The distribution strategy of OTC (over the counter) products for unites pharma international in Vietnam market

CAPSTONE PROJECT REPORT THE DISTRIBUTION STRATEGY OF OTC OVER THE COUNTER PRODUCTS FOR UNITED PHARMA INTERNATIONAL IN VIETNAM MARKET Group No.: 9... LIST OF ABBREVIATION UPI : Unit

CAPSTONE PROJECT REPORT

THE DISTRIBUTION STRATEGY

OF OTC (OVER THE COUNTER)

PRODUCTS FOR UNITED PHARMA INTERNATIONAL IN

VIETNAM MARKET

Group No.: 9

ACKNOWLEDGEMENTS

Firstly, we would like to thanks the University of Griggs-National University

of Hanoi for providing us with this MBA program Our group also send our great thanks to all teacher ,specially Dr Le Van Bay for instructing group to conduct the thesis, to Prof Dr Nguyen Van Dang and Dr Nguyen Tan Binh for providing the group, and the C0110 class with valuable lessons, to Mr Vu Thai Ha, on behalf of National University of Hanoi - Griggs University in the south - Vietnam for sharing, contributing and co-organizing studying program which provides us with helpful knowledge in the subject as well as in the curriculum We also appreciate all sharing and contributions of teachers and classmates in the course during this MBA classes

Group 9 consists of five members of C0110 course with the thesis of The Master of Business Administration, University of Griggs studied by our group

Theory and related data in the thesis was collected by ourselves at the company of UPI and reference from sources such as textbooks at the University of Griggs, textbooks and other reference materials in Vietnamese and English as well

as from magazines, internet The facts collected from the market research of BMI,

AC Nielsen,IMS with useful and practical information

From the source of these documents and based on the approved outline, we have completed this thesis The solution for distribution strategy of UPI Company was made on the basis of theories learned and the experience of each members of the group Also through this thesis, the team members have accumulated some valuable experience for the establishment of a practical strategy for a company

HCMC-VIETNAM, JULY 2011 Group 9 - GaMBA-C0110

TABLE OF CONTENTS

ACKNOWLEDGEMENTS 1

TABLE OF CONTENTS 2

LIST OF ABBREVIATION 5

LIST OF TABLE 7

Reason to choose topic 10

Practical significance 10

Scope of research 11

Research Methodology 11

CHAPTER I LITERATURE REVIEW 12

1.1 Overview of strategic management 12

1.1.1 The concept of strategy and strategic management 12

1.1.2 The role of strategic management 12

1.2 Classification of strategic management 13

1.2.1 Group of combined strategies 13

1.2.2 Group of developing strategies 14

1.2.3 Group of expansion strategies 14

1.2.4 Group of other strategies 14

1.3 Distribution strategy 14

1.3.1 The Distribution channel Types 14

1.3.2 Distribution as a principle of marketing 15

1.3.3 Distributors and dealers 17

1.3.4 Process of transportation and distribution of pharmaceuticals 17

1.4 Some tools have been used in the strategic plan 19

1.4.1 The external factors evaluation matrix (EFE) 19

1.4.2 The competitive profile matrix (CPM) 20

1.4.3 The internal factors evaluation matrix (IFE) 20

1.4.4 The SWOT matrix 21

1.4.5 The major strategy matrix 22

CHAPTER 2 INTRODUTION AND ANALYSIS CURRENT STATUS ABOUT PRODUCTION AND DISTRIBUTION OF UNITED PHARMA 23

2.1 Introduction about United Pharma 23

2.1.1 The formation and development process of United Pharma International 23

2.1.2 The structure of organization and personel 24

2.1.3 Business sector of UPI: 25

2.2 Analysis current status about production and distribution of united pharma 25

2.2.1 Models and business organization 25

2.2.2 General business results of OTC products at UPI 25

Please see the result in table 5, 6 and table 7 25

2.2.3 Activities and business results of the distribution system 25

Distribution result by Channel and Territory 29

2.2.4 Overall assessment of the current business status of UPI Vietnam 32

CHAPTER 3 THE DISTRIBUTION STRATEGY FOR UNITED PHARMA INTERNATIONAL 34

3.1 Vission, missions and developing orientation of the company 34

3.1.1 Vissions 34

3.1.2 Missions 34

3.1.3 The developing orientation of the company 34

3.2 The objective of distribution strategy 35

3.3 Distribution strategy for UPI and implementation 35

3.4 The analysis of internal and external environment 36

3.4.1 The analysis of internal environment 36

3.4.1.1 The management 36

3.4.1.2 The finance 36

3.4.1.3 The production 37

3.4.1.4 Human resource 37

3.4.1.5 Marketing and market research 38

3.4.1.6 Technology research 38

3.4.2 The analysis of external environment 38

3.4.2.1 Political environment, legal, economic 39

3.4.2.2 The social – culture environment 43

3.4.2.3 The technical environment 43

3.4.2.4 Customers 43

3.4.2.5 Competitors 44

3.4.2.6 The supply of raw materials 48

3.4.2.7 The human resource supply 50

3.5 Building a strategic matrix 50

3.5.1 The external factors evaluation matrix (EFE) 50

3.5.2 The internal factors evaluation matrix (IFE) 51

3.5.3 The competitive profile matrix (CPM) 52

3.5.4 The SWOT matrix 53

3.5.5 The major strategic matrix 57

3.6 The supporting to implement the distribution strategy 59

3.6.1 Human resources supporting and Implementation 59

3.6.2 Finance supporting and Implementation 63

3.6.3 Production supporting and Implementation 63

3.6.4 Marketing, market reseach supporting and implementation 64

3.7 Conclusions 66

LIST OF ABBREVIATION

UPI : United Pharma International

AFTA: Asean Free Trade Area

ASEAN: Association of Southeast Asian Nations

BCG: Boston Consulting Group matrix

DAV:Drug Administration of Vietnam

DMC: Domesco Medical Companies

DPM: Department of Vietnam Pharmaceutical Management

DPDM: Distribution Planning & Development Manager

EFE: The External Factors Evaluation matrix

EU: European Union

ETC :Ethical

FDI: Foreign Direct Investment

GLP: Good Laboratory Practice

GMP: Good Manufacturing Practice

GSP: Good Storage Practice

IFE: The internal factors evaluation matrix

NAFTA: North American Free Trade Agreement

NSM: National Sales Manager

OHSAS: Occupational health and safety

OTC: Over the counter

PICS: Pharmaceutical Inspection Co-operation Partnership Scheme

QSPM: Quantitative strategic planning matrix

ROM: Regional Operation Manager

TDS: Trade Development Supervisor

TDR: Trade Development Rep

TMKM: Trade Maketing Manager

WTO: World Trade Organization

WHO : The World Health Organization

BMI : Business Monitor Internationa Company(UK)

IMS : is the leading provider of information services for the healthcare industry, covering markets in 100+ countries around the world

VSIP: VietNam Singapore Industry Park

YTD: Year To Date

BO: Buying outlet

RG: Regular buyer

RPS: Retailer Product Standard

KRA: Key Result Area

LIST OF TABLE

Table 1 The external factors evaluation matrix 20

Table 2 The competitive profile matrix 20

Table 3 The matrix for evaluation of internal factors 21

Table 4 The SWOT 21

Table 5 The Category in distribution result YTD July 2011 28

Table 6 YTD June 2011 Sales By Channel 30

Table 7 Result in distribution by territory by VND 31

Table 8 The long-term economic forecast in Vietnam 41

Table 9 The index of medications business in the Asia – Paciffic area in the quarter I - 2011 42

Table 10 The external factors evaluation matrix (EFE) 51

Table 11 The internal factors evaluation matrix (IFE) 52

Table 12 The competitive profile matrix (CPM) 53

Table 13 The SWOT matrix 54

Table 14 The major strategy matrix 58

Table 15 New Organization of Sales & Distribution apply for distribution strategy 60

Table 16 The property and funds of the business in 2010 63

Table 17 Analysis Report of operations 63

Table 18 PAMS Apply For Distribution Strategy 67

Table 19 Organization Chart In Sales & Distribution Department( Before revise Distribution strategy) 70

Table 20 Products are distributed by Gannon Group 71

Table 21 Products are distributed by Zuellig Group 72

Table 22 The index of demographic of Vietnam, 2005-2030 73

Table 23 The Statistical Table rural / urban Vietnam, 2005-2030 73

Table 24 The statistics of vital Vietnam, 2005-2030 73

Table 25 17 corporations leading in otc vietnam market 75

LIST OF FIGURE

Figure 1 Distribution channel 16

Figure 2 Marketing channel types 16

Figure 3 The structure of organization 24

Figure 4 Distribution channel 27

Figure 5 The export of pharmaceutical raw materials in Vietnam 49

Figure 6 Types of imported materials 50

Figure 7 New Distribution Systems of UPI 65

Figure 8.The all leading company sharing data (Source IMS) 74

Figure 9.2 Year trend of top 5 corporations 76

Figure 10.Top 20 Products 77

Figure 11 Top 17 corporation Growth 78

Figure 12 Top cities Analysis (Value by Billion VND) 79

TOPIC:

THE DISTRIBUTION STRATEGY OF OTC (OVER THE COUNTER) PRODUCTS FOR UNITED PHARMA INTERNATIONAL IN VIETNAM

MARKET

Reason to choose topic

As we know health is a very special and important thing to everyone, whenever thinking of health we often think of a healthy lifestyle, healthy living environment without pollution, when a society is developing, the industry, agriculture, services of Vietnam in particular and world in general also changes and develop to a certain extent Besides, the pressure of life and work is affecting the health of each person Regarding health issue, we chose the topic of the pharmacy OTC market in Vietnam to partly contribute our opinions to the health of the public

Pharmaceuticals market in Vietnam is worth about USD 27.361 billion (U.S

$ 1.54 billion) in 2009 In the forecast period up to 2014, BMI predicted pharmaceutical sales will hit USD 56.931 billion (U.S $ 3.04 billion), the market forecast will reach USD 107.395 billion (U.S $ 6.61 billion) in 2019 Source:BMI

- Vietnam is a market for 87 million people so it is very potential for development for the pharmaceutical industry

- Vietnam is still remnants of war, landmines

- Weather is often natural disasters, stormy, pollution

- Pharmaceutical industry is still young

- The corporations was into the Vietnam market and competition is fierce

- The goal of high growth from companies

- Currently the company is distributing 7000 drug stores in nationwide but in the nationwide having 20000 drug store

Because of the above causes, we need to set up proper distribution channels

to develop far area and increase new outlets

Practical significance

Analyzing and assessing the macro-economic development of Vietnam, the government policy on pharmaceutical manufacturing business and competitive environment in Vietnam and other competitors to identify opportunities and threats

Assessing fairly comprehensively the real situation of the distribution channel of the United Pharma, which is belonged to the Unilap Group, the inner resources, from which we determine the strengths and weaknesses

From the opportunities, challenges and strengths, weaknesses and we propose a distribution strategy appropriate with the state of the United pharma

companies, which will implement effectively the business strategies outlined

• Secondary information was collected at UPI and several other

companies who are direct competitors In addition, the data are collected through the mass media, through the statistics, the Ministry

of Industry, survey report from market research firm

• Primary Information: The construction of the matrix of strategic

choices is made by the method of experts to identify the environmental factors inside, outside influencing production and business activities of the enterprise, identifying the importance of the elements

CHAPTER I LITERATURE REVIEW 1.1 Overview of strategic management

1.1.1 The concept of strategy and strategic management

What is Strategic Management?

According to Fred R David, "Strategic Management is an art and science of stablishment, implementation and evaluation of decisions related functionality which allows an organization to achieve goals"

1.1.2 The role of strategic management

Facing the above opportunities and challenges, strategic management today has special roles:

- Strategic management help achieve the goals of the organization The role

of goals is very important If not to reach any goals, there is no need for management

- Strategic Management is broadly interested in the subjects concerned To survive and develop enterprises must satisfy and meet the needs of organizations and individuals involved such as customers, suppliers, employees, government The needs and interests of these subject concerned can be different, even contradictory The departments of enterprise tend only to satisfy the needs of the organizations and individuals related to their departments without consider harmonizing the common interests of all subject concerned

- Strategic management associates the short-term development in the context

of long-term The long-term strategic goals is an important basis for planning and short-term goals Through short-term target and plan it achieves long-term strategic objectives In the context of rapid environmental change and uncertainty, the adaptive capacity of the enterprise is important, but it is only effective when based

on a long-term orientation Each individual departments of the business just pay attention to short-term goal of its department This can be detrimental to the long-term strategic objectives of the business Thus the strategic management will direct the efforts and resource of the enterprise at reaching this goal

- Strategic Management takes interest in both effectiveness and performance The effectiveness is to solve the right jobs, and efficiency is to solve the job in the right way The managers in the department tend to improve performance, but this does not always lead to the achievement of business objectives and can cause a huge waste

1.2 Classification of strategic management

1.2.1 Group of combined strategies

 Combination with customers: related to the increase in ownership or control for distributors or retailers One effective way to implement this combined strategy is franchise, businesses can grow rapidly by franchising because cost and opportunities spread for many individuals

 Combination with suppliers: related to the search for ownership or control

of the company's suppliers This strategy is particularly appropriate when the existing supplier of the company can not be trusted, too expensive or impossible to satisfy the requirements of company

 Horizontal combination: involves finding the ownership or control of the competitors The merger, acquisition and control domination among competitors allow increasing effectiveness about range and increasing the exchange of resources and capacity

1.2.2 Group of developing strategies

 Market penetration: seeking increased market share for existing products and services in existing markets through greater marketing efforts

 Market development: to offer available products and services to new areas

 Product development: increasing sales by improving or modifying available products or services Product development requires research costs and big growth

1.2.3 Group of expansion strategies

 Diversity activities oncentrically: addition for new products or services are related to each other

 Diversifying the operation horizontally: addition for the new products or services, not related to each other for existing customers

 Diversification activities in mixed type: addition for the products or services without contact with each other

1.2.4 Group of other strategies

 Joint venture: two or more companies to sponsor a independant company for the purpose of cooperation

 Collapsing operation: Reinforced through cost and assets cutting to save sales and profits are declining

 Cutting down operations: Selling off the branches or part of company

 Liquidation: sell all the assets separately, with tangible value

 Synthesis: the pursuit of two or more strategies simultaneously

1.3 Distribution strategy

1.3.1 The Distribution channel Types

It is also called marketing channel or trade channel, the critical thing that makes products available at the point of sales

According to Kotler, most producers use third parties or intermediaries to bring their products to the market They try to forge a distribution channel – a set of interdependent organizations involved in the process of making a product or service available for use or consumption by the consumer or business user The channel of distribution is therefore all those organizations through which a product must pass between its points of production and consumption Why do producers give some of the selling job to intermediaries? After all, doing so means giving up some control over how and to whom the products are sold The use of intermediaries results from their greater efficiency in marketing goods available to target markets Through their contacts, experiences, specialization and scale of operation, intermediaries‟ uaually offter the firm more than it can achieve on its own

1.3.2 Distribution as a principle of marketing

“Distribution is a set of interdepent organization involved in the process of making a product or service available for use or consumption by cunsomer or industrial”

It is involved with the strategies and logisticts of moving goods from the producer to the customer.As opprosed to pricing,ad and orther short-term activities,distribution channel cannot be modifiel or altogether changed in a matter

of hour or even days.Distribution is more than just a set of links between source destination it required specific transactions,like buying and selling,inventory control,channel promotion ,contacts ,matching ,negotiation ,physical tranportation ,financial resources and other assets People interact at several levels of channel distribution models can either sell directly or indirectly to customer.Typically in the later case,a variable number of intermediaries (agents,distributor, wholesalers, retailers etc) Can be interfaced between the producer and the customer.The natural

of the market place,as well as the product and the environmental competition generally defines this model

-16-

Figure 1 Distribution channel

Source :P.Kotler,”Principle of marketing” 2nd edition, pp 895

Malcom Mc Donald,”Marketing Plans” 4th Edition, pp 386

Channel organization can be structure either conventional or structure in a vertical marketing system “see illustration below “.In the former,each organization

is dependent and tends to seek its own advantage and profit,even to detrmin of the whole system.where in the former they tend to work as a unifield system that can be controlled by one its member and enforced by sets of contracts and agreements

Figure 2 Marketing channel types Conventional Marketing channel Vertical Marketing system

1.3.3 Distributors and dealers

Wholesaling

According to Kotler (1996), there are two types of wholesalers as follow:

- Full service wholesalers: Wholesalers that provide a full set of services such as carrying stock, using a sales force, offering credit, making deliveries and providing management assistance They are either wholesaler merchants who sell mostly to retailers or industrial distributors who sell mainly to another

- Limited service wholesalers: Perform a limited number of functions and offer fewer services to their suppliers and customers There are several types of limited-service wholesalers such a Cash and Carry, truck wholesalers, drop shippers, rack jobbers, producers‟ co-operatives, and mail order wholesalers

Retailing

Retail stores come in all shapes and sizes, and new retail types keep emerging Such as:

- Sale service retailers, limited service retailers, cash-and-carry retailers

- Specialty store, department store, variety store, convenient store, superstore, discount store

- Supermarkets, hypermarkets

1.3.4 Process of transportation and distribution of pharmaceuticals

Physical distribution management is a critical factor in the successful marketing of all products Underlying effective and efficient physical distribution management is the physical distribution concept According to Stern and Ansary (1989), the concept takes a cost-service orientation that is aimed at minimizing the

distribution costs for delivering a given level of customer service through a coordinated physical distribution network

The system must balance the cost of providing desired customer service levels against the cost of lost sales from not delivering those levels of service

A critical aspect of this “balancing act” is selecting warehousing, inventory, and transportation policies that ensure the desired customer service levels are met

Logistics or supply-chain management is the widely used for the management of the flow of goods and services and related information from the point of origin to the point consumption The aim is to maximize the performance of the entire distribution system

Order processing

The logistic process starts with the firm getting an order from a customer An order can be submitted in many ways-by mail or telephone, through sales people, or via computer and electronic data interchange Once received, the order must be processed quickly and accurately

Both the company and its customers benefit when the order-processing steps are carried out efficiently Ideally, sales people send in their orders daily, often using online computer

Choosing transportation model

A recent study (kotler) states that, in practice, firms may rely on a combination of transportation methods which would best enable them to meet logistic objectives: low cost and effectiveness

Warehousing

There are two types of warehouse facilities available to channel members:

 Private warehouses: offer greater flexibility, in design to meet special

storage and handling needs, greater control over the warehouse facility and

its operations, more effective information feedback, and lower cost per unit since it does not have to recover advertising and selling cost

 Public warehouse: required no fixed investment by the firm; offer low cost

under certain circumstances, as when it is necessary to store seasonal inventories

 Distribution centers are designed to move goods rather just store them

1.4 Some tools have been used in the strategic plan

At present, in the process of strategic planning, managers often use some technical tools to support decision making such as:

 The external factors evaluation matrix (EFE)

 The competitive profile matrix (CPM)

 The internal factors evaluation matrix (IFE)

 The SWOT matrix

 The SPACE matrix

 The consulting group matrix BOSTON (BCG)

 The major strategy matrix

 The quantitative strategic planning matrix (QSPM)

Due to time limitations made the subject so it mainly focused on EFE Matrix and IFE in the first research, CPM and SWOT matrix for combined to create strategies for UPI, the main matrix for the decision to select appropriate strategies for UPI

1.4.1 The external factors evaluation matrix (EFE)

The matrix for evaluation of external factors allows strategic experts to summarize and evaluate information of economy, society, culture, demographic, geographic, political, government, laws, technology and competition

Table 1 The external factors evaluation matrix

Major factors of

outside environment

Critical level (From 0.0 to 1.0 for each factor)

Classification (From 1 to 4 for each important factors)

Important points

List of the external

factors

Total

The higher score shows that the company respond to external factors better

1.4.2 The competitive profile matrix (CPM)

The competitive matrix can help the company to identify rivals, as well as their strengths and weaknesses in order to help company having suitable business strategy

Table 2 The competitive profile matrix

1.4.3 The internal factors evaluation matrix (IFE)

This matrix summarizes and reviews the important strengths and weaknesses affecting to parts of business function, it affects the production and business activities of enterprises

The important point of each variables help determining total important pint

Sucessful

factors

The importance

factors

Total

important

point

to the company; the highest point is 4, the lowest point is 1, and the average point is 2.5

The important point is lower than 2.5 will show that the company is weak in internal factors; higher than 2.5 will shot that the company is strong in internal factors

Table 3 The matrix for evaluation of internal factors

Major internal factors

The importance level

Classification Important

point List of internal factors

Total

1.4.4 The SWOT matrix

The SWOT matrix is an important combination tool to help developping 04 types of strategies as follows:

- Strengths – Opportunities strategy (SO)

- Strengths – Threats strategy (ST)

- Strengths – Weaknesses strategy (SW)

- Weaknesses – Threats strategy (WT)

We have the SWOT matrix table as follows:

Table 4 The SWOT

Weaknesses - W WO strategies

Overcoming weaknesses by taking advantage of opportunities

WT strategies Minimizing weaknesses and avoiding threats

1.4.5 The major strategy matrix

The major strategy matrix is a popular tool for the formation of strategic which can be chosen All organizations and parts of the company can be located in one of the four quadrant of the square strategy of the Grand Strategic Matrix in Table 1.6 This Matrix is based on the following two aspects to evaluate: the competitive position and growth of the market The appropriate strategy for the organization listed in order of attraction in every corner of the square matrix

2 Market penetration

3 Horizontal integration

4 Divestiture/

Liquidation

Quadrant I

1 Market/ Product development

1 Retrenchment

2 Unrelated diversification

3 Horizontal/ Related diversification

4 Divestiture/

Liquidation

Quadrant IV

1 Unrelated diversification

2 Horizontal/ Related diversification

3 Joint ventures

CHAPTER 2 INTRODUTION AND ANALYSIS CURRENT STATUS ABOUT PRODUCTION AND DISTRIBUTION OF UNITED PHARMA 2.1 Introduction about United Pharma

2.1.1 The formation and development process of United Pharma

International

UPI Vietnam is a member of the Unilab Group, a consortium which specializing in health care in Asia, have many offices operating in 10 countries in the Asia Pacific, producing about 350 popular pharmaceutical brands with high quality products and specialized health care to consumers These products are manufactured in 12 factories equipped with modern in the Philippines, Indonesia, China, Thailand and Vietnam

Strong consumer brand was granted in 2005, Vietnam award for high quality goods received in the same year This demonstrates that the stability of the product

is bearing the mark of the company over the years This award is granted by Saigon Magazine

Parent company United Laboratories Inc., started the business from a small drug store in the downtown area was devastated by the war in Manila, Philippines in

1945 And 14 years later, a small drug store became the leading pharmaceutical company in the Philippines

Over many years, Unilab has established several production facilities and marketing as multinational companies and research organizations in the United States, Europe, India, China and Japan Growth leads to more continuous improvements in manufacturing products and systems, always a leader in modern technology to meet the changing needs of the market and the challenge of competition UPI 's presence in Vietnam began in 1990, is a 100 % foreign-owned factory building from 1997, when multinational companies are still a representative office UPI is one of the first factory certified WHO - GMP - GLP - GSP, ISO and

OHSAS Currently, we are to build a new factory in VSIP 2 industrial zones, designed to meet GMP - PICS to help United Pharma become the plant which is the

global leading quality superiority

Currently, UniedPharma Head office located E town 2 Building, HCM City, two sales offices in HCM City and Hanoi, a factory in Binh Chanh Dist

Address No 16 VSIP II, Street 7, VietNam Singapore industry Park II, Ben

Cat Dist, Binh duong Province ,VietNam

2.1.2 The structure of organization and personel

Figure 3 The structure of organization

The company's employees in departments are participated the training programs to improve skills of professional every year to ensure the legacy and professional

Especially the company uses PAMS system specifically to each department

to evaluate the working results and bonus at the end of year

Sales & Distribution The PAMS conference and evaluation table for each department ( Table 18 in Annex )

2.1.3 Business sector of UPI:

Business sector of UPI is to develop, manufacture and market healthcare products and solutions through a broad line of prescription, over-the-counter and nutritional products

2.2 Analysis current status about production and distribution of united

pharma

2.2.1 Models and business organization

2.2.2 General business results of OTC products at UPI

Please see the result in table 5, 6 and table 7

2.2.3 Activities and business results of the distribution system

As the chart below is Human resourch in Distribution system ,we can see the system is fully stronger but just vacant the head count in Modern trade channel, because now company not follow this channel, but so far in the strategy of this topic

our group will build MT channel in distribution strategy ( As table 19 at annex)

At present, United Pharma is distributing products via 2 distributors are Zuellig-Singapore and Gannon-France (Distributors just only for Logistics), Sales

& Distribution-Marketing under UPI

But 2 distributor not delivery fully provinces in nationwide,they only cover the area with effectiveness for logistics cost,so some far territory in provinces the customer must buy again from wholesaler as townlet belong to provines as Tien Giang, Ben Tre, Dong Nai, Lam Dong, Daklak, Quang Ninh, Tay Ninh and outside HCM as Cu Chi, this is the reason the price increase for the outlets there and not effective for UPI distribution system (See table 20 and table 21 in Annex)

Price of products is the strength of UPI company because the company sets the price on average level, so this is an advantage, because the brand of products in the market are relatively strong

Currently, the company is only successful on the market in big cities, in the remote provinces and areas need a lot to health, but the company has not distributed the product to there, at present the company only serves about 7000 customers in total 20,000 of the market due to costs for remote areas are high and ineffective when it applies in accordance with existing distribution channels

Because of having two distributors, customers are not favorable when they comes to buying / delivery in two places Implementation of program for delivery in two completely different direction

At present, the company are distributing products via customer mofel as above with contribution rate for each channel of two products OTC and ETC

Figure 4 Distribution channel

Source:UPI

Customers of UPI are pharmacies, hospitals, clinics, drug wholesale market

In which, 1200 customers contribute 80% of the value of UPI and the company realized the power of the buyer (Buyer power), they are distributors, wholesale customers, hospitals, clinics, private pharmacies, pharmacy, supermarket

 Distributor: these are the companies / foreign corporations have the financial capability and experience and brand of distribution

 Agent: Most agents are concentrated in large cities such as HCM, HN, DaNang, CanTho, HaiPhong but in the smaller provinces, the company still has the wholesale market to supply products to the towns and communes Most dealers buy products from manufacturers and then resell

to retailers with profit from 2-5%, brand or product is not important, they mainly focus on the profit, this explains for these strange marks on the market with small market share

 Hospital - Clinic: this is very important because most of the product requires a prescription by a doctor to be able to be patient, though in law doctors are not allowed to receive commissions for prescription, but the company has many ways to implement ,specially for ETC products

47%

Whosalers

UPI

Manufacture-Distributors

Pharmacies Hospital Private Clinic

37%

 The pharmacy or Pharmacy companies: this is the main distribution

channel of the OTC drug market in Vietnam, according to the latest

research from the company ACNielson -USA, now in Vietnam, having

about 20,000 pharmacies in the nation And having the very high

competition from companies for this group of customers, they usually

have between 10-15% of profit when selling to consumers, besides the

company must pay for them on the program of display, sales bonus and

that is the best way to sell goods to them

Table 5 The Category in distribution result YTD July 2011

Total

Objective YTD July %

achivement Last year

%YTD Grow %Share Total Category 227,002,819,532 211,828,149,966 93% 180,496,436,002 17% 100% Git Care 11,786,332,317 12,635,121,670 -7% 6% Food Supplement 194,409,625 515,723,235 -62% 0% Pain management 52,009,550,128 46,747,375,676 11% 25% Personal care 1,341,319,488 22,222,780 5936% 1% Respiratory care 92,025,433,521 77,125,098,645 19% 43% Vitamins 54,471,104,887 43,450,893,996 25% 26%

Source: UPI

Look at the table 5 result category of UPI in YTD july 2011 we can see the

status only grow 17% under the UPI objective and group Git care (-7%) versus last

year and food supplement (-62%), however the 2 group products only contribution 6

% so not effective more for UPI

And with brand PH care this is new products and potential only distribution

in Pharmacy channel,but in the market all competitor is available in pharmacy and

supermarket so in the next time in distribution strategy the UPI must set up modern

trade channel in order to listing this brand for modern trade channel

Distribution result by Channel and Territory

In order to understand clearly about the result of UPI business in the first of 6 month year 2100 we can see the table 6 and table 7 below ,although YTD June 2011 OTC products of UPI just grow 15% versus last year,but not hit the objective, so our group want step by step to go to preview and revise the distribution system

Table 6 YTD June 2011 Sales By Channel

Source :UPI

After analysis our group realize that the distribution by channel of UPI although growth 15% versus 2010 ,but with the share

of Whosaler is so high ,Value of first of 6 month from Wholesaler channel is 102,725,477,357 VND ,share 54% versus total,mean that high risk,because distribution system dependent on wholesaler more,I mean that the wholesaler can control and have an effect

on the market

CHANNEL

Performance Last Year

Versus Last year Wholesaler

191,816,907,333

225,045,496,155 117%

108,228,646,264

102,725,477,357 95%

93,209,894,357 110%

Pharmacy

152,606,485,341

181,422,227,527 119%

87,245,904,187

88,275,693,817 101%

73,385,596,353 120%

TOTAL

344,423,392,674

406,467,723,683 118%

195,474,550,452

191,001,171,174 98%

166,595,490,710 115%

Table 7 Result in distribution by territory by VND

vvVSGrow Central 1 14089361120 16396104101 16% 7885043346 8833924836 112% 12% North 1 39665039476 45556520384 15% 21951773846 23314378428 106% 25% North 2 22321251877 26175045209 17% 12544955535 13070677682 104% 6% North 3 29926019754 34825205301 16% 16747774450 13607474414 81% -16% Central 3 20369095690 24107300602 18% 11593431527 11958606715 103% 14% Central 2 22734001850 26908305960 18% 12940461805 13552866717 105% 15%

Total

North-Central

149,104,769,767

173,968,481,557 17% 83663440509 84337928792 101% 9%

Sai gon 1 16580076710 19790034966 19% 9517217174 10036383608 105% 37% South East 23109325161 28730639204 24% 13816839299 13858562692 100% 36% Sai gon 2 14106765635 16854812948 19% 8107648023 8038269714 99% 20% Sai gon 3 8646868961 11450837482 32% 5511702803 6065884423 110% 43% Sai gon 4 62232933342 72154466638 16% 34692880713 30049242862 87% 11%

Total HCM_SE

124,675,969,809

148,980,791,239 19% 71646288011 68048343299 95% 22%

Mekong 1 45911201605 54000310216 18% 25969265878 23327679550 90% 5% Mekong 2 24732489752 29519366269 19% 14196145691 15230505730 107% 31% Total Mekong 70643691357 83519676485 18% 40165411569 38558185280 96% 14%

NATIONWIDE

344,424,430,933

406,468,949,280 18% 195,475,140,089 190,944,457,371 98% 15%

Source: UPI

We can see the result of sales department of UPI cannot hit the target in the first 6 month of the year,the reason is

distribution only grow 15% in which the objective of UPI is grow 18%,specialy north 3 is grow (-16) versus 2010

2.2.4 Overall assessment of the current business status of UPI Vietnam

According to the Drug Administration, Vietnam is currently only 0.2 Pharmacist/10.000 population, accounting about 1% human of the medical industry The drug is mainly distributed through pharmacies and hospitals, a retail average serves about 2,000 people and markets mainly in Hanoi and HCMC This suggests that the pharmaceutical market in Vietnam is very potential, but the distributor has yet to fully exploit this market are concentrated in some provinces and cities

Currently, the UPI's products are distributed about 7.000/20.000 in pharmacies and UPI is being No 2 on the pharmaceutical market in Vietnam (market share is 19.91%) However, UPI also encountered certain difficulties ahead of the competition from the increasingly bitter rivals:

- About the product: Because UPI‟s brands on the market is relatively strong, the current segment is towards the customer rather higher income, product price is above average In the future the company may be studied to make new products at the right price than those with average income, this is the client object is large and the demand for pharmaceuticals is great

- About the market: At present, Ho Chi Minh City (34.29%) and Hanoi (15.78%) (see figures 12 at annex) are the most important market, accounting for more than 50% of company sales, while more than 50 % of the remaining provinces in the country has not only brought to 50% of sales The reason is that distributors focus on 02 key markets mentioned above, the expansion of the distribution system to the remote areas raises costs to the salability of the product of people here is lower due to lower revenue in the big city To expand market share should be the solution to bring the company's products reach the market

distributed primarily through pharmacies and wholesalers, two channels account for more than 80% of the company This shows that the company is dependent on the channel 02 above, if the channel operates inefficiently may affect your ability to sell the company Therefore, the need for research to expand distribution channels, providing their products to more customers more

CHAPTER 3 THE DISTRIBUTION STRATEGY FOR UNITED

PHARMA INTERNATIONAL 3.1 Vission, missions and developing orientation of the company

United Pharma company provides medical products and services of high quality with reasonable price in order to improve health and abundant life for the community UPI committed to provide a effective and initiative work environment where all employees are equipped with the same company‟s

values to guide everybody to act and achieve the mission and vision

3.1.1 Vissions

United Pharma is your world class healthcare partner for life

“UNITED FOR HEALTH, UNITED FOR LIFE”

3.1.2 Missions

UPI provide quality and affordable healthcare products and services that promote and enrich life for all communities that we serve by working together as one united family

The existence of UPI depends on around people, so it will serve the benefit for all people in the community

 Production and distribution of OTC and ETC product

3.1.3 The developing orientation of the company

Providing products and services of quality health care with affordable price in order to improve and make further enrichment of life for the entire community that we serve by working together as the general family

Besides, the company produces pharmarcy to export to subsidiaries of

Unilab in foreign market as Singapore, Malaysia, Thailand, Hong Kong, …

Building the new factory in Binh Duong to serve the production tin order to serve the market with an area of 35.000m2 according to the GMP–PICS standard PICS (Pharmaceutical Inspection Co-operation Partnership Scheme) That is the standard to manage international development,

inspection in the field of medications PICS has used into 40 years and are applied that apply throughout the world It is the first PICS factory in Vietnam

3.2 The objective of distribution strategy

 UPI will maintain the role of leading OTC company in the VietNam market

 Hit the sales target set up for 2011 is 406,467,723,683 VND in OTC category

 Increase Sales volume in OTC category 3 times from 2011 to

2015

3.3 Distribution strategy for UPI and implementation

 Design the new distribution system

We design the new distribution system for UPI as the Figure 7

In this system UPI will be distributed according to the distribution system

4-Wholesaler channel: This is the wholesaler

5-Private Clinic channel: For ETC products

6-Pharmacy channel: Pharmacy store

In this new distribution system UPI can develop in the far area base on the sub-distributor and increase the Modern trade in the supermaket for PH care products,beside that UPI also increase in the PPC-province pharmacy company and can develop state pharmacy under them with the supporting 9 sales rep to

cover far area to develop numeric distribution as the strategy

3.4 The analysis of internal and external environment

3.4.1 The analysis of internal environment

3.4.1.1 The management

UPI 's management model is simulated from the Unilap, had many success in the Asia Pacific region and is modified to suit with the Vietnam market, but it is very strong and flexible with research and forecasts to the pharmaceutical industry in 2030, suggesting that UPI is not only has the current investment but also has long term plans for the Vietnam market The professional management style as well as the quality management under ISO quality managstandardement, construction and management of the production line in the direction of automation,stable products‟ quality and consumers‟ acceptance and appreciation

The remuneration for managers, skilled technical always been interested

in the company Therefore the research‟s results, their work helps to develop new products, innovative designs, increased productivity and product quality greatly

3.4.1.2 The finance

The company has 100 % of foreign investment capital and it is under The Unilap Group, the financial situation is stable and operated following standards of Unilap worldwide and based on the finance and accounting laws

of Vietnam

growth increased an average of 20% annually High profit and return on capital is higher than competitors in the industry

3.4.1.3 The production

All products of United Pharma are manufactured according to rigorous process, based on the standards of the company has achieved as GMP, GLP, GSP, ISO 9001:2000, OHSAS (The standard of safe health job), Golden Dragon 2009, the preferred national brand, the award of Vietnam High Quality Product 2010 and in September, 2011 and coming moit will become the first pharmaceutical factory can achieve GMP- PICS standard (pharmaceutical cooperation inspection scheme) to help UPI leading global in quality UPI 's production system includes machinery, equipment and modern technology, high productivity and produce products to meet the increasing demand of domestic and foreign markets The construction of a new factory in Binh Duong will help producing high quality products but today the closure of old factories in Binh Chanh district in July and moved to new plants have led

to the production of goods is not on time and caused that the company has to import during the period arising high costs, reducing competitive advantage

PH care, Growee, Kremil-s extra streng , ceelin Poprock, Maxedo are new products have been issued to the market from the beginning of the 2011 year to now

3.4.1.4 Human resource

The company's employees in the departments are involved in training programs to improve skills yearly to ensure the legacy and expertise This has helped UPI acquire modern technology quickly, easily and contribute to improving productivity and product‟s quality

However, high labor costs compared to domestic competitors is a disadvantage to be able to reduce the competitive advantage in the market But

not hesitate to pay salary along with other benefits to create a good environment for company‟s staff loyalty as organizing the gym after working time, interested in their families,

3.4.1.5 Marketing and market research

Currently the company is very strong on marketing and market research reflected on the investment in brands and product managers are divided in groups closely to ensure a closely monitor and invest to brand For market research, the company established an department to MIS - marketing information service to specialize in research projects from companies, and companies have a monthly report on economic analysis of Vietnam, the pharmaceutical industry, competitors, and reports RPS ( retailer product standard)

With the ability to market research and marketing activities for products, UPI has achieved many competitive advantages on the market for the production and trading of the company The report from market research

of companies have reputation helped the company to make accurate forecasts for the future

At present, we still have some brands have not developed well in the market because marketing activities are not effective The company should have the appropriate marketing strategies for more evenly product‟s development

3.4.1.6 Technology research

All new products as well as current products in circulation have great support from the technical analysis, based on a combination of technical and R&D departments of the company This contributes to the creation of the company's new products to market

3.4.2 The analysis of external environment

Vietnam‟s economic growth is on track to exceed the government‟s target of 6.5% for 2010 after real GDP growth figures came in at a better-than-expected 7.4% year-on-year in Q3/2010 Going forward, we are projecting a relatively weak real GDP of 5.6% for 2011 as we expect global economic headwinds to come into play Due to the government‟s narrow focus on achieving economic growth while ignoring the risks of inflation, we are increasingly concerned that economic stability could be threatened Following

a series of devaluations by the central bank, confidence in the Vietnamese dong remeins weak due to inflationary expectations and a persistent trade deficit We are maintaining our forecasts for the dong to depreciate towards VND19,500/USD by end-2010 and see further weakness towards VND 20,000/USD in 2011 (Source BMI)

Despite an expected reshuffle of key political posts at the upcoming

11th National Party Congress in January 11 th 2011, we do not see a significant shift in the government‟s policy going forward Addresing corruption is likely

to remain a priority on the government‟s agenda as Vietnam becomes increasingly dependent on foreign investment to sustain its economic growth Conflicting interests among countries in the Mekong river Basin are becoming

a potential threat to multilateral relations and security in the region

3.4.2.1 Political environment, legal, economic

Pharmaceuticals market in Vietnam is worth USD 27.361 billion (U.S $ 1.54 billion ) in 2009 In the forecast period to 2014, BMI predicted

pharmaceutical sales will hit USD 56.931 billion (U.S $ 3.04 billion ), Inflation will be a major factor in the high growth rate of nominal market BMI predicted overall inflation rate increased sharply at 11.5 % in 2011 before declining to 5% per year in the second half of the 10 -year forecast period Higher production costs and the lack of stringent government policies

on price controls on drugs makes it likely that the retail price of pharmaceuticals will increase in the forecast period