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Vinamilk's internationali

zation: opportunities
and challenges

With the goal of becoming one of the leading Groups producing


healthy foods and beverage in Vietnam, the company has begun
execution of projects on expanding, developing the healthy
beverage products as well as on re-structuring its production
scale in the South of the country. These two projects are the focus
in the companys strategy for long-term and sustainable
development.

Vinamilk desires to become one of the most favorite brands in every


region and territory. Therefore, we keep in our mind and our heart that
the quality and innovation are always our most important companions.
We act with customer-centered approach and commit to respond to all
their needs.
BUSINESS PHILOSOPHY,
Vinamilk.com.vn

Vinamilk takes up to
50% dairy market

1/INTRODUCTION
Background
Vietnam Dairy Products Joint Stock Company (Vinamilk) is Vietnam's
largest food processor and deals in a wide variety of dairy products, including
milk and yogurt. In 2010, it is the first company in Vietnam to be included in
the Forbes Asia's 200 Best Under A Billion list that highlights 200 topperforming small- and mid-sized companies with annual revenue under US$1
billion. Moreover, in 2013 it also took over leading position in Forbes
VietNams Top 50 Vietnamese Best Listed Companies 2013.
The company was established in 1976 and went public on the Ho Chi Minh
Stock Exchange in 2006. The government holds 45.1% of the shares as of
late 2012. 6% are owned by other Vietnamese investors, of which 0.3% are
owned by CEO Mai Kieu Lien. Foreign investors hold just under 49% of the
shares. (Page 1)

Business activity in 2015


a)Overview
Unit: Billion
VND

2015

2014

Exceeding
target set

35.187

Growth
compared
with 2014
14%

Total
Revenue
Before tax
After tax

40.223
9.367
7.770

7,613
6.068

23%
28%

14%
14%

5%

Vinamilk continues holding the leading position in the dairy market in


Vietnam with its impressive growth rates, i.e. the total revenue increased
14% as compared with those of the year 2014, reaching 105% of the plan,

revenue before tax increased 23% in comparison with that of the year 2014,
realizing 114% of the plan.
b) Research and development

In order to improve its competitive position in the market, the


R&D team has continuously released many innovatively new
products which is in line with consumer needs and the
Vietnamese childs features.
Hnh sn phm trong brochure
C) Raw milk source
Setting up high technology dairy farm so as to supply high quality
raw milk source, gradually meet the need of factory to produce
wide variety of dairy products.
Upgrading and perfecting the purchasing milk system of Vinamilk
In 2015, the number of upgraded milk transfer station was increased to 48
stations out of 91 stations across the country. The upgrading process of the
transfer station will be promptly completed in 2016.
Promotion of technical transfer to dairy farming household
During 2015, Vinamilk has organized 35 training dairy sessions to focus on
"Measures to improve the quality of raw milk." The training course has
attracted a large number of households involved. Technical staff of Vinamilk
also consult directly to thousands of farmers about their concern.
Development of dairy farms
By the end of 2015, Vinamilk has 7 active farms and two farms are under construction, namely
Tuyen Quang, Thanh Hoa, Nghe An, Ha Tinh, Binh Dinh and Lam Dong with the herd of
approximately 15,000 units, including more than 6,500 cows are milked.

D) Operational status of subsidiaries, associates and


branches abroad
Driftwood Dairy Holdings Corporation
On May 12th 2013, Vinamilk officially holds 70% share in Driftwood Dairy Holdings Corporation, one
of the most traditional milk producer and also the market leader in Southern California, USA.
Driftwood has diverse dairy markets, including main products as milk and fruit juices sold in schools
around Southern California. Besides, Driftwood also sell products to the hotel and restaurant
channels, distributors, ... In 2015, its total sales reached 119 million USD , equivalent to more than
2,600 billion, contributing to 6.5% of Vinamilk consolidated revenue.

Angkor Dairy Products Co., Ltd.


On January 6th 2014 contributed 51% capital with foreign partner
to establish Angkor Dairy Products Company Ltd in Cambodia.
The factory currently went into commercial production and sold
sterilized milk and yoghourt on May 10th 2015.
Vinamilk Europe Spstka Z Ograniczona
Odpowiedzialnoscia
On April 27th 2014, the company was set up in Poland.
The main objective of the Company is purchasing raw materials to
supply for Vinamilk and its subsidiaries production. By 2015, the
total export volume of this subsidiary increased to nearly 18
thousand tons of milk powder, with a total revenue of
approximately $ 33 million USD.
Miraka Limited
On August 2011, Miraka officially went into operation. In 2015,
Vinamilk increased its share from 19.3% to 22.81%.
In 2015, Miraka produced more than 32 thousand tons of milk
powder, earned 158 millions NZD , after-tax profit was
approximately 7.5 million NZD. Last December, Miraka also paid
out dividend 684 thousand NZD for Vinamilk.

2/ OVERSEAS EXPANSION
Strong brand identity in domestic market
According to Top 50 Vietnamese brands in 2015 which conducts
by Brand Finance (a brand valuation firm in UK), Vinamilk now is
the most valuable brand in Viet Nam. The total value of 50 largest
brand in Viet Nam was 5.5 billion USD, while only Vinamilk held
1,1 billion USD. Vinamilk brand value was evaluated about 1,137
billion USD while the company was 5.011 billion USD. Therefore,
Vinamilk brand value alone took up to 23% of the total value of
the company. Thanks to sustainable business strategy and

effective marketing campaigns as well as consistent brand


identity system, Vinamilk has built up a vigorous empire in Viet
Nam dairy market. Its high time for Vinamilk to think outside of
Viet Nam after they have already dominated the domestic market.

Positive signals from foreign business


Net revenue from overseas markets rose 14 percent to VND4.4 trillion ($197
million) in the first six months of 2016 from a year ago. The dairy firm has
formed strategic partnerships with Topmost Enterprise in Thailand and
Synchro World in Myanmar. Vinamilk has also launched a Angkor Dairy
Products Company in Cambodia via a joint venture with local company
BPC Trading. These overseas movements actually revealed their ambition in
gaining a strong foothold in Asia market.
_____________________________________________________
3/ SOUTH EAST ASIA -THE PROMISED LAND
Growing Demand for the market

As domestic and foreign interest in China's dairy industry has swelled in


recent years and led to large investments in capacity and efforts to tap the
import market, all eyes are now turning to the next driver of dairy
consumption growth, South East Asia.
ASEAN countries, emerging countries in Asia, do not have a long tradition
of producing milk. The domestic milk production in the ASEAN countries
covers only 5-30% of consumption in South East Asian countries. As a
result, many Asian countries have grown largely dependent on milk powder
imports. Many dairy deficit countries have a governmental policy to expand
their milk production and have ramped up direct support to the sector, via
dairy genetics improving programs.

Asia will remain a large importer of dairy products in the


coming years, as production expansion does not keep up
with robust consumption growth. We see attractive
opportunities to fill the continent's growing dairy products
deficit. More specifically, South East Asia is home to some

of the most interesting trends, as consumption recently


started to bloom, while production growth has limited room
to grow. Milk powder will remain the largest imported
product, but we see other products gaining ground.
However, production expansion will fail to keep up with robust demand
growth. Production in South East Asia (SEA) is hindered by a number of
factors. The natural resources in SEA for making milk are not ideal. For
milk, production optimal conditions are abundance of feed, land, water (it
cost 10-15 liters of water to make 1 liters of milk) and a moderate climate.
The low availability of domestic feed grains and the need to rely on large
imports in SEA usually makes production costs higher than in Oceania or
Europe for example. In SEA, production growth will also be constrained by
stricter government standards aimed at improving milk quality. Although a
number of large dairy projects are coming online, smaller producers are
leaving in large numbers as they are unable to comply with the new
standards.

Meanwhile, consumption of dairy products will record unprecedented


growth over the medium term. The South East Asia region is presents
interesting characteristics supporting growing dairy consumption: high
birth rates and young populations, rising incomes and the emergence of the
middle-class, improving diets, urbanization and country-wide school milk

programs. The boom in convenience and mass retail stores in Asia will also
support access to dairy products and intensive demand.
Benefits from Regional Integration
a) Regional Trade Agreement
Vietnam has become increasingly involved in free trade agreements in
recent years after joining the ASEAN Free Trade Area (AFTA) in 1995. This
has mainly been through its ASEAN membership. Apart from AFTA,
Vietnam is now involved in Regional Comprehensive Economic Partnership
(RCEP), also known as ASEAN + 6 Agreement and the Agreement between
ASEAN and Hong Kong (China).
RTAs have brought many benefits to Vietnamese companies and especially
Vinamilk. Lower tariff and non-tariff trade barriers should increase trade
and enhance consumer choice in new products. In the case of ASEAN, the
immediate "trade creation" effects would mainly reflect the elimination of
administrative barriers as customs checks are removed from internal
borders (since most trade between the member countries was already
subject to zero customs duties). This is a huge advantage for Vinamilk to
promote their brand and bring their product lines toward local customers.
The ASEAN Free Trade Area (AFTA) is a trade bloc agreement set up by the Association of Southeast
Asian Nations to increase their export competitiveness. It was originally signed in 1992 by six countries
Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand and subsequently by Vietnam in
1995, Laos and Myanmar in 1997 and Cambodia in 1999.
AFTA's primary mechanism is the Common Effective Preferential Tariff (CEPT), which caps tariffs for
goods originating within ASEAN to between 0 and 5 per cent. Unlike the European Union, AFTA does not
apply a common external tariff to goods imported from outside the region. ASEAN's vision was to
leverage intra-regional division of labour and specialisation to encourage exports to the rest of the world
by eliminating tariff and non-tariff barriers to movement of goods along the supply chain within the region.

b) First step to expand throughout Asia


Countries within a regional integration area can build cross-border
production chains by leveraging each other's comparative advantages and
subsequently exporting the finished product outside that area. As a matter
of fact, the co-ownership of Angkor Dairy Products Company would be a
strategic movement of Vinamilk in order to develop their business in the
reigon.
Exporting within a South East Asia may serve as a first step towards the
expansion of exports worldwide by initially building export capacity

taking advantage of low tariff and non-tariff barriers within a union, and
then leveraging this capability to achieve competitive advantage in
exporting to other countries. South East Asia would be a perfect stepping
stone for Vinamilk to penetrate new potential market such as China, India,

4/Opportunities and Challenges awaits

Strengths

Weakness

+ Strong brand identity and


enormous market share in
domestic market.

+ Fledgling brand in world


market
+ Weak marketing activities
abroad

+Competitive price, wide variety


of products.

+Dependence on imported
raw material source

+Advanced production line


+Have an insight about Asian
customer behaviors
SWOT

Opportunities
+ Viet Nams participation in
Regional integration and WTO:
tariff reduction on both
imported material source and
products.
+ A high demand for dairy
market in Asian region
+ Potential SEA market

Threats
+ Intense competition with
local companies and
multinational companies.
+ Supply chain inefficiencies