Professional Documents
Culture Documents
Trung Nguyen Coffee
Trung Nguyen Coffee
Trung Nguyen Coffee
]
PM1006
Table of Contents
How has Trung Nguyen coffee company built/expanded in market?..............................................2
Introduction................................................................................................................ 2
Internal environments................................................................................................ 2
Management........................................................................................................... 2
Customers............................................................................................................... 4
Suppliers................................................................................................................. 4
External factors - PESTEL Analysis............................................................................. 5
Economic factors..................................................................................................... 5
Social/cultural factors.............................................................................................. 6
Legal constraints..................................................................................................... 6
Core competences...................................................................................................... 6
Clear and distinctive product..................................................................................7
Difficult to copy....................................................................................................... 7
Competitive advantages............................................................................................ 7
Product differentiation............................................................................................. 7
Service differentiation............................................................................................. 8
Quality..................................................................................................................... 8
The global perspective............................................................................................... 8
Some restriction of Trung Nguyen and Recommendation.........................................10
Conclusion................................................................................................................ 10
Introduction
As the second largest export, coffee plays an important role in the Vietnamese economy
(Dang, 2004). According to ICARD and Oxfam research (2002), it is cultivated mainly in the
highland places like Dak Lak, Lam Dong and Gia Lai. Although coffee is a crucial commodity, it
cannot bring high income because Vietnam mainly exports bean coffee. In 1996, Vietnam
exported 480,000 tons but it gave 380 million dollar back. In this context, Mr. Dang Le Nguyen
Vu wanted to sell a kind of coffee that could bring more benefit than bean coffee. Therefore, he
and his friends established Trung Nguyen Coffee Corporation in 1996. His company produces,
manufactures and sells coffee. It consists of six members and it will have ten members in the
near future. Besides this, Trung Nguyen is the pioneer in franchising in Vietnam. By the end of
2010, Trung Nguyen had established over 1000 coffee shops and franchising shops in Vietnam
and other countries. The most important thing is that it has expanded its market in 40 countries
over the wold (Witzel, 2011). This essay will examine thoroughly Trung Nguyen Coffee, focus
on the internal and external factors that have impact on the business in order to understand more
about business theory.
Internal environments
Management
`First of all, Mr. Vu has abilities enough to become a successful leader.
The fact is that his coffee brand was planned carefully and he put strong effort to fulfil them. For
instance, he could persuade the customers about coffee quality but there was no effort to
distribute the coffee network. To deal with this problem, Mr. Vu applied the chain of coffee
models of Starbuck Coffee (3). In addition, to face with the foreign brand name, Mr. Vu added
the Vietnamese tradition as a marketing campaign. What is more, Mr. Vu positioned every his
coffee shop as a place where everyone can come and enjoy coffee with Trung Nguyens style.
Customers are allowed to drink many kinds of coffee, distinguish the difference between them
and give their comments. As a result, his brand was more well-known and was welcomed by the
domestic market and also the exotic market.
Customers
Customers are one of the affects on the expansion of Trung Nguyen coffee. They are the judges
and decide the fat of one brand name. In order to conquer their customers, Trung Nguyen added
the traditional value into their products. If customers come to Trung Nguyen coffee shop, they
are introduced the way to drink coffee in Trung Nguyen special style and have the change to
taste different types of coffee without charging. Moreover, they continuously create the tasty
coffee product such as the instant G7 coffee. Thanks to this product, Trung Nguyen coffee is
well-known not only in Vietnam but also Singapore and Japan for example.
Suppliers
Suppliers can increase their power and also make an impact onto the industry by increasing
supplys price or lowering the supplys quality. Trung Nguyen has many advantages to make
their supply become more competitive. Firstly, in 506,000 hectares used for growing coffee
Robusta coffee-the most famous type of coffee in Vietnam occupies 26,000 hectares. About 3/4
Vietnams coffee production is in the Highlands places where has many relevant condition for
growing coffee.
Table 1: Primary coffee producing areas
Province
Dak Lak
Lam Dong
Gia Lai
Kon Tum
Dong Nai
Robusta Total
Son La
As can be seen from the table above, the two largest producting provinces are Dak Lak 234,000
hectares and Lam Dong 100,000 hectares. Trung Nguyen was built in the uprooting areas above
so it can make use of advantages such as saving transportation cost. What is more, with the
available the local labours have experience in processing coffee, Trung Nguyen can hire them
without paying high. Therefore, Trung Nguyen made a good qualitative coffee to sell but they
did not need to spend much money on production cost.
4
Economic factors
The changes in recent years have in part contributed to a coffee crisis that affects more than 50
coffee producing countries, several of which are dependent on coffee as their main source of
export revenues. As a result, Vietnamese economy underwent some difficulties although it was
modest. Some regional economic shocked when coffee revenues dropped significantly combined
with increased government expenditure (10). However, Trung Nguyen was not affected a lot
when it continuously opend franchising shops in Singapore 2001, Cambodia and Thailand 2003,
Japan 2004 and established the biggest contribution network G7 Mart. The reason to explain the
success of Trung Nguyen is that firstly Vietnamese economic scale was small, meaning that it
was affected by crisis modestly. It was An advantage for not only state company but also private
enterprises, especially Trung Nguyen Coffee. Secondly, Trung Nguyen with the difference from
competitor such as service and productions, Trung Nguyen had firmly position in the market.
Thirdly, coffee was very in favour of customers when it was consider the most favourite drink.
As analysis above, Trung Nguyen could overcome obtacles and less suffered from crisis than the
others.
Social/cultural factors
Vietnam is densely populated and agricultural land officially accounts for 28 percent of its 33
million hectares and coffee occupied 4.16 percent of total agricultural cultivating area. Thereby,
coffee is an important part of the rural economy. It directly employs 600,000 workers. (10).
According to the General Statistic Office (2003) about 2.6 million people in Vietnam cultivated
coffee. These characteristics of social environment support to the growth of Trung Nguyen in
these first steps because Trung Nguyen had a relevant place to cultivate coffee and the cheap
available work force. Trung Nguyen, therefore, could gain more benefit and become more
competitative.
Legal constraints
The government had some decision to support import. In 1998, the government allowed private
firms to import fertilizer and removed quantitative import restrictions (Decision 242/1999/QDTTg) and quotas (Decision 46/2001/QD-TTg) in 1999. Import taxes on fertilizers have been
reduced to five persent. The Government has encouraged expand coffee export through award
policy. It has implemented some policies to reduce transportation costs by 10% and some
unnecessary proceduces such as police examination of goods. Besides this, in order to reach the
high productivity, the Government delete the taxes on using ground water for growing coffee in
Dak Lak (21). Thereby, Trung Nguyen can decrease the irrigation time and production cost.
Hence, they can increase profits and productivity more effectively when they have a company
which culture coffee as well. Another competitive policy is that exchange rate is adjusted
significantly by the Government (21). This helps the coffee business suffers from crisis less than
other countries which has lower exchange rate.
Core competences
Core competency is the one of strong points to overcome the competitors.
Clear and distinctive product that focus on customer group is one of core
competencies helping Trung Nguyen has a firm position in coffee market. With various types of
coffee, Trung Nguyen gives more choice for their customers.Trung Nguyen created G7 instant
coffee to counter the biggest multinationals Nescafe the most widespread foreign coffee in
Vietnam. In G7 Instant Coffee Festival in 2003, 89% of 13000 coffee testers voted in favour of
G7 while 11% selected Nescafe (16. Bi, 2010). What is more, Passionate coffee which is the
6
Difficult to copy that means the company has a unique difference to conquer customers
and can decrease the risk of the new entrants.
Trung Nguyen has various types of coffee that has focused on the wide ranges of customer. With
the rapid expansion, Trung Nguyen has closely saturated the market. Therefore, it is putting the
brakes on further domestic expansion and has more protection itself from the new entrants to
market. It is also difficult for copycats to imitate the Trung Nguyen imagine because copycats
cannot persue customers easily when they are familiar with Trung Nguyens name and flavour.
Competitive advantages
Product differentiation
To be more competitive, Trung Nguyen designs their coffee shops with the style of Tay Nguyen
where coffee is derived from. When customers come to Trung Nguyen shop, they can expose
into the original coffee environment and try the different tastes of coffee. Moreover, they can
compare and give recommend about the tasty coffee. By this point, customers feel very
interested in Trung Nguyen brand. That marks the success of Trung Nguyen when they want to
expand in market.
Service differentiation
Besides the unique Tay Nguyen style to drink coffee, Trung Nguyen makes the flexible way to
sever customers. Each coffee has a distinct style and atmosphere that reflective of the local
community and region. For example, caf shops in the center of Ho Chi Minh City are decorated
with colour. Because it aimed at the young, pop music in trend are played loudly. In comparision,
caf in conservative city Hanoi is designed in traditional style. Waitresses dressed in the
traditional flowing tunic of Vietnamese women Ao Dai. The music atmostphere is in soft flute
music and bamboo and rattan dcor. This service difference can sever customers favour
relevantly, giving them the interest and comfort in drinking coffee.
Quality
It seems that the coffee market is now saluted when customers nowadays have many
brand names to choose. As a result, they are ready to give up Trung Nguyen to taste other coffee
brands. Therefore, quality becomes very important when it is one of factor to conquer customers.
Trung Nguyen (2010) states that they chooses four different regions where the most delicious
coffee growed: Robusta in Buon Ma Thuot, Vietnam, coffee from Ethiopita, Arabica from
Jamaica and coffee from Brazil. With the support of the cutting-edge technology and the secret
of Oriental making coffee in grounding, Trung Nguyen coffee products are so special and
different from another one. That makes Trung Nguyen coffee more competitive and gain more
benefit.
Volume (mt)
112,739
89,288
59,777
56,263
51,170
47,500
33,956
29,162
26,162
25,799
Avg.price (US$/mt)
363
355
352
375
375
376
361
364
364
338
As can be seen from the table above, Japan, South Korea and United States were main export
markets of Vietnamese coffee. Trung Nguyen knew that and they conquered these markets first
when the people in these countries are familiar to Vietnamese coffee. In 2011, Trung Nguyen
exported 1,400 million coffee into United States and 200 million tons into E-mart retail chains in
Korea (Thenewpaper, 2012). This is a change for Trung Nguyen to promote G7 brand and
Vietnamese brands in general.
Conclusion
In conclusion, these are factors that influenced on the development of Trung Nguyen internally
and externally. Leadership, customers, social factors and legal policy supported Trung Nguyen
coffee to expand. By dint of having wide range of product and special style, Trung Nguyen is
strong enough to cope with their competitors. That is their core competencies and competitive
advantage. However, there is no doubt that Trung Nguyen needs to refresh the network of
franchised shops to keep their image
10