Building business strategy for Son Kim Ha Tinh tourism and mineral water joint stock company from 2011 to 2015

GRIGGS UNIVERSITY GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM BUILDING BUSINESS STRATEGY FOR SON KIM HA TINH TOURISM AND MINERAL WATER JOINT STOCK COMPANY FROM 2011 TO 2

GRIGGS UNIVERSITY

GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM

BUILDING BUSINESS STRATEGY FOR SON KIM

HA TINH TOURISM AND MINERAL WATER

JOINT STOCK COMPANY FROM 2011 TO 2015

Group: 10 - Class: GeMBA 01.V02

1 Võ Văn Hiệp - Leader

2 Nguyễn Xuân Hải - Member

3 Phan Thanh Hải - Member

4 Nguyễn Mẫu Lương - Member

HA NOI, 2010

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PREFACE

1 The necessity for research

Soft drinks business and bottled water industry in Vietnam has undergone a

process of formation and development from the late nineteenth century to the present The beverage industry is important, associated with the increasing demands

of society Soft drinks business and bottled water industry has an important role in the national economy In 2007, industrial production value of mineral water accounted for 12.66% of beverage industry production value and 2.69% of export value of the whole industry The sector contributed 2.3% to the government budget, attracted over 14 thousand employees Soft drink bottling industry has 1,013 enterprises with production capacity of 2,129 million liters per year Especially from 2007 to now, the industry maintains high growth speed, averaging over 14% per year [1]

According to general assessment, the recent market shows a clear shift in the bottled water industry While carbonated soft drinks fell by 5% market share, the industry is derived from natural and instant drink increased by 12% Improvement

of living standard is premise to Vietnamese customers to care much more about the health issues Instead of "fully eat", today's consumers are towards "fine dining, food safety” so health criteria placed on top of the food choices Therefore,

consumers are now more aware of this convenient drink

The contribution of the soft drink business and bottling industry to production and added value is increasing However, the current stage of development of the soft drink and bottling industry in Vietnam reveals problems, such as generally low product quality, lack of competition, and inadequate development plans Besides, there are still many small-scale beverages companies, patchwork investment, lack

of uniformity at many locals , resulting in no guarantee of quality, food hygiene and

[1 ] Nguyen, Q (2010, June 3) Soft drinks business Saigon Business , 52, 14

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safety, state counterfeiting, unauthorized copying also cause damages to many businesses and consumers

During the integration process, the pressures that beverage business and

bottling industry face are very large Under WTO commitments, the support from

the State sector will be reduced Protection policy with abolished quotas, tariffs will

be reduced according to the schedule to make the beverage products from the oversea to appear more in the domestic market and fiercely compete with domestic products This really is a big challenge because the domestic market is the major consumption market of beverage business and bottling industry in Vietnam Not only having trouble in the "home market", the products when exported to other countries might also be impeded by trade barriers such as regulations on technical standards, quality, food hygiene and safety These criteria is now rigorously required while product quality by domestic manufactures is low, which leads to the difficulties in consumption It is said that the integration is open to a large market for the industry, but to penetrate into these markets is not easy, especially in the market with high requirements

Contribution to the growth of drinks business and manufacturing industry, mineral water is a typical product which the consumer is increasingly interested The serious competition within the industry affects to the competition of mineral water’s bottlers For each business enterprise fast and sustainable development in the market requires every business must have a business strategy in the right direction

Son Kim Ha Tinh Tourism and Mineral Water Joint Stock Company (SOKIMIWACO) is an enterprise producing natural mineral water with a capacity

of 5,000,000 liters per year, is a business and bottling company of mineral water have a relatively large capacity in the areas of central provinces However, in recent years SOKIMIWACO activities may not actually realize its full performance advantage of the business with precious natural resources

- Secondly, SOKIMIWACO has not built any strategies, vision, and mission yet In other words, the company does not have any specific operation objectives

- Thirdly, products of the company in the past years still lacked quality, revenue and profits were low, even in recent years remained unprofitable

- Fourthly, input factors for production of company are impacted by subjective factors (material, fuel, plastic)

- Finally, mobilized funds for the production of SOKIMIWACO are still difficulties, outdated technology and low labor productivity, management level is still weak

To assert competitive advantages and to help the company have long term

development direction, to build brand, a suitable business strategy for the Company

must be required

With the above reasons, our group researched and recommended to build business strategy for SOKIMIWACO during the period of time from 2011 to 2015

2 Objectives and application of research

The main purpose of this study is to select a long-term development strategy for the product of Son Kim natural mineral water based on assessment and environmental analysis, the internal and external prospects of soft drink bottling industry during the next five years The specific objectives of the study are:

- Review the best model on development strategy of drinking water sector

SOKIMIWACO

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- Review the current situation of SOKIMIWACO to develop competitive programs

- Build development strategy from 2010 to 2015 for SOKIMIWACO

3 Objects and scope of research

3.1 Objects

The object of study is the company, SOKIMIWACO This is a joint stock company that consists of two major shareholders: one is the economic corporation company and People's Committee of Ha Tinh and the other shareholders are employees of the Company

3.2 Scope

The research scope of this topic is the production activities, current business activities, and external environmental factors affecting the operation of the Company This topic was studied and analyzed within 6 weeks (from 01/8/2010 to 15/9/2010) The data used in the subject were collected from 2007 to present

4 Research methodology

Three basic methods to build long term development strategy of SOKIMIWACO are:

4.1 Research methods to the dossier: Information for this study came from several

sources including annual reports of SOKIMIWACO and other figures of the mineral water industry

4.2 Interview method: The authors of this theme have directly interviewed a

number of SOKIMIWACO key staff, chief of the sales branch, marketing staff, as well as workers The authors also discuss with the leaders of the company about the current situation and the development orientation of SOKIMIWACO next years In addition, customer questionnaires and evaluation statistics were also used at the same time

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4.3 Methods of applying the theoretical model:

Analysis of external factors includes analysis of PEST model, Five Competitive Forces of M Porter, analysis of internal factors, EFE, IFE, and SWOT matrixes

5 Research structure

This research includes three main parts

Part 1: Preface

Part 2: Content

- Chapter 1: Theoretical foundation and the fact of building business

strategy for SOKIMIWACO from 2010 to 2015

- Chapter 2: Overview and analysis of the business environment of

SOKIMIWACO

- Chapter 3: Selection of development strategy for SOKIMIWACO

Part3: Conclusion and recommendations

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CHAPTER 1 THEORETICAL FOUNDATION AND THE FACT OF BUILDING BUSINESS STRATEGY FOR HA TINH SON KIM TOURISM AND MINERAL WATER JOINT STOCK COMPANY FROM 2011 TO 2015

The theoretical foundation discussed in this chapter includes:

 Definition of strategy, business strategy

 Analysis of PEST model and 5 forces of M Porter

 Analysis of functional-based internal factors

 Internal and external factor combination matrix

 Selecting the suitable strategy from the SWOT analysis

1.1 Definition of strategy

Business strategy has long been studied with many theories and concepts There are many views on the concept of strategy:

First point: Business Strategy is an art using tactics to succeed over the

competitors This school of thought is common

Second point: The school of thought said that strategy is the art of creating

competitive advantage Michael Porter of the Harvard Business School said,

"Strategy is the art of building a solid competitive advantage to the defense"

Schools of thought of France said that "Strategy is the art that companies use

to combat competing for victory"

Third point: strategy is both plan and art; a good strategy going with good

structure will bring to success This is an approach method of strategic management [2], and we also have different definition on strategy such as:

In 1962 Chandler considered strategy as “The determination of the objectives, basic long-term goals of the enterprise and the application of a sequence

of actions as well as the allocation of necessary resources to carry out this goal.” [3]

[2] Three points of view ( 2010, June) Strategy Administration MBA course p 12

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Quinn came in 1980 with the more general definition: "Strategy is the pattern

or plan to integrate the major objectives, policies, and action sequences into a rigorously cohesive whole"

Later, Johnson and Schole redefined strategy in environmental conditions having a lot of rapid changes: "Strategy is the long term direction and scope of an organization to gain competitive advantage for organizations through the format of its resources in a changing environment, to meet market demand and satisfy the expectations of our stakeholders"

Strategy is divided into 3 levels:

Corporate level strategy: Addressing what businesses the organization will

operate?

Business level strategy: Addressing how to compete?

Functional level strategy: Addressing how important to implement function?

Today the strategy is commonly used as a factor to increase the possibility of success while minimizing the possibility of failure

In summary, although there are many viewpoints and different definitions of strategy, this study's authors believe that this topic "business strategy is a series of complicated activities, to mobilize source of organization to achieve a specific purpose.”

1.2 PEST analysis and five competitive forces model of Michael Porter 1.2.1 PEST analysis: PEST analysis and five competitive forces model of Porter is

to analyze the external factors acting on the enterprise and consider the impact on business production operations of enterprises, to analyze the opportunities, threats

[3] Chandler, A (1962) Strategy and Structure Massachusetts: MIT Press

[4 ] Strategy definition (2010, June) Strategy management MBA course p 20

[5] PEST analysis and five competitive forces model of Michael Porter (2010) Marketing and strategy

management documents MBA course

Political elements

Sociocultural elements

Technological elements

Economic

elements

Environmental elements

EXTERNAL FACTORS

INTERNA

L FACTORS

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Economic factors: The factors that play an important role in the factors

affecting the business activities of enterprises It includes the following elements: The economic growth, inflation, economic crisis, and personal income, and the gap between the rich and the poor in society

High economic growth, high personal income, and low inflation create opportunities for businesses to invest Conversely, low economic growth, low personal income will be challenges for enterprises

Political factor: This factor covers political institutions, and the legal

system Stable politics, the advantage of legal environment will be favorable conditions for development business Conversely, unstable political factors such as

frequent occurrence of war or internal disputes, restricted law will be challenges to

corporations

Concerning policy, Vietnam in recent years has been rated as a country with political stability and has attracted foreign and domestic investors In contrast,

neighboring Thailand in recent year often suffers internal disputes that cause

difficulties in economic development for Thai enterprises, especially in tourism business

Sociocultural factors: Social and cultural factors (tradition, habits, food &

drink culture, shopping culture) impact on market’s demand and this is an

opportunity for business to invest and develop Technological factors: Today this

factor plays more important role, determining the business environment of the business The world is in the evolution of technology, a range of nascent technologies and applications It relates and impact on manufacturing companies, service, banking (payment cards, ATMs )

Environmental factors: The factors such as climate, soil, and mineral

elements have impact on our business and production process Environment with moderate climate and country with many mineral resources brings opportunities for business development while environments with severe climate and few mineral resources create obstacles to business development

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Integration factors: In addition to these factors when studying the impact of

the external environment, factors of integration affecting the industry should be considered No one can deny the trend of globalization, and this trend is a challenge for business to develop

The PEST factors in the model are shown in the following diagram

FIGURE 1.2 PEST Analysis Frameworks

1.2.2 Analysis of the Five Forces of Michael Porter

The Five Forces of M Porter are used to analyze external factors of enterprises The model has been widely applied to enterprises over the world

Political factors

Political stability Labor Law Tax Policy Legal system Legal Environment

Lifestyle Intellectual, cultural Customs and practice

Technological factors

Technology Detection Speed of technology transfer Government spending for R & D Market for technology products

Bargaining power of suppliers

New entrants

Rivalry

Competitive intensity

Substitutes

Customers Suppliers

Analysis of the business trading in a particular industry environment helps businesses understand the opportunities and challenges which has specific impact

on enterprises

Five forces includes (1) Bargaining power of suppliers, (2) Rivalry, (3) Threat of new entrants, (4) Bargaining power of customers, (5) Threat of substitute products/ services Each one of these five forces is under the influence of other factors which should be studied to create a complete picture of competition in an industry The interactions between these five competitive forces create opportunities and threats to businesses in the same industry are shown in the diagram below:

FIGURE 1.3 Five competitive Forces model

Rivalry

Rivalry must be determined with the specific information on names, high or medium or low competitive levels An industry with high levels of competition is

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forced to lower price, which threatens the enterprise’s revenue These factors determining the competitiveness of the sector includes growth of the sector, other businesses, and their size, difficulty to withdraw from the industry, the difference in products amongst industry

Threat of new entrants

The ease with which new enterprises can enter an industry influences competition A lot of barriers reduces the threats of new entrants and increases the chances to existing enterprises Barriers includes economics of scale product differentiation and loyalty to brands, distribution network, absolute cost advantages

Bargaining power of customers

The position of buyers is determined by factors influencing the relationship between buyers and businesses Enterprises review products and services to ensure that they are unique or similar to the other enterprises’ in the market In other words, the Company determines position of product to buyers In relative relationship between enterprise and buyers, if customers are "weak", they buy the company’s products and services at any level of price, companies are able to set the price to increase revenue

Bargaining power of suppliers:

Suppliers can determine higher price or lower product quality, which means that suppliers are now “stronger” than enterprises Specifically, the supplier will exert stronger influence when the enterprise does not have many substitute products

in the market forcing enterprises to choose what is offered Bargaining power of suppliers comes when enterprise’s business field is not important to supplier; suppliers have the advantage of specialized products that makes it difficult for businesses to select a different provider instead; providers can engage in the same industry to directly compete with the enterprise

Threat of substitute products and services

According to M Porter, substitutes are the products of competitors in other industries with similar functionality to meet consumer demand for the same

 Sales and marketing

 Financial performance

 Technology and production

 Organizational structure and operations

 Human resource

 Research, development and information technology system

1.4 External and internal factors combination matrix

1.4.1 External factor evaluation matrix

Analysis of the factors results in external factor evaluation matrix (EFE) Businesses often have ten external factors and analyzed through the below steps

We provide basic factors in the following attached table (calculated based on a scale

of 4):

 Step 1: List key factors for enterprise’s success

 Step 2: Determine weights from 0.0 (not important) to 1.0 (very important) Total weights is 1.0

 Step 3: Classify from 1 to 4 for each factor to see how the current strategy of the business response to factors, where 4 is the best response, 3 is the reaction above average, 2 is the average response and 1 is a less reaction

 Step 4: Multiple weights with the sort to determine mark for importance

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 Step 5: Cumulatively add marks to determine the total

TABLE 1.1 External factor evaluation matrix

+ Weights: shows the level of importance of factors in industry Coefficient is often used and sum of weights is 1

+ Rating: Be able to assess response of enterprises to the fluctuation of external environmental factors 4 is the best response, 3 is the reaction above average, 2 is the average response, and 1 is a less reaction

The highest point for an enterprise is 4.0 and the lowest one is 1.0 Mark 4 shows that the enterprise well respond with current opportunities and threats from the external environment Other word, organization’s strategies maximize chances and minimize challenges from outside Mark 1 indicates that business strategy set up does not take advantage of opportunities or avoiding external threats

Scores above 2.5 are likely to respond to and below 2.5 is not able to respond

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1.4.2 Internal factor evaluation matrix

Internal factor evaluation matrix uses to summarize result of analysis, assess strengths, weaknesses of factors affecting to internal activities of enterprise The process of building internal factor evaluation matrix is quite similar to external factor evaluation matrix’s, only with a difference in step 3: It is classified as a1 point if that is the biggest weakness, 2 point for the smallest weaknesses 3 point for

the smallest strength, and 4 point for the biggest strength

TABLE1.2 Internal factor evaluation matrix

No matter how many IFE matrix elements, Total mark can be classified as little as 1.0 to 4.0 is the highest The total mark less than 2.5 shows weak competitiveness and more than 2.5 indicates competitive ability

IE matrix integrated basing on EFE and IFE matrixes We define the center point of the circle and the scale-determined circle Green light of centre point implies growth area, yellow light is stable area, and red light is dangerous area Proper business strategy is chosen relying on enterprise’s position on IE matrix The matrix also helps enterprise understand its strategic position

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1.5 SWOT matrix

SWOT analyzes strengths, weaknesses, opportunities, and threats Analysis

of external factors helps enterprise identify opportunities and threats while analysis

of internal factors proposes strengths and weaknesses of organization Analysis of investment portfolio and core capabilities must present competitive advantages of enterprise

Identification of opportunities and threats through analysis of data on environmental changes in the economic, financial, political, legal, social, competition in markets where businesses are operating or want to penetrate Opportunities could include the potential for market development, market share, near sources of raw materials and cheap labor with appropriate skills Threats could name as narrowed market, fierce competition, policy changes, political instability at key market, and the development of new technologies and media make the production line of enterprise becoming obsolete

Concerning internal factors of enterprise, strengths include skills, resource and competitive advantages such as talented executives, outstanding technology, available cash, good image, large market share While weaknesses reflect in mistakes, shortcomings, limited factors of competitiveness The weaknesses also include inefficient distribution network, disclosed labor relationship, lack of managers with international experience, and obsolete products

Results of the SWOT analysis must be specific, accurate, practical, and feasible for businesses to make the next steps such as strategy formulation, strategic objectives setting, mechanisms to control external factors and internal strengths, disability of outside threats and limitation of enterprise

Process of developing a SWOT matrix consists of 8 steps:

 Step 1: List external opportunities

 Step 2: List external threats

 Step 3: List main internal strengths

 Step 4: List main internal weaknesses

 Step 7: Combine internal strengths with external threats to create ST matrix

TABLE1.3 SWOT matrix

We have the following combinations

SO: Use strengths to take advantage of opportunities ST: Use strengths to avoid risk

WO: Joint venture WT: Complementing each other Besides, we are able to combine other strategies and small group

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1.6 Basic competitive strategy

1.6.1 Cost leadership strategy: The same commodity is provided to customers

with the lowest price Decrease in cost of input, application of sales networks to eliminate some intermediaries lower cost of products to supply goods to final customers with time-saving, convenience, and competitive price Cost leadership strategy is specifically applied through solutions such as: management of inputs and inventories, tight management of production and savings process, production with large scale, building mounted business chain, proper and scientific distribution network

6.1.2 Differentiation strategy: Products with different characters compared with

other products having the same function are supplied to customers Differentiation creates trust, goodwill for consumers who satisfy products being used Differentiation also brings the feelings of greater benefits than with the same products so they are willing to pay at higher price for the product and preferred brands

6.3.1 Focused strategy: business focus to meet customer demand for a particular

group or focus on specific market segmentation such as geography, income, gender

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CHAPTER 2 OVERVIEW AND ANALYSIS OF BUSINESS ENVIRONMENT OF SON KIM HA TINH TOURISM AND MINERAL WATER JOINT STOCK

of the economic cooperation corporation, 36% of the provincial People's Committee, and 1% of employees

 Company name: Công ty Cổ phần Nước khoáng và Du lịch Sơn kim – Hà Tĩnh

 English Name: Son Kim Ha Tinh Tourism and Mineral Water Joint Stock Company

 Abbreviation name: SOKIMIWACO

 Address: Kim Son commune, Huong Son district, Ha Tinh province

 Phone number: 039 3879 307 - 3879 322 Fax : 039 3879 322

 E-mail : sonkim_miwaco@yahoo.com.vn

 Logo & slogan:

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 Products:

 PET bottled natural mineral water 0.35 liter

 PET bottled natural mineral water 0.5 liter

 PET bottled natural mineral water 1.5 liter

 PET bottled natural mineral water with gas 0.50 liter

 Glass bottled natural mineral water with gas 0.50 liter

 Big PET bottled natural mineral water 7.50 liter

 Big PET bottled natural mineral water 20 liter

2.2.1 History and development of SOKIMIWACO

Founded in 1993 Son Kim bottled mineral water factory was under the management of Ha Tinh Export and Import Investment Company In 1999, Son Kim bottled mineral water factory was transferred to the Ha Tinh export, business, and mining company The company renamed Ha Tinh Son Kim mineral water Company owned Ha Tinh industrial Department

According to Decision No 2449/QĐUBND of Ha Tinh Provincial People's Committee, Ha Tinh Son Kim mineral water Company was converted to a joint

stock company with the full name of Son Kim Ha Tinh Tourism and Mineral Water Joint Stock Company on the 14th November, 2002

SOKIMIWACO has two group shareholders The first one is the Economic Collaboration Corporation and the Ha Tinh Provincial People's Committee, and the other is employees of the company

The company has been fully operated in the form of a joint stock company since 2002 Through the years from 2003 to 2007 the company encountered difficulties on the market as well as the organization of production, was the year the company also lost The company now has vigorously transformation: business meets and exceeds the designed capacity to dominate Nghe An and Ha Tinh market, product quality has been improved step by step, growth rate also increases above 30% per annual in recent years, revenue, profits of after year is higher than the previous year

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2.2.2 Functions and tasks

+ Production and business of natural mineral water + Tourism services business

+ Trading

2.2.3 Organizational structure

FIGURE 2.1 Organizational structure of SOKIMIWACO

2.2.4 Performance of manufacturing and business from 2007 - 2009

According to reports from the Plan Department of SOKIMIWACO, annual growth rate is 156% in 2008, 150% in 2009, and 183% (estimated) in 2010

CONTROL BOARD BOARD OF CHAIRMAN

BOARD OF EXCUTIVE DIRECTOR ADMINISTRATIVE

MANAGEMENT DEPT

FINANCIAL DEPARTMENT

PLAN DEPARTMENT

HA TINH SALES CENTER PRODUCTION FACTORY VINH SALES CENTER

SHAREHOLDER MEETINGS

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TABLE 2.1 Performance of manufacturing and business from 2007 - 2009

(Source: From the reports of SOKIMIWACO’s Plan Department in 2009)

2.2 Analysis of internal environment of SOKIMIWACO

2.2.1 Sales and marketing

Marketing and sales is one of the important activities influencing on the

development of SOKIMIWACO The analysis of primary activities includes

elements of sales, price policy, distribution network, after sales service and trade

promotion activities

Strengths:

Labor force with experience, skills, and enthusiasm meets the demand of sales activities; the number of staff is responsible for market activities accounts for 40% of companies The company has dynamic sales policy with two branches to focus on the sales Thus, sales activity is increasingly specialized and efficiently operates

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The company sets reasonable and flexible price policy with high quality products to serve target buyers with lower price than other competitors’ among the water sector from 5 to 10%, often offers the promotion programs on the Holidays and festival occasions, and for old customers and consumers with excessive output SOKIMIWACO has developed basic distribution network at the target market with

300 agents in Nghe An and 400 distributors in Ha Tinh Policies of building distribution network is frequently updated to adapt each market segment, and to develop new market in Thanh Hoa and Hanoi

Recently, the company often cares after sales services to maximize customers’ benefits The staffs visit sites to receive consumers’ feedback helping enterprise approach customers’ needs and satisfy them

Trade promotion activities have been many changes especially in the advertising, such as advertising on television in Nghe An and Ha Tinh provinces, local newspapers, economic magazines; advertising programmes on bus, leaflets, banners, etc Due to these advertising strategies, more and more customers know the company's products These activities also contribute to increase in sale revenue and market share for SOKIMIWACO

Sponsored programs and activities are often organized for festivals, conferences and sports events of the two provinces of Nghe An and Ha Tinh, and funding programs gratitude and anniversaries, major holidays are frequently carried out

In addition, on special holidays or anniversaries meaningful gifts such as

flowers, domestic equipment with “Son Kim Mineral Water” are given to potential

customers of the company

Limitations:

Qualification of the salesperson is still limited (the rate of sales staff with BA degree is low) The staff serves customer basing on experience without any basic training and professional skills

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Management process of price is not appreciated to make customers share negative feedbacks., delivery is not timely, especially in summer when consumption demand highly increases and business have no enough inventories and transport to meet demand of market, time to deliver sometimes is late Management of distribution network is unscientific and unprofessional to maintain separated and small sales systems The company does not frequently classify and evaluate, and control capacity of distributors and agencies, which add expense to deliver productions, and quality of its distributors, agents are not high

After-sales service has implemented, but it is not often and not systematic, there are not enough good programs and quantitative to best meet customer needs, lack of investment in communication means and advertising creates unattractive advertisements which find difficult to make impression to buyers Budget for promotion of trade is still limited Sales staff is not aware of responsibility, poor reporting, and organizational culture

Trade promotion programs are not paid much attention, so the results of these activities are not good

2.2.2 Analysis of financial resources

Authors use the financial data of 2008 and in 2009 for analysis Collected data about the financial performance of SOKIMIWACO in 2009 followed:

Accounting Balance Sheet (short version) on December 31 st , 2009

TABLE 2.2 Accounting balance

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(Source: From financial reports of Financial Department of SOKIMIWACO, 2009)

Some ratios are shown from the SOKIMIWACO’s Balance Sheet

TABLE 2.3 Analysis of ratios

Quick

liquidity

(current assets- inventories)/Current liabilities

quick liquidity liabilities/

(Source: From financial reports of companies in 2009, Financial Department)

In general financial ratios of SOKIMIWACO were low in 2009 However, these ratios increased comparing with the previous years

Through the above analysis, we can conclude that the financial situation of SOKIMIWACO is poor The objective of SOKIMIWACO from 2010 -2016 is to continue to seek measures to improve the financial situation and increase profitability

It is seen that, SOKIMIWACO’s financial performance is poor The target of the company from 2011 to 2015 is to research the solutions to improve financial performance and higher profit

2.2.3 Analysis of human resource

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TABLE 2.4 Analysis of labor rate

(Source: From reports of the Administrative Management Department, 2010)

Sex ratio: 65% Male, 35% female: University Education: 21%, Intermediate and high school level: 31.4%, 47.6% unskilled

Strengths:

to grow and develop Gender structures adapt to business and production conditions, labor force with long experience and high responsibility trust and corporate with company

Limitations:

Manual labor accounts for a majority of labor structure Level of low workers and limitation of managers bring to ineffective production with productivity performance of a worker is about 200,000 liters per year and revenue

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per labor is around 250 million VND The rate is low compared to other companies

of the same industry Limitations of compensation and human training and development do not attract labor Evaluation and classification of worker’s capacity have not been regularly implemented to motivate worker’s contributions to company

2.2.4 Production and technology

To analyze production and technology, we need to analyze several factors including technical facilities (offices, workshops, warehouse, and grounds), means

of transports, technological lines, equipment, machines, and furniture

Advantages:

Having large enough premises for layout production (44,000 m2) and workshop is over 1000m2, warehouse is 500 m2, large warehouse ensures production, and factory was built with high quality

Means of transport ensures 70% of transport needs for delivering products and the other 30% is to be leased out Wire transfer system consists of three main production lines for production line of bottled mineral water (0.35 liter, 0.5 liter, and 1.5 liter), mineral water production line with gas, water production line of 20 liters Bottling line is automatic and line for producing 20 liter is manually produced

Disadvantages:

Workshops have been invested for a long time creating a difficulty in delivering products inside workshops It is made of metal material causing heat in the summer (Company has not given any solutions and funds to solve this problem) Production line is not synchronous some components are often out of order leading

to production lag

There are not enough means of transport with low quality, leading to lease out at a high cost

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There are some limitations in administrating production: allocating machines and equipment irrelevantly, low capacities of administrators and workers as well, administration is not done in a scientific way

2.2.5 Production administration

Strengths:

In time production planning ensures production inputs, good allocating means of transport; following all regulations strictly are results for progress in production administration

Weaknesses:

Monitoring and supervising is not strictly performed Approaching and processing information is still slow Investigating input materials are sometimes not strong enough There is not any introduction to savings, coordination among different departments to take full advantages of resources avoiding any waste in

2.3 Analysis of the external environment

2.3.1 PEST Model

2.3.1.1 Economic elements

+ Opportunities

Vietnam is a new and stably growing economy in Asia Obviously, there are

a lot of people staying away from poverty, and an introduction for a group with medium and moderate income in society is creating a great demand for the market

In accordance with that, Vietnam is deeply joining international economy under globalization, explaining in Vietnam's participating in AFTA, WTO, bringing some big opportunities for beverage industry to widen market for product consumptions, accessibility to human resources, resources from developing countries, and advance administration system coming from all over the world

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According to a survey by the market research firm, Nielsen Vietnam, bottled water accounts for about 22% of soft drinks in Vietnam With an average growth rate of 26% per year Vietnam is one of the five markets in non-alcoholic beverage with the fastest growing in the world On average, a Vietnamese person drinks about 3 liters per year

The growth rate of both Ha Tinh and Nghe An Province is relatively high in

of statistics), income of people there increases on average 10 million / year, leading

to an increase in demand for consumption of mineral water bringing business opportunities for companies

High economic growth has been shown in recent years especially in Nghe

An and Ha Tinh market restaurants, hotels, catering services have increased so Son Kim mineral water showed consumption increases Household income is increasing Son Kim mineral water consumption is relatively large

+ Challenges:

From late 2007 to present, Vietnamese economy getting into recession due to the internal weaknesses and the negative impact of global economic crisis, decreased in recent years (8.4% in 2007 and 6.2% in 2008) and is forecasted is 5% this year causing a reduce in demands in the domestic market

The gap between rich-poor is significantly shown, the rate of low-income people's income remains more than its central area, especially in Nghe An, Ha Tinh province people's income there is still lower than others’ in our country

The Vietnam's WTO accession also showed that current beverage bottlers in Vietnam are facing challenges such as fierce competition from the famous products

in the world company like Coca-Cola ( Joy bottled water product), Pepsi (Aquafina bottled water product)

2.3.1.2 Legal and political elements

[6] Annual reports of the Ha Tinh Provincial Statistic Department, 2009

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+ Opportunities

Vietnam's politic has been stable in recent years Vietnam continued to apply macroeconomic stability policy, business development, social stability and sustainable development The Vietnamese government introduced appropriate monetary policies, policies for investment incentives, growth and inflation prevention and safety The stimulus policy, interest rate support have been applied

in recent years, creating the favorable conditions for domestic enterprises as well as

development SOKIMIWACO also receives such incentives from the government's policy on non-tariff zones and incentives some of Ha Tinh province because SOKIMIWACO is located in local border gate economic zone of Ha Tinh province

Government has a policy encouraging Vietnamese people to use Vietnamese products and price stabilization policy, bringing an opportunity for domestic enterprises to develop steadily

+ Challenges:

Policies are overlapping Import tax policy of Vietnamese government has been done in recent time as reducing import duties being the big challenge for Vietnam enterprises because that policy gives an incentive to import more mineral water at a lower price

2.3.1.3 Cultural and Social elements

+ Opportunities:

Population in the target market is quite large population of over 4 million people in Nghe An and Ha Tinh, households tend to have high independent of purchasing power leading to making decisions to purchase faster, so it is an

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opportunity to make consumption including mineral water Class differentiation has occurred rapidly, equality and independence, creates a change in consumption culture Services for health care and beauty also increased, woman receives equality

at work and life, changes in altitudes, career, job, and all are affecting the business environment of companies Those people with high incomes will pay more attention

to health so this class will use mineral water as drinking water instead of regular use water or unqualified water

Vietnam is heading in the scale, density and growth rate of population with 1 million people per year High population growth rate along with growth of urbanization have created high demand for water consumption

Vietnamese people are interested in gathering in a big group, traveling, cross-cultural with other countries in the world, the annual international travelers are more and more crowded, the restaurant service has developed, leading to increasing in consumption

+ Challenges:

Vietnam as a country with rice culture in modern society is closely related media; the percentage of rural population is considerate so demand for the mineral water is not large Mineral water consumption is only consumed in the urban areas but rural areas are very low Vietnam has ac cultural diversity and especially in central areas of Nghe An and Ha Tinh with their own characteristics in addition to tourists from other countries with different cultures which is a big challenge on how

to meet consumer demands so companies must diversify product, may lead to higher prices and difficulties in distribution According to the group’s report, the need for drinking water of the whole country is around 258 million liters per year; it

is about 33 million liters per year in the north central region, and 14 million liters per year in the two provinces of Nghe An and Ha Tinh And the annual growth rate

is 26%

2.3.1.4 Technological elements

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+ Opportunities:

The development of technology has supported the production sectors in reducing costs; information technology makes transactions more convenient, contributing to reducing transport costs

opportunity for SOKIMIWACO to develop

+ Challenges:

Harsh climate, frequently occurring natural disasters, like flood damage, business seasonal in the cold winter lasts for a long time leading to decrease demand for drinking water which SOKIMIWACO output declines in these months

2.3.2 M Porter's five forces

We analyze the company which is manufacturing soft drinks, namely mineral drinking water

2.3.2.1 Rivalry

According to research by Euromonitor in 2008, total sales of bottled water sector in Vietnam is 156 million This industry, in the whole country, has more than

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1,000 enterprises producing mineral water and pure water There are more than 20 mineral water brands, such as La Vie, Vinh Hao, Evian, Thach Bich, Danh Thanh, Vital, Dakai, Laska, Vikoda, Miocene, Water Maxx, Cosevco Bang, Quang Hanh, Thanh Tan , Suoi Xanh, Tien Hai, Kim Boi, Son Kim, and Thien An

Although there are many enterprises running mineral water products, the number of enterprises that has famous brands is a few The mineral water brand name with the largest maket is Lavie, followed by Vinh Hao, Thach Bich and Danh Thanh Lavie is dominating the national market, Vinh Hao has the advantage in the provinces of Binh Thuan, Ninh Thuan and the southern provinces; Danh Thanh seems to "occupy" Nha Trang, and Thach Bich has been leading the soft drink in the Central and Highlands

Mineral water is not only competing with the same product but also is

attacking pure water Therefore, the competitiveness is more and more fierce In the field of pure water, Aquafina is outstanding, then Sapuwa, and Joy Aquafina is also the "opponent" of the mineral water company

Aquafina has the advantage in the supermarket when holding the exclusive contract by offering major added incentives and other fascinating gifts in the

promotion activities SAPUWA has not enough resources to run in the campaigns and promotions Thus, the majority of sales of Sapuwa comes from collective

customers But Aquafina and Joy will definitely not let SAPUWA monopolize this advantage

According to a survey by market research company, Taylor Nelson Sofres (TNS) on the bottled water industry conducted in November, 2009 in the two

biggest cities, Hanoi and Ho Chi Minh City, Lavie is holding the first rank of of brand recognition, followed by Aquafina, Joy and Vinh Hao (in Ho Chi Minh city) and Vital (in Hanoi)

In term of the market share, however, Lavie and Aquafina are vying for business Nielsen's survey results also show that the market share of Lavie in the bottled water market is 31%, and Aquafina is 30% The four strongest brands of the

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pure and mineral water are Lavie, Aquafina, Vinh Hao, and Joy They hold nearly 80% market share

In Nghe An and Ha Tinh, SOKIMIWACO's competitors are Thach Bich,

Vital, Lavie, Aquafina, An Phu and other filtered natural water companies The

following tables show the SOKIMIWACO’s competitors with selling price and

20 Liter

Bottled water 0,5 liter

Fizzy plastic bottle

Salty glass bottle

-

68.000 75.000 - Thai binh

-

58.000 68.000 - Thai binh

22.000

52.000 60.000 - Quy hop

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7 Son kim

25.000 55.000 60.000 35.000

-

60.000 - - Cocacola

20.000

34.000 - - Nghi phu

(Source: From the survey of Market Investigation Department, 2010)

TABLE 2.6 Price list compare

I Bottled mineral water