Value Chain of Motorcycle Industry in Vietnam
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VALUE CHAIN OF MOTORCYCLE INDUSTRY IN VIETNAM A case study of Royal Enfield in Vietnam Bachelor's thesis Valkeakoski Campus, International Business Spring Semester 2021 Quang Nguyen Minh International Business Abstract Author Quang Nguyen Minh Year 2021 Subject Value chain of the motorcycle industry in Vietnam Supervisors Sajal Kabiraj This thesis aims to provide an overview of the motorcycle industry in Vietnam and the correlation between the value chain and competitive advantage. The theoretical framework describes concepts related to strategy in business and Michael Porter's theory of competitive advantage. The main objective is to gain practical knowledge by looking into a case company in India: Royal Enfield, choosing a suitable strategy in the Vietnamese market. The author implemented a qualitative research method through primary and secondary data to answer the research question. The secondary data is collected through the theoretical framework and scholarly publications, while data collected from interviews are primary data. The result shows that competitive advantage, if not exploited correctly, may lead to failure. Keywords Strategy, value chain, competitive advantage, management, motorcycle Pages 45 pages and appendices 0 pages Contents 1 Introduction ................................................................................................................ 1 1.1 Research purpose ............................................................................................. 1 1.2 Current situation of the motorcycle industry in Vietnam ............................... 2 1.3 Research question ............................................................................................ 4 1.3.1 Research method ................................................................................. 4 1.3.2 Limitation ............................................................................................. 5 2 Theoretical framework ............................................................................................... 6 2.1 Definition of strategy in business .................................................................... 6 2.2 Definition of strategic management ................................................................ 7 2.2.1 Stages of strategic management.......................................................... 9 2.2.2 The benefit of strategic management ............................................... 10 2.3 Definition of competitive advantage ............................................................. 11 2.3.1 Competitive advantage from a resource-based view ........................ 12 2.4 Generic strategies .......................................................................................... 13 2.4.1 Cost leadership ................................................................................... 14 2.4.2 Differentiation .................................................................................... 14 2.4.3 Focus .................................................................................................. 14 2.5 Value chain definition .................................................................................... 15 2.6 Value chain analysis ....................................................................................... 16 2.6.1 Activities ............................................................................................. 17 2.6.2 Linkages .............................................................................................. 18 2.7 Porter's five force model................................................................................ 18 2.7.1 Rivalry among existing competitors ................................................... 20 2.7.2 The threat of new entrants ................................................................ 21 2.7.3 Bargaining power of suppliers ........................................................... 22 2.7.4 Bargaining power of customers. ........................................................ 22 2.7.5 Threat of substitute ............................................................................ 23 3 Case study: Royal Enfield in Vietnam ....................................................................... 23 3.1 Porter's Five Forces in Vietnam’s motorcycle industry ................................. 24 3.1.1 Rivalry ................................................................................................. 24 3.1.2 Market entry ...................................................................................... 25 3.1.3 Threat of Substitute ........................................................................... 26 3.1.4 Bargaining power of buyers ............................................................... 26 3.1.5 Bargaining power of suppliers ........................................................... 27 3.2 Porter Value chain analysis Royal Enfield ...................................................... 27 3.2.1 Primary activities ................................................................................ 27 3.2.2 Support activities................................................................................ 29 3.3 VRIO analysis resourced-based view of Royal Enfield ................................... 30 4 Data Collection ......................................................................................................... 31 4.1 Validity and reliability .................................................................................... 33 4.2 Interview Summary ........................................................................................ 33 4.2.1 Royal Enfield's customers interview .................................................. 33 4.2.2 Competitor's customers interview ..................................................... 35 4.2.3 Royal Enfield's distributor manager in Vietnam interview ................ 36 5 Findings and analysis ................................................................................................ 38 5.1 Customer demand ......................................................................................... 38 5.2 Royal Enfield’s products and services ............................................................ 39 5.3 Competitors’ products and services .............................................................. 39 6 Conclusion ................................................................................................................ 40 6.1 Royal Enfield from different views ................................................................. 40 6.2 Key success factors assessment for Royal Enfield in Vietnam ....................... 41 6.3 Royal Enfield’s competitive strategy in Vietnam ........................................... 43 7 Discussion ................................................................................................................. 43 Figures Figure 1: Percentage of people in Vietnam owning a motorbike in 2017, 2018 (Statista, 2021) Figure 2: Motorcycle industry gross domestic product contribution in Vietnam from 2015 to 2020. (Statista, 2021) Figure 3: Type of generic strategies (Porter, 1985) Figure 4: Porter's value chain analysis framework (Porter 1985) Figure 5: Porter's five force framework (Porter 1979) Figure 6: Raw material input process (author's work) Figure 7: Outbound logistics process in Vietnam 2017 – 2021 (author’s work) Figure 8: VRIO analysis Royal Enfield 2020 (author’s work) Figure 9: Key success factors identification of Royal Enfield to successfully operate in Vietnam (author’s work) 1 1 Introduction In recent years, the motorcycle industry's development is under the influence of different factors, resulting in a severe revenue decline of almost US$ 45,000 Mn in 2020 (Statista 2021). The customer segment is concentrated mainly in countries with lower income per capita as the vehicle is cheaper than an automobile, easy to use, and convenient in high population density areas. Despite the global sale fluctuation, the motorcycle industry in Vietnam continues to evolve as demand continues to increase. (Nguyen, 2019) To survive, a company must be well-prepared for changes and challenges with the correct strategy and systematic analysis. According to Porter (1985), business is a series of sports games where everyone can achieve victory through the prepared thinking of surpassing opponents. By putting efforts into value formation, the company can assure final winning. In simple words, the company which generate value can overcome challenges from competitors with the capability of solely delivering value (Porter 1985) 1.1 Research purpose The author of this research study aims to gain insight into the operation of the motorcycle industry in Vietnam through a company case study. Furthermore, the thesis focuses on the connection between value chain and competitive advantage from different perspectives. Royal Enfield – An Indian motorcycle brand that has already entered the Vietnamese market for several years is the company to be discussed in this thesis. 2 1.2 Current situation of the motorcycle industry in Vietnam With an area of 331,212 square kilometers and a population of nearly 98 million people, Vietnam has a very high population density (Danso, 2021). In Vietnam, the motorcycle industry is one of the top industries taking the lead in supporting Vietnam's economy (Lim, 2017). Figure 1 has shown the percentage of people who own a motorcycle in Vietnam. In 2018, 94% of the participants held a bike,