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Feasibility Study for Establishing aLocal Food Distribution
Initiative inHa Noi Capital of Viet NamPrepared by
Kim Ha SeokApril, 2013
Prepared for:Dr.Yeh
Students Contact Information:Kim Ha Seok
ID: F49803135Tel: [email protected]
Executive Summary
The agri-food industry is becoming increasingly competitive and
global. Simultaneously,
changing attitudes toward the environment, health and wellness,
as well as viewing food as anexperience rather than simply
sustenance, are motivating consumers to reconnect with thesource of
the food they choose to consume, in order to verify its
authenticity and overall value.
A result of this trend is consumers increasing interest in local
food. The purpose of this projectwas to assess whether sufficient
industry support exists to establish a sustainable local
andregional food and agri-product distribution initiative (LFDI) in
Ha Noi Capital of Vietnam. Thisincluded examining whether the
preferred approach is formal or informal and, given thedemographics
of the immediate area and surrounding region, market requirements
and supplybase. It also sought to identify attitudinal and cultural
factors that could impact the LFDIs long-term viability.
The objectives of the study included identifying critical
success factors associated withsuccessful LFDIs in Vietnam; and
ways in which successful LFDIs have overcome challengesassociated
with attracting and maintaining a viable target market.
mailto:[email protected]:[email protected]
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B.
Recommendations................................................................................................21
8.1 Recommendation #1: Options for Distributing Local Food (and
Agri-Products)
..............................................................................................................................
22
8.2 Recommendation #2:
Leadership...................................................................22
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I. Introduction
The agri-food industry is becoming increasingly competitive and
global. Simultaneously,changing attitudes toward the environment,
health and wellness, as well as viewing food as anexperience rather
than simply sustenance are influencing consumers purchasing habits.
This isspawning a trend where consumers are seeking to reconnect
with the source of the food they
choose to consume in order to verify its authenticity and
overall value. A result of this trend isconsumers increasing
interest in local and regional food.When businesses possess the
ability to provide target markets with the value propositions
theydesire, as well as the capabilities to continually adapt to a
rapidly changing market, they havethe potential to develop a
sustainable competitive advantage. This project aims to assess
theoperations and processes that need to occur within the Vietnam
areas.
1. Purpose and ObjectivesThe purpose of this project is to
assess the economic viability of establishing a sustainable
localand regional food and agri-product distribution system in the
Vietnam areas, including whetherthe preferred approach is formal or
informal, and what form that distribution centre should takegiven
the demographics of the surrounding region, market requirements,
and supply base.The objectives of the study are, therefore, as
follows:1. Identify critical success factors associated with
successful local and regional food and agri-product distribution
initiatives, both domestic and international;a. Compare how their
location / product / customer base compares to
characteristicsassociated with the Vietnam areas;b. Identify how
successful local and regional distribution systems have
overcomechallenges associated with attracting and maintaining a
viable target market;2. Identify the markets most likely to support
a local and regional food initiative if established inthe Vietnam
areas;3. Identify products that potential target markets are most
likely to purchase from a local foodand agri-product distribution
initiative, and what factors would engender their support;
4. Identify the likelihood of participants along the value chain
to support a local and regionalfood and agri-product initiative in
the Vietnam areas;5. Identify the operational and marketing
arrangements that appear best suited to the potentialcustomer base,
the supply base, and associated products; and,6. Propose a series
of recommendations that can be evaluated through an economic
viabilityassessment.
2. MethodologyThis section outlines the methods used by the
Value Chain Management Centre and GeorgeMorris Centre team to meet
the research objectives and to accomplish the overall purpose
andgoals of the project.The research methodology chosen for this
project takes a Value Chain Analysis (VCA)approach to analyzing
market opportunities and factors that the supply side of the
initiative willneed to address. Specifically, these include
identifying how a regional distribution system mightprovide value
above and beyond that which is provided by the current food and
agri-productsdistribution network in the Vietnam areas. This
process enables findings fromeach step of the research to be
incorporated into the final analysis by identifying what each
levelof the value chain must achieve to make the overall initiative
financially sustainable.The project is comprised by:
Background research
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source: wikipedia
source: wikipedia
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The results establish a pattern of demand interdependencies:
rice is a complement of meat,fish, fruit and sugar; noodles and
fish are complements; meat and fish (and vegetables)
aresubstitutes.
We then use these results to assess the welfare effects of tax
reform. A tax increase has twoeffects, viz., a household cost
effect (households have to pay the tax) and a tax revenue
effect.Following Deaton (1997), we calculate the ratio of these two
effects for each good (tax). Usingthese cost-benefit ratios one can
indicate desired directions of tax (price) reform. It is
alsopossible to calculate the welfare effects that certain
policies, eg. trade reform, will have forparticular groups such as
the poor.
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2.3 Population Demographics
source: wikipedia
The Vietnamese government recognizes 54 ethnic groups, of which
the Viet (Kinh) is thelargest; approximately 88 million people;
according to official Vietnamese figures (1999 census),ethnic
Vietnamese account for 86% of the nation's population. The ethnic
Vietnamese inhabit alittle less than half of Vietnam, while the
ethnic minorities inhabit the majority of Vietnam's land(albeit the
least fertile parts of the country).
https://en.wikipedia.org/wiki/List_of_ethnic_groups_in_Vietnamhttps://en.wikipedia.org/wiki/List_of_ethnic_groups_in_Vietnam
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2.4 LocationHeadquarters will be located at My Dinh, Ha Noi
Capital of Vietnam.My Dinh is acommune(x) in Tu Liem district,
about 10 kilometres (6.2 mi) north-west ofcentral Hanoi, Vietnam.
The area can be described as a middle classsuburb with a
populationthat includes many expatriateteachers who work in the
local schools.
Area(km2) PopulationHanoi 3,344.47 6,232,940
Danang 1,479.1 806,744
HoChiMinh 2,095.01 7,521,138
Sports
Main article: My Dinh National Stadium
The area has grown rapidly ever since the 40,192-seat My Dinh
National Stadium opened in2003. The stadium is home to
Vietnam'snational football teamplaying host to
international friendly matchesas well as Viettel F.C.
(previously known as Th Cng), afootball club founded by the Vietnam
People's Army. The stadium hosted the2003 Southeast
Asian Games and the 2009 Asian Indoor Games.
Education
http://en.wikipedia.org/wiki/Commune-level_subdivisions_(Vietnam)http://en.wikipedia.org/wiki/Commune-level_subdivisions_(Vietnam)http://en.wikipedia.org/wiki/Tu_Liemhttp://en.wikipedia.org/wiki/Hanoihttp://en.wikipedia.org/wiki/Vietnamhttp://en.wikipedia.org/wiki/Vietnamhttp://en.wikipedia.org/wiki/Middle_classhttp://en.wikipedia.org/wiki/Suburbhttp://en.wikipedia.org/wiki/Expatriatehttp://en.wikipedia.org/wiki/My_Dinh_National_Stadiumhttp://en.wikipedia.org/wiki/My_Dinh_National_Stadiumhttp://en.wikipedia.org/wiki/Vietnam_national_football_teamhttp://en.wikipedia.org/wiki/Vietnam_national_football_teamhttp://en.wikipedia.org/wiki/Exhibition_gamehttp://en.wikipedia.org/wiki/Viettel_F.C.http://en.wikipedia.org/wiki/Vietnam_People's_Armyhttp://en.wikipedia.org/wiki/2003_Southeast_Asian_Gameshttp://en.wikipedia.org/wiki/2003_Southeast_Asian_Gameshttp://en.wikipedia.org/wiki/2003_Southeast_Asian_Gameshttp://en.wikipedia.org/wiki/2009_Asian_Indoor_Gameshttp://en.wikipedia.org/wiki/Commune-level_subdivisions_(Vietnam)http://en.wikipedia.org/wiki/Tu_Liemhttp://en.wikipedia.org/wiki/Hanoihttp://en.wikipedia.org/wiki/Vietnamhttp://en.wikipedia.org/wiki/Middle_classhttp://en.wikipedia.org/wiki/Suburbhttp://en.wikipedia.org/wiki/Expatriatehttp://en.wikipedia.org/wiki/My_Dinh_National_Stadiumhttp://en.wikipedia.org/wiki/My_Dinh_National_Stadiumhttp://en.wikipedia.org/wiki/Vietnam_national_football_teamhttp://en.wikipedia.org/wiki/Exhibition_gamehttp://en.wikipedia.org/wiki/Viettel_F.C.http://en.wikipedia.org/wiki/Vietnam_People's_Armyhttp://en.wikipedia.org/wiki/2003_Southeast_Asian_Gameshttp://en.wikipedia.org/wiki/2003_Southeast_Asian_Gameshttp://en.wikipedia.org/wiki/2009_Asian_Indoor_Games
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My Dinh is becoming an education centre of Hanoi. High schools
in the area are The Vietnam-
Australia School, Doan Thi Diem School and Le Quy Don Primary
School. The Vietnam
National University is constructing buildings in the area. My
Dinh was formally home to the
Hanoi-Korean school which has since relocated.
Economy
The Garden Shopping Mall opened in My Dinh in 2010. Star Fitness
opened a gym there in late
2010. APlatinum Cineplex movie complex opened in January 2011.
Crowne Plaza opened a
hotel in the area that will service the nearby stadium and
convention centre.
2.5 Economic conditions
HaNoi: Hanoi has the highest Human
Development Index among the cities in
Vietnam.
According to a recent rankingbyPricewaterhouseCoopers, Hanoi
will be
the fastest growing city in the world in term
of GDP growth from 2008 to 2025.
Industrial production in the city has
experienced a rapid boom since the 1990s,
with average annual growth of 19.1 percent
from 199195, 15.9 percent from 1996
2000, and 20.9 percent during 20012003. In addition to eight
existing industrial parks, Hanoi is building
five new large-scale industrial parks and 16 small- and
medium-sized industrial clusters. The non-state
economic sector is expanding fast, with more than 48,000
businesses currently operating under theEnterprise Law (as of
3/2007).
Trade is another strong sector of the city. In 2003, Hanoi had
2,000 businesses engaged in foreign trade,
having established ties with 161 countries and territories.
Similar to Ho Chi Minh City, Hanoi enjoys a rapidly developing
real estate market. The current most
notable new urban areas are central Trung Hoa Nhan Chinh, My
Dinh, the luxurious zones ofThe
Manorand Ciputra.
Agriculture, previously a pillar in Hanoi's economy, has striven
to reform itself, introducing new high-yield
plant varieties and livestock, and applying modern farming
techniques.
Together with economic growth, Hanoi's appearance has also
changed significantly, especially in recentyears. Infrastructure is
constantly being upgraded, with new roads and an improved public
transportation
system.
On February 2013 Dubai-based property developerGlobal Sphere
announced a mega-project to build
about 70 residential towers in Hanoi in an area dubbed the Hanoi
Wall Street. .[35] The first phase, valued
at $10 billion, is expected to be finished by 2020.
http://en.wikipedia.org/wiki/Vietnam_National_University,_Hanoihttp://en.wikipedia.org/wiki/Vietnam_National_University,_Hanoihttp://www.thegarden.com.vn/http://www.starfitnesshanoi.com/EN/default.aspxhttp://platinumcineplex.vn/cms/index.php?lang=enhttp://platinumcineplex.vn/cms/index.php?lang=enhttp://en.wikipedia.org/wiki/Human_Development_Indexhttp://en.wikipedia.org/wiki/Human_Development_Indexhttp://en.wikipedia.org/wiki/PricewaterhouseCoopershttp://en.wikipedia.org/wiki/PricewaterhouseCoopershttp://en.wikipedia.org/wiki/Ho_Chi_Minh_Cityhttp://en.wikipedia.org/wiki/Real_estatehttp://en.wikipedia.org/wiki/My_Dinhhttp://en.wikipedia.org/wiki/My_Dinhhttp://en.wikipedia.org/w/index.php?title=The_Manor_(Hanoi)&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=The_Manor_(Hanoi)&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=The_Manor_(Hanoi)&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Ciputra_(Hanoi)&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Global_Sphere&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Global_Sphere&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Hanoi_Wall_Street&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Hanoi_Wall_Street&action=edit&redlink=1http://en.wikipedia.org/wiki/Hanoi#cite_note-hws-35http://en.wikipedia.org/wiki/Vietnam_National_University,_Hanoihttp://en.wikipedia.org/wiki/Vietnam_National_University,_Hanoihttp://www.thegarden.com.vn/http://www.starfitnesshanoi.com/EN/default.aspxhttp://platinumcineplex.vn/cms/index.php?lang=enhttp://en.wikipedia.org/wiki/Human_Development_Indexhttp://en.wikipedia.org/wiki/Human_Development_Indexhttp://en.wikipedia.org/wiki/Human_Development_Indexhttp://en.wikipedia.org/wiki/Human_Development_Indexhttp://en.wikipedia.org/wiki/PricewaterhouseCoopershttp://en.wikipedia.org/wiki/Ho_Chi_Minh_Cityhttp://en.wikipedia.org/wiki/Real_estatehttp://en.wikipedia.org/wiki/My_Dinhhttp://en.wikipedia.org/w/index.php?title=The_Manor_(Hanoi)&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=The_Manor_(Hanoi)&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Ciputra_(Hanoi)&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Global_Sphere&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Hanoi_Wall_Street&action=edit&redlink=1http://en.wikipedia.org/wiki/Hanoi#cite_note-hws-35
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2.6 Laws and Regulations
Vietnam has historically discouraged Foreign Direct Investment
(FDI) in the food retail sector toprotect its domestic companies
and the traditional sector. Foreign companies that wereapproved by
the Vietnamese government could only set up joint ventures in the
country if their
holding was less than 50%. Metro Group was allowed to establish
a 100%-owned subsidiarybecause their business focused on the
wholesale sector. However, Metro is still limited byvarious
constraints. For example, whilst Metro deals with their suppliers
directly, they do nothave a license to import products directly and
therefore need to contract a third party logisticscompany. In
addition, foreign enterprises cannot buy land in Vietnam, but have
to obtain landuse rights from the authorities. These restrictions
have hampered the development of a modernretail food sector in
Vietnam. Denied foreign know-how and retail experience, local
companieshave been slow to adopt more modern retail methods.
However, under pressure from its attempts to join the WTO as
well as other economicagreements, such as the Bilateral Trade
Agreement with the USA, deregulation is nowoccurring. From 2004,
restrictions began to disappear and joint ventures between
Vietnamese
and overseas companies were allowed and in October 2005, the
government lifted the cap onforeign share holdings in local
companies from 30% to 49%.
2.7 Tax
Viet Nam
Income Tax Rate 35%
Corporate Tax Rate 25%
Sales Tax / VAT Rate 10%Vietnam Personal Income Tax
Vietnam personal income tax rates are progressive to 35%.
Nonresidents are taxed at a flat taxrate of 20%. Nonemployment
income is taxed at rates from 0.1% to 25%.
Taxable Income per year (VND) Tax rateVND 0 - 60,000,000 5%VND
60,000,000 - 120,000,000 10%VND 120,000,000 - 216,000,000 15%VND
216,000,000 - 384,000,000 20%VND 384,000,000 - 624,000,000 25%
VND 624,000,000 - 960,000,000 30%Above VND 960,000,000 35%
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Residents - Other tax rates on resident individualsIncome from
capital investment, copyright and franchise activities 5%Income
from transfer of capital 20%Income from transfer of real estate
25%
Non-residents - Other tax rates on non-resident
individualsIncome from business and production of goods 1%Income
from business and production of services 5%Manufacturing,
construction, transport and other activities 2%Salary and wages
20%Income from capital investment 5%Transfer of capital
0.1%Transfer of real estate 2%Copyright and franchise activities
5%Lottery wins, inheritance and gifts which are securities, capital
or assets 10%
All residents and non-residents are subject to Personal Income
Tax in Vietnam.
Vietnam Corporate Taxation The general corporate income tax rate
in
Vietnam is 25%.
Tax rate for enterprises operating in the oil and gas and other
precious
natural resources sectors ranges from 32% to 50%, depending on
the
project.
In 2009, small and medium sized enterprises (with charter
capital of less
than VND10 billion or fewer than 300 employees) were entitled to
a
reduction of 30% of their Corporate Income Tax. Other exemptions
orreductions in Corporate Income Tax are as stipulated in the
relevant legal
documents.
Residence "Residence" is not defined, but a corporation is
generally
understood to be resident if it is incorporated in Vietnam.
Tax Basis Residents are taxed on worldwide income; nonresidents
are
taxed only on Vietnamese-source income. Foreign-source income
derived
by residents is subject to corporation tax in the same way as
Vietnamese-
source income.
Taxable income Tax is imposed on a company's profits, to include
the
profits of affiliates and branches (dependent units). Taxable
revenue
includes income from the sale of products, the provision of
services, the
leasing or sale of assets, the transfer of shares, joint venture
operations
with other economic entities and financial operations.
Taxation of dividends Dividends paid by a company in Vietnam to
its
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corporate shareholders are not subject to tax.
Capital gains tax There is no separate capital gains tax; gains
are taxed
at the standard corporate tax rate of 25%. The transfer value is
based on
the actual price according to the transfer contract. A deemed
fair market
value will be used if no contract price is available or if the
price stated inthe contract is deemed to be not at arm's
length.
Losses Losses may be carried forward for up to 5 years. Loss
carryback
is not permitted.
Surtax No.
Alternative minimum tax No
Foreign tax credit Foreign tax paid may be credited against
Vietnamese
tax but must be determined based on pretax income. The credit is
limited
to the amount of Vietnamese tax payable on the foreign
income.
Participation exemption This is generally not available to
capital gains
derived by a Vietnamese resident holding company on the disposal
of a
substantial shareholding in a company located in a country that
has
concluded a tax treaty with Vietnam.
Vietnam Tax Incentives Preferential tax rates of 10% and 20% for
15 and
10 years, respectively, are available for taxpayers engaged in
encouraged
investment projects or in socioeconomically disadvantaged
locations as
stipulated by the government. Lower tax rates (e.g. 0%, 5% and
10%)
generally apply in the early years of the tax incentive
period.
Withholding tax:
Dividends No tax is imposed on dividends remitted overseas
unless paid
to individuals, where a 5% withholding tax is imposed.
Interest Interest paid to nonresidents is subject to a 10%
withholding tax
unless the rate is reduced under an applicable tax treaty.
Royalties Royalties paid to nonresidents are subject to a
10%
withholding tax unless the rate is reduced under an applicable
tax treaty.
Branch remittance tax No
Other taxes on corporations:
Capital duty No
Payroll tax No
Real property tax The municipal authorities levy tax on the
occupation of
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real property.
Stamp duty A stamp duty of 0.5%-15% is levied on the transfer
of
property.
Transfer tax No
Social security contributions Employers are required to make
socialinsurance (SI), health insurance (HI) and unemployment
insurance (UI)
contributions of 15%, 3% and 1%, respectively.
Other Foreign Contractor Withholding Tax (FCWT) is imposed on
income
from the provision of goods and services from overseas
organisations
(except for pure trading transactions), which comprises
corporate income
tax and VAT at a total combined rate of 1% to 10%.
Anti-avoidance rules:Transfer pricing Transfer pricing rules
introduced in 2005 are being
implemented, with the tax authorities beginning audit activities
in late
2008. Documentation is required. APAs are not available.
Thin capitalisation No
Controlled foreign companies No
Disclosure requirements No
Vietnam Tax year Vietnam tax year is the fiscal year. A company
must
notify the tax authorities if its fiscal year differs from the
calendar year
and only a quarter end is allowed.
Consolidated tax returns Consolidated tax returns are not
permitted.
Each company with independent legal status is required to file a
separate
tax return. There is no tax relief between independent entities
in a group.
Tax Filing requirements A company must file and pay
provisional
corporate income tax by the end of the month following the end
of each
quarter. An annual reconciliation and declaration/filing must be
made
within 90 days after the fiscal year-end date.
Penalties Penalties apply for failure to file, late filing or
the filing of a
fraudulent return.
Rulings Taxpayers can seek tax rulings from the local or the
national tax
authorities to clarify their specific tax concerns.
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Special Sales Tax
Special Sales Tax is applicable to special goods and services
(luxury). The basis
for calculating Special Sales Tax shall be based on the quantity
of taxable goods
sold, their taxable value and the applicable tax rates.
Business License TaxBusiness License Tax is a tax on the
business capital of business establishments. The taxpayment
deadline is at the end of the first month of operations (for the
new businessestablishments) and as at 31 January of each calendar
year for business establishmentsalready in operations. Business
License Tax rate (annually) depends on the registered capital,as
follows:
Over VND10 billion VND3,000,000From VND5 billion to VND10
billion VND2,000,000From VND2 billion to VND5 billion
VND1,500,000Less than VND2 billion VND1,000,000
B. Future development
In the future, I tend to develop my company by exporting food.I
will always ensure that my goods is fresh to make a good brand for
mycompany.
III. Market analysis
3.1 Market forecastFollowing the example set by the Union of
Soviet Socialist Republics (USSR) in 1986 theVietnamese government
moved from a centrally controlled economy to a more outward
marketfocus (Doi Moi, economic restructuring or reform) and in
November 2006 Vietnam became amember of the WTO. To enable its
entry to the WTO, Vietnam was required to reduce its tradeand
investment barriers including, tariffs, subsidies, non-tariff
barriers (NTBs), investmentrestrictions and intellectual property
rights (IPR). Whilst this improved the trading environmentand
increased demand for imports, the import procedures remain complex
and this inhibitstrade.
Vietnam has experienced increasing pressure from its trading
partners to further easerestrictions and they have signed trading
agreements with countries including the USA, ASEANand Australia,
demonstrating their willingness to lift tariffs and non tariff
barriers includingquotas, special licensing and product
restrictions. In June 2004 Vietnam agreed to reduce tariffson the
importation of Australian wine and spirits in line with tariff
reductions given to wines andspirits from the European Union
(EU).
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In relation to their largest neighbor - China, Vietnam has taken
a very cautious approach totrade liberalisation. China and Vietnam
have fought many battles over borders, with Chinapreviously
occupying parts of Northern Vietnam. On the other hand, China has
won the respectof the Vietnamese for developing a strong market
economy within a country controlled by thecommunist government.
Vietnam's economy has been one of the fastest growing in the
world since 2000. Provisionaldata for 2009 indicates that the
economy grew at 5.3%, the lowest rate since 1999. In theprevious 5
years, the economy had been growing at rates in excess of 6% per
annum (seeTable below).
Vietnam's Economic Growth 2004 to 2008 (%)
2004 2005 2006 2007 2008
7.8 8.4 8.2 8.5 6.2
Source: Asian Development Bank
According to the World Bank, its GDP per capita on a PPP
(purchasing power parity basis) wasaround US$ 2,700 in 2008.
Its GDP per capita on a nominal basis is reported at close to
US$ 1,000. Despite its rapideconomic growth, these GDP figures
place it in ASEAN's group of lowest income countries.
Income disparities are very high between rich and poor and the
urban and rural areas today.Between 10% and 15% of its population
now rank in its middle and upper income groups. The
main consumer markets for imported food and drinks are located
in Ho Chi Minh City (Totalpopulation: More than 10 million
persons). In comparison, the capital city, Hanoi, currently has
amuch weaker consumer market than this city.
While this is the case, there are now forecasts that put Hanoi's
economy in a catch-up phasewith Ho Chi Minh City. This phase could
see economic growth in the Greater Hanoi area(Conurbation
population: Around 10 million persons and increasing) ranging from
between 9%and 12% per annum over the next 3 years.
Tourism is also becoming much more important to the Vietnamese
economy. This developmentis underpinned by a more aggressive
tourism development policy. This has recently beenupdated and now
targets attracting 12 million tourists per annum by 2015. Visitor
arrivals in
2008 were reported at around 4.3 million.
Vietnam is forecast to be one of the fastest growing countries
in the world over the next 3 to 5years. Current forecasts indicate
that the economy will likely grow at between 5% and 12% perannum,
depending on whether or not the global economy will crash again.
The "lessaggressive" range of forecast growth rates are between 6%
and 8% per annum, which are stillhigh.
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The Asian Development Bank's latest economic forecasts for
Vietnam are 6.5% in 2010 and6.8% in 2011, in an environment of Dong
denominated inflation at about 10% per annum in bothyears. This
forecast is underpinned, in part, by increased consumer spending on
the back ofhigher disposable incomes, and on increased remittances
from overseas Vietnamese.
3.2 4Ps Analysis
PRODUCTS
My companys offered a wide range of products to the customers.
The product range includedfood, vegetables and fruits. The company
seemed to have created a niche market. The rawmaterials used to
sell out were of best quality and were sourced from all over Ha Noi
areas.Food distribution initiative sought to customize its products
to suit the demand and preferencesof customers from different parts
of Ha Noi. It launched products, which catered to the demandof
people belonging to specific regions. For example, it launched
'Rice' a South VietnameseRice, for North Vietnamese customers. The
company offered certain products such as Rice,Vegetable and Fresh
Fruits with some discounts. These measures helped the company
compete effectively in a market that was flooded with a variety
of food in different qualities,quantities and flavors.
PRICING
My companys offered its products at competitive prices in order
to penetrate the hugeunorganized market of food, vegetable and
fruits. The company's pricing strategy took intoconsideration the
price conscious nature of consumers in Ha Noi.
The prices also varied on the basis of the type of food. The
cost of metallized packing also had
an impact on the price, especially in the case of foods. The
company revised the prices of itsproducts upwards only when there
was a steep increase in the additional taxes or unexpectedcosts
were imposed.
PLACE
The company's developed a strong distribution network to ensure
the widest possible reach forits products in Ha Noi as well as
overseas. This's also had 35 sole distributors in theinternational
market. The retail outlets earned margins ranging from 14% to 30%.
At the retailoutlet level, margins varied according to the
quantities or weights of food sold. Retailers earnedmore margins
ranging from 25% to 30% by selling 100 pouches compared to the food
packs of
higher weights. Apart from the exclusive showrooms owned by Food
Distribution Initiative's, thecompany offered its products through
retail outlets such as supermarkets, food shops,convenient stores
and restaurants. The products were also available in public places
such asrailway stations and bus stations that accounted for a
sizeable amount of its sales.
Company's also offered its products through the Internet. The
company tied up withvatgia.com, a website owned by the Price Joint
Stock Company Vietnam to sell its productsover the Internet. My
company's products could be ordered through a host of other
websites inHa Noi and abroad. These websites competed on issues
such as delivery time, which varied
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between 48 hrs to one week, delivery charges (some websites
offered free delivery of products)and value added services.
PROMOTION
My company's product promotion had been low key until
competition intensified in the foodsmarket. The company tied with
Profile Advertising, for promoting its products.
Consequently,attractive posters, brochures and mailers were
designed to enhance the visibility of thecompany's brand.
Different varieties of posters were designed to appeal to the
masses. The punch line forcompany's products was, 'Always in good
price'. Advertisements depicting the entire range ofenterprise's
food were published in the print media (magazines and
newspapers).These advertisements had captions such as 'millions of
choices can't go wrong,' 'What are youwaiting for?'.
3.3 SWOTInformation gathered in both the background and primary
research has been summarised in theform of a SWOT (strengths,
weaknesses, opportunities and threats) analysis. It provides aneasy
to digest illustration of the likely demands and challenges that
would be faced by a localfood and agri-product distribution
initiative (LFDI) located in the Ha Noi region, andpossibly the
surrounding area. Opportunities and threats are the factors
external to businessoperations in the industry and together define
what is possible in market growth, as well as thecompetitors and
other factors that businesses within the industry will need to
address to realizepotential opportunities. Strengths and weaknesses
are those factors that define the competitiveadvantages and
disadvantages of business in the industry to compete in achieving
theopportunities.
Strengths Distinctive regional profile for agriculture andfood
(though more directed towards Niagara)Area produces foods most
suited to LFDI Greenhouse capacity could enable produceseason to
extended year round Governments that are supportive ofagriculture
Temperate climate and high densityproduction
Professional individuals possesscomplementary experience and
arepassionate about local food Population density of Ha Noi
Capital
Opportunities Local of increasing interest to consumers Local
food appeals to many demographics Increase importance of
agriculture amongincreasingly urban population Retailers of all
sizes looking for ways tomodify distribution systems and react to
localtrend Institutions catering to serve supporters oflocal
Restaurants looking for differentiation levers Trend to local in
government sourcing Increased margins and higher profitsAbility to
react quicker to market signals
Weaknesses Lack of definition about what constituteslocal
impacts the effectiveness of
Threats Tendency to create unviable businessmodels
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marketing, distribution, etc. Funding provided primarily to
not-for-profitorganizations Lack of effective infrastructure for
local food(including closure of processing andmanufacturing plants
in ON) Lack of quality management practicesAge and attitude of many
producers Convoluted legislation and bureaucracy Producers lack of
understanding aboutwhat constitutes store ready Competes with
organics on a number oflevels because both appeal to the
widerconsumer interest in connecting with food,health and
environment Governments focus on promoting ratherthan marketing and
enabling
Polarized viewpoints of industrystakeholders Cost of
distributing local foods due toeconomies of scale, and seasonality
Local not necessarily fresher due tocapability of local industry
versus importersAgriculture focuses on producing, notmarketing or
adapting to market demand Corporate retailers influence on
distribution Current economic climate discouragespurchase Local is
the symptom of a wider trend forhealth and environment and so could
beovertaken at any time by a new fad Some consumers expect local to
beexpensive
3.4 Market life-cycle analysis
IV. Finance Analysis1, Initial Investment: I have 5 million
dollars USA but I will only use 2 million to invest and 1
million to operate funding.
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UNITS: Thousand US Dollars
2. Operating funding
WACC = (1 25%)x(14,99/2%)x(40%) + (4,35%)x(60%) = 0,049%
NPV(the net present value)=3524,9
IRR(rate of return)=1,35%
The target capital structure analysis.
Own capital / investment = 0.88
Expenses Years
0,5 1 1,5 2 2,5 3 3,5 4 4,5 5
The cost
price
720 750 800 780 840 720 900 870 940 900
Premises
costs
480 0 240 240 240 240 240 240 240 240
reduction 50 60 60 60 70 40 80 60 60 60
Labor
costs
50,5 50,5 50,5 50,5 50,5 50,5 50,5 50,5 50,5 50,5
Othercosts
60 63 65 64 67 60 75 70 80 75
Construction costs
+ kitchen
costs
266,06
70 70 70 70 70 70 70 70 70
Deprecia
tion
70 70 70 70 70 70 70 70 70 70
Total 1736,2951108,476 1400,476 1379,476 1452,476 1295,476
1530,476 1475,476 1555,476 1510,476
standard Years
0.5 1 1.5 2 2.5 3 3.5 4 4.5 5
revenue 180
0
1875 2000 1950 2100 1800 2250 2175 2350 2250
Cost 173
6,29
5
1108,
476
1400,4
76
1379,4
76
1452,4
76
1295,4
76
1530,4
76
1475,4
76
1555,4
76
1510,
76
Profit
before
tax
63,7
05
766,5
24
599,52
4
570,52
4
647,52
4
504,52
4
719,52
4
699,52
4
794,52
4
739,5
47
Tax 24,5
557
5
129,9
786
104,92
86
100,57
86
112,12
86
90,678
6
122,92
86
119,92
86
134,17
86
125,9
87
Profit
after tax
39,1
492
5
636,5
454
494,59
54
469,94
54
535,39
54
413,84
54
596,59
54
579,59
54
660,34
54
613,5
6
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Total debt / total investment = 0.58
Profit rate of investment = profit before (or after tax) /
equity
Years
0,5 1 1,5 2 2,5 3 3,5 4 4,50,43
5 0,71 0,55 0,522 0,595 0,46 0,663 0,644 0,7373 0,6
V. Human resourceI will start up with 20 employees, including: 8
women and 12 men.
There will be 8 women and 2 men that work in Food Store. The
remain will distribute food to
customers, restaurants, markets or supermarkets.
VI. ScheduleThe food store will be built in May 1st, 2013.
It will take me 4 months to build and establish.
VII. Future prospectiveVietnams retail and food service
infrastructure and distribution is growing quickly but is still
well
behind most of its South East Asian (SEA) neighbours, so too is
the level of brand awareness.
Therefore different products will face different opportunities
and challenges.
VIII. Suggestions and Recommendations
A. Suggestions
B. RecommendationsThis project has researched the viability of
establishing a local food distribution initiative (LFDI)in Ha Noi
area. It also sought to identify the factors that would have a
significant impact on thesuccess of such a LFDI. These include the
most appropriate target markets, the products best
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suited to a LFDI operating in Ha Noi area, and management
considerations that would enablethe LFDI to be sustainable. This
section uses the extensive research findings to present a seriesof
recommendations.
8.1 Recommendation #1: Options for Distributing Local Food
(and Agri-Products)The research results suggest three
alternative processes are most suited to distributing localfood and
agri-products within Ha Noi and surrounding area. Other than the
possible need toimprove cool chain and grading capabilities any of
the options could likely be establishedwithout the need to
extensively expand upon current infrastructure. All options are
suited tolinking local food suppliers with any sized retailer. They
have been listed in order of the rangeand volume of products that
each arrangement is suited to handling. The options are notmutually
exclusive. Which option(s) works where will largely depend on the
individual retailer(s)or market(s) being supplied and whether the
product(s) being handled require a specific type ofinfrastructure.
Therefore all three options could potentially be used
simultaneously to supply afull range of products to the same
market.
8.2 Recommendation #2: LeadershipOur research suggests that the
leader of an LFDI plays a critical role in determining its
success.For instance, the reason for the success of the Bowland
Fresh initiative was not because itdelivers a highly innovative
product to market. It was primarily successful because of
anindividual; in this case a farmer named William Slinger, who led
the initiatives development andworked closely with the entire value
chain to turn an opportunity into reality. This is the case
innumerous other examples. Therefore, the existence of a
progressive and well respectedstakeholder (often someone situated
in the middle of the value chain) is the first step in creatinga
successful initiative.The leader will need to have skin in the
game. Otherwise it will be difficult for them to establishthe
necessary sense of authority and motivate people to follow their
example. This is
particularly important given research shows that farmers learn
best from first hand experienceand observation. The chosen
leader(s) will also need to be charismatic and have a
thoroughunderstanding of the industry, from farming through to
retail.That many farmers want a LFDI for the wrong reasons, often
believing that it would preventthem from having to adapt their
operations to suit a changing market, means that the role
willrequire excellent communication skills. The research findings
also suggest that whilegovernments, industry associations, and NGOs
will have an important extension and facilitationrole to play in
supporting the LFDIs development they should not play a management
role.
*** The End ***
