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Last updated: Friday, October 19, 2018

 

Vietnamese Businesses Lose More If Brand Equity Is Undervalued

Posted: Tuesday, December 26, 2017

Brand is an intangible asset of a business, plays an important role in success and helps the business create distinct values. In the world, brand valuation has existed for nearly 50 years. In Vietnam, however, brand valuation is only spontaneous and parties concerned agree on transactions without sticking to international financial standards.

Urgent need
Demand for brand valuation comes from the process of privatising State-owned enterprises (SOEs), calling for capital investment or franchising. Branding helps measure brand performance in a more focused and feasible way. Intangible valuation services include brand appraisal, technology, intellectual property, personnel value, commercial advantage and lease advantage.

Mr Vu Ba Phu, Director of the Vietnam Trade Promotion Agency (Vietrade) under the Ministry of Industry and Trade, said, brand valuation is now a necessary activity and a priority for each enterprise. Brand valuation according to financial standards is very important, helping reduce budget loss to the State Budget in the course of equitisation and mergers and acquisitions.

Even franchising also needs to have brand value recognised to further grow up. The United States-based McDonald's or Australia-based Gloria Jeans are prime examples of brand value, which account for more than 70 per cent of the company’s total assets value.

Mr Lai Tien Manh, Director of Mibrand Company, said, brand valuation is popular in the world; however, this concept is relatively new to Vietnamese businesses.
Brand is the most valuable asset in business operations but is of little interests to managers who are busy with promoting sales and profits. Mr Samir Dixit, Regional Director of Asia-Pacific, Brand Finance Company, raised the question “Where are Vietnamese brands?" when he pointed out a reality that there was no Vietnamese name in the Top 500 brands of the world.

“Brand management is extremely important in promoting a company’s stock value during mergers and acquisitions, and increasing its regional and global competitiveness. Thus, the approach to brand management must be fundamentally changed to focus more on measuring economic value, he analysed.

Wrong branding results in assets loss
Many businesses spend much money developing their brands but forget to measure their values. Mr Dang Xuan Minh, General Director of AVM Vietnam, noted that brand equity is greater than material assets in many enterprises. In the 1980s, the value of intangible assets usually accounted for 20 per cent and tangible assets were 80 per cent. At present, these figures are opposite, with intangible assets usually occupying up to 73 per cent

He pointed out a series of strong brands in Vietnam that forget their intangible assets like Trang Tien Ice Cream, Metro and Kinh Do. These companies did not price and properly account brand value, resulting in privatisation difficulties and disadvantages in competition, franchising, mergers and acquisitions.

Mr Manh also took the example of the deal of Vietnam Airlines with Japanese investors. According to Brand Finance, the deal was worth another US$10 million for Vietnam Airlines value at that time.

“We lost a lot of brands. If they are valued with international standards, they will have high values. As for State-owned enterprises, before conducting mergers and acquisitions (M&A), if investors do not pay for brand value, the State will lose a lot from such deals,” Mr Manh noted.

Many investors often make investment decisions based on fundamental valuation methods of financial performance such as share value and asset value in the balance sheet. These methods may produce inaccurate business value as they do not include non-statistical intangible assets such as customer base, distribution network, and particularly brand. Therefore, brand valuation is necessary to determine the overall value of the brand owner.

Legal basis needed
The lack of legal framework is partly attributed to poor brand valuation. The Ministry of Finance has not introduced specific guidance on this and many enterprises still feel confused when they contribute the capital in the form of brand name.

Mr Minh proposed that the State should build a clearer legal basis for brand valuation, clear guidance and transparent bidding. For their parts, enterprises should not forget intangible assets and should invest in brand value.

Huong Ly








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