Part 3: Take risks of pouring money into difficult sectors

FLC – a giant real estate group decided to establish Viet Bamboo Airlines. Photo: ST

Risk investment

In mid-2017, FLC made a surprising announcement that the large estate group was to establish Viet Bamboo Airlines - a subsidiary company with 100% capital of FLC, with the charter capital of 700 billion VND. This announcement received a lot of concern because Vietnam currently has 4 airlines, and one airline has planned for flights in 2016, but has not yet obtained a licence for operation due to waiting for the expansion of overloaded airports. Thus, many think that the idea of airline establishment by FLC is “on paper”, notably impossible.

However, after a long time of preparation and promotion, on March 26, 2018, official agreement of purchasing 24 A321 Neo aircraft between FLC Group and Airbus (Europe) was signed. The contract was worth $US 3 billion, and the Group expects it will continue purchasing another 26 Airbus A321 LR (long-range) to expand its operation, increasing its number of aircraft to 50. Though Bamboo Airways is waiting for a license for operation, representatives of FLC Group confidently announce that by the end of 2018, it will exploit commercial airline flights. The Bamboo Airways plan to provide direct international flights to Vietnamese destinations. This plan aims to reduce pressure on aviation infrastructure in big cities, strengthen regional links, and raise the level of Vietnam tourism.

In addition, many other names are daring to “engage” in strange investments that are not easy to implement. According to representatives of Thanh Cong Group (TTC Group), the economy is growing rapidly, so it needs clean energy. Vietnam has favorable natural conditions to exploit clean energy from the sun and wind, so the implementation is more feasible than hydro-power.

Similarly, Intimex Group is investing in the fields of agricultural exports, rice processing, cashew processing, commercial centers... even a concrete factory, a tunnel brick factory. According to Mr. Do Ha Nam, Chairman of the Board, General Director of Intimex Group, the company invests deeply with the increase of the value of export products, or acquisition of dominant shares, and joining two-member limited liability companies... for sustainable development.

Along with that, some enterprises also "ventured" when investing in foreign markets such as Viettel Group’s investment in countries in Africa and America; TH True Milk Group investment in Russia; Vinamilk invested factories in the US, New Zealand, Cambodia. Although these companies are investing in their core business sector, their stepping out of non-traditional markets requires a great deal of economic potential as well as strong management capacity to be able to create their position in these markets.

Not afraid of failure

Most of the multi-sector investment of enterprises focused mainly on key areas, rich potential development such as real estate, trade, agriculture, food... so it’s quite "safe". But according to experts, the niche market also has many attractive points if companies know how to take advantage of opportunities as well as make them develop.

A story of doing business is an example. A decade ago, Vinaxuki's ambitions for "made in Vietnam" cars failed due to regulatory constraints, lack of credit, and consumer indifference. Vinaxuki's "dream" came to an end, and that made management agencies change their thinking on policies to promote the development of the automobile industry in Vietnam. Now though, the policy for manufacturing enterprises is more favorable, with car import tax in ASEAN at 0%, it makes cars assembled in the country more expensive, so the demand of Vietnamese people for Vietnam’s automobile brands has increased... Vingroup Group has invested in Vinfast –Automotive Manufacturing Complex with capital investment of $US 3.5 billion.

VinGroup has invested to establish Vinfast – Automotive Manufacturing Complex with capital investment of $US 3.5 billion. Photo: ST

According to the representative of Vingroup, in order to avoid "following the failure" of the preceding car manufacturers, Vinfast will produce cars and motorcycles with its brand, with the most modern technology. After signing a contract of cooperation, consultation with international partners in equipment, technology and automotive design, the Group hopes to produce cars with the brand name of the country, suitable for the market, tastes and income of the people in the country, and even for exporting abroad.

Another example is the case of investing in hydro-power by Hoang Anh Gia Lai Joint Stock Company. In the period 2010, Hoang Anh Gia Lai was licensed to carry out 20 hydro-power projects, because investing in hydro-power was a "trend" at that time due to high energy demand. But by 2013, Hoang Anh Gia Lai had to restructure, divest from the hydro-power sector for debt reduction, focusing on better potential projects. After a “quiet” period, in late January 2018, the Hoang Anh Gia Lai Board of Directors, decided to invest 49.5 billion VND to set up Hoang Anh Hydro-power Company Saigon with some partners. It is still unclear about its direction in the sector in the coming time. However, the business has not really prospered and the debt is up to thousands of billion VND, the multi-sector plan by Hoang Anh Gia Lai needs to be considered carefully.

It can be seen that investing in any sector, any field, whether safe or risky, needs careful thought, and needs to have the experience and skilful capacity of business leaders. We cannot deny that the risk of daring to enter into a new market, new sector, might be a good thing for taking advantage of opportunities, but if the enterprises have too big an ambition, wearing too large a "shirt", it can lead to failure, so it requires careful consideration, planning, and well measured steps .

Giving advice on multi-sector investment with businesses, economic expert Dr. Nguyen Minh Phong, said that businesses need to remove the investment style for getting profit in the short term, and then forgetting the long term. Businesses also need to follow their strengths and multi-sector investment within a focus; new sectors that enterprises select must be highly practical, suitable with the current capacity and market, with medium and long-term prospects of domestic and international markets. Because the multi-sector, multi-field operation has two sides, if it becomes a "deviation", or an ineffective investment, it can cause companies to lose their brand image and cause huge, unpredictable losses.

* Part 4: From the success of private enterprises, take a look at State-owned enterprises