Project plan to distribute sony ericsson mobile phone in vietnam market

Because of an exclusive contract with Nokia, a new company was established in August with name “Smart-com” to take over the duty of distribution for this new product, however, not yet a

TRƯỜNG ĐẠI HỌC MỞ TP.HCM UNIVERSITÉ LIBRE DE BRUXELLES

Tutor’s Name: Assoc Prof Dr Hà Nam Khánh Giao

Ho Chi Minh City (2011)

UNDERTAKINGS

I hereby declare “Project Plan to distribute Sony-Ericsson Mobile phones in Vietnam Market” is the result of my own research and work The contents of the plan refers to and use theory and information posted on the books, web pages that are listed in the References accordingly

Student

Phạm Thị Hồng Điệp

ACKNOWLEDGEMENT

Foremost, I would like to express my sincere gratitude to my Tutor, Assoc Prof

Dr Hà Nam Khánh Giao for the valuable guidance, advices, comments, correction and encouragement

Besides, I would like to thank my Mentor, Mr Phan Quang Tuan Anh for his continuous support of my project plan, for his patience, motivation, enthusiasm, and immense knowledge I am also grateful to Ms Vân Trần, Mr Tôn Thất Anh Tuấn,

Mr Trần Mạnh Phương for their willingness to assist during my research

My appreciation also goes to Prof Baeyens, Prof Trần Anh Tuấn and OU-Solvay MBA’s coordinators for the great support during my study and project working I thank my group mates for their cooperation and assistance (especially in my difficult time of baby delivery) and also for the funny time studying together in the last two years

Last but not the least, I would like to thank my family: my husband and two sons for their supports and sentiments that encouraged me so much in studying this course

Undertakings

Acknowledgments

Tutor’s comments

List of signs & abbreviations

List of figures & tables

Page

Chapter I: Executive Summary

1 General Introduction 1

2 Objectives of project 2

3 Scope and limitation 3

4 Methodology 3

5 Framework 3

Chapter II: Literature Review 1 Key terms 4

2 Background 4

Chapter III: Project Plan 1 External Analysis 9

1.1 Environment 9

1.2 Market 11

1.3 Competition 12

2 Internal Analysis 14

2.1 Context 14

2.2 SWOT 15

2.3 Objectives and targets 16

2.4 Primary research 16

2.5 Distribution Strategy 18

2.5.1 Product 18

2.5.2 Market coverage 18

2.5.3 Channel system 20

2.5.4 Sales policy 22

2.6 Establishment of distribution system 25

2.6.1 Circulation management 25

2.6.2 Customer and service supplied 25

2.6.3 Facilities, infrastructure and resources 27

2.6.4 Timeline 28

2.6.5 Budget 29

Chapter IV: Conclusion 31

LIST OF SIGNS & ABREVIATIONS

EBIT: Earning Before Interest and Tax

FTA: Name of a market research Company

GFK: Name of a World wide research group

iOS: iPhone OS – Mobile Operating System of Apple

Petrosetco: PET

PSD: Petrosetco Distribution - Another subsidiary of Petrosetco

Smart-com: SC

Sony-Ericsson: SE

LIST OF FIGURES

Page

Figure 2-1 : How a intermediary effects economy of effort 5

LIST OF TABLES

Page

Table 3-5 : Facilities, infrastructure and resources 27

CHAPTER I: EXECUTIVE SUMMARY

1 General Introduction:

PetroVietnam General Services Joint Stock Corporation (PETROSETCO) is a member of Vietnam Oil and Gas Group (PetroVietnam) having functions in trading and distribution, oil & gas services and real estates business In term of distribution, the service covers products of telecommunication equipment, Polypropylene, LPG, agricultural… in which, telecommunication equipment distribution including Nokia mobile phones occupies the highest density in terms of revenue and profit in the whole Coorporation Petrosetco Distribution Company, Ltd (PSD) is in charge of this business

Rita Gunther McGrath concerned in Harvard Business Review about “the signs that a business model is running out of gas” Firstly, the problem arises when smaller and smaller improvements contained in next-generation innovations And a company’s staffs got stuck with ideas to vary its offerings Secondly, the new alternatives became more competitive and increasingly accepted by customers The last sign implied in financial numbers and other performance indicators

The last two signs show up in Petrosetco’s telecommunication equipment distribution, particularly in Nokia mobile phones The Corporation has been finding that it is difficult to maintain the same income and profit from Nokia distribution that they experienced before

2011 and Petrosetco expects to jump off the hook by adding a principal’s entry

After seeking for a new potential distribution ship, Sony Ericsson became the appropriate brand to be cooperated Because of an exclusive contract with Nokia, a new company was established in August with name “Smart-com” to take over the duty of distribution for this new product, however, not yet a particular distribution plan has been prepared except an existing general business plan for Nokia to be applied for Sony Ericsson mobile phones despite the difference between two brands’ position in the market

PETROSETCO

Figure 1-1: subsidiaries of Petrosetco (source: Petrosetco’s website)

2 Objectives of project

In order to make an appropriate distribution plan for the Company, a distribution strategy

should be defined and a new distribution system should be organized From those

objectives of the project, the title of “Project Plan to distribute Sony-Ericsson

Mobile-phones in Vietnam Market” has been placed

Distribution

of Nokia mobile- phones

Distribution

of Ericsson mobile- phones

SonyNew subsidiary

-“Smart-com”

2 Scope and limitation

The project has the scope of 1 year period and focus on Smart – phones in Vietnam market Due to uncertain market trend while everything in mobile world has been changing so fast such as the market shares of Android vs IOS, Nokia’s distribution policy for the country…, a long-term plan for SE’s distribution is not applicable Furthermore, from allowed time limitation for the project, an efficient strategy to enlarge market share of the product – which should have been developed - would be studied in another project with deeply specialized research and analysis

4 Methodology

The study will begin with brief review of literature, which considers the distribution strategy and distribution channels The data of research will be collected from two main resources which are primary and secondary

- Primary data: a qualitative approach is used through direct interviews with five

senior experts in mobile industry and distribution in order to collect ideas for the distribution strategy of a mid-tear product

- Secondary data: come from a wide range of sources- Internet news and articles,

databases, company websites, company annual reports, company presentations, industry reports and books

5 Framework:

The project will have contents of four main parts:

- Introduction

- Literature review

- Project plan which includes external and internal analysis, covering distribution

strategy defining and channels system setting

- Conclusion

CHAPTER II: LITERATURE REVIEW

Stern and El-Ansary (1996) also wrote: “Intermediaries normally achieve superior efficiency in making goods widely available and accessible to target markets Through their contacts, experience, specialization, and scale of operation, these specialists usually offer the firm more that its flow of goods and services This procedure is necessary in order to bridge the discrepancy between the assortment of goods and services generated by the producer and the assortment demanded by the consumer The discrepancy results from the fact that manufacturers typically produce a large quantity of a limited variety of goods, whereas consumers usually desire only a limited quantity of a wide variety of goods “

And also Philip Kotler (2000) indicated that: “working through a distributor as intermediary cuts the number of contacts that manufacturers must have with customers The upper part shows five producers, each using direct marketing to reach four customers, for a total of twenty contacts The lower part shows the five producers working through one intermediary, who contacts the four customers, for a total of only nine contacts Clearly, working through an intermediary is more efficient in such situations

Figure 2-1: How an intermediary effects economy of effort

2.2 Distribution strategy

According to Philip Kotler (2000): “successful companies use one of three strategies:

- Exclusive distribution means severely limiting the number of intermediaries Firms

such as automakers use this approach when they want to maintain control over the service level and service outputs offered by the resellers Often it involves exclusive dealing arrangements, in which the resellers agree not to carry competing brands

- Selective distribution involves the use of more than a few but less than all of the

intermediaries who are willing to carry a particular product In this way, the producer avoids dissipating its efforts over too many outlets, and it gains adequate market coverage with more control and less cost than intensive distribution Nike, for example, sells its athletic shoes and apparel through seven types of outlets…

- Intensive distribution consists of the manufacturer placing the goods or services in

as many outlets as possible This strategy is generally used for items such as tobacco products, …products for which the consumer requires a great deal of location convenience”

2.3 Distribution channel:

Philip Kotler (2000) indicated “A zero-level channel (also called a direct-marketing channel) consists of a manufacturer selling directly to the final customer through Internet selling, door-to-door sales, home parties, mail order, telemarketing, TV selling, manufacturer—owned stores, and other methods A one level channel contains one selling intermediary, such as a retailer A two-level channel contains two intermediaries; a three-level channel contains three intermediaries From the producers’ point of view, obtaining information about end users and exercising control becomes more difficult as the number

of channel levels increases

Figure 2-2: channel levels Philip Kotler (2000) argued that: “In the ever-changing marketing environment, distribution channels do not stand still New wholesaling and retailing institutions emerge, and new channel systems evolve We look next at the recent growth of vertical, horizontal and multichannel marketing systems:

Vertical Marketing Systems

One of the most significant recent channel developments is the rise of vertical marketing systems A conventional marketing channel comprises an independent producer, wholesaler(s), and retailer(s) Each is a separate business seeking to maximize its own

Consumer Manufacturer

Two-level channel One-level channel (one intermediary)

Zero-level channel (direct-marketing channel)

Three-level channel

Intermediaries

profits, even if this goal reduces profit for the system as a whole No channel member has complete or substantial control over other members

A vertical marketing system (VMS), by contrast, comprises the producer, wholesaler(s), and retailer (s) acting as a unified system One channel member, the channel captain, owns the others or franchises them or has so much power that they all cooperate The channel captain can be the producer, the wholesaler, or the retailer VMSs arose as a result of strong channel members’ attempts to control channel behavior and eliminate the conflict that results when independent channel members pursue their own objectives They achieve economies through size, bargaining power, and elimination of duplicated services VMSs have become the dominant mode of distribution in the U.S consumer marketplace, serving between 70 percent and 80 percent of the total market There are three types of VMS: corporate, administered, and contractual

Horizontal Marketing Systems

Another channel development is the horizontal marketing system, in which two or more unrelated companies put together resources or programs to exploit an emerging marketing opportunity Each company lacks the capital, know-how, production, or marketing resources to venture alone, or it is afraid or the risk The companies might work with each other on a temporary or permanent basis or create a joint venture company Adler calls this symbiotic marketing

Multichannel Marketing Systems

In the past, many companies sold to a single market through a shingle channel Today, with the proliferation of customer segments and channel possibilities, more companies have adopted multichannel marketing Multichannel marketing occurs when a single firm uses two or more marketing channels to reach one or more customer segments

By adding more channels, companies can gain three important benefits The first is increased market coverage-companies often add a channel to reach a customer segment that its current channels cannot reach The second is lower channel cost- companies may add a new channel to lower the cost of selling to an existing customer group (selling by

phone rather than personally visiting small customers) The third is more customized selling- companies may add a channel whose selling features fit customer requirements better (adding a technical sales force to sell more complex equipment)

However, new channels typically introduce conflict and control problems First, different channels may end up competing for the same customers Second, as the new channels become more independent, the company may have difficulty maintaining cooperation among all of the members…”

CHAPTER III: PROJECT PLAN

1 External Analysis

1.1 Environment

1.1.1 Political:

Considered by Indochina Capital, Vietnam is a country with the political and social stability, compared with other countries in the region Comparing to Asian countries like Indonesia, Malaysia, Philippines, Thailand, Vietnam have fewer problems related to religious and ethnic conflict After the “Innovative” (Đổi mới) policy reformed in 1986, Vietnam has achieved stable growth in GDP and Vietnam is considered a safe place to invest

Vietnam has been increasing deeper integration into the regional and global economy By entering the AFTA and WTO, the process of reviewing, modifying, issuing legal documents has been accelerated to better fit with international practice and treaties

2010 - 2015 period would be a lot of innovation in which growth model innovating, economic restructuring in order to achieve the goal of industrialization by 2020 will be the driving force pushing the change of government policy, legal system consistent with development goals

1.1.2 Economical:

- GDP growth is stable at high levels

It is predicted by IMF (2011) for growth of Vietnam in 2011 is 5.8% and Vietnam has held 5th place in average annual GDP growth, behind China, India, Indonesia and Hong Kong For 2012, economic growth is forecasted at 6.3%, when expected-to-fall- down inflation and more stable country’s macroeconomic environment would further attract investors and strengthen consumers’ trust

- Inflation is still at high levels in the region

According to Indexmundi (2010)the inflation rate in Vietnam recorded about 3.9%

in 2003 and grows up to reach it peak in 2009 which was 24.4% Inflation continues to be a problem although it is predicted to fell down to 18.8% in 2011

- Loan interest rate decrease, but remain at high levels in the region

The interest rate for loans to businesses currently subject to a very high priority, even at 25-27% / year in 2011 And basically, the small and medium enterprises is very difficult to access the bank's capital (Viết Lê Quân, 2011)

Whether in the future, the government will try to implement interest rates down, but with this objective, the interest rate in Vietnam is still very high compared with the region (Thailand, about 8.5 %, Malaysia 6.3%, China 8%)

- Still being one of the most profitable retailing market

Vietnam is an export-oriented economy which account for 90% of its total GDP Vietnam’s major exports reached $71.6billion in 2010, higher 25.5% compared to

2009 In term of importation, Vietnam’s major import reached $ 84billion in 2010,

up by 10.1% against last year (GSO Vietnam, 2011) By joining WTO on 11th, January 2007, Vietnam opened doors to attract more multinational retail investment

by allowing unrestricted free trade, tax cuts, gave the permission for Multinational corporations to open its own subsidiaries without any corporation with domestic partner In addition, within the population around 89.6 million (57% are young people who are under 30) and per capita income has significally increased for

$1850 in 2000 to $2900 in 2010 (Admad, 2010) All of these economic elements above proved that Vietnam still be one of the most profitable retailing market in this world

1.1.3 Social

In term of social factors, Vietnam’s population with 28% is urban and has a life expectancy of 71years in 2010 compared to 69years in 2000 Education is a critical issue for Vietnamese In fact, the literacy rate in Vietnam was very high about 90% in 2010 (Admad, 2010)

In term of cultural factors, there are still exists some traditional cultures in Vietnam especially in rural areas, such as the role of the family and the perception of “face saving”

in the society However, these traditional cultures are loosing due to the globalization, since the income per capita has been increasing, there is an increase in consumer demand for good, services, even more in luxury

1.1.4 Technological

Infrastructure in Vietnam is developing very fast to attract FDI The internet users were 24 million people account for 27.1% in 2010 and Vietnam has been ranked 7th among the countries with high proportional internet users in Asia (Internet world stats, 2010 ) In term

of telecommunication systems, there are 57million mobile subscribers accounting 81% of the total population 2010 (Wireless federation, 2010) The broadband market has started to grow, although it stalled in early 2011; wireless broadband services are increasingly popular; the booming mobile market reached a penetration of around 170% in early 2011 (BuddeComm, 2011)

1.2 Market

Accelerating inflation has been plaguing Vietnam’s economy since the beginning of this year and driving up cost of living However, despite cut-backs in general consumer spending, one area that continued to thrive is the mobile phone sector According to leading global market research company GFK, the combined sales of smart phones and feature phones expanded by healthy double-digits of 27 percent in units and 21 percent in value in the first seven months of the year

Even as prices of basic living necessities such as food and fuel soared, the situation did not deter Vietnamese consumers from splurging on the latest phone technology GFK findings reported the average price of a smart phone at USD330—five times more than a feature phone which averaged around USD66 Overall, 1 in 10 mobile phones purchased in 2011 was a smart phone and its value share in the market has grown by 10 percent to now occupy 34 percent

According to the GFK Vietnam, the smart phone industry in Vietnam presents high growth potential for manufacturers for at least the upcoming few years, the intensifying competition in the marketplace is expected as increasing number of manufacturers foray into the scene to cash in on this growing sector With more and more choices of smart phone brands and models made available to the market at a lower price, the consumers will

be the one who stands to gain

Through the above analysis shows that the mobile phone market of Vietnam is a potential market and will create many business opportunities for distributors in general and SC in particular

1.3 Competition

The users’ preference of new smart-phones using other operating systems like Android as the alternative for Nokia phones with old Symbian o.s is increasing Analyses at Gartner predict that Nokia’s global market share will fall to 30.2% by 2014, while Android’s will rise to 29.6% and iOS to 14.9% The big problem with Nokia is that it’s primarily a hardware company, and smartphones are all about software.”, but until present, the users have not seen any move from Nokia as a needed change of its attitude like Sony Ericsson

or Samsung did when they were dumping the Symbian operating system in favour of Android

GFK Vietnam's latest update on cellphone market share for period of January 2011 to October 2011 didn't yield any major surprises Nokia still owns 54.2% of the market, and Samsung is running a not-so-close second with 14.8% of the market LG, Motorola, and Sony Ericsson are still annoyances to the two leaders rather than actual market share threats But look at smart-phones data, the picture changes somewhat when there has been dividing line share between the winners and the losers: Samsung is a major winner, increasing its smart mobile phone market share in Vietnam last year from 4.3% to 22.8% this year (to date of October) though it's still a small player in the smart phone market, Apple is also the successful name to increase market share with 6.8% in 2010 to 8.5% in

2011 (to date of October) Nokia is the biggest let-downs, allowing its smart mobile phone market share to shrink from 80.5% to 56.6%

Figure 3-1: Brand share by category (Source: GFK Vietnam)

The market for mobile devices is expanding every day, Smart phone will keep dominating the majority of market share New opportunities will open for those who quickly apply new technologies on mobile phones Sony Ericsson is one of the brands to follow this trend

as many as 60% of production is smart phone with Android as operating system However, Sony Ericsson's current market share in Vietnam with below 1% is the big challenge for the company in the following years

2 Internal analysis

2.1 Context

Petrosetco Distribution (a subsidiary of Petrosetco J.S Corporation) has been distributing Nokia mobile-phones since 2007 under an exclusive contract with Nokia After 3 years performing like a “star”, the general report of Petrosetco shows that the distribution for Nokia will not be able to maintain its main contribution to the firm when the users’ preference of new smart-phones using other operating systems like Android as the alternative for Nokia phones with old Symbian o.s is increasing leads to the threat of narrowing Nokia share in the market

From the problem stated, the solution for the Corporation to maintain its income from telecommunication equipment distribution is the cooperation with other mobile-phones brands while it would take full advantages from experiences of Nokia distribution In the situation that some other principals like HTC and LG,

Samsung are not in need of more and/or other distributors , Sony-Ericsson would

be the best choice since it starts focusing in smart-phones by favoring Android and has been looking for a great distributor to boost up its lowest than ever market share

Relying upon Petrosetco’s great experience in mobile phones distribution, Ericsson has appointed Petrosetco as the new only distributor in Vietnam Market Due to the exclusive contract from Nokia to PSD, a new company has been set up

Sony-to take over the duty of Sony-Ericsson Mobile phone distribution However, the existing business plan for Nokia does not include the right strategy for Sony Ericsson products because of the difference of position of two brands in the market

As the result of the need to penetrate the market in different way, a strategy to distribute Sony Ericsson Mobile-phones needs to be defined and an efficient distribution system needs to be set

2.2 SWOT

2.2.1 Opportunities:

- Telecommunications services in Vietnam have been developing very fast,

especially the 3G, 4G, Wimax development in recent 3-5 years, leads to the increasing sales of consumable products that meet these technologies

- The growth rate of mobile phone use in the Vietnam market is very high, new

mobile subscribers have reached 162 million in early 2011

- Sony Ericsson is a well-known brand in the mobile sector Sony Ericsson products

in 2011 and 2012 will be the breakthrough in design, features and reasonable price

- The great support from delivery experience, facilities, and management systems of

the PSD as well as potential financial of Petrosetco Corporation is one of the best opportunities for the new firm in the process of market entry

2.2.2 Threat:

- In the telecom market, distribution service in recent years becomes stronger and

bitterer by the participation of more professional distributors

- Vietnam still remains a developing country with not yet the market economy High

inflation, high interest rates on bank loans should be high-risk The government’s policies related to the import of luxury goods such as cars, cosmetics and mobile phones in order to limit the excess of imports is also significant barriers to the development in the area of goods distribution sector Particularly, with circumstance that mobile-phones can only be imported by sea through Hai phong,

Da nang, Ho Chi Minh city ports, it makes slower circulation of goods, more inventories and moving goods, higher transportation costs and thus may lead to in-effectiveness occurs

- The rapid changes in technology create many challenges and risks for investors

- The competition in the telecommunications industry in general, in the mobile

business in particular is really tough in the Vietnam market

- Exchange rate of VND/USD in the trend of increase, leads to the difficulty for

goods import since there have to be more VND needed to buy goods in USD

2.2.3 Strengths:

- Being a member of the Petrosetco - always get the support of finance and policy

from the Corporation

- Being a younger brother, the company will get full advantages by experiences from

PSD in distribution, market and system as well as relationship with major retailers

2.2.4 Weaknesses:

- Sales force is still very “thin” in the beginning time

- Lack of some key management positions: Head of business, product manager

- Being much influenced by the experiences got from Nokia mobile phone

distribution

2.3 Objectives and targets

The vision for the company is to establish newly strong brand and widely respected company in mobile-phones distribution Concerning about this position, the mission for the company is to operate a successful Sony Ericsson Mobile-phones distributorship in

Vietnam Market with aimed objective for the first year of application that are at least over 2% share of smart-phones market through unit sales volume of nearly 30,000units

2.4 Primary research

McKenna (1991) suggested that “successful marketing practices primarily are based on qualitative approaches and, not on quantitative studies favored traditionally, many times focusing on trivial details” As the purpose of the research is to analyze distribution strategy for a product that having low market share, comparing to strategy for a leading product taking a major share of the market, a qualitative approach is used A direct interview with five senior experts in mobile industry and distribution has been executed, also for the purpose of a strategy in the position of the Distributor, since most of found theoretic literatures were in the position of the Manufacturer

Two individual interviews were conducted with mobile industry experts and three individual interviews were conducted with distribution experts Before the interviews, the interviewees received a question list to be prepared During the interviews, the interviewer introduces the topic and then guides the discussion by asking specific questions The interviews are of an open-ended, semi-structured and in-depth nature

All the interviews were conducted in interviewee’s native language The questions list is attached in the appendix 1 in English

The summary of answers is as bellows:

- All the answers agreed on the mission and brand building that the mid-tear product

would need to jump up into the market and focus on brand awareness, while the leading product would need to expand the market coverage as large as possible as

it wants the brand loyalty from consumers

- Differences in answers occurred when the interviewees discussed about the Target Market coverage, numbers of Intermediaries and Channel system While the experts from Nokia distribution and IT products gave opinions that the mid-tear product distribution should be in big cities only in the beginning time, the rest of interviewees advised that the distributor should avoid big cities that are “home” of leading products For the intermediaries, most of them said that both wholesalers and retailers (means two level intermediaries – in the position of distributor) should

be used for both mid-tear and leading product to take full abilities of intermediaries, except the former Nokia business manager advise carefully that the distributor should refer to the data of sales volume from those two channels to decide the right strategy Regarding the channel system, again experts from distribution of other products but mobile phones gave opinions that multi-channel system should be set for mid-tear product in order to quickly enlarge the shares, while the former director of Nokia and its distributor’s representative advised that it should be executed with vertical system first, and especially PSD’s director suggested that the distributor can consider the franchising method applied for tier 3 (medium and small provinces) after one year operation

Furthermore, an interview through mail was conducted to collect the idea from SC’s director about the reason why previous distributors fail in SE mobile phone distribution in order to analyze the competition, and here are some of the ideas he gave:

 Market coverage: they did not try to coverage the retailer but focus on key

customers that are chains such as The gioi Di dong, Vien thong A only

 Market controlling: They are not mutual in term of Sales policy It made dealer

uncomfortable when doing business with Sony Ericsson brand

2.5.1 Product:

Follow up an blooming trend of tech-savvy, as above analyzed of market opportunities and Sony Ericsson’s product strategy, smart phones seems to be the right click on target product