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Endless ambitions

15 Nov 2017

Seeking portfolio diversity, Vingroup ventures into new industries for renewed market growth

Can diversification of a firm’s businesses fulfil its initial vision while at the same time fight against the inroads and pressures from foreign competitors and longstanding rivals in the new sectors? Prior to its relatively recent diversification, Vietnam’s Vingroup was initially focused on gaining a firm market share in the country’s real estate and hospitality services using two key brands, Vincom and Vinpearl. Vingroup built its first five-star Vinpearl Resort in Nha Trang from 2001 to 2003, taking advantage of the business potential of the province and the resort is now one of the most visited tourist attractions. In 2010, the company opened Vinpearl Luxury, its second resort, in Danang, the third largest city in Vietnam. In 2004, it opened Vincom Center, Hanoi’s first commercial project. There are now currently more than 15 completed grand estate projects that have contributed to the strategic development of realising the ‘Vin’ project range throughout Vietnam. In fact the company’s revenue from the real estate sector in the first quarter of 2016 rose 146 percent compared to same period in 2015, accounting for 67 percent of Vingroup’s total revenue.

But being the most prosperous player in Vietnam’s real estate and hospitality sectors was not the end of the group’s ambitions and in the early 2010s the company commenced a new investment diversification initiative. Reasons for this were twofold. On the one hand it recognised the global economic recession had precipitated the suffering of many businesses and ultimately forced several out of the market. At the same time the group also sought to capitalise on its success in previous years, which enabled it to look for opportunities in various industries, thus diversifying its portfolio.

Vingroup began to emerge in fields such as healthcare services (VinMec), education (VinSchool), fashion (VinFashion), fitness and beauty care (VinCharm) and retail supermarkets (VinMart). The company also traded in smartphones and electronic devices (VinPro) and agricultural products (VinEco). In the future it also plans to add books and logistics to its investment portfolio. (A complete list of projects, investments, and performance is shown below in Box 1 ‘Vingroup’).

During an annual general meeting of Vingroup shareholders in 2015, one shareholder queried the strategy.  “A few years ago, many businesses went into multi-sector investments. Vingroup followed the trend and opened a securities company, and we are expecting to establish a bank. We will eventually get back to our core advantage in real estate. Two years from now, we will probably have returned to the old way of investing in retail and logistics. Thus, I wonder whether the capabilities of the enterprise can afford such a great amount of work in all these current diversified investments.” As for keeping foreign interests at bay, it is perhaps more a question of “rule or be ruled”.

Vietnam’s retail market is one of its most competitive sectors, with many large mergers and acquisitions reported. Revenue in this sector was expected to reach more than US$80 billion in 2014 and US$110 billion in 2016, with the Nikkei estimating that it could be worth US$150 billion by 2020.

In 2014, Japanese retailer AEON bought 40 per cent of Citimart, a Vietnamese supermarket chain of 30 stores, and renamed it AEON Citimart. AEON also acquired 30 per cent of Fivimart, which has more than 20 supermarkets in the north of Vietnam, to establish a new chain of supermarkets known as AEON Fivimart. The Japanese retailer will continue to open 20 more supermarkets with local players until 2020, and more than 500 AEON Citimarts by 2025, not to mention AEON Fivimart.

Besides Japanese companies, businesses from other countries are flocking into Vietnam. Thai retail enterprise Berli Jucker, for example, took over Metro Cash&Carry Vietnam in 2014 and ran its chain of Metro supermarkets from 2015. South Korea’s Lotte and E-mart opened supermarkets and foreign convenience store brands such as Shop&Go, B’s Mart, 7-Eleven and Familymart also opened outlets in Vietnam.

However, large Vietnamese brands are working to consolidate their market positions. Coopmart, Vietnam’s largest retailer with 80 supermarkets has a 60 per cent market share and is currently upgrading and building facilities. Meanwhile, Vingroup acquired 70 per cent of Ocean Retail to enter the market. Ocean Retail has nine supermarkets and four convenience stores.

Vingroup has two brands in the supermarket and convenience store sectors, known as VinMart and VinMart+ respectively. In 2015, Maximark, an established supermarket chain, sold 100 per cent of its shares to VinMart. By 2017, VinMart expects to have 100 new VinMart and 1,000 VinMart+ stores. On average, it is estimated that there would be two VinMart+ stores opened daily over the rest of the year. Despite these moves, Vingroup’s shareholders are concerned about the effectiveness of such initiatives in a risky and ultra-competitive market.

Meanwhile, the smartphone and electronic devices market is almost reaching saturation. There are many retail stores of different sizes in Vietnam. The Gioi Di Dong (Mobile World), for example, is one of the top 500 retail stores in Asia and has a 30 per cent market share, followed by Vienthong A, Viettel and FPT stores. At the beginning of 2016, Vingroup had more than 100 VinPro stores with plans to establish another 100 by the end of the year. Longstanding market players are also increasingly expanding their investments. As brands are constantly maturing, the competition will be more intense than ever, said CEO of FPT Retail, Nguyen Bach Diep, on the market outlook for 2016.

Importantly, several business experts had earlier predicted that by the end of 2015, there would be more foreign competitors in Vietnam through joint ventures or acquisitions. Numerous small private stores that are incapable of withstanding the pressure from large enterprises are being taken over by foreign players such as Xiaomi and Huawei. As foreign players enter the market, firms that are experienced and popular are continuing to expand. A Vingroup representative told newspaper The Gioi Tiep Thi that, “currently, VinPro continues to expand its chain of stores, and is establishing retail and customer services procedures without concern for immediate profit.”

While it had yet to settle down in the retail market in 2015, Vingroup again shocked the public by announcing it would enter the agricultural market with VinEco in the same year. It aimed to provide clean agricultural products to its customers and improve the competitive edge of its VinMart and VinMart+ businesses. The investment of US$80 million in agriculture seemed to be a wise move by Vingroup as this market has great potential but has long been dominated by small or old state-owned businesses. By applying new technology from Japan and Israel, VinEco was reportedly the first mover and totally prevailed in this field. Currently, the agricultural products are distributed only in VinMart and VinMart+ stores. Additionally, the VinEco greenhouses are typically combined with high quality real estate projects. By meeting the sufficient demand through a ‘closed ecosystem’, VinEco is thus able to amplify significant advantages in the market.

The public paid great attention to Vingroup after it made a second request to the Ministry of Transport for the permission to buy 80 percent of Saigon Port, Vietnam’s largest port, and Hai Phong Port, as it invested heavily in railway stations and seaports in several key provinces. However, the company later withdrew from its request for the ports and indicated interest in buying three large railway stations in Hanoi, Ho Chi Minh City and Danang under a build-operate-transfer arrangement. These moves seemed to be aimed at improving Vingroup’s logistics network while depending less on its partners. However, it drew public attention to the firm’s financial potential and reputation.

In late 2014, Vingroup invested US$1 billion in a project on Phu Quoc Island that involved all its businesses. It has completed two thirds of the work, which includes a five-star Vinpearl resort, Vinpearl golf and Vinpearl Land amusement park. The company also began to build VinMec, an international-standard hospital, an agricultural greenhouse system, VinEco, a Vincom commercial and retail centre, a VinMart supermarket, Vinpearl Safari and other infrastructure upgrading projects on the island.

Vinpearl Safari is the first zoo opened in Vietnam. This is a new industry for Vingroup. The zoo was expected to be the largest in Southeast Asia with more than 3,000 species of animals. It raised concerns about the managerial capabilities of Vingroup as experts working in the zoo told Zoo News Digest of their decision to leave Phu Quoc after observing the deaths and loss of 1,000 animals that were imported from unknown origins. Vingroup vehemently denied the charge, stating that more than 100 animals had died due to lengthy transportation issues and that about 135 young monkeys would escape out of the safari and return to the zoo at night.

Vingroup needs a considerable amount of financial investment to maintain its current business strategies, in addition to generating income for shareholders. It is unclear how the company is able to achieve synergy in its portfolio with such diverse investments while at the same time effectively utilising organisational resources like human capital that it has painstakingly developed over the years. This could potentially downplay the advantages that this enterprise has to offer to its shareholders, when compared to its experienced competitors. In fact, by the end of 2015, Vingroup had sold 31 percent of its 70 percent stake in the fashion brand Emigo due to organisational inefficiency. This also marked its withdrawal from the fashion industry.

Furthermore, e-commerce company VinEcom was considered to be one of the group’s costliest investments at US$50 million. Besides competing with Zalora, Vatgia and Hotdeal, the company aimed to be another Alibaba in Vietnam. Although the project attracted talent from marketing, IT and sales, VinEcom experienced serious internal conflicts among the board of directors leading to the exit of its CEO, Le Thu Thuy, who had played an important role in raising capital for Vingroup during a tough period.

In reality, the performance scale of the group’s portfolio was equally diverse. In 2016, it achieved 98 percent growth in its hotel, tourism and entertainment business, 83 percent in its real estate interests, 31 percent in its education portfolio and a 27 percent rise in healthcare services. Surprisingly, among them, only the real estate business was profitable. Specifically in 2016, the real estate business revenue was close to US$1 billion, with an improvement in earnings before tax and interest of 15 percent. This has been a steady trend over the last five years (see Figure 1). 

While revenue from retail has increased significantly and made the company the third largest in the market after Saigon Coop and BigC, this business still remained unprofitable by the end of 2016, just as it had done in the previous three years (see Figure 2). The 2016 revenue of US$670 million from retail made it the second largest of all Vingroup businesses, but it also incurred a loss of US$150 million, coupled with the withdrawal of the VinPro+ retail network of ICT products from the market. While it may still be too early to predict, it is unclear if the retail business would ever bring a profit for the company.

Prospects for the group’s hotel, tourism and entertainment business are also unclear. While they continued to contribute significantly to the company’s revenue at around US$230 million, the hotel business incurred a loss of over US$40 million in 2016.

In essence, moving out of one’s comfort zone in Vietnam does not guarantee profitability. A few years ago, such disorganisation and losses would have caused many enterprises to forgo or withdraw from such investments. However, these problems did not stop Vingroup from following its ambitions. “The investment does not follow the trends but focuses on creating comprehensive ecological value for the people through education, medical, agriculture, shopping, resorts…and furthermore creating competitive advantages towards other enterprises. We will try our best because we cannot rely on only one business,” said Pham Nhat Vuong, CEO of Vingroup.

Are we witnessing the evolution of a grand and strategic plan or the beginning of a great descent? With the boom in investment over the past few years and an unclear present situation, only time will tell if Vingroup is able to realise its goals.

Vingroup Joint Stock Company (Vingroup JSC) was founded in Ukraine in 1993 by an ambitious group of young Vietnamese. Its success fuelled expansion into Vietnam in 2000, with the aim of contributing to the economic development of the country. Established as a joint-stock company in Vietnam in 2002, Vingroup was subsequently listed on the stock exchange in 2007 to fund further expansion. Since then, its stock performance and funding from the sale of its business in Ukraine have enabled the company to venture into various industries through a series of mergers and acquisitions.

Table 1: Vingroup real estate interests

Source: vnvillas.net and ssaigon.vn

Table 2: Vingroup investment portfolio and revenue (2014-2015)

Source: Vingroup Joint Stock Company Report (February 16, 2016)–VPBank Securities, Vingroup.net

Table 3: Vingroup projects

Source: Vingroup.net


Anh Trieu Phan is a lecturer at International University, VNU-HCMC
Minh Quan Huynh Duc is a student at International University, VNU-HCMC




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