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Strategic Analysis of the Vietnam Alcohol and Beverage Industry - Case Study Example

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The paper "Strategic Analysis of the Vietnam Alcohol and Beverage Industry" is a perfect example of a business case study. This research was undertaken after the directive from Lion Nathan limited to carry out a strategic analysis of the Vietnam market as part of their international development plan…
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Extract of sample "Strategic Analysis of the Vietnam Alcohol and Beverage Industry"

Heading: Strategic Analysis of the Vietnam alcohol and beverage industry Your name: Course name: Professors’ name: Date Table of Contents Introduction 4 External environment analysis 4 General environmental analysis 4 Industry analysis 5 Competitor environment 8 Rivalry 9 Threat of substitutes 9 Buyer power 9 Supplier power 9 Threat of new entrants and entry barriers 9 Internal environment analysis 10 Weaknesses 10 Threats 10 Core competencies 11 SWOT summary of Lion Nathan Limited 12 Mode of entry 12 Further prospective strategy 13 Challenges and recommendations 14 Conclusion 14 This research was undertaken after the directive from Lion Nathan limited to carry out a strategic analysis of the Vietnam market as part of their international development plan. The analysis is meant to advice on a strategy to effectively conquer the Vietnamese market and a possible rise to market leadership. To accomplish this, the research analyzed the external business environment based on the PESTEL and Porter’s forces of analysis. The internal environment of Lion Nathan Limited was also analyzed based on the SWOT analysis. After understanding the market dynamics, the research identifies the most viable mode of entry to the Vietnamese market. This report therefore, evaluates the Vietnam market in geographic, demographic and economic dimensions to gauge potential and opportunity for profitability and growth of Nathan Lion Limited in the alcoholic beverage and wine industry. It establishes the level of competition in the market, legal hurdles and other factors which influence the alcoholic beverage and wine industry. On the other hand, it explores the current standing of Lion Nathan limited and its capabilities and limitations in capturing the Vietnamese market share. The research finally recommends the product entry criteria into the market. The possible initial challenges that the company is likely to face in the market are pre-conceived and solutions that the company should apply are given. Finally the report concludes that Lion Nathan Limited has a chance in the Vietnamese market based on the evidence gathered. Introduction Lion Nathan Limited, an Australian alcoholic beverage and wine producer and distributor, was founded in 1860. Its headquarters are situated in Sydney, Australia. The company has a strong presence in Australia and New Zealand where it produces, markets, sells and distributes beer. The company also is also engage in contract bottling; liquor retailing and malt extract production. The company seeks to expand its market share within the boundaries within which it currently has influence and beyond. In view of reaching out to markets beyond its current areas of operation, the Vietnamese market has been identified as having the potential with a viable breeding ground for future growth of the company. This research seeks to establish the most viable strategy to actualize such a move. To achieve these objectives, the research first studies the external industry environment including competitor environment opportunities and threats. Secondly, a study of the internal environment of the company was studied which focused on a careful assessment of the tangible and intangible resources, capabilities and core competencies of the company. A critical analysis of a notable gap in the Vietnamese market for the alcoholic beverage and wine was conducted. All these studies were based on analysis of tangible facts from available market data and census results, and researches conducted on related subjects. External environment analysis General environmental analysis Vietnam is an independent republic situated in Southeast Asia. With a population of over 89 million people, Vietnam is ranked the 13th among the most populous nation. Even though the state remains loyal to socialism ideals, capitalism is slowly taking root. The Vietnam economic growth has been stable since the 1990’s registering a 7% GDP for a period of 2000-2007. The most recent economic report indicates that it attained a GDP growth of 6.8% in 2010. Note that it is listed among the fastest growing economies of the globe. Vietnam is well linked on the transport sector with air, road, rail, and water transport modes well developed. Even though Vietnam has many ethnic groups, the Kinh are the majority and form about 73.6 million of the 89 million people of Vietnam. The Kinh culture is the main culture adopted even by some minority ethnic groups. The people of Vietnam speak Vietnamese and about 85 % of the population identify themselves with Buddhism. The media and internet access is closely regulated by the government based on legal and technical means. Industry analysis The main characteristic of the alcoholic beverage industry in Vietnam is that the beer industry accounted for 98% of alcohol sales in 2008 (Brewing 2009, p. 10). For the period 2008-2013 this is expected to grow by 49% owing to high ranking multinationals and local industry players’ high level investment in the industry. BMI, a London base independent company, reported that many foreign companies are likely to focus on the Vietnamese market with a view of either conquering or raising their market share (Maruyama 2007, p.27). Multinationals such as Diageo, Heineken, and SAB miller are strengthening their presence in the market with new technology introduction and additional new and appealing products (Brewing 2009, p.13). According to Maruyama (2007, p. 23) local players in the industry are not left behind either as companies like Sabeco and Habeco which are the current market top players seek to maintain their portfolio in the competition. Maruyama (2007, p. 32) points out that for a company to thrive the following market trends characterizing the Vietnam beer industry would be of great benefit. I) The Vietnamese government encourages growth of local beer industry players to effectively be the key players in the market. II) The local brands are the most popular among beer drinkers hence they do dominate the top sellers list. III) There is a stiff competition emerging due to the entry into the market of multinationals. IV) Mergers are the order of the day as companies seek to boost their market presence. V) The brewing capacities of various brewers are being increased tremendously. The regulation policy in Vietnam provides real opportunities and benefits for foreign investors to effectively enter the market. These regulation policies include; Privatization of state-owned brewers The Vietnamese government policy to privatize state owned enterprises to boost their efficient operation. This involves Halico, Habeco and sabeco which are among the key alcoholic beverage and wine producers in the market (Forgang 2004, p 45). This is a platform through which foreign investors and industry players can easily enter and pursue business in the promising beer market. Direct and indirect investment opportunities This is an opportunity for foreign investors to directly engage with local Vietnamese investors to jointly establish business in the beer industry. This is because the government does not allow 100% foreign ownership of an enterprise in the beer industry (Maruyama 2009, p. 107). Taxation The protectionist taxation policies seeking to cushion local players in the beer industry are successfully being abolished as a result of intervening of WTO (Drummond 2007). This provides a level playing ground for all industry players whether foreign or locally owned. Government’s push for increased quality control and capacity. According to the 2006 Vietnamese market analysis, beer accounted for 89% of the total alcoholic beverage sales. This represented a market share volume of 97% which gives an estimated market size of USD 2.3 billion (Brewing 2009, p. 10). Beer production volumes had significantly risen from 866 million liters per year in 2002 to 1.7 billion liters in 2006 which represented an 18% increase. The per capita consumption levels increased from13 liters in 2005 to 15 liters in 2006. This was estimated to increase to approximately 28 liters by 2010 and even further beyond this period according to the ministry of industry (Grillon 2000, p.29). Compared to Europe and Asia, the Vietnam market is not about to be fully open and thus remains a lot of potential. With about 400 beer factories the Vietnamese market is highly fragmented. Most of the factories have very low production capacities per annum with 5 having a production capacity of less than 100 million liters, only 11 have a production capacity of above 20 million liters, the rest have insignificant production capacities(Jones 1996, p.11). According to Jones (1996, p.13), there are three market segments; Bia Hoi or fresh beer, mainstream and premium beer. Bia Hoi is unpasteurized and is not packaged in bottles. With a sales share of 35%, it produced impressive growth results in 2006 owing to its competitive pricing which attracts the highly price-sensitive consumers. The mainstream beer takes the largest segment, about 45% of Vietnam’s beer market. Its main consumers are the middle class who are the fastest growing class. The main industry players supplying the mainstream beer are local companies such as Sabeco, Habeco and Hue brewery. The premium beer accounts for 20% of the market and is mainly dominated by multinationals and high local-end brands. Its main consumers are the upper middle class and upper class citizens. The culture influence, economic endowment and market invasion by foreign players favor the growth of mainstream and premium beers even though price sensitivity still propels (Bia 2006, p.6). Sales through restaurants and bars account for the highest percentage of beer sale. This is as a result of evolving new culture and behaviors among consumers who prefer taking beer in social places (Nahe 2003, p.81). Shifting cultural trends have led to the shift of the view on alcoholic beverages. This has led to more accepting of alcoholic beverages as the locals now embrace the western social culture (Grillon 2000, p. 24). There is an upward trend in population growth. The growing population will provide a rich market. According to statistics, 85% of Vietnam’s population is below 40 years of age and SAB miller studies of 2005 indicated that 64% of the alcoholic beverages are consumed by people in the 20 to 49 age bracket. Competitor environment To establish the degree of competition Lion Nathan Limited is likely to face, porter’s forces of competitive analysis are used Rivalry The Vietnamese alcoholic beverage industry has many players and such like industry is not expected to be disciplined. This industry thus is characterized by counter-responses to a competitor’s actions (Ebers 2007, p. 119). In such like circumstances to gain advantage over the rival, competitive moves such as lowering or raising prices, improving product differentiation or exploiting established relationships with suppliers can alleviate any significant effects on the company(Lamb 2008, p. 67). Threat of substitutes The Vietnam market is not a virgin market where monopoly can be established. In that case there are expected to be substitute beer brands which are in direct competition to catch the consumer’s attention. This is likely to shape pricing decisions of the company thus creative pricing decisions can deal with the problem. Buyer power The Vietnam market has a several players in the alcoholic beverage industry. This is likely to give the buyer authority to determine prices. Under such circumstances a quality assurance strategy and strategic brand positioning would determine the competitiveness of the company. Supplier power The possibility of Lion Nathan limited facing such strategy in the Vietnamese market is zero since it would be exporting finished products for the start. Threat of new entrants and entry barriers The Vietnamese market is becoming popular amongst multinationals and thus there are challenges of dealing with likeminded business strategies. Also there are government regulation and entry procedures which may block entry into the market. Internal environment analysis Having established the external environment to face the Lion Nathan Company Limited, the focus now is on the internal analysis of the company to gauge its ability to conquer the market. Appendices 1 to 3 are the financial statements of Lion Nathan limited for the half year report as at 31st march 2009. Appendix 3 reveals that the company posted an improved profit as compared to the same period in 2008. Also from appendix 1, the company has a solid asset base which can effectively cushion it in case of a financial crisis. In essence, it is clear that the company is well positioned in terms of resources to make the most of the market when making market penetration strategy. It should essentially optimize its strengths and work on its weaknesses in order to make a substantial progress in its market niche. Weaknesses Overdependence on Australia and New Zealand markets may be its undoing. It asset base is 75% in Australia where it is also the headquarters. A good percentage of its revenue is generated within the two countries. This could negatively affect the company in case of a shift in economic fortunes and labor withdrawal as it happens during strikes (Ebers 2007 p. 112). This could also subject it to exploitation as it cannot fully exercise it bargaining authority. Threats There are potential government regulations touching on environmental, health and safety which might significantly alter the fortunes of Lion Nathan limited. This can be in terms of regulatory legislations which may for example seek to include warning signs in advertisement. These warnings may dissuade potential customers which in turn can greatly influence its sales (Hill 2009, p. 34). Also, intense competition from other industry players both domestic and multinationals may alter the market share in favor of the competitors. Core competencies Lion Nathan’s brand portfolio, the most valued asset of the company, drives the great performance results of the company. This is bound to soar even to greater heights as the company’s strategic investment on brand equity, national focus and advocacy to premium products takes root. This is evident since the company’s brands make it the market leader in two countries; Australia and New Zealand. The company enjoys stability at its bedrock in Australia where it enjoys a 44% market share. It is the market leader in New Zealand with a market share of more than 50%. From a VRIO framework perspective, Value-it is clear that the company is ready to exploit an opportunity presented to it because of its strong financial base and resources necessary to venture into the Vietnamese market. Rarity- the internal organization of the company does not specifically point to a more dependence on the relative few and hence obvious that the company is diverse internally. Imitability-it is not significantly hard for the company to hard for the company to optimize its internal structure by imitating the resources. Organization- Lion Nathan Limited is well equipped in terms of organization and hence ready to exploit the available resources in order to enhance its market penetration in Vietnam. SWOT summary of Lion Nathan Limited Strengths Weaknesses Opportunities Threats Strong brand portfolio Strong capital base Good reputation on policy formulation Overdependence on localized market, labor and asset base. Strengthening the existing market base Value addition to the fine wine business, spirits and RTD markets Expansion to new markets Government regulations Competitiveness of the market. Mode of entry Lion Nathan limited should enter into partnership with a local company which is already established in the beer industry. The local company is used as a cushion to limit on the strict regulations governing the beer industry especially on foreign ownership (Hill 2009). Through this partnership the company should launch its new product. The product may focus on the health and quality of life. This can be for example by introducing a low or no alcohol beer, mostly advocated as the healthy beer, which is currently not available in the Vietnamese market. The other mode of entry that Lion Nathan limited could use is low pricing strategy on its products in order to increase the sales turnover and to establish a sustainable customer base in the country. Psychological pricing of its products can also be an important aspect in market penetration strategy, this is because of the perception that the company will create in its market penetration strategy (Drummond 2007). The other available mode of entry for Lion Nathan limited is through optimization of its brand positioning. As described by McDonald (2007)This means that Lion Nathan limited will utilize its image to attract and obtain a substantial market by clearly defining its products positioning strategy the way in which Redbull managed when it initially penetrated Australian and European market. Further prospective strategy Competitive dynamic strategy, diversifying strategy, acquisition strategy and costing strategies are possible initial strategies applicable in the Vietnamese market. To aid brand positioning, massive advertisement is necessary to beat the competition. The company should also diversify in terms of providing a wide range of products for customers to choose from. The Vietnam culture is quite different from the western culture experienced by Lion Nathan Company in Australia and New Zealand. Hence the company should embrace restructuring before getting into the Vietnam market. According to Hill (2009) the other important aspect for the company to consider is the possible competitor positioning, the company should be in a good position to anticipate the steps that may be taken by the competitor when they position themselves and make an entrance to the market. The rationale for this proposal is because failure to anticipate competitor actions can always lead to market failure. The company should also develop a contingency plan for it to be in a position to respond effectively to the changes in the market as result of competitor response. The other consideration that the company should ensure before making a complete market entrance is a proper market plan that includes organization preparedness, pilot test and final market launch. The pilot taste will give the company an insight on possible market loopholes that need to be corrected before the final market entrance is made (Hill 2009). Preparedness on the other hand will ensure alignment of all the organization resources in order to focus on the market entrance process. Challenges and recommendations The main challenge the company is likely to face is the stiff competition from the well established local industry players and other multinational companies already operating in the Vietnamese market. There will be initial resistance to accept the new product as it is in most cases of new product introduction to the market. To wave away the challenges the company should adopt competitive prices and invest heavily on advertisements and promotions. This would help to strategically position the brand in the consumer’s available list. Conclusion The Vietnamese alcoholic beverage and wine market is a promising economic venture which a company keen on conquering international markets should explore. The market presents a situation which favors both current and future success. This is as a result of current economic fortunes of the country with a GDP growth rate sustained above 7% for quite some time. This provides a stable economic environment with a population which is moving fast towards middle class standards. Thus there is a readily available and disposable income to spend on leisure and social other social events which are associated with alcoholic beverage and wine consumption. Read More
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Strategic Analysis of the Vietnam Alcohol and Beverage Industry Case Study Example | Topics and Well Written Essays - 3000 words. https://studentshare.org/business/2077860-international-business-strategy
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Strategic Analysis of the Vietnam Alcohol and Beverage Industry Case Study Example | Topics and Well Written Essays - 3000 Words. https://studentshare.org/business/2077860-international-business-strategy.
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