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http://www.realgoodfoodplc.com/reports-andaccountsTABLE OF CONTENT
Abstract Introduction Company background External Environment Analysis Macro-environment analysis o Political Environment o Economical Environment o Socio-cultural Environment o Technological Environment o Legal Environment o Environmental Environment Industry analysis o Threat of New Entrants o Threat of Substitute Products o Bargaining Power of Suppliers o Bargaining Power of Customers o Rivalry competition among current firms Market analysis Competitor analysis

0910562 Evaluation of identified issues and impact on business strategy Conclusion References

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ABSTRACT
With the population of above 86 million people and a young society, along with rapid economic and income improvement, Vietnamese consumers have high demand for high-quality confectionery products. Companies operating in this industry must face competition from over 30 big manufacturers along with a large number of small manufacturers. The aim of this paper is to conduct a thorough strategic analysis of Kinh Do Corporations external environment and critically evaluate how the identified issues might impact on its business strategy.

INTRODUCTION
Nowadays, in the global highly competitive marketplace, a company cant survive in a vacuum. Each is established in a particular region/country to which its linked inextricably. This setting affects how a company operates and what and how it produces. Therefore, external environment is a necessary consideration for a company when it tries to know the research institutions it supports. An analysis of the external environment will help a company understand the forces outside organizational boundaries that shape it.

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The purpose of this paper is to analyze thoroughly the external environment of Kinh Do Corporation and evaluate critically how the identified issues may influence on its business strategy.

COMPANY BACKGROUND
Company Name: Kinh Do Corporation (Abbreviation: KDC) Established Year: 1993 Logo:

Chairman: Tran Kim Thanh Types of business: o Food (this division will be discussed in this paper) o Finance & Investment o Real Estate o Retail

Vision: Flavor Your Life Mission: Always serves and cares customers by providing dynamic, effective and professional product styles, with effective working environment to satisfy customers demand and with continuous

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developments of the safety and quality standards on products, resources and systems. Headquarter: 6/134 No 13 National Road, Hiep Binh Phuoc Ward - Thu Duc District HCMC Telephone: 84-8-3726 9474 Fax: 84-8-3726 9472 Email: kido.co@kinhdofood.com Website: http://www.kinhdo.vn Facilities: 8 factories and 11 member companies Legal Capital: 2,258 billion VND Employees: 7, 700 people Total Land Area: above 120,000m2

EXTERNAL ENVIRONMENT ANALYSIS

Macro-environment analysis o Political Environment Strenghts Vietnam is one of the most politically stable countries in the world. This provides favorable condition for investors and creates a stable foundation to design and implement medium4 Weaknesses Vietnam has a high level of corruption, which poses a dangerous threat to Vietnams government Theres improving public disappointment with the tight

0910562 term to long-term economic strategies. Relationship with the US is developing gradually, and Vietnam is seen as one of the important geopolitical partners Opportunities The government has acted to clamp down on graft among officials to face with corruption Legislators have been allowed to be more vocal in evaluating government policies. This is good chances for more checks and balances within the government system.

30/06/2010 control over political dissent. Vietnam needs to decrease bureaucratic red tape and create clear guidance on regulatory issues to attract more foreign investors. Threats The slowdown of growth is to evaluate public acceptance of the government system, as well as demonstrations to disapprove economic situations can improve into challenges of undemocratic rule. Relationship with China have worsened due to Chinas more affirmative viewpoint over debated islands and local criticism of a large Chinese investment into projects in the central highlands, o Economic Environment

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The economic environment influences how much KDC must spend and how it is likely to spend. Thus the economic environment plays an important role in determining the likely demand for its products.

Strengths With a real GDP growth of more than 7% per annum, Vietnam is considered one of the fastestgrowing economies in Asia Many Vietnamese have been lifted out of poverty due to the economic boom, with the poverty rate decreasing from 58% in 1993 to 15% in 2009.

Weaknesses Vietnam still suffers from robust trade, fiscal deficits and current account, leaving the economy vulnerable as the global economy continues to suffer. Considerable off-the-books spending clouds the fiscal picture Inflationary pressures are contributed by the weak VND and heavily-managed, which are reducing incentives to increase

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30/06/2010 exports quality, and satisfy to Opportunities make import costs high Threats Deficit concerns and inflation have made investors re-assess their optimistic view. If Vietnam focuses more on stimulating growth and not to root out inflationary pressure, it will risk lengthening macro-economic instability, which could force the authorities to put reforms on hold, such as implementing price controls, tightening monetary policy or exporting prohibitions on some selected products

Being a WTO member gives Vietnams entry to foreign markets/capital, and helps enterprises stronger via developed competition. Vietnam is moving forward with its market reforms, including liberalizing the banking sector and privatization of state-owned enterprises. According to TNS research, urbanization is a long-term growth driver. Experts forecast that Vietnams urban population will increase to above 52% by the early 2040s. o Socio-cultural Environment

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Vietnam population, which has grown 1.096% per year over past 8 years, is in top 3 in ASEAN and the top 13th in the world and is forecasted to reach 94.1 million people in 2015

Moreover, Vietnam is a young society. About 25% of Vietnams population is in the 014 age group, 70% belongs to the age group of 1564, and the 65-andabove group is about 5%. In 2009, Vietnam had an average age of 27.6. When many developed countries face with the problem of their ageing population and increasing social expenditure, Vietnams demographic structure works in its favor as theres a regular addition to its labor-force. This also indicates an increase of consumption power.

As a result of improving living standards, many changes in lifestyles, especially in the cities, with increasing consumption of convenience foods such as fast foods, beverages and confectionery. o Technological Environment

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Vietnam has signed many Bilateral Trade Agreements with foreign countries such as Bulgaria, Indonesia, Koreafor technology transfer.

Modern technologies and advanced machinery to the production have been applied by confectionery companies. Their equipments are always modernized. Most of them are imported from famous manufacturers to guarantee their products quality and can meet all strictly demands on food of other countries. o Legal Environment Companies have been adjusted to follow up some laws such as the Business Law, Competition Law, Investment Law and other legal obligation. Additionally, they are also affected by the policies and strategies within their industry themselves.

Laws and legal obligations implemented and amended by the National Assembly usually affect companies business performance. Companies hope that a potential investing area and a good business environment will be created to encourage fair competitions. Before completion, these changes have some certain impact on their operation.

Moreover, its necessary for companies, in order to be ready for future development, to fully understand the domestic and other international laws. They must prepare in-depth knowledge about market condition, rivals, partners, and

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other legal obligations. Generally, the business performance has been significant influenced by legal environment and company situation o Environmental Environment Recently, carbon dioxide emissions in Vietnam have increased considerably. Every year, the industrial production grows by around 16-17%. However, the industry growth also causes the natural environment damage. Not only in Vietnam but in many countries, air and water pollution have reached dangerous levels. Theres increasing concern about the global warming or the "hole" in the ozone layer. Many industrial pollutants are gradually damaging Vietnameses health. Recently, Vietnam government introduces laws for water pollution; however, enforcement continues to be patchy. Although the government decides to close down polluting companies if they cant adopt cleaner technologies, the ground situation still hasnt increased as environmental policies arent enforced. As a result, unabated pollution will continue in the medium term. Industry analysis

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o Threat of New Entrants: Medium Currently, confectionery manufacturers are enjoying their gross profit margin of about 20%25%. Lower tariffs in Vietnam are one of the most attractive factors to new imports. However, there are some barriers for foreign companies to entry. These are R&D capability, brand recognition, and sales network of which sales network is the most significant barrier for foreign entrants. Although its easy to penetrate into the modern trade channel, foreign entrants need many years to build up a general trade channel. As more than 80% of retail sales are sold via traditional distribution system, it takes time for new entrants to occupy market share.

o Threat of Substitute Products: Low Over-consumption of confectionery products will have bad effects on peoples health with their sugar and fat content high. In spite of that, there are little real substitutes for confectionery products. Fast food is one of products can pose threat to confectionery products market share. o Bargaining Power of Suppliers: High

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Confectionery manufacturers can easily find alternative suppliers in both the domestic and international market for most of their raw materials . However, recently, the price of materials has tendency to increase fast, thus the improvement of selling price of products was unavoidable. However, with its large scope of production and long-term relationship with suppliers, KDC could ensure stable source of materials and the most competitive price. o Bargaining Power of Customers: Medium Confectionery manufacturers have 2 kinds of customer: end-users and direct-customers.
Because end-users of confectionery products are fragmented, none of them has any impact on product/price. However direct-customers (distributors, retailers and supermarkets) have bargaining powers because they can distribute similar products provided by other manufacturers.

o Rivalry competition among current firms: High In the confectionery market, the market share of top four-firm is 55%. Although total the market share of top 4 companies is high apart from KDC, the other three manufacturers are close together. And below them there are many manufacturers including more than 30 Vietnamese manufacturers and some foreign-invested domestic manufacturers and foreign manufacturers. Additionally theres almost no big difference between the products produced by different manufacturers. Therefore, rivalries amongst existing competitors are high.

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Market analysis o Market size and growth

The projected speed of retail revenues growth of confectionery industry from 2008 to 2012 is 114.7% per year, which is higher than those of other countries. Total confectionery outputs can improve from 477,000 tons in 2008 to 708,000 tons in 2010 o Market shares In the Vietnam confectionery market, there are many producers, including both domestic and foreign. The leading company belongs to a domestic company, KDC, with a market share of 28.9%. Then Orion Food Vina has an 11.3% market share. Huu Nghi JSC is ranked third with market share of 7.9%. Bibica is the fourth largest confectionery producers when taking up 7.4% of total market. Hai Ha is ranked fifth with 6% market share. The rest accounts for the balance of 38.6% of the market.

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o Market segment Domestic products occupy about 67% of the market share, while imported products from foreign countries such as China, Indonesia, Malaysia, Thailand etc. share the remaining 33%

Customer Requirements Price: confectionery products are launched to the market with reasonable prices.

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Quality: production materials must be put under control of safety and hygienic standards. The quality management systems need to be in accordance with the quality standards ISO 9001:2000.

Marketing: By creativity and energy, confectionery companies should express their role to the market with more attractive marketing activities

Product/service range: confectionery companies must satisfy customers demand better with wider range of products

Innovation: Every year, many new products should be launched with great market effects. Depend on successful innovations, confectionery can increased strongly despite depressing market environments and consumers sparing spending.

Brand name: consumers usually tend to purchase products that have a well-known brand name. KDC is one of the companies that have been voted to be Manufacturer of Vietnamese high quality products by domestic consumers for many years.

Distribution Channel: confectionery products must be sold to consumers through effective distribution channels such as distributors, shop-owned bakery chains, retail outlets, etc. Companies should provide the widereaching distribution networks to quickly adaptable to market changes.

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Competitor analysis o Huu Nghi Joint Stock Company

Its brand names are quite popular in Northern provinces. Its key product is bun with sales of about VND377 billion. Last year it launched Staff product line, a bun product from cha bong. This product was considered as an innovation in bun market and it gained the leader position in bun market from KDC for the first time. Currently Huu Nghi is occupying the biggest part of bun market with 40% market share. Other main products include moon cake, cookies, candy, cream wafer, jam and cake.

In 2009, its sale increases significantly due to the success of new cha bong bun product. And net profit was up 50%, came at VND9 billion. The companys headquarter is in Hanoi and four factories. Its distribution system consist of 100 distributors and 45,000 retailers nationwide and 5 bakeries in Hanoi 9 Point Performance Scale

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o Orion Food Vina Company Limited The company is a subsidiary of Orion Corporation, the second largest confectionery manufacturer in South Korea. Its products are delivered to more than 67 countries worldwide. It has 12 production bases in China, Korea, Russia and Vietnam.

Since entering into Vietnam, the company has established two factories, one in My Phuoc 2 (Binh Duong) and one in Yen Phong (Bac Ninh). Its distribution channel includes 119 distributors and 59,200 retailers. Famous brands are Tonnies, Chocopie, OStar, Custas, and Fresh Pie.

The company, with large market share in cake segment, is an aggressive manufacturer in the confectionery industry. Moreover, the company, with its strengths as a relative and multinational company position in Vietnam market, is likely to gain more market share and be leading manufacturer in near future. 9 Point Performance Scale

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EVALUATION OF IDENTIFIED ISSUES AND IMPACT ON BUSINESS STRATEGY

There are three key factors that are driving KDCs business strategies. They are: Higher income levels and increasing urbanization

Vietnams per capita GDP has been increasing significantly. In other words, it has tripled from 2000 to 2010. Moreover, urban population growth rates also improved of 3% compared to about 0.6% in rural areas. According to recent surveys, an urban customer class emerges with about a third of urban households now earning more than $600/month.

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Overall, there is a rapid improvement in the standard of living, especially in urban areas. Changes in income and increasing urbanization, along with a young population have led to a Westernization of Vietnamese lifestyles. For example Vietnam consumers prefer to eat out more and like more packaged foods than previous years. Confectionery products and fast foods have become more popular as they are fast, portable and satisfying. This is a great opportunities for KDC to expand their market shares. Further expansion of distribution channel

Recently, distribution channels in Vietnam have continued to expand. At yearend 2009, there were about 140 supermarkets, 12 hypermarkets and more than 230 convenience stores. In large cities such as Ho Chi Minh City, Hanoi, etc many new supermarkets have opened over the last few years. Saigon Co-op opened 6 Co-op Marts supermarkets. In the north, Hapro has 13 supermarkets and it targets to open 5 new supermarkets in near future.

Moreover, the number of retailers is more than 600,000 in Vietnam. Also, KDC has its own retail stores with its nationwide bakery system

The growth rate of each segment of distribution system: o Modern trade-19.3% o Direct sales-16.9% o Retailers-11.7% o Street shops-10.8%

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0910562 o Wet market-9% o Specialty shops-0.7%.

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Modern trade, in terms of value share, accounts for 19% of retail sales while wet markets and street shops contribute 14% and 61% respectively. The balance of 6% belongs to other retail channels.

Depend on such developments; KDC products can be distributed more widely than in previous years to expand its market shares Low per capita consumption of confectionery products

Vietnamese consumes about 154,000 tones of confectionery annually. This per capita consumption amounted to about 2kg. But this figure still low compared to 2.8kg of world per capita consumption, 3.6kg/year in China and 12kg/year in other developed countries. Along with the price improvement caused by galloping inflation and resonance of material costs, the customers demand is decreasing remarkably. Additionally, recently, there are many events that made customers lose belief on foods industries like Soya-sauce with 3-MCPD or milk with melamine, etc, Therefore, KDC, depend on its efforts and prestige of a leading brand together with high product quality foundation, should bring certain efficiency as assessed by the market, contributing to retaining good growth of revenue.

CONCLUSION

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0910562 KDC, in highly global competitive market, must carefully evaluate the

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environment in which its operating and the external factors that affect it. These factors can influence the companys internal factors and its objectives/marketing strategies. The external environment forces are usually instable. They can change rapidly and are often beyond KDCs control. Although external factors can pose threats to the company, they can also create new chances for it.

REFERENCE
General Statistics Office Of Vietnam (2010) [Online] Available from <http://www.gso.gov.vn/> [Accessed 25 June 2010] Kinh Do Corporation (2009), Annual Report 2009 [Online] Available from <http://www.kinhdo.vn/media/677425/kdc_annual_report_2009_en.pdf> [Accessed 20 June 2010] Kinh Do Corporation Website (2010), [Online] Available from <http://www.kinhdo.vn/ > [Accessed 26 June 2010] Morrison, J (2006). The International Business Environment: Global and Local Marketplaces in a Changing World (2 nd ed), Palgrave Macmilan TNS Global Market Research (2010) [Online] Available from <http://www.tnsglobal.com/> [Accessed 25 June 2010]

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