Introduction

Initially established as a state enterprise called Southern Coffee-Dairy company shortly after the
American war in 1976, Vinamilk has evolved from two small factories left by the Pre-war regime to
become Vietnamese biggest producer of dairy products with a dominant market share of 75 percent.
Having gone through major changes for more than three decades in organisational structure,
management, mergers and transformation into a JSC (Joint stock Company) in 2003, the firm has
been enjoying massive profit growth recently and decided to step outside the border. The first foreign
factory is being built in Cambodia as part of Vinamilks global expansion plan, which is expected to
help doubling the annual revenue from $1.5 million in 2012 to $3 million in 2017 (Bloomberg, 2013).
Such goal is not unrealistic as the figure has already nearly tripled since 2009. Should this 2007 target
be successfully acquired, the firm will be one of the biggest 50 dairy producers in the world. This
paper seeks to examine Vinamilks business environment, their management system and offer
recommendations on how the situation can be improved by employing relevant management theories
and frameworks.

1. Druckers 7 Tasks of Tomorrows Manager

Often regarded as the management guru, or the business thinker who invented the discipline of
management, Peter Drucker published his very first book called the Practice of Management in 1954,
which has been widely hailed to have laid the foundation for developments of contemporary
management practices more than five decades after. In his work, Drucker succinctly summed up
seven required tasks for a tomorrows manager to fulfil their duties, this section will assess whether
Vinamilk have applied these seven tasks or not.

MBO (Manage By Objectives)

No operating policy has contributed more to Hewlett-Packards success than MBO said Bill
Packard, HP co-founder. The term MBO was coined by none other than Drucker himself, and it might
also be his greatest contribution to the field. The concept has been adopted by several MNEs (Multi
National Enterprise) such as General Motors, Hewlett Packard, IBM, or Sears and significantly
boosted their organisational performance. According to Vinamilks annual report in 2011, MBO main
principles have been thoroughly applied within the organisation. At each level of management, from
top to bottom of the hierarchy, all managers review the organisational objectives and create their own
measurable objectives then share them together. This includes managers at 3 national sales office, 13
factories, 2 logistics divisions and 1 clinic. The management structure is also decentralised, so middle
and junior managers can be empowered to provide the flexibility and responsiveness in decision-
making. Finally, periodic evaluations are carried out by the board of management and inspection
committee to reward individuals accordingly.
 Take more risks over a long time period and take strategic decisions

Since the conversion in to a JSC in 2003, the new board of management has carried out a number of
acquisitions and mergers with local dairy producers, as well as investing in new factories at strategic
locations such as Can Tho to meet the demand of the Mekong Delta region, Nghe An to provide
supply for the Central region, or the first Vietnamese clinic in HCM city dedicated solely for R & D
of dairy products and nutritional studies. Furthermore, the firm had entered a joint venture with
SABMiller Asia, the second biggest lager producer in the world in 2005 to co-develop new beverage
products (Vinamilk, 2011). And finally, as mentioned earlier, Vinamilk also began to seek growth
outside the national borders with the first factory being built in Cambodia, and this is just the
beginning of their 20 years global expansion plan. These findings suggest that Vinamilks managers
are willing to take risks and strategic decisions to meet organisational objectives.

Understand the external environments impact on the organisation and industry

Because the domestic dairy supply can only provide 30 percent of total demand, the firm had also
decided to purchase Miraka, a dairy producer in New Zealand to increase production capacity in 2012.
In the same year, Vinamilk has managed to cut down electricity and water usage at 5.5 percent and
6.9 percent respectively. By the same token, the average amount of wastewater getting treated and
discharged had also been reduced by 3.14 percent. These achievements are outstanding considering
there has been a massive increase in production capacity and sales volume. Besides, various
scholarships and free Vinamilk products have been given out to local communities all over the
country, hand-to-hand to students by all managers. These figures and activities are evidence of
Vinamilks managers having a great understanding of the external environment, and their appropriate
responses to the situation.
 2. Internal and External driving forces

Similar to any other company, Vinamilk decisions are always influenced by the environment they operate in, in their case, Vietnam. A general PEST analysis
is given below to demonstrate the current issues and trends that might affect the company. Then a force field analysis will be conducted for four driving
forces to evaluate the viability of the changes, and suggestions will be given on how to manage these changes.

Political Economic
- Vietnam has relatively weak intellectual property regulations and even - China is the only country that outperform Vietnam in Asia since 2000. As the
Vinamilk have cheap knockoffs. country continues to shift from the agricultural base to manufacturing and
- Agricultural developments are aided by a number of tax-free or reduced tax services, the income per capital is expected to be exponential in the near future,
policies from the Government. This is an opportunity for Vinamilk to invest in especially the middle income population. This indicates the fact that domestic
local projects, helping farmers to improve their life standard and to ensure the demand will rise and there will be a preference for high quality goods (Mckinsey,
firm a stable supply. 2012).
- Milk consumption per person has quadrupled since 2005 and the trend is
predicted to continue moving upward by Vietnamese economists (Vietnam Plus,
2013).

Socio-cultural Technological
- Vietnamese population is nearly 90 million, in which 30.6 percent live in - Technological advancements have created a shift toward bio-degradable or
metropolitan areas and 69.4 percent live in rural areas. Vinamilk needs to recyclable material used for packaging.
consider the latter market segment where distribution channels and pricing - Robots replacing human forces is the new world trend, although only for certain
policy might be challenging, but the size is more than double that of the former. tasks (Agri-View, 2013). Rivals such as TH, Izzi are catching up and replaced
(Princeton University, 2013) their entire milking process by an automated system.
- Vietnamese consumer behaviour is often associated with the foreign is - New dairy processing technologies are being introduced, such as the new Ultra-
superior to domestic mentality. high-temperature processing line that allows pasteurised milk to have virtually no
taste and smell difference to raw milk.
 Set up new factories to meet rising demand

Driving forces Restraining forces

Lack of supply High initial costs
Improve relationship with suppliers Profits do not result instantly
New jobs created
Larger production scale might generate
competitive advantage
Although this is costly and requires a huge up-front investment, the benefits are surely worth
considering as total domestic supply of dairy products can only meet 30 percent of domestic demand,
the rest 70 percent have to be imported. Additionally, economic prosperity means demand will rise
sharply in the near future. A proposed solution is to set up a subsidiary devoted to helping Vietnamese
farmers to increase their product capacity and quality, this is less costly than to invest in new
factories, while also enable the firm to benefit from a better source of supply in the long term.

Buy shares in overseas producers to import their milk, but Vinamilk branded

Driving forces Restraining forces

Consumer preference for foreign products Extremely high initial costs
Short term supply increase Dependency on the company that Vinamilk has
no absolute control because of distance
Instant profit increase Consumers may not discriminate
Again, this is to solve the supply issues and requires big investment, but the 70 percent import market
is absolutely huge, and Vinamilk can easily tap into that by introducing their own branded product
that is imported, by doing so the company will gain brand loyalty of discerning consumers. In this
situation, appropriate advertising is absolutely vital to distinguish the new product to the rivals
offering and Vinamilks existing product line.

Develop new products priced within budget of the rural population

Driving forces Restraining forces

Tens of millions potential new consumers Reduced price without compromising quality is
difficult to achieve
No possible threat from competitors Lack of supply
Uncontested market space Small margins
The biggest issue is that if Vinamilks supply cannot satisfy demand for higher end segments, why
should they bother targeting the lower end? Because this can be considered a blue ocean market
where there is no competition, once the new product is developed it is most likely to be successful and
ready to sell. So there is a huge potential here in the long term, but firstly the firm has to ensure a
stable supply which can be done in parallel with the two solutions proposed above.

Launch new marketing campaign

Driving forces Restraining forces

 Better communication with consumers Lack of experience in marketing
Improved brand image Costs
Excellent products
For decades Vinamilk has been relying on their superior flavour milk to sell, which contains between
70-99 percent of fresh milk instead of wholly pasteurised milk. There is an extremely strict quality
control system, advocated by state-of-the-art machineries, excellent preservation & distribution
infrastructures, and a specialised clinic which no competitor has. However, these strengths have never
been advertised appropriately and the majority of consumers have none awareness of Vinamilk
products to possess such outstanding qualities. This can be best done by hiring a third party with
expertise in marketing and the dairy industry.

3. Vinamilk Strategic Position

This section will critically analyse Vinamilk current Strategic Position in Porters Four generic
strategies, which was firstly published in his book Competitve Advantage: creating & sustaining
superior performance in 1985:

Competitive advantage

Lower cost Differentiation

Competitive
Scope

Broad target 1. Cost leadership 2. Differentiation

Narrow target 3a. Cost Focus 3b. Differentiation Focus

79 percent of Vinamilk revenue comes from fresh milk products, which can be considered to be
generic and there are only 2 variety, chocolate and strawberry flavours. In this market, Vinamilk main
rival for decades has always been Dutch Lady, although there has also been another newcomer
worth mentioning: TH True Milk. As depicted in Appendix A, prices of a 180ml and 1 litre milk
pack vary considerably between the three brands, Vinamilk prices are roughly 20 percent cheaper than
the others and TH has the highest prices out of the bunch. Such pricing policy suggests that Vinamilk
has adopted a cost leadership strategy to achieve competitive advantage. This can be explained by
Vietnamese consumers preference for foreign brands like Dutch Lady, while Vinamilk has been
associated with the image of a state-owned milk factory with outdated technologies and terrible
quality control, despite the fact that in reality Vinamilk probably has the best products on the market.
On a side note, while also being a domestic producer, TH has done an exceptional job of advertising
their products in premium packaging (Tetra Pak), aided by unverified stories such as the purest
quality milk available, or their cows are massaged and listened to music to generate the best drops of
milk. Consumers, especially young children, then unconsciously perceive TH as a high quality brand
and thus their high prices are justified.
 Porter (1985) argued that competitive advantage can only be achieved by following only one strategy,
and failing to choose between cost leadership and differentiation would always result in poor financial
performance. However, while this argument might have been valid 20 years ago, recent empirical
studies in the field suggests that it is not necessary to adopt only one strategy and companies should
be flexible and price their products in their brand portfolio with a simultaneous application of
different generic strategies as they are compatible to each other (Miller & Dess, 1993). For example,
Mercedes have recently developed CLA, a budget model for the first time breached the brands price
threshold below $30,000 in October 2013. The result was sensational as the series has proved to be a
huge success, outselling several luxury models offered by Audi, Cadillac and BMW (Bloomberg,
2013). Vinamilk might want to employ this approach and extend their brand portfolio for different
segments, especially the higher-end market where packaging and marketing have to be invested
heavily.

4.1 Solutions to increase profitability

There are a number of methods and strategies for Vinamilk to maximise their profit and facilitate
growth. The Ansoff Growth Matrix is best used to analyse these strategies that the firm can take on:

Products/services

Existing New
Existing Market penetration New products and services
Markets

New Market Development Diversification

Source: (Ansoff, 1987)

Market penetration

Organic growth is a perfectly viable strategy as domestic supply will most likely not able to meet
demand in the foreseeable future. Consequently, penetrating into the 70 percent market shares by
imported milk is crucial in maintaining profitability. As explained earlier, changes in pricing policies
and launching a major marketing campaign will be sufficient to achieve this goal, as the company
already possesses financial capability and internal competences.
 New products and services

Vinamilk has a wide range of product portfolio, including yoghurt, soya milk, ice cream, or lemon tea.
Their products are perceived by the general public as good for health and being environmental
friendly, the firm can further enhance this brand image by developing new beverages, desserts, or
smoothies with fresh contents while staying away from carbonated drinks. These products should be
labelled with nutritional information and benefits for health to encourage consumers buying healthy
drinks.

Market development

Finding new markets for existing products may also be considered, as Laos and Cambodia currently
have no major brands in the dairy industry and their consumers still buy milk from markets or corner
shops. In the domestic market, Vinamilk can also offer their soft-drinks cinemas, pubs, restaurants
and cafeterias. Decisions to acquire or merge with local dairy producers in the neighbouring countries
should also be taken into account. However, having a stable supply and maintaining quality
consistency should still be their current highest priorities.

Diversification

Recent success in financial performance has provided Vinamilk a good amount of capital to invest,
while diversification into an unfamiliar industry may be risky, it is also potentially high reward. The
current market is becoming more and more competitive and this can be the last resort once Vinamilk
cannot compete with their rivals anymore. It can be best carried out with a strategic alliance,
imaginably certain major global brands such as Unilever or P & G.

Increase staff motivation

Competitive advantage is no longer obtained only by increasing revenue while being able to cut down
costs, nowadays managers have to rely on human resources as an alternative source of creating
competitive advantage, in which staff motivation plays a crucial role. A fair reward system can be
utilised here in order to motivate Vinamilks personnel. A relationship has been established between a
fair reward system and higher work performance, and failing to provide appropriate rewards will
result in adverse mentality of Vinamilk personnel, thus demotivates them greatly. So what is exactly
meant by a fair reward system? Armstrong (2007:4) defined the term as a reward approach that
operates in accordance with the two branches of organisational justice: procedural and distributive. It
involves all aspects of reward as an integrated approach, with the aim of achieving employees
motivation, commitment and engagement.
 Distributive justice

It is concerned with the fairness of remuneration or perks that an employees receive for carrying out
his assigned duties. Adam Equity equation can be applied here to demonstrate this branch of justice:

Source: (Adams, 1965)

According to this theory, an employee usually compare the ratio of his outcomes over his own inputs
with the same ratio of another employee working in the same place, carrying out the same tasks. They
will then judge the difference and experience guilt if they are overpaid, or become demotivated if they
are underpaid.

Procedural justice

This theory entails the perceived fairness of how an employee is treated compared to their peers, this
is particularly important in situations where employees motivation are not affected by negative
outcomes. For example: Mr. Long has just recently received a promotion similar to Mr. Binh did six
months ago with 30 percent pay rise, but this time he was offered only 15 percent because the
company is suffering from financial difficulties. If there was procedural justice, Mr. Long would still
be motivated and work harder to help the company overcome the difficult times, if he felt he had been
treated unfairly, he would be less committed and develop a resentful behaviour towards the company.
 Appendix A

Vinamilk Dutch Lady TH True Milk

180ml pack
Standard Retail
Price

6,000 VND 7,500 VND

7,000 VND
1 Litre Pack
Standard Retail
Price

24,500 VND 28,000 VND

31,500 VND

Source: Prices recorded at an online retailer (Tic.vn, 2013)

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