Environmental Scanning of Vitasoy - Case Study Example

Vitasoy Name Institution Professor Course Date Environmental Scanning Vietnam which is officially referred to as the Socialist Republic of Vietnam is the easternmost country on Indochina Peninsula. Some of the countries bordering it include China, Laos, Cambodia and Malaysia. When compared to the countries near it, Vietnam seems to be a more probable place for the company to base their operations. A major aspect that makes it a probable place is the high population in the country in that, it is rated as the 14th most populous country globally (Taylor 2013) and it is also the 18th most populous country in Asia. This means that, even though a great number of the people in the country may not take up the brand, a considerable number of them are likely to purchase the products from Vitasoy thus making it profitable in the country as opposed to when the company is operating other countries. Additionally, the soft drink industry in Vietnam seems to be expanding rapidly over the last decades. The expansion in the industry tend to benefit from the higher living standards of the population in Vietnam which results from the rapid economic development due to the open door policy that was implemented in the country. As a matter of fact, Vietnam also seems to be the most probable market based on the fact that it has a very young generation in the country and these groups of individuals are likely to adapt to modern lifestyles and enjoy the economic development that is taking place in the country. This means that the young population is likely to make more purchases of the soft drinks in the country thus making the industry competitive and profitable for the various players (Ireland, Hoskisson & Hitt 2008). The young generation is more likely to make purchases of the soft drink based on the notion that they engage in activities that calls for soft drinks for refreshment. The young population is likely to consume the soft drinks after engaging in sports activities, during their leisure times and also during hiking activities. Additionally, these groups are not that health conscious and they may make purchases even on a daily basis. When viewed on the basis of the various sectors of the economy in the country, the soft drink sector in Vietnam tends to account for a significant proportion of the beverage industry. At the same time it is termed as being the most efficient sectors in Vietnam. Also when viewed on the basis of the largest enterprises, the food and drink sector in Vietnam seems to be doing fine in terms of revenue, average ROA (return on assets) as well as in terms of the average ROE (return on equity) (Chuc n.d). By basing their operations in Vietnam, Vitasoy can benefit in that, it may overtime have a considerable share of the market provided it offers high quality products and advertise their products through the right channels to their target customers. Another aspect that makes Vietnam a probable and the best destination for Vitasoy to base their operation is the One, Belt, One Road policy which has been implemented in china. The policy is a development strategy that was formulated and started by the Chinese government back in 2013. It refers to the New Silk Road Economic Belt that linked Europe through the Central and Western Asia as well as the 21st century Marine Silk Road connection to China and the Southeast Asian countries, Europe and Africa. Based on the fact that Vietnam had close ties with China on matters related to investment and trade, there will be a deepening god the cooperation in terms of infrastructure and other key development projects (Caixin Online 2014). Vietnam will benefit in that there has been a lot of criticism on the policy over time with a great number of people arguing that the policy was poorly voted for and at the same time it was viewed as being an unsustainable idea. This makes the Chinese market less favorable when compared to Vietnam. This means that, based on the fact that the policy is unsustainable, there is a financial black hole in China. This means that the people of china will have a lesser purchasing power of luxury products such as the soft drinks. In respect to these, Vitasoy needs to consider these aspects and base their operations in Vietnam since they are likely to benefit more than when they base their operations in China and other neighboring countries. Competitor analysis In every industry, there are competitors who posses threats to companies. It is therefore crucial for companies to take note of their competitors (Porter 2008). This will go along way into ensuring that they are better placed and positioned in the market for them to defeat them in terms of sales. In Vietnam, there are a number of companies operating in the soft drink industry. The companies are the ones that will pose a great threat to Vitasoy entry into the Vietnam soft drink market. A major company that will pose stiff competition to Vitasoy in Vietnam is Chuong Duong Beverages Joint Stock Company. The company majors on the manufacturing and selling of soft drinks in Vietnam. It offers their consumer’s with carbonated beverages, purified bottled water, aloe Vera drinks and laps. The company will offer stiff competition to Vitasoy since they are a local company and have been around for a considerable number of years. The company was founded back in the year 1952 and over the years they have gained a lot of experience in the industry and thus are likely to perform better than Vitasoy in the soft drink market. Additionally, since the company has been around, it knows the customers better as compared to new entrants. Porter’s five forces model Bargaining power of buyers Powerful customers tend to capture more value and this usually forces the prices down and demand high quality, more and better services and lowers the profitability of the industry (Porter 2008). Buyers are very powerful when they have a negotiating leverage with the companies and thus, they usually put pressure and that there are price reductions. The buyers in the industry are strong and this is based on the fact that there are a great number of firms operating in the soft drink industry and thus the buyers tend to switch easily to others who may be offering their products at better prices. In respect to these, the large volume buyers in the industry are the most powerful ones and these includes the large retail; channels such as the supermarkets and convenience stores among others. Bargaining power of suppliers Powerful suppliers tend to capture more in terms of value for themselves and they achieve these by charging higher prices, limiting the services and quality or at times by shifting cost to the other participants in the industry (Ireland, Hoskisson & Hitt 2008). The bargaining power of suppliers is very low since there are many suppliers in the industry; the required commodities to make the soft drinks are also readily available thus making the producers to have no power in regard pricing hence making the suppliers weak. Threat of New Entrants New entrants in every industry usually bring new capacity as well as the desire to gain a greater market share and this usually puts pressure on the costs and prices (Kvint 2016). In respect to Vietnam, the threat of a new entry can be termed as considerably low. At the same time, Vitasoy would find some difficulties in assisting the distribution channels since the major brands tend to have control of the major distribution channels and also based on the fact that they have low costs, strong business relationships and competitive pricing. Threats of substitutes A substitute tends to perform a similar or same function as the industry product but through different means. The threat of substitution can be termed as either indirect or downstream when the substitute replaces the industry’s product (Kvint 2016). The substitutes in this industry are many and they include products such as coffee, wine, beer, and milk just to mention a few. A great number of the soft drink companies have turned into offering and diversifying the business by offering the substitutes themselves and this is mainly in a bid to curb stiff competition. The threat of substitution is mainly countered by brand equity, advertising and making profits easily available to the immediate consumers. Rivalry among the existing players Based on the fact that there are a great number of players in the industry, rivalry is bound to exist among them (Ireland, Hoskisson & Hitt 2008). The current players in the Vietnam soft drink industry are likely to create challenges. Additionally, it is crucial to note that, the industry is not growing rapidly and this means that it is relatively small making it difficult for new entrants such as Vitasoy to compete with the already existing firms in the industry and these competitors seems to have been in the industry for a considerable amount of time. References Caixin Online 2014, One Belt, One Road, viewed 19 September 2016, http://english.caixin.com/2014-12-10/100761304.html Chuc, N n.d, Soft Drink industry and the economic impact of excise tax on Non-Alcoholic Carbonated soft drink in Vietnam, viewed 19 September 2016, http://36mfjx1a0yt01ki78v3bb46n15gp.wpengine.netdna-cdn.com/wp-content/uploads/2014/07/Appendix-C1-C2-C3-Presentation-Summary-Report-of-CIEMs-Report_ENG1.pdf Ireland, R. D., Hoskisson, R., & Hitt, M 2008, Understanding business strategy: Concepts and cases, Cengage Learning, Boston. Kvint, V 2016, Strategy for the Global Market: Theory and Practical Applications, Routledge, UK. Porter, M 2008, The Five Competitive Forces That Shape Strategy, Harvard Business Review, Harvard. Taylor, K 2013, A History of the Vietnamese, Cambridge University Press, Cambridge. Read More