CAPSTONE PROJECT REPORT BUSINESS STRATEGY FORMULATION FOR VINF1 DISTRIBUTION AND RETAIL JSC, DURATION 2010-2015 BÁO CÁO DỰ ÁN CAPSTONE XÂY DỰNG CHIẾN LƯỢC KINH DOANH CHO CÔNG TY CỔ PHẦN PHÂN PHỐI VÀ BÁN LẺ VINF1, THỜI HẠN 2010-2015

CAPSTONE PROJECT REPORT BUSINESS STRATEGY FORMULATION FOR VINF1 DISTRIBUTION AND RETAIL JSC, DURATION 2010-2015 BÁO CÁO DỰ ÁN CAPSTONE XÂY DỰNG CHIẾN LƯỢC KINH DOANH CHO CÔNG TY CỔ PHẦN PHÂN PHỐI VÀ BÁN LẺ VINF1, THỜI HẠN 2010-2015

GRIGGS UNIVERSITY

PROGRAM

CAPSTONE PROJECT REPORT

BUSINESS STRATEGY FORMULATION FOR VNF1 DISTRIBUTION AND RETAIL JSC, DURATION 2010-2015

Students:

I Bui Thanh Tam

2 Nguyen Xuan Hong

3 Bui Tu Giang

4 Cao Thi Hanh

5 Nguyen Thi Minh Thu

Group No 6, Class M06

HANOI, 2010

Page | of 75

PDF Compressor Free Version

TITLE: BUSINESS STRATEGY FORMULATION FOR VNFI1

DISTRIBUTION AND RETAIL JSC, DURATION 2010-2015

TABLE OF CONTENTS

))949)81)60 @0i9)0152534 A 5

Necessity of the Project cccccccccccccsesececeeesssceesesssceseesseeceeseeececeesueeeeeeseeeceseaeeeeeesseeeeesaes 6 Objectives of the Project and Its Contribution to the Development of VNF1 JSC 6

BH O HD DĂN cua ung 0021614014010021001658uá08002018061640/016200005011068au66800800/68686Á6054184454/60/0g814/0040105660440403x00554 7 Structure of the Capstone PrOJ€C( c1 111 t9 11c vn KH TH ng TH no 7 CHAPTER 1: THEDREETITCALERANEWORE sdadadaedeqsagddduaqoadaadgudtootttte § L.1 Strategy and Business Strateizy Management s.iisnscszsscccssevesssssvesnesenvsvsuavensessavnee 8

1.1.2 Business Strategy Management ssccciciinauinnnninnnmunnmnnnanameuses 8 uốn? tri<pssrtt strntgpy: im TNTHUINDOEbsseereeeeseasenranduonesnaaaoiaeenetarirtgtiursssrnerorisri 9 1.1 Missioii q6g côi BC G VỆ gggưaugggdogiosioodidldiassdllGesseiassadissssese 10 1.2.2 Selection and formulation of strat€Ø1C ODj]ECLÏVES cccGcccu.GcL K22 0012 6á 1 cgd2i 1] 1.2.3 Analysis of external enVironim€fiIL - ca + 122 1 9 v9 1H vn tru 11 L235.) MRS SHVTRTIHIBNEEiaavbbadesdglRosiedstGaisedio9igtyspexstftiiat0UdGdGsuiiw 11 1.2.3.2 Micro level environment (sectoral) jiisécsiccccccsciisasssannvdimesrisaasacceacieesaeaeniane 15 1.2.4 Analysis of internal environment .cccccescceseseeeeeeeeseceeseeeseeeseeesaecenseeesaeens 18 1.2.4.1 Analysis of area of operation -Value Chain - «5< << +2 18

La a: aU TAI Euonneeeerwetiitii0000026101090G0100000/101610160010818020001011030001n5063401170:1NYAGIEGS00397018 19 Led, Sc SOLECHOR OF GIPSLE BY siiss.-.ncscrrnnenanesencernrsensonnnnnnrenracnectanenvneanitdangnnnatiinseanteseesensess 20 1.4061 TIES LOGS secssscsssscssswenuaancepennunppeutepimacupervepieipeeabntaagcnmeeIes 20

Ä 9 XU an RE veeeeeeeeienieiaanvokesesdvbivebisssdodes98X9046E7449005951545945000108.93/0065 50 20

B EFE — Extemal Factor Evaluation Matix sis sicssccssicasscccanvaesccvsasastnacsiqavecaseaks 21 (IPE = Internal Factor Evaluate Maui so cscssssicsssussssaleccusstesveonsssiaaonvousvencssecavises 21 1.2.5.2 Selection of Strategy with QSPM .cccccccsecsseeeseeeceeeeeseeeesecesseeeteeenseeens Ze

A SRGERY OF CGS IRAGETSIID tougggdtavdatcdgubsoidgogusglgtiAgetlìskgldgifessygsils0alae 23

B Strategy of product dublerentati 0 scsi cccissssnncsancnscamnemisacanemanncacmnennenucinses 23

€ Strategy of Focus POITL - - c5 2< 2112113211131 1213 2x 9 vn ng ng 24 L3 À.6ðImniDHằUHGP DÊ SHBICDIStiobsitoaedaotoooiccxaicdikgssttiliisgglEgDISligltSG0y46310458g88 086 24 CHAPTER 2: ANALYSIS OF VNFI JSC STA TÚS - c5 55555 ‡c<xccsseesxeesse 26 Sly CWETVIEW- OE VINEL TSC sssisisconasiisnssnenaigonaranshonboenstveisnbohetstieencanasdneensesdtasipnnsishernestite 26 2.1.1 Betablishinent of VNELISC cccsssscsccsccescnssnunsaacneanmnnnvenannnaanscaaewesccsees 26

"tì na ar

21 5: ORS SALON SHEDIEE qauaaaagattogtttttdiloloa llBiqGbSxGiv@i008.g\gwsgg 27 2x0.//AIREHS GHG NEUNMIES sciceccisnscasvesinncencsusencsesaseimuneaceausieiinantavseswentsmousnantossceiares 27 2.1.5 Characteristics of rice trading and the initial role of VNF1 JSC in the market 28 2.2 Analysis of macro environment (PESTLE model) siicsssiissscssserassssssacevasasessaviesaiageave 31

do )4)NHILES6:3-1/DE Hài SACL OP ceases ac RR RR THEA ERASERS 31

32 7ĐƑ È0pTE9S0# Eree-'V€FSỈOI -scnnhnhnehrtreerrrrrrrrrererererreee 23 22:5," Vesti OF DIODAN “RHDÏquockoaintadiiipicganidisitiidig8561660065916314446046Vui1g5ià5618808.400906.g60384 34

260 ppeceanines’ Lsreats for VIN Í-Ð)C soepsevtenrsseneeotsoetViEVSiEBSGEGL00040100100040090/8301EĐ101000180) 36 252.6:1 ONDOCUININES ia cvecacesdkdG,oiBSlseiosiSuosltcgclAl it l8aoGGNIGj@RSGigdeocagat 37 DUIS PIS :oisuaxtpchu nha tịgb3ttgi0hiHdligi06051u66ã306808008186400146861ã602338i2364014316048/6.4a.4i43ig6.0110uggu8 ie

2 2.3 Sectorial analysis (POR'TER modeÌ) - ác 1xx vn nh ng ri 37 2:71: đe coi HE quaaddqưqGạGa GGGG0QGDXGQGEGGGREIQHAOIGgGSllpsstsaa 38 2.9.2 SUBSE ĐI (THƠ :ocouyncengi2nŸk2nngáickGioiELA4858886i05a85010001-05000510001424016061L106018506802004000 40 2.3.3 PowerS O CUS{OTN€TS . LG 113101321111 11119 1111 9 vn HH vn vn 40 sua, FÙWETS GÌ SIĐIHISE GaeusenasaetieotaisiiotbdsSittl993466255480340364462G3%40G53465404104/v838884 40 Sáu: OEEHHHIHVHÍNGuaeeiauistinntrdtuoniiG64431060000106600400100035636008008308000/1000394M0050076816001050000400u00i0N80 4I

- 2.4 Analysis of Internal Environm€Ti( - - - c x11 kg nh ng ve 43 2.4.1 Senza Ona SG TU E quen giang b2ốá010446)tU3NNg322640000330:s61g60000:6G(gu3040:gg0u65 43 2.4.2 Factorles, field/ materiaÌ SIẲ€ - - (5 131 1 3 2111 1 2 1 ng ng nh 44 2.1.2 D0106 161W n0 86000ã»64/68aa9844160ã85462A608,ct0ã00ãã46G5Sgscdxgt 46 s06: 0¡ SA UỀ.E: TINH XIN ẨTsssguyngchav gHig ty 002104505000i01305n6602083ga.00000/484606015486/0s)56/01348133045900400668060048000u08/gg0 46

- 2.6 TarØ€{ CUS{OI€TS - Q11 ng Họ TH nh 50

CHHAPTER 3: RECOMMENDATIONS ON STRATEGIC PLAN FOR VNF1 JSC,

DLURA TION 2010-2011Š - c1 121332111913 v1 ng ng HH cv 53 acl, Moridate-Missitt 810 VisiGn sicccinnncmunnciiunnnmnmmmenmnnnmmnaat 53

¡DU OI I GN necreresesevannnceacorseenncuccounaeneecnsanceorcmenesmenecsonnand enamel 56

cae Sali E suzatteyatirogt6000131586900016600l09013u80.n058052390gG08uX00:1886ki083uidx SciS6kudniall.18148000400805i6040018138/400/8 56 3.2.3 QSPM and the stratèy s€Ìl€CfIOT\ - S111 ng ng vn 58 3.5: Recommendations on Stratepies for VNF 1 JSC noi Ga tica 604216440 30 s6 59 3.36 ba: ERECTING PATE SURO oc scaiccccasvcanuconsinccnmsnsswcaisnaucwasnnnscemtatceceumanecaraancconsacnen 60 ERNN Noi vn sa (iủŨDÐƯ35} 60

¡0 E02: T TOIHĨNHỌeisczeviiis0614612044610400466110Ä9490S0343466;000390168160086406040/46408ag0x8 61 A9 EÌNWWEnhaaxoatonsorgraotefoseobiil06404409450L04610u843010410001001136%90000814000106003G/GI.206135A4010016600180003) 63

To DI: E HC 6sseesidflaenilRstessseseessmsersasdasssendssESeessssi8nkeeeslifi2ssss0iiiektlflØieesdyNqsoid 6S là: ERUNVI LÊN KẾ Dƒ sxsságcgccau 605186015 56x0061/3060088056G8101y688L44.30a.0816g34.30:85i4001500626.Dá55440ud0 Á48.0EESMẺ 66 J„x2 EE@II€HON.Ttđnngerin€nil SH ae eeesseesnavensinlasriongiadrnsssyersormonrskd 68 31/8: OftEef TU0EHGbá] SH D165 sess caccisscansr eC 69 3.4 Milestones in the 5 year strategy implementatiOn - s55 5S seeeesee 70 3.5 Other RecommendafIO'S -(- c6 31121129 3 3 3 TH ng nh nh nh rợn 70 3.5.1 AEG THRO HIVẾI qaaggggggttaartooitobisddtadsgssesigftiessgsGina460640x84i0aagxEssei 71

„5u: 210 CO: HHĐEO TDVE Ìcnakghiiguidiaaigtatvrstoa410011014601011605656005103606406104613040140001460990066À448001/001406đ/2 71

6 9)/90013/9)001155 71

EU, H RE I\CS:56/2xsyggyxdsts2v90386514400ái90489913864403/6438890240138G09013636/2316330012665000604641006598y462440 0030) 73 PLE i eeeeesrsserrrrennrEssarrtrrnetrtiinogrdarrervarosaoaaaarasslbknraaaenssernuarlƠiuaesdssrsoernnflrpln 74

LIST OF ABBREVIATION

VNFI Corporation or Corporation: Vietnam Northern Food Corporation;

VNFI JSC or VNF1, or Company: VNF1 Distribution and Retail JSC

Page 3 of 75

LIST BE tHitUWf§°r Free Version

Figure 1.1 Process of strategy formulafIOT - - cv 10 Figure: 1.2, Levels of txtérial Gnvitonmient osc iassucrsecansscsiserereceinecnenmanuannaeemeumeas 12 Figure’ ].3 The five forces:of competition (Porter Model) viscsccwssssessscasaewcsasxarowaanannvenconseneas 15 Figure 1.4 Porter's model of Value Chain 5c 2c 31 3 k9 vn ng in 19 Figure 2.5 Fluctuations in the rice market in the past 3 decades « - +5 29 Figure 2.6 Changes in domestic rice market in 2008 (Source: VNF]) - 29 Figure 2.7 GDP growth (Source: CBKRET noi c2 0s esDoknssssds44esslilesbessee 32 Figure 2.8 Rice as a percentage of total caloric intake by region (2000) - 34 Figure 2.9 Modern shopping channel development (Source: VNEconomy) 35 Figure 2.10 Value line of VNF1 and competitors (50kg packed rice) 42 Figure 2.11 VNE1-imnaterial areas map (Sourée: VINE 1) ssscsssssssssssccssecccassccsvesavsssocanvesnencone’ 45 Figure 3.12 Exploitation of the 5 product levels eccseessecssseceneeeeteeetaeeeeeeenteeeeaeees 6] FlgÙfe 3.13: Prưcegduf6s ð0fii66 supblý (SófGE: VINE kosoaoocvodoGlvosssladaeavdie 64 FipUfe 5,14; VINES isi Bin SY STENT usnaeeereeniteeoroeiosdasasaykidtsogb0126/016716.2N0036G0xtiagKl 65 Pigure 3.15, HARM CHES n ,.conrssarernassinnensacternenesonnsvenazensancey send nomenagassbtonearanhianancsbidageonestis 67 Figure 3.16 Integral connections of performance appra1SaÌ . « «+ «sex 67

LIST OF TABLES

Table 2.1 Comparison of some competitors in high-quality rice market (Source: VNF1)39 Table 2.2 Analysis of VNFI JSC”s target customers 2009/2010 << « «<< 52 50 Table 3.3 Market objective of VNF1 JSC, duration 2010-2015 (Source: VNF]) 55 Table 3.4, 'Tarcet tharxet share (Source: VINE TD) asccississassincmncrmasniccesornanecwiees 56 ale 3.3 (SPM tor VINE | SG sessssiccesccsinccusesanccoueceurccneanctevasosnnsaseouanecreccatnncmmanuasanacenees 58 Table 3.6 Milestones In the Š year strategy ImplementatIon . - s55 «se 70

INTROPUCH PR ssor Free Version

Rice is life Rice is the grain that has shaped the cultures, diets, and economies of Vietnam Rice is the stuff throughout all the subjects of our group in the Griggs MBA Program This research is the integral link of all these study and efforts of group members, the continuous assistance from lecturers, encouragement from the Company management and the emotional support from family members

Project title: BUSINESS STRATEGY FORMULATION FOR VNFI1 DISTRIBUTION AND RETAIL JSC, DURATION 2010-2015

Author: Group 6, M06 (Nick name: Rice Group) including members below:

Leader

2 Nguyễn Xuân Hồng - VNF1 Distribution and Retail JSC

5 Nguyén Thi Minh Thu - Deposit Insurance of Vietnam (DIV)

Overview of VNF1 JSC

VNFI1 Distribution and Retail Joint Stock Company is a member of the VNF1 Northern Food Corporation The Company was established and came into operation on the 1 of July, 2008 according to the direction of the Prime Minister

on the strategic plan for the Corporation in production and trading in the northern

areas, from Nghe An Province with the aim to maintain food security in the northern market

Target of VNF1 JSC establishment is to improve the weakness in the industry of food and rice trading through the development of a professional business administration model, with the close and systematic collaboration among different process of production, trading and distribution The Corporation will multiply the success of the model in the entire Corporation, with the aim of continuous improvement to catch up with the integration trend of the market

Page 5 of 75

The Corporation now has 27 independent member companies, of which 5

ressoy Free Vers are bathe ID4 and 3 are OME eM ures with foreigners All are food trading companies with decades of experience as buying agents for Corporation’s export purposes

Necessity of the Project

VNFI JSC is quite a young company, having no official development Strategy This research project is of great importance for the Company in particular and for the Corporation in general towards the target of building up a modern business model in the food trading sector

In a greater context of the Corporation, the development of VNF1 JSC will assist the Corporation to start modern business model, to generate a quite new approach with customers, from which to assist the Corporation to reach its sustainable target of building up a modern, specialized, intensive and extensive distribution system, gradually mastering the market of rice, leading the market of a Strategic commodity to advance in the right and healthy direction

Objectives of the Project and Its Contribution to the Development of VNF1 JSC

VNF1 JSC is participating in a highly competitive market with lots of challenges In this market, there is not yet a real successful player; a competitor is not a company as a single player, but is a full public business orchestra Though without a leader, the “orchestra” is performing perfectly, generating a huge impact

by the strength of a true open market

As a matter of fact, members of the Group 6, Class M06, being officials in and out of the industry, expect to use the modern knowledge of business administration achieved in the Griggs MBA Grogram to response to the urgent need of the Company of working out a professional action plan, for the short run first, through which to study issues and identify problems of priority to solve, to study target customers, to know competitors, to build up strategy of product, price

and so on This short term strategy will be the launching stage for the Company to

devclob tifi4tBAVS8361)AViS:)đáilen

Objective of the Project is to identify 5 year business strategic plan for VNF1 JSC to become the leading high quality rice producer and trader in Vietnam Methodology

The group uses problem analysis, SWOT analysis based on secondary and primary data, deployment of various economic tools including Porter model, PESTLE analysis IFE & EFE, QSPM tools

Structure of the Capstone Project

o Introduction

o Chapter 1: Theoretical framework for the Project

o Chapter 2: Analysis of the VNF1 JSC Status

o Chapter 3: Recommendation on strategy

o Conclusion

Page 7 of 75

PDF Compressor Free Version

CHAPTER 1: THEORETICAL FRAMEWORK

The terminology of strategy has been mentioned largely in the business world nowadays Each enterprise has its own method to approach and to build up its business strategy In this Chapter, we would like to introduce a popular methodology to design and to select business strategy, its process and some relevant experiences

1.1 Strategy and Business Strategy Management

1.1.1 Strategy

Strategy is the plan to control and to use the organization’s resources such as

finance and HR to improve and to ensure the essential benefits of the organization

According to Kenneth Andrews, strategy is what an organization has to do based on its strengths and weaknesses in the context of certain opportunities and threats

A good strategy with effective implementation will help managers and

operators at different levels be able to identify objectives, identify orientation for

action, contributing to the success of the enterprise There might be different methodology, but the core contents of strategic management include:

e To identify a master action plan with future orientation on basic and long term business objectives of the enterprise

e To identify the process for such action, method to implement and resources allocation to reach such objectives

e Important policy and measures of the enterprise will be decided to change by the enterprise’s owner

1.1.2 Business strategy management

Business strategy of an enterprise is the master action plan with future Orientation in implementing its objectives Strategy will not identify concretely how

to reach such objectives because it is the functions of other supporting programs

and functional strategies Business strategy will just create a framework to guide eritich! ink Ae BARS F 000§e:€UilĐlhution and action

In the enterprise’s business operation, the existence and success depend firstly

on the rightness of the identified strategy and the implementation process Business Strategy 1s essential because:

Firstly, a business strategy will help the enterprise to see clearly objectives

and direction to go in business operation From that, the enterprise will know how

to organize the business mechanism, what to do to achieve success and milestone for such achievement

Secondly, in the fast changing business environment, there are abundant of profit opportunities together with risks A strategy will help the enterprise to be well planned to take the best and the earliest of all opportunities and to reduce to the least potential risks or have good risk management plan

Fourthly, in the fierce competitive environment, by all sided analysis of factors at the macro and micro level, the enterprise will be able to identify competitors of all kinds, from which to design master solution to intensify

competitiveness of the enterprise

1.2 Process of strategy plan formulation

Each cycle of strategy formulation will start by a mission and core objectives statement of the enterprise Then comes the analysis of internal and external factors and strategy selection The process will complete by the design of organizational structure and relevant monitoring system for the selected strategy implementation

Page 9 of 75

PDF Compressor Free Version

Mision and Objectives

External environment analysis

Value chain model

Process to identify

sustainable competitiveness advantages

=> Strengths and

Weaknesses

Global strategy

i

Corporate strategy

|

Relevant structure

for the strategy

Implementation/ Adjustment

Modification of strategy

|

Mission is a concept to identify objectives of the enterprise, reasons of the

enterprise’s establishment and basic for its existence and development The nature

of the mission statement is to elaborate a very important matter: what is the

purposes of the enterprise’s business Scope of the mission statement normally

covers information on products, market, customers, technology and other

philosophy that the enterprise pursuits

The mission statement will be effective during the whole time of the

enterbiE SPREE ME’ Ee Bes not change or modify it However, in each strategic phase, it should state strategic objectives relevant for such phase 1.2.2 Selection and formulation of strategic objectives

The highest target of the enterprise is a sustainable development in the market However, with different conditions and at different phases the priority might be different In general, the strategic target will include the below factors:

e Community social responsibility

1.2.3 Analysis of external environment

The next component of strategy management is to analyze the external environment Objective of this is to identify the opportunities and threats, to find tlhe best solution to operate, to take the best of the good and to reduce to the least affects of threats

1.2.3.1 Macro environment

Scope and contents of this include analysis of macro environment according to tlhe levels of external environment model

Page 11 of 75

Figure 1.2 Levels of external environment

a Politics and Legislation (P)

This includes the system of perspectives, policy of the government, legislation system, especially those concern the business area; political movements in the country and in the world, factors concerning politics and legislation, including:

e Stability level of politics and diplomatic policy

e Balance in the government policy

e Role and economic development strategy of the Party and the

b Economy (E)

This has direct and strong impacts on business operation Economic factors can change the ability to create value and income of the enterprise Four important factors of macro economic environment are:

Interest rate will be another important factor High rate will encourage people with extra money to save rather than to expense Those lack of money will avoid lending for purchases

Exchange rate identify value balance between different currencies Changes in exchange rates will have direct impact on the competitiveness globally

For those doing business in distribution, measurement of changes in exchange rate to make decision on sources of suppliers will be very important for business effectiveness

Inflation rate is the factor that reduce the stability of the economy, less

growth and more interest rate In high inflation, investment will be risky Forecast

for economic variances will be uncertain

c Culture - Society (S)

Cultural and social factors leave impacts on lives and behaviors of human being, influencing demand structure, buying behaviors and consumption trend, with

special attention to commercial enterprises in the below aspects:

e Population size and trend

e Age structure

e Population allocation and moving trend

e Diversity of mankind

e Income structure

e Living styles, consumption habits

Enterprise will pay attention to the changes of the above factors so as to have early awareness of trends and changes in consumption behaviors, adopting relevant methods in doing business, shifting to relevant products

Page 13 of 75

d Technology (T)

FD F Compress à tả ASE tsign the coming into being of new products, establishing method of doing business, and method of meeting demand, influencing the competitiveness ability and effectiveness of the business Internet is a typical example for technological impact It is abolishing and restructuring sectors dramatically It is threat to the industry of post newspapers but the opportunity for online retailers

Obviously, with internet, wireless technology, bio-technology and a series

of other inventories are reforming economic sectors, bringing about chances and challenges to businesses globally

Practically speaking, successful enterprises are those who are quick at adopting advanced technological achievement for their production and business operation in relevance with their conditions

e Population and natural environment

Population has close conjunction with development Important aspects of this are

e Size: total population, labor force

e Structure, development trend, age structure, gender, geographical and religion

e Quality of education, civil level, abilities

e Professions, income

e Territorial allocation

Natural environment including geographical, climate, natural landscape, soil, sea and water, natural resources, forest resources and so on These not only play important role in quality of lives but also the binding condition in identifying business strategy

ƒ — International environment

Globalization and integration is the world’s trend Economic relations among nations, regions have great impacts on different areas of social lives that all enterprises and sectors have to take into considerations The dramatic development

of science and technology, rapid advance in informatics technology have promoted

connection of global commercial enterprises into one network These have direct

1.2.3.2 Micro level environment (sectoral)

A sector is a group of companies supplying products or services what can

be close substitute for each other That means these products and services to meet demands are basically the same

Michael E Porter, Professor of Harvard business school has invented the model that help to identified these factors According to Porter, there are 5 major factors of sectoral competition like below (Michael E Porter, Competitive Strategy, New York: Freepress, 1980):

PDE COMPASSES UE KEE NEES ion the better they can limit the ability of the Current enterprise in raising value and getting better profit Such strength can change over time when sectoral conditions change

Administrators are to identify opportunities and threats that the changes of these 5 factors can bring, then to build up relevant strategy The 5 factors are:

a Potential competitors

These include companies that are not in the sectoral competition but they

are capable to do that if they want For instance the post and telecommunication can compete with banks in money transfer or payment The identification of potential competitors are important, showing potential invaders into the market share So efforts to be more effective and more dynamic are needed

b Current sectoral competitors

This is the level of competition among companies within a sector Because enterprises in one sector are dependent on each other, action of one enterprise usually draw actions of others in response If such competition is weak, enterprises

will have opportunities to raise price and get more profit But if the competition is strong, there might be war in pricing This kind of competition is likely to include sectoral competition structure, sectoral situation and exit restriction

c Power of buyers

Bargaining power of buyers are the third force These might be the end

users, or suppliers, traders, retailers Buyers can be seen as competition threat when

they are able to force enterprise to reduce price or to demand better quality and services On the contrary, when buyers are weak, enterprise will have chance to raise price and to get more money These are relative power of buyers According

to Porter, buyers have the most powers in below cases:

e When the supplying sector is made of a lot of small enterprises and there is a few buyers but with large quantity Buyers can influence suppliers

e When buyers are buying in bulk amount They will then use the advantage

of large amount to request unfair discount

e When the sector depends on buyers because a large percentage of orders are PDF de PMpressor Free Version

e When buyers can shift to cheaper supplier

e When buyers can threat suppliers when they have vertical integration connection This is their tool to reduce price

d Power of suppliers

This is the bargaining power of suppliers They can be threat if they tend

to increase price in supplying or reduce quality that harm quality of final products and services, reducing profitability of enterprises On the contrary, if suppliers are weak, enterprise has the opportunity to request discount and better quality Just like

in case of buyers, this is relative power of suppliers in relationship with an enterprise

e Threats of substitute products

Products with typical features will dominate This threat requires enterprise to analyze and to have close watch on scientific and technological advances, with direct relation to renovation of technology and products Moreover,

changes in demands will be an important factor in creating threats

The study of 5 forces in M Porter model helps enterprise to have a deep understanding on the market, to identify attractiveness of the sector in term of potential profit comparing with investment A sector will be attractive if:

e Just a few entrance restriction

e Firm positions of suppliers and buyers

e Threat of competitive products are huge

e Fierce competition of current competitors

On the contrary, a sector is attractive and profitable potentially if:

e Few entrance restriction

e Weak positions of suppliers and buyers

e Few threat of substitute products

e Medium competition of current competitors

Page 17 of 75

1.2.4 Analysis of internal environment

When the analysis of external environment results in the ability to identify and decide on what an enterprise can do, the analysis of internal environment is expected to help the enterprise to identify what they are able to do, based on the demonstration of strength and weakness that they have to take into considerations

at selecting business strategy

In fact, it is very difficult to have full assessment of internal factors of an enterprise because there are too many factors So to assess the internal environment of an enterprise, it is necessary to identify major factors representing the situation of the enterprise These factors form the value chain of the enterprise and its core ability

1.2.4.1 Analysis of area of operation -Value Chain

The value of an enterprise is measured by the value that buyers are ready

to pay for the enterprise’s products or services The enterprise will have profit if the value it creates is higher than the cost to create it To get a competitive advantage, functional units must create a value at a cost lower than competitor In another way, the functional units must differentiate their products with competitors’, so as to achieve a higher selling price in the market In brief, the enterprise has to pursuit target of low cost leadership or product differentiation

<<}

>| development

Ϡ

e Precious: which helps to exploit the opportunities

e Rare: are those others do not have

e Expensive if counterfeit: due to historical or social reasons or implicit reasons

e Irreplaceable: no equal competitor

Page 19 of 75

SWOT model is the result of research of Fortune’s top 500 companies conducted by the Stanford Research Institution during 60s and 70s to find the reason why a company failed in its plan

SWOT analysis is one of the 5 steps in formulating business strategy including: identifying mission, SWOT analysis, identifying strategic goal, forming strategic objectives and plans and forming strategic supervision mechanism

Strength: is an operation that the enterprise can do good or a feature that promote the competitiveness of the enterprise, for instance:

Valuable ability, know-how

Valuable asset

Valuable human resources

Advantage of low cost due to private production know-how

Easy access to high class natural resources

Easy access to distribution network

Weakness: for instance:

Lack of brand name, know-how, experience or ability

Bad name in the market

High cost operation structure

Less access to natural resources

Less access to main distribution channel

Opportunity: Analysis of external environment can open new opportunity for development, for instance

Good demand

e Coming into being of new technology

of Dk Comp ressor Free Version

asy reg Mlations

e Remove of international commercial restriction

Threat: changes in context or external environment may cause threat to the enterprise, for instance:

e Taste moves from company’s products to another

e Appearance of substitute

e Tighter international commercial restrictions

B EFE — External Factor Evaluation Matrix

EFE is a model used to evaluate external factors; it collects and classifies major chances and threats that the external environment may have on business By this, managers can evaluate the enterprise’s exposure to chances and threats and determine external factors to be chances or threats Steps to build an EFE:

e Make a list of potential factors of major chances and threats to enterprise business

e Classify the factors according to importance in a scale from 0 (not

important) to | (very important) The importance is the impact of each factor

on each field of business

e Determine the weight in range of | - 4 for each factor depending on the level

of influence’s chance/ threat on the enterprise

e Multiply the importance point with its weight to get the final point for each factor

e Sum up all component points to get a total point of the matrix

The higher the total point is, the better the company reacts to chances and threats

C IFE - Internal Factor Evaluation Matrix

Internal factors are very important to the strategy building of an enterprise Strategy planners therefore should point out strengths, weaknesses and ability to

Page 21 of 75

react to changes of all internal factors IEF is often used to help this IEF matrix is built Rf quepressor Free Version

e Make a list of potential factors of major strengths and weaknesses of the enterprise

e Classify the factors according to importance in scale from 0 (not important)

to 1 (very important) The importance is evaluated by the impact of each factor on the success of business The total importance point is 1

e Determine the weight for each factor in scale of | -4

e Multiply the importance point of each factor with its weight to get a point

e Sum up all component points to get a total point of the matrix

The higher the total point is, the better the company reacts to challenges 1.2.5.2 Selection of Strategy with QSPM

Many tools are used to define the best strategy for enterprise business Quantitative Strategic Planning Matrix (QSPM) is a modern approach of strategy administration used to evaluate and select the best strategy On considering what to

do or which way to take, company managers have a list of strategies alternatives The selection process is often subjective and impulsive The QSPM, therefore, imtroduces some approaches to meet technical requirements for this process

QSPM uses the data collected from the previous steps as inputs to help define the best strategy among potential ones for the enterprise to follow

First, have a look into the below example of QSPM which compares

clifferent alternatives Define the feasibility of a strategy by its major factors and weight of importance then make decision

There are 6 steps to develop a QSPM:

(1) List out major external chances/ threats, internal strengths/ weaknesses in the column of the matrix These factors are directly retrieved from the EFE and IFE matrices

(2) With available data, the determination and selection of strategies alternatives wvill be considered They are shown in the upper row of the table

(3) Study SWOT or BCG, Hofer matrices and specify replaceable strategies, note down t P&G? P1951 SG] trategies should be grouped (if applicable) (4) Calculate the attraction points for each strategy Only strategies of the same group can be compared to each other The points are classified as: 1=not attractive, 2=somewhat attractive, 3=rather attractive, 4=very attractive The number shows the relative attractiveness of each strategy compared to others in a group

(S) Calculate the total attraction point by multiplying the point in step (2) with the attraction point in step (4)

(6) Sum up all the attraction points to get the total point of a strategy (on considering all the external and internal factors that may have impact on strategic decisions) The higher this point is, the more suitable and worthy the strategy proves

QSPM shows relative attractiveness of potential strategies and more importantly provides objective grounds for selecting the best strategy However, in order to get exact results from QSPM, business owner should have sharp intuition

to give right points to the attractiveness of each factor Strategies that business owner should use separately or in combination are:

A Strategy of cost leadership

Competing by price is the an overall operation that produce products or services with characteristics accepted by customers with lowest cost in relative relation with competitors

Purpose of the enterprise competing by price is to work better than competitors by doing anything to produce at lower cost than competitor This Strategy has two basis advantages: (i) leader by cost can offer lower price than competitor but keep the same or even higher profit due to his lower cost (ii) leader

by cost can stay alive when number of competitors in the sector increase, forcing competitors to compete by price

B Strategy of product differentiation

Objective of this strategy is to achieve a competition advantage by creating products or services which are unique at some important feature An enterprise

Page 23 of 75

— to meet customers need in the manner that competitors can not do with the fD0sE Cop fl6leht "cai Vận significant level than the sectoral average) Generating income by requesting a higher price of differentiation strategy is higher than strategy of low cost leadership Customers are ready to pay for this because they believe that the differentiation quality is distinguish And pricing for such product is made based on what the market welcomes

C Strategy of focus point

Strategy of focus and attention The basic difference with the 2 above Strategies is that this has direct orientation towards a restricted group or segment A focus strategy will focus on the gap of a specific market

When the enterprise has select a market segment, he will follow a focus Strategy deploying differentiation approach, or low cost approach Basically, an enterprise with focus strategy is an enterprise with differentiation which is specialized or is a low cost leader An enterprise with a focus-cost leader approach,

he will compete with cost leader in market segment whose position is less advantageous

If an enterprise use differentiation approach, he will use all differentiation measures to compete He competes just in one or several segments Moreover, the focus on a narrow scope might allow him to focus on improvement faster than wider differentiation enterprise can do

Focus strategy enterprise usually focuses on creating market in a specific segment If successful, he will start to serve more and more segments, eating

gradually advantages of differentiation enterprise

ED A combination of strategies

Different strategies are not always compatible An enterprise tries to acquire advantages in all aspects, finally will get nothing

For instance, if an enterprise makes himself outstanding (differentiation) tlhan competitors by launching very high quality products, he is likely to run into tlhe risk of reducing quality if he (at the same time) tries to be cost leader Even in

inconsistent image in the eyes of customers Consequently, Michael Porter argued that to POE succese pression dre Eun? sic | enterprise should select only single strategy

If the enterprise is eager to pursuit all the 3 purposes, he will be lost in nowhere and get no competition advantage

Also according to Porter, an enterprise successful at adopting some strategies usually has to divide himself into separate business units with dependant Strategy By separating strategy for units of different policies or even cultures, an enterprise will be able to reduce risk of falling into stagnant status

However, another perspective shows that pursuing one single strategy is not

a right solution, because in one product, customer may like to seek satisfaction in several aspects — a combination of quality, style, convenience and price

Page 25 of 75

PDF Compressor Free Version

CHAPTER 2: ANALYSIS OF VNFI JSC STATUS

2.1 Overview of VNF1 JSC

2.1.1 Establishment of VNF1 JSC

VNF1 Distribution and Retail Joint Stock Company is a member of the VNFI Northern Food Corporation The Company was established and came into operation on the 1“ of July, 2008 according to the direction of the Prime Minister

on the strategic plan for the Corporation in production and trading in the northern areas, from Nghe An Province with the aim to maintain food security in the northern market

“Food security” means there is sufficient supply of food for the society and the food producers are not getting poorer, even in a relative term with the social level In VNF1 JSC’s context, to maintain food security will cover the below tasks:

To be well planned in production and processing of food, to ensure a stable supply to the market

To manage an extensive distribution system to keep the leading role when the market runs into crisis like price fever or shortage of supply

In the long term, to be able to create stable market for farmers, to help them

to have competitive price and to leave no chance for speculation;

To invest for science and technology in rice production to gradually improve the value of this agricultural product, raising farmers’ income This improvement is made through the whole process of rice production, from seedling, harvesting, post harvesting preservation, processing and selling up

to the safety and hygiene standards; to coaching customers of good quality rice and risks of bad quality ones

These tasks will be implemented by a close cooperation among 4 sectors of the state, the scientists, the farmers and the businessmen

VNF1 JSC is young but the food industry is not Food industry in Vietnam came into being at the same time with establishment of the nation in 1945

Hosein with the young nation, the industry had completed its missions through various Fear hi 0 PIRSA & henson struggling against invaders and working out its way in the difficult time of state subsidy and central planning economy, keeping

a monopoly role in the market After renovation during 80s, the sector had step by step caught up with the diversity trend of a freer market However, to be an effective player in the long run, there is no way but to adopt a modern business model in food trading VNF1 JSC is the start for that movement

2.1.2 Capital

Capital of VNF1 JSC in phase | (2008 — 2011) is VND 200 billion, in phase

2 (2012- 2015) is VND 1500 billion with the leading contribution from the Corporation (up to 51%) The rest are contributed by members in the Corporation and other shareholders to increase the charter capital

In phase 1, members in the Corporation contribute by land use right from Ha tinh so as to build production and distribution system, to create stable income for the long term objective of building up the brand of high quality rice

Recruitment has been initially processed in a professional way, with the consultancy of experienced HR specialists

2.1.4 Areas and Activities

VNF1 JSC’s core activities are rice trading Additionally, the Company also thinks of diversity in business operation Their activities are:

Page 27 of 75

e To organize the planting areas; to work as buying agent in the supply chain

and to pr serve the products Vy modern technology

To produce, process and preserve agricultural products, food stuff up to the safety and hygiene standards

e To do marketing, distribution and retails of food stuff, agricultural products and domestics appliances through a chain of modern retails shops including supermarkets, minimarts, specialized shops and commercial centers

e To import- export high quality agricultural products

e Todo commercial investment and services

VNF1 JSC has the operation area of Northern provinces from Nghé An with the total population of 35 million, accounting for 41% of the total nation’s population

The Company currently has 10 high quality rice products

2.1.5 Characteristics of rice trading and the initial role of VNF1 JSC in the market

Rice is an essential agricultural commodity in the daily diet of Vietnamese

In the market now, there is a numbers of types and species of rice with all ranges of prices However their quality and origins are not clear Besides the risk of knowing nothing about the level and dust and hazardous elements in the rice, customers do not have specification of nutrition they can expect in the product

Regarding ways of selling, rice can be sold easily in open markets or by door to door sellers Most of these are traditional markets, not modern ones

At the macro level, rice is political commodity That means any changes in this market can leave an enormous impacts on the economic, social and political life of a nation

Changes have their cycles However, with the development of a flat market like today, changes have more sophisticated pattern and impacts

Figure 2.6 Changes in domestic rice market in 2008 (Source: VNF1 report, 2008)

As a matter of facts, the mastering of information on the status of markets, players in the markets, status of production, stock level, distribution channels, consumer trend and so on, are quite essential

According to a survey by VNFI1 in cooperation with the General Statistics Office over the northern towns and cities from Hue, rice market has the below

characteristics:

Page 29 of 75

e Demand of rice are huge especially in cities including Ha Noi, Hai phong PDE Compresser meee Ab On demand of abundant in supply has shifted into demand of good appetite and standard safety

e Regarding distribution channels, private sector keep the leading role of 90%, food trading companies just have the traditional role of buying agents, preservation store for distribution channels with no attention to quality

e There is no a company who keep the controlling role in storing and circulation of rice The situation is mostly up to the selling power of producers As a matter of fact, and changes in the market can lead to a wild and uncontrollable crisis

e Cooperation in production and the application of supply chain concept is quite poor Farmers are alone in the process of planting, nurturing, harvesting and selling, which lead to the waste of input materials and low quality products

e Buying ability is limited Finally, the producers are the least in the value chain beneficiary

The survey had made 2 recommendations focusing on branding and distribution system development, with details below:

e To set up leading role company to cooperate with scientists, farmers to produce high quality products for customers and to improve farmers’ lives

e To have good control of distribution channels to meet the demand of the market, ensuring food security

It is reasonable to say that VNF1 JSC was established in the right time to experiment such recommendations, contributing to prevent rice fevers through a series of initial actions so as to intensify the distribution system, step by step to stabilize the price and quality, with the direction of the Corporation

e In May, 2008 the average rice price in the country had increased by more than 300% (from VND6,000/kg to VND20,000/kg)

e In October, 2008, 3 months after the establishment, VNF1 JSC has quickly

severe flood VNF1 JSC quick task force of VNF1 JSC being door to door PDE COMREESRQE bese enter of the flood to supply rice, preventing the city from internal rice fever

e In November, 2009, during the price fever of rise of up to 30 — 40% in | week, VNF1 JSC had released its store supplying rice to the population through its own shops and other channels

e VNF1 JSC normally has adequate store level to cope with irregular fluctuations or regular pick time of demand in the market

Behind such issues of distribution is the pressing need for a master strategic plan, with sufficient consideration of internal and external factors, with the focus on confidence of quality and ongoing innovation of products

2.2 Analysis of macro environment (PESTLE model)

Knowledge of macro environment is vital for the business of any product A macro environment (PESTLE) basically includes political, economic, socio- economic, technological, legal and environmental factors A PESTLE analysis

shows some following advantages and disadvantages of VNF1 JSC:

2.2.1 Politics - Legislation

Vietnam’s politics and legislation status is stable The Government has delivered many supportive policies such as lending programs for food production, tax reduction or exemption for cultivating land use, incentive lending for food purchase and temporary storage oriented by the Government’s strategic plan

The Prime Minister and the Corporation leaders have determined that the

food trade and distribution need to be developed properly in order to ensure good

circulation in the market This will help promptly meet the food demand in the

society, contribute to sustain food security and social stability

In the article “Developing the backbone distribution system of the domestic market” published in the WTO information gateway of the Ministry of Industry and Commerce in October 2009, Dr Hoang Tho Xuan, Director of Domestic Market

Page 31 of 75

Lepartment also confirmed the importance of developing a distribution system in sncrhiDMántÐMt?3BKthTS6:NSEIÍ9fuctural and economic ground for the active realization of WTO commitments of commodity distribution system opening

However in comparison with other countries of agriculture strength it saould be admitted that although with attention, the Vietnamese Government has not yet acted practically enough to have a master plan for the development of rice a; a strength Thailand, taken as an example, has a development strategic plan for each 5 years for rice production with a target of raising the ratio of good quality rice beyond 90 per cent As a result, even with choices of special or high quality rice varieties which requires long crop duration, Thailand is still the leading rice exporter in both quantity and price

2.2.2 Economics and Environment

Vietnam’s economy has grown up rapidly in recent years and remains a developing economy Income differs in various social classes and geographical areas The average income per capita has risen well

In terms of economics tight cooperation is enhanced in the production chaser PE Gomepress He EES canton model of “4 partners” including farmers, scientists, state authority and businessmen has proved to be important in agribusiness

Social differentiation is getting clearer A group of people with higher income demands for much better rice In expanded Hanoi now, the living conditions of people tend to be upgraded High-income residents in Hanoi (who desire and afford high quality rice) occupy a large percentage and gather mainly in the old Hanoi territory and some central districts or downtowns of the expanded areas In the provinces listed in the strategic coverage plan, the ratio of wealthy people remains small

2.2.3 Technology

The application of advanced technologies in the phases of production, post- harvest preservation and processing has made great contribution to improve the value and diversity of agricultural products

Specifically, thanks to the development of post-harvest technology, quality criteria can be clearly stated, standard processes are introduced to all phases from

cultivation, harvest to preservation; packages are designed in standard and

comfortable manner Modern technologies also facilitate to restore and promote values of traditional rice specialties Cross-breeding technology helps create high yield rice varieties with good quality However, for Vietnam, the application of high technologies in agriculture remains costly leading to poor competitiveness, especially technology for post harvest preservation

In another aspect, technology of e-time has deep impacts in the way of goods delivery, distribution and terms of payment in all kinds of business

2.2.4 Culture - Society

This factor has deep impact on consumers’ behaviors Vietnamese history originates from wet rice civilization Vietnamese people from the early time has lived on rice as the basic food Rice is indispensable for daily life Many other dishes of Vietnamese people are also made of rice such as cakes, noodles, steamed

Page 33 of 75

glutinous rice, sweetened porridge etc Rice plays a major role in supplying

PDF Compressor Free, Version

energy to peopler particularly Astans

Rice Calorie Supply as % Total Calories

Figure 2.8 Rice as a percentage of total caloric intake by region (2000)

(IRRI World Rice Statistics) However, in Vietnam, the awareness of rice specialties seems vague and by experience It is not supported by published information on rice quality standards

According to a quick survey published by the Corporation in October, 2008,

up to 62 per cent of the interviewees do not know particularly of various kinds of rice in Hanoi market and their choices were made mainly on consulting their familiar sellers

Also according to the survey, up to 86 per cent of Hanoi residents are acquainted with buying rice unpacked from traditional suppliers Traditional supply channels are mainly retailers to both individuals and groups without quality criteria

or any effective methods for controlling safety and hygiene of rice

However, this manner is changing People now tend to choose modern supply channels and package shopping as solution for their busy life, also for rice In response to this demand, many international retailers will soon come to Vietnam 2.2.5 Trend of globalization

Globalization brings back new factors that have direct impacts on business

activities They can be financial crisis, food shortage, and the trend of using substitutions for rice The development of retail trading together with modern consumption methods is also a remarkable factor

According to RNCOS, an international market intelligence firm, the retail market

In Viel h (z9'npw?39idiys ft MENSA BAI rate of 17%, with the total turnover of goods and service reaching VND 580 trillion in 2006 The Association of Vietnamese Retailers (AVR) revealed that by the end of 2007, the total retail hit USD 40 billion AVR predicted the retail turnover in 2008 to be VND 47 billion and 2010 to be over USD 53 billion This

is an important fact for the business planning of retailers in coming years RNCOS also recognizes Vietnam as | of 7 most profitable retail markets in the world The fact is that Vietnam has been an attractive destination for many renown international retailers under modern distribution channels with growth rate as in the below figure:

secking overseas growth Victnam ©

beat China as third hottest market 2

while China slipped to the No 5 spot ©

PRE Gompressog Fires V ($108 neral Director of Trung Nguyen Coffee Corporation, in an interview with Thanh nien paper dated 24 June 2005 titled

“Foreign investors are pushing and extending their investment in the domestic retail and distribution system”, expressed that business mode, goods diversification, pricing, branding, food safety are the advantages of the modern distribution system Modern distribution system will obviously defeat the traditional one in near future

A study shows that in 1990, Thailand’s traditional distribution system occupied 95 per cent of the total system Now the figure is 40 per cent and 2010 is expected to see the reverse of 1990's At present, the modern distribution system in Vietnam counts only 10 per cent However, with the acceptance of 5 to 7 years of non-profit business as initial phase in the penetration roadmap, together with a combination of management experience, financial capacity, effective strategies and fast changes in shopping behaviors, the reverse will be an inevitable

The modern distribution system in Vietnam has developed well with the participation of Big C, Bourbon, Metro Many “giants” like Wal-Mart, Diary Farm are also showing interest in the market

Additionally, in the globalization trend, taxes and tariffs have been abolished That means in the future there will be foreign rice distributors as well as imported rice in Vietnam market The import taxes on rice now average at 40 per cent and will be cut down in coming years Thus the competitiveness in the domestic market is getting tougher It requires Vietnamese enterprises from right now start to equip themselves with necessary technologies, machineries to be the dominator of the inland market and furthermore to be able to export high quality products to other markets

2.2.6 Opportunities/ Threats for VNF1 JSC

PESTLE analysis points out the chances and challenges for VNF1 JSC at

joining the clean/ safe rice market as follows:

2.2.6.1 Opportunities

Vietnam s economy has grown rapidly in recent years (on average of 7%) and people are paying more attention to the living standard and food safety That means people are willing to pay more money to protect their health, especially with safe food

Moreover, people now seem to prefer modern distribution system for the post-sale customer services together with other benefits This is therefore a sound strategy for VNF1 JSC to trade in clean and tasty rice with good service Other factors such as political stability, socio-cultural development will also be helpful if VNF1 JSC can work out a reasonable business plan to meet particular demands of

customers

2.2.6.2 Threats

There are also challenges besides chances for VNF1 JSC:

- Customers are more knowledgeable VNF1 JSC should standardize products and services because any faults in the trading, manufacturing or distributing process will cause huge damage for lost of trust

- The fast development of the market welcomes a large number of domestic and foreign participants This obviously causes tougher competitiveness to VNF1 JSC not mentioning some small competitors with counterfeit and imitation activities

- It is not easy to change shopping behavior of Vietnamese customers Therefore, VNFI JSC should equip themselves with proper resources and strategies when exploring the new market which contains many chances as well as risks For a success, VNF1 JSC should make survey on the market and set up strategies suitable

for each stage then define right policies

2.3 Sectorial analysis (PORTER model)

Besides macro factors, competitiveness among sectorial forces also affects the strategy of a company Based on Porter model, VNF1 JSC faces threats from below forces:

Page 37 of 75