G1 00296 PHÁT TRIỂN CHIẾN LƯỢC KINH DOANH CHO CÔNG TY CỔ PHẦN BÁNH MÌ TRÀNG-AN GIAI ĐOẠN 2011-2016 DEVELOPING BUSINESS STRATEGY FOR TRANG-AN CONFECTIONERY JOINT STOCK COMPANY IN THE PERIOD OF 2011-2016

G1 00296 PHÁT TRIỂN CHIẾN LƯỢC KINH DOANH CHO CÔNG TY CỔ PHẦN BÁNH MÌ TRÀNG-AN GIAI ĐOẠN 2011-2016 DEVELOPING BUSINESS STRATEGY FOR TRANG-AN CONFECTIONERY JOINT STOCK COMPANY IN THE PERIOD OF 2011-2016

GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION

CAPSTONE PROJECT REPORT

DEVELOPING BUSINESS STRATEGY FOR TRANG-AN CONFECTIONERY JOINT STOCK COMPANY

IN THE PERIOD OF 2011-2016

Group: 04

Member:

Nguyen Phuong Nam

Tran Quynh Chi

Phan Dieu Thuy

Dinh Ke Duc Class:

GaMBA XU51U

Hanoi, November 2011

Table of Contents

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1 Strategic management cOnCe Pt ssssissccsiccsicsscssccscsisccsccccscssscesseescsoncssesssoestonsseessonsesteensseasens’s 9 lil Business: Sthategy siiisititycsuenanmnnen el HE Ae RRS 9 1.2 Strategic: Management e28io csssnascrscmnmnimanN ae 46 9

2 The role of strategy to an OrØanÏzfÏOI o5 s00 0n 10

3 The strategic manageMeENt PrOCess ccccsscssccsscsssscsssccssescscssssenssesssssssesssssssoesseses 10 3.7 Defining the organizationaÌ mISSIOI - 5c 2221211211911 12 1 11 1 H1 tt ng Hư 10

3.2 Environment analy siSvxsve sr anensmeme ee ieee 11

3.3 Defining long term goals and planning for the business strategy - 13

3.4 Defining action plan and strategy implementation soÏutiOnS - ¿5-5-5 55+ 5+ c+<ccrxs+ 13 3.5, Evaluation and adjustment vcwncummuneniianiin anaes i dawwenauwaumncnmmnwawe 13

4 Tools for creating and selecting business strategy s.scccsscsssscssrscsssesserssessesserees 14 4.1 External factor‘evaluation Matrix = EF Bszsseewiee cand ieee Ls heencnsciens 14 4.2 IFE Internal factor evaluation matriX - [F E - 5 1S vn HH gưưệt 14 4.3 SWOT Matix wxconsncnnnmmnee 15

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CLAD LEN, là kg tá bệ Gataabidiigkorgvsoi0is18500021606612/08800040461640xia4404003000ãAi08558368868leae 17 ANALYSIS OF CURRENT SITUATION OF TRANG AN JOINT STOCK COMPANY šã501125630G/0x44@đi@464@QfĂSti018i8X8ã18G18S80888818881-asspsiiSifiststvtiilijjtsxggligiiitiiiiasssasuai i7

1 General introduction of Trang-An Confectionery Joint Stock Company 000 17

ld History of establishment and development - tt TT HH he 17 1.2 Business fields and main product OÍÍ€rinBS: . - c1 1 vn HH H111 tr 19 1⁄3; BUSIRESS GD]€GLVESkoatisaccnussaaatipssrasgnggasitgposliqtittapllltGxbaituililitft\f lu eisskeesgiasiak 20

ld Consuming market and sales methods jsccsceeiiccelnnnne aie aetna 20

2 Analysis of the company’s business operations situation from 2008 to 2010 21

2] Company’s performance ffom 2008 to 2010 isnt Sinner BE eee Analysis of business environment of Trang An joint stock company in 2008-2010 period 25

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SIRATEGIC ORJECTIVES POR suacguurioograatiinetbxotaiskklikteiseidagiinebledbxepielkdldaessazsssosgs 47 THE COMPANY'S DEVELOPMENT AND SOLUTIONS sscisscsssssssesssnvesssonoversenonsansensnss 47

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2 Developing strategic Alernative’ cescescercercessessecrssserscencecsccessesscensenssersensesccessessessesseeseees 49

Dike SWOT Matrix secret tet ne RI 49

2.2 The Quantitative Strategic Planning Matrix c2 2 22 HH Hư 52

3 Strategy selection c-.e.-ce-csecesscee co TT DiS 55

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LIST OF ABBREVIATIONS

CEPT Common Effective Preferable Tariff

IROE ———TReumonEquV

EIU Economist Intelligence Unit

HACCP Hazard Analysis and Critical Control Points

R&D Research and Development

EFE External Factor Evaluation

IFE Internal Factor Evaluation

QSPM Quantitative Strategic Planning Matrix

SWOT Strengths - Weaknesses — Opportunities - Threaths

capstone

We have further more to thank the Directors of Trang-An Confectionery Joint Stock Company as well as its related Departments for their provided relevant information, data and their supports for our Capstone

TT

We understand that due to our lack of experience and limited information, our

Capstone would have some shortcomings However, we would really appreciate all comments and suggestions for improvement in order to make the Capstone become, somehow, more applicable and more meaningful to the current context of Trang-An Confectionery JSC

Even though this Capstone is our first ever carried-out research, we know that what

we learn from doing the research will help us a lot not only in our professions but also in our future academic pursuits, and we believe that al! the theoretical and practical business strategies withdrawn from this Capstone will bring us with

success in our career

WORDS OF REASSURE

We affirm that the work of this Capstone is our own research and all the

information and data used are true

Hanoi, Novemvber 2011

Group 04 - Class GAMBA X0510

no longer the play ground of only domestic companies, that the competitive pressure becomes more intense is unavoidable to each business In order to reinforce the company’s brand name and enhance its position domestically and internationally, especially when Vietnam joined the WTO (World Trade Organization) and Common Effective Preferable Tariff (CEPT) come into effect, making import taxes significantly decrease, the researching of strategic direction for business model of each company is very important All the above factors require Vietnamese enterprises, including confectionery manufactures to correctly identify their roadmap, in order to survive and prosper Therefore, finding an effective strategy which will help the business follow the right track is essential

Trang An joint stock company is a business entity newly equitized since 2004, changing its operation format from the state-owned into corporation one Because of the influence of domestic and international economy regarding the fluctuation of exchange rate and high inflation, affecting living standard, the development of the company faces many difficulties The company has to confront fierce competition among confectionery firms both inside and outside Vietnam Besides, the demand from customers becomes higher and higher in terms of quality and packaging In order

to find a solution to maintain Trang An’s position in the future as well as apply the theory studied in Graduate level, we select the topic of: “Developing business strategy for Trang An confectionery joint stock company in the period of 2011 - 2016” as the research topic

1 Researching objectives

The research based on applying theories of strategic management in business and practical analysis of micro and macro environment, regarding production situation of Trang An joint stock company, to find out a suitable business strategy Besides, some solutions are recommended in order to successfully execute the proposed strategy, assisting the company in maintain its position and grow into the leading confectionery brand in Vietnam

lu Researching scope

The researching scope covers all issues related to production and business functioning of Trang An confectionery company from 2008 to 2010, as well as the development of the company in the years to come

3 Research components

Besides the introduction, conclusion and appendix, the research includes three main chapters:

- Chapter 1: Literature Review

- Chapter 2: Analysis of current situation of Trang -An confectionery joint stock company

- Chapter 3: Developing business strategy in the 2011 — 2016 period and solutions for strategy completion

CHAPTER 1 LITERATURE REVIEW

1 Strategic management concept

1.1 Business strategy

The strategy concept has been established for a long time ago, originating from the military Currently, there are many different definitions of strategy

- According to Pred R David: “Strategy is the means to achieve iong term goals”

- According to Haroid Kooniz and other authors in “Essential issues in management”, strategy is an action plan toward achieving specific goals The major strategies of an organization involve objectives and human resource commitment to reach these objectives, and main policies to be followed when utilizing this rescurce

- According to Alfred Chandler: “Business strategy involves setting up major long term goals of the business, as well as selecting the action method or process and allocate the resource to do that”

We can summarize the above and define strategy and business strategy a followed: Strategy is means, the ways built up in order to reach long term objectives Business strategy involves unifying the goals and action methods to achieve common business’ goals in a specific period Business strategy can be about geographic development, diversification, product development, new market entering, cost saving, liquidation or partnership

1.2 Strategic management

Strategic management is an art and science to make, conduct and evaluate

decisions related to different functions of an organization, so that the proposed objectives can be achieved Strategic management concentrated on unifying the management, promotion, finance and accounting, production, research and development of the information system for various business fields; all aim at

9

achieving organizational success Strategic management includes three stages: strategy planning, strategy implementation, and strategy evaluation

2 The role of strategy to an organization

Business strategy in organization plays a very important role to the development of that organization It helps the firm to define the direction in the future, point out the solution to employ and effectively utilize the resource, in order to compete successfully specifically to allow the’firm to achieve the proposed goals Currently in Vietnam, the majority of business is small and medium ones

Strategic planning is a process to define the major directions which allow the company to change, improve and reinforce its competitive position The application of strategic planning is almost done by big companies When the firm outlines the future objectives, its actions will be directed to those objectives This will create the consistence of decisions

It can be said that an organization’s business strategy reflects the future image of itself Therefore it shows the qualitative and quantitative results in the future of all the company’s actions This will gather individual contribution to the formation of that strategy More importantly, it will encourage all the members of the company to execute that strategy

3 The strategic management process

3.1 Defining the organizational mission

Mission can be understood as the reason to survive, the meaning of the business creation and existence The organizational mission is the company’s proclamation toward the society Normally, mission includes issues such as target customers, the offiered products or service, the market, technology, philosophies, concerns about the community, human resource, etc Mission shows the complete picture of the company

in the future Mission is the important basis for selecting objectives and development Strategies correctly

Defining the business objectives:

10

Objective is the specification and the motivation to successfully execute the

proclamation of organizational mission

3.2 Environment analysis

The operating environment of a business includes both internal and external environment They directly or indirectly affect the existence and development of the business Therefore, the research on internal and external environment is very important in strategic planning

3.2.1 Analysis of external environment Macro environment

- The economic, political and legal environment: Business has to fully understand the economic and political trends, as well as the policies of the Government because these factors deeply affect the development of the business

- Technological environment: The new technology helps producing new products at lower, more competitive cost In the same time it shortens the product life cycle, reduce production and labor costs, etc

- Cultural-social environment: The characteristics of Vietnamese consumption at each area are different in terms of preference, and carrying the geographical distinction Lifestyle or demographic also affect the demand and preference of the consumers

- Economic factors: Because the domestic economy experiences fluctuations, inflation is high, and food price keeps changing, people’s life is significantly influenced Those changes lead to uncertainty in consumption demand

- Demographic environment: The population size, the growth rate of population, and the population structure also affect the business

- Natural factors: Vietnam locates in the tropical areas, so the weather’s influence

makes the reservation process important Companies also need to examine the input carefully so that they fit the modern machines and equipment but suit the price level to bring adequate quality to consumers

Industry environment:

11

The analysis of industry's environment will examine the factors that directly affect the operation activities and results of the business The competitors and other competitive products will also be identified, so that the right strategy to compete with them will be established, expanding the market share and revenue The tool to be used

is Michael Porter’s five force model

Figure 1.1: Model of Five competitive forces by Michael Porter

ets sta HA shennan anise

The competitive forces are:

- The new entrants: When the new competitors enter the industry, the business’ market share and profits will be reduced

- The substitutes: The substitutes limit the profit potentials of the business, and threaten its market share

- Customers: How customers trust the business and the development of potential customers are very important to the success of the company

- Suppliers: Include the partners that provide the inputs such as materials, machinery, finance, human resource, etc

oy

- Competition among rivalries: This is the competitive force that always directly threatens the companies When this threat gets higher, the company’s position and existence will be more endangered

3.2.2 Analysis of internal environment

The internal environment of the company includes factors that company can control itself, such as management, production, finance, accounting, infrastructure, marketing, public relations (PR), human resource, information system, etc Analysis

of internal environment helps the company define its strengths and weaknesses, and produce suitable strategy afterwards

3.3 Defining long term goals and planning for the business strategy The long term goals are the desired results of the business, created for a relatively

long period of execution The duration to reach long term goals or implement the strategy is usually longer than 2 years During that, the company can divide the long term goals into short term ones which suit shorter period

If the goals are created correctly, they will be both the motivation and measures for strategy execution Normally, goals have to ensure the practicality, the flexibility, the precision, the consistency and being time specific

3.4 Defining action plan and strategy implementation solutions

This is the process of establishing the policies, proposing plans of allocating the company’s resource to execute the solutions for major strategies This will help the company effectively utilize the resources and competitive advantages, create the overall strength to achieve business success

3.5 Evaluation and adjustment

Because of the rapid changes of environmental factors, it is difficult for future forecast to be exactly correct Therefore during execution the business has to continuously evaluate and adjust them

4 Tools for creating and selecting business strategy

In order to create strategy different methods and tools of strategy creation can be applied Within the scope of the research and the Trang An confectionery joint stock company s situation, we selected and used the following tools:

4.1, External factor evaluation Matrix - EFE

External factor evaluation matrix is a tool that allows evaluating the level of influence from the external environment to the business EFE Matrix is implemented via S steps:

- Step i: Listing the major external factors

- Step 2: Weighting the level of importance for each factor from 0 (least important)

to 1.0 (most important) This rating will show the importance level of each factor

to the success of the industry in which the company operates

- Step 3: Rating each factor that affects the success from | to 4 to identify how the current strategy that the company employs reacts to that factor

- Step 4: Multiply the weight of each factor with the correspondent rating of its to define weighted score

- Step 5: Sum up the weighted scores from all the factors that affect the industry The average score is 2.5 The total weighted score lower than 2.5 indicates the weak reaction to the environment and which is higher than 2.5 indicate the strong, positive reaction

Using EFE helps forming the general picture of the external factors that influence the competitive capability of the business However, the rating as well as defining the weight is relatively subjective

4.2 IFE Internal factor evaluation matrix - IFE

Similar to the steps and methodology of EFE, internal factor evaluation matrix is a tool to evaluate the strengths and weaknesses of the company’s functions

14

4.3 SWOT Matrix

SWOT Matrix evaluates the business” strengths, weaknesses, opportunities and threats The objective of researching the environment is to define the threats, Opportunities as well as strength and weaknesses that the company currently confront

or will encounter during the business process, and this will be the basis for strategy creation SOWT analysis technique is a tool for summarize the environmental research results and propose the strategies

- Main opportunities: are the ones that their multiplication of influence power to the business, once they are used and the possibility that the company can effectively take advantage of them at highest level

- Main threats: are the ones that their multiplication of influence power to the business, once they happen and their possibility of happening at highest level

- Defining the major strengths, weaknesses: the process of evaluating and analyzing the internal environment of the company may indicate many factors, but it is important to define which ones are essential factors that affect the company’s competitive position and strategy’s implementation The factors should be viewed

as different activities within the system, and compared to the industry’s and main competitors’ benchmarks

- Combining the internal and external factors: After defining the essential factors from internal and external condition, it is necessary to apply a process involving the following steps, to analyze and propose strategies:

e Step 1: listing major factors from internal and external factors into different fields of SWOT matrix

e Step 2: Logically proposing the combination of each pair Creating combining strategies S/O, S/T, W/O, W/T

e Step 3: Proposing the combination of 4 factors S — W — O -T This aims to create the mixture of 4 factors which helps the business utilize its strengths to exploit opportunities, improve the weaknesses and reduce the threats

e Step 4: Summarize and review the strategy Categorize the strategies and combine strategies into a system with supportive components

The advantage of this matrix is that the company’s strengths, weaknesses, opportunities and threats from external environment are clearly indicated This helps creating the strategies based on strengths, weaknesses, opportunities and threats for the company to execute

4.4 QOSPM Matrix

This analysis technique will objectively show which alternative strategy is the

best QSPM Matrix uses the input from the analysis of EFE matrix, IFE matrix, etc and then receives needed information to create QSPM matrix from SWOT

Therefore, from the analysis of the strategy creating tools above, it can be seen that each tool has its own advantages and disadvantages In practice, when applying them, we should flexible in selecting the appropriate strategy for each situation

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CHAPTER 2 ANALYSIS OF CURRENT SITUATION OF TRANG AN JOINT STOCK COMPANY

1 General introduction of Trang-An Confectionery Joint Stock

Company

1.1 History of establishment and development

Trang-An Joint Stock Company operates in the confectionery field After the equitization, the company has become one of the 100 leading confectionery companies in Vietnam, continuously achieving awards such as: High quality Vietnamese good certificate, Vietnam Golden star, Vietnam prestigious brand names, etc

- Formerly known as Hanoi confectionery Public — private partnership Manufactory (established after The Capital industry restructuring in the Northern Vietnam), in

1975, it was divided into 2 Manufactories: Hanoi Confectionery (belonged to Department of Trade) and Hanoi Sweet Manufactory (belonged to Department of Industry)

- On April 18" 1975, Hanoi Sweet Manufactory was established as a unit of Hanoi Department of Industry, located at 204 Doi Can Street, Ba Dinh District, according

to decision number 53/CN — UBHCTP

- On August 1* 1989, Hanoi Sweet Manufactory was merged with Nghia Do powder Manufactory and had its name changed to Hanoi Sweet factory, according

to decision number 169/QD — UB The factory included two branches which were Cau Giay (Quan Hoa Ward) and Nghia Do (Nghia Do Ward)

- On December 8” 1992, Hanoi Sweet factory was renamed as Trang An Confectionery company according to decision number 3128/QDUB of the Chairperson of Hanoi People’s Committee

- On December 29" 1999, a part of Trang An confectionery company at Quan Hoa Ward, Cau Giay District was equitized, becoming Quan Hoa Sports and

17

e Company name (in Vietnamese): Công ty cổ phần Trang An/ Trang An Joint Stock Company

e Company name (in English): TRANG-AN JOINT STOCK COMPANY

e Transaction name (abbreviation): TRANG AN, JSC

e Head office: No 1 Phung Chi Kien, Nghia Do, Cau Giay, Hanoi

e Phone number: (84-4) 2679999 Fax: (84-4) 7564138

e Business type: Joint Stock company

e Charter capital: 22,200,000,000 VND (Twenty-two billion two hundred million

Vietnam dong)

e Business license number: 0103005601, issued on October 1° 2004

e Issuing agency: Hanoi Department of Planning and Investment

e Owner: Viet Ha manufacturing, investing and servicing company

Organizational structure of Trang An Confectionery Joint Stock Company:

| plansto | | | | | and | tof | ] and

| produce | | Office Marketing | QC Room ¡developme | Finance | | Electrical

| Room (KSC) | sont and Engineerin

Currently, the company operates in the following fields:

e Manufacturing, trading Industrial — micro biological foodstuffs; exporting and importing products such as: materials, ingredients, condiment, addition, equipment, accessories related to industrial — micro biological foodstuffs

The main products of the company are confectionery: high quality Chewy candy fruity hard candy, lollipop candy, waffle, Teppy Snack, Golden Coin biscuit, French cake — Paris Pancake, Tyti New energy bread All of these products have the signature taste of Trang An confectionery because they are manufactured by modern technology and target specifically to a group of customer Therefore, Trang An confectionery products always receive favor and enthusiastic support from consumers, especially children

1.3 Business objectives

- Continue improving shareholders’ value

- Improve accumulation, expand operation

- Fulfill obligations to the Government

- Improve income of labors

1.4 Consuming market and sales methods

Consuming market has significant influences on the sales level of the company Consuming market to be discussed include both the scope of the market and the purchasing power of the market If the company has wide market with high purchasing power, it will have favorable payment conditions and opportunity to increase revenue Therefore, exploring and expanding the target market are very important However, in the aggressively competitive environment nowadays, each

product should have a suitable market segment to maximize the profit from it, and

then maximize the company’s benefits The choosing of distributing, selling and payment method also affects revenue of the business As a result, in the market economy, in order to increase product consumption, the business should apply flexible distribution methods The company conducts distribution process via two main channels, which are direct and indirect channel The indirect channei is currently the

20

main distribution channel of the company The distribution system of the company is divided into 7 areas with more than 70 first level agents and hundreds of second - level and third - level agents

The products of the company are mainly consumed in Northern and Northern Central cities and provinces but in the Southern Vietnam, the number of product consumed is insignificant The company is constructing the second Trang An manufactory in Nghe An in order to expand the market in Central and Southern Vietnam The company also exports products to some countries such as China, Thailand, Laos, but at a small scale only

2 Analysis of the company’s business operations situation from 2008

to 2010

2.1 Company’s performance from 2008 to 2010

2.1.1 Summary of company’s performance from 2008 to 2010

In 2010, although the domestic economy had to face many difficulties due to negative impacts from the world economic crisis and the budget tightening policies to reduce inflation, the company’s operation still progressed, continuing to be higher than previous years The revenue still reached the goal of growing approximately 47%

in 2010 and 86% in 3 consecutive years

Table 2.1: Some general figures of company’s performance from 2008 to 2010

-1 | Total Revenue ‘Million VND | 138,988 | 207,161 239,853 |

7 Payment to state budget Million VND 6,698 7.972 9,271

VND/month

~ (Sowree: Financial report of Trang An join stock company in 2010) - According to the above table it can be seen that all the objectives of business performance gradually increased from 2008 to 2010, proving that the company has sustainable and positive growth

Particularly, the company’s working capital kept increasing from 68,461 million VND in 2008 to 119,263 million in 2010, marking 74.2% increasing, showing that the business scale of the company is expanding

The total revenue of the company increased from 138,988 million in 2008 to

239,853 million in 2010, net revenue increased from 138,147 million to 234,247

million in the 2008-2010 period As a result, the company’s profit after tax increased

from 4,396 million to 8,032 million in 2010, (including the value added tax), in which

the state budget up tons from 6.698 million to 9.271 million, profit after tax increased from 3.780 million to 7.028 million, EPS also went up from 1,718 VND/share to 3,194 VND/share, marking 86% increasing in just 3 years This achievement was resulted from the coordination and thorough development over all business aspects

2.1.2 Some financial indicators

Table 2.2 Some financial indicators of the company from 2008 to 2010

4 Interest coverage ratio Soba 3.19 5.51

I] Capital and asset structure ratios —

1 Debtratio(%) - 62.07 73.81 75.80 |

2 Owners’ equity ratio (%) 37.93 (26.19 24.20

3 Investment in current assets(%) 4001 4919 3253 -

4 Investment in long-term assets (%) 59.90 3 50 081 — 6747 -

(Source: Company Ha Thanh Securities Joint Stock 2010)

In terms of the payment capability: According to the above table, it can be seen that all the liquidity ratios of the company is smaller than |] and have the trend to reduce progressively This shows that the company’s liquidity is relatively low, which makes it difficult to apply loans and negatively affects the company’s reputation Therefore, in the time to come the company has to make more specific plan of structuring the capital

In terms of the capital and asset structure: The debt ratios of the company have the increasing trend from 62.07% in 2008 to 75.8% in 2010, proving that the company

is expanding production mainly by the loaned capital At the same time, the proportion of Government debt of the company is quite high, compared to other

cỗ

companies in the field This indicator of Bibica is 28.98%, of Hai Ha is 38.89% and of Northern Kinh Do is 62.66%

The rate of investment in long term assets increases from 50.81% by the end of

2009 to 67.47% in 2010, mainly because the company increased investment into fixed assets to expand production, specifically expanding the market and building Trang An 2 factory in Nghe An in the future

In terms of the efficiency ratios: The number of capital turnover decreased from 2.33 in 2009 to 1.96 in 2010, proving that the company’s efficiency in using capital decreased This of Northern Kinh Do is 1.13, of Bibica is 0.93, of Hai Ha is 2.31, so in comparison to the industry, the company’s indicator is still high

In ¢erms of the profitability ratios: average than in 2009, all individual coefficients profitability of the company are reduced The ratio of net profit on sales decreased from 27.3% in 2009 down 3% in 2010 and compared to industry norms, then this

is lower than industry average This indicator is at 9% Bibica, Hai Ha is 14% and the northern capital city is 13% Compared to industry average, the profitability indicators of the company is relatively low with only half the industry average candy

Profit equity decreased from 24.51% in 2009 down to 23:53% in 2010 But compared to the norms of this sector remained high, in 2010 this ratio was 12% longer Bibica of Hai Ha is 25% Compared with the industry average profit rate of the Company is approximately equal to the industry average is a good sign for the company in the middle of a difficult market today

In conclusion: During the past 3 years, the financial performance of the company has some main features: the asset amount increased, the long term asset amount increased and contributed the main proportion in the total assets, proving that the company has expanded its operation and invested into infrastructure Debt ratio of the company is still high and continued to rise, due to its plan of building secondary factory Trang An 2 in Nghe An Although still facing many challenges, the operation

In the coming time, the economy’s prospect for growth ts positive, as according

to Economist Intelligence Unit (EIU) — the agency specialized in analysis and forecast the world’s economy, forecast that the average rate of Vietnam’s economic growth in the period 2011-2020 to be 5.4% per annum, higher than the average of the most economically dynamic area in the world, i.e the Asia at 4.9% This leads to many opportunities for various industries, especially the confectionery industry According

to a forecast of Department of market analysis and research, in the period of 2011-

2020, besides the Information Technology industry, the confectionery consumption market will also expand greatly, accounting for about 35% of the total market When life becomes more and more stable and growing due to the trend of integration and development, human’s needs also increase beyond the basic needs of daily fulfillment The youth’s demand of consuming confectionery and the trend of using confectionery

in communication at other services have become popular and increased Besides, as Vietnamese people have the tradition of emphasizing relationships, the demand of buying gifts to express gratitude or build relationships has increased not just in holiday, so the rate of product consumption may increase Therefore, the confectionery market can be considered stable, potential and available to investment, development and challenges

The high rate of economic growth leads to higher average income per capita

In 2007, Vietnam’s GDP was approximately 1160 USD per capita, 80 USD higher than the previous year

Table 2.3 Growth rate of Vietnam’s GDP in the 2001 — 2010 period

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~ (Source: The World Bank, World Development Indicators) —

According to the above data, Vietnam’s economic growth since 2001 was quite high This is one of the positive impacts on businesses operated in Vietnam in general and Trang An in particular The high GDP leads to high GDP per capita:

Table 2.4 GDP per capita in 2001 — 2010 period

The rate of economic growth and GDP per capita influences the consumption

of confectionery products When the economy grows strongly, the income of peple is high, the physical needs are generally fulfilled, demands for nutrition, gift givings of high quality foodstuffs, including confectionery also increases and vice versa

>» Vietnam’s integration into the global economy:

When Vietnam joined the World Trade Organization (WTO), it must reduce the import tax as committed Specifically, about 36% of import tax items in the tariff will be cut This cutting process will take 5 to 7 years The industries with the most tax reduced are textile, aquaculture, popular machine and equipment manufacturing, automobile and automobile accessories, foodstuff production, etc This will significantly affect the domestic production if there is no adjustment solution, because the partner countries also possess production and export advantages

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As Vietnam involves more deeply into the World economy, domestic companies find it advantageous to expand the market, expose to modern technology, enhance management capability, etc On the other hand, it also creates competitive pressure to domestic companies, forcing them to restructure the operation, reduce prices, etc to adapt to the new environment

» Political and legal environment:

Vietnam’s stable political environment has a critical role in economic development, solving unemployment and increasing labor’s income, therefore increasing consumption demand of the society

Following the trend of integration into the regional and global economy, The National Assembly has issued and continued to complete the legal codes such as Commerce Law, Enterprise Law, Investment Law, tax Law, etc, to speed up the renovation process in Vietnam The legal constrains to confectionery industry mainly relate to food safety and consumer’s right These are issues that Trang An has paid attention to for years and set as long term focus

> Cultural - Social environment:

Going through the long history, Vietnam’s culture has been influenced by the integration of different cultures, but the most influential one is from China Because of the long period under the domination of France and America, the attitude of favoring imported goods is still popular; people easily change to imported goods when they are advertised and have adequate condition Consuming imported goods is also a way to

express their social status

Vietnamese people are very friendly; therefore activities such as visiting each other and giving gifts are common Confectionery is one of the most popular gifts in these occassions Vietnamese people also emphasize guest treating, as a result there appeared the culture of “Welcome the guest by tea or confection”, therefore confectionery is indispensable part in each Vietnamese family

» Population:

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Vietnam is a densely populated country with more than 84 million people, ranking 13" of population in the world The annual growth rate of population is approximately 1.57% Vietnamese population is young, with 61.7% under the age of

30, so Vietnam is truly a potential market for foodstuff industry in general and confectionery industry in particular Although the urbanization rate is high, 74% of Vietnamese population still live in the rural area, with low income, mainly from agriculture, so Trang An’s revenue and strategy are affected accordingly

> Techonology:

Comparing to other countries within the same region and over the world, our capability of researching, implementing and transferring technology is very weak, especially in terms of biology, mechanic, production and automation technology The technology level of ours in general is decades behind the world This is a major disadvantage to Vietnamese companies and Trang An regarding upgrading equipment, implementing technological process and new products to compete with foreign competitors Although the market for trading and transferring technology has improved, it just supports the company to compete with domestic companies, not with foreign producers, as the company has to bear the pressure of very high input’s prices and transferring price

2.2.2 Analysis of the industry environment Using Michael Porter’s five - force model of Analysis of competition pressure from the industry rivals

Accurate estimation of the capacity of the market is very important, as this is the basis

to create business strategy However until now there is no official statistic of the total confectionery amount of Vietnam

Table 2.5: The estimate of Vietnamese confectionery market value until 2015

(Source: Market research department, Ti rang An joint stock company)

ee sel

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‘As forecast, Vietnam is a potential market for foodstuff consumption and confectionery consumption in particular In 2011, the total amount of confectionery consumed in Vietnam is 223.000 tons, and in 2015 this figure will increase to 304.000 tons The average confection consumption per capita in Vietnam is still low comparing to the population growth rate Currently the rate is just 2kg/ person/ annum This rate in 2015 is estimated to be 3.18 kg/ person Therefore it can be concluded that Vietnamese consumption capacity is very potential, opening for investment and full exploitation

Within the confectionery industry of Vietnam, there is a fierce competition in order to gain market share The current market share of the company is estimated at 12%, mainly at the Northern and Central Vietnam The Southern market is still left open and unfocused The company also has some products exported to foreign countries but the market is small and competitive capability is low Companies operated in this filed do not only include domestic firms but also various foreign ones Besides 30 small and medium confectionery producers there are many manual, private

producers The direct competitors of the company include: Hai Chau Confectionery

Company, Hai Ha Company, Huu Nghi Company, Kinh Do Company, Hanoi Confectionery Company, etc The product offerings from these firms many not outstand those from Trang An, but they are sill preferred by consumers and have bigger market share, partly because those companies take advantage of widespread advertising and promotion campaigns in order to impress and arouse customer’s curiosity, via packaging and unique advertisements Besides, they go ahead in investing into modern technology and continuously release new products Other competitors from foreign countries also enter Vietnam’s market These firms have competitive products with specific strength such as Wonderfarm (Malaysia), URC (The Philippines), products with American, French, German, Dutch, Swiss, Chinese, Indonesian, Thai, etc labels The confectionery market has seasonal characteristic, the amount consumed increases greatly after September of Lunar calendar until Lunar New year in which major products with traditional Vietnamese taste such as high

ao

quality biscuits, hard candy, soft candy, jam, nuts etc are sold well About the market Share in terms of distribution: in the super markets, Vietnamese confectioneries always account for about 70% those from close neighbors such as Thailand, Malaysia, China account for about 20%, European ones account for 6 — 7%

The confectionery market has many companies competing with each other; each one has its own advantage There is no domination from a single company

We can review some information of several companies which has solid position

“over Vietnam’s market:

The first to be discussed is Kinh Do Joint Stock Company, currently takes the biggest market share in confectionery industry This company has some highly

competitive products such as Snacks, Cookies, etc The amount consumed of one

year always doubles that of the previous year The distribution system is wide spread over the country with more than 150 distributors and 30,000 retailers Not only well-equipped, the company also has gained a firm position in the market In Six consecutive years, this company’s products are awarded Vietnam’s high quality

goods

The second company to be reviewed is Bibica, one of the leading confectionery companies in Vietnam The strength of the company lies in products

such as: Biscuits, Cookies, hard and soft candy Besides Bibica is the first

company to introduce nutritious for people with diabetes mellitus This is a remarkable move of Bibica as it impresses customers for the level of market research and understanding This is the first confectionery company in Vietnam applying the ISO 9001 - 2000 quality control system

The third company is Ha Chau Confectionery Company The company has the total capital of more than 60 billion VND and productivity of 6,000 tons/ year Hai Chau has focused on diversifying products and enhancing the quality; this company has invested more than VND15 billion into the chocolate waffle production machineries from Germany and Dutch, while restructured the agent system with more than 200 agents and super markets over the country The strengths of Hai Chau are:

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the company has established reputation in confectionery industry, wide range of products, wide distribution system mainly in Northern Vietnam and relatively cheap pree However most of Hai Chau’s products have average quality, unattractive packaging, except for cream waffle which is the mainline product and has high quility The goal of the company is to maintain the Northern market, expand the maket domestically, and gradually reach to higher income segment and the foreign market

This is just three examples of strong confectionery brands in Vietnam’s ma-ket There are many other firms which are not only domestic ones but also forzign ones operating and obtaining solid position in the market All those companies have products with specific competitive features

Despite the intense competition among Trang An and the others within the indistry, in 2010, the productivity level of Snack products still increased at 6.5% and reached 1,454 tons, 64 tons more than that in 2009

In 2010, the mainline product which is soft candy still maintained its position The consumed amount increased 166 tons compared to 2009, or 13.53%

The hard candy products of the company’s increased 47 tons in 2010, with the increase rate of 10.32% in comparison to 2009

French cake is the product which had the highest increased amount among the major products of the company The amount consumed in 2010 was 885 tons higher than in 2009 (with 278 tons), or 45.83% This is the new product of the company for the new high-end segment

Facing the economy in the stage of integration and development, the competition has become keen No business can stand outside the circle of competition, including Trang An Therefore, the essential step to take is to establish a long term Strategy to each development stage, making it stable and sustainable One of the Strategies that the company chose is to develop the market and develop the product in the time to come Therefore, it can be summarized as: The competitive pressure from confectionery rivals is very high, and in order to survive, it is essential that the

company find out and apply effective solutions to leverage the productivity,

competitive capability and reputation over the domestic and foreign market The

following is the table of competitive profile for confectionery industry:

Table 2.6 : Competitive Profile Matrix

- Analysis of the pressure from suppliers:

The input used in producing confectionery diversifies in terms of types and

qualities The main materials that the company uses in the production process include:

e Sweeteners: accounts for 70-80% in candy; also in biscuits and bread but at

lower level The main type of sweetener to use is granulated sugar, high quality

starch which has no affect on consumers’ health

e Fat: mainly imported

e Milk: includes condense milk, high fat milk powder, low fat milk powder (milk

powder or extracts from butter), and cream

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