General Introduction
PetroVietnam General Services Joint Stock Corporation (PETROSETCO), a subsidiary of the Vietnam Oil and Gas Group (PetroVietnam), specializes in trading, distribution, oil and gas services, and real estate Among its distribution services, telecommunication equipment, particularly Nokia mobile phones, generates the highest revenue and profit for the corporation This segment is managed by Petrosetco Distribution Company, Ltd (PSD).
In her article for Harvard Business Review, Rita Gunther McGrath highlights key signs that indicate a business model may be losing its effectiveness She notes that when innovations yield diminishing returns and staff struggle to diversify offerings, it signals trouble Additionally, the rise of more competitive alternatives that gain customer acceptance further exacerbates the issue Finally, declining financial metrics and performance indicators serve as critical evidence of a business model that is running out of gas.
Petrosetco is facing challenges in sustaining its previous income and profit levels from the distribution of Nokia mobile phones in the telecommunications equipment sector.
2011 and Petrosetco expects to jump off the hook by adding a principal’s entry
Sony Ericsson emerged as the ideal partner for a new distribution venture after exploring potential options Due to an exclusive contract with Nokia, a new company named "Smart-com" was launched in August to manage the distribution of Sony Ericsson products However, a specific distribution strategy has yet to be developed, relying instead on a general business plan initially designed for Nokia, despite the differing market positions of the two brands.
PIMD POTS PSA PSD PSV PSMT PSSG
Figure 1-1: subsidiaries of Petrosetco (source: Petrosetco’s website)
Objectives of project
To develop an effective distribution plan for the company, it is essential to establish a clear distribution strategy and organize a new distribution system This initiative is encapsulated in the project titled "Project Plan to Distribute Sony-Ericsson Mobile Phones in the Vietnam Market."
Distribution of Nokia mobile- phones
Distribution of Sony- Ericsson mobile- phones New subsidiary -
The project spans one year and targets the smartphone market in Vietnam Given the rapid changes in the mobile industry, including fluctuating market shares between Android and iOS and Nokia's distribution policies, a long-term distribution plan for SE is impractical Consequently, an effective strategy to increase the product's market share will be developed in a separate project that involves in-depth research and analysis.
The study will commence with a concise literature review focusing on distribution strategies and channels Research data will be gathered from two primary sources: primary and secondary resources.
A qualitative approach utilizing primary data was employed through direct interviews with five senior experts in the mobile industry and distribution This method aimed to gather valuable insights for developing an effective distribution strategy for a mid-tier product.
- Secondary data: come from a wide range of sources- Internet news and articles, databases, company websites, company annual reports, company presentations, industry reports and books
The project will have contents of four main parts:
- Project plan which includes external and internal analysis, covering distribution strategy defining and channels system setting
According to Stern and El-Ansary (1996): “marketing channels are sets of interdependent organizations involved in the process of making a product or service available for use or consumption”
Intermediaries play a crucial role in enhancing the efficiency of making goods accessible to target markets, leveraging their contacts, experience, specialization, and operational scale They help bridge the gap between the limited variety of goods produced by manufacturers and the diverse assortment desired by consumers This discrepancy arises because manufacturers often produce large quantities of a few items, while consumers seek a smaller quantity of a broader range of products.
According to Philip Kotler (2000), utilizing a distributor as an intermediary significantly reduces the number of customer contacts required by manufacturers For instance, five producers using direct marketing would need to engage with a total of twenty customers, resulting in twenty contacts In contrast, when these producers collaborate with one intermediary to reach the same four customers, the total contacts drop to just nine This illustrates that employing an intermediary can enhance efficiency in customer engagement.
Figure 2-1: How an intermediary effects economy of effort
According to Philip Kotler (2000): “successful companies use one of three strategies:
Exclusive distribution significantly reduces the number of intermediaries involved in the supply chain This strategy is commonly adopted by companies like automakers to ensure they maintain control over the quality of service and outputs provided by their resellers Typically, this approach includes exclusive dealing agreements, where resellers commit to not selling competing brands.
Selective distribution utilizes a limited number of intermediaries to market a specific product, allowing producers to maintain better control and reduce costs compared to intensive distribution This strategy ensures adequate market coverage without overextending efforts across too many outlets For instance, Nike employs selective distribution by offering its athletic shoes and apparel through seven different types of retail outlets.
Intensive distribution involves manufacturers placing their products in a wide range of outlets to maximize availability This strategy is particularly effective for items like tobacco products, where consumers prioritize convenience in locating these goods.
According to Philip Kotler (2000), a zero-level channel, or direct-marketing channel, involves manufacturers selling directly to consumers through various methods like online sales, door-to-door, home parties, mail order, telemarketing, TV sales, and manufacturer-owned stores A one-level channel includes a single intermediary, such as a retailer, while a two-level and three-level channel incorporate two and three intermediaries, respectively As the number of channel levels increases, producers face greater challenges in gathering information about end users and maintaining control over the distribution process.
In the dynamic marketing landscape, distribution channels are continuously evolving, as highlighted by Philip Kotler in 2000 The emergence of new wholesaling and retailing institutions, along with the development of innovative channel systems, reflects the recent growth of vertical, horizontal, and multichannel marketing strategies.
A notable trend in recent channel developments is the emergence of vertical marketing systems, which integrate independent producers, wholesalers, and retailers into a cohesive framework This system contrasts with traditional marketing channels, where each entity operates independently, focusing solely on maximizing its own profits.
Two-level channel One-level channel (one intermediary) Zero-level channel (direct-marketing channel)
Intermediaries profits, even if this goal reduces profit for the system as a whole No channel member has complete or substantial control over other members
A vertical marketing system (VMS) is a unified approach where producers, wholesalers, and retailers collaborate under a single channel, often led by a channel captain who may own or franchise the others This structure emerged to mitigate conflicts arising from independent objectives among channel members, allowing for improved control and coordination VMSs leverage economies of scale, enhanced bargaining power, and reduced service duplication, making them the predominant distribution model in the U.S consumer market, accounting for 70 to 80 percent of total market distribution There are three main types of VMS: corporate, administered, and contractual.
A horizontal marketing system involves two or more unrelated companies collaborating to leverage emerging market opportunities by pooling their resources and expertise Each company may lack the necessary capital, knowledge, production capabilities, or marketing resources to succeed independently, or they may be hesitant to take on the associated risks This collaboration can take the form of a temporary partnership, a permanent alliance, or the establishment of a joint venture, a concept referred to as symbiotic marketing by Adler.
In the past, companies typically targeted a single market through one marketing channel However, with the emergence of diverse customer segments and channel options, many businesses have shifted to multichannel marketing This strategy involves utilizing two or more marketing channels to effectively reach multiple customer segments.
Methodology
The study will commence with a concise literature review focusing on distribution strategies and channels Research data will be gathered from two primary sources: primary and secondary resources.
To develop an effective distribution strategy for a mid-tier product, qualitative research was conducted through direct interviews with five senior experts in the mobile industry and distribution This approach allowed for the collection of valuable insights and ideas from experienced professionals in the field.
- Secondary data: come from a wide range of sources- Internet news and articles, databases, company websites, company annual reports, company presentations, industry reports and books.
Framework
The project will have contents of four main parts:
- Project plan which includes external and internal analysis, covering distribution strategy defining and channels system setting
Literature Review 1 Key terms
Background
According to Stern and El-Ansary (1996): “marketing channels are sets of interdependent organizations involved in the process of making a product or service available for use or consumption”
Intermediaries play a crucial role in enhancing the efficiency of making products accessible to target markets By leveraging their contacts, expertise, specialization, and operational scale, these specialists provide firms with more than just a flow of goods and services This function is essential for bridging the gap between the limited variety of products produced by manufacturers and the diverse assortment desired by consumers, who typically seek a wide range of goods in smaller quantities.
Philip Kotler (2000) emphasizes that utilizing a distributor as an intermediary significantly reduces the number of customer contacts required by manufacturers For instance, five producers using direct marketing would need to establish twenty contacts to reach four customers, whereas the same producers, when working through a single intermediary, only need to make nine contacts This clearly demonstrates that leveraging an intermediary enhances efficiency in customer outreach.
Figure 2-1: How an intermediary effects economy of effort
According to Philip Kotler (2000): “successful companies use one of three strategies:
Exclusive distribution restricts the number of intermediaries, allowing firms like automakers to maintain control over service levels and outputs provided by resellers This approach often includes exclusive dealing arrangements, where resellers commit to not carrying competing brands.
Selective distribution utilizes a limited number of intermediaries to market a product, striking a balance between extensive and minimal outlet presence This strategy enables producers to maintain better control and reduce costs while achieving sufficient market coverage For instance, Nike employs selective distribution by offering its athletic shoes and apparel through seven distinct types of retail outlets.
Intensive distribution involves manufacturers making their products available in numerous outlets to maximize accessibility This strategy is particularly effective for convenience-driven items, such as tobacco products, where consumer location convenience is paramount.
Philip Kotler (2000) defines a zero-level channel, or direct-marketing channel, as a method where manufacturers sell directly to consumers through various means such as online sales, door-to-door, home parties, mail orders, telemarketing, TV sales, and company-owned stores A one-level channel includes a single intermediary, like a retailer, while a two-level channel features two intermediaries, and a three-level channel has three As the number of channel levels increases, it becomes more challenging for producers to gather information about end users and maintain control over the distribution process.
According to Philip Kotler (2000), distribution channels in the dynamic marketing environment are constantly evolving, with the emergence of new wholesaling and retailing institutions This evolution has led to the growth of vertical, horizontal, and multichannel marketing systems.
A notable trend in recent marketing developments is the emergence of vertical marketing systems, which differ from traditional channels that consist of independent producers, wholesalers, and retailers, each operating as separate entities focused on maximizing their individual profits.
Two-level channel One-level channel (one intermediary) Zero-level channel (direct-marketing channel)
Intermediaries profits, even if this goal reduces profit for the system as a whole No channel member has complete or substantial control over other members
A vertical marketing system (VMS) unites producers, wholesalers, and retailers into a cohesive structure, often led by a channel captain who may own or franchise the other members or wield significant influence to ensure cooperation This system emerged to mitigate conflicts arising from independent channel members pursuing individual goals, allowing for greater control over channel behavior VMSs benefit from economies of scale, enhanced bargaining power, and the elimination of redundant services Dominating the U.S consumer marketplace, VMSs account for 70 to 80 percent of total market distribution and can be categorized into three types: corporate, administered, and contractual.
A horizontal marketing system involves two or more unrelated companies collaborating to leverage resources and capitalize on emerging market opportunities Each company typically lacks the necessary capital, expertise, production capabilities, or marketing resources to pursue the opportunity independently, often due to risk aversion This collaboration can take the form of a temporary partnership, a long-term alliance, or even the formation of a joint venture, a concept referred to as symbiotic marketing by Adler.
In the past, companies primarily targeted a single market using one marketing channel However, the rise of diverse customer segments and various channel options has led many businesses to embrace multichannel marketing This strategy involves a single company utilizing multiple marketing channels to effectively engage with one or more customer segments.
Adding more channels offers companies three key advantages: enhanced market coverage by reaching previously inaccessible customer segments, reduced channel costs by utilizing more efficient selling methods such as phone sales for small customers, and improved customization in selling through specialized channels, like employing a technical sales force for complex equipment.
New channels can lead to conflict and control issues, primarily because they may compete for the same customer base Additionally, as these channels gain independence, companies often struggle to ensure cooperation among all stakeholders involved.
Project Plan 1 External Analysis
Environment
Vietnam is recognized by Indochina Capital as a politically and socially stable country in comparison to its regional counterparts Unlike other Asian nations such as Indonesia, Malaysia, the Philippines, and Thailand, Vietnam experiences fewer issues related to religious and ethnic conflicts Since the implementation of the "Innovative" (Đổi mới) policy in 1986, Vietnam has maintained steady GDP growth, establishing itself as a secure destination for investment.
Vietnam is enhancing its integration into the regional and global economy through its participation in the ASEAN Free Trade Area (AFTA) and the World Trade Organization (WTO) This involvement has expedited the review and modification of legal documents to align more closely with international practices and treaties.
The period from 2010 to 2015 marked a significant era of innovation, characterized by a transformative growth model and economic restructuring aimed at achieving industrialization by 2020 This initiative served as a driving force for changes in government policies and legal frameworks aligned with developmental objectives.
- GDP growth is stable at high levels
According to the IMF (2011), Vietnam's GDP growth for 2011 was projected at 5.8%, ranking it fifth in average annual growth behind China, India, Indonesia, and Hong Kong For 2012, the economic growth forecast is set at 6.3%, driven by anticipated declines in inflation and a more stable macroeconomic environment, which are expected to attract investors and bolster consumer confidence.
- Inflation is still at high levels in the region
Vietnam's inflation rate experienced significant fluctuations, starting at approximately 3.9% in 2003 and peaking at 24.4% in 2009, according to Indexmundi (2010) Despite forecasts suggesting a decrease to 18.8% in 2011, inflation remains a persistent challenge for the country.
- Loan interest rate decrease, but remain at high levels in the region
As of 2011, interest rates for business loans are exceedingly high, ranging from 25% to 27% per year, making it particularly challenging for small and medium enterprises to secure bank financing (Viết Lê Quân, 2011).
The Vietnamese government may consider reducing interest rates in the future; however, current rates remain significantly high compared to neighboring countries, with Thailand at approximately 8.5%, Malaysia at 6.3%, and China at 8%.
- Still being one of the most profitable retailing market
Vietnam is an export-oriented economy which account for 90% of its total GDP Vietnam’s major exports reached $71.6billion in 2010, higher 25.5% compared to
In 2010, Vietnam's major imports reached $84 billion, reflecting a 10.1% increase from the previous year (GSO Vietnam, 2011) Following its accession to the WTO on January 11, 2007, Vietnam enhanced its appeal to multinational retail investors by implementing unrestricted free trade, tax reductions, and allowing foreign corporations to establish subsidiaries without needing local partners With a population of approximately 89.6 million, of which 57% are under 30, Vietnam has also seen a significant rise in per capita income.
$1850 in 2000 to $2900 in 2010 (Admad, 2010) All of these economic elements above proved that Vietnam still be one of the most profitable retailing market in this world
As of 2010, Vietnam's urban population accounted for 28%, with a life expectancy rising to 71 years, up from 69 years in 2000 Education plays a vital role in the country, reflected in a high literacy rate of approximately 90% in 2010 (Admad, 2010).
Cultural factors in Vietnam, particularly in rural areas, still reflect traditional values such as the importance of family and the concept of "face saving." However, globalization is gradually eroding these traditions as rising per capita income boosts consumer demand for goods and services, including luxury items.
Vietnam's infrastructure is rapidly evolving to attract foreign direct investment (FDI), with internet users reaching 24 million, or 27.1% of the population, in 2010, ranking the country 7th in Asia for internet penetration (Internet World Stats, 2010) The telecommunications sector boasts 57 million mobile subscribers, making up 81% of the total population (Wireless Federation, 2010) Although the broadband market faced a slowdown in early 2011, wireless broadband services have gained popularity, and the mobile market achieved a penetration rate of approximately 170% by early 2011 (BuddeComm, 2011).
Market
Vietnam's economy has been facing accelerating inflation since the start of the year, impacting the cost of living Despite a decline in overall consumer spending, the mobile phone sector remains robust, with combined sales of smartphones and feature phones experiencing significant growth According to GFK, a prominent global market research firm, unit sales increased by 27 percent, while value sales rose by 21 percent in the first seven months of the year.
Despite rising costs for essential goods like food and fuel, Vietnamese consumers continue to invest in advanced smartphone technology, with an average smartphone price of USD 330—five times that of a feature phone at USD 66 In 2011, smartphones accounted for 1 in 10 mobile phone purchases, and their market value share has increased by 10 percent, now representing 34 percent of the market.
The smartphone industry in Vietnam is poised for significant growth in the coming years, as highlighted by GFK Vietnam This sector is experiencing heightened competition, with an increasing number of manufacturers entering the market to capitalize on its potential As a result, consumers will benefit from a wider selection of smartphone brands and models available at more affordable prices.
Through the above analysis shows that the mobile phone market of Vietnam is a potential market and will create many business opportunities for distributors in general and SC in particular.
Competition
User preference for smartphones with operating systems like Android is growing, as evidenced by Gartner's analysis predicting Nokia's global market share will drop to 30.2% by 2014, while Android's share will rise to 29.6% and iOS to 14.9% The main issue for Nokia is its focus on hardware, whereas the smartphone market is increasingly driven by software Unlike competitors such as Sony Ericsson and Samsung, Nokia has yet to make significant changes to adopt a more competitive operating system.
GFK Vietnam's market share update from January to October 2011 reveals that Nokia maintains a dominant 54.2% share, while Samsung holds a distant second at 14.8% Other brands like LG, Motorola, and Sony Ericsson remain minor players in comparison However, the smartphone segment shows a shift, with Samsung significantly increasing its market share from 4.3% to 22.8% over the year, marking it as a key competitor despite its smaller overall presence Additionally, Apple has also seen growth, raising its market share from 6.8% in 2010 to 8.5% in 2011.
2011 (to date of October) Nokia is the biggest let-downs, allowing its smart mobile phone market share to shrink from 80.5% to 56.6%
Figure 3-1: Brand share by category (Source: GFK Vietnam)
The mobile device market is rapidly expanding, with smartphones continuing to dominate market share Companies that swiftly adopt new technologies in mobile phones will find new opportunities Sony Ericsson is a brand to watch, as 60% of its production consists of smartphones running on the Android operating system However, the company faces a significant challenge in Vietnam, where its current market share is below 1%.
Internal Analysis
Since 2007, Petrosetco Distribution, a subsidiary of Petrosetco J.S Corporation, has exclusively distributed Nokia mobile phones However, after three successful years, a recent report indicates that the distribution of Nokia phones may no longer be a key contributor to the company’s success This shift is attributed to the growing consumer preference for smartphones operating on alternative systems like Android, which poses a significant threat to Nokia's market share.
To sustain its income from telecommunication equipment distribution, the Corporation should collaborate with various mobile phone brands, leveraging the extensive distribution experience of Nokia This strategic partnership is essential, especially in light of competition from other manufacturers such as HTC and LG.
Samsung does not require additional distributors, and partnering with Sony-Ericsson would be advantageous As Sony-Ericsson shifts its focus to smartphones by prioritizing Android, it seeks a strong distributor to enhance its currently low market share.
Sony-Ericsson has named Petrosetco as its exclusive distributor in the Vietnamese market, leveraging Petrosetco's extensive experience in mobile phone distribution A new company has been established to manage Sony-Ericsson's distribution, following an exclusive contract between Nokia and PSD However, the current business strategy for Nokia does not align with the market positioning of Sony-Ericsson products, highlighting the need for a tailored approach to effectively promote the distinct brands.
To effectively penetrate the market, it is essential to establish a well-defined distribution strategy for Sony Ericsson mobile phones, along with an efficient distribution system.
- Telecommunications services in Vietnam have been developing very fast, especially the 3G, 4G, Wimax development in recent 3-5 years, leads to the increasing sales of consumable products that meet these technologies
- The growth rate of mobile phone use in the Vietnam market is very high, new mobile subscribers have reached 162 million in early 2011
- Sony Ericsson is a well-known brand in the mobile sector Sony Ericsson products in 2011 and 2012 will be the breakthrough in design, features and reasonable price
The robust delivery experience, advanced facilities, and effective management systems of PSD, combined with the financial strength of Petrosetco Corporation, present a significant opportunity for the new firm entering the market.
- In the telecom market, distribution service in recent years becomes stronger and bitterer by the participation of more professional distributors
Vietnam is still classified as a developing country with an evolving market economy, facing challenges such as high inflation and elevated bank loan interest rates that pose significant risks Government policies aimed at restricting the import of luxury goods, including cars, cosmetics, and mobile phones, create substantial barriers for the goods distribution sector Notably, the restriction that mobile phones can only be imported by sea through Hai Phong further complicates the situation.
Da nang, Ho Chi Minh city ports, it makes slower circulation of goods, more inventories and moving goods, higher transportation costs and thus may lead to in- effectiveness occurs
- The rapid changes in technology create many challenges and risks for investors
- The competition in the telecommunications industry in general, in the mobile business in particular is really tough in the Vietnam market
The rising exchange rate of VND against USD is creating challenges for importers, as it requires more Vietnamese Dong to purchase goods priced in US dollars.
- Being a member of the Petrosetco - always get the support of finance and policy from the Corporation
- Being a younger brother, the company will get full advantages by experiences from
PSD in distribution, market and system as well as relationship with major retailers
- Sales force is still very “thin” in the beginning time
- Lack of some key management positions: Head of business, product manager
- Being much influenced by the experiences got from Nokia mobile phone distribution
The company's vision is to build a strong and respected brand in mobile phone distribution, while its mission focuses on successfully operating a Sony Ericsson mobile phone distributorship.
Vietnam Market with aimed objective for the first year of application that are at least over 2% share of smart-phones market through unit sales volume of nearly 30,000units
McKenna (1991) emphasized that effective marketing relies more on qualitative methods than on traditional quantitative studies, which often focus on minor details This research aims to analyze the distribution strategy for a low market share product by comparing it with the strategy of a market leader To achieve this, a qualitative approach was adopted, involving direct interviews with five senior experts in the mobile industry and distribution This focus on the distributor's perspective is crucial, as existing literature predominantly addresses the manufacturer's viewpoint.
Two individual interviews were held with mobile industry experts and three with distribution experts, with participants receiving a preparatory question list beforehand The interviewer introduced the topic and facilitated the discussion using targeted questions, ensuring the interviews were open-ended, semi-structured, and in-depth.
The interviewees in the mobile industry include senior experts responsible for Nokia products, featuring a former Nokia Country Business Manager and a Director from an official Nokia mobile phone distributor Additionally, other interviewees are senior managers involved in the distribution of polypropylene, oilfield equipment, and IT products, specifically Dell and Acer laptops.
All the interviews were conducted in interviewee’s native language The questions list is attached in the appendix 1 in English
The summary of answers is as bellows:
To successfully penetrate the market, mid-tier products must prioritize mission-driven brand building and increasing brand awareness In contrast, leading products should focus on maximizing market coverage to cultivate strong brand loyalty among consumers.
The interviewees expressed differing views on target market coverage, the number of intermediaries, and channel systems While Nokia distribution and IT product experts recommended initially focusing mid-tier product distribution in major cities, other interviewees suggested avoiding these urban centers dominated by leading products Most intermediaries advocated for utilizing both wholesalers and retailers for distributing mid-tier and leading products to maximize intermediary capabilities However, a former Nokia business manager cautioned that sales volume data from these channels should guide strategic decisions Regarding channel systems, experts from other product distributions proposed a multi-channel approach for mid-tier products to quickly capture market share, whereas a former Nokia director and a distributor representative advised starting with a vertical system Additionally, PSD's director recommended considering franchising for tier 3 markets after one year of operation.
An email interview was conducted with the director of SC to understand the reasons behind the failures of previous distributors in the SE mobile phone distribution market This analysis aims to shed light on the competitive landscape and the challenges faced by these distributors.
Market coverage: they did not try to coverage the retailer but focus on key customers that are chains such as The gioi Di dong, Vien thong A only
Market controlling: They are not mutual in term of Sales policy It made dealer uncomfortable when doing business with Sony Ericsson brand