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

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

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.

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.

http://www.habeco.com.vn/index.php?option=com_content&view=article&id=62&Itemid=79&lang=en

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

http://www.habeco.com.vn/index.php?option=com_content&view=article&id=62&Itemid=79&lang=en

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.

file:///C:/Users/Thuy%20Duong/Desktop/Mekong+-+Mar-08+Habeco+IPO.pdf

http://en.wikipedia.org/wiki/Competitive_advantage

IV.

Porters five forces:

The concept was developed by

Michael

Porter.

It

provides

competitive strategies to maintain

or increase business profitability.

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 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 120,000130,000 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.
8

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:

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 <65%). However, beer is not so essential goods, so
manufacturers are hard to press exclusively on the consumer; businesses are still pretty fierce
competition and no exclusive expression.
Since the integration and opening period (1991), foreign investment in Vietnam was
strengthened. Many world-famous beer brands from Belgium, Germany, USA, Mexico,
Netherlands, Russia, Czech... has come to the market such as Heineken, Fosters, Tiger,
Larger, Larue, BGI... End of 2011, Carlsberg Group (Denmark) held 100% equity of Hue
Brewery. Sapporo Brewery Vietnam with a total investment of $75 million (from Japan
contributed 71% and the Vietnam contributes 29%) were also in operation and looking to
develop markets in Vietnam.

10

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.

11

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
12

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,...

13

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.

14

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

Weaknesses

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

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.

15

Opportunities

Threats

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.

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.

VII.

Business strategies:

1. Generic strategies:

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.

16

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.
17

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.

18

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.

19

REFERENCES
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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
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Ask

Will

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<http://www.askwillonline.com/2012/01/understanding-ansoff-matrix.html>
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<http://www.habeco.com.vn/index.php?option=com_content&view=article&id=62&Itemid=
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2014]

<file:///C:/Users/Thuy%20Duong/Desktop/Mekong+-+Mar-08+Habeco+IPO.pdf>
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20

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