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Masan Consumer and Hong Kong Venture proposal

Individual Assignment for International Business Course

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Masan Consumer and Hong Kong Venture proposal

  1. 1. 1 Assignment 2 – Individual Report R M I T I n t e r n a t i o n a l U n i v e r s i t y V i e t n a m P H A M T R A M Y S 3 3 5 7 6 5 5 B U S M 3 3 1 1 / G 2 4 / 1 6 / 2 0 1 4
  2. 2. Masan Consumer and Hong Kong venture proposal
  3. 3. 3 Table of contents I. BACKGROUND.............................................................................................................................8 1. The company - Masan Consumer..............................................................................................8 2. The country - Hong Kong..........................................................................................................9 3. The product - Chin-Su Nam Ngu clean fish sauce .......................................................................9 II. ANALYSIS..................................................................................................................................11 1. Target country.......................................................................................................................11 2. Target market and industry....................................................................................................18 2.1. Consumer purchasing power...........................................................................................18 2.2. Consumer purchasing habits...........................................................................................20 2.3. Competitor analysis........................................................................................................21 III. RECOMMENDATION..................................................................................................................24 1. Financial Projections (Appendix 2)..........................................................................................24 2. Strategy................................................................................................................................24 2.1. Justifications of strategy selection...................................................................................24 2.2. Collaboration - selecting the partner...............................................................................25 2.4. Collaboration adlegal issues...........................................................................................26 3. Objectives.............................................................................................................................27 4. Implementation.....................................................................................................................28 5. Performance indicators..........................................................................................................30 IV. CONCLUSION ............................................................................................................................31
  4. 4. 4 List of figures and tables Figure 1. Masan Consumer's Financial Performance (VND bn). Reproduced from: MG 2012....................8 Figure 2. Chin-Su Nam Ngu clean fish sauce. Reproduced from: MG n.d................................................9 Figure 3. Fishsauce marketvalue data (2007-2017F). Reproducedfrom:Euromonitor2013, citedin MG n.d...................................................................................................................................................10 Figure 4. Hong Kong Logistics Performance Index (LPI). Reproduced from: World Bank 2014 ................12 Figure 5. Sauce,dressingsandcondiments inHongKongbycategory:value 2007 - 2012 (HKD million). Adapted from: Euromonitor 2013......................................................................................................18 Figure 6. Percapital annual disposable income,spendingandsavingsratio:2006 - 2020. Reproduced from: Euromonitor 2013 ...................................................................................................................19 Figure 7. Real growthindex of consumerexpenditure byselectedcategory:2006 - 2020. Reproduced from: Euromonitor 2013 ...................................................................................................................19 Figure 8. Table sauces brand shares 2012 (% retail value rsp). Adapted from: Euromonitor 2013. .........21 Figure 9. Marketing examples on Amoy’s homepage. Reproducedfrom: Amoy n.d..............................22 Figure 11. Amoy's premium light soy sauces.Adapted from Amoy n.d.................................................23 Figure 12. Amoy's products portfolio. Adapted from: Amoy n.d...........................................................23 Figure 13. Marketing examples on Lee Kum Kee'swebsite. Reproduced: Lee KumKee n.d....................27 Table 1. PEST analysis .......................................................................................................................13 Table 2. SWOT analysis .....................................................................................................................16 Table 3. Hong Kong consumer purchasing habits (table sauces category).............................................20 Table 4. The 6W and 1H questions.....................................................................................................28
  5. 5. 5 Abbreviations APEC: Asia-Pacific Economic Co-operation BEBA: Bureau of Economic and Business Affairs CAGR: Compound annual growth rate CAN: Clean Air Network CGV: Consulate General of Vietnam CTCS: The Canadian Trade Commissioner Service FI: foreign investors FMCG: Fast-moving consumer goods GMP: Good manufacturing practice HACCP: Hazard Analysis & Critical Control Points HCNs: Host country nationals HK: Hong Kong HKCED: Customs and Excise Department HKD: Hong Kong Dollar HKG: Hong Kong government HKTDC: Hong Kong Trade Development Council ICSID: International Center for the Settlement of Investment Disputes IPR: Intellectual property rights IRD: Inland Revenue Department LKK: Lee Kum Kee LPI: Logistics Performance Index MC: Masan Consumer MG: Masan Group MNCs: Multinational companies PCNs: Parent country nationals PEST: Political - Economical - Social - Technological
  6. 6. 6 SBUs: Special Business Units SWOT: Strengths - Weaknesses - Opportunities - Threats UNCITRAL: United Nations Commission on International Trade Law UNDP: United Nations Development Programme USD: U.S Dollar VN: Vietnam VNA: Vietnam News Agency VOV: The Voice of Vietnam
  7. 7. 7 EXECUTIVE SUMMARY The report looked into the possibility that Masan Consumer Vietnam could invest in Hong Kong market. Masan, ranked 15th in 500 Vietnamese Largest Private Enterprises (VNR500 2013), was considered to have sufficient financial, physical and human resources. On the other hand, Hong Kong provides a favorable climate for foreign investors, being ranked 2nd in “ease of doing business” Index (Doing business 2013). This investment was triggered by the strong financial performance of the company in the recent years, which generates great cash inflows, however, not suitable for staying idle in the domestic market with decreasing interest rate. The product of selection was Chin-Su Nam Ngu clean fish sauce, with domestic market share of 76% (MG 2012). Further findings indicated that Chin-Su would provide incentives for consumption in the target market: convenience and healthiness - which are the top priorities of Hong Kong consumers. However, the fact that Hong Kong’s fish sauce is a niche market implied both opportunities and threats. Opportunities to be the first mover and face fewer competitors, and threats of low demand due to local taste being in favor of soya sauce (Euromonitor 2013). This suggested MC should collaborate with a local reputable partner, for example: Lee Kum Kee, with over 100-year reputation, outstanding sales performance in the sector, experience working with another Vietnamese company, superior knowledge of local preferences and other value adding elements (Euromonitor 2013, HKTDC n.d). Further justifications of this decision were provided in the Implementation part of the report. Last but not least, the proposed initial investment was USD250,000. Financial projections showed loss in first year of operation, which should be expected. In the next two years, net incomes were forecasted to be positive and the payback period was expected to be 2.82 years.
  8. 8. Masan Consumer and Hong Kong venture proposal 8 I. BACKGROUND 1. The company - Masan Consumer Masan Consumer (or Masan Food Corporation) started operations in 2000, under Masan Group (MG) – a leading Vietnam private sector company that focuses on the consumption and resources areas (MG n.d). The product portfolio of Masan Consumer (MC) includes fish sauce, soya sauce, chili sauce, convenient food, coffee and instant cereals, targeting both high-end and mass markets (MG 2012) (Appendix 1). Some of MC’s well-known brands are Chin-Su fish sauce, Omachi instant noodles and VinaCafé. Recently, due to the company’s strong financial performance (figure 1) and lower domestic interest rates (Nguyen 2014), the board of directors has considered investing in the trade of MC’s fish sauce oversea. There are several justifications for this decision as below. Figure 1. Masan Consumer's Financial Performance (VND bn). Reproduced from: MG 2012 As can be seen from figure 1, the company has gained increasing sales and performed relatively stable over the last 4 years. Moreover, ranked 15th in 500
  9. 9. Pham T. My - s3357655 - G2 9 Vietnamese Largest Private Enterprises (VNR500 2013), MC is considered to have sufficient capability for an international venture. In terms of capital resources, it has been supported by reputable investors - KKR, J.P. Morgan, House Foods and strategic stakeholders, among which are Goldman Sachs and IFC (MG 2012). As of physical capacity, the firm currently owns 6 manufacturing facilities in Vietnam with constant plans of renovation and expansion (MG 2012). Regarding human resources, the company’s executive team has averagely 18 years of experience in the FMCG industry with top-notch MNCs like P&G, Unilever, Nestle and Kimberly-Clark (MG 2012). 2. The country - Hong Kong After looking at variable options, the leaders of MC have decided to expand the business to Hong Kong. For starters, PEST analysis (Table 1, p.) shows that Hong Kong has a favorable investment climate. While SWOT analysis (Table 2, p.) indicates that with a reputable partner company and well-planned marketing programs, MC fish sauces could survive and grow in Hong Kong’s competitive landscape. 3. The product - Chin-Su Nam Ngu clean fish sauce Firstly, fish sauce represents a niche market in Hong Kong, whose demand could be supported by the increasing need for convenience among Hong Kong consumers (Euromonitor 2013). In order to satisfy the demand of health-conscious Hong Kong consumers, Chin-Su Nam Ngu clean fish sauce (figure 2) will be the product of consideration. Secondly, fish sauce represents a competitive advantage of MC. The company’s fish sauce lines dominated the domestic market with 76% market share (Nielsen20 11, cited in MG 2012). Moreover, the market value of MC’s fish sauce is witnessing positive growth over the year (figure 3). Figure 2. Chin-Su Nam Ngu clean fish sauce. Reproduced from: MG n.d
  10. 10. Masan Consumer and Hong Kong venture proposal 10 Figure 3. Fish sauce market value data (2007-2017F). Reproduced from: Euromonitor 2013, cited in MG n.d Notably, in 2012, MC has upgraded Binh Duong facility with 3 fully automated fish sauce lines, making it the first automated fish sauce facility in the world. Combined capacity of production lines has risen to 25 million liters per month. Additionally, the facility satisfies HACCP and GMP standards (MC 2012). This, again, confirms that the company has the capacity and proven quality to venture oversea. Further assessments will help clarify other uncertainties of this decision.
  11. 11. Pham T. My - s3357655 - G2 11 II. ANALYSIS 1. Target country Ranked 1st in Economic Freedom Index for 20 consecutive years (Heritage Foundation 2014) and ranked 2nd in Ease of doing business Index (Doing business 2013), Hong Kong is a promising land for foreign investors. Below are some general ideas. Firstly, referring to Hong Kong’s controlled imports regulations (HKCED 2010), Chin- Su Nam Ngu would not be prohibited in the local market, since it satisfied premium quality standard. To be more specific, Nam Ngu clean fish sauce received the Certificate of Food Hygiene and Safety (Vietnamese acronyms: VSATTP) from Vietnam Ministry of Health (Masan Group 2008). Secondly, by 2012, Hong Kong has been ranked 6th among foreign investors in Vietnam (BEBA 2013). Between January and November 2013, two-way trade hit US$11.2 billion with a year-on-year rise of 11.6% (Nguyen 2014, cited in VOV 2014). The underlying reason for this is the Comprehensive Double Taxation Agreement between Vietnam and Hong Kong, which took full effect in 2010 (CGV 2009). Broadly speaking, these imply a strong tie between the two nations, which can support the investment climate for Vietnam investors in Hong Kong. Thirdly, Hong Kong’s proximity to Vietnam is convenient in terms of time (only 1 hour difference) and transportation. More importantly, MC could benefit from HK’s high logistics performance, especially timeliness, infrastructure, tracking and tracing (figure 4) (World Bank 2014).
  12. 12. Masan Consumer and Hong Kong venture proposal 12 Figure 4. Hong Kong Logistics Performance Index (LPI). Reproduced from: World Bank 2014 However, as an essential part of Hong Kong’s food culture, soya sauce still enjoys the highest consumption in the table sauces category, while demand for fish sauce remains low. Furthermore, domestic companies are dominating the table sauce category with superior understanding of traditional tastes and preferences of the locals (Euromonitor 2013). As such, to better compete in Hong Kong market, MC could consider collaborating with a local company. This suggestion calls for further research into the target market and industry in the second part of the analysis. Before coming to that part, PEST analysis (table 1, p.13) and SWOT analysis (table 2, p.16) will shed more light on the external and internal forces that affect the company in this decision.
  13. 13. Pham T. My - s3357655 - G2 13 Table 1. PEST analysis Findings Analysis Implications Political/Legal Politically stable HKG’s general incentives: o No discrimination between domestic and FI o No quotas, bonds, deposits for FI o No tax on capital gains and dividends o No more estate duty o Profits can be freely converted and remitted o No tariffs on imported goods HK adopted UNCITRAL and provides ICSID for disputes resolution Significant attention and resources are dedicated to IPR enforcement HK is an APEC member Businesses operating in HK will not be affected by political turbulence. HK highly welcome foreign investment to support the growth of the country. No distinction between domestic and international arbitration. Ensure fairness for all investors. HK ensures healthy business competitions for domestic and foreign investors. Vietnam is also a member of APEC. This and the long-lasting diplomat relations between HK and Vietnam help facilitate trades between the two nations. The investors and the leaders of MC can be assured about the security of the newly born venture. The start-up and operation costs will be lowered due to HKG’s incentives. MC could use incremental savings for marketing campaigns and other operation expenses. Also, the flexibility in transferring profits cans satisfy investors’ requirements. Therefore, the new venture could receive strong financial support. Even though fairness is highly protected by HKG, MC should take time to study well about their possible partners to avoid major disputes. Also, MC should invest in the talents of legal department. Since HK does not allow international companies to hire local lawyers to advise for them. Meanwhile, MC needs to register its trademark before considering entering a joint venture. MC should ensure the premium quality of its fish sauce, according to HKG’s Food Law, to enjoy full benefits of this advantage. Economical Conversion and inward/outward transfers of funds for any purpose are not restricted. HKD is a freely convertible with low fluctuation. 1 USD = 7.75 - 7.85 HKD HSBC and Standard Charter, HK branch rank 1st and 4nd respectively in HK’s 5 largest banks, both of which are available in Vietnam HKG ensures the flexibility in operation of foreign companies. This associates with HK’s “freedom in doing business” characteristic. Beside, local economy is performing positively. The transfer of money in the same banking system will be easier for MC. MC could use the easily transferable funds to support business investments in home country, especially in terms of R&D for Chin-Su Nam Ngu fish sauce. However, MC should keep track of HSBC’s and Standard Charter’s interest rates, evaluate other banks’ options to decide which bank to use.
  14. 14. Masan Consumer and Hong Kong venture proposal 14 Unemployment rate: 3.4% (10/2012) Minimum wage: 3.8 USD/hour (5/2013) HK has low unemployment rate and the HKG pays attention to the welfare of the workforce. The HKG has revised the wage rate multiple times before coming to this current rate. This is about 2.7 times higher than minimum wage rate of a Chinese worker and 5 times higher than that of a Vietnamese worker (considering both in urban areas). Most of the workforce of MC’s SBU in HK should be Vietnamese (PCNs) in the 1st stage of the venture to reduce costs of labors. For the same reason, the SBU can also consider outsourcing some of its projects to competent Chinese workers. China’s proximity to HK also reduces the costs of relocating these workers if needed. Plus, they could assist in the understanding of Chinese dialects and culture in business context. Social HDI ranking: 13 Hofstede cultural dimensions: HK scores higher on the scale on masculinity and scores much lower on the scale of indulgence, comparing to VN. Age distribution (2014): 46.9% between 25 - 54 14.4% age 65 and over 12.1% under age 15 More females than males in the older age group HK scores high on 3 basic dimensions of HDI: health, education and income Main difference between the cultures of HK and VN: HK is more competitive - success-oriented and driven (masculine society). HK people generally spend more hours at work. Moreover, scoring very low compared to VN in terms of indulgence, HK society is more restrained without much emphasis on leisure time. HK has an old population. Thus, health issues are highly concerned in the society. This explains HKG’s strict regulations regarding food quality, especially when 90% of HK’s food requirements are imported. With the aging population, HK labor shortage will also be a challenge. High number of target consumers: working women/wife - main decision-makers in buying table sauces If hiring HCNs, MC will need to invest a lot in training and education for them. This will increase costs for the company. Human Resources team should have pre-departure training for PCNs about the competitive culture of HK and prepare them of possible culture shock. Quality of the product should be the top priority of MC. This confirms the decisions of hiring mainly PCNs. MC should do elaborate market researches about target consumers lifestyle and purchasing habits, for necessary adjustment of products and marketing programs. Technological Sophisticated infrastructure with development plans in transportation and shipping facilities over the next few years. LPI Ranking: 15th (2014) and averagely 8th (2007 - 2014) High logistics performance, especially in terms of timeliness and infrastructure This could help increase the satisfaction of end customers, reputation of a new firm in the market and reduce transportation costs for MC.
  15. 15. Pham T. My - s3357655 - G2 15 Technical skills: According to Manpower Group’s survey (2013), 57% of surveyed HK employers reported talent shortage, with a year-on-year increase of 22%. Because of pollution and education problems, HK is losing professionals to countries like Singapore and Tokyo, whose quality of living rank 1st and 2nd respectively in Asia. In FMCG industry, sales and marketing top the demand for professional skills HK is facing the shortage of talents. In terms of FMCG industry, HK workers lack the skills of marketing and business development. Besides, HK’s conditions of livings (lack of international school for expatriates’ children, costly housing and pollutions) might make some PCNs workers unwilling to accept positions in HK. MC needs the top PCNs marketing and sales talents in HK. This might require more training or hiring to meet the demand of the company. MC might also need to raise the incentives for PCNs to come work in HK. This could results in higher salary expenses for PCNs. To avoid this, MC should investigate the location to set up new office, preferably in area with low air pollution index in HK. For example: Tai Po, Tap Mun, Eastern Source: BEBA 2013, CIA 2014, CTCS 2012, Deacons n.d, Jia 2012, Manpower Group 2013, Mercer 2014, Michael Page 2013, The Hofstede Centre n.d, UNDP 2012, Wage Indicator 2014, World Bank 2014
  16. 16. Masan Consumer and Hong Kong venture proposal 16 Table 2. SWOT analysis Strengths Weaknesses Opportunities Threats Observations Description Implications Description Implications Description Implications Description Implications 1 MC is supported by reputable investors (e.g. KKR, J.P Morgan, House Foods) and stakeholders (e.g. Goldman Sachs, IFC) MC have sufficient financial supports to start an international venture MC can invest in improving the quality of its product and marketing campaigns in a new market MC can be under constant pressures from investors to make positive returns MC need a realistic business plan, inform the investors of the right expectations and keep track of its operation oversea With stable financial resources and pressures from the investors, MC can invest more in expansion and can gain higher trust from potential partners The company should always conduct in-depth researches before any business decisions to make sure the resources are properly allocated The financial strength could attract unwanted attention for acquisition and/or increase the financial dependence of the partner on MC MC should consult legal department about appropriate policies for future collaborations, in order to protect its own interests. 2 MC has highly competent executives team, whose experiences in the FMCG industry exceed 15 years. Strong leadership can guide the company through initial hardships of the international venture The company should always care for the welfare of its executives, i.e. good compensation packages Leaders with strong individual opinions can cause internal conflicts and affect critical decision- making processes Human Resources and Public Relations team should handle the internal relations effectively Great leadership can be transferred to younger generations of the company, to increase the productivity of workforce Training workshops of soft skills for workforce should be held monthly Other competitors may want to acquire the company’s talents and offer more incentives e.g. higher salary Executives and staff of MC should be well educated of the core values and culture of the company. MC should show its workforce how much they are respected and appreciated. 3 Soya sauce remains the most popular table sauce in HK MC’s fish sauces can attack the niche market MC should apply competitive pricing strategies, promotional plans and programs to raise awareness. E.g: food festival, intercultural culinary programs Demand might be low for MC’s fish sauce in HK’s market MC should expect losses in the first year of their operation and prepare necessary loans and funds to compensate for the loss. 4 Short shelf life of products in HK’s retail market MC’s fish sauces can stay longer on the shelves of local supermarkets MC should establish good relationships with local supermarkets since they can be HK retail shops have limited space and non-performing products are quickly replaced o In-depth market research is crucial before launching the product in a new market.
  17. 17. Pham T. My - s3357655 - G2 17 Source: CTCS 2012, Euromonitor 2013 potential strategic partners o Well-planned marketing programs are essential o MC’s logistics team should consider the suitable amount of shipments to avoid obsolete stock o Shift focus to dealing with HK supermarkets 5 Nutritional claims are strictly regulated in HK MC’s fish sauces could set an example for Vietnamese products by meeting international standards. This could increase reputation for the product and the firm. MC should continuously invest in R&D for its product to raise its quality and standards. For example: 0% in the nutrition label are regarded as a content claim and should only be used if they meet with HK’s nutrition labeling requirements MC should consult their HK partners about nutrition labeling requirements before exporting
  18. 18. Pham T. My - s3357655 - G2 18 2. Target market and industry First of all, the sauces, dressings and condiments market in Hong Kong are mostly made up of cooking sauces and table sauces (figure 5). Figure 5. Sauce, dressings and condiments in Hong Kong by category: value 2007 - 2012 (HKD million). Adapted from: Euromonitor 2013 In the table sauce category, soya sauce remains the most popular product type, with 21.9% value growth from 2007 - 2012, compared to which, the growth in demand of fish sauce in recent year is insignificant (Euromonitor 2013). However, latest researches into Hong Kong consumers’ trends and lifestyles revealed the opportunities for MC fish sauce to develop in the market. Main findings are summarized below.Consumer purchasing power Driven by positive economic performance of the country, Hong Kong consumers’ purchasing power is growing over the years (Figure 6). With increasing disposable income, the consumers are shifting towards branded segment whose higher cost is associated with higher quality (Euromonitor 2013). Moreover, spending on household goods and service has witnessed the second fastest growth after communications (figure 7). Thus, complementary food products such as table sauces are forecasted to gain 2% CAGR volume growth and 0.5% CAGR constant Sauces, dressings and condiments in Hong Kong by category: value 2007 - 2012 (HKD million) Cooking sauces Table sauces Others
  19. 19. Pham T. My - s3357655 - G2 19 value growth from 2012 - 2017, higher than those of cooking sauces (Euromonitor 2013). Figure 6. Per capital annual disposable income, spending and savings ratio: 2006 - 2020. Reproduced from: Euromonitor 2013 Figure 7. Real growth index of consumer expenditure by selected category: 2006 - 2020. Reproduced from: Euromonitor 2013
  20. 20. Masan Consumer and Hong Kong venture proposal 20 2.2. Consumer purchasing habits Table 3. Hong Kong consumer purchasing habits (table sauces category) Who will buy? Age 30 - 34: young adults with busy lifestyle Age 35 - 39: second highest income earners with demand for family-related products Age 40 - 44: highest income earners who care about health and quality of life Why do they buy? For convenience Lack of time to prepare the meals Young adults lack the cooking skills of elder generations Large-scale marketing activities of branded products Where do they buy? Supermarkets (66% value share) Small grocery retailers (20.5% value share) Independent small grocers (19% value share) Which brands do they buy from the most? Lee Kum Kee (Lee Kum Kee Hong Kong Foods Ltd) Amoy (Amoy Food Ltd) Kraft (Kraft Foods Hong Kong Ltd) Unilever (Unilever Hong Kong Ltd) Source: Euromonitor 2013 Referring to the table, for each group of target consumers, Chin-Su Nam Ngu provides incentives for consumption. Busy young adults could use it to save time preparing table sauces. It could also satisfy health-conscious consumers with premium quality, being certified by Vietnam Ministry of Health as a clean fish sauce (MG 2012). In order to reach the end-consumers, the major distribution network MC should use is supermarket, as retail shops in Hong Kong have limited space and allow short shelf-life for non-performing products (Table 2, p.16). On the other hand, for a product of a different origin like Chin-Su to be recognized in Hong Kong market, MC would need support from a local company. Since Hong Kong culinary culture is already ingrained with soy based sauce. However, which partner should MC select? Could it be among the top competitors? To answer that question, the profiles of some biggest players in the sector were brought into view.
  21. 21. Pham T. My - s3357655 - G2 21 2.3. Competitor analysis As summarized in table 3 above, major players in Hong Kong table sauce market includes Lee Kum Kee, Amoy, Kraft and Unilever. Figure 8 below gives an overview of the market shares of these brands, in terms of retail value. Figure 8. Table sauces brand shares 2012 (% retail value rsp). Adapted from: Euromonitor 2013. It is argued that domestic companies dominate the table sauces market with competitive pricing strategies and in-depth knowledge of local consumers’ tastes and preferences (Euromonitor 2013). Leading companies also invest heavily in marketing activities. For example (figure 9): promoting recipes featuring specific products on company websites, using third party endorsement from top Hong Kong gourmet chefs (Euromonitor 2013). To be more specific, the paper will analyze one major competitor: Amoy Food Ltd. Since its establishment in 1908, Amoy has had over 100 years of experience in producing sauces (Amoy n.d). From 2009 - 2012, both of Amoy’s company and brand shares rank 3rd in Hong Kong sauce, dressings and condiments sector, in terms of retail value (Euromonitor 2013). Table sauces brand shares 2012 % retail value rsp Lee Kum Kee (Lee Kum Kee HK Ltd) Amoy (Amoy Food Ltd) Kraft (Kraft Foods HK Ltd) Colman's (Unilever HK Ltd) Maggi (Nestlé HK Ltd) Grey Poupon (Kraft Foods HK Ltd) Kim Lan (Kim Lan Foods Co Ltd) Others
  22. 22. Pham T. My - s3357655 - G2 22 Figure 9. Marketing examples on Amoy’s homepage. Reproduced from: Amoy n.d
  23. 23. Pham T. My - s3357655 - G2 23 Moreover, the company’s record has witnessed several acquisitions, according to Amoy n.d and Ajinomoto 2006:  1983: Half of Amoy’s shares were acquired by Pillsbury  1991: Amoy was sold to French BSN Group (Former Danone Group)  2006 - Present: Amoy was acquired by Ajinomoto Co. Inc. This could possibly imply that the wealth of the company attracted foreign investors or on the contrary, the manager might not have managed the company well. Being sold three times over the period of 20 years could result in high staff turnover rate and internal conflicts. If MC confirms the decision to expand to Hong Kong, future investigations should be carried out to see if this is a competitor’s weakness that the company could take advantage of. Figure 11 shows Amoy’s products portfolio, whose features are mostly different from that of MC’s (Appendix 1), except for soy sauce. Figure 11. Amoy's products portfolio. Adapted from: Amoy n.d To date, Amoy’s products have been available in 40 countries. Some of the company’s major markets include Hong Kong, Shanghai, Japan, Australia, North AmoyFood Ltd Sauce Soysauce Oyster sauce Convenience sauce Others Frozen food Dimsum Wonton Readymeal Ajinomoto Frozen food Seasoningand Amino Gear Figure 10. Amoy's premium light soy sauces. Adapted from Amoy n.d
  24. 24. Masan Consumer and Hong Kong venture proposal 24 America and Europe (Amoy n.d). In Hong Kong, Amoy’s headquarter is located in Tai Po, New Territories - one of the “greenest” districts with relatively low air pollution index (Jia 2012). This location is favorable in terms of healthy environment, historic culture and popular destinations for geo-tourism and eco-tourism (District Councils 2012), which could drive sales of FMCGs to serve hospitality industry. As such, MC could consider this location for setting up regional business office. Having discussed in detailed about the target country and market, the execution of this business decision will be illustrated next. III. RECOMMENDATION 1. Financial Projections (Appendix 2) 2. Strategy 2.1. Justifications of strategy selection Corporate level strategy options: Options Alert Export fish sauce to Hong Kong market The market share could be eaten up by local competitors Low demand for fish sauce Invest in R&D to attack the niche market of fish sauce Low brand awareness Hard to change the local eating culture which are intertwined with soya sauce Profits couldn’t compensate for marketing and R&D costs Collaborate with a well-known local firm Losing IPR to the partner After considering other options, it is recommended that MC should use collaboration as the entry approach.
  25. 25. Pham T. My - s3357655 - G2 25 According to Hill (2008, p.409), a joint venture is a firm that is jointly owned by two or more otherwise independent firms, with main advantages and disadvantages as follows: Pros Cons o Local partner brings knowledge of local culture, business practices, political systems and competitive conditions. o Exchange of technical knowledge o Sharing the development costs and risks with the partner o Lower risks of adverse government interference o Risk losing control over technology to the partner o Possible conflicts of interests due to the shift in relative bargaining power of the partners In order to reduce the risks of the joint venture, a well-constructed legal agreement must be established before the set-up of the business. In terms of IPR, MC should register their fish sauce patent internationally before the joint venture. However, this process may be time-consuming. During which, MC can do more research about the potential partner (see Implementation). On the bright side, Phu Quoc fish sauce from Vietnam has already received the EU certificate of Protected Designation of Origin (MOIT 2013). Therefore, it would pave the way for other prestigious fish sauce manufacturers such as MC. 2.2. Collaboration - selecting the partner To be more specific, MC should establish a joint venture with Lee Kum Kee (LKK), due the following reasons: - Reputation: LKK was established in 1888. Until now, LKK is available in more than 100 countries and regions over the world. It was the Official Food & Beverage Supplier of Beijing Olympics 2008 (HKTDC n.d). - Sales performance: from 2009 - 2012, rank 1st in brand shares and 2nd in company shares (after Unilever HK Ltd) regarding retail value in sauces, dressings
  26. 26. Masan Consumer and Hong Kong venture proposal 26 and condiments sector. However, in the table sauce market, the major competitor of LKK is Amoy (see Competitor Analysis, p.21). - Value-adding elements: large number of consumers, collective marketing activities, knowledge of local tastes, trust and preference of Hong Kong consumers (Euromonitor 2013). - Experience in dealing with another Vietnamese company: since 2008, LKK has authorized Huong Thuy Corporation to distribute their products in Vietnam. There has been no recording of disputes between both parties. (Huong Thuy n.d). Apart from these, LKK also has a production plant in Tai Po industrial estate, Tai Po, same with Amoy. However, different from Amoy, LKK has not been through any acquisition over 125 years of operations (Lee Kum Kee 2013). The business has been well managed by generations of Lee family (Lee Kum Kee 2013). 2.3. Collaboration - what is in it for both parties? The collaboration model should be considered is 60-40 (60% of net profits go to MC and 40% of net profits go to LKK). In order for that to be realistic, MC should take charge of more business activities including: exporting Chin-Su to LKK, repackaging, marketing and advertising while LKK could be responsible for local transportation, telephone and communications. Moreover, the currency should be used is HKD, since this currency is rather stable (see Table 1, p.13) In case of currency fluctuation, if it exceeds more than 3% both companies need to discuss the required rate of return again. This should be stated clearly in the final agreement before the venture could proceed. 2.4. Collaboration ad legal issues The pending concern of this entry mode is how to protect the parent company’s IP in the international market? As analyzed in PEST analysis (Table 1, p.13), Hong Kong intensively enforces the law to protect IP of foreign investors and illegal actions against this would receive penalty. Nonetheless, it is MC’s right and obligation to protect the products’ IP beforehand (as mentioned in 2.1, p.25). Since the fish sauce production takes place in Vietnam, this would reduce the risks that the local partner acquires production technology.
  27. 27. Pham T. My - s3357655 - G2 27 3. Objectives For Chin Su Nam Ngu fish sauce to be available in 1 out of 10 households in Hong Kong, at end of year 1’s collaboration with Lee Kum Kee. Figure 12. Marketing examples on Lee Kum Kee's website. Reproduced: Lee Kum Kee n.d
  28. 28. Pham T. My - s3357655 - G2 28 4. Implementation Table 4. The 6W and 1H questions When Who To whom Where What Why How Year 0 (starting point) MC Board of directors Register IP for Chin-Su Nam Ngu To protect the company’s technology and interests Year 0 Research team of 5 MC’s board of directors Vietnam Assess LKK For example: - Financial security? - Credit issues? - Already joint venture with any other businesses? What are the results? - Production, marketing and workforce performance To assure LKK has the resources and skills that add value to the business Based on secondary researches and tertiary researches Year 0 + 1 month Market research team of 4 LKK Company Hong Kong On-site visit To evaluate the leadership style and workforce performance To check the suppliers and customers’ attitude about LKK Create an informal arrangement with LKK, with support from MC CEO. Work with LKK in a special project/campaign for 3-5 months to learn of their strengths and weaknesses Based on market surveys and other primary researches Year 0 + 7 months Business development consultants MC’s board of directors Vietnam Review of joint venture decision To assure the viability of the collaboration and identify possible opportunities and threats o Look at other options again o Look at other Vietnam companies that applied joint venture (successful and unsuccessful ones) o Estimate costs and benefits o Consult legal department Year 0 + 8 months MC’s CEO LKK’s CEO Hong Kong Letter of intent To explain in detail MC’s intention to collaborate with LKK Elaborate the action plan Include the specific terms of the transactions Year 0 + 8 months Business development manager MC’s board of directors 1 in Vietnam 1 in Hong Kong Set up 2 SBUs to be in charge of the joint venture (fully function after the final agreement of the two companies). To monitor the progress and performance of the joint venture Based on quarterly reports
  29. 29. Pham T. My - s3357655 - G2 29 Year 0 + 9 months MC’s CEO LKK’s CEO Hong Kong Memorandum of understanding 1st stage of the formation of a formal contract o Outline terms and details of the agreement between the 2 parties. o Include requirements and responsibilities for each party Year 0 + 9.5 months MC’s executives LKK Company Hong Kong On-site visit Facilitate the signing of the agreement Establish good impression with the potential partner Year 0 + 10 months MC’s CEO LKK’s CEO Hong Kong Memorandum of agreement The final stage of the formation of a formal contract. Two parties are now legally binding. Both companies fully agree on the terms of the agreement. Year 0 + 11-12 months SBUs in charge of the joint venture Other business units: Finance, Production, Logistics, Marketing Vietnam Preparations for the operations of SBU in Hong Kong Support the first stages of the collaboration o Consult legal department about food and nutrition requirement for the product o Make logistics decisions with LKK about the distribution of the products o Create marketing plans for Chin-Su Nam Ngu in Hong Kong o Arrange accommodation for MC’s SBU in Hong Kong o Post information regarding hiring assistances in major Chinese and Hong Kong job-hunting websites o Discuss with MC’s executives and finance department about possible wage for host country nationals Year 1 SBU Hong Kong (representative of MC Vietnam) Hong Kong Start the joint venture with LKK
  30. 30. Pham T. My - s3357655 - G2 30 5. Performance indicators Success criteria of an international joint venture can be financial-based, production- based or relationship-based (Jain & Jain 2003, Frino, Hill & Chen 2009). a. Financial-based: based on financial statements of both partners, revised by an auditing agency. For examples: - Rate of return on capital investment - Return on equity - P/E ratio (the price the investors are willing to pay for every dollars of earnings per share) b. Production-based: based on financial statements of both partners, market researches For examples: - Market share - Capacity expansion - Sales turnover c. Relationship-based: based on qualitative surveys. For examples: - Partner satisfaction - Partners’ harmony Adapting the ideas of Rajan (2004), there could be surveys with the participation of both companies’ executives and departmental heads. The surveys will include questionnaires regarding incentives, fulfillment of control, behavioral aspects and performance of the joint venture from both parties’ viewpoint. These surveys will be carried out by MC’s SBU in Hong Kong, with support from human resources department.
  31. 31. Pham T. My - s3357655 - G2 31 IV. CONCLUSION In summary, the Hong Kong venture would expand MC’s market and revenue. Using Chin-Su Nam Ngu clean fish sauce to target the table sauces market, which was previously ingrained with soya sauce consumption, is risky. However, with support from a reputable local partner such as LKK, Chin-Su could attack this niche market and inspire the Hong Kong culinary culture with new taste. The collaboration with LKK is highly advisable to reduce the risks that MC could possibly face in the new market and bridge the gap between MC and Hong Kong consumers.
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  38. 38. Pham T. My - s3357655 - G2 38 Appendix 1. Masan Consumer’s Product Portfolio Mid-tier market Source: MG 2012 High-end market Masan Consumer Fish sauce Chin-Su Chin-Su Nam Ngu Nam Ngu De Nhi Soya sauce Chin-Su Tam Thai Tu Chili sauce Chin-Su Rong Viet Convenience food Instant noodles Omachi Sagami Kokomi B'Fast Congee Coffee Vinacafé Wake up Phinn Instant cereal Kachi Mass market
  39. 39. Pham T. My - s3357655 - G2 39 Appendix 2. Financial projections 1. Projected income statement (3 years): Masan Consumer Unit: USD Year 1 Year 2 Year 3 Revenue 415,536 469,556 530,598 Cost of sales 66,108 74,702 84,413 Gross margin 349,428 394,854 446,185 Total salary and wages 139,263 143,231 147,318 Fixed business expenses: Advertising Car and Truck Expenses Bank & Merchant Fees Contract Labor Conferences & Seminars Customer Discounts and Refunds Dues and Subscriptions Miscellaneous Insurance (Liability and Property) Licenses/Fees/Permits Legal and Professional Fees Office Expenses & Supplies Postage and Delivery Sales & Marketing Taxes-Other Telephone and Communications Travel Utilities Total fixed business expenses 14,400 5,040 7,680 6,480 5,760 10,440 6,240 5,880 15,480 6,000 8,400 3,720 3,360 13,440 13,200 11,040 9,600 8,400 154,560 14,832 5,191 7,910 6,674 5,933 10,753 6,427 6,056 15,944 6,180 8,652 3,832 3,461 13,843 13,596 11,371 9,888 8,652 159,197 15,277 5,347 8,148 6,875 6,111 11,076 6,620 6,238 16,423 6,365 8,912 3,947 3,565 14,258 14,004 11,712 10,185 8,912 163,973 Other expenses: Amortized Start-up Expenses Depreciation Interest Commercial Loan Commercial Mortgage Line of Credit Taxes Total other expenses 22,667 3,893 39,819 12,123 3,924 - 82,426 22,667 3,893 34,842 11,855 8,424 6,682 88,363 22,667 3,893 29,505 11,564 10,954 15,795 94,378 Net income (26,821) 4,063 40,515
  40. 40. Masan Consumer and Hong Kong venture proposal 40 2. Payback period analysis: Masan Consumer Particulars Year 1 Year 2 Year 3 Expected Revenue / Sales 415,536 469,556 530,598 Operational Expenses Materials & Supplies 3,720 3,842 3,947 Direct Labor Costs 139,263 143,231 147,318 Other Factory Overheads 5,040 5,191 5,347 Sales & Marketing Expenses 13,440 13,843 14,258 General & Admin Overheads 39,600 40,788 42,776 Interest & Financial charges 51,942 46,697 41,069 Others 30,000 40,000 42,000 Total Operating Expenses 283,005 293,592 296,715 - Profit before Depreciation & Taxes 132,531 175,964 233,883 - Less: Depreciation on Capital Investment 3,893 3,893 3,893 Profit before Tax 128,638 172,071 229,990 - Less: Taxes - - - - Profit after Tax 128,638 172,071 229,990 - Add: Depreciation on Capital Investment 3,893 3,893 3,893 - Less: Initial Capital Investment / Cost 250,000 - - Net Cash Flow (117,469) 175,964 233,883 - Cumulative Net Cash Flow (117,469) 58,495 292,378 292,378 Payback Period 2.82 Years

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