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Strategic Management
SIM336 Strategic Analysis Due date: 10th October 2014
Moderated by: John Dixon-Dawson Student name: Nguyen Thuy Duong
Student No. : 139151974
ANALYSIS OF HABECOS
PERFORMANCE AND EFFICACY OF
THE COMPANYS STRATEGIES
Word count: 3400
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TABLE OF CONTENT
EXECUTIVE SUMMARY
.......................................................................................................
3
MAIN ANALYSIS
....................................................................................................................
4
I. Background of the alcohol and beverage
industry:........................................................
4
II. Introduction of HABECO:
.............................................................................................
4
III. Competitive advantages:
.............................................................................................
6
IV. Porters five forces:
.....................................................................................................
7
1. Threat of new entrants:
............................................................................................
7
2. Power from suppliers:
..............................................................................................
8
3. Power of customers:
................................................................................................
9
4. Threat of substitutes:
...............................................................................................
9
5. Competitive rivalry:
...............................................................................................
10
Summary:
.........................................................................................................................
11
V. Value chain:
.................................................................................................................
11
1. Primary activities:
..................................................................................................
12
1.1. Inbound logistics:
...............................................................................................
12
1.2. Operation:
..........................................................................................................
12
1.3. Outbound logistic:
..............................................................................................
12
1.4. Marketing/sales:
.................................................................................................
13
1.5. After sales:
.........................................................................................................
13
2. Support activities:
..................................................................................................
14
2.1. Infrastructure:
.....................................................................................................
14
2.2. Human resources management:
.........................................................................
14
2.3. Technology:
.......................................................................................................
14
2.4. Procurement:
......................................................................................................
15
VI. SWOT:
......................................................................................................................
15
VII. Business strategies:
...................................................................................................
16
1. Generic strategies:
.................................................................................................
16
2. Ansoff
matrix:........................................................................................................
17
CONCLUSION
........................................................................................................................
19
REFERENCES
........................................................................................................................
20
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EXECUTIVE SUMMARY
Strategic management is vital and always begins with some
fundamental things: find nature
and source of a particular enterprises competitive advantages,
understand why some firms
more profitable than others. Strategies reflect the complexity
of changing external
environment that the business needs to negative and create
through innovation and proactive
vision.
In order to understand and analyse a business policy/strategic
management, I selected
HABECO organization. I hope that my report will meet your
requirement and show my
knowledge about analysing fundamental issues related to
strategic management.
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MAIN ANALYSIS
I. Background of the alcohol and beverage industry:
Vietnam ranks 13th in the brewing world (2011, jumping from rank
20 in 2008), is the 3rd
largest market in Asia (after China, Japan), is a country with
high growth in output in the last
ten years (240.4%). However, production accounted for only 1.14%
of global production.
With 350 breweries, concentrate around the area major cities,
and continue to increase in
number, Vietnam beer production is enough to meet domestic
consumption.
Beer consumption per capita is rapidly increasing. Currently,
consumption is 28
liters/capita/year; double the period 2005-2011 and tripled
compared with 1995. Ability
consumption also can be raised, because low compared to 37liters
and 47liters of Korea,
Japan; and about 1/10 compared with Europe. At difficult
economic times, sales of beer
reputation in the world have declined, but in Vietnam, this
market is still growing. This
suggests that consumers demand for beer in Vietnam is very
large. The current growth rate is
quite high, about 13-15%/year (though much reduced compared with
the period 1990-2000,
grew by 20%-30%/year).
II. Introduction of HABECO:
Full name is Hanoi Beer-Alcohol and beverage joint stock
corporation (HABECO). The
predecessor of the HABECO was Hommel brewery with 30 workers,
founded in 1890 by a
Frenchman named Hommel with the aim of serving the French
crusaders1.
1
http://www.habeco.com.vn/index.php?option=com_content&view=article&id=62&Itemid=79&lang=en
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Now, headquarters is at 183 Hoang Hoa Tham Street, Ba Dinh
District, Hanoi. It was State
owned enterprises, established on May, 2003, and transformed the
organization operating to
the holding company model on May, 2004.
The average growth rate in recent years is 20%. The average
revenue increases 30% per year.
Average budget remittance increases 20%. Profit increases
annually 12%2.
Strategic vision:
HABECO built into one powerful corporation, plays a key role in
the manufacturing industry
Beer, Wine, Beverages and became one of the leading enterprises
of the Asian business of
producing beer.
Mission:
Maintaining and developing the Hanoi Beer is always racy of the
food culture of "The Trang
An people" and is the pride of Hanoi.
Nowadays, HABECO has become the third largest brewer in Vietnam,
behind SABECO and
Vietnam Brewery Limited (VBL). The Group was awarded by Asia
Pacific Quality
2
http://www.habeco.com.vn/index.php?option=com_content&view=article&id=62&Itemid=79&lang=en
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Organization in 2006 for their continuous quality improvements
in goods and services. They
are only one large size production and service company in
Vietnam has that honor3.
III. Competitive advantages:
This can be defined as a factor to generate better sales/margin
or absorb more customers than
others4. Porter (1999) argues that the key for the companys
success in the rival environment
is finding and attracting unique/rare resources. It can bring
great value to the business.
Throughout the years, HABECO has gained some advantages which
make them better than
competitors. The Group get successfully in building up a strong
brand name in the North
area. Their products are deeply famous among local customers due
to acceptable price and
distinctive taste. Moreover, they have a strong foothold in
domestic spirits market. Hanoi
Liquor Company (Halico), HABECOs subsidiary, is one of the
leading domestic vodka
producers with about 40% market share. If the company can
leverage on foreign expertise
and technology, it will be an opportunity for Halico to expand
their share. Beside, the
company has extensive distribution network. The recent HABECOs
new breweries in North
central area are expected to upgrade their distribution
effectiveness and set the Group apart
from competitors.
3
file:///C:/Users/Thuy%20Duong/Desktop/Mekong+-+Mar-08+Habeco+IPO.pdf
4 http://en.wikipedia.org/wiki/Competitive_advantage
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IV. Porters five forces:
1. Threat of new entrants:
In 2008, after the acquisition of 50% stake of Vinamilk in Binh
Duong brewery, SAB Miller
(Group of America's leading beer) has launched a new beer-brand
Zorok, light beer for
women. They have the will to expand market share in Vietnam.
Cooperative venture between
Vinataba (Vietnam) and Scottish and New Castle Group (S&N)
of England established
Kronenbourg Vietnam Ltd. to produce premium beer and alcoholic
beverages. Heineken is
also regarded as the largest foreign investor in Vietnam beer.
Besides, in 2013, AB InBev
Company which owns many brands such as Budweiser, Corona, Stella
Artois, Beck's and
Brahma overflowed in VN market.
Beer market always goes along with the problem "counterfeit
goods, pirated goods". The
prestigefull brand is counterfeited easily. It is a very popular
drink and also borne the VAT
and special-consumption-tax (SCT). Amount of beers which have
poor quality were
estimated 130million liters. Average, SCT accounted for 24-25%
of ex-works price/liter of
beer. Joining WTO has forced the Government to change some kind
of protective tariffs,
within 3 years after integration, Vietnam applied a SCT rates
for all beer products, regardless
of the form of packaging. Currently, SCT policy beer being
applied as follows: from January
1st 2013, they are subject to 50% for all kind of packaging.
After Vietnam joined WTO,
beers import tax has decreased from 80% to 65%. Currently, 65%
tax rate is fairly high, so
The concept was developed by
Michael Porter. It provides
competitive strategies to maintain
or increase business profitability.
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the manufacturers limited penetration, usually joint ventures
with local manufacturers to
avoid the tax. Deep penetration of the foreign manufacturer and
beer brands will make tough
competition in future.
Other policies also affect business activities of enterprises in
beer industry. Regulations on
advertising, promotion (promotional advertising costs are 10% of
the cost of products) and
place of beers trade make difficulties especially for small,
medium and new enterprises in
the sector. In addition, the regulations on alcohol
concentration of the car/motorbike drivers
while in traffic also impact negatively on consumer behaviour,
limiting the consumption of
the product manufacturers.
To participate in the industry, HABECO must have a large capital
to innovative processing
technologies. At the same time, to ensure product quality, the
company must buy raw
materials imported from foreign countries with famous sources,
so the prices will high.
In short, the number of new accession increase lead to high
competitive intensity, but entry
barriers is just moderately and average. So, the threat is quite
high, intense competition will
be at high level (6/10)
2. Power from suppliers:
The main material (about 60-70% of raw material) to produce is
malt and Houblon. However,
Vietnam cannot manufacture these, so these have to be imported
100%. According to the
Association of Beverage Alcohol Vietnam, each year Vietnam
imported average 120,000-
130,000 tons malt, equivalent of $50 million and is expected to
rise to $100 million.
Materials for Vietnam beer industry are imported from barley
production countries in
temperate regions. Cropping wheat and barley in some Vietnams
northern mountainous
provinces with small scale have been available few years ago. In
fact, only a few hectares
planted trials, the results was not really feasible because the
Vietnams climatic conditions
are not suitable, the quality of barley affects the quality of
the beer fermentation and taste.
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We need more time to implant and develop for over several
thousand hectares, and only
replaced about 10% malt imports.
Percentage of material for beer in Vietnam is 70% wheat, 30%
rice (can be replaced by corn).
In one liter beer (finished products), major raw material costs
accounted for 82.3% (55.6%
malt, 21.1% rice and approximate 7% houblon). Manufacturer just
collects the margin below
20% (around 18-20%). If the raw materials (including malt and
houblon) industry continues
to rely heavily on imports, domestic enterprises will be
difficult.
Thereby, it can be seen that supplier play a decisive role in
the beer industry, with enormous
bargaining power. Thus, it creates a high level of competition
intensity (8/10).
3. Power of customers:
With the number of over 300 beer factory (output in billion
liters/year), the participation of
well-known foreign beer brands in Vietnam by way of imports or
joint ventures, and
customers can approach easily quality, price beer products
information, it brings to Vietnam
customers more choices. This has created huge competitive
pressures for businesses about
price, quality products and quality services to satisfy customer
requirements. The only
method to dominate the behaviour of consumers is advertising and
marketing. However, we
can see the power of the customer is not high (4/10).
4. Threat of substitutes:
In Vietnam, beer to satisfy these needs: beverage, hang out with
friends, family, job
discussion... Substitutes for beer in alcoholic drinks group
includes wine and distilled spirits,
fermented beverages... Because of the advantages of beer, the
brewing industry is highly
developed, completely dominate the beverage market. However, the
wine market has
developed, especially homemade wine, foreign wine predominates
only in high-end market.
In the middle market segment and lower, the domestic wine still
has many advantages. In
alcoholic beverages, beer output ratio has increased from 97% to
97.9% (2006-2010) (source:
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Euromonitor International). Moreover, Vietnam is a country with
a tropical climate, the
demand for beer is higher than wine.
In addition, beer can be replaced by other beverage products:
tea, coffee, carbonated water...
Because beer-drinkers may get problems related to health, they
tend to look for other
beverages safer like C2 of URC, Lemon Tea drink of Tan Hiep
Phat, Zorok brand for
woman (as I mention above).
Therefore, the threat of substitute products is absolutely not
low for HABECO (7.5/10).
5. Competitive rivalry:
According to experts, the war in Vietnam beer market is "fierce
competition". 15 years ago,
Vietnam Beer's playground just has two powerful company is
HABECO and SABECO.
Now, Vietnam has 350 large and small breweries throughout the
country. It focuses on some
key areas: Ho Chi Minh (account for 23.2% the total production
capacity of the national
beer), Hanoi (13.44%), Hai Phong (7.47%), Ha Tay (6.1%), Tien
Giang (3.79%), Hue
(3.05%), Da Nang (2.83%) (Sources: Euromonitor). There is a
signs of oligopoly when 3
largest enterprise (HABECO, SABECO, VBL) accounted for 83%
market share (according to
competition law standards as CR3
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With the dramatic increase in the number of competitors, and the
industry sector is dispersed
(no business has the ability to control others enterprises), so
the threat of subsidiary is high
(9/10).
Summary:
Vietnam is the top Southeast Asia on beer consumption, with
nearly 2.6 billion liters in 2011,
far exceeding the country in second ranked (Thailand and
Philippines). Vietnam is in the top
25 countries consume strongest beer in the world. With growth
rate of 11-15%/year, it is
forecasted that Vietnam beer market has high potential growth.
The analysis above shows
that the level of competition in the industry is high, but it
also made difficult for other firms
not only HABECO. Furthermore, HABECO is in Vietnam for a long
time, associates with
Vietnam culture, has suitable taste for Vietnam market, with a
deep understanding of the
Vietnam people, and local people more familiar with the
characteristic taste of the local beer
than foreign ones hence HABECO still has succeed in the
industry.
V. Value chain:
Competitive advantage comes from many separate activities of
enterprises in the design,
manufacture, marketing, human resources, distribution, product
support and supply.
Each of these activities contributes
to the relative costs of the business,
form the basis of differentiation. In
"Competitive Advantage" book,
Michael Porter proposed that the
value chain is as a basic tool for the
analysis of competitive advantage.
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1. Primary activities:
1.1. Inbound logistics:
The material providers for HABECO is the enterprises have a
traditional relationship,
capacity, credibility, cooperation for many years so can
guarantee a stable source of raw
materials and quality. However, about 60-70% of HABECOs main raw
materials beer
production still has to import. The other raw materials such as
rice, sugar,... are available in
the country, so they are very stable. In addition, the company
also uses a number of
alternative raw materials sugar or semi-finished form made from
sugar cane as or radishes.
1.2. Operation:
These products are manufactured on the production line and
technology of Germany with line
of pouring fully automated. They continuously achieve
certification as ISO 22000 (2005),
ISO 9001(2000), ISO 14001 (2004),... Modern system such as
producing pure CO2,
compressor oil-free and automatic sanitation CIP is applied
effectively.
Besides boosting production at the parent company, the
corporation also pays much attention
to the work of Hanoi beer bottle in subsidiaries. HABECO has
always planned to guide and
supervised closely subsidiaries in the manufacturing process to
ensure the process and
achieve the best quality for all products.
Regarding scientific research, quality control, new product
development: In addition to
investment in production, HABECO focuses on investment in test
equipment, analysis which
worth billions VND. It helps company control better product
quality at all stages and has
more test parameters techniques such as automatically analyzing
beer, porosity of malt.
1.3. Outbound logistic:
Currently, HABECO has over 470 distribution agent in Vietnam and
12 subsidiaries in key
areas to the north (Hanoi, Hai Duong, Quang Ninh, Hai Phong,
Thanh Hoa, Nam Dinh,
Quang Tri) and 9 associates, 3 branches. Consumption market wide
open, not only in the
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country but also exported to many countries such as USA, Japan,
Korea, China, Russia... So
the output of beer consumption branded HABECO in 2007 was 199
million liters, the end of
2008 was estimated at 245 million liters.
Customers can shop directly in HABECOs introduce products store
to enjoy without dealers
or other retailers. This is an advantage to increase prestige
and promotion wider for the
company's products. However, the company needs market management
team capable and
enthusiastic to be able to manage this system under uniform
target.
1.4. Marketing/sales:
HABECO has continuously held the promotion, widely promoted
product images on the
media, putting sales support staff in markets such as Thanh Hoa,
Nam Dinh, Thai Binh , Ninh
Binh. They have policy to encourage agents to sell beer with
great output. So, result in the
consumption of new products is very positive. Moreover, HABECO
joined VIETNAM
EXPO 2013. In same year, company implemented various promotions
to grateful customers
all over the country. HABECO held beer festival in Hanoi, Quang
Binh, Nghe An.
1.5. After sales:
It is mainly instructions on how to use and preserve
beverages.
For dealers, distributors: be careful when unloaded from the
vehicle, to prevent damage to
the finished product, remove damaged products, do not store at
temperatures above 35C,
follow the rule first-in/first-out,...
For restaurants: also the same as dealers, remove damaged
products and report to the
supplier, store products in the cabinet cooling from 10-12C
before served consumers,...
For customers: see expired date, drinking beer the right
way,...
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2. Support activities:
2.1. Infrastructure:
HABECO formed joint ventures which develop ancillary industries
of commercial and
material to serve the ultimate goal is the alcohol products.
Brewery Hanoi in Vinh Phuc put
into production in 2009, which brought capacity of the parent
company HABECO reached
300million liters/year by 2010.
2.2. Human resources management:
HABECOs resources includes 753 people (2011) in which 69 people
has bachelor and
master degree (10%); 411 people reached diploma level;
vocational training account for 59%;
216 unskilled-workers (31%) and over 50 experienced engineers.
Besides, management team
has worked closely with HABECO gone through several time and
generations. The average
working age of employees is 38.5 years old.
Skilled and experienced workforce helps company produce high
quality products, reducing
waste, saving production costs. Moreover, with talent and
qualified business staffs, it helps
HABECO consume well in the market. In recent years, the income
of workers is always
improving, stable and ensuring their lives. This is a great
HABECOs asset.
2.3. Technology:
Technology hardware and equipment mostly imported from European
and with assistances of
Czechoslovakia (former), Germany... Technical staff system of
HABECO gradually grown in
quantity and quality, so they can undertake as well as improve a
number of production and
processing stages.
Equipment system is capable for producing high quality products
but with the current
capacity, it cannot meet all the needs of the market, so it has
a major influence on the
consumption of the company.
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2.4. Procurement:
Most of the main raw materials for the production of beer is
hops, malt, barley were imported
from Australia, Europe, the Americas, China, which is influenced
by fluctuations in input
prices due to supply depends on weather conditions as well as
sales and tax policy of the
supplier.
HABECO should have policies with suppliers of raw materials to
ensure stability in the early
stage of procurement.
VI. SWOT:
Strengths
Manufacturing and consume output, and growth of revenue are
quite high.
Strategic shareholders have strong financial potential.
Distribution channels system is wide, especially from Quang Tri
to the north.
Exporting to many countries: USA, Japan, Korea, Russia ...
Liquidity: Cash flow and liquidity of assets in the statement of
HABECO is a strength that many businesses outside the beer industry
is difficult to obtain.
Familiarity and old brand
Weaknesses
Products and services are not diversified, do not have high-end
products.
Marketing activities are not diverse, have not focused on brand
promotion yet.
Products manufacture at many factory, it is partly more
difficult, due to the use of different water sources.
Unfinished land-use rights in 183 Hoang Hoa Tham.
Stocks of HABECO is difficult to bring profit as expected in the
short term.
HABECO only has the price regulation for dealer at first
level.
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VII. Business strategies:
1. Generic strategies:
Opportunities
Stable political environment
International economic integration is creating conditions for
the enterprises for getting joint venture and expanding market
share.
Opportunity to receive technology transfer, learning management
experience of foreign businesses.
Young population structure, growth rate of population size is
high, GDP per capita is increasing.
Vietnam drinks market has great potential.
Vietnam weather is hot and humid, rainy.
Threats
The intense competition within the industry.
Customer demands for quality, price and service are higher.
Consumption tax on beer increased by 10% can reduce the
competitiveness of beer.
Pressure on revenue growth and market share is increasing.
Prices of raw materials.
The State discourages to use alcohol and beer products.
Base on SWOT model, HABECO implemented
a strategy to differentiate the competitors shown
in the quality of products with particular
characteristics which do not make customers
confuse with other products through the
implementation of innovation, investments in
technology and modern equipment.
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HABECO does not develop many products, but just focuses on four
popular brands: beer,
bottle beers, can beers and Premium beer. HABECO established
research institutions to
develop their own beer to create differentiation of products
value. HABECO uses holding
company model to focus on their production capacity, consumption
markets and ensure
consistency in quality at all facilities. For example, beer
bottle (450ml) - Hanoi Beers
flagship product has annual output accounts for 70% of total
production of Hanoi Beer.
This brand has alcohol content greater than 4.2%, flavour with
honey yellow colour typical
colour of beer, and smooth white foam.
Taking advantage of traditional brands, HABECO selected target
market is the northern
provinces from Quang Tri, in order to investment focus and
sentinel, to avoid confrontation
with other beer brands in areas where this unit does not have
the advantage. HABECO
currently has over 300 agents distributed in most of the
northern provinces and has 12
subsidiaries in key areas from the north (Hanoi, Hai Duong,
Quang Ninh, Hai Phong, Thanh
Hoa, Nam Dinh, Quang Tri) and nine associated companies. The
market share is about 40%
and expected to rise to 70% in the next few years. At the
present time, avoiding market
expansion into the southern provinces which is not the strength
of HABECO will help
HABECO avoid dispersion of resources and save the cost of
marketing and market
development.
2. Ansoff matrix:
In addition, HABECO also implemented some effective strategies
to boost production,
collaborative product development and market share.
Horizontal diversification: HABECO
famous with beer products accounted for
the highest proportion of 50.92% in the
total volume of production and
consumption.
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HABECO introduced premium type: 330 Beer (can and bottle), but
this product has not
gained strong consumption. In 2007, HABECO also put another new
type into the market
Fresh Beer which is favoured by customers with estimated
production of 67,000 liters in
this year. Although the output is not high, it is a trial and
market exploration period. In 2008,
the company plans to increase beer production to 500,000
liters/year. Lager Beer is a new
product on the market officially launched in 2007. Now, it is
accepted by consumers, initially
gain a solid position in the market.
Vertical diversification: After equitization, HABECO expanded
multi-industry business,
invest in office for leasing/renting, hotels, restaurants,
financial investment, capital
contribution to subsidiaries and new associated companies.
However, according to analysts,
this is not the right direction of the company in the future
when the financial investment is
not a field of expertise of the company and may be subject to
high risk. Moreover, according
to CBRE, in 2010, the market for leasing/renting offices and
hotels in Vietnam was saturated,
so the opportunity for new companies as HABECO was not much.
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CONCLUSION
Every business needs to know how to give themselves a clear
management strategy, must
know how to balance between profitability and ensure it meets
the needs of the customer or
may be beyond the expectations of customers.
The main objective of this project is to help all of us have an
overview and comprehensive
the current situation of HABECO over time to evaluate the pros
and cons of the business
strategy. Thereby, the company can develop their strong points,
and have proposed
appropriate time to complete their strategy to enhance the
competitiveness and find their
foothold in the market.
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REFERENCES
Books:
BPP Learning Media (2010) Business Essentials: Business
Strategy. London: Aldine Place
BPP Professional Education (2004) Mandatory Unit 7: Business
Strategy, 1stedn. London:
Aldine Place
UoS (University of Sunderland) (2005) Marketing Strategy, The
University of Sunderland
UoS (University of Sunderland) (2014) Strategic Management, The
University of Sunderland
Internet:
Ask Will Online [Ansoffs matrix] [online] [cited 9th October
2014]
DreamsTime [SWOT model] [online] [cited 9th
October 2014]
Mbabasecamp.com [Five forces] [online] [cited 9th
October 2014]
Habeco.com [HABECOs homepage] [online] [cited 9th October
2014]
Habeco.com [Average growth rate of HABECO] [online] [cited
9th
October 2014]
File [HABECO reward] [online] [cited 9th
October 2014]
Wikipedia.com [Competitive advantage] [online] [cited 9th
October 2014]