regime:

➢ Thong Nhat Dairy Factory (formerly known as Foremost factory)

➢ Truong Tho Dairy Factory (formerly known as Cosuvina factory)

➢ Dielac Powdered Milk Factory (formerly known as Nestl攃Ā factory (Swiss)

• In the 2000s, Vinamilk applied new technology, installed advanced equipment and modern machines to all of its factories Besides, Vinamilk also established Public

Health Nutrition Consultant Centers in the country and launched over 30 new products

• In 2012, Vinamilk inaugurated Danang Dairy Factory, Lamson Dairy Factory, Vietnam Beverages Factory with modern production lines originating from the US, Denmark, Germany, Italy and the Netherlands

• Around 2015, Vinamilk officially launched its brand in Myanmar, Thailand, and expanded operations in ASEAN

• In 2017, Vinamilk launched the first 100% A2 Fresh milk product in Vietnam With the investment of importing nearly 200 "cows" of pure A2 milk from New Zealand

3 MAIN AREAS OF BUSINESS ACTIVITIES

• Producing and trading in canned milk, milk set, nutritional powder, cake, fresh milk, soy milk, beverage and other dairy products

• Trading in food technology, equipment and spare parts, supplies, chemicals and raw materials

• House business, real estate leasing brokerage, warehouse and yard business, freight transport business by car, loading and unloading goods

• Production and sale of alcohol, beer, beverages, processed foods, tea, coffee roasted - ground - filter instant –

4 VINAMILK CURRENT INTERNATIONALIZATION STRATEGY AND SCOPE

Vinamilk also actively invests in business activities, international marketing, research and development, expanding the scope of production investment and operating branches abroad Vinamilk has invested 22.8% stake in Miraka factory (New Zealand), invested 70% stake in Driftwood factory (USA), held 51% stake in Angkor Milk factory in Cambodia, opened a new factory in Vietnam subsidiary in Poland as the gateway to trade Vinamilk's commercial activities in Europe

Vinamilk's products have been present in more than 42 countries around the world and are continuing to seek and expand markets to Europe, Africa, and South America On average, Vinamilk exports nearly US $200 million annually to foreign countries

After equitization, Vinamilk has risen to the Top 100 most valuable companies in Southeast Asia, Top 300 enterprises in Asia, Top 50 best listed companies in Vietnam and set its development strategy to become one of the most valuable companies in the world

50 largest dairy enterprises in the world with sales of 3 billion USD in the coming years

CHAPTER 2: TOOL APPLICATION 2.1 ANALYSIS OF DYNAMIC STRATEGY

Figure 1 CLC S-curve

Figure 2 Competitive Life Cycle Chart

The CLC describes 3 phases which are mature, emergent, and growth Each phase begins and ends whenever annealing, shakeout, and disruption appear In the dairy products industry, new innovation changes such as in certificated products organic fresh milk, 100% A2 fresh milk from pure A2 cows, ice cream introduction, processed cheese… Overall we

call it the changes in the technology that allows new breakthroughs in every industry that has ever existed Since Vinamilk was first established in 1976, the company brand has been through changes, new technologies which describe its cycle that include the 3 phases and timing To enter the Italian dairy market, the first step is to bring the Vinamilk milk taste to Italian milk consumers The brand needs to address the 3 factors in the CLC:

• Annealing: The emergent phase ends as customer adoption accelerates and the

product concept solidifies around a core set of design features In many cases, what emerges is a <dominant design= and often-surprising similarity between product offerings This process refers to as annealing a reduction in variance in product offerings

• Shakeout: Shakeout is about what happens to the number of competitors in the

industry To make it easier to imagine, we see that when the technology was new, a few entrepreneurs or businesses bravely experimented As the market started to grow and take off, many other players joined in when they saw the market opportunity It's common to see stiff competition, a lot of players, and chaos as businesses pull out or merge and buy together This disturbance can be quite severe until there is only one (winner-only market) or a few competitors left

• Disruption: The emergent phase begins with disruption the introduction of new

technology or product concept This happens when the previous technology or innovation changes no longer fit the trend, demand of consumers on the market Classic examples would be the introduction of horseless carriages (i.e., automobiles) into the vehicle market, the word processor into the typewriter market, and big-box store concepts in the retail sector More recent examples include the advent of digital media players pioneered by Rio and others (and later Apple with the iPod) in the market for personal transportable music

In the Vinamilk case, the 3 transitory inflection points mentioned before are the marks for the 3 phases that can be different in timing in each phase

Figure 3 CLC 3 phases table

Depending on the nature of each industry, the timing for the 3 phases oscillates In dairy products, the demand for new changes is not heavily addressed For an enterprise like Vinamilk, since the company first emerged in 1976 till the 2010s that it applied new technology, installed advanced equipment and modern machines to all of its factories, later on, released 100% Organic milk in 2016 Judging by the explosive breakthrough in human technology revolving around manufacturing process, digital aspect, machinery… The total cycle of 3 phases in the Vinamilk industry is around 6 to 10 years, depending on the development pace of new technology Now, that time period begins to be shortened in

2020 when new ideas and technologies are adopted:

• Advancements in Milking: The average dairy farm in BC uses a vacuum system to

milk its cows Vacuums are contained within individual milk machines in a parlor This system allows for multiple cows to be milked at a time Milk machines are made of soft rubber or silicone, which ensures the comfort of cows during milking

• Herd Health and Cow Comfort: Most dairy farms in BC utilize the advanced

technology to maintain herd health and milk production Farmers can now manage production and animal health with computers and cell phone apps In addition, every cow in BC is outfitted with a Radio Frequency Identification (RFID) tag to keep track of its origin and current whereabouts

• Supercooling’s technology: Transporting fresh products internationally is a

challenge for many global dairy companies In 2019, major European dairy cooperative Arla began testing a new natural, preservative-free technology to enable this international movement of goods using a new technique Arla9s 8supercooling9 tool enables fresh products to travel long distances by ship

• Flavor advancements: One example is US-based Synergy Flavors Inc9s taste solution 8Dairy by Nature9, developed to address the needs of dairy and plant-based applications alike The solution claims to provide the means to cleanly build back the creaminess of full-fat dairy and mask undesirable off-notes in plant-based alternatives

*Italian milk market:

• Milk is equal to 10.3% of the total value of agricultural production in Italy

• Italy is very deficient in milk It lacks 20% of its needs, it must buy on the European spot market

• The European Commission adopted in July 2013 a decision declaring it incompatible with the common market aid in the form of deferred payment granted

by Italy to its milk producers

• They are indebted to the Italian State for the amount of milk levy that it had paid

on their behalf to the budget of the European Union

*The environment in Italy that include Vinamilk potential threats are:

• Arborea: Latte Arborea, or Cooperativa 3A, is now the main hub of the dairy

industry of Sardinia

• Brimi: Brimi Fresh milk comes exclusively from the mountain farms of South

Tyrol and is treated with care Fresh milk is available as whole or skimmed milk with 1.6% fat

• Granarolo: Italian food group Granarolo, leading Italian milk with 7

manufacturing plants and 1,000 milk producers

• Parmalat: Parmalat is an Italian company specialized in the field of dairy products,

owned by the French company Lactalis

• Sano: Fattoria Latte Sano is located in the nature reserve of the Roman coast in

Italy

• Sterilgarda: Sterilgarda, created in 1969, is a leader in UHT milk in Italy

2.2 ANALYSIS OF INTERNATIONAL BUSINESS STRATEGY OF VINAMILK 2.2.1 Patterns of Internationalization

Figure 4 Patterns of Internationalization

Based on research and study in Internationalization, the milk industry is considered the kind of product that is not suitable for long transport distances In this case, the total distance from Ho Chi Minh (Vietnam) port to Genoa (Italy) is 7994 nautical miles, and with the standard speed average being around 17 knots, then the travel time will be 19.6 days Without proper maintenance, products might lose their quality and worse when it gets spoiled while in the transportation process Since Vinamilk's goal is to expand its product range to Italy, so foreign direct investment is also not suitable for the case because it requires Vinamilk to engage in buying a local business or greenfield Although expanding the product range to a new market is a potential benefit for Vinamilk, it's not a guaranteed success for Vietnam dairy leading companies When Vinamilk fails to find profit in Italy, the cost of acquiring a new business or planting its own factory will be tremendously lost With exporting and foreign direct investment is out of the picture, the remaining option is licensing and alliances

To dive deeper into licensing and alliances, the first thing to do is to understand them well L&A means when a firm authorizes a host-country firm to make and sell its products in exchange for a royalty or other form of profit-sharing The choice of L&A with an Italian local partner also brings advantages to Vinamilk:

• High potential for local cost or production cost in Vinamilk favor

• Local business partners provide political influence (reputation) and knowledge of the local tastes

• Low transit costs/tariffs

Overall, the choice of partner with Italy local business is an ideal test for Vinamilk to see

if it can make a profit from the market and if the case when Vinamilk failed, the money lost and effort won9t be too much for it to handle

2.2.2 Analysis of international business strategy of Vietnam Dairy Products Joint Stock Company (Vinamilk) in the Italian market

3. Advanced production line, the leadership has good management capacity

4. Diversified product portfolio and competitive prices

5. Experienced in internationalization (South-East Asia, New Zealand…)

6. High-quality products and has been certificated

7. Experienced product research and marketing team, experienced engineer team in dairy products

of the world

3. The import of raw materials from abroad causes Vinamilk revenue to be significantly affected by the domestic and foreign economies

2. Produce high quality product perspectives of Italian consumers (S2, S6,

W/O Strategy

1. Take preparations in raw materials by importing more cow-breeds and be more secure

in supply for the Italian market (W2, W3, O2)

2. Using marketing approach for Italian consumers to have better understanding of Vinamilk product quality and open

2. The high demand

for milk of Italian

people shows a huge

potential for market

4. Diversify dairy products

to meet increasing consumer demand (S4, S7, O4)

potential chances (W1, O4)

industry that directly

affects the health of

consumers

S/T Strategy

1. Take advantage of strong brand names and extensive distribution networks to capture milk market share (S1, S2, S7, S3, T2,)

2. Create trust and reputation among consumers with modern and advanced milk production technology (S2, S6, T4)

3. Invest in research and development to diversify products and increase business competitiveness (S4, S7, T2, T3)

4. Using quality and certificated products to consumers' health to assure healthy trust issues (S2, S6, T4)

W/T Strategy

1 Actively source raw materials, develop dairy projects to gain competitive advantages in price and material sources (W1, W3, T2, T3)

2 Promote marketing activities

to increase brand positioning to consumers (W2, T2, T3)

Table 1 SWOT Analysis of Vinamilk Company

2.2.2.2 PESTL ANALYSIS

• Political

Italian politics takes place within the framework of a parliamentary government, a democratic republic and a multi-party system: the Italian system is based on Roman law, this means that the Italian government is divided into the House of Representatives, with

630 members and the Republican Senate with 315 members Today, the chairman of the board is Matteo Renzi, chairman of the 2014 Council of Ministers under the Democratic

Party The government imposes a personal tax rate of up to 43%, Italy imposes a low tax

-on agricultural products such as wheat, dairy products, meats, and textiles

➢ VAT: For different categories of goods: 2% (wood, natural cork), 4% (frogs, fish, crustacean and shellfish, fresh milk for food consumption, packaged for retail and milk products, plants and parts of plants, vegetables, and edible plants, fruit, spices, cereals, algae, oil of olive, cider, wine vinegar, raw tobacco, and raw flax)

➢ Tariff: Italy is a member of the EU Custom Union As a member of the European Union, goods can circulate freely between member states While the principle of free movement of goods applies within member states of the Customs Union, the Common Custom Tariff applies to the import of goods from third countries, enabling the application of uniform customs duties, whichever member state is the country of destination Based on the attributes of Vinamilk product it can be listed

in these categories:

0401 Milk & cream, not concentrated

€16.8/100kg

1.1 GBP/kg/lactic matter + 14GBP/100kg

Figure 5 EU dairy tariff

(Source: AHDB analysis based on HMRC trade figures obtained via IHS Maritime & Trade Global Trade

Atlas®, EU Commission)

• Economical

Vietnam9s development over the past 30 years has been remarkable Between 2002 and

2018, GDP per capita increased by 2.7 times, reaching over US$2,700 in 2019, and more than 45 million people were lifted out of poverty Poverty rates declined sharply from over 70 percent to below 6 percent (US$3.2/day PPP) The vast majority of Vietnam9s remaining poor – 86 percent are ethnic minorities Given its deep integration with the –global economy, the Vietnamese economy has been hit by the ongoing COVID-19 pandemic but has shown remarkable resilience GDP grew by 2.9% in 2020 It was one

of the few countries in the world to do so, but the crisis also left a lasting impact on households, with 45% of households reporting lower household income in January 2021 than in January 2020 Vietnam9s economy is set to grow 6.6 percent in 2021 on the back

of successful control of COVID-19 infections, strong performance by export-oriented manufacturing, and robust recovery in domestic demand

Italy is the world9s ninth largest economy Its economic structure relies mainly on services and manufacturing The services sector accounts for almost three-quarters of total GDP and employs around 65% of the country9s total employed people Italy suffers from political instability, economic stagnation, and a lack of structural reforms Prior to the

2008 financial crisis, the country was already idling in low gear In fact, Italy grew an average of 1.2% between 2001 and 2007 The global crisis had a deteriorating effect on the already fragile Italian economy After a period of hardship, analysts believe that Italy's activity should keep a healthy pace of growth in 2022, reaching pre-pandemic levels within the year, following a likely rebound in 2021 As private consumption recovers, fixed investment should catch up to meet renewed demand, while EU funds will further support the economy

• Social

The Coronavirus (COVID-19) pandemic has increased the habit of consuming breakfast

at home, which has boosted milk sales in 2020 As people shift to working smart and learning remotely, time and the appetite for milk at home increase

Health concerns and expanded availability support goat milk sales growth

Goat milk, long forgotten and always overshadowed by cow's milk, in part because of its rich flavor, has recently returned to the top Over the past decade, goat milk production and retail sales, as well as present value, have been growing steadily and healthily

• Technological

The development of processing technology into preservation in the world

Technological advances can be transferred more easily between countries

Technology in Vietnam's dairy industry is still limited, so it depends on imported technology at a very high cost

• Legal

On April 19th, 2017, Italy announced an entry into force of mandatory labeling It concerns:

➢ All types of milk: cow, buffalo, sheep, goat, donkey, and other animal origins

➢ Pre-packed dairy products for human consumption: milk and cream; yogurt; buttermilk; whey; butter and other fat derived from milk; cheeses, dairy products, and curds; long-life sterilized milk, long-life UHT milk

➢ Indication of ingredients origin is compulsory only for domestic producers In the Vinamilk and Auricchio alliance case, it9s only mandatory for the combined product to show origin of the cheese ingredient

*Importing goods into Italy requires the following documents:

➢ Commercial Invoice: 3 copies are required There is no specified invoice template Must include the contents standing behind: loading date, name and address of buyer and seller, full and accurate description of the goods, country of origin, symbols, numbers, type of goods, name of vessel, port of loading and unloading,

HS classification of goods

➢ Certificate of Origin: issued by the local Trade Commission

➢ Bill of lading must include the following contents:

❖ Description of goods

❖ Owner's name

❖ Vessels

❖ Country of origin

❖ Port of loading and unloading

❖ All details of goods markings

❖ Name of person to be notified when goods arrive at the port

Depending on the terms of delivery, the importer may require a set of bills of lading by sea to carry out customs clearance procedures when the goods arrive at the port of discharge

➢ Insurance policy: Requires 2 copies (1 original and 1 copy)

➢ Packing slip: Not required for full containers, but for those retail containers, when doing customs clearance procedures, a packing slip must be attached

❖ When imported into Italy, animals of the cattle breed must be accompanied by

a medical certificate certifying that these animals are free of diseases (hoof and mouth diseases, or infectious diseases of cattle)

Import license:

Import permits are issued with a limited list of categories published by the Italian Ministry of Foreign Trade License validity depends on many different factors Items may

be accepted if special conditions are met

2.2.2.3 PORTER’S FIVE FORCES ANALYSIS

• Rivalry among existing competitors

With the characteristic of the dairy industry, it is influenced by many large multinational enterprises and companies in the world and fierce competition Technological barriers, investment capital, and initial investment costs of the dairy industry are very high, so