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Opportunities in Expanding to Vietnam Market

Question:

Discuss about the Study Into The Marketing Practices Of Dairy Product.

The multinational companies today require extending and entering new foreign markets. The new markets present oceans of opportunities like more revenue generation and capital generation. This means more competitive advantage and higher market position. However, this also means that the companies are exposed to the market conditions and competitions which already exist in these new markets. These challenges require the companies to form strategies to counteract the challenges in the short and long run. The business plan would explore the market expansion of an arbitrary dairy company from Australia into the market of Vietnam. The dairy company would cater to the middle class consumer base in Vietnam with its baby formulae. However, in order to establish itself in the baby food market of Vietnam would require strategy making because the market already has presence of strong multinational companies selling similar products. Keeping these opportunities and threats in view, the paper would first study the marketing opportunities, channels and pricing which the company can use in the Vietnamese market. This would be followed by formation of several growth strategies which the company can take. These actions would be supported by financial estimation statements like budgets and balance sheet.

The appropriate marketing strategy which the Australian firm can use to market its baby food products to the middle class Vietnamese customers is an aggressive marketing mix. The market of Vietnam already experiences presence of large number of multinational companies from the US, Japan and the European countries like Italy. This shows that the Australian company should use marketing as a strategic tool to counteract competition from these multinational companies (Seifu & Tassew, 2014). The product line of the Australian company should consist of wide range of baby formula products and accessories. The baby formula products should consist of milk, cereals, baby snacks, baby soups and candies. The accessories should consist of products like diapers, bottles and toys made from food grade materials. The Australian company should position itself as a premium baby formula marketer from Australia offering high quality baby food products (Kulkarni, 2017).

The above graph shows that the average monthly income of the Vietnamese people is increasing which means that the more number of people would prefer buying high quality baby food. Moreover, most of mothers prefer to join work early after delivering babies which means that these mothers depend more on baby formula products to feed their babies. This analysis shows that the Australian can enter Vietnam market taking advantage of these two trends. The firm must target the middle class customers particularly working mothers who would require baby food products to meet the nutritional requirements of their babies at early stage (Poma et al., 2017).

As far as segmentation is concerned, the Australian firm should segment its Vietnamese market income wise and lifestyle wise. The income wise segmentation of the market would divide the customers into upper middle class and lower middle class. The products offered to the upper middle class customers would be more expensive that the ones offered to the lower middle class customers. There would not any difference in quality of the two variants of products but there would be more flavours for higher variant of baby products (Heinemann, 2016).

Marketing Strategy for the Australian Company

The Australian firm would use the supply channel and distribution channel of Vietnam to distribute its products. The strategies which the Australian baby formula manufacturing firm can use in with relation to these two chains are as follows:

The company can opt for two types of supply chains. It can import finished products in the initial stage from Australia. Then, as it captures market, the Australian baby food products producing company can start its own manufacturing facilities in Vietnam.  It would acquire its own supply chain management in Vietnam which would allow it to manufacture its baby products in Vietnam, thus bringing down its cost of production (D’arpizio et al., 2015). This would help the Australian firm to compete with the international baby food manufacturing firms which have already gained a strong hold in the Vietnam market.

The distribution channel of the Australian baby formula manufacturing company should consist of franchisees in the initial stage since it has no control over the market of Vietnam. However, it would limit its profitability as most of the franchisees would prefer selling the established brands in the country. The company at a later stage should acquire its own distribution channel consisting of wholesalers and retailers to sell its products. This process is expensive and would attract huge investment from the company; it would profit the operations in the long run. This would enable the company to sell its products in the Vietnamese market to gain competitive advantage over its competitors (Rezaei, 2015).

The pricing of the baby formula should follow the segmentation strategy described above. As pointed out, the company should set two pricing strategies simultaneously namely, penetration pricing and price skimming. The penetration pricing strategy would enable it sell its down-stretch variants among the lower middle class customers of Vietnam. The company using skimming pricing can attract the upper middle class customers. This pricing strategy would have several implications on the market acquisition of the Australian baby food. First, the revenue earned in Vietnam by using these two strategies would enable the company to acquire its own supply and distribution chains in the country (Leeflang et al., 2014). These chains would emphasis on working with the company, thus boosting its productivity. Secondly, this would enable the company to introduce more products into the Vietnamese market. These two strategies would in turn enable the company to position itself more strategically in the baby food market in Vietnam in the coming 5 years (Saenko et al., 2016).

The above discussion points out that the Australian baby food manufacturing company should adopt a powerful growth to scale up its position in the baby food market in Vietnam 5 years down the line. The following would be components of the growth strategy:

The baby food products manufacturing company faces competition from multinational baby-food manufacturing companies which derive strengths owing to their strong presence in other Asian countries like India, China and Sri Lanka. This means that the company too should expand into the neighbouring markets. Thus, the first growth strategy which the company should take is to expand in the markets like China (Pappas, 2016). This strategy would give the company access to the consumer bases in these countries which it can serve to generate revenue. The Australian baby food manufacturing company can channelize the revenue towards production of more products. Thus, expansion into markets adjacent to Vietnam would enable the company to produce products to serve more customers and earn more revenue (Kim & Mauborgne, 2014).

Segmentation of the Vietnamese Market

The Australian baby food manufacturing company should extend its product line to serve more diverse needs of the customers. The foreign expansion strategy would not only expose the company to new consumer base and revenue generation but also before new market challenges. The consumers in the emerging markets like India and China are experiencing rise in income (Petrosky-Nadeau & Wasmer, 2015). This means that consumers in these countries prefer to purchase products from companies which are able to serve their multiple needs. For example, the working mothers today prefer companies to not only produce high quality baby food products but also accessories like bottles to feed babies. This means the company should also expand its product line to respond to these new trends in the Asian market. The company should manufacture accessories like bottles, boxes and toys from high quality plastic. This would help the firm to serve more diverse needs of the customers both in Vietnam and its neighbouring markets. Thus, this would help the firm to generate more revenue, thus boosting its market growth in the coming 5 years (Yeung & Coe, 2015).

The Australian dairy company must acquire a dairy company in Vietnam as a part of its 5 year business plan. The market of Vietnam as already pointed out has multinational companies which acquire entrepreneurial ventures to minimise competition. This means the Australian dairy firm should acquire a Vietnamese dairy company to get access to its consumer base. This strategic planning approach would help the company get access to the resources of its subsidiary companies which would boost its productivity (Mudambi, Piscitello & Rabbiosi, 2014).

The Australian dairy company should get listed on the leading Vietnamese stock exchanges. This would enable it to float shares in the Vietnamese market and raise capital which it can use to finance its Vietnamese operations. This would give more self dependency to the company’s Vietnamese operations which would in turn help the company to channelize the capital generated from Australia towards its Australian operations alone. This would boost its 5 years growth strategy in a big way (Giuliani et al., 2014).

The analysis of the 5 years growth strategy of the Australian dairy company shows the firm must adopt these strategies to grow in the Vietnamese market. First, expansion into the neighbouring markets of China and other Asian countries would give the firm access to their consumer bases. The company as a result would be able to sell baby food products to these consumers bases and earn huge revenue. Second, the revenue can be generated to boost its product line. Third, as pointed out the company must up-stretch and down-stretch its product line to serve both upper and middle class customers to generate huge revenue. As a part of its 5 years extension plan it should acquire a Vietnamese dairy company to gain stronger hold in the market (He & Khan, 2015). The last plan to manage its Vietnamese growth and value creation would be covered in the financial estimation below.

Supply and Distribution Channel of the Company

The following section would delve into the financial estimation of the 5 years growth strategy:

Years

1

2

3

4

5

Particulars

AU$

AU$

AU$

AU$

AU$

Sources of income

         

Government help (being an entrepreneurial venture)

500000

400000

200000

600000

550000

Revenue from sales

100000

160000

200000

250000

300000

Total income

600000

560000

400000

850000

850000

Expenses

         

Purchase of machinery

100000

300000

0

0

0

Rent of office premises

100000

100000

100000

0

0

Building

0

0

0

200000

0

Materials

200000

300000

400000

425000

475000

Human resources

100000

150000

170000

0

0

Stationary

10000

10000

10000

10000

10000

Advertising

100000

150000

165000

150000

100000

Miscellaneous

5000

6000

10000

5000

8000

Total expenditure

615000

1016000

855000

790000

593000

Budget surplus

-15000

-456000

-455000

60000

257000

Note:  

  1. It has been assumed that the company would initially start its business in rented property and then gradually acquire its own building for office in the fourth year.
  2. It has been assumed that machinery was acquired in the first two years and no employee was recruited in the fourth year onwards.

The budget showed above shows sources of funds and expenditure. The figures are estimated to study the market entry of the Australian dairy company into the Vietnamese market. The estimated amounts have been kept high considering the high initial expenditures which companies have to incur in new markets. On the basis of the above one can point out that the company in the initial stages would not gain profit and would require channelizing funds from Australia to support its Vietnamese operations. The company however, at later stages would however gain surplus of funds.

Years

1

2

3

4

5

Particulars

AU$

AU$

AU$

AU$

AU$

Sources of cash flow

50000

80000

100000

125000

150000

Operating Expenses

Stationary

10000

10000

10000

10000

10000

Advertising

100000

150000

165000

150000

100000

Investing expenses

5000

6000

10000

5000

8000

Total

115000

166000

185000

165000

118000

Surplus

-65000

-86000

-85000

-40000

32000

Note 1: It has been assumed that 50 percent of the sales are in cash.

The cash flow statement shows that the Australian dairy company would require boosting its revenue. The company in the first four years would lack the liquidity which is evident from the negative cash surplus figures. It would be able to boost its liquidity from the fifth year onwards.

Years

1

2

3

4

5

Particulars

AU$

AU$

AU$

AU$

AU$

Assets

Machinery

100000

300000

0

0

0

Building

0

0

0

200000

0

Cash in hand

100000

200000

400000

600000

450000

Cash in bank

100000

250000

450000

500000

600000

Closing stock

20000

30000

40000

42500

47500

Total assets

320000

780000

890000

1342500

1097500

Liabilities

Capital

100000

200000

200000

500000

675000

Loans

200000

500000

400000

400000

214000

Current liabilities

20000

80000

290000

442500

208500

Total liabilities

320000

780000

890000

1342500

1097500

Note: All the figures are assumed.

The building and machinery would follow the assumptions of the budget as stated above.

Conclusion:

It can be concluded from the discussion that the Australian dairy company must enter the market of Vietnam with its baby food products. It should adopt strategies like niche marketing and extension of product line to cater to the needs of the Vietnamese customers. The company should expand into the neighbouring markets to gain access to their customers and generate more revenue. It can be recommended to the Australian dairy company to concentrate towards strengthening its social image in Vietnam by participating the corporate social responsibilities initiatives like helping economic development of the local population.

References:

Brustbauer, J. (2016). Enterprise risk management in SMEs: Towards a structural model. International Small Business Journal, 34(1), 70-85.

Carmassi, J., & Herring, R. (2016). The corporate complexity of global systemically important banks. Journal of Financial Services Research, 49(2-3), 175-201.

D’arpizio, C., Levato, F., Zito, D., & de Montgolfier, J. (2015). Luxury goods worldwide market study. Milan Google Scholar.

Giuliani, E., Gorgoni, S., Günther, C., & Rabellotti, R. (2014). Emerging versus advanced country MNEs investing in Europe: A typology of subsidiary global–local connections. International Business Review, 23(4), 680-691.

He, S., & Khan, Z. (2015). Subsidiary Capability Upgrading and Parent-Subsidiary Relationship: Insights from a Chinese Acquisition in the United Kingdom. In The Future of Global Organizing (pp. 127-141). Emerald Group Publishing Limited.

Heinemann, M. (2016). Leveraging Data Mining and Market Segmentation to Gain Conservation Opportunity Intelligence.

Kim, W. C., & Mauborgne, R. A. (2014). Blue ocean strategy, expanded edition: How to create uncontested market space and make the competition irrelevant. Harvard business review Press.

Kulkarni, S. (2017). A study into the marketing practices of dairy products with special reference to m/s. Chitale bandhu (in comparison with m/s. Warana and m/s Gokul) (Doctoral dissertation).

Lasserre, P. (2017). Global strategic management. Palgrave.

Leeflang, P. S., Verhoef, P. C., Dahlström, P., & Freundt, T. (2014). Challenges and solutions for marketing in a digital era. European management journal, 32(1), 1-12.

McNeil, A. J., Frey, R., & Embrechts, P. (2015). Quantitative risk management: Concepts, techniques and tools. Princeton university press.

Mudambi, R., Piscitello, L., & Rabbiosi, L. (2014). Reverse knowledge transfer in MNEs: subsidiary innovativeness and entry modes. Long Range Planning, 47(1-2), 49-63.

Pappas, N. (2016). Marketing strategies, perceived risks, and consumer trust in online buying behaviour. Journal of Retailing and Consumer Services, 29, 92-103.

Petrosky-Nadeau, N., & Wasmer, E. (2015). Macroeconomic dynamics in a model of goods, labor, and credit market frictions. Journal of Monetary Economics, 72, 97-113.

Poma, G., Glynn, A., Malarvannan, G., Covaci, A., & Darnerud, P. O. (2017). Dietary intake of phosphorus flame retardants (PFRs) using Swedish food market basket estimations. Food and chemical toxicology, 100, 1-7.

Rezaei, S. (2015). Segmenting consumer decision-making styles (CDMS) toward marketing practice: A partial least squares (PLS) path modeling approach. Journal of Retailing and Consumer Services, 22, 1-15.

Saenko, N. R., Sozinova, A. A., Karabulatova, I. S., Akhmetov, I. V., Mamatelashvili, O. V., & Pismennaya, E. E. (2016). Research in action integrated marketing communications as the elements of information and virtualization market relations. International review of management and marketing, 6(1S).

Seifu, E., & Tassew, A. (2014). Small-scale milk processing, utilization and marketing of traditional dairy products in Bahir Dar Zuria and Mecha districts, northwestern Ethiopia. Journal of Food Technology Research, 1(3), 122-132.

Vietnam Average Monthly Wages | 2007-2018 | Data | Chart | Calendar. (2018). Tradingeconomics.com. Retrieved 16 February 2018, from https://tradingeconomics.com/vietnam/wages

Yeung, H. W. C., & Coe, N. (2015). Toward a dynamic theory of global production networks. Economic Geography, 91(1), 29-58.

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