“There will be more attractive and scalable investment opportunities in most consumer sectors”

12:34:32 PM | 4/9/2019

The affirmation comes from Mr. Chris Freund, Managing Partner of Mekong Capital in an interview with Vietnam Business Forum. Huong Ly reports.
With the experience of living and working in Vietnam for nearly 20 years, how do you evaluate Vietnam’s business environment?

The potential for business opportunities is the same as it’s been for the last 20 years. Compared with the past, entrepreneurial activities have mushroomed, and it began at increasingly younger ages. Several companies are founded by individual entrepreneurs. There is a special spirit and energy here.

With the steadily growing consumer expenditure, there will be more attractive and scalable investment opportunities in most consumer sectors. For instance, retail sales grow at around 10% per year and most consumer sectors are still quite fragmented, which means there could be plenty of rooms for well managed companies to scale up.

Moreover, thanks to the internet, global integration and modernization will be much faster in the next few years. The companies that successfully implement omnichannel retailing, which tightly integrates online and offline, will win their markets. Others that operate merely online or offline will struggle compared to those who lucratively employ both online and offline channels in a seamless way. I think Mobile World is a case in point, but other companies are adopting this strategy as well.

According to VCCI, among all private enterprises in Vietnam, only 2% of private enterprises are big, 2% medium and 96% are small; up to two thirds of private enterprises don’t have profit yet. What do you think about this? Are you still interested in private equity in Vietnam?

Yes, that is the nature of Vietnam’s business environment, lots of small private companies. This differs from many other countries in Asia which tend to be dominated by family controlled conglomerates. For example, Indonesia, Thailand, the Philippines and South Korea are all dominated by family-owned conglomerates. In this respect, China and Vietnam are probably most similar in terms of the diverse playing field of private companies.

With a wide range of small companies in Vietnam, there is a much broad range of companies in which we can invest. But the implication is that the deal sizes tend to be smaller in Vietnam than most other countries in Asia.

Retail is your most successful industry. Could you please share about this segment? Are you still interested in this area?

We used to invest in other sectors like manufacturing, real-estate and IT. However, gradually we saw that consumer businesses were performing better than other investments in our portfolio, and we progressively shifted towards investing only in consumer sectors.

While other industries might create a lot of wealth for other investors, Mekong Capital chooses to focus on consumer-driven businesses, which capture the growth in spending power by Vietnam’s rapidly growing middle class. We built a strong core competence in these sectors that involve some combination of branding, distribution, sales and retail. This enables us to add more value to the companies in which we invest.

The industries of retail, restaurants, education and logistics will continue to do well. Particularly, these industries remain fragmented, so there is room for companies to grow. Mekong Capital invests in companies that are focused on a single business that are highly scalable, especially when they are operating in fragmented markets in which there is an opportunity for the most well-managed companies to gain significant market share.

As one of the best value-added investors in Vietnam, what has Mekong Capital done to enhance competitiveness of investees?

We apply a framework called “Vision Driven Investing” (VDI) that helps these enterprises create a big breakthrough vision and align their team around that long-term goal. This framework includes 14 elements, which are based on actual patterns of what had worked best in Vietnamese companies in which our funds have invested.

We have consistently seen that when companies fully implement it, they do perform very well. Our best performing investments currently are also the companies that have most fully implemented VDI.

In the past, our best investments such as Vietnam Australia International School, Golden Gate and Mobile World were good models of companies that applied most aspects of VDI.

As a foreign investor, what advice can you give to local business founders who would like to call for foreign investment?

One factor that Mekong Capital considers the most before making any investment decision is the commitment of the company to build a strong management team. Various enterprises claim that they have an intention to build a strong team but some of those will later come up with excuses and concerns that prevent them from strengthening their team.

We believe the key to success is to concentrate on developing professional managers and consistently reinforce a strong corporate culture around a shared set of values.

Last but not least, for Mekong Capital, given our approach of providing a lot of hands-on support in building their business and exposing the company to global best practices in their sector, we are looking for leadership teams that are hungry to learn, quick to adopt best practices and welcome our intensive involvement.

Thank you very much!