PESTEL Analyze of Vinamilk

Political factor:

 Vietnam is a country with a stable political institution that facilitate doing business in
Vietnam. Moreover, Vietnam is a peaceful country without war and terrorism.
 The government has many policies to support milk industry for running business. However,
Vietnam is a mixed economy so government stills play the big role in market.
 Vietnam government decrease the foreign trade barrier to attract more investment.
Especially the government have more tax policy to support the milk industry. According
to the Law, milk and almost kind of produce from agricultural or heath for social have just
paid 8% tax. (Runaway)
 Government promulgated preferential policies
o Decree 3399 / QD-BCT: Approving the planning for development of Vietnam's
dairy processing industry until 2020, with a vision to 2025 (Phan Tich PEST cua
cong ty Vinamilk, 2011).
 Vietnam is a member of WTO so they must compete foreign companies but they can attract
more investments.

Economic Factor

 High inflation rate, the value of VND continues to fall slightly cause for the cost of
production will increase.
  Average annual inflation is expected to be around 7.5% at the end of 2013, lower than the
previous forecast due to lower domestic demand than forecast. In 2014, inflation will
increase to 8.2%
 The Vietnam’s GDP trend increased day, it is a great opportunity for business.
 Vietnam is member of WTO so that the company will have the chance to attract more
investment from abroad, however, this is a big pressure for local compete with foreign
competitors.
 The income of people and life quality go up means that the demand to spend money in milk
products is high, especially organic products.

Social factor

 Level of education
o Perceive about milk’s benefits
o Parents concern about their children’s health and try to buy milk
 People's living standards are increasing.
 Up to improve health and beauty increasing.
 However, there are still many people (more than 80%) who are living in the rural area do
not have habit of drinking milk. Milk consumption per capital in Vietnam quite low and
percentage of malnourish children still high (Dung, 2017).

Technology factor

 Vinamilk is the only company in Asian which has automatic milking system G.A.P
certification. (Dung, 2017)
 Rapid high temperature sterilization technology.
 Technology of milk powder cans.
 New modern equipment in the field of product packaging diversification
 Quality management technology product quality management according to ISO (Phan Tich
PEST cua cong ty Vinamilk, 2011)

Environment factor
  Natural environment: the tropical monsoon climate is a challenge for dairy farm (Cows
produce milk most in the temperature range of 5-21oC)
 Frequent flood disaster
 Environment issues: pollutions from dairy farm create problems.

Legal factor:

 Vinamilk must ensure the production, which are safety and health for customer by using
modern system. Company should follow the rule of food safety.
 Vietnam has many different tax rates so it will make difficult for any company. It also
effects on the price decision of company.

PESTEL of TH True Milk

Political, Economic, Social Factors, and Legal factors are the same between Vinamilk and
TH True Milk.

Technology factor:

 In the future, milk production technology will be constantly updated

 We can see that Tetra Pak Group continuously builds milk factories with more and more
modern equipment.

Environment factor

 Nghia Dan (Nghe An): has a harsh climate, affected by the hot and dry West (Lao Wind),
so it often drought (May-July), the temperature can exceed 40oC and the humidity is below
30 %. Less affected by storms, but often heavy rains and floods.
 TH True Milk has a large hill of grass material used to feed dairy cows, irrigated with So
River water, and fertilized from organic fertilizer
FIVE FORCES of Vinamilk

Threat of new entrant:

For Vinamilk in particular and the dairy industry in general:

• Industry attractiveness: profitability of dairy producers is quite high and the market has great
potential.

• Barriers to entry: Technical factors as well as capital and distribution are considered not too
difficult, so barriers to entry are relatively low.

• In 2006, Vietnam officially joined the WTO.

=> The challenge of potential competitors in the future for Vinamilk is huge

Rivalry among existing firms:

Vinamilk ranked No. 2 on Vietnam's stock market after 10 years of equitization. At present,
Vinamilk has about 53% market share of liquid milk industry, 84% yogurt part and 80% part
condensed milk. Vinamilk also has a wide distribution network throughout Vietnam, Vinamilk’s
products are more than 212,000 retail points, 100 stores introducing the company's products, and
650 supermarkets across the country. Not only growing in the domestic market, Vinamlik is
constantly developing the export market. Currently, Vinamilk has exported its products to more
than 31 countries and territories in the world with an annual export turnover of more than US $
200 million. Main export markets are Middle East and Asia. Vinamilk is continuously seeking and
expanding markets to Europe, Africa and South America. Export revenue accounts for 8% -24%
of Vinamlik's total consolidated revenue. The average growth rate of exports is 17%, year in the
past 10 years. Main export products are powdered milk and condensed milk

Bargaining Power of Buyers:

VietNam:

Vinamilk is the leading enterprise in Vietnam in manufacturing milk and milk products. Currently,
Vinamilk accounts for about 40% of the national market. Currently, the company has over 240
distributors on the Vinamilk product distribution system and has over 300,000 sales points
nationwide. Sales through all supermarkets across the country. Vinamilk focused business
performance mainly in Vietnam market, which accounted for about 80% of revenue in the last
three financial years.

=> Therefore, Customer negotiating power is relatively low.

Vinamilk also exports products outside Vietnam to countries such as Australia, Cambodia, Iraq,
Kuwait, The Maldives, The Philippines, Suriname, UAE and USA. Classification of major markets
by region is as follows:

Vinamilk is not a big brand in the export market, so in order to penetrate into export markets;
Vinamilk is only able to participate in the distribution system of large distributors and under
competitive pressure from customers. This, together with the fastidious and demanding of foreign
markets, is also a great pressure for Vinamilk.

Bargaining Power of Suppliers:

Establishing a long-term and sustainable development target for major domestic and foreign
strategic suppliers is the main goal of Vinamilk to ensure the supply of raw materials. Stable in
high quality but also at very competitive prices. Dairy farms are very important strategic partners
of Vinamilk in providing consumers with the best products. Milk purchased from farms must
always meet the quality standards that have been signed between Vinamilk and domestic dairy
farms, thanks to Vinamilk's support as well as capital and technical spending for this supplier..
Because most of Vinamilk's raw materials are imported, Vinamilk is highly dependent on
enormous pressure from competitive suppliers. In recent years, the increasing price of raw
materials has also been the cause of increasing production costs of Vinamilk.

Threats of substitute product:

Replacement products and services are products and services that can satisfy the same
needs as the products and services in the industry. Due to many reasons, many customers cannot
use the products from milk. Therefore, the introduction of milk substitutes is an objective thing in
society. The strong growth of science has helped us to create more effective milk substitutes

• Some of the repair substitutes can be listed as milk made from cereals such as soy, rice, sticky
rice, corn ... However; because milk is a specific, essential and important product for humans,
(science has also proven that milk is an essential supplement. full nutrition on human needs)

=> The pressure from substitutes on dairy products of Vinamilk is not much, but Vinamilk should
also strengthen research to make its milk products possible in order to meet the needs of customers.

FIVE FORCES MODEL OF TH TRUEMILK

Warrant Buffet, the most successful investor of the 20th century, mentioned his idea of a
company’s moat in the talk about investing. The moat is a simple way of describing a company’s
competitive advantages. Company with a strong competitive advantage has large moats and
therefore higher profit margins. One of his methodologies called the Porter’s Five Forces Analysis.
Any business, including TH True Milk needs to find out its X- factor that makes a difference with
other competitors. It can be said that enterprises often use this model to analyze whether they
should join in one market or run the business in other market. In the case of TH True Milk, its staff
determines that dairy market is a fierce competition, therefore, before making a decision to
compete against strong rivals, TH True Milk needs to make sure that the company is owning a X-
factor which helps the TH Group become a winner. And this model will give a hand to discover
it.

a. Competition from rival sellers (the strongest force)

 ● Current status of the competitors
Vietnam’s milk market share recently is approximately 3 million with the well-known milk
label such as: Vinamilk, Ba Vi Milk, etc. The largest market share is Vinamilk with the highest
market segments. However, the suppliers of Vinamilk only meet 25% of production (from cattle
farms to purchasing of households). Vinamilk is still trying to maintain and increase their market
share.

● Barrier to industry
For the dairy industry, the initial capital required a lot. In order to have 10 cows, the capital
is necessary. Furthermore, the cost invests on systems and machines are required. Cattle raising
also requires good cooling system, proper housing, automatic milking. The machines are very
complicated to switch on. All of factors have created a big barrier in capital.

● Brand identify
Not only the new business but also existing enterprises are facing with this problem. It can
be easily seen that the dairy market in Vietnam is dominated by familiar brands such as Vinamilk,
Dutch Lady, Nestle, etc. All of them have become usual in daily life for a long time. This is one
of the main pressures on other firms trying to get market share with the present brands.

● Switching cost:
It has not switching costs of products in the consumer virtually or there is not significant
low cost that a consumer can fully convert medical products that application. If this situation
happens, the pressure of competition between firms would go up.

● Industry growth:
Dairy industry is one of the industries with good growth when consumer demand is rising
dramatically. It should be noted that characterizes of the dairy industry growth rate not only are
stability and high profits, but also requires a relatively market share due to competitive pressure
measurement is quite a big deal. A fight between the company’s market shares to compete always
maintains the growth’s speed with develop of industry.

b. Competition from potential new entrants.

 Investing in the dairy industry requires a lot of money for breeding animals, cooling
systems, breeding facilities, milking systems and automatic milk processing. While TH True Milk
wants to reach consumers with dairy products raised and care for in Vietnam, the higher the capital
requirement.

In addition, distribution channels and brand identity are also a big barrier for later startups.
However, as the business goes after TH True Milk has many advantages in choosing the direction,
segment itself to reach the market. It turns out that they have become potential adversaries of the
old brands, and they are determined to invest more heavily in the TH True Milk segment to remove
TH True Milk from the game.

c. Competition from producers of substitute products.

Although clearly defined market segments, TH True Milk also need to be careful before
these products can substitute for their product line, such as:

● Drinking yogurt
● Cheese
● Soy milk
● Butter and cream
● Other nutritional foods.

All kinds of substitutes make the competitive pressure coming from alternative products is
quite large. Recently due to the world dairy market price fluctuations and continuously Vietnamese
dairy industry relies heavily on foreign sources of supply to domestic market are also affected,
dairy product prices tend to increase to shield consumers tend to search for alternative nutritional
products as well as transfer to other consumer items in the country. Elements can be seen in all the
large influence consumer decisions.

d. Supplier bargaining power.

For the dairy market in Vietnam, the input source of materials mainly depends on imported
raw materials from foreign capital accounted for more than 70% of input materials for the dairy
industry (as reported of Habubank 2010). For source materials within country, mainly provided by
dairy farmers to scale breeding households are lack of professionalism. However, the current trend
scale dairy farming is gradually shifted to the farm model for businesses to begin backwards
vertical integration. Thus, TH True Milk with supply mainly from investment projects worth 1.2
billion U.S dollar on dairy farming system in Nghe An province in closed process, according to
the model adopted number of farms with around 22,000 cows, with modern technology, animal
husbandry, food processing power.

e. Customer bargaining power.

● Retail customers
The direct consumers potentially could cause a huge pressure for the company’s product
quality. Currently dairy products are various and can be substituted for each other. Companies
must compete with each other in quality and diversity of products and powerful brand and then
compete on price.

● Quality
Considering the quality of the products currently on the market, Vinamilk or Dutch Lady
brands are appreciated for the quality of products, but milk brand TH True Milk is one of the
competition heavy weights with product line fresh milk from dairy cows raised in Nghe An milk
without using imported milk powder.

● Price
About price, TH True Milk price is not available for rivals in the market, about 6% higher
compared with the same products of Vinamilk. If considering the price, TH True Milk is higher
than other milk brands in spite of product quality have been recognized but higher rates of main
competitors need to care about TH True Milk because consumers could switch to consumption of
alternative products.

References
Dung, P. (2017). PESTEL Analysis_Case study of Vinamilk. Retrieved from
https://prezi.com/jhn9gcoy39ci/pestel-analysis-case-study-of-vinamilk/
Phan Tich PEST cua cong ty Vinamilk. (2011). Quan Tri Marketing. Retrieved from
http://webcache.googleusercontent.com/search?q=cache:http://quantrimarketing4.blogspot.co
m/2011/04/phan-tich-pest-cua-cty-vinamilk.html

Runaway, S. (n.d.). The PESTEL Analysis of Vinamilk. Retrieved from

https://fr.scribd.com/document/220025705/%C4%90a-S%E1%BB%ADa-the-PESTEL-Analysis-of-
Vinamilk