Luận văn BUSINESS STRATEGY FORMULATION FOR VNF1 DISTRIBUTION AND RETAIL JSC

TITLE: BUSINESS STRATEGY FORMULATION FOR VNF1 DISTRIBUTION AND RETAIL JSC, DURATION 2015-2020 TABLE OF CONTENTS INTRODUCTION...5 Overview of VNF1 JSC...5 Necessity of the Project...6 Obj

THESIS MBA

BUSINESS STRATEGY FORMULATION FOR VNF1 DISTRIBUTION AND RETAIL JSC, DURATION 2015-2020

TITLE: BUSINESS STRATEGY FORMULATION FOR VNF1

DISTRIBUTION AND RETAIL JSC, DURATION 2015-2020

TABLE OF CONTENTS

INTRODUCTION 5

Overview of VNF1 JSC 5

Necessity of the Project 6

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

Methodology 7

Structure of the Capstone Project 7

CHAPTER 1: THEORETICAL FRAMEWORK 8

1.1 Strategy and Business Strategy Management 8

1.1.1 Strategy 8

1.1.2 Business strategy management 8

1.2 Process of strategy plan formulation 9

1.2.1 Mission and core objectives 10

1.2.2 Selection and formulation of strategic objectives 11

1.2.3 Analysis of external environment 11

1.2.3.1 Macro environment 11

1.2.3.2 Micro level environment (sectoral) 15

1.2.4 Analysis of internal environment 18

1.2.4.1 Analysis of area of operation -Value Chain 18

1.2.4.2 Core ability 19

1.2.5 Selection of strategy 20

1.2.5.1 Analysis Tools 20

A SWOT analysis 20

B EFE – External Factor Evaluation Matrix 21

C IFE - Internal Factor Evaluation Matrix 21

1.2.5.2 Selection of Strategy with QSPM 22

A Strategy of cost leadership 23

B Strategy of product differentiation 23

C Strategy of Focus Point 24

D A combination of strategies 24

CHAPTER 2: ANALYSIS OF VNF1 JSC STATUS 26

2.1 Overview of VNF1 JSC 26

2.1.1 Establishment of VNF1 JSC 26

2.1.2 Capital 27

2.1.3 Organizational Structure 27

2.1.4 Areas and Activities 27

2.1.5 Characteristics of rice trading and the initial role of VNF1 JSC in the market.28 2.2 Analysis of macro environment (PESTLE model) 31

2.2.1 Politics - Legislation 31

2.2.2 Economics and Environment 32

2.2.3 Technology 33

2.2.4 Culture - Society 33

2.2.5 Trend of globalization 34

2.2.6 Opportunities/ Threats for VNF1 JSC 36

2.2.6.1 Opportunities 37

2.2.6.2 Threats 37

2.3 Sectorial analysis (PORTER model) 37

2.3.1 Current competitors 38

2.3.2 Substitute products 40

2.3.3 Powers of customers 40

2.3.4 Powers of suppliers 40

2.3.5 Potential rivals 41

2.4 Analysis of Internal Environment 43

2.4.1 Organizational structure 43

2.4.2 Factories, field/ material site 44

2.4.3 Business networks 45

2.5 SWOT analysis 46

2.6 Target customers 50

2.7 Market segment 51

CHAPTER 3: RECOMMENDATIONS ON STRATEGIC PLAN FOR VNF1 JSC, DURATION 2010-2015 53

3.1 Mandate-Mission and Vision 53

3.2 Strategy selection 56

3.2.1 EFE 56

3.2.2 IFE 56

3.2.3 QSPM and the strategy selection 58

3.3 Recommendations on strategies for VNF1 JSC 59

3.3.1 Marketing mix strategy 60

3.1.1.1 Product 60

3.3.1.2 Promotion 61

3.3.1.3 Place 63

3.3.1.4 Price 65

3.3.2 HRM strategy 66

3.3.3 Production management strategy 68

3.3.4 Other functional strategies 69

3.4 Milestones in the 5 year strategy implementation 70

3.5 Other Recommendations 70

3.5.1 At the macro level 71

3.5.2 At the micro level 71

CONCLUSION 71

REFERENCES 73

ANNEX 74

List of Abbreviation

VNF1 Corporation or Corporation: Vietnam Northern Food Corporation;

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

List of Figures

Figure 1.1 Process of strategy formulation 10

Figure 1.2 Levels of external environment 12

Figure 1.3 The five forces of competition (Porter Model) 15

Figure 1.4 Porter’s model of Value Chain 19

Figure 2.5 Fluctuations in the rice market in the past 3 decades 29

Figure 2.6 Changes in domestic rice market in 2008 (Source: VNF1) 29

Figure 2.7 GDP growth (Source: CBRE) 32

Figure 2.8 Rice as a percentage of total caloric intake by region (2000) 34

Figure 2.9 Modern shopping channel development (Source: VNEconomy) 35

Figure 2.10 Value line of VNF1 and competitors (50kg packed rice) 42

Figure 2.11 VNF1 material areas map (Source: VNF1) 45

Figure 3.12 Exploitation of the 5 product levels 61

Figure 3.13 Procedures of rice supply (Source: VNF1) 64

Figure 3.14 VNF1 JSC distribution system 65

Figure 3.15 HRM clients 67

Figure 3.16 Integral connections of performance appraisal 67

List of Tables Table 2.1 Comparison of some competitors in high-quality rice market (Source: VNF1) 39 Table 2.2 Analysis of VNF1 JSC’s target customers 2009/2010 50

Table 3.3 Market objective of VNF1 JSC, duration 2010-2015 (Source: VNF1) 55

Table 3.4 Target market share (Source: VNF1) 56

Table 3.5 QSPM for VNF1 JSC 58

Table 3.6 Milestones in the 5 year strategy implementation 70

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

Project title: BUSINESS STRATEGY FORMULATION FOR VNF1DISTRIBUTION AND RETAIL JSC, DURATION 2010-2015

1

Overview of VNF1 JSC

VNF1 Distribution and Retail Joint Stock Company is a member of theVNF1 Northern Food Corporation The Company was established and came intooperation on the 1st of July, 2008 according to the direction of the Prime Minister

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

Target of VNF1 JSC establishment is to improve the weakness in theindustry of food and rice trading through the development of a professionalbusiness administration model, with the close and systematic collaboration amongdifferent process of production, trading and distribution The Corporation willmultiply the success of the model in the entire Corporation, with the aim ofcontinuous improvement to catch up with the integration trend of the market

The Corporation now has 27 independent member companies, of which 5are partnerships and 3 are joint ventures with foreigners All are food tradingcompanies with decades of experience as buying agents for Corporation’s exportpurposes

Necessity of the Project

VNF1 JSC is quite a young company, having no official developmentstrategy This research project is of great importance for the Company in particularand for the Corporation in general towards the target of building up a modernbusiness model in the food trading sector

In a greater context of the Corporation, the development of VNF1 JSC willassist the Corporation to start modern business model, to generate a quite newapproach with customers, from which to assist the Corporation to reach itssustainable target of building up a modern, specialized, intensive and extensive

distribution system, gradually mastering the market of rice, leading the market of astrategic commodity to advance in the right and healthy direction.

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

VNF1 JSC is participating in a highly competitive market with lots ofchallenges In this market, there is not yet a real successful player; a competitor isnot a company as a single player, but is a full public business orchestra Thoughwithout a leader, the “orchestra” is performing perfectly, generating a huge impact

by the strength of a true open market

As a matter of fact, members of the Group 6, Class M06, being officials inand out of the industry, expect to use the modern knowledge of businessadministration achieved in the Griggs MBA Grogram to response to the urgentneed of the Company of working out a professional action plan, for the short runfirst, through which to study issues and identify problems of priority to solve, tostudy target customers, to know competitors, to build up strategy of product, priceand so on This short term strategy will be the launching stage for the Company todevelop efficiently and professionally

Objective of the Project is to identify 5 year business strategic plan forVNF1 JSC to become the leading high quality rice producer and trader in Vietnam

Methodology

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

Structure of the Capstone Project

o Introduction

o Chapter 1: Theoretical framework for the Project

o Chapter 2: Analysis of the VNF1 JSC Status

o Chapter 3: Recommendation on strategy

o Conclusion

CHAPTER 1: THEORETICAL FRAMEWORK

The terminology of strategy has been mentioned largely in the businessworld nowadays Each enterprise has its own method to approach and to build upits business strategy In this Chapter, we would like to introduce a popularmethodology to design and to select business strategy, its process and somerelevant experiences

1.1 Strategy and Business Strategy Management

1.1.1 Strategy

Strategy is the plan to control and to use the organization’s resources such asfinance and HR to improve and to ensure the essential benefits of the organization.According to Kenneth Andrews, strategy is what an organization has to do based onits strengths and weaknesses in the context of certain opportunities and threats

A good strategy with effective implementation will help managers andoperators at different levels be able to identify objectives, identify orientation foraction, contributing to the success of the enterprise There might be differentmethodology, but the core contents of strategic management include:

 To identify a master action plan with future orientation on basic and longterm business objectives of the enterprise

 To identify the process for such action, method to implement and resourcesallocation to reach such objectives

 Important policy and measures of the enterprise will be decided to change bythe enterprise’s owner

1.1.2 Business strategy management

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

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

and functional strategies Business strategy will just create a framework to guidecritical thinking towards business orientation and action.

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

on the rightness of the identified strategy and the implementation process Businessstrategy is essential because:

Firstly, a business strategy will help the enterprise to see clearly objectivesand direction to go in business operation From that, the enterprise will know how

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

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

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

1.2 Process of strategy plan formulation

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

Mision and Objectives

Strategy formulation and selection

External environment analysis

Value chain model Process to identify sustainable competitiveness advantages

=> Strengths and Weaknesses

for the strategy

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

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

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

philosophy that the enterprise pursuits

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

enterprise operation if the enterprise does not change or modify it However, in each strategic phase, it should state strategic objectives relevant for such phase

1.2.2 Selection and formulation of strategic objectives

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

 Community social responsibility

1.2.3 Analysis of external environment

The next component of strategy management is to analyze the externalenvironment Objective of this is to identify the opportunities and threats, to findthe best solution to operate, to take the best of the good and to reduce to the leastaffects of threats

1.2.3.1 Macro environment

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

Figure 1.2 Levels of external environment

a Politics and Legislation (P)

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

 Stability level of politics and diplomatic policy

 Balance in the government policy

 Role and economic development strategy of the Party and thegovernment

 Trend of interference of the government in to economic and social

b Economy (E)

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

 Economic growth rate

Interest rate will be another important factor High rate will encouragepeople with extra money to save rather than to expense Those lack of money willavoid lending for purchases.

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

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

Inflation rate is the factor that reduce the stability of the economy, lessgrowth and more interest rate In high inflation, investment will be risky Forecastfor economic variances will be uncertain

c Culture - Society (S)

Cultural and social factors leave impacts on lives and behaviors of humanbeing, influencing demand structure, buying behaviors and consumption trend, withspecial attention to commercial enterprises in the below aspects:

 Population size and trend

 Age structure

 Population allocation and moving trend

 Diversity of mankind

 Income structure

 Living styles, consumption habits

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

d Technology (T)

Technological factors decide the coming into being of new products,establishing method of doing business, and method of meeting demand, influencingthe competitiveness ability and effectiveness of the business Internet is a typicalexample for technological impact It is abolishing and restructuring sectorsdramatically It is threat to the industry of post, newspapers but the opportunity foronline retailers

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

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

Practically speaking, successful enterprises are those who are quick atadopting advanced technological achievement for their production and businessoperation in relevance with their conditions

e Population and natural environment

Population has close conjunction with development Important aspects ofthis are

 Size: total population, labor force

 Structure, development trend, age structure, gender, geographical andreligion

 Quality of education, civil level, abilities

 Professions, income

 Territorial allocation

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

f International environment

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

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

connection of global commercial enterprises into one network These have directimpacts on business operation and firstly on strategic management Particularly,they are:

1.2.3.2 Micro level environment (sectoral)

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

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

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

Figure 1.3 The five forces of competition (Porter Model)

The stronger these factors are, the better they can limit the ability of thecurrent enterprise in raising value and getting better profit Such strength canchange over time when sectoral conditions change.

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

a Potential competitors

These include companies that are not in the sectoral competition but theyare capable to do that if they want For instance the post and telecommunicationcan compete with banks in money transfer or payment The identification ofpotential competitors are important, showing potential invaders into the marketshare So efforts to be more effective and more dynamic are needed

b Current sectoral competitors

This is the level of competition among companies within a sector Becauseenterprises in one sector are dependent on each other, action of one enterpriseusually draw actions of others in response If such competition is weak, enterpriseswill have opportunities to raise price and get more profit But if the competition isstrong, there might be war in pricing This kind of competition is likely to includesectoral competition structure, sectoral situation and exit restriction

c Power of buyers

Bargaining power of buyers are the third force These might be the endusers, or suppliers, traders, retailers Buyers can be seen as competition threat whenthey are able to force enterprise to reduce price or to demand better quality andservices On the contrary, when buyers are weak, enterprise will have chance toraise price and to get more money These are relative power of buyers According

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

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

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

of large amount to request unfair discount

 When the sector depends on buyers because a large percentage of orders aremade by them.

 When buyers can shift to cheaper supplier

 When buyers can threat suppliers when they have vertical integrationconnection This is their tool to reduce price

d Power of suppliers

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

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

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

e Threats of substitute products

Products with typical features will dominate This threat requiresenterprise to analyze and to have close watch on scientific and technologicaladvances, with direct relation to renovation of technology and products Moreover,changes in demands will be an important factor in creating threats

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

 Just a few entrance restriction

 Firm positions of suppliers and buyers

 Threat of competitive products are huge

 Fierce competition of current competitors

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

 Few entrance restriction

 Weak positions of suppliers and buyers

 Few threat of substitute products

 Medium competition of current competitors

1.2.4 Analysis of internal environment

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

at selecting business strategy

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

1.2.4.1 Analysis of area of operation -Value Chain

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

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

Figure 1.4 Porter’s model of Value Chain 1.2.4.2 Core ability

Core ability is the resources and ability that can bring competitiveadvantages It includes operations that the enterprise is able to conduct moreoutstandingly than competitors, and operations by which the enterprise createsunique value in its products and services over a long time Four criteria forsustainable competitive advantage are:

 Precious: which helps to exploit the opportunities

 Rare: are those others do not have

 Expensive if counterfeit: due to historical or social reasons or implicitreasons

 Irreplaceable: no equal competitor

Strategic target

Strategic target

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

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

Strength: is an operation that the enterprise can do good or a feature that

promote the competitiveness of the enterprise, for instance:

 Valuable ability, know-how

 Valuable asset

 Valuable human resources

 Advantage of low cost due to private production know-how

 Easy access to high class natural resources

 Easy access to distribution network

Weakness: for instance:

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

 Bad name in the market

 High cost operation structure

 Less access to natural resources

 Less access to main distribution channel

Opportunity: Analysis of external environment can open new opportunity

for development, for instance

 Good demand

 Coming into being of new technology

 Easy regulations

 Remove of international commercial restriction

Threat: changes in context or external environment may cause threat to the

enterprise, for instance:

 Taste moves from company’s products to another

 Appearance of substitute

 Tighter international commercial restrictions

B EFE – External Factor Evaluation Matrix

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

 Make a list of potential factors of major chances and threats to enterprisebusiness

 Classify the factors according to importance in a scale from 0 (notimportant) to 1 (very important) The importance is the impact of each factor

on each field of business

 Determine the weight in range of 1 - 4 for each factor depending on the level

of influence’s chance/ threat on the enterprise

 Multiply the importance point with its weight to get the final point for eachfactor

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

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

C IFE - Internal Factor Evaluation Matrix

Internal factors are very important to the strategy building of an enterprise.Strategy planners therefore should point out strengths, weaknesses and ability toreact to changes of all internal factors IEF is often used to help this IEF matrix isbuilt as follows:

 Make a list of potential factors of major strengths and weaknesses of theenterprise.

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

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

 Determine the weight for each factor in scale of 1 -4

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

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

The higher the total point is, the better the company reacts to challenges

1.2.5.2 Selection of Strategy with QSPM

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

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

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

First, have a look into the below example of QSPM which comparesdifferent alternatives Define the feasibility of a strategy by its major factors andweight of importance then make decision

There are 6 steps to develop a QSPM:

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

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

(3) Study SWOT or BCG, Hofer matrices and specify replaceable strategies, notedown these in the first row of QSPM Strategies should be grouped (if applicable)

(4) Calculate the attraction points for each strategy Only strategies of the samegroup can be compared to each other The points are classified as: 1=not attractive,2=somewhat attractive, 3=rather attractive, 4=very attractive The number showsthe relative attractiveness of each strategy compared to others in a group

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

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

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

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

A Strategy of cost leadership

Competing by price is the an overall operation that produce products orservices with characteristics accepted by customers with lowest cost in relativerelation with competitors

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

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

B Strategy of product differentiation

Objective of this strategy is to achieve a competition advantage by creatingproducts or services which are unique at some important feature An enterprisedifferentiate to meet customers need in the manner that competitors can not do withthe purpose of increasing price (at a significant level than the sectoral average)

Generating income by requesting a higher price of differentiation strategy is higherthan strategy of low cost leadership Customers are ready to pay for this becausethey believe that the differentiation quality is distinguish And pricing for suchproduct is made based on what the market welcomes.

C Strategy of focus point

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

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

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

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

Focus strategy enterprise usually focuses on creating market in a specificsegment If successful, he will start to serve more and more segments, eatinggradually advantages of differentiation enterprise

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

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

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

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

CHAPTER 2: ANALYSIS OF VNF1 JSC STATUS

2.1 Overview of VNF1 JSC

2.1.1 Establishment of VNF1 JSC

VNF1 Distribution and Retail Joint Stock Company is a member of theVNF1 Northern Food Corporation The Company was established and came intooperation on the 1st of July, 2008 according to the direction of the Prime Minister

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

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

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

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

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

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

 To invest for science and technology in rice production to gradually improvethe value of this agricultural product, raising farmers’ income Thisimprovement is made through the whole process of rice production, fromseedling, harvesting, post harvesting preservation, processing and selling up

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

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

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

Together with the young nation, the industry had completed its missions throughvarious phases of the country’s history: struggling against invaders and working outits way in the difficult time of state subsidy and central planning economy, keeping

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

2.1.2 Capital

Capital of VNF1 JSC in phase 1 (2008 – 2011) is VND 200 billion, in phase

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

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

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

2.1.4 Areas and Activities

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

 To organize the planting areas; to work as buying agent in the supply chainand to preserve the products by modern technology.

 To produce, process and preserve agricultural products, food stuff up to thesafety and hygiene standards

 To do marketing, distribution and retails of food stuff, agricultural productsand domestics appliances through a chain of modern retails shops includingsupermarkets, minimarts, specialized shops and commercial centers

 To import- export high quality agricultural products

 To do commercial investment and services

VNF1 JSC has the operation area of Northern provinces from Nghệ An withthe total population of 35 million, accounting for 41% of the total nation’spopulation

The Company currently has 10 high quality rice products

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

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

In the market now, there is a numbers of types and species of rice with all ranges ofprices However their quality and origins are not clear Besides the risk of knowingnothing about the level and dust and hazardous elements in the rice, customers donot have specification of nutrition they can expect in the product

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

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

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

0 100 200 300 400 500 600 700 800

10/29/2008

11/29/2008

P ric e (V ND/kg)

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

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

According to a survey by VNF1 in cooperation with the General StatisticsOffice over the northern towns and cities from Hue, rice market has the belowcharacteristics:

 Demand of rice are huge, especially in cities including Hà Nội, Hải phòngand Quảng Ninh Remarkably, the demand of abundant in supply has shiftedinto demand of good appetite and standard safety.

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

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

 Cooperation in production and the application of supply chain concept isquite poor Farmers are alone in the process of planting, nurturing,harvesting and selling, which lead to the waste of input materials and lowquality products

 Buying ability is limited Finally, the producers are the least in the valuechain beneficiary

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

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

 To have good control of distribution channels to meet the demand of themarket, ensuring food security

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

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

 In October, 2008, 3 months after the establishment, VNF1 JSC has quicklytaken on its important role Hanoi city was cut into various “islands” due to

severe flood VNF1 JSC, quick task force of VNF1 JSC, being door to doorsales persons had been to the center of the flood to supply rice, preventingthe city from internal rice fever.

 In November, 2009, during the price fever of rise of up to 30 – 40% in 1week, VNF1 JSC had released its store, supplying rice to the populationthrough its own shops and other channels

 VNF1 JSC normally has adequate store level to cope with irregularfluctuations or regular pick time of demand in the market

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

2.2 Analysis of macro environment (PESTLE model)

Knowledge of macro environment is vital for the business of any product Amacro environment (PESTLE) basically includes political, economic, socio-economic, technological, legal and environmental factors A PESTLE analysisshows some following advantages and disadvantages of VNF1 JSC:

2.2.1 Politics - Legislation

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

The Prime Minister and the Corporation leaders have determined that thefood trade and distribution need to be developed properly in order to ensure goodcirculation in the market This will help promptly meet the food demand in thesociety, contribute to sustain food security and social stability

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

Department also confirmed the importance of developing a distribution system ingeneral, highlighting that it will set structural and economic ground for the activerealization of WTO commitments of commodity distribution system opening

However, in comparison with other countries of agriculture strength, itshould be admitted that although with attention, the Vietnamese Government hasnot yet acted practically enough to have a master plan for the development of rice

as a strength Thailand, taken as an example, has a development strategic plan foreach 5 years for rice production with a target of raising the ratio of good qualityrice beyond 90 per cent As a result, even with choices of special or high qualityrice varieties which requires long crop duration, Thailand is still the leading riceexporter in both quantity and price

2.2.2 Economics and Environment

Vietnam’s economy has grown up rapidly in recent years and remains adeveloping economy Income differs in various social classes and geographical

areas The average income per capita has risen well

Figure 2.7 Real GDP Growth Rate Across Southeast Asia (Source: Fearless

Forecasts, CBRE, 2010)

The contents and forms of trading in general and food in specific havedeveloped and changed day by day For rice cultivation, new varieties andadvanced technologies are constantly applied for better quality and productivity tomeet consumers’ various choices In addition, imported rice products are now alsoinvading to make a diversified market

In terms of economics, tight cooperation is enhanced in the productionphase For instance, the cooperation model of “4 partners” including farmers,scientists, state authority and businessmen has proved to be important inagribusiness

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

2.2.3 Technology

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

post-Specifically, thanks to the development of post-harvest technology, qualitycriteria can be clearly stated, standard processes are introduced to all phases fromcultivation, harvest to preservation; packages are designed in standard andcomfortable manner Modern technologies also facilitate to restore and promotevalues of traditional rice specialties Cross-breeding technology helps create highyield rice varieties with good quality However, for Vietnam, the application ofhigh technologies in agriculture remains costly leading to poor competitiveness,especially technology for post harvest preservation

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

2.2.4 Culture - Society

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

glutinous rice, sweetened porridge, etc… Rice plays a major role in supplyingenergy to people, particularly Asians.

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

(IRRI World Rice Statistics)

However, in Vietnam, the awareness of rice specialties seems vague and byexperience It is not supported by published information on rice quality standards

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

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

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

or any effective methods for controlling safety and hygiene of rice

However, this manner is changing People now tend to choose modern supplychannels and package shopping as solution for their busy life, also for rice Inresponse to this demand, many international retailers will soon come to Vietnam

2.2.5 Trend of globalization

Globalization brings back new factors that have direct impacts on businessactivities They can be financial crisis, food shortage, and the trend of usingsubstitutions for rice The development of retail trading together with modernconsumption methods is also a remarkable factor

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

in Vietnam has grown rapidly at the annual rate of 17%, with the total turnover of goodsand service reaching VND 580 trillion in 2006 The Association of Vietnamese Retailers(AVR) revealed that by the end of 2007, the total retail hit USD 40 billion AVR predictedthe retail turnover in 2008 to be VND 47 billion and 2010 to be over USD 53 billion This

is an important fact for the business planning of retailers in coming years RNCOS alsorecognizes Vietnam as 1 of 7 most profitable retail markets in the world The fact is thatVietnam has been an attractive destination for many renown international retailers undermodern distribution channels with growth rate as in the below figure:

Figure 2.9 Modern shopping channel development (Source: VNEconomy, 2008)

A study shows that in 1990, Thailand’s traditional distribution systemoccupied 95 per cent of the total system Now the figure is 40 per cent and 2010 isexpected to see the reverse of 1990’s At present, the modern distribution system inVietnam counts only 10 per cent However, with the acceptance of 5 to 7 years ofnon-profit business as initial phase in the penetration roadmap, together with a

combination of management experience, financial capacity, effective strategies andfast changes in shopping behaviors, the reverse will be an inevitable

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

Additionally, in the globalization trend, taxes and tariffs have beenabolished That means in the future there will be foreign rice distributors as well asimported rice in Vietnam market The import taxes on rice now average at 40 percent and will be cut down in coming years Thus the competitiveness in thedomestic market is getting tougher It requires Vietnamese enterprises from rightnow start to equip themselves with necessary technologies, machineries to be thedominator of the inland market and furthermore to be able to export high qualityproducts to other markets

2.2.6 Opportunities/ Threats for VNF1 JSC

PESTLE analysis points out the chances and challenges for VNF1 JSC atjoining the clean/ safe rice market as follows:

2.2.6.1 Opportunities

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

Moreover, people now seem to prefer modern distribution system for thepost-sale customer services together with other benefits This is therefore a soundstrategy for VNF1 JSC to trade in clean and tasty rice with good service Otherfactors such as political stability, socio-cultural development will also be helpful ifVNF1 JSC can work out a reasonable business plan to meet particular demands ofcustomers

2.2.6.2 Threats

There are also challenges besides chances for VNF1 JSC: