Assignment 1 - Strategic Analysis - Individual Submit Assignment PDF

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INTRODUCTION (250w) Tourism and hospitality industry is on rise of rapid development. It is considered as one of the most crucial opportunities for employment and one of the biggest industries in the world which contributes largely on GDP (Solimar International n.d). The tourism industry has contributed to the world GDP at 10.4% which is about US$8.3 trillion and creates 313 million jobs (TravelDailyNews 2018). Based on The United Nations World Tourism Organization (cited in Roser 2019), an estimation has been delivered with a number of international tourist arrivals are about 25 million in 1950, following up with an increase of 1.4 billion each year as a 56 fold increase. Including in the number of international tourist arrivals is Asia and the Pacific experiencing a growth 6% as 323 million in 2017 (UNWTO 2018). That number is also a contribution in tourism revenue of Asian destination with a steady growth from 17% to 29% as US$390 billion of the world total from 2000 to 2017 (UNWTO 2018). Vietnam, which is a country located in Pacific Asia, has also delivered a great performance in earning US$26.5 billion in tourism due to a welcome of about 15.6 million international and 80 million domestic visitors in 2018 (Nhan Dan 2018). The increase in the number of visitors causes food sector to grow as international visitors require high quality foods (Viet Nam News 2017). A contribution to the sector is Gong Cha, a tea drink franchise entering Vietnam in 2014 with an aim of serving the best tea for customers, sees potential development in Vietnamese market. This paper will illustrate the macro environment of tourism market in Vietnam by using PEST model, along with analyzing micro environment on Gong Cha using Porter’s 5-force model and deliver recommendations for problems that are still lingering.

ANALYSIS (1500w) Macro Environment Evaluation(950w) Political environment According to Viet Nam News (2018), the Prime Minister announced that the policy of encouraging foreign investment will be maintained along with a continuous improvement of its investment environment to give investors more opportunities. Moreover, the decision to open the Vietnamese economy to the foreign direct investment (FDI) gives the country a chance to earn multiple socio-economic growth objectives as Vietnam has turned into an effective and reliable destination to invest by foreigners. A Law on Food Safety is issued by Vietnam in 2010 delivers numerous aspects of safety on the entire supply chain and consists of many people who take part in production and trading business. This is a proof of the rising concern issue of the government, as a result, providing the Decree No. 15/2018 / ND-CP with a detailed instruction for the Law on Food safety with a goal of concentrating more on the post-checking procedures applied to the basis of food processing (Do & Nguyen 2018).

Economic Environment According to the figure adapted from Trading Economics (n.d), Vietnam is experiencing a rapid increase in terms of GDP with over 200 billion US dollars in 2018 (Figure 2). This indicates a decrease in poverty, especially ethnic minorities with the rate declines tremendously by 13%, in Vietnam (World Bank 2018).

Figure 1: Vietnam’s GDP. Adapted from Trading Economics (n.d) Based on a new report delivered by the EIU (cited in VnExpress 2016), the tourism sector causes the Vietnamese economy to grow strongly. Moreover, the growth of tourism has contributed strongly to job opportunity with 1.6 million direct jobs are hoped to be created (Mai Huong 2018). The Figure 3 has been given shows the unemployment rate has been strongly improved throughout recent years due to the success of the industry. It has a contribution to the milk tea sector of giving many job opportunities.

Figure 2: Vietnam’s unemployment rate. Adapted from Trading Economics (n.d) According to a report of Forbes (cited in Woo 2018), Vietnam has been declared as the hottest investment destination with US$ 17.5 billion in foreign direct investment spending since 2017. From that, many enterprises confidently make large investment in the bubble tea industry due to high demand of preference and activities from the young population (see Appendix 3) and the opportunity of creating food profit (Nguyen 2019).

Social Environment The Social Environment in Vietnam comprises of complex background which is impacted by society and can be analyzed by three components: demography, social influence, and shopping habits. Vietnam is experiencing an increase in population with over 96 million in 2019 distributing around major cities, making the country the 15th most populous in the world (World population Review 2019). The appendix 1 illustrates a great opportunity for development of many industries targeting millennials who have high demand and buying power. As has been shown in the graph (see Appendix 1), with the rise in the number of millennials (between 15 to 39), Vietnam offers a large number of labor workforce which can result in increasing the labor productivity (Das 2018) and benefits the development of tourism industry, especially the milk tea sector, leading to the growth of Vietnamese economy. In term of social influence, the tremendous growth in the food and beverage sector in Vietnam attracts many international and domestic brands to the market with the increase in spending (Das 2017). According to Tatarski (2017), consumers in Vietnam show a large consumption in drinks than food due to the impact of price and health as a way of illustrating the US$ 1.3 million worth of the beverage industry in Vietnam. Moreover, in the mid-19th century, coffee has been introduced and become a coffee culture of Vietnam (Hulme 2017). However, in 2007, Vietnam joined the World Trade Organization with many international products have been imported including Taiwanese tea with a surge in popularity, especially female customers, across the country (Tomiyama 2018). With the consideration of a refreshing drink combined with cheap price and the unique fragrant and sweet taste, the bubble tea has mushroomed in both major cities and mountainous areas (Jun & Hua 2018). Shopping habits of consumers have been changing lately around Vietnam. Consumers have more preference on old-school shopping outlets due to its convenience of buying products on their motorbikes (Tatarshi 2017). However, there are about 50 million Vietnamese between 16 and 64 prefer online shopping in 2018 reported by GlobalWebIndex (cited in Kemp & Moey, S 2019). It has shown that consumers have changed their shopping habits to ecommerce shopping with Vietnam ranked 3 at the online grocery spend (see Appendix 2).

Technological Environment

Technology is one of the most crucial parts of the world development including the growth of tourism industry. It gains many benefits for the industry, especially reducing costs by using technological labor instead of expensive human labor (Entre 2018). Moreover, according to Bethapudi (2013), the Information Communication Technologies (ICT) has a tremendous advantage of delivering success to the tourism enterprise. Tourism industry sees many opportunities in technology development to improve business operation. Internet plays a crucial role in marketing as it has the ability to cover every corner of the world and can be exploited for various types of promotional and marketing activities in the tourism industry. Moreover, the industry is recognized as one of the earliest industries applying Integrated Marketing Communication (Hisham & Qian 2015). The boom of the internet helps to create digital marketing as a way to reach a specific audience by promoting products and brands online and through its digital channels (Sherman 2019). The internet economy in Vietnam is ranked 2nd of the fast-developing market in Southeast Asia with an estimation of value of US$ 12 billion in 2019 and the growth in each year is 38 percent (Xuxin 2019). Internet also the cause of the rise in online food delivery services. It has experienced a rapid growth in Vietnam lately with many brands mushroomed like Now, Lala, GrabFood, … integrated in many mobile apps and websites for consumers (Viet Nam News 2019). Consumers tend to order foods online due to the integration in mobile devices (69% people order through smartphones) makes it easy, fast and comfortable for ordering along with appealing menu when they are in the hunger (GloriaFood n.d). Based on the figure adapted from statista(n.d), the internet has helped to boost food delivery services in Vietnam with profit increase over time (Figure 1)

Figure 3: Revenue in the Online Food Delivery segment. Adapted from statista (n.d)

Micro Environment Evaluation (550w)

Threat of new entrants In term of Gong Cha, they are facing a new competitor with high prospect - Meet & More. This new brand of milk tea originated from Korea is bringing a new wave Korean vibe and dynamic sense to the Vietnam bubble tea industry (meetandmore n.d). The threat of this new brand is that not only does it provide milk tea but it also holds many small events like music shows with famous people or conference with economic experts or free health check for people coming at the weekend (hutech 2019). With these great services considering consumers as ‘God’ along with high quality products, Meet and More can conquer Gong Cha in few years. Hence, the threat of new entrants of Gong Cha can be considered as a medium to high level.

Bargaining power of suppliers According to Nguyen, V (2018), Golden Trust is an exclusive representation of Gong Cha in Vietnam which received the brand, formula, materials, process, operation standard and training program from Gong Cha to develop its system in Vietnam. As a result, the materials of Gong Cha is considered as high standard due to the brand always fully responds to the request of state management agencies (Cong, L 2019). However, the ingredients for bubble tea are currently being spread with low quality in the market as they are sold at the low price with various countries like Thailand, Korea,... without the certification of the origin (Mai, H 2017). Gong Cha is also in the situation of using the name of the brand to sell ingredients online which causes misunderstanding to consumers (Cong, L n.d). With the situation being undertaken, the suppliers would offer higher price as for the assurance of quality to the brand so they have to deal with profits margin. As a result, the bargaining power of suppliers of Gong Cha is in the high level.

Bargaining power of buyers The internet gives consumers opportunities to gain more information about products, especially price as they can compare the price with other brands. In this case, the price of Gong Cha is not as high as other brands which can be placed as a medium price with about 50,000 VND compare to the Alley with 69,000 VND (Hanh, H 2019), so customers can still place Gong Cha as their preference with reasonable price. Hence, the bargaining power of buyers of Gong Cha is in the low to medium level.

Threat of substitute products According to Anh, D (2019), lemon tea is reviving with unique style stores, young and the feeling of resilience especially along with cheap price (¼ cheaper than bubble tea) making it more famous currently. Moreover, due to the saturation of bubble tea market and the return of authentic Vietnamese culinary culture has caused bubble tea to be under threat (Dan, L 2019). As a result, the threat of substitute products of Gong Cha is in the

high level.

Rivalry among existing competitors Many brands of bubble are rising and can be listed like Chatime, Royaltea, Heekcaa, Bobapop, Chago, Goky, Coco and it is expected that there are more than 1,500 bubble tea shop from more than 100 brands in Vietnam (nhandan 2017). There are many domestic milk tea brands are building competition in the market (VN Economic Times 2017) threating Gong Cha with many brands offer many choices and taste along with outlets which can reach more customers (see Figure 4). To conclude, the level of rivalry is considered to be high in the bubble market.

Figure 4: Number of milk tea outlet, by brand. Adapted from VN Economic Times (2017)

Conclusion In conclusion, both environments: micro and macro have delivered the analysis and show the disadvantages and advantages that can affect the tourism industry and milk tea industry In term of macro environment, the government is trying to boost the economy of the country by maintaining the policy of encouraging foreign investors. Moreover, due to the investment is mainly focusing on tourism sector which includes the food and beverage industry, government has also delivered a Law on Food Safety to ensure the health of consumers. With the government support in the tourism industry, the GDP of Vietnam experiences an upward trend throughout these years as it creates many jobs opportunities, this also contributes to the decline of the unemployment rate. Vietnam is now strong in the young population between 15 and 39 and the shopping habit has been changed along with the improvement in technology in internet, the food and beverage sector can experience an increase in revenue which boost the economy of the country.

In addition of micro environment, it seems like Gong Cha is facing a lot of challenges in the industry with the prominent new entrant, Meet & More, and many existing rivalry like Ding Tea, the Alley, Goky,.. The increase in brands brings about new taste and choices for customers that makes Gong Cha hard to maintain its operation. In term of suppliers, Gong Cha is experiencing many low quality ingredients sold in the market with no insurance of safety along with deceiving consumers with fake Gong Cha brand to sell cheap ingredients. This could make consumers feel unsafe and shift to other brands or substitute ones. Luckily, the price of Gong Cha’s products is not too expensive which can benefit the brand to maintain its operation and attract consumers.

Recommendation In term of competitors, should deliver new ingredients with new products as to create a sense of curiosity to the young population as has been shown in the economic environment with the age of 15 to 39 which always urge to try new products. Moreover, the improvement of technology also benefit the brand with online food delivery like Grab Food. Gong Cha should have some discount like in special event or monthly on the platform so consumers can be attracted easily and buy their products. Promotion event is also a good way to promote the brand’s image with the ability to attract new customers and deliver new trial taste. As mentioned the suppliers, Gong Cha should raise people’s awareness about cheap ingredients sold in the market and use the internet as a tool to raise awareness and promote the brand continuously. This way can reduce the possibility and demand in cheap ingredients so as for the suppliers not to increase in price of ingredients and safe profits margin. While substitute products are unavoidable, the demand can still be maintained due to some actions like increasing job opportunities for youngsters giving the brand a free promotion along with decrease in the unemployment rate of the country. However, actions might be taken in many ways, quality has to be ensured if the brand wants to prolong its age as the law has been delivered by government and the brand has to follow. It is crucial due to the customers have high demand on products that have high quality.

REFERENCES APPENDICE

Appendix 1: Vietnam Population Pyramid 2019. Adapted from: worldpopulationreview n.d

Appendix 2: Annual growth in online grocery spend. Adapted from. Kemp, S and Moey, S

(2019)

Appendix 3: Popular leisure activities of the young population. Adapted from Dat, N (2019)...