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Two must tango in local and foreign M&As

Wyślij Print Pobierz added: Hanh Ngan | 2018-11-28 04:32:49
vietnam, zbh, piotr, harasimowicz

There's a lot to think about when local brands decide to conduct an M&A deal with a foreign brand.

BrandingPhoto: Viet Tuan

The Hanoi-based Fivimart supermarket chain will be soon renamed VinMart, after VinCommerce, a subsidiary of the giant Vingroup, completed its acquisition of 100 per cent from the Nhat Nam JSC last month. The deal came at the same time the “four-year marriage” between Fivimart and Japanese retail giant AEON ended.

It takes two to tango

AEON has more than 250 years of development under its belt and has gained the trust of consumers throughout ASEAN, including in Vietnam. It saw huge potential in the local retail market after starting operations in Vietnam in 2008 and aimed to expand in the country and better cope with the intensifying competition in the region, deciding that forging partnerships with established local players would be a more effective way of doing so.

It reached an agreement on a business tie-up with Fivimart and the Ho Chi Minh City-based Citimart in 2015, through acquiring stakes of 30 per cent and 49 per cent, respectively. At the same time, it changed the brand names of the two supermarket chains to AEON Fivimart and AEON Citimart. The Japanese giant believed the partnerships with the two largest supermarket operators in the country were of great significance.

Its partners had similar expectations: that they would become leading retailers in Vietnam after partnering with a company in the same industry, particularly a foreign retailer that could cover their weaknesses.

Under the partnerships, AEON would provide them with know-how in logistics, IT, human resources development, and quality control. Conversely, it could utilize the knowledge of its two partners regarding product procurement and customer needs. In the 2015-2017 period, the Japanese brand helped increase its number of supermarkets from ten to 23 and revenue from VND1.07 trillion ($45.6 million) to VND1.2 trillion ($51.3 million).

The two Vietnamese partners, however, were posting losses. Fivimart reported an accumulated loss of VND197 billion ($8.4 million) in 2015-2017, while Citimart reported VND157 billion ($6.7 million) by the end of 2016.

There were differences between the Vietnamese and Japanese partners in terms of direction, ideology, and development strategy, according to Mr. Dang Xuan Minh, Founder and Managing Director of Vietnam M&A Forum. “Co-branding with foreign enterprises, especially big conglomerates like AEON, will benefit branding, but if the long-term plans of the two sides are different then a parting of ways is inevitable,” he said.

Mr. Nguyen Quoc Viet, Managing Partner at AVM Vietnam, which specializes in investment, consulting and high-level training, told VET that many aspects need to be considered in determining whether an M&A deal will succeed. M&A deals with foreign partners resulting in the replacement of the Vietnamese brand name with a foreign name is often regrettable but perfectly normal in business. “Building a brand is difficult enough; maintaining that brand is even harder,” he said. “In today’s competitive market, when brands, even traditional ones, begin to head downwards, it is necessary to take on one with more potential. Brands disappear but provide motivation to another, and such acquisitions make the domestic business environment healthier.”

Right choice

According to Ms. Nguyen Phi Van, Chairwoman of Retail & Franchise Asia and Founder and CEO of World Franchise Associates, in a relationship, especially a business relationship, only those inside know the truth. Under the basics of doing business, every decision must make commercial sense, meaning that if something does not bring any commercial benefit it should be scrapped. “Brand owners can have a lot of emotional investment in the brand, so letting go is never an easy decision to make,” she said. “From a purely business standpoint, though, if a brand does not make any commercial sense it should be laid to rest, as soon as possible.”

“If a brand has potential, no leader would go out of their way to end it,” she went on. “When both partners have a spirit of collaboration, any problem can be dealt with. But if one is not in the right frame of mind, the relationship is easily broken.”

Mr. Minh believes it is important for business owners to identify strategies and ideologies for their business, and then work hard to find a partner with the same ideology. M&As are the result of economic development and in Vietnam they are becoming larger both in size and number, but deals with foreign partners can still be complex.

Ms. Van said that many brands, and not just Vietnamese, must eventually make a decision based on the continued future of the organization, including whether to conduct an M&A or not. It must consider if an M&A is appropriate. For what purpose does the brand seek investment? Is it to fix its current financial mess? Is it to pave the way to future growth in Vietnam? Is it to expand globally? Is it to leverage on an existing strong distribution network? Is it to survive in the future thanks to the innovation, technology, and experience of its partners?

“If the brand knows why, it can then consider options about how,” she explained. “With the purpose identified, how many ways are there for the company to achieve its goals? M&As are only one option. Other ways may involve equity investment, an IPO, or joint ventures in different markets or licensing and franchising in others. It can also be a combination of the above in various regions and markets.”

If the brand chooses to conduct an M&A, it must take the necessary time to talk to a list of the leading players in the industry, consider their vision, their strategies, and their shared values, and, most importantly, remain transparent and clear about its own expectations.

“Transparency has always been a huge issue in Vietnam and with Vietnamese partners, and has led to numerous broken relationships,” she said. “Therefore, what the brand decides to do needs to be understood by itself and by its potential partners, with detailed negotiations over strategy and planning taking place and agreed upon by senior executives on both sides prior to concluding the deal."