April 4, 2015
– One deal is unfolding after another in the M&A (mergers and acquisitions) sector in Vietnam. The situation may anticipate a new wave of investment in the country, succeeding a similar trend 20 years ago. Warrick Cleine, Chairman and CEO of KPMG in Vietnam and Cambodia, gives some insights into the new wave of investment in Vietnam and what the local corporate sector should do to face the challenge successfully.
Among those M&A transactions, Thai entrepreneurs stand out as a new force. After acquiring stakes in Family Mart in the joint venture with Phu Thai Group and launching its own convenience store chain, B’s mart, in mid-2013, Thai billionaire Charoen Sirivadhanabhakdi’s BJC has taken further steps on the Vietnamese market. Last year, this investor outstripped its compatriot CP Group when it “bought out” Metro Cash & Carry, a wholesaler in Vietnam, at US$879 million. When the year came to a close, BJC hinted that it was in the negotiation process for acquiring a stake in one of Vietnam’s leading companies, the Saigon Beer-Alcohol-Beverage Joint Stock Corporation (Sabeco).
Similarly, another Thai entrepreneur, Central Group, launched two Robins shopping malls in Hanoi and HCMC in a short time. Later, via its arm, Power Buy, Central Group has clinched a 49% stake in Nguyen Kim, a major electronics distributor in Vietnam.
Warrick Cleine, Chairman and CEO of KPMG in Vietnam and Cambodia, which has been present in this market for over 20 years, said there will be a remarkable change in the profile of investors in Vietnam. During the previous wave of investment which started out in 1994, Mr. Cleine said, the majority of investors were from North America, Europe or North Asia – such as Japan or South Korea. However, he said, the current wave is poised to come with entrepreneurs from Southeast Asia that arrive to make full use of incentives to be provided by the ASEAN Economic Community (AEC).
“But this time, it’s different,” said Mr. Cleine. “Vietnam’s ASEAN neighbors are strong, hungry and well positioned to seize the opportunities that the AEC creates, in the way that they weren’t in the wake of the regional crisis of the late 1990’s. World-class corporations from Thailand, Malaysia, Indonesia and the Philippines emerged from that period with clean balance sheets and streamlined business models. They have access to deep capital markets and healthy domestic banks, ready and able to fund their regional ambitions.
“We saw some major investments in Vietnam from within ASEAN in 2014. Many of the big decisions affecting Vietnam in 2015 will be made in boardrooms in Bangkok, Manila, Kuala Lumpur and Jakarta.”
Mr. Cleine said unlike their Western and North Asian counterparts in the mid-1990’s, multinationals from ASEAN know well how to do business in Vietnam. “They are experienced at developing rural distribution networks for their own consumer goods. They understand the importance of efficient supply chains in challenging geographies. They can sell insurance and other financial services to farmers. They know how to develop local brands, and are accustomed to working in developing regulatory environment. Most importantly, they have cost structures that are comparable to local companies, and management expertise honed through decades of dealing on a world stage that is hard to beat.”
The KPMG Vietnam and Cambodia Chairman and CEO said a host of his clients have given positive feedback on Vietnam’s investment environment and policies although risks remain relatively high in such issues as fickle tax regulations, considerable sovereignty debt, high inflation and inadequate infrastructure. Notwithstanding these problems, the potential opportunities that exist in Vietnam are still enormous. These promising opportunities include a strong local export sector assisted by expanding markets, Vietnam’s memberships in trade pacts, and the growing local middle class. Specifically, by joining economic communities such as AEC and TPP, Vietnam has positioned itself to conduct more drastic and necessary institutional reforms.
And the way these entrepreneurs do business is different, now and then. While Japanese and Korean investors that came with the first wave chose to build their enterprises from scratch, AEC businesses tend to favor M&A to save time and jump onto the local market with a mindset of ‘the sooner the better’.
However, while the new entrants are considered veterans with many decades of experience under their belt, local counterparts are mostly lacking in capabilities and competitiveness. The coming competition will therefore be fierce.
Vietnamese enterprises need to change to stand firm on home turf
The new context forces local companies to quickly adopt changes to survive. In this imminent battle, Vietnamese players have an enormous advantage – that is their thorough understanding of the local market and the local consumer. The remaining problem is how to maximize this advantage.
According to Mr. Cleine, to fully utilize this strength, Vietnamese enterprises should conduct systematic and reliable market research projects, which are still lacking due to inadequate attention. Moreover, enterprises should sharpen their managerial skills to devise strategies and make full use of human resources. Currently, several Vietnamese companies have resorted to consultancy services which apply foreign business philosophy and technology to save time and effort.
No less important is that Vietnamese enterprises have to look “outward” to overseas potential markets such as Indonesia, Thailand or the Philippines, where consumers are willing to pay more for new products.
On its part, the Vietnamese Government should promulgate new policies which are proactive in supporting local companies instead of inclining to protectionist measures, such as high tax rates or complicated licensing processes as currently is the case. In the short term, it is essential to implement more consumer-centric campaigns for instance the “Vietnamese use Vietnamese products first” program. Mr. Cleine said such campaigns are not exclusive to Vietnam. It has been undertaken successfully in, say, Australia and India. Needless to say, to ensure the success of those moves, local businesses have to considerably improve their product and service quality to meet customer expectations.
In the long run, said Mr. Cleine, the agenda for the Vietnamese Government is a long one. First, it has to ameliorate the quality of the educational system so as to provide the corporate community with qualified human resources. Second, the Government must feel compelled to create a fair and competitive environment by providing accurate information which allows companies to access and thus come up with appropriate and effective business plans. Third, it is necessary to have a robust legal framework which allows enterprises to plan with a level of business certainly. Fourth, a strong and stable banking sector that provides the market with appropriate financing is also critical. Last but not least, intellectual protection must be enforced not only for the sake of domestic enterprises but also for foreign investors because it is fundamental to technological transfers.
“The best business leaders in Vietnam are prepared for this challenge with robust business plans that address this new world,” said Mr. Cleine. “But many have not yet seen it coming.”
The reason for this attitude, according to Mr. Cleine, is that some local enterprises are so self-satisfied with what they have achieved that they are losing the ambition to move forward. What’s more, it has been challenging for many enterprises to have access to financial sources as a result of a developing capital market and limited bank loans.
However, after 20 years of working in Vietnam, the Chairman and CEO of KPMG in Vietnam and Cambodia insisted that considering their ability to easily adapt and endurance power, he believes the local corporate community is strong enough to compete on the same footing with their foreign rivals.
(By Minh Tam – The Saigon Times)