TUTORIAL 1: ENVIRONMENT ANALYSIS

In this report, the Vinamilk corporation is the main subject of our group research. Vinamilk has
been a great dairy related product corporation in Vietnam for more than 40 years and with its
extraordinary reputation as well as high value, Vinamilk is considered as the top model business
in the food and beverage industry of Vietnam.

OVERVIEW OF VINAMILK COMPANY

Development history

Vietnam Dairy Products Joint Stock Company or Vinamilk is originally a company in Vietnam
which engages in manufacturing and distribution ò liquid milk and dairy products.

Headquarter

Founded in 1976, Vinamilk is the largest dairy company in Vietnam and sets up its headquarter
in Ho Chi Minh City, Vietnam.

Vision

Vinamilk aims to be a world’s leading brand in food and beverage industry while ensuring
nutrient and health as well as promoting trust in their products.

Mission

Vinamilk desires to enrich people’s lives with valuable nutrition in a way of respect, love and
responsibility.

Core Values

Vinamilk has always been following its core values in some very first days which are:

● Integrity:​ Comports ourselves with dignity and honest in every transactions.

● Respect: Establishes a sense of self-respect, respects our colleagues and our company
and always cooperate respectfully.
 ● Fairness: Maintains an unbiased behavior among the employees, consumers, suppliers
and other related individuals or organisations.
● Ethic:​ Follows the moral principles.
● Abidance: ​Obeys the law, the code of ethics and conduct, the policies and the
company’s regulations.

Influence

Vinamilk continues to influence the industry from holding the largest market share of liquid milk
(up to 50% in 2017), yoghurt (80%), condensed milk (80%) and 40% for powdered milk. In the
fresh milk segment, Vinamilk Corporation currently occupies 50% market share nationwide
(Vietnamnet, 2018)

Products

Vinamilk developed a wide range of products, which varies from liquid milk, yogurt, powdered
milk, infant cereals, special nutrition products for adults, condensed milk, beverages, ice cream,
cheese to soy milk.

MARKETING ENVIRONMENT ANALYSIS

Every businesses exists and operates not only on its own but also in an environment. Therefore,
in the process of analyzing Vinamilk corporation, the marketing environment has to be taken into
account. Marketing environment is a set of elements that influence the company marketing’s
performance, especially its relationship with customers as well as potential target market. Based
on the framework 3.1, marketing environment will be assessed in the prospect of 2 categories:
micro environment and macro environment.
 Framework 3.1 (Kerin & Hartley, 2019)

MICRO ENVIRONMENT

Micro environment is the internal and external forces that are closed to the organization and
affect its performance and decision making process. The following analysis will assess 3 micro
environment elements: the organization itself, the competitors and suppliers.

Organisation

In an organization, the corporate governance apparatus is a collective of managers in the

enterprise divided into many divisions and arranged according to each level to perform the
functions of corporate governance. The corporate governance apparatus is a set of brain of each
business is composed of administrative levels and administrative parts.
Figure 1.1 - Organisation structure of Vinamilk Company ( Vinamilk )
Currently, the structure of Vietnam Dairy Products Joint Stock Company (Vinamilk) includes:
General Meeting of Shareholders which is the highest authority of Vietnam Dairy Products Joint
Stock Company. The General Meeting of Shareholders has rights and duties through
development orientation, decision of production and business plans and tasks; decision to amend
and supplement the charter capital of the Company; elect, dismiss members of the Board of
Directors, Supervisory Board; and decide to reorganize, dissolve the Company and other rights
and duties in accordance with the Charter of the Company.

Under the General Meeting of Shareholders is the Board of Directors, which is the highest
management organization of Vinamilk Company. The Board of Directors includes one Chairman
of the Board ( Mrs Lê Thị Băng Tâm ) and four members with a term of five years elected by the
General Meeting of Shareholders. The Board of Directors on behalf of the Company decides all
issues related to the purpose and interests of the Company, except for matters under the authority
of the General Meeting of Shareholders. The Board of Directors is responsible for supervising
the operations of the Director and other managers in the Company. Rights and obligations of the
Board of Directors are stipulated by the Law, the Company's Charter and the Resolution of the
General Meeting of Shareholders.

The third important position in the company is the Chief Executive Officer ( CEO ), undertaken
by Ms. Mai Kieu Lien who is the daily manager of Vietnam Dairy Products Joint Stock
Company (Vinamilk), under the supervision of the Board of Directors and responsible to the
Board and the legal council for implementing the rights and duties assigned. Moreover, behind
Mrs. Lien are other departments and positions that always work very effectively such as
marketing director, finance director and Research and Development ( R&D ) departments, but
marketing department has brought very high efficiency for the company. There are evidences for
this idea that the growth rate is getting higher, the percentage of market share is growing, the
revenue is growing strongly, this is the achievement that Vinamilk has achieved during the
period of operation. In order to do good marketing, marketing management must also work
closely with other units of the company. As the finance department is always interested in capital
to use the capital needed to implement the marketing plan. R&D department studies the quality
product lines and effective production methods. The operation of all these departments, whether
this or that, affects the marketing plan and activities. In addition, Vinamilk employees enjoy a lot
of benefits from the policies set by the company for employees to ensure their health and
well-being while working. Not only that, the company annually organizes outdoor training
courses to increase solidarity as well as refresh to work more effectively.

Competitors

In 2016, Vinamilk accounted for nearly half of Vietnam's milk market share with 49%. Imported
milk from firms such as Nestle, Frieslandcampina accounted for 20% market share with major
product was powdered milk. Left 30% market share belonged to smaller scale dairy companies
such as Nutifood, Moc Chau Milk, IDP,..etc. Currently domestic dairy producers are under
pressure of increasing competition due to the reduction of tariffs on imported milk under the
reduction policy of Vietnam when implementing CEPT / AFTA commitments of the region
ASEAN and its commitment to the World Trade Organization (WTO). AFTA of Vietnam in the
past time will also be analysed in detail according to three areas for the sectors in charge: Field
of tariff reduction, areas that eliminate quantitative restrictions (Qrs) and other non-tariff barriers
(NTBs), field of customs cooperation. With the functions of CEPT / AFTA, Vinamilk is more
and more easy to penetrate the ASEAN market when countries in the region remove quantitative
restrictions (Qrs) and other non-tariff barriers (NTBs). Not only that, CEPT / AFTA also helps
Vinamilk save a cost in importing raw materials, this is also the competition of other companies
because CEPT is only applied to a number of items and depending on which sectors the index be
reduced high or low.
 Figure 1.2 - Vietnam’s milk market share in 2016. (Stoxplus, 2016)

Almost the liquid milk market segment is held by domestic companies, particularly, Vinamilk
alone accounts for 53% of the liquid milk market. The liquid milk market is considered a
potential market for future growth and this is also an attractive market. Especially, Vinamilk's
biggest competitors in liquid milk industry are TH True Milk, Frieslandcampina and IDP.

In general, the dairy industry in Vietnam has a high profitability level, so the competition
between domestic and international companies is very high. But with abundant capital, modern
machinery, good relationships with suppliers and it is important to have customers' trust did not
make Vinamilk difficult and turned Vinamilk into a leading dairy brand in Vietnam. Including
abundant capital, which is considered a big barrier for competitors when there are 10 farms and
12 processing factories scattered in the provinces, including the charter capital reached 1.8
billion. To achieve product quality standards, Vinamilk has invested heavily in modern
machinery, built a complete production process, and Vinamilk also cooperated with farmers to
create more milk and partly improve their lives. Although most raw materials are imported from
abroad, thanks to policies, relations between Vinamilk and suppliers are very tight. Thanks to the
long-standing appearance, Vinamilk is no longer a strange name for Vietnamese people,
Vinamilk has a place in the minds of customers - a quality product with stable prices. But it
cannot be acknowledged that more and more milk substitutes are available today such as high
quality foods, vegetable and cereal drinks, including indirect competitive products such as soft
drinks, coffee and tea are also rivals with dairy products. However, in the future, the revenue of
the dairy industry will continue to increase, but does not mean the competitive pressure will
decrease, so the dairy industry must continue to improve to suit consumers.

Supplier

A good supplier is a combination of time, quality and price. This means the suppliers must
provide the material on time, in the best condition with reasonable price. The lack of any
characteristic would not be considered as a good supplier.
 Figure 1.3 - Liquid milk productitvity of Vietnam in 2017.

Recently, Vinamilk is having some problems with its supply chain whose two main sources of
importing cows are New Zealand and Australia. According to Viet Nam Dairy Association
(VDA), Vinamilk only met nearly one third of the market demand in 2017; while Vinamilk
produced 773,4 million liters, the need in domestic market wass 2.484,04 million liters.
Specifically, the average liter of milk demand of Vietnamese was only 26 liter per person per
year and it was predicted that the milk demand of domestic market would probably increase in
the next few years because in other Asian countries, the milk consumed figures were
considerably higher . In order to address this problem, Vinamilk should apply several measures
such as importing more cows that has higher productivity and establishing relationship with
domestic farmers that would diversify the sources of supplier.

Also, these two main suppliers have high bargaining power on Vinamilk because New Zealand
and Australia have good reputation on their milk cow farms. Consequently, they have a wide
range of both domestic and foreign customers while Vinamilk relies too much on its two main
suppliers. It is urgent for Vinamilk to differentiate the suppliers in order to have better sources of
cows in both price and quality terms if their target is to become an independent organization in
the future.

Customer

Clients are subject who not only are the key to enterprises’ sales but also create the market.
Therefore, enterprises have to carry out analysis carefully on these clients. There are many kinds
of clients but can be classified as ​5 main types​ below:

*End-user:​ Individuals or households who consume the products ultimately.

*Business: Organizations which consume the products to serve its manufactured process or to
run its operation.

*Intermediate marketing: Organizations or individuals who buy the products then re-sale it to
gain profit.

*Government and not-for-profit organization: Organizations which consume the products for
public purposes or provide it to people who are in need with social aims.

*International customer: Anyone who buy the products which are exported oversea for
different purposes.

Enterprises are put under an intense pressure from customers and intermediate
marketing:

Bargaining power: As not only Vinamilk but also many other company such as TH True milk or
Dutch Lady...are running in the same field of dairy industry, customers have a particular power
to bargain, to choose their favorite supplier. If the list of optional supplier is short, this power is
small.

Substitution effect: As the product is not exclusive, there are many alternative product which can
shift the customers’ choice away from the company’s product. This somehow requires the
company to differentiate their product continuously.
MACRO ENVIRONMENT

Macro environment is a larger scale societal forces that can affect, pose threats or shape
opportunities to the business. Generally, company has no control over the macro environment
but it must learn to adapt with that constant changing macro environment in order to develop a
well-aligned marketing strategy. Macro environment includes political conditions, economic
forces, social forces and technology.

Political conditions

Marketing decision making process is intensively influenced by political and lawful

environment. This kind of environment is created by administrative body, powerful
organizations, law system. These forces adjust the company’s action, ensure that the company is
running legally.

Political and lawful forces have 3 main functions:

● To guard the business’ interests during cooperation

● To protect the consumers’ right from being deceived by illegal companies
● To protect the society from negative effects of the operating companies

The current import tariff of up to 10% and an additional value added tax (VAT) rate of 10% are
the main reasons to drive up the prices of general milk products (Tu,H. 2012).To mitigate the
negative impact of high prices on both producers and consumers, Vietnam authorities have set an
ambitious target to increase domestic milk production to 1 million tons by 2020 (Minh Chau,
2011). Dairy companies, including Vinamilk, could benefit enormously from this government
movement as it would help reduce their operating costs.

Economic forces 

The economic environment plays an important role in the development of one company and
affects its strategies, including marketing. Major economic factors that can be analyzed to refer
the purchasing power and consumption structure are the general economic growth rate, economic
inflation rate.
For  the  last  five  years,  Vietnam  GDP  rate  fluctuates  around  6  to  nearly  8%  (Figure  1.4).  The 
Gross  Domestic  Product  per  capita  in  Vietnam  was  at  1834.65  US  dollars  in  2017  (The  World 
Bank).  In  general,  Vietnam  economy  is  growing  quite  well  and  it  is  among  the  10 
fastest-growing  economies.  This  can  be  interpreted  as  Vietnamese  people  income  is  increasing, 
which also means they are more willing to buy more or pay more for a better product.  

Vietnam  annual  inflation  rate,  recorded  in  February  2019,  was  0.08%  higher  than  the  previous 
month,  which  was  2.56%.  Meanwhile,  food-related  goods  saw  a  more  significant  rose  in  prices 
(7.08  percent  vs  6.6  percent).  This  rate,  however,  is  forecasted  to  decrease  from  2019  onward 
(Figure  1.5).  Although  the  annual  inflation  rate  is  quite  good,  the  increase  in  the  price  of 
materials  as  well  as  ingredients  to  produce  food  -  drink  related  goods  will  be  a  concern  for  the 
milk industry. 

In  conclusion,  with  the  overall  good  economy  where  people  are  willing  to  buy  more  and  pay 
more  for  products  and  goods,  especially  products  related  to  nutrition  and  health  like  those  of 
Vinamilk,  Vietnam  is  still  a  good  and  prosper market for Vinamilk. However, it is also expected 
that  the  inflation  rate  for  ingredients  in  for  food  and  beverage  related  will  continue  to  rise. This 
can  have  the  negative  effect  on  the  producing process of Vinamilk, its supply partners as well as 
future pricing of the end-products. 
 Figure 1.4 - Vietnam GDP growth rate from 2010 to 2018. (Tradingeconomics) 

Figure 1.5 – Forecast of Vietnam GDP growth rate. (​Tradingeconomics)

Social Forces 

Demographic 

As  estimated  in  2019,  the  current  population  of  Vietnam  is  over  97  million  (The  World  Bank). 
Considering  the  area  of  just  over  300.000  km​2​,  Vietnam  is  considered  as  a  quite  populous 
country  and  a  large  potential  consumer  markets  for  various  industries  as  well  as  a  large  labor 
market. 

There  are  two  main  trends  currently  going  on  with  Vietnam  population.  First,  refer  from  figure 
1.6  and  1.7,  Vietnam  population  is  growing  over  the  years.  However, this growth is gradual and 
quite  stable  in  the  last  few  years.  In  2017,  Vietnam  is  in  top  of  low  fertility  countries.  This 
pattern  is  seemed  to  continue  for  many  more  years  and  is  a  significant  concern  for  the  milk 
industry in general. 

Another  trend,  as  observed  in  figure  1.8,  the  population  of  Vietnam  is growing old. In 2010, the 
population below 10 years old is at 15,7 % while the population above 60 is at 8.9%. In 2018, the 
population  below  10  years  old increase only 1% meanwhile the population above 60 has reached 
9.5%.  The  growing  of  old  population  foresees  a  shift  in  milk  industry  in  the  future:  focusing 
more on the potential customers of the elderly. 

These  two  trends  eventually  point  out  one  significant  pattern:  Vietnam  total  population by child 
is  decreasing  and  the  elder  population  is  increasing.  Vinamilk,  for  the  past  few  years  as  well  as 
currently,  mainly  focus  on  the  market  of  consumers  as  children.  However,  as  seen  by  future 
trend,  the  children  consumers will be very small and crowded, especially when there are and will 
be  more  dairy  companies  enter  this  market.  Therefore,  this  future  change  in  Vietnam 
demographic  will  definitely  have  great  impact  on  Vinamilk  if  it  continues  to  just  centralize  its 
products  around  its  current  target  market  of  children  consumers.  On  the  other  hand,  elder 
consumers  can  be  a  great  potential  market  for  Vinamilk  and  with  its  strengths,  experiences  in 
dairy products, Vinamilk can definitely gain a large share to compensate its future lost if there is.  

Figure 1.6 – Vietnam population from 1950 to 2019. (United Nations Department of Economic
and Social Affairs)
  

Figure 1.7 – Vietnam yearly population growth rate (%). ​(United Nations Department of
Economic and Social Affairs) 

Figure 1.8 - Vietnam population pyramid in the year 2010 and 2018. 
Culture 

One  of  the  most  significant  change  in  the  world  over  the  years  is  the  change  in  roles  of woman 
and  man  in  market  place.  Vietnam  is  no  different.  Around  72  percent  of  Vietnamese  women 
have  joined  the  workforce,  bringing  the  country to the group of nations with highest percentages 
of  women  in  the  labor  pool.  And  with  women  become  busier,  it is expected that liquid milk box 
or  fresh  milk  become  more  popular  due  to  their  convenience.  In  recent  years,  Vinamilk  have 
acknowledged that and invested more in that sector of milk. 

Technology

Vinamilk is facilitated with advanced machines, factories and techniques. Specifically, Vinamilk
has an automation Tetra Plant Master system that connects and synchronizes the procedure from
the first to the last step, so that the manager would be able to control the producing activities and
frequently check the quality of products. Additionally, Vinamilk has upgraded the inventory
management Waman system recently that links the producing plans with the quantity of the
ingredient needed and finally control the quantity of products. Also, this company applied the
latest innovation in raising cows. Each cow would be implanted with a microchip and daily
checked the health conditions. Environmental problems are also in the concerns of Vinamilk
when it organized the biological water waste treatment system. After this process, all the water
waste would be reused to water the crop. It can be said that Vinamilk has been putting a great
effort in applying the latest technology in every process of production. In other words, improved
technology has affected Vinamilk in the business growth positively.

References:

General Statistic Office of Vietnam.

Kerin, R. A., & Hartley, S. W. (2019). Marketing. New York, NY: McGraw-Hill Education.
United Nations Department of Economic and Social Affairs. World Population Prospects -
Population Division. (n.d.). Retrieved from ​https://population.un.org/wpp/
Vietnam GDP Growth Rate. (n.d.). Retrieved from
https://tradingeconomics.com/vietnam/gdp-growth​.
Corporate Governance. Retrieved from
https://www.vinamilk.com.vn/en/mobile/he-thong-quan-tri