Business Environment 2

Business Environment


Task 3a


Explain how market structures in the above case study deviate from the model
of perfect competition.


Market structure
Market structure is devided into four main types:
 Monopoly
 Oligopoly
 Monopolistic competition
 Perfect competition.

Company Logo






Trung Nguyen
Coffee belongs to
monopolistic
competition
Stores in 61 cities
and provinces of
Vietnam

Free entry or exist
the market


Monopolistic competition and
perfect competition
Similarities
 Each firms acts independently without
regard to the responses of its competitors.
 Free entry guarantees that firms earn
zero economic profits in the long-run


Monopolistic competition and
perfect competition
Differences
•Monopolistic competitors are not price takers
•The firm’s equilibrium price exceeds its marginal
cost.
•Firms have excess capacity in long-run
equibibrium


Trung Nguyen’s case deviates from
perfect competition.


The products of Trung Nguyen are not perfect substitutes: classic blend coffee
(strong aroma and deep flavor) can’t replace for passiona (elegant aroma and
bright flavor)

Trung Nguyen’s case deviates
from perfect competition


The quality of each product is different when it is made from different kinds of
coffee leading different prices

e.g. Creativity coffee, blend coffee, G7 instant coffee.


Task 3b.
Using a range of examples to illustrate the
relationship between market forces and Trung
Nguyen coffee responses.


Market forces of Micheal Porter


Threat of new entrants to the
industry.
Barriers to entry:
 Economies of scale
 Product differentiation
 Investment requirements
 Switching costs
 Access to distribution channels

Trung Nguyen’s responses
In the economies of scale, Trung Nguyen has their achievements to face the barrier:
- Leading coffee company in Vietnam
- Best brand of Coffee in Vietnam – world leading country of exporting coffee
- Biggest exporter in Vietnam of processed coffee
- The first Vietnamese company successfully applied a form of franchising in
domestic and overseas market
- 89% consumers choose G7 in a blind test survey (in comparison with
Nescafe) where more than 12,000 people presented in November 2003
- “Top five brand” of agricultural product & foods in “The Vietnamese High
Quality Commodities Award” 2000, 2001, 2003 and 2004 by the selection
of consumers.
- Trung Nguyen is the only Vietnamese coffee manufacturer receiving
certificate of EUREPGAP


Product differentiation


Trung Nguyen is the only Vietnamese coffee manufacturer receiving
certificate of EUREPGAP



“Top five brand” of agricultural product & foods in “The Vietnamese High
Quality Commodities Award” 2000, 2001, 2003 and 2004 by the selection of
consumers.



Attract the eyes of the means of media in their PR strategies with their
slogan “inspire creativity’, management experience of Trung Nguyen
board of directors and secret to roast and ground coffee… but the
most important thing is the phenomenon of Trung Nguyen


Investment requirement







Invest about 800 billions VND (40 millions USD) in 5 year for the the
most modern technology of processing toast and ground coffee.
Buy the sai Gon coffee factory of Vinamilk for about 40 million USD
Inviting experts to plan strategies for TG to widen and develop their
market, especially entering EU market.
Realize two projects that are ‘dominating VN-conquering the world’
and ‘ global coffee paradise’


Distribution channel
TRUNG NGUYEN COFFEE, A PIONEER IN
MODERN DISTRIBUTION IN VIETNAM with
their G7 marts networks



Threat of substitute products or
services


Relate to the price of substitutes



Relate to the quality of substitutes 



Switching cost to buyers


Apply to Trung Nguyen
For VN tea is the
substitute for coffee
 A traditional drink
that many Vietnamese
desires
 Good for health


Responses of Trung Nguyen


Make many kinds of coffee reaching to different customers’ needs.



Connect coffee lovers and refer to enjoy coffee in cultural aspects, then widen
their customers by their reliability and attractiveness.


Bargaining power of customers


buyer choice



buyers size/number



change cost/frequency



product/service importance


Being the first
Vietnamese
company applying
franchising model.
 1000 franchising

coffee stores all
over VN
 Build up a
convenient store
system and
distribution
centers G7 Mart in
VN


Bargaining power of suppliers


brand reputation



geographical coverage



product/service level quality



relationships with customers



bidding processes/capabilities





Continually give
strategies and
projects to develop
Tay Nguyen and
build up a ‘ global
coffee paradise’
Cooperate with local
authorities to
organize coffee
festivals to promote
and make reliability
for suppliers


Rivalry amongst current
competitors in the industry


number and size of firms



industry size and trends



fixed v variable cost bases



product/service ranges



differentiation, strategy


Task 3c


Explain the behavior and competitive strategies employed by Trung Nguyen
coffee and discuss the role of the competition commission and regulatory
bodies.


Strategies Trung Nguyen used
market segmentation
Geography area:
• HaNoi
• HoChiMinh city
 Sex
• Woman: Passiona
coffee
