Developing competitive strategy: A case study of danang brewery company in Vietnam

DEVELOPING COMPETITIVE STRATEGY: A CASE STUDY OF DANANG BREWERY COMPANY IN VIETNAM by Le Thi Kim Oanh A research study submitted in partial fulfillment of the requirement for the Degree of Master of Business Administration. Examination Committee: Dr. Urs Bumbacher (Chairman) Dr. Lalit M. Johri Prof. Dr. Fredric William Swierczek Le Thi Kim Oanh Nationality: Vietnamese Pervious degree: Bachelor of Economics Polytechnic University of Danang City Danang - Vietnam Scholarship Donor: The Government of Switzerland Asian Institute of Technology Bangkok, Thailand April, 1995 ACKNOWLEDGMENTS The author would like to express her sincerest gratitude to her advisor Dr. Urs Bumbacher for his genuine and invaluable guidance, concern, and encouragement all throughout the course of this study. Sincere thanks are also due to Dr. Lalit M. Johri and Prof. Dr. Fredric William Swierczek who in serving as the members of the program committee have given relevant suggestions and comments. Special thanks are due to the top managers and the staff of all the functional departments of Danang Brewery Company for their generous support and help extended during the time of data collection for this study. The author expresses her sincere thanks to the Director and the staff of the Information Center for Science, Technology, and Environment (Department of Science, Technology and Environment of Quangnam Danang province), Chief Manager of the Statistics Department of Danang city, the staff of Planning Division (Industrial Department, Quangnam Danang province), and the staff of the Foreign Trade Department of Quangnam Danang province, for their hearted support in carrying out this study. The author would like to extend her sincere gratitude to the Swiss-AIT-Vietnam Management Development Program, and the Government of Switzerland for the generous support in providing the scholarship and research grants. The author expresses her heartfelt gratitude to all those who, in one way or another, have unselfishly extended their kindly support. Last but not the least, the author greatly expresses her timeless love to her husband Pham Duy Ba, her daughter Pham Hien Le, her parents, and her parents-in-law, for their love, encouragement and patiently bearing throughout her two-year study program at SAV and at AIT. ABSTRACT Danang Brewery Company (DBC) is a local medium-size brewery in Danang city that has dominated solely the beer market in the central region of Vietnam for the last five years. As competition among the brewers is getting fiercer and as it is only a question of time until the larger foreign brewers which have been concentrating their efforts on the two main cities Hanoi and Ho Chi Minh will try to enter regional markets as well, the Danang Brewery is facing the thorny question of how to develop in this competitive environment. Hence, the problem of designing an effective competitive strategy is becoming more and more essential and crucial. This study deals with developing a competitive strategy for Danang Brewery Company. Following the path of the conceptual framework, an exhaustive review of available literature together with a series of individual in-depth interviews were undertaken to gather the needed data for the strategic analysis process. First, by an external analysis that is more emphasized on the analysis of major competitors, the opportunities and threats were identified. Second, through a careful assessment of business activities, the strengths and weaknesses of the DBC's were drawn out. Third, taking the strengths, weaknesses, opportunities, and threats in consideration, a range of alternatives for competitive strategies was developed; and then possible courses of actions were suggested to support an achievement of the company desired performance level. TABLE OF CONTENTS CHAPTER  TITLE  PAGE    Title Page Acknowledgments Abstract Table of Contents List of Figures List of Tables  i ii iii iv vii viii   1  INTRODUCTION 1.1. General ideas 1.2. Statement of the problem 1.3. Objective of the study 1.4. Scope and limitation 1.5. Organization of the study  1 1 2 2 3 4   2  THE APPROACHES TO COMPETITIVE STRATEGY AND BEER INDUSTRY: AN OVERALL VIEW  5    2.1. The nature of corporate strategy 2.1.1. Integrated definition 2.1.2. Hierarchical level of strategy  5 5 7    2.2. Strategic management process  8    2.3. Competitor analysis and competitive strategy for a company 2.3.1. Structural analysis of the competitive environment 2.3.2. Internal analysis  9 11 15    2.4. Beer industry in the world  18    2.4.1. Beer - a familiar product 2.4.2. US beer market 2.4.3. European beer industry 2.4.4. Asian beer market  18 18 19 20   3  RESEARCH METHODOLOGY  24    3.1. Conceptual framework  24    3.2. Data sources  25    3.3. Data collection method  25    3.4. Data analysis  26   4  EXTERNAL ANALYSIS 4.1. Overview of Vietnamese economy 4.1.1. Economic growth 4.1.2. Political and legal factors 4.2. Some economic features of Quangnam Danang province and Danang city 4.3. Beer industry in Vietnam 4.3.1. Overview 4.3.2. Consumption pattern 4.3.3. Competition 4.3.4. New entrance 4.3.5. Substitutes 4.4. Danang beer market 4.4.1. Overview 4.4.2. Breweries in Danang market 4.5. Competitor analysis focusing on the central region 4.5.1. Saigon Brewery Company 4.5.2. Vietnam Brewery Ltd. 4.5.3. BGI-Tiengiang 4.5.4. Hue Brewery Ltd. 4.5.5. Quangngai Brewery Company 4.5.6. Golden Dragon Brewery Ltd. 4.5.7. Local Breweries in Danang city 4.5.8. Summary strengths and weaknesses 4.6. Conclusions on Opportunities and Threats for DBC  28 28 28 31 32 34 34 38 38 41 41 41 41 43 43 44 47 48 49 50 51 52 53 56       5  INTERNAL ANALYSIS  58    5.1. History of Danang Brewery Company 5.2. DBC's mission 5.3. Analysis of company's activities 5.3.1. Beer production at DBC 5.3.2. Products 5.3.3. Product quality 5.3.4. Pricing policy at DBC 5.3.5. DBC's distribution 5.3.6. Packaging and other promotion 5.3.7. Brewing technology 5.3.8. Organization structure and HRM 5.3.9. Finance 5.4. DBC strengths and weaknesses  58 62 62 62 66 67 69 70 72 73 74 77 79   6  STRATEGIC ALTERNATIVES AND A RECOMMENDED STRATEGY  80    6.1. Designing competitive strategy 6.1.1. Market segmentation and DBC's target market 6.1.2. Basic strategic alternatives 6.1.3. Investment strategy 6.1.4. Marketing mix strategy 6.2. A new challenge for DBC's strategists 6.2.1. A dilemma: Competitor or Alliance 6.2.2. DBC's strategy in context of "Going with alliance"  80 80 82 85 86 90 90 91   7  CONCLUSIONS AND RECOMMENDATIONS 7.1. Conclusions 7.2. Recommendations on implementation 7.2.1. Establishing a marketing team 7.2.2. Using Information System 7.2.3. Setting up the criteria for distributors selection and management 7.2.4. Training program on marketing and strategic management for the managers 7.3. Recommendations on the Government's policies related to beer industry 7.3.1. In come tax for state-owned enterprises 7.3.2. Special sales tax on beer product 7.4. Recommendations for further research REFERENCES APPENDICES APPENDIX 1: DBC'S BALANCE SHEET APPENDIX 2: DBC'S INCOME STATEMENT APPENDIX 3: DBC'S PRODUCTION COSTS APPENDIX 4: QUESTIONNAIRES APPENDIX 5: LIST OF BEER BRANDS IN VIETNAMESE MARKET  92 92 93 93 94 95 96 96 96 96 97 98 102 103 109 111 112 116       LIST OF FIGURES FIGURE  TITLE  PAGE   Figure 2.1.  Components of strategic management process  10   Figure 2.2.  A model for structural analysis  13   Figure 2.3.  The impact of entry and exist barriers over industry profitability  14   Figure 2.4.  Analyzing strategic capability  16   Figure 3.1.  Framework for research study  27   Figure 4.1.  GDP during the period 1990 - 1994  29   Figure 4.2.  GDP growth rates from 1991 to 1994  29   Figure 4.3.  Average growth rare in the last five-year plans  30   Figure 4.4.  Inflation in five years 1991 - 1995  30   Figure 4.5.  GDP growth rate of Quangnam Danang province  33   Figure 4.6.  GDP growth rate of Danang city  33   Figure 4.7.  Beer production volume  37   Figure 4.8.  Beer industry growth rate  37   Figure 5.1.  DBC's sales volume  60   Figure 5.2.  DBC's sales revenue  60   Figure 5.3.  Special sales tax and other payable to State budget of DBC  61   Figure 5.4.  DBC's net incomes  61   Figure 5.5.  Brewing process at Danang Brewery Company  63   Figure 5.6.  DBC's beer price  69   Figure 5.7.  Current distribution channels of DBC  70   Figure 5.8.  DBC's organization chart  75   Figure 5.9.  Average salary at DBC  76   Figure 6.1.  Distribution channels proposed for DBC  89       LIST OF TABLES TABLE  TITLE  PAGE   Table 2.1.  Differences between strategic management and operational management  8   Table 2.2.  Product / Market / Distinctive competence choice and generic competitive strategy  17   Table 2.3.  Beer consumption and its growth in some countries  22   Table 2.4.  Worldwide beer production volume  22   Table 2.5.  Beer industry in the world: Summary  23   Table 4.1.  Income distribution of Danang population in 1994  34   Table 4.2.  Foreign investment in Danang city  42   Table 4.3.  Beer production volume of SBC  45   Table 4.4.  Earning of SBC  45   Table 4.5.  Strengths and weaknesses of DBC's competitors  54   Table 4.6.  Opportunities and threats for DBC  57   Table 5.1.  Investment at DBC  64   Table 5.2.  Materials used for brewing  65   Table 5.3.  Results given by testing DBC beer  68   Table 5.4.  Number of employees at DBC  76   Table 5.5.  Financial ratios at DBC  77   Table 5.6.  Strengths and Weakness of DBC  79   Table 6.1.  Forecasted population income distribution in Danang city  82   Table 6.2.  Advantage and disadvantage of major advertising media  87