Having a background in operations management and food processing, I was very excited to have the opportunity to visit one of the leading coffee producers in Vietnam. This not only gave me the chance to learn whether business is conducted in a similar manner on the other side of the continent, but also find out about potential partnerships, where I could offer my experience and expertise to improve their processes or to help Thai Hoa coffee improve their presence in the Canadian market. as I found out from the visit, these would all be somewhat difficult to achieve due to internal and external factors. however, with time and effort, there are many areas in which Canadian-Vietnamese partnerships could be formed and Thai Hoa coffee does have the potential to have a strong presence in the world and to become the number one producer in Vietnam.
Thai Hoa coffee is the third largest coffee producer in Vietnam. one of its competitive advantages is vertical integration, where they control key processes from farming, to processing, to exporting. the company is relatively young, founded by an individual in 1996, and possesses fifteen different facilities within different regions of the country. It has grown very quickly, with revenues growing 500% in just the last three years. however, there are still many risks involved that could negatively affect profitability. These risks include suppliers, weather, and coffee prices. in addition, unreliable power supply, lack of coordination in the industry, and a small talent pool make Thai Hoa’s challenges even more difficult. in order for the company and Vietnam’s coffee industry, in general, to succeed, there must be internal focus as well as the government’s help to build on the strengths it possesses and minimize the mentioned risks and weaknesses.
Just like many the commodities, risks such as market prices fluctuations and poor weather conditions like floods or droughts, now exacerbated by climate change, are very difficult to control. Suppliers have been adding to the complexity by often withholding materials, expecting to fetch higher prices in the future. I believe that one of the most effective measures to combat this is education; at all levels of the value chain. Farmers need to be explained of their role in the industry, that they do not work in a vacuum. Their actions affect not only the coffee processors but also their country’s reputation. Their working conditions can be improved by learning new agricultural techniques and better utilization of equipment or better preparing them to sustain weather fluctuations. This should be a joint effort between the coffee companies and the government, as it would benefit all parties.
We were informed that there is on average one day of power blackout over the course of a six-day production week. That represents 17% downtime, time where machines, facilities and employees are not utilized! in Canada, this would not be tolerated. Here in Vietnam, it has been accepted and considered a fact of doing business. It would be in the best interest of the government to work on improving electricity production and transmission. just from this company, there would be a significant increase in capacity and asset utilization. Other side benefits would include improved planning, less machine breakdowns from a smoother production, and potentially a happier workforce due to a more stable working environment. the process of improving the electricity in Vietnam is as important as improving the road infrastructure. It is also expensive, time consuming, and requires a great deal of planning and consensus from various levels. I understand that the
government is willing to let companies come in and try to fix the problems, though up to this point many have failed. the issues are recognized and it is a good start. Should someone be able to fix the system, there will be immediate benefits as well as side long-term benefits. Until then, these constant power outages will put Thai Hoa coffee as well as Vietnam’s whole coffee industry at a disadvantage in the global markets.
Nearly everyone has drank or at least heard of Brazilian, Columbian and Kenyan coffee. however, even being the second most exported coffee in the world, not many are aware of Vietnamese coffee. my view is that the two main reasons for this, are the production of low quality beans, and low level of coordination between coffee companies and governmental organizations. This creates low brand awareness in other countries, and not much added value to the producers as Vietnam’s beans are mainly used in generic, lower priced coffees. my suggestion is to improve the knowledge and skills of employees to produce a higher quality product. Then, companies should work together, rather than as competitors, with the government’s help, to promote the Vietnamese coffee brand; at least until the name is more well known. Vietnam has very low labour rates and should leverage that advantage. Vietnam’s coffee producers should come up with as many value adding activities as
possible, which would benefit both the suppliers and the buyers. For example, roasting of coffee beans has traditionally been done in the country where the drink is consumed. By changing this practice and roasting and packaging the beans in Vietnam, significant cost savings can be achieved. This would not only bring additional volume and value, but also knowledge and skill, which is lacking in many sectors in Vietnam.
Most of the initiatives discussed thus far have been for the benefit of Vietnam’s coffee producers. What does Thai Hoa need to do specifically to become the number on brand in Vietnam? Since the company does have this ambition, my recommendations would be as follows: differentiate yourself as soon as possible from local competitors by drastically improving quality, buy or form as many alliances as possible with farms, and give the employees knowledge and skill to make a contribution to this goal. Improved quality will make Thai Hoa coffee’s products more attractive to the international market. It will also improve profitability by reducing amount of rejects and quality checks required. next, by controlling a large supply of the country’s beans, the company would have better control over material costs and even act as a supply to other coffee companies in Vietnam, adding another revenue stream. Finally, education of employees can go a long way in
improving overall quality of the product and profitability of the company. With Vietnam’s low labour rates, I see this as an investment with great potential benefits and little down side.
To conclude, I see Thai Hoa’s ascent to becoming Vietnam’s top coffee producer as quite achievable. Differentiation and building on it’s vertical integration would be key to this strategy. however, on a global scheme of things, many more things will be done, with needed help from many organizations and areas. It will be difficult and it will take time. Companies in Vietnam have many advantages but also face many challenges, and I hope that they will be able to learn, improve, and become successful. on a personal note, Iced Vietnamese coffee (ca phe sua da) is one of the best beverages out there - my Campus Abroad classmates can vouch for that - and I am excited to be sharing it with my HEC cohort upon my return!