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]