Business Environment 2

Explain how market structures in the above case study deviate from the model of perfect competition. Explain the behavior and competitive strategies employed by Trung Nguyen coffee and discuss the role of the competition commission and regulatory bodies.

Business Environment

Task 3a

 Explain how market structures in the above case study deviate from the model

of perfect competition.

Trung Nguyen

Coffee belongs to monopolistic

competition

 Stores in 61 cities and provinces of Vietnam

 Free entry or exist the market

Monopolistic competition and perfect competition

Similarities

 Each firms acts independently without regard to the responses of its competitors.

 Free entry guarantees that firms earn

zero economic profits in the long-run

Monopolistic competition and

perfect competition

Differences

•Monopolistic competitors are not price takers

•The firm’s equilibrium price exceeds its marginal cost.

•Firms have excess capacity in long-run

equibibrium

Trung Nguyen’s case deviates from perfect competition.

 The products of Trung Nguyen are not perfect substitutes: classic blend coffee (strong aroma and deep flavor) can’t replace for passiona (elegant aroma and

bright flavor)

Trung Nguyen’s case deviates

from perfect competition

 The quality of each product is different when it is made from different kinds of coffee leading different prices

e.g Creativity coffee, blend coffee, G7 instant coffee.

Task 3b

Using a range of examples to illustrate the

relationship between market forces and Trung Nguyen coffee responses

Market forces of Micheal Porter

Threat of new entrants to the industry.

Trung Nguyen’s responses

In the economies of scale, Trung Nguyen has their achievements to face the barrier:

- Leading coffee company in Vietnam

- Best brand of Coffee in Vietnam – world leading country of exporting coffee

- Biggest exporter in Vietnam of processed coffee

- The first Vietnamese company successfully applied a form of franchising in

domestic and overseas market

- 89% consumers choose G7 in a blind test survey (in comparison with

Nescafe) where more than 12,000 people presented in November 2003

- “Top five brand” of agricultural product & foods in “The Vietnamese High

Quality Commodities Award” 2000, 2001, 2003 and 2004 by the selection

of consumers

- Trung Nguyen is the only Vietnamese coffee manufacturer receiving

certificate of EUREPGAP

 Attract the eyes of the means of media in their PR strategies with their slogan “inspire creativity’, management experience of Trung Nguyen board of directors and secret to roast and ground coffee… but the

most important thing is the phenomenon of Trung Nguyen

Investment requirement

 Invest about 800 billions VND (40 millions USD) in 5 year for the the most modern technology of processing toast and ground coffee.

 Buy the sai Gon coffee factory of Vinamilk for about 40 million USD

 Inviting experts to plan strategies for TG to widen and develop their market, especially entering EU market.

 Realize two projects that are ‘dominating VN-conquering the world’ and ‘ global coffee paradise’

Threat of substitute products or services

 Relate to the price of substitutes

 Relate to the quality of substitutes 

 Switching cost to buyers

Apply to Trung Nguyen

For VN tea is the

substitute for coffee

Responses of Trung Nguyen

 Make many kinds of coffee reaching to different customers’ needs.

 Connect coffee lovers and refer to enjoy coffee in cultural aspects, then widen their customers by their reliability and attractiveness

Bargaining power of customers

 buyer choice

 buyers size/number

 change cost/frequency

 product/service importance

Being the first

Vietnamese

company applying franchising model

 1000 franchising coffee stores all

over VN

 Build up a

convenient store system and

distribution

centers G7 Mart in

VN

Bargaining power of suppliers

 brand reputation

 geographical coverage

 product/service level quality

 relationships with customers

 bidding processes/capabilities

 Continually give

strategies and

projects to develop Tay Nguyen and

build up a ‘ global coffee paradise’

 Cooperate with local authorities to

organize coffee

festivals to promote and make reliability for suppliers

Rivalry amongst current competitors in the industry

 number and size of firms

 industry size and trends

 fixed v variable cost bases

 product/service ranges

 differentiation, strategy

Task 3c

 Explain the behavior and competitive strategies employed by Trung Nguyen coffee and discuss the role of the competition commission and regulatory bodies.

Strategies Trung Nguyen used market segmentation

 Income:

• Luxury products: Weasel, classic blend, legendee or diamond collection

• Common products: brown coffee I (ambition) and S (conquer)

Market mix

 Franchising system all over VietNam

 G7 Marts

 Trung Nguyen coffee stores

 Online order on Trung Nguyen’s web

 Build the success upon the partner's success

 Promote social responsibility and community development

The Competition

Commission (CC) is one

of the independent

public bodies which

help ensure healthy

competition between

companies in the UK

for the benefit of

companies, customers

and the economy It

was established by the

The role of Competition Commission (CC)

Mergers

In order to qualify for investigation by the Office of Fair Trading (OFT), a

merger must meet all three of the following criteria:

1 two or more enterprises must cease to be distinct;

2 the merger must have taken place not more than four months ago;

3 One of the following must be true:

• the business being taken over has a turnover in the UK of at least £70 million;

• the combined businesses supply (or acquire) at least 25 per cent of a particular

product or service in the UK

In exceptional cases where public interest issues are raised, the Secretary of State may refer mergers to the CC for in-depth investigation, the CC has wide- ranging powers to remedy any competition concerns, including preventing a merger from going ahead It can also require a company to sell off part of its business or take other steps to improve competition.

The role of Competition Commission (CC)

Market investigations

In market investigations, the CC has to decide

whether any feature or combination of features in

a market prevents, restricts or distorts

competition, thus constituting an adverse effect on competition (AEC).

If the CC concludes that this is the case, then it

must seek to remedy the problems that it identifies either by introducing remedies itself or by

recommending action by others.

The role of Competition Commission (CC)

Regulatory references

 The CC’s role is dictated by the relevant sector-specific

legislation Companies regulated under the gas, electricity, water and sewerage, postal services, railways or airports legislation generally have a formal instrument (a licence) setting out the terms of their operation

 If a regulated company doesn’t agree to a modification of its licence proposed by the regulator, the regulator must refer the question to the CC The CC will consider whether any matter referred to in the reference may be expected to operate against the public interest and whether this could

be remedied by modifications to the licence

 The CC also has roles under the Financial Services and

Markets Act 2000 and the Legal Services Act 2007.

The role of regulatory bodies in Vietnam

environments, consumers, and so on

about the standards of quality, tax, and other areas

reasonable price for shoe manufacturers

manufacturing

investment for businesses and the shoe manufacturing industry.

The role of regulatory bodies in UK

Standardisation Organization – ISO was established in 1964 For example, when exporting in EU and UK, Giay Viet hs to follow the standards of ISO 9000 including three standards ISO 9001, ISO

9002, ISO 9003