THEORETICAL FOUNDATION
EXTERNAL MACRO ENVIRONMENT ANALYSIS
To effectively assess the external macro environment impacting the company, a PEST analysis is utilized, examining Political, Economic, Social, and Technological factors These elements typically lie outside the company's control, presenting both opportunities for growth and potential threats that require strategic management.
External factors influencing a company are countless and constantly evolving It is essential for businesses to prioritize and closely monitor those factors that significantly affect their operations while acknowledging that a degree of forecasting accuracy is necessary.
Figure 1.2 External macro environment factors affecting companies
Table 1.1 External macro environment factors with examples
Political stability Employment laws Environmental regulations Trade restrictions, tariff and taxation Pricing regulations
Economic growth Interest rates Exchange rates Inflation rate Labor cost Discretionary income
Demographics Population growth rate Class structure
Culture (social perception, gender roles…) Attitudes (health, environmental consciousness Leisure interest
Research and Development activity Technology impact on product offering Technology incentives
Political factors encompass the government regulations and legal issues that impact a company's operations, including tax policies, employment laws, environmental regulations, trade restrictions, tariffs, and the overall political stability of the region.
Economic factors affect the purchasing power of potential customers and the firm‟s
Social factors encompass the demographic and cultural elements of the external macro-environment that influence customer needs and the potential market size Key aspects include health consciousness, population growth rate, age distribution, career attitudes, and a focus on safety.
Technological factors play a crucial role in shaping business dynamics by lowering entry barriers, decreasing minimum efficient production levels, and impacting outsourcing choices Key elements include research and development activities, automation processes, technology incentives, and the pace of technological change.
INDUSTRY STRUCTURAL DETERMINANTS
Formulating a competitive strategy involves connecting a company to its specific industry environment, as highlighted by Michael E Porter This environment encompasses economic, political, and social factors, along with competition and substitute products However, for effective strategy formulation, the focus should be on the industry's dynamics rather than the broader environment, as industry-specific factors significantly shape the competitive landscape among firms.
Industry structure is not merely competitors‟ structure, whether competition is concentrated or fragmented but involves the underlying economic structures which
Figure 1.3 The Five Competitive forces that determine Industry profitability
(Source: Michael E Porter, "Competitive Advantage - Creating and sustaining superior performance", 1998, p.5)
The profitability of firms within an industry is significantly influenced by the collective impact of five key forces Each industry experiences varying returns on investment due to its unique structure and the interplay of these forces For instance, highly competitive sectors such as industrial products, including tires and paper, tend to yield lower returns.
A firm's primary objective is to establish a competitive position within its industry that allows it to effectively counteract competitive forces or sway them to its advantage By analyzing the five competitive forces, the firm can assess its own strengths and weaknesses, gaining a clearer understanding of its market position This insight enables the company to pinpoint strategic areas for development, maximizing potential returns Consequently, varying companies within the same industry can experience differing levels of return on investment.
The initial step in analyzing the structural five forces of an industry is to clarify the definition of "industry." An industry comprises a collection of firms that produce products that serve as close substitutes for one another This notion of substitutes has sparked debates regarding the boundaries of an industry The degree of similarity between products determines whether they qualify as substitute products The five forces framework will further delineate industry boundaries, as the presence of substitute products is a critical component of this analysis.
As mentioned earlier, competition in an industry will gradually drive down the average rate of return in the whole industry The limitation of this rate of return is
The "competitive floor rate" refers to the adjusted free market return, which is the yield on long-term government securities increased by the risk of capital loss Investors will not accept returns below this rate, as they have the option to invest in low-risk government securities Industries offering returns above this competitive floor rate will attract capital through new entrants or additional investments in existing companies However, substitutes can lead to reduced profitability, making it challenging for companies to maintain or grow their market share Additionally, the bargaining power of suppliers and buyers also impacts firm profitability Thus, a five forces analysis provides a comprehensive view of rivalry that extends beyond direct competition among rivals.
The strength of competitive forces varies by industry and individual company circumstances, as there is no definitive evidence indicating one force is stronger than another For example, a robust company may encounter significant threats from superior substitute products despite lacking direct competition Conversely, an industry with strict regulations that prevent new entrants may still experience low profit margins due to fierce rivalry among existing competitors.
An attractive industry with a return rate exceeding the competitive floor and no barriers to entry will attract new players, introducing additional resources such as capital and human talent This influx can lead to increased product offerings, ultimately impacting the industry long-term by potentially lowering prices and inflating input costs Consequently, the profitability of existing firms may decline, as new entrants pose a significant threat similar to that of established competitors, driven by a strong desire to capture market share.
New entrants in the market may not always be entirely new companies; for instance, an acquisition can qualify as a new entrant even if it doesn't create a new unit This acquisition is likely to enhance the competitiveness of the existing firm compared to its predecessor Over time, the infusion of fresh talent into an established company often signifies the emergence of a new player in the industry.
To evaluate the potential for new entrants in an industry, it is essential to analyze the barriers to entry and the likelihood of retaliation from existing companies These factors compel potential newcomers to carefully consider their decision before entering the competitive landscape.
According to M.E Porter, there are six major sources of barriers to entry:
(1) Economies of Scale “refer to declines in unit costs of a product (or operation or function that goes into producing a product) as the absolute volume per period increases”
Large-scale production leads to a reduction in cost per unit, creating a significant entry barrier for new firms that must invest in modern equipment to compete effectively However, these new entrants face considerable risks, as their success in penetrating the market is uncertain In a competitive landscape where existing firms focus on cost, new players struggle to invest in high-volume production unless they offer unique products that justify higher prices than their competitors This dynamic will be further explored in the Generic Strategies section.
Economies of scale can be realized across multiple functions, including manufacturing, marketing, procurement, and distribution The significance of these scale economies varies by industry, with certain functions playing a more critical role than others For instance, in the mainframe computer industry, production scale economies are particularly essential compared to other operational areas.
Multi-business companies can achieve economies of scale by distributing costs across multiple business units By diversifying within a corporation that encompasses various related businesses, they can surpass the limitations imposed by the size of a single industry The restricted demand for a specific product line, coupled with intense competition, often compels firms to seek cost-saving measures through larger operational scales.
Joint costs play a significant role in cost savings for businesses, particularly in the airline industry, where companies offering both passenger and cargo services enjoy a competitive advantage Due to technological limitations, aircraft designers cannot convert passenger space into cargo space, despite higher revenue potential from passengers This constraint highlights the importance of joint costs, as airlines that provide both services can better manage expenses and enhance competitiveness Similarly, businesses that share joint costs to develop and maintain an umbrella brand for multiple products can leverage intangible assets and achieve economies of scale, further optimizing their operations.
Vertical integration creates significant economies of scale, making it difficult for new entrants to compete in industries dominated by established players These competitors often produce inputs internally and sell directly to their own divisions, which means newcomers cannot access the same pricing advantages As a result, new entrants face a choice between integrating their operations or competing at a cost disadvantage Additionally, they may encounter foreclosure situations where they struggle to obtain necessary inputs, as existing companies are reluctant to welcome additional competition.
Product differentiation refers to the unique brand identity and customer loyalty that established companies possess, which can arise from various factors such as effective advertising, exceptional customer service, distinct product features, or being the pioneer in the industry.
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SWOT ANALYSIS
Structural analysis provides insights into the competitive forces within an industry and their root causes The subsequent step involves assessing the company's strengths, weaknesses, opportunities, and threats in relation to the industry The SWOT analysis framework serves as a valuable tool for this evaluation, having been extensively utilized for years to analyze businesses and projects effectively.
SWOT analysis, as defined by Wikipedia, is a strategic planning tool used in projects or businesses, initiated after establishing clear objectives This analysis identifies and evaluates internal and external factors that can impact the achievement of these goals, allowing businesses to devise appropriate action plans Developed by Albert Humphrey during research at Stanford University in the 1960s and 1970s, utilizing data from Fortune 500 companies, SWOT analysis remains a vital technique for strategic decision-making.
Strengths are attributes of the business or organization those are helpful or favorable to achieving the objective Business should maximize its strengths
Weaknesses are attributes of the organization those are harmful or unfavorable to achieving the objective Towards weaknesses, business certainly should try to minimize them
Opportunities are external conditions those are favorable to achieving the objective How to exploit the external opportunities when they come is the challenge of businesses
Threats are external conditions those are harmful to achieving the objective Businesses need to prepare and defend against potential threats
COMPETITIVE ADVANTAGES
A firm that consistently achieves above-average profits within its industry demonstrates competitive advantages over its rivals According to the resource-based view, these advantages stem from the firm's unique resources and its capabilities in effectively utilizing them.
The positioning view asserts that competitive advantages arise when a firm can provide equivalent benefits as its rivals at a lower cost, known as cost advantage, or when it offers superior benefits compared to competing products, referred to as differentiation advantage.
Combining the resource-based view and positioning view, the concept of competitive advantage could be illustrated in the figure 1.6
The firm‟s resources and capabilities together create the firm‟s distinctive competencies Distinctive competencies are the firm‟s strong points that are unique and difficult to replicate
Resources are unique assets that a firm can leverage to gain a competitive edge through cost efficiency or differentiation These resources can originate from various sources, enabling the company to outperform its competitors effectively.
Capabilities refer to a company's ability to effectively and efficiently leverage its resources For example, a firm that can introduce a product to the market more quickly and efficiently than its rivals demonstrates superior capabilities, giving it a competitive edge.
Such capabilities are embedded in the routines, process of the organization, which are not easy to imitate by competitors.
GENERIC COMPETITIVE STRATEGIES
Competitive advantage will ultimately lead to either a low cost structure or a differentiated product offer A company chooses and positions itself in the industry through cost leadership or differentiation strategy
Competitive advantages can be categorized into two basic types, which, when combined with the scope of activities, lead to three generic strategies: cost leadership, differentiation, and focus (which includes cost focus and differentiation focus) While cost leadership and differentiation aim for competitive advantages across a broad range of market segments, the focus strategies target either cost leadership or differentiation within specific, limited segments.
To achieve a competitive advantage, a company must select and commit to a specific generic strategy Attempting to implement multiple strategies simultaneously can dilute focus and ultimately hinder competitive positioning.
(Source: Michael E Porter – Competitive Advantage)
A low-cost strategy allows firms to achieve a competitive advantage by maintaining prices at or near the industry average while minimizing costs, leading to higher profits This approach not only provides a buffer against rivalry but also protects against powerful buyers who may seek to lower prices and suppliers who could increase input costs Additionally, new entrants face challenges when competing with established low-cost producers, and a strong low-cost position enhances a firm's standing against substitute products Ultimately, as Michael E Porter noted, cost pressures can erode profits until only the most efficient competitors remain, leaving less efficient firms vulnerable to competitive forces.
To effectively implement a cost leadership strategy, companies must dedicate significant managerial resources across all functions, not just in production By optimizing every aspect of the organization, businesses can achieve substantial savings and enhance overall efficiency.
Cost leadership involves the strategic development of large-scale, efficient facilities while actively seeking cost reductions through experience It necessitates strict control over costs and overhead, the avoidance of unprofitable customer accounts, and minimizing expenses in areas such as research and development, service, sales, and advertising.
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Achieving cost leadership typically necessitates a company to secure a significant market share or possess advantages such as favorable access to raw materials or a simplified product design to reduce production costs To sustain a low-cost position, it is crucial for the firm to continually reinvest in cost-reduction strategies, including acquiring advanced equipment and increasing expenditure to enhance market share.
A cost leader cannot overlook the importance of product differentiation, as consumers are unwilling to pay the same price for products they perceive as lower quality compared to competitors If a cost leader's product is not seen as comparable, it risks losing its low-cost advantage However, when a cost leader offers products that are on par with competitors, it can achieve higher profits Implementing price discounts can help the cost leader gain market share while still maintaining an above-average return within the industry.
Pacific Airlines serves as a notable example in Vietnam's airline industry, where it competes against just one other local carrier By positioning itself as a low-cost airline, Pacific Airlines intensifies the competition by offering ticket prices that are 100,000 to 200,000 VND lower than those of Vietnam Airlines The airline achieves these lower fares by cutting costs on various services, including ticket printing and meal provisions.
Pacific Airlines faces challenges in service quality compared to Vietnam Airlines, with frequent flight delays, uncomfortable seating, and slow check-in processes Despite high domestic flight demand and government-imposed monopolies allowing its survival, the airline must enhance its service quality to establish a sustainable competitive advantage in the low-cost market.
Strategists must understand the fundamental principles of a cost leadership strategy, as a firm must aim to be the sole cost leader rather than one among several Engaging in price wars can adversely affect all competitors involved, leading to intensified rivalry when multiple firms pursue cost leadership According to Michael E Porter in his 1980 work "Competitive Strategy," cost leadership relies heavily on preemption, unless significant technological advancements enable a company to dramatically alter its cost structure.
“In a differentiation strategy, a firm seeks to be unique in its industry along some dimensions that are widely valued by buyers” [Michael E.Porter (1980),
In contrast to cost leadership, there can be several firms following differentiation strategy because usually, there are a number of attributes that are appreciated by customers
The primary goal of both cost leadership and differentiation strategies is to secure above-average returns and build a competitive advantage through consumer loyalty and preference Cost leaders achieve this by reducing expenses, allowing them to convert cost savings into increased profits In contrast, differentiators command higher prices for their unique products, which customers value and perceive as essential.
To achieve above-average returns, a differentiator must ensure that the costs associated with differentiation do not surpass the price premium it can command Similar to cost leadership strategies, companies pursuing differentiation cannot overlook the importance of managing costs effectively.
Differentiation, often associated with exclusivity, does not always correlate with a high market share For example, prestigious Swiss watch brands like Tag Heuer and Longines maintain high quality but struggle to capture a significant portion of the watch market Additionally, to create distinct product differences, companies may need to invest heavily in expensive equipment, extensive research, unique designs, premium materials, or exceptional after-sales service, resulting in increased costs.
Product differentiation not only offers above-average returns but also serves as a competitive shield against market forces According to Michael E Porter, it creates a protective barrier by fostering buyer preferences and loyalty towards specific sellers This differentiation makes consumers less price-sensitive, as they perceive unique alternatives Furthermore, it allows firms to achieve higher margins, enhancing their negotiating power with suppliers Ultimately, a differentiated company enjoys a stronger position against substitute products, bolstered by established customer loyalty and preferences.
Differentiation can be achieved through various elements, including product features, service quality, marketing strategies, and other factors that resonate with consumers, motivating them to pay a premium for unique offerings.
Caterpillar Tractor has been creating and maintaining its differences through a number of factors such as product quality, service, spare parts availability and a wide range of dealer network
INDUSTRY STRUCTURAL ANALYSIS OF BRITISH
EXTERNAL MACRO ENVIRONMENT ANALYSIS OF TOBACCO
The political landscape in Vietnam poses significant challenges for tobacco companies, with stringent government regulations governing both the presence of international firms and tobacco advertising Additionally, the Vietnamese government effectively utilizes taxation as a means to elevate prices, ultimately aiming to reduce cigarette consumption among its citizens.
The current special consumption tax on cigarette applied in Vietnam is 55%
It was raised from 45% in 2005 and is considered to be to 65% in 2008
Vietnam's accession to the WTO is set to transform its economy significantly One anticipated change is the reduction of import taxes on cigarettes, which will likely lead to an increase in the availability of more affordable imported cigarette options However, this adjustment may not take effect until 2015, as cigarettes are currently on the exemption list.
Regulations on tobacco companies‟ operation
The government states that it will not give license to any new international brands
Direct foreign ownership in the secondary manufacturing of cigarettes is prohibited The cigarette production process is divided into two key stages: primary and secondary The primary stage focuses on processing tobacco leaves into cut tobacco, while the secondary stage involves transforming cut tobacco into finished cigarette packs and cartons.
The Vietnamese government mandates that all cigarettes sold in the country must be domestically produced Foreign tobacco companies are required to obtain a Tobacco Trading Branch license, which must be approved by the Ministry of Trade and the Prime Minister Currently, only a few companies, including British American Tobacco, Japan Tobacco Incorporation, Imperial, and Philip Morris International (PMI), hold this essential trading branch license.
To enter the Vietnamese market, businesses can pursue licensing agreements with one of the 19 state-managed tobacco enterprises However, it is important to note that the government has imposed a ban on new licensing agreements and has set fixed production capacities for all factories Among these enterprises, nine are part of Vinataba, a state-owned corporation overseen by the Ministry of Industry, while the remaining ten report directly to local Provincial and City People's Committees.
Foreign tobacco companies in Vietnam operate under limited-duration licenses and do not maintain a long-term presence in the country They are required to outsource cigarette production to the state-owned Vietnam Tobacco Corporation's factories.
In terms of tobacco marketing, Vietnam government applied strict regulations, mostly recently in circular 19 in 2005 which encompasses the following main points:
Cigarette advertising and consumer promotions are strictly prohibited in all forms The display of brand names, logos, or any identifiable symbols associated with tobacco products is not permitted Additionally, using images of individuals to promote cigarettes is illegal.
No sponsorship of cultural, art and sport activities from any tobacco entity It is not allowed to associate tobacco with any type of cultural, art and sport
Sales of tobacco products at or near schools, hospitals, theatres, cinemas and other cultural centers are prohibited
Vending machines are prohibited from selling cigarettes in many developed countries, where they serve as a primary distribution channel In Vietnam, the expansion of vending machines has been facilitated by the introduction of coin currency; however, tobacco companies are unable to utilize these machines for their products.
Smoking is prohibited in public areas such as meeting rooms, offices, medical facilities, schools, cinemas, theatres, and various transportation hubs, where "No Smoking" signs are displayed This regulation reinforces the restriction on smoking in crowded places, although the government does not mandate a complete smoking ban in all public areas, unlike the regulations in the UK.
No tobacco product information could be used as means of advertisement Cigarette display in point of sales is limited to only one pack or one carton
The implementation of graphic health warnings on cigarette packs is under consideration in Vietnam, as such measures have effectively influenced consumer behavior in other countries Research indicates that images depicting the health risks associated with smoking can enhance users' health awareness, leading to a notable reduction in smoking rates.
From 2000 to 2006, Vietnam experienced a robust GDP growth rate of approximately 8%, making it the second highest in the region, only behind China In 2006, the real GDP growth rate reached 8.2%, highlighting the country's strong economic performance during this period, according to the CIA Factbook from September 2007.
In 2006, Vietnam's GDP reached 48.43 billion USD, reflecting a purchasing power parity of 262.5 billion USD The GDP per capita purchasing power parity stood at 3,100 USD, indicating a robust purchasing power and increasing income among the Vietnamese population Figure 2.1 highlights the growth rates of Vietnam's GDP, as well as its agriculture, industry, and services sectors from 2002 to the estimated figures for subsequent years.
2007 and 2008 A healthy rising trend in GDP growth could be seen, promising higher purchasing power
Between 2002 and 2008, Vietnam experienced notable GDP growth, which contributed to an increase in purchasing power among its citizens This rise in disposable income not only expanded the tobacco market but also led to a shift in consumer preferences towards lighter tobacco products.
Vietnamese health consciousness is relatively low, and the country's healthcare system lags behind that of its neighboring countries, failing to adequately meet the demands of its population.
Smoking is often overlooked in terms of its health consequences, which contributes to a high smoking prevalence in Vietnam, where over 60% of men aged 18 to 65 smoke This significant rate is notably higher than the global average, highlighting the expanding tobacco market in the country.
Population growth and age distribution
INDUSTRY STRUCTURAL ANALYSIS OF BRITISH AMERICAN
2.2.1 Overview on tobacco industry in Vietnam
In 2005, the smoking rate among Vietnamese adult males was 69.1%, indicating that nearly 70 out of every 100 men over 18 years old were smokers This prevalence has remained relatively stable in recent years, with the average daily consumption for these smokers being 13.9 cigarettes per day, according to the General Consumer Survey conducted in five urban cities.
Among all the cities, smoking incidence and volume in Ho Chi Minh City is highest The size of Vietnam tobacco market in 2006 is 63 billion sticks
In addition to manufactured cigarettes, the tobacco market encompasses various products, including "thuoc lao," roll-your-own tobacco, and cigars However, these alternative tobacco products represent only a minor portion of the market, accounting for approximately 2-3% of total sales.
In Vietnam, the issue of global tobacco smuggling is prevalent, with smuggled tobacco referred to as "duty not paid" (DNP) This illicit trade accounts for a significant portion of the country's total tobacco market, with the DNP share estimated at 12.5% in 2005, contributing to an overall industry volume of 63.1 billion sticks.
2005, 7 billion sticks come from DNP channel
In Vietnam, light cigarettes represent a mere 0.7% of the total tobacco market, indicating that health concerns related to smoking do not significantly influence the preferences of Vietnamese smokers.
The tobacco market in Vietnam is categorized into four segments based on pricing: premium (over 12,000 VND), upper value for money (10,000 to 12,000 VND), lower value for money (7,000 to 10,000 VND), and economy (under 7,000 VND) As of 2005, the premium segment represented only 6.1% of the total market share, while the upper value for money segment accounted for 26.3%, the lower value for money segment made up 34.2%, and the economy segment comprised the remaining 33.3% This distribution indicates that Vietnam remains a mainstream market with a relatively low proportion of premium tobacco products.
Figure 2.2 Vietnam tobacco market price segment – 2005
(Source: Retail audit, AC Nielson, 2006)
Tobacco distribution occurs primarily through three main channels: HORECA (hotels, restaurants, and cafés), convenience stores, and grocery outlets The HORECA channel accounts for 37% of the total volume share, as patrons often purchase and consume cigarettes on-site while enjoying the services offered This unique characteristic positions HORECA as the primary communication channel for cigarette consumption in several countries, including Vietnam.
There are four foreign tobacco companies having operations in Vietnam: British American Tobacco, Philip Morris, Japan Tobacco, Imperial
British American Tobacco (BAT) leads the market with a 32.1% volume share, followed by Vinataba at 21.8% Imperial holds an 11.4% share, while Japan Tobacco International and Philip Morris International account for 0.3% and 0.8% respectively, according to an urban retail audit conducted in 36 cities.
In 2005, Sumatra, despite lacking a legal presence in Vietnam, captured a significant 23.4% market share through Duty Not Paid or illegally imported tobacco products The company offers two brands, Jet and Hero, contributing to its presence in the market Figure 2.3 illustrates the volume share of various tobacco companies operating in Vietnam.
Figure 2.3 Vietnam tobacco market by corporations – 2005
(Source: Retail audit, AC Nielson, 2006)
British American Tobacco (BAT) established its presence in Vietnam in 1994 and merged with Rothmans of Pall Mall Vietnam in 1999, initially offering brands such as State Express 555 and Dunhill BAT Vietnam holds brand licenses and has agreements with Vinataba factories for regional brands, while outsourcing production and managing distribution for its trading brands In 2001, BAT Vietnam formed a joint venture with Vinataba, investing US$ 65 million for a 50-year license, which allows operations in tobacco cultivation, cut rag processing, and packaging materials trading This venture is the first and only officially licensed joint venture in Vietnam's tobacco industry.
Through this joint venture, BAT Vietnam stands out as the sole tobacco company in Vietnam engaged in both leaf cultivation and cut rag processing The main manufacturing facility of the BATV-Vinataba joint venture is recognized as the most advanced factory in Southeast Asia, boasting a production capacity of 17,000 tons of cut rag annually, which translates to approximately 20 billion cigarettes.
BAT Vietnam is now the leading foreign tobacco in Vietnam with 32.1% volume share and 45.7% value share of total market
BAT Vietnam transitioned from a multi-distributor model to a direct distribution system in 2007, aiming for greater control and efficiency by appointing one distributor per province The company currently markets four primary trading brands, including White Horse, Everest, Virginia Gold, and Seven Diamond Cigarette production for these brands takes place at various facilities, including the Saigon Cigarette Factory, Ben Thanh Cigarette Factory, Haiphong Tobacco Company, and Khatoco-Khanh Hoa Tobacco Company.
Philip Morris International (PMI) is the biggest tobacco company in the world with the famous brand Marlboro In Vietnam, Philip Morris International (PMI) stated in
As of 1994, Marlboro holds a 0.8% share of the market volume, featuring variants such as Light, Menthol, and Full flavor Produced at the Vinh Hoi cigarette factory and distributed by the Tobacco Trading Company, Marlboro represents 12.9% of the premium segment in the tobacco industry.
Since 2002, Japan Tobacco International (JTI) has partnered with Thanh Hoa cigarette factory, a subsidiary of Vinataba Corporation, to manufacture the Mild Seven brand The brand is distributed through two companies, Thien Minh and Thien Hai Trading Limited, and has captured 4.4% of the premium cigarette market segment.
Imperial Tobacco has been a presence in Vietnam since 1936, re-establishing its brand Bastos in 1996 with the opening of its official office Manufactured at the Dong Nai cigarette factory, Bastos is widely distributed through various agents and holds a significant market share, dominating the economy segment with 34.3%.
Sumatra, an Indonesian tobacco company, effectively penetrates the Vietnamese market through illegal import channels, despite lacking an official base in Vietnam Its brands, Jet and Hero, are characterized by high nicotine levels, appealing to consumers seeking stronger products at competitive prices within the lower value-for-money segment Perceived as international brands of high quality due to their nicotine content, Jet and Hero rapidly captured 23.4% of the Vietnamese market share by 2006 Despite government efforts, supported by other tobacco companies like BAT, to combat illegal imports, these brands continue to thrive in Vietnam due to attractive trade margins.
Figure 2.4 Absolute cigarette volumes in 36 cities of Vietnam by tobacco companies