Final Researc- Introduction

One of the highlighted trends that characterize today's business environment is fiercer and fiercer competition. This brings business organizations a wide array of opportunities and threats that require the design and implementation of strategy or strategic planning in doing business

1.1 General ideas

One of the highlighted trends that characterize today's business environment is fiercerand fiercer competition This brings business organizations a wide array of opportunities andthreats that require the design and implementation of strategy or strategic planning in doingbusiness [34] Thus, strategic management as a concept has evolved over the last threedecades and will continue to evolve Strategic management is carried on in most organizationstoday - and most organizations that practice it benefit significantly [37]

The ultimate goal of the strategy of a company is the creation and improvement ofsustainable competitive advantages to secure the long term future of the company Theprocess of strategic management will help the managers of the company to get a betterunderstanding of their company with its strengths and weaknesses as well as opportunitiesand threats, to know where their company is, where it should be, can be, and must be withinthe competitive environment Therefore, the question of how a company's superiorperformance against its competitors can be achieved and sustained must be addressed.Finding out the answers is subject matter of developing a competitive strategy

In the course of economic transformation from a centrally planned to a market-orientedsystem, Vietnam is emerging as a potential market for both consumer products and industrialproducts A lot of foreign and domestic investors are entering into this unsaturated market As aconsequence, all business sectors have to cope with really strong competition raising inbusiness environment - that is the nature of a free-market economy However, many domesticmanufacturers, especially the state-owned ones, have got little experience of how to dobusiness in an atmosphere of competition Filling this gap is the author's original idea for doingresearch on competitive strategy in the Vietnamese context So far, the beer industry has beenchosen as an objective of the research because of the typical cutthroat competition which ishappening there and will be depicted clearer through the description of the problems faced byDanang Brewery Company at present

Danang Brewery is one of the largest breweries which has dominated solely the beermarket in the central region of Vietnam for the last five years Nowadays, the competition issharper and sharper, requesting the company to develop differential advantages Then thepriority belongs to developing its own competitive strategy

1.2 Statement of the problem

Keeping pace with Vietnam is fast economic growth rate, the citizen's standard of living

is soaring Accompanying this good fortune is the demand for beer While beer consumption inVietnam is then only four to five liters a head each year (statistical figure in 1994), compared to

a global average of 15 liters a head or up to 150 liters in Britain, France or Germany, manydomestic and foreign investors saw that there was money to be made from it.

Not only private domestic but also joint-venture breweries have come into being withsubstantial investment from home and abroad [32] In addition, the "free-flow" of import beer,both legal and illegal has led to fiercer competition between a myriad of brands With a tour ofthe beer distribution and agent network, we can see how the high volume of domestic andimport beer are sold Some more than 60 different brands of bottled and canned beer are sold

everyday They are Tiger from Singapore, Heineken, Amstel and Dab from Holland, San Miguel from the Philippines, Guiness from Ireland, Foster from Australia, Stella Artois from Belgium, BGI and Castel of a Franco-Vietnam joint-venture, Saigon bottled beer and 333

canned beer manufactured by Saigon Brewery, and so on

The flow of investment into new breweries has shown an upward tendency The recentintroduction of bottled and canned beer bearing such brand names as BGI and Castel orVinagen has created tough competition for a number of domestic breweries and beer joint-ventures With the starting of Heineken in Ho Chi Minh city at the end of 1994, together with theSan Miguel Brewery in Khanh Hoa, Ha Noi and other beer joint-ventures in other provinceswhich also will start operating, the battle of the breweries is bound to become quite a spectacle

of cutthroat competition

As competition among the brewers is getting fiercer and as it is only a question of timeuntil the larger foreign brewers which have been concentrating their efforts on the two maincities Hanoi and Ho Chi Minh will try to enter regional market as well, the Danang Brewery isfacing the thorny question of how to develop in this competitive environment Hence, theproblem of designing an effective competitive strategy is becoming more and more essentialand crucial This will form a benchmark for the company's performance in order to meet bestthe satisfaction of consumers and the company's objective with respect to the constraints of thecompany and the business environment

1.3 Objectives of the study

This research is designed to understand the situation of the local companies in newbusiness environment of a market-oriented economy that is characterized by fierce competition.Generally, from the result of understanding the process, the objective is to develop acompetitive strategy in order to grow strongly taking into account many chances andconstraints for a local brewery

This study particularly focuses on the development of a competitive strategy includingthe following steps:

· To assess the current strategic situation of the company in order to develop itscompetitive profile

· To assess the existing and potential competitors in Vietnamese beer market in generaland especially in that of central region of Vietnam

· To help the concerned firm in first developing strategic alternatives, assessing them andthen suggesting possible courses of actions in order to achieve desired performancelevel.

· To serve in providing information about competitors for the investors who pay theirattention to enter beer market in central Vietnam

1.4 Scope and limitations

This research study will be undertaken purely from a viewpoint of strategy with the aim

to design a competitive strategy for a particular company since it is regarded as an essentialissue in the increasingly competitive environment in Vietnam now As stated above, the authorchooses the beer industry for the study since it is regarded as particularly dynamic showingdevelopment which will sooner or later also affect other industries in Vietnam

The company chosen in this study is Danang Brewery - a medium-size localmanufacturer of beer product which is located in the central of Vietnam - and its local marketthere However, the business environment of Danang Brewery should not be limited to thosewhich are identified in this research - since the study will be conducted only for major activitiesand product-market strategies

Other limitations of this research are:

1 First, in the domain of strategy, the study is narrowed to competitor analysis to definethe strategic position and more carefully analyze marketing function in defining strategycapability

2 Second, primary data is collected just from the major geographic area Danang city which are concerned to real business strategy of the company Meanwhile manygeographic areas which could be the promising potential markets for the company cannot be treated in this study because of the time constraints

-3 Third, this study relies heavily on the available secondary data, the primary data usedare relatively limited because of time limitation and the author's ability to conduct a largesurvey

4 Last, the study will focus mainly on strategy process in which propose what strategiesshould be opted to succeed in the market, while other functional aspects such as R&D

or management of technology will be mentioned but not thoroughly treated

1.5 Organization of the study

The study is organized as follows:

Chapter 1 provides an introduction including the rationale of the research, the

identification of the problem, the objectives as well as scope and limitations of the study

Chapter 2 shows the literature review of the topic being considered by the research

proponent This will encompass the fundamental ideas on corporate strategy, the role ofcompetitor analysis in forming a company's competitive strategy and an overview of beerproduct industry in the world and Vietnam

Chapter 3 deals with the methodology of the study including: Design of the framework

of the study, identification of the sources of information, of the instruments to collect data and

of the stages of data collection

Chapter 4 provides an analysis of external factors that help to identify the firm's

strategic position The main contents of the chapter, therefore, will convey environmental scanthat emphasizes on central region of Vietnam, then structural analysis of the industry.Simultaneously, this part mainly focuses on the analysis of the major domestic and foreignbrewery manufacturers who are competing in the Danang market and the whole country

Chapter 5 is devoted to the analysis of the current situation of the Danang Brewery

Company in terms of production, organization management, marketing, finance, and humanresource management Its ultimate goal is to determine the critical success factors which definefirm's strategic capability

Chapter 6 will provide the expected outcome of the study in trying to develop strategic

alternatives based on the analyses from previous parts, which can help Danang Brewery gainsuperior performance in the next coming years

Chapter 7 encompasses the practical recommendations on the implementation of a

competitive strategy for the chosen company and conclusions

Chapter 2 The approaches to competitive strategy and beer industry:

an overall view

2.1 The nature of corporate strategy

2.1.1 Integrated definition of strategy

Strategy, starting from its military roots, is defined by Webster's New World Dictionary

as "the science of planning and directing military operations" Thereby, the concept of strategy

is not quite a new one in the last centuries However, applying and developing the concept ofcorporate strategy into the arena of doing business is a breakthrough idea since the later half

of this century Then the decades of the sixties and seventies saw a tremendous growth in thedevelopment and application of the tools and techniques of strategic planning At that time,most management definitions of strategy by many authors were emphasized on the planningtheme as an important component This traditional approach is elaborated by Charles W.L Hilland Gareth R Jones as the following:

"Harvard's Alfred Chandler defined strategy as "the determination of the basic long-termgoals and objectives of a enterprise, and the adoption of course of action and the allocation ofresources necessary for carrying out these goals" Implicit in Chandler's definition is the ideathat strategy involves a rational planning process The organization is depicted as choosing itsgoals, identifying those courses of action (or strategy) that best enable it to fulfill its goals, andallocating resources accordingly Similarly, Jame B Quinn of Dartmouth College has definedstrategy as "the pattern or plan that integrates an organization's major goals, policies andaction sequences into a cohesive whole And finally, along the same line, William F Glueckdefined strategy as "a unified, comprehensive, and integrated plan designed to ensure that thebasic objectives of the enterprise are achieved" [7]

However, planning based definitions of strategy had evoked criticism Then Hill andJones showed a new approach based on Henry Mintzberg's definition of strategy as "a pattern

in a stream of decisions or actions", the pattern being a product of whatever intended (planned)strategies are actually realized and of any emergent (unplanned) strategies Both of themargued that Mintzberg's revision of the concept of strategy suggests that strategy involves morethan just planning a course of action It also involves the recognition that successful strategiescan emerge from deep within an organization

In the sequence decades of 1980s and 1990s, "strategy" becomes essence in businessdomain than ever before, the term "corporate strategy" and "strategic management" are aresponsibility of all managers - a responsibility that is becoming more and more crucial So far,the concept of strategy has received a great deal of attention by various authors until now.Many of them realized that it should not be emphasized a different perspective, providingmerely a single dimension of this fairly complex concept Further more, they have attempted todevelop a widely accepted concept of strategy

By 1991, Arnoldo C Hax and Nicolas S Majluf pointed out that strategy can be seen as

a multidimensional concept that embraces all of the critical activities of the firm, providing it with

a sense of unity, direction, and purpose, as well as facilitating the necessary change induced

by its environment

Reviewing some of the most important work in the field of strategy, Hax and Majluf haveidentified the following critical dimensions that contribute to a unified definition of the concept ofstrategy:

· Strategy as a coherent, unifying, and integrative pattern of decision

· Strategy as a mean of establishing the organizational purpose in terms of its long-termobjective, action program, and resource allocation priorities

· Strategy as a definition of the competitive domain of the firm

· Strategy as a response to external opportunities and threats and internal strengths andweaknesses in order to achieve competitive advantage

· Strategy as a channel to differentiate managerial tasks at the corporate, business andfunctional levels

· Strategy as a definition of the economics and non economic contribution the firmintends to make to its stakeholders [4]

Gerry Johnson and Keval Schole (1993), in the similar way, have stated the nature ofcorporate strategy by the characteristics usually associated with the word "strategy" or

"strategic decision" In sum, according to the mentioned authors, strategy is the direction andscope of an organization over the long-term; ideally, which matches its resources to itschanging environment, and in particular its markets, customers or clients so as to meetstakeholder expectations [12]

From this unifying approach, strategy becomes a fundamental framework through which

an organization can assert its vital continuity, while, at the same time, it forcefully facilitates itsadaptation to a changing environment The essence of strategy thus becomes the purposefulmanagement of change toward the achievement of competitive advantage in every business

Applying corporate strategy concept to Vietnamese business conditions now isextremely important in order to enhance the building up of a strategic vision for the managerswho are operating all the domestic companies there, especially for managers of state-ownedcompanies Business environment in Vietnam today is likely different from that of the previousplanned-economy where all of the resources and the output were subsidized by centralgovernment and where the existence of a predetermined long-term plan was merely a formalprocedure by subjective figures without any environmental consideration Actually, themanagers today are challenged by the uncertainty and the faster change of the new businessenvironment as well as by the competitive forces surrounding their firms The task of keeping

up the firm's growth requires setting up a well-defined strategy at all levels of managementwithin their firm

2.1.2 Hierarchical levels of strategy

Within the company, strategic managers are found not just at the apex of theorganization, but also at different levels within its hierarchy There are three basic conceptualhierarchical levels which have always been identified as essential layers of the formulation andexecution of the firm's strategy: the corporate level, the business level, and the functional level.

Corporate level

At the corporate level, the main strategic issue seems to be concerned with the overallscope of the organization Typically, this involves defining its mission and goals, determiningwhat business it should be in , allocating resources between the different business areas, andformulating and implementing strategies that span individual businesses The corporate level ofmanagement consists of the Chief Executive Officer (CEO), other senior executives, the board

of directors, and corporate staff These individuals occupy the apex of decision making withinthe organization The CEO is the main strategic manager at this level His or her strategic role

is to oversee the development of strategies for the total organization Of course, it should benoticed that the decision maker at the corporate level is not necessarily the isolated CEO.Depending, among other things, on the management style of the CEO, corporate strategymight be shaped and implemented by the core team of top executives

Business level

The second level can be thought of in terms of competitive or business strategy with themain efforts aimed at securing the long-term competitive advantage in all the currentbusinesses of the firm In the single-industry company, the business and corporate level are thesame In order to decide how to compete in a market, the concerns are therefore about whichproducts or services should be developed and offered to which markets; and the extent towhich these meet customer needs in such a way as to achieve the objectives of theorganization So, business strategy is more likely to be related to a unit within a whole Themain strategic managers at this level are the heads of the divisions Their strategic role is totranslate general statements of direction and intends at the corporate level into concretestrategies for individual businesses, constrained by the overall resources assigned to theparticular business unit Thus business-level strategic managers are concerned with strategiesthat are specific to a particular business

Functional level

Functional (or operational) strategies are concerned with how the different functions ofthe enterprise - marketing, finance, production, personnel and so on - contribute to the otherlevels of strategy Such contributions will certainly be important in terms of providing theultimate competitive weapons to develop the unique competencies of the firm By definition,there are no strategic manager bear responsibility for specific business functional They are not

in a position to look at the big picture Nevertheless, they have important strategic role, for it istheir responsibility to develop functional strategies that help fulfill the strategic objectives set bybusiness

2.2 Strategic management process

Strategic management is not simply the management of the process of strategicdecision making According to Balaji S Chakrvarthy (1986), strategic management is theprocess through which managers ensure the long-term adaptation of their firm to itsenvironment It should be also emphasized that strategic management process is continuous -

it never really stops within the organization Samuel C Certo and J Paul Peter (1990) definedstrategic management as "a continuous, integrative process aimed at keeping an organization

as a whole appropriately matched to its environment"

Johnson G and Scholes K point out that the nature of strategic management isdifferent from other aspects of management Some of these differences are summarized in thetable 2.1 below:

Table 2.1: Differences between strategic and operational management

(Source: Johnson G and Scholes K., Exploring Corporate Strategy, Prentice Hall, 1993)

Organizational effectiveness depends on the ability of the organization to adapt to itsenvironment, which is in turn influenced primarily by the strategic management of theorganization Strategic management includes making such major choices as whichenvironments in which to compete (corporate level strategies) and how to compete within thoseenvironments (business-level strategy) These choices may either diminish or enhance theprobability of specific types of management actions and plans, thereby influencing businessperformance outcomes (Child, 1972; Hambrick and Mason, 1984; Pfeffer and Salancik, 1978 )

Different components of the strategic management process are visualized in figure 2.1.The components include the selection of the corporate mission and major corporategoals, analysis of the organization's external competitive environment and internal operatingenvironment, the selection of appropriate business and/or corporate level strategies, and thedesigning of organizational structures and control systems to implement the organization'schosen strategy The task of analyzing the organization's external and internal environment

and then selecting an appropriate strategy is normally referred to as strategy formulation Thetask of designing appropriate organizational structures and control systems, given theorganization's choice of strategy, is called strategy implementation.

Business performance, however is not only a function of how well strategy isformulated Business performance also depends on whether the strategy which was chosen isactually implemented, and how well the implementation is done In other words, performance islikely to depend on the extent to which "intended" strategy and "realized" strategy are the same(Mintzberg, 1978) Insight into the nature and content of business-level strategic choices, thepatterns of managerial actions by which their implementation is accomplished, and reasons fortheir relative effectiveness [7]

2.3 Competitor analysis and competitive strategy for a company

As mentioned in the previous part, the second level of strategy is concerned with thecompetitive strategy which is considered as the core of managerial actions In order to answerthe question of how to compete in a market, strategic managers must examine the choice of abusiness competitive strategy which targets to develop a superior position for the business unit

It is also the ultimate objective of the business strategy

There are two key sets of factors in deciding how to position the business within itscompetitive environment: (1) factors that determine the attractiveness of the industry pertaining

to the business, as measured primarily by its long-term profitability prospects; and (2) factorsthat determine the relative advantage of the business with respect to competitors in theindustry [4]

External Analysis

Strategic choice

Internal Analysis

Business level Strategy

-Corporate level strategy

-Portfolio analysis and Entry and Exit strategy

Matching strategy, Structure and control

Corporate Mission and goals

Feedback

Figure 2.1: Components of strategic management process

(Source: Hill C W., Strategic management)

The first set of factors is normally external to and uncontrollable by the firm Its analysisleads us to recognize the industry attractiveness and competitors' behavior The second set offactors , which corresponds to the actions controllable by the firm, allows us to comprehendhow the business can develop unique and sustainable competitive advantages Its analysis isbasically supported by a thorough understanding of the activities represented in the businessunits' value chain.

2.3.1 Structural analysis of the competitive environment

In order to select the desired competitive position of a business, it is necessary to beginwith the assessment of the industry to which it belongs The dominant aspects of anorganization's environment assumed to exist in and around the industry, or industries, in which

a firm competes Thus, for strategic decision making there is no such thing as "the"environment - if the work "environment" is taken to mean a single holistic entity Instead,organizations may confront multiple environments, each with its own characteristics and pivotalcompetitive issues [28]

An industry environment consists of a particular set of competitive forces that establishboth opportunities and threats that confront the company Michael E Porter (1980) postulatesthat there are five forces which typically shape the industry structure: intensity of rivalry amongcompetitors, threat of new entrants, threat of substitutes, bargaining power of buyers, andbargaining power of suppliers

The pattern of forces changes due to the action of competitors Strategic moves by any

of these competitors can alter prevailing relationships and thereby change the pattern of forces

in a firm's environment Figure 2.2 summarizes the "five forces" approach to structural analysisand their interrelationship

2.3.1.1 The threat of entry

The threat of new entrants is due to potential competitors which are companies thatcurrently are not competing in the industry but have the capability to do so if they choose.Established companies try to discourage potential competitors from entering, since the morecompanies enter an industry, the more difficult it becomes for established companies to holdtheir share of the market and to generate profits [12]

Therefore, the threat of new entry depends on the extent to which there are barriers toentry Most typically these are as follows:

· Economies of scale

· The capital requirement of entry

· Access to distribution channel

Indeed, empirical evidence also suggests that the height of barriers to entry is the mostimportant determinant of profit rate in an industry.

2.3.1.2 Rivalry among the industry competitors

The rivalry among competitors is at the center of the forces contributing to industryattractiveness The extent of rivalry among established companies within an industry is largely

a function of three factors:

Industry competitive structure: which refers to the number and size distribution of

companies in an industry Structures vary from fragmented industry to consolidated industry.Different competitive structures have different implication for rivalry

Demand condition: Growing demand tends to moderate competition by providing

greater room for expansion Conversely, declining demand results in more competition ascompanies fight to maintain revenues and market share

Exit barriers: Exit barriers are economic, strategic, and emotional factors that keep

companies competing in an industry even when returns are low If exit barriers are high,companies can become locked into an unfavorable industry

A reflection on the combined impact of exit and entry barriers on the profitability of anindustry is presented in figure 2.3

2.3.1.3 Threat of substitutes

Substitutes could affect the attractiveness of an industry in different ways Their merepresence establishes a ceiling for industry profitability whenever there is a price threshold afterwhich a massive transfer of demand takes place Also the impact that the threat of substitutionhas on an industry profitability depends on a number of factors such as availability of closesubstitutes, user's switching cost, aggressiveness of substitutes' producers, and price-valuetrade-off between the original products and its substitutes

COMPETITIVE RIVALRY

POTENTIAL ENTRANTS

BARGAINING POWER

BARGAINING POWER

Figure 2 2 : A model for structural analysis

(Source: Adapted from M.E Porter, Competitive Strategy, Free Press, 1980, p.4)

Low

Low and stable profit Low and

unstable profit

Figure 2.3: The impact of entry and exit barriers over industry profitability

(Source: Hax A C., Majluf N S., The Strategy Concept and Process, Prentice Hall, 1991)

2.3.1.4 Bargaining power of suppliers and buyers

· Number of important suppliers

· Availability of substitutes for suppliers'

· Suppliers' contribution to quality or

services of the industry products

· Total industry cost contributed by

suppliers

· Importance of the industry to

suppliers' profit

· Number of important buyers

· Availability of substitutes for the industry products

· Buyers' switching cost

· Buyers threat of backward integration

· Industry threat of forward integration

· Contribution to quality or service of buyers' products

· Total buyers' costs contributed by theindustry

linked to competitors and patterns of competitive forces within industry environments Thestrategic implications of events originating in the general environment can only be determinedafter assessing their impact on industry conditions and the relative strategic positions andcapabilities of competing organizations (Porter, 1977, 1980; Lenz, 1980)

Having identified key competitive forces through structural analysis, the sequencesimportant step is to analyze the business's competitive position (or strategic position): that ishow it stands in relation to those other companies competing for the same resources, orcustomers, as itself One of the most relevant ways is undertaking competitor analysis in order

to examine it against competitors or rivals it faces Gerry Johnson and Kevan Scholes suggestthat in order to understand how a given competitor is attempting to cope with the environment itfaces, the following question could usefully be asked:

· What are the objectives of the company: is it seeking growth, for example; and if so, is itmainly concerned with profit growth , revenue growth or market share

· What resource strengths do competitors have, and what are their weaknesses

· What is the record of performance of each competitor

· What is the current strategy of competitors

· What are the assumptions underlying the competitors' approach to their strategydevelopment

Uncovering these strategic aspects of companies can help understand how competitorshave in the past dealt with the forces identified as important in the competitive and widerenvironment, and how their are likely to deal with them in the future [12]

2.3.2 Internal analysis

To design effective competitive strategy, any company is not only supposed toemphasize the importance of matching the firm's strategies to the environment within which theorganization is operating, but also must pursue strategies which is capable of sustaining.Therefore, internal resource analysis is an important way contributing to understand a firm'sstrategic capability

Internal analysis focuses on drawing out a firm's strengths and weaknesses as well asbuilding a distinctive competence (or core competencies) for its strategic businesses The termdistinctive competence here represents the unique strengths of a company Building asustainable competitive advantage involves the strategic exploitation of distinctivecompetencies; they form the bedrock of a company's competitive strategy

Figure 2.4 provides a systematic way to move from a simple audit of resources to adeeper understanding of strategic capability

Resource audit

Value chain analysis

Resource utilization Resource control

Identification of key issues

Strengths and Weaknesses analysis

Core competencies

Understanding strategic

capability

Figure 2.4: Analyzing strategic capability

(Source: Johnson, G and Scholes K., Exploring corporate Strategy, Prentice Hall, 1993)Internal analysis is mainly undertaken based on the value-chain concept which hasrecently been popularized by M.E Porter (1986) According to Porter, the value chain is divided

between primary activities and support activities Primary activities have to do with the physicalcreation of the product, its marketing and delivery to buyers, and its support and after-salesservice Support activities provide the inputs that allow the primary activities of manufacturingand marketing to take place.

Since the value chain is composed of the set of activities performed by the businessunit, it provides a very effective way to diagnose the position of the business against its majorcompetitors, and to define the foundation for actions aimed at sustaining a competitiveadvantage The activities of the value chain constitute the foundation of the controllable factors

to achieve competitive superiority Their analysis leads us to identify the critical success factorsthat are central to compete, and to understand how to develop the unique competencies whichprovide the basis for sound business leadership

As soon as completing the tasks of identification of the most relevant competitors, ofselection of the critical success factors and of developing a competitive profile, the competitivestrategies will be designed according to the choice from three basic competitive approaches:cost leadership, differentiation, and focus Each of these generic strategies results from acompany's making consistent choices on product, market and distinctive competencies Table2.2 summarizes the choices appropriate for each generic strategy

Table 2.2 : Product / Market / Distinctive competence choice and generic

High(principally by uniqueness)

Low to High(price or uniqueness

Market

segmentation

Low(mass market)

High(many marketing segments)

Low(one or a few segment)

Distinctive

competence

Manufacturing and materialsmanagement

Research and Developmentsale and marketing

Any kind ofdistinctive competence(Source: [7])

2.4 Beer industry in the world

2.4.1 Beer - a familiar product

Beer is defined as a drink with light alcohol level caused by fermentation of barley maltand the addition of hops taste The exact origin of beer is unclear The oldest clay documentextant, dating back to the Babylonian era of 6000 BC., pictures the brewing of beer [48].Nowadays, beer is brewed everywhere in the world.

Beer is brewed from the major ingredient which might be barley, corn or rice Thebrewing method also involves five main stages: malting - brewing - fermenting - aging andfinishing - and packaging The malting process will convert the starch in the barley into asoluble form The barley is then put into malt kilns, which dry and roast the substances intomalt Depending on whether the heating degree at this stage is low ( 5°C - 10°C) or high (12°C -20°C), they would get two types of beer, namely yellow beer and black beer

In the brewing process, after grinding the product given by previous stage and mixing itwith brewers rice, hops are added in order to bring beer flavor and a little bit of bitter taste.Next, with the addition of yeast, the fermenting process can begin Yeast is extremely crucialfor beer quality So the kind of yeast is secret and unrevealable know-how of each brewery and

it determines the uniqueness of each beer brand

Once complete, the beer is aged for 16 to 45 days under pressure so that it can build

up its own natural carbonation After it is aged, the finishing process is begun by cooling thebeer to near freezing where it then achieves the proper alcohol level Another factor that alsoplays a very important role for determining the quality of beer is water Water for brewing must

be chemically and biologically pure and contain low levels of calcium

According to statistical figures for 1986, there were 101,500 millions liters of beerconsumed in the world [54] The top of the consumption level belongs to U.S.A with 23,050millions liters The US has also the two biggest brewing companies in the world that areAnheuser-Bush Company and Miller Brewing Company Other giants are Heineken (Holland)and Kronenbourg (France)

Currently, the brewing industry in both US and Europe are facing two significant

challenges: saturation and changing consumer attitudes.

2.4.2 US beer market

The type of beer consumed in America today originated in the 1840s with theintroduction of lager beer, a light beer with a mellow taste It did not take long for lager beer togain popularity and for the American beer industry to grow as consumers' taste shifted awayfrom the heavy German beers [48] As the ability of beer manufacturers to produce beer inlarger quantities increased, a structure change took place in the beer industry that eventuallyled to the establishment of national as opposed to regional firms Between 1860 and 1985, thenumber of breweries in the US declined from 1269 to 85 As industry sales volume grew andthe number of firms in the industry declined, advertising became the primary tool used todifferentiate between beers and to expand and maintain market share

Between 1975 and 1980, the US beer industry expanded at an annual rate ofapproximately 4 percentages As of 1980, only 88 domestic brewery plants produced188,373,657 barrels of malt beverage But in 1982, the growth rate was less than 1% The year

1982 may have been the turning point for industry sales volume increases, and it was the firstyear in 25 years that domestic beer producers as a group experienced a profit decline (Pierceand Robinson, Strategic management, Irwin, 1985, p 511) In 1984, beer industry salesdeclined 0.3% while other beverages were experiencing significant gains For example, winesales in 1984 were up 3.5% and soft drink sales increased by an amazing 7.5% This trend hasbeen continuing up to now to indicate "an industry in flux" Sale volume in 1993 increased only0.2% after declining in previous years This growth is caused by an increasing sales volume of

imported beer and beer of smaller breweries In general, the big breweries have lost a part

of their domestic market Therefore, the leading brewing companies now are trying to expand

their advertising campaigns as well as to sell their beer at a reduced price Simultaneously,they also focus on launching new beer brands, especially to light beer because of theincreasing demand for this type For example, Miller Brewing began to produce ice beer withthe brand "Icehouse" last year According to experts in beer industry, US beer consumption in

1992 - 1993 was approximately 189 millions of barrels [51]

Another impact on US beer industry has come from changing consumer attitudes In

1984, US Congress moved to establish a national minimum drinking age The industryresponded to the threat of even more restrictive legislation by developing "low-alcohol" beer.Moreover, the "fitness fad" has leveled off and the introduction of light beers satisfied thedemands of consumers concerned about fitness [29]

2.4.3 European Beer Industry

Experts on brewing industry of Europe stated that during last 15 years, beer volumesold seemed to increase at a very low rate (even zero) while competition is becoming fiercerand fiercer [53]

A vigorous series of mergers in the 1950s and 1960s which led to larger and largerfirms, a characteristic that was further encouraged by the increasing financial and capital cost

of production and distribution of keg beer which smaller breweries found difficult to meet Theindustry is now characterized by marked differences in size between the largest brewers andsmall breweries Size is also associated with geographical coverage Besides the Europeangiants such as Heineken, Kronenbourg, Carlsberg, which are not only national but alsointernational operators accounting for more than a 80% share of beer sales (1987 figure), thereare still more regionally based brewers covering parts of the nation, and there remains a largethough decreasing number of small local brewers serving a town or city

Similar to the US situation, the beer industry here has also entered the maturing stage

in which demand saturation caused declining beer sales Thus, declining demand constitutes amajor threat, for it increases the extent of rivalry between established breweries withindomestic markets The two biggest European breweries - Heineken and Kronenbourg - arereally confused by the attack of other new beer brands which are gradually taking market shareaway from theirs in each segment category Thus, the industry is experiencing a proliferation ofnew products supported by enormous marketing budgets Emerging breweries attempt to grow

by offering "special" beer, "de luxe" beer or beer for summer, etc to satisfy new waves ofcustomers' demand with lower price Let's take French beer industry as an example Thanks tothe "de luxe" beer, in 1994, Saint-Omer gained 16 percent increase in sales, Groupe Fischer9%, Brasseries Duyck 7% while giant Kronenbourg gained only 2 percent [53]

Stagnant industry sales have led many brewers to extend their diversification byentering new markets such as food products or entertainment Additionally, large brewers arebecoming more vertically and horizontally integrated.

Actually, consumers are understanding more clearly that there is an equivalence ofbrewing technology which has been establishing universally In fact, a famous beer brand cansustain its reputation whenever it depends on future products rather than on old products.Therefore, everyone can observe a reduced price tendency of famous beer brands since lasttwo years Both Heineken and Kronenbourg have been forced to cut down price of their beers

The cutthroat fighting on the beer market is not only taking place inside but also acrossnational boundaries Challenges of the domestic market have powerfully motivated brewinggiants to look for new markets abroad Since Asian beer market has shown an strong upwardtendency propelled by high economic growth in recent years, it really is an attractive place forbig breweries of the US and Europe to continue "the war" between beer brands

2.4.4 Asian Beer Market

According to the assessment of the Hongkong economic experts, economies of Asiancountries have gained high growth rates in the recent years Living standards of the peoplehave been improved vigorously Hence, the Asian beer market has shown a tremendousgrowth catching up from a lower average consumption level than that of developed countries.Realizing that huge potential, brewing companies of Europe, U.S and Japan are rushing intothis market

Statistical figures in table 2.3 below illustrate the reason why the Asian beer marketbecomes so considerable to foreign brewers who wish to invest there

The Thai beer market was previously dominated by Japanese breweries until 1993,Denmark Breweries (Carlsberg) invested to build brewing plants here Within only one year,Carlsberg has gained 10% market share and made Thai breweries worry The success ofDenmark beer has evoked other European and US breweries to plan to launch their products in

1995 In fact, they (European and US breweries) are not only concerned with the Thai market

of 60 millions people, but they also want to put their feet to other ASEAN markets with 330million people Besides this, the 1200-million-people beer market of China and 900-million-people beer market of India are places that seem to catch their attention [49]

The Vietnamese beer market currently has breweries from Germany, Singapore,Denmark, France, Philippines seeking to establish new Joint-ventures Similarly, in China,Anheuser-Bush (US) has bought 5 percent equity shares of Tsing tao Brewery Co., the biggestChinese brewer Asian Pacific Breweries (Singapore) where Heineken holds 50 percent share,has planed to set up from 3 to 4 joint-ventures with local partners during the time from 1993 to

1996 [50] San Miguel Company also entered this country by a joint-venture in a Southernprovince [52] In India, did not want to be late, "Coors" (US) started operating since August,

1994 with its intention to own 10% market share in 1996

By now, most of the famous brands from US to Europe are present in the Asian market.Together with national breweries, they heat up the competition in this market making it moreand more a spectacle than ever before

Table 2.3: Beer consumption and its growth in some country

Consumption

1993 (million liters)

Average per head (liters)

US EUROPE ASIA

· Stagnant growth rate

· Industry concentration by mergers

· Diversification of big breweries

· Vertical integration

· Very low growth rate

· Increasing of diversification

· Vertical integration of core brewing activities

· Technology level equal b/t brewers

· High growth rate

· Boom in the number of breweries

· Joint-venture b/t local partners and foreign brewers

Demand

patterns

· Changing consumers' taste and preference

· Demand saturation

· Demand is restricted by legal drinking age

· Higher quality differentiation

· Growing foreign beer segments to change drinking habit

· Demand saturation

· Seasonal pattern

· Special type of beer (non-bacteria) gain important

· Unsaturated market

· Increasing demand for beer

· Regional and local taste and preference

· High brand loyalty

Key success

factors

· Development of new beer brands

· Segmentation strategy

· Advertising is primary tool to differentiate

· Looking for international market

· Marketing and advertising expenditure

· Investment for brewing plant abroad

· Looking for alliances abroad

· Early Mover to affect

consumers' taste

· High level of capital investment

· Price

· Brand awareness

· Adaptation to local customers' taste

Chapter 3 Research Methodology

3.1 Conceptual framework

The cases add a sense of realism and relevance to the study of strategic management

[1] This research therefore is presented in the form of a case study exposing the complexities

of a real business situation in Vietnamese market Finally, the problem solving here is to

formulate an effective competitive strategy for Danang Brewery Company following a thorough situation analysis

The study of strategy is often likened to using a system's approach This technique enables one to readily understand how goals and objectives interact with the external

environment, the resources needed to carry out a strategy, and organizational structures and functions as they are related to strategic management The linkages and interactions between these variables thus conform a conceptual framework for each strategic study The analytical process of this research relies on the framework adapted from Strategic Management Process

by Charles W.L Hill and Gareth R Jones [7] with a minor complement that is referenced from Gerry Johnson and Kevan Schole [12] It is illustrated by figure 3.1

Since the company mission sets out the reason why the company exists and what it should be doing, this will be a guideline for the process of diagnosing both external and internalfactors affected the business performance of the chosen company

The objective of external analysis is to identify strategic opportunities and threats in

the company's environment Two interrelated environments should be examined at this stage:the wider macro environment of Vietnam today, and the operating environment referred to theindustry in which the company operates - the Vietnamese beer industry Analyzing the beerindustry environment involves an assessment of the industry growth, consumption pattern,impacts of new entrants and substitutes, and especially the competition between the existingbreweries in the whole country and the company's local market particularly Analyzing thebroader environment focuses on examining the national and local economic development andthe political and legal factors which strongly affect the beer industry evolution

The internal analysis is devoted to pinpoint the strengths and weaknesses of the

company Therefore, all the quantity and quality of the company's resources in brewing, rawmaterial management, marketing, brewing technology, personnel, and finance are assessed

In the next stage, a series of strategic alternatives are developed To choose among thealternatives, the company has to evaluate them against each other with respect to their ability

to achieve the major goals Then the strategy will be implemented Once a strategy isimplemented, its outcomes are revealed by the company performance which should bemonitored So, the feedback loops are necessary in order to help adjust a part or the wholestrategic management process However, the scope of this study only reaches to theformulation of the strategic alternatives, after that a possible course of actions will berecommended to the targeted brewery

3.2 Data sources

Qualitative and quantitative data used for this study are obtained from the following main sources:

1 The descriptive data requirements were extracted from the publication of the

Government offices like Vietnam General Statistical Office, the Ministry of Light Industry.Data relating to international context was obtained from academic journals and industry publications in AIT and in Vietnam

2 Data was also provided by local government offices including the Department of

Science, Technology and Environment, the Department of Industry, the Center of Science and Technology Information of Quangnam Danang province and the Statistics Department of Danang city

3 Data and information from the targeted company were obtained from DBC annual reports and from the direct interviews conducted with DBC director, middle and lower level managers

4 Relating data and information were also derived from personal interview with directors

of two other local brewery companies

3.3 Data collection method

Data and information needed for conducting the research were obtained basically by

the qualitative research method which forms the core of any valuable case study The

qualitative research used here combined of two instruments: group interview - discussion and individual in-depth interview

Both of these were used in combination to make the data collection process more flexible within the limited time frame left to the author for this research However, personal interviews were major means The first crucial place to collect data is the Danang Brewery Company, the target company The in-depth interviews were conducted with the Director and the 6 key managers of the company, then a guiding questionnaires (attached in Appendix 4) was used as a check-list for each interview Following this guiding, small-group discussions with the lower-level managers were also held thanks to the support of the Board of Directors

In addition, the interviews with the top managers of two other local breweries were also carried out The information given was used in order to help the required analysis more realisticand effective

3.4 Data analysis

The data analysis basically consisted of the following components:

The first component related to the economic, political, legal, and technological factors inVietnam as well as in central region particularly These are indeed necessary for the proper understanding of the root of growth and development of Vietnam beer industry.

The second component covers the analysis of the various structural determinants of therelevant elements of the beer industry structure Basically, the data is aggregated in

congruence with Porter's model, that is the five force model for industry structure analysis The discussion centers on the analysis of intensity of rivalry, the threat of entry that are considered

as the most important elements shape up competitive strategy for the company

The third component reveals the internal factors that create company's strategic

capability These are crucial to match between strategic position and strategic capability in order to have the right strategic direction

Gathering of all three component is foundation for competitive strategy formulation applied to targeted company

Product Market Geographical scope

COMPANY MISSION &

GOALS

PRIMARY

ACTIVITIES

SUPPORT ACTIVITIES

STRENGTHS & WEAKNESSES

MACRO ENVIRONMENT

-OPERATING ENVIRONMENT

OPPORTUNITIES & THREATS

STRATEGY FORMULATION

STRATEGY IMPLEMENTATION

COMPANY'S PERFORMANCE

GAP ANALYSIS

Feedback for control Feedback for Redesigning

Feedback for the whole process

adjustment or redesigning

Figure 3.1: Conceptual framework for the research

Chapter 4 Environmental Analysis

At one level, environment is not a very mysterious concept It means the surroundings of an organization; the "climate" in which the organization functions The concept becomes challenging when we try to move from simple description of the environment to analysis of its properties

William R Dill

This chapter scans the environment in which Danang Brewery Company (DBC) isoperating In order to contribute to an effective strategy designing for the company, it isrelevant to examine its environment in both macro and operating environment Finally, DBCstrategic position is defined bases on opportunities and threats drawn out from this scanningprocess

4.1 Overview of Vietnamese Economy

4.1.1 Economic growth

After the successful implementation of active measures aimed to save the economyfrom a looming collapse in the later half of 1980's decade, Vietnam's economy has gainedremarkable growth throughout the first five years of 1990s Gross Domestic Product (GDP) hasincreased from 12,8 billion USD in 1990 to 17,7 billion USD in 1994 The indicator is illustrated

in figure 4.1

GDP annual growth rate during this period is on average 8 percent (see figure 4.2, 4.3).Especially, in the last year, 1994, growth rate reached 8.8 percent This achievement rangesVietnam into the group of countries which have the highest economic growth rate in the world

According to an official source from the State Committee for Planning, economic growthrate in 1995 would be projected at 9 to 12 percent per year The forecast figure until the year of

2000 is estimated at 8 percent annually

With an economy on the way of rapid development and a population of approximate 73million people, the Vietnamese market actually is an attractive and potential place for industrialproducts and especially for consumer products Economic growth at relatively high ratesenables to push up disposable income per capita This number is 1,428,000 VND per person in

1994 [55] With higher income, obviously, the citizens are able to rise their expenditure to affordhigher

Figure 4.1 : GDP during the period 1990 - 1994

Unit : Billion USD(Source: Extracted from documentation of the States Committee of Planning)

Figure 4.2 : GDP growth rate from 1991 to 1994

(Source: Extracted from documentation of Vietnamese Statistics Office)

Figure 4.3: Average growth rate in the last four five-year plans

(Source: Extracted from documentation of Vietnamese Statistics Office)

Figure 4.4: Inflation in five years 1991 - 1995

(Source: Vietnam Economic Times, No 6, February 15, 1995, p 4)

quality consumer products.It is recorded that purchasing power has been increased 10 percentper year in this period.

Since then, beverages in general and beer products in particular have become moreand more popular with Vietnamese people Beer has gradually been absorbed into theeveryday life of people and it is not to be considered as luxury product for only richer or forformal parties any more Consequently, beer consumption has exploded So economic growthbrings the opportunities to boost the domestic beer industry In fact, many breweries have beenexpanding their operation and reaping more profit in this market

Part of this success needs also to be attributed to the Government stabilization policy toslowdown the sky-rocketing inflation rate within three years 1991, 1992 and 1993 Thedevelopment of the inflation rate is depicted in figure 4.4

Regardless of the efforts of the Government, inflation rate is still at a relatively highlevel, and the roots of hyper inflation have not been eradicated This must continue to have anegative impact on investment planning as well as consumer price

However, besides the success, there are many remaining limitations in the Vietnameseeconomy such as poor infrastructure, inadequate skilled labor, poor financial condition, etc.Particularly, the Vietnam's transportation system is serious degraded The system is not onlyincapable of meeting future demands, but is also underdeveloped by comparison to countrieswith similar income levels Within the foreseeable future, therefore, inadequacies in transportwill continue to influence the regional pattern of beer distribution, and will continue toencourage the development of plants serving mainly regional markets

4.1.2 Political and legal factors

Together with economic factors, political and legal factors also have a strong impact onthe level of opportunities and threats in the environment

To date, it has become evident that Vietnam has a peaceful and stable politicenvironment Following the "open door policy", Vietnam has expanded and consolidated itspolitical relations with many countries in the world Along with this, the lifting up of US embargo

in February 1994 enabled Vietnam's international trade to be facilitated significantly Thisencourages further investment form and trade flows boosting domestic economy

Simultaneously, a series of economic Laws have been promulgated in order to supportthe economic liberalization process such as the Law on Foreign Investment, the Company Law,the Law on Private business, etc Other economic policies aimed to encourage private sectorshave been passed All of them have formed a favorable environment for domestic economicdevelopment and the beer industry in particular

However, Danang Brewery Company is a state-owned company The main product ofthe company is beer - a product which is subjected to a Special Sale Tax with a relatively highproportion of its sales revenue Nevertheless, this is not big problem The problem now is that,due to the Government policy to create incentives for foreign investment, all the beer joint

ventures are privileged in tax payment The State-owned companies have to pay 35 % incometax, whereas, the joint-venture are tax exemption during the first two year, after that they aresubjected to a maximum of only 25% income tax This is a disadvantage for the statecompanies in competition with foreign joint-ventures with which DBC is confronted now.

4.2 Some economic features of Quang Nam Da Nang province and Da Nang City

Since Danang Brewery Company has been focusing its services on the regional market,

it is relevant for us to highlight some aspects of the local economy here

Quangnam-Danang province is the biggest one in central Vietnam The population in

1994 is 1.9 million people The economic growth of the province is shown on figure 4.5

The province is considered as one of the economic focal regions of Vietnam.Nevertheless, the economic development here seem to be lagging behind the national process

in the years of 1991 to 1993 This is affected by a lot of causes such as the insufficientinvestment capital granted by central government, the lack of experiences in managerialeconomics, etc To boost the local economy, in 1994, the central government supported asignificant financial budget to the province, simultaneously, the local government strived toincentive foreign investment there Consequently, the local GDP growth rate gained 9.8percent in 1994 It is estimated that the GDP growth rate would be higher than 10 percent in

1995

Another point of notion is that virtually all economic potential of the Quangnam-Danangprovince is gathered in Danang city and its surrounding suburb Danang city actually is theheart of central Vietnam Danang - similar to Haiphong - is ranged as second city after Hanoiand Ho Chi Minh city Lying at the midpoint between Hanoi and Ho Chi Minh city, Danang hasits own advantages with a big harbor and an international airport to become an economiccenter of Central region

The Danang population in 1994 is around 441 000 people GDP growth rate in theperiod 1991 to 1994 is visualized in figure 4.6 below

Figure 4.5: GDP growth rates of Quangnam Danang province

(Source: Science and Development, local journal, No 30-31 March 1995, p.37)

Figure 4.6: GDP growth rate of Danang city

(Source: Statistics Department of Danang city, 1995)

Average annual income per capita of the city in 1994 is approximately 3,000,000 VND[39] Although this number is much higher than the province average figure, it is only a half incomparison with the same indicator of Hanoi, Ho Chi Minh city, and even Haiphong Expectedgrowth rate in 1995 would be 12 percent And the city's leaders have set up the economicgoals for the city in the year of 2000 to achieve 5,000,000 VND of income per capita According

to the surveyed results of the Statistic Department and Planning Department of Danang city,official income distribution of Danang people is shown in table 4.1

Table 4.1: Income distribution of Danang population in 1994

(VND per month)

Percentage

High income

Fairly high income

Above average income

Average income

Low income

Poor

More than 5,000,0002,000,000 - 5,000,0001,000,000 - 2,000,000300,000 - 1,000,000100,000 - 300,000lower than 100000

0.5512225010.5(Source: Statistic Department of Danang city, 1995.)

With flourishing economic prospects for the forth coming year, Danang market is still astrongly one and therefore a worthy opportunity for breweries to plan an entry into this market

4.3 Beer Industry in Vietnam

4.3.1 Overview

As a result of the strong economic growth , according to the widely accepted views ofmost economists, beer consumption in the Vietnamese market has been soaring for the lastfour years Increasing demand for beer, of course, would be attractive for establishing newbrewing plants by both domestic and foreign investors During the time from 1985 to 1995, thenumber of brewers have been multiplied at least fifty times, from 2 to more than 100 at the end

of 1994

Before 1985, there were only two addresses of breweries in Vietnam producing notover 80 million liters per year These were the Hanoi Brewery with the "Truc Bach" brand andthe Saigon Brewery with "Saigon" and "333" brands Saigon beers more or less dominated thewhole Vietnamese market due to its higher production capability as there was not even enough

"Truc Bach" beer to satisfy the Hanoi market At the same time, beer consumption per capita inVietnam was still very, very low, with hardly two liters per head each year On the one hand,domestic beer production was insufficient to satisfy the local consumption demand On theother hand, personal income was still below existential minimum level so many people couldnot even think about beer drinking

However, economic conditions in Vietnam have changed since later half of 80' decade.

In the meantime, living standard has been improved by government policies on economicdevelopment, and beer has gradually become more familiar and affordable to Vietnameseconsumers In the recent years, especially from 1990 up to now, beer consumption has beendeveloped faster than before in both quantity and quality The two domestic giants (HanoiBrewery and Saigon Brewery) have invested to renew their technology and to expandproduction capacity Many other breweries have simultaneously begun to operate in differentcities and provinces Domestic beer production increased dramatically from 100 million liters in

1990 to approximately 300 million in 1994 (see figure 4.7) Some among them are big ventures between local partners and famous foreign breweries such as Heineken, Carlsberg,BGI, etc The world's beer producers are clamoring for a share in Vietnam surging market of 73million people According to the Vietnam Brewery director, the Vietnamese population will be

joint-80 million by the year 2000, it is too large a market to ignore It is recorded that in the middle of

1994, there were 101 breweries differing in scale of invested capital, in size, in technologicallevel and in quality of their beer

Other factors influencing this upward trend are:

· The substantial shift in wholesale and retail distribution to private entrepreneurs, whohave opened up many new channels for beverage (especially for import brands)

· The much greater degree of exposure to an increasing range of brands as a result ofthe widening distribution

· The increase in tourism and business visits to Vietnam, with a subsequent demand forimported brands ( some of which have up to now been imported officially under quota

by registered tourist or other organizations)

· The encouragement of new privately-owned producers

· An increase in advertising expenditure on television and on billboards creating moreproduct awareness

The entry of new breweries has remarkably shaped the competitive structure of beerindustry Saigon Brewery has lost a part of its dominant position Many other beer brands haveappeared, have quickly gained their own reputation and partly occupied the huge market share

of Saigon Brewery in order to serve local areas "Song Han", for example, dominates Danangmarket; "Huda" holds the market of north central provinces; the "Vinagen" launches in KhanhHoa province captures the market in the North; and the "Special" of Quang Ngai province alsocuts out its own standing within the local market there

The fighting for a share of the domestic market between breweries becomes harder andharder as most of the new breweries are very ambitious to expand their market share Whichbrands will be the big-seller depends on the taste, the price of the product, and the othermarketing affects of the brewers At present, only Saigon Brewery and Vietnam BreweryCompany can afford to serve as national brewers, the other have remained regional or localones

Beer industry growth rate

Measured production levels of the last years, the Vietnam beer industry is showing veryhigh growth rates In the period 1991- 1994, average growth rate is around 30 percent peryear It is projected that output levels of the beer industry would be 450 million liters in 1995.According to the strategy for beer industry set by the Ministry of Light Industry, domestic beerproduction capacity will reach to 750 million liters per year until the year of 2000 The averagegrowth rate for the years from 1996 to 2000 will be at least 15 percent per year This figure is avery optimistic prospect for domestic breweries, leaving a great deal of room for expansion.

Average beer consumption per head has risen from only two liters in 1991 to five liters

in the last year And consumption is likely to be double the later figure by the year 2000

Previously, the most important beer brands imported were Tiger, Heineken, San Miguel,and a small proportion of Sapporo Now, Tiger, Heineken and next few month San Miguel areproduced domestically It is projected that imported beer volume would be lower in the nextyears but more new brands

4.3.2 Consumption pattern

Up to date, beer is not as unfamiliar with Vietnamese people as five years before Bothsupply and demand for beer are increasing intensively Nevertheless, beer consumptionpattern in Vietnam is presenting some marked characteristics such as the followings:

First, beer still is a fairly highly income-driven product It means that, beer

consumption is directly determined by personal income Usually, people would drink beer whentheir income exceeds a certain minimum level Vietnam economy still relies on agriculturalproduction, so the proportion of rural people is very high At the same time, farmers are stillvery poor Therefore most of beer consumption now concentrates in the big cities and towns.Beer consumption volume at these locations accounts for more than 80 percent of thedomestic amount And only 20 percent are sold in rural regions where there is 80 percent of thepopulation are living Consequently, rural markets are still potential ones for breweries in theforthcoming years once the living standard in those regions will be upgraded significantly

Second, there are the strong regional trends in consumption of beer brands No beer

can be said to have uniform sales across the country Due to various reasons, consumers atdifferent regions usually have varying perceptions of different brands of beer Therefore, brandpreferences differ from region to region It can be seen that Hanoi people like "Truc bach" or

"Halida", while Southern people prefer "333" Huda is present in Hue city and in north-central,but can not be attractive to Danang people BGI can not reach further than the central region topenetrate the Northern market Each brand dominates a few regions However, this would help

to dilute the competition between brands

Third, beer is recorded to be consumed primarily outside rather than at home Beer

consumption volume is concentrated at restaurants, hotel, bars, dancing clubs which accountfor 90 percent of total beer sale volume Beer consumption at home is only small proportion(not more than 10 percent), mainly in households in fairly high and high income segment

Forth, beer consumption is also strongly affected by age and sex Most of beer drinkers

are male, female drinking beer represents small proportion Because, in Eastern Asian custom,women drinking beer would be considered as not moral The age of drinkers focuses on therange from 30 to 50 years old Usually, the people in this age have a good job with a stableincome, wide social relations, and good health

4.3.3 Competition

At present, the number of brewers has exceeded 100 not including some very smalldraft beer producers at each location Especially, the number of big breweries has come topeak in the two years of 1992 -1993 pushing the domestic beer production to more than double

of 1992 Beer is recognized as a product which can bring high profitability for the producers,while at the same time demand is also increasing dramatically So the beer industry really isattractive to both domestic and foreign investors Most of the provinces have their ownbreweries Simultaneously, many famous brewers in the world foresee this potential market aswell This induces harder competition for the rivals participating in the brewing arena

At this point of time, there are about fifty different brands which have been introducedinto the Vietnamese market The major ten brewers dispersed from the South to the North ofthe country are listed down below:

South Vietnam:

1 Saigon Brewery Company:

· Located: Ho Chi Minh City

· Current production capacity: 100 million liters per year

· It is planned to expand to 140 million liters per year in the next year

· Brands:

Bottle beer: Saigon, 333 Canned beer: 333

· Market: The whole country

2 BGI Joint venture Brewery Company - Tien Giang province

· Located: Tien Giang province

· Designed capacity: 75 million liters per year

· Current capacity: 40 million liters per year

Bottle beer : BGICanned beer: BGI, Castel

· Market: The whole country

3 Vietnam Brewery Company:

· Located: Hocmon District, Ho Chi Minh City

· Current capacity : 50 million liters per year

· It is possible to expand to 150 million liters per year in the second stage

Bottled beer: Tiger, HeinekenCanned beer: Tiger, Heineken

· Market : The whole country

4 Power Joint-venture Brewery - Dong nai province

· Located : Dong nai province

· Capacity : 20 million liters per year

· Beer: Draft beer

· Market: HCM city, Dong nai and surrounding

Central Vietnam

1 Khanh Hoa Brewery Company:

· Located : Khanh Hoa province

· Capacity : 20 million liters per year

· Brand: Canned beer Vinagen

· Market: Nhatrang city, HCM city, Haiphong city

2 Quang Ngai Brewery :

· Located : Quang Ngai town

· Capacity : 3 million liters a year

Bottled beer: Special, Lucky

· Market: Quang Ngai, High-land provinces, Danang

3 Danang Brewery Company:

· Located : Danang city

· Capacity : 13 million liters per year

Bottled beer: Danang, Song Han

· Market: Danang region

4 Hue Brewery Limited Company:

· Located: Hue city

· Capacity: 15 million liters per year

· Brands : Bottled beer Huda, Hue

· Market: Hue, Saigon, Quangbinh, Quangtri

North Vietnam:

1 Hanoi Brewery Company - Hanoi city

· Capacity: 45 million liters per year

Bottle beer : HanoiCanned beer: Truc bach, Hager

· Market : Hanoi and Northern provinces

2 South East Asia Brewery Company:

· Located: Hanoi city

· Capacity : 17 million liters per year

· Brands: Canned beer: Halida, Carlsberg

· Market: Hanoi

4.3.4 New Entry

New entrants add capacity to an industry Tactically, new entrants move aggressively

to get market share, bid down prices, and pressure existing firms to be cost effective so as not

to reduce profit nor lose grip of their market share and strategic position The threat of entry isdetermined by the strength of the existing barriers and by the measures which existingcompetitors can exert to deter or retaliate the competitive actions of new entrants

In the Vietnamese beer industry at this point of time, it is possible to say that the entrybarriers are relatively high There are a number of requirement a potential entrant needs to

fulfill The first is the capital requirement Investment into a brewing production line requires ainvestment amount of 1 USD for 1 liter of brewing capacity.

The second is the Government regulation on foreign investment into the beer industry

By the number of existing breweries as well as approved joint-ventures, the capacity neededfor the year of 2000 is available Therefore, from 1994 on, the government will restrict thenumber of foreign investments in this industry (Decision No 1050/CNN-KTKH, September15,1994, the Ministry of Light Industry)

4.3.5 Substitutes

Theoretically, substitutes limit the potential returns of an industry by placing a ceiling onthe prices firms in the industry can profitably charge The more attractive price performancealternatives offer by the substitutes, the firmer the lid on industry profits The threat ofsubstitution varies not only for the buyer segments but also for product varieties, geographicareas, and channels

Beer is a low alcoholic drink, so other alcoholic drinks such as whisky, rum, wine, gin orrice wine At present the threats from these products are still low Only in high incomesegment, the people have the tendency to replace beer by expensive whisky But, in short, thethreat of substitute from two group of alcohol and non alcohol drinks are low

4.4 Danang Beer Market

4.4.1 Overview of Danang market

Before 1991, beer consumption level at Danang city was low Major causes were: (1)production output of DBC was limited below five million liters per year only (2) Other breweries

in Vietnam were only two and restricted production volume (3) Imported beers were scarce

So, the Danang market at that time consumed mainly DBC beer and a little bit of canned beersimported Major beer brands including Saigon and Song Han bottled beer, 333, Tiger,Heineken and San Miguel canned beer

From 1991 up to now, DBC has attempted to increase its production volume to meetthe local demand Beside this, many other new big breweries with foreign investments havebegun to operate within the country As a consequence, beer supply could keep up better tosatisfy demand consumption In the Danang market appeared more and more new beer brandsshared to serve the local consumers However, DBC beers held the largest market share Atpresent, beer brands available in Danang market are: Song Han, 333, Tiger, Heineken, SanMiguel and BGI Tien Giang Song Han currently holds 65 % market share, according to datasurveyed by Statistic Department of Danang city in October, 1994

The Danang beer market has seen a high growth rate during the last five years Beerconsumption in 1994 was double the number of 1991 Purchasing power of Danang peoplehas been projected to increase continuously to the year 2000 Reasons for this prospect are: