BUILDING INITIAL STRATEGIC BUSINESS RELATIONSHIP WITH JAPANESE ENTERPRISES THROUGH MERGER AND ACQUISITION (ma)

Merger and acquisition (MA) is a very importance restructuring activities for enterprises. In the world, MA has appeared for such a long time and been popular among countries with market economy where intense competition between multinational corporations is unavoidable. Starting in 2000 in Vietnam, MA activities in general still confronting a number of obstacles that put the brake on the expansion of this market. In the seminar held in March 2012, Dr Vu Tien Loc – President of Vietnam Chamber of Commerce and Industry (VCCI) cited three primary reasons for this problem. Firstly, Vietnam lacks legal framework exclusive for MAs which causes much troubles to management agencies, businesses and finance consultants. Secondly, MAs are quite new and complex, hence, the support of involved organizations is still limited. Finally, relatively tight liquidity conditions constrain MAs breakthrough domestically and internationally. However, Mr Nguyen Tuan Anh, Head of Vietnam MA Forum 2012 also said that the country now ranked 8th among nations which witnessed the busiest MA activities in the AsiaPacific region, adding that the total MA transaction value of the region, excluding Japan, reached 92.4 billion. The fact that GDP growth by 6% and the target of attracting domestic and foreign investment capital and developing all kinds of markets make Vietnam more potential to increase MA activities both in quality and quantity.

FOREIGN TRADE UNIVERSITY FACULTY OF ECONOMICS AND INTERNATIONAL BUSINESS  MID-TERM INTERNSHIP REPORT BUILDING INITIAL STRATEGIC BUSINESS RELATIONSHIP WITH JAPANESE ENTERPRISES THROUGH MERGER AND ACQUISITION (M&A) Name Nguyen Thi Khanh Huyen Class A4 High Quality – Term 48 Instructor Dr Tran Thi Ngoc Quyen Hanoi, August, 2012 Nguyen Thi Khanh Huyen Instructor: Dr Tran Thi Ngoc Quyen A4 High Quality Class – Term 48 Contents Preface In the context of a challenging global economic situation, Vietnam has faced bouts of macroeconomic turbulence in recent years regarding double-digit inflation, depreciating currency, capital flight, and loss of international reserves which have eroded investors’ confidence. Therefore, how to approach external capital sources through cooperate restructuring in line with business models should be given the priority at this time. Merger and acquisition (M&A) is a very importance restructuring activities for enterprises. In the world, M&A has appeared for such a long time and been popular among countries with market economy where intense competition between multinational corporations is unavoidable. Starting in 2000 in Vietnam, M&A activities in general still confronting a number of obstacles that put the brake on the expansion of this market. In the seminar held in March 2012, Dr Vu Tien Loc – President of Vietnam Chamber of Commerce and Industry (VCCI) cited three primary reasons for this problem. Firstly, Vietnam lacks legal framework exclusive for M&As which causes much troubles to management agencies, businesses and finance consultants. Secondly, M&As are quite new and complex, hence, the support of involved organizations is still limited. Finally, relatively tight liquidity conditions constrain M&As breakthrough domestically and internationally. However, Mr Nguyen Tuan Anh, Head of Vietnam M&A Forum 2012 also Foreign Trade University. August 2012 2 Nguyen Thi Khanh Huyen Instructor: Dr Tran Thi Ngoc Quyen A4 High Quality Class – Term 48 said that the country now ranked 8th among nations which witnessed the busiest M&A activities in the Asia-Pacific region, adding that the total M&A transaction value of the region, excluding Japan, reached $92.4 billion. The fact that GDP growth by 6% and the target of attracting domestic and foreign investment capital and developing all kinds of markets make Vietnam more potential to increase M&A activities both in quality and quantity. Why Japan? Vietnam – Japan have enjoyed a friendly relationship and a multilateral co-operation for such a long time. Japan has a strong development of M&A activities and always considers Vietnam a destinated location for foreign investment. Although having experienced a terrible earthquake Tsunami and nuclear crisis in 2011, it has basically recovered and is enjoying higher growth. Among over 20 countries having their companies doing M&A in Vietnam, Japan comes as the first place in terms of quantity as well as quality. In 2011, Japan had 16 M&A deals with Vietnam which accounted for 23% of the deal value totally. Addressing the importance of Japanese partners, in this report, I would like to analyze the characteristics of Japanese enterprises in a M&A transaction, understand their requirements for Vietnamese counterparts to suggest some areas that Vietnamese firms should focus if they want to attract Japanese investors. I also highlight the role of VCCI, especially the International Relation Department where I am currently doing my internship, in promoting M&A between Vietnam and Japan. Foreign Trade University. August 2012 3 Nguyen Thi Khanh Huyen Instructor: Dr Tran Thi Ngoc Quyen A4 High Quality Class – Term 48 Chapter I: Introduction to Vietnam Chamber of Commerce and Industry (VCCI) 1. History The Vietnam Chamber of Commerce and Industry is a national and independent organization of the Vietnamese business community. It is devoted to accelerating socio- economic development of the country and promoting commercial, economic and technological cooperation between Vietnam and the rest of the world, on the basis of equality and mutual benefit. Experiences of nearly 40 years and its large membership base have made the Chamber an indispensable bridge to connect Vietnamese and foreign businesses, as well as the business community and Vietnamese Government. The Chamber has greatly contributed to the improvement of business environment in Vietnam and efficiently assisted domestic and foreign entities in their business operations in Vietnam. Founded in 1963 in Hanoi, the Vietnam Chamber of Commerce and Industry (VCCI), originally named Chamber of Commerce of the Democratic Republic of Vietnam, served the promotion of trade between Vietnam and other countries in the world. With only 93 member organizations at the foundation convention, the Chamber has undergone several phases of evolution corresponding to different periods of Vietnam 's history. Foreign Trade University. August 2012 4 Nguyen Thi Khanh Huyen Instructor: Dr Tran Thi Ngoc Quyen A4 High Quality Class – Term 48 During the years of war, the Chamber focused activities on maintaining trade relations between Vietnam and certain countries and territories in response to the export - import demand of the country. After the war, the Chamber expanded its activities all over the country, established relations with more and more countries in the world and involved in its fold an increasing number of economic entities. In 1982 the Chamber renamed itself the Chamber of Commerce and Industry of the Socialist Republic of Vietnam so as to expand its scope of operation to manufacturing sectors. Since the "opening up" of Vietnam, the Chamber has embarked on a new phase of fast development in its own history with its Second National Congress in 1993, Third National Congress in 1997, and Fourth National Congress in 2003. It continued to develop the scope and scale of its activities in keeping with the pace of the development of the country. Through its activities both in Vietnam and abroad, the Chamber has actively contributed to the renovation of the country, playing a significant role in the economic growth and transformation of the nation and the integration of Vietnam in the regional and international markets. 2. Function At the recent National Congress (March 28-29, 1997) the Vietnam Chamber of Commerce and Industry adopted new statutes. According to the present statutes the Chamber is a national organization, which assembles and represents business enterprises of all economic sectors and business associations in Vietnam. The purpose of the Chamber is to protect and assist business enterprises to contribute to the socio- economic development of the country, and to promote commercial, economic and technological relations between Vietnam and other countries in the world on the basis of equality and mutual benefit. Foreign Trade University. August 2012 5 Nguyen Thi Khanh Huyen Instructor: Dr Tran Thi Ngoc Quyen A4 High Quality Class – Term 48 The Chamber is an independent, non-governmental organization enjoying the status of juridical person and operating on financial autonomy. It has the following functions: • To represent the Vietnamese business community for the promotion and protection of its interests in domestic and international relations. • To promote and offer assistance in trade and investment, economic and technological co-operation and other business activities of enterprises in Vietnam and abroad. 3. Activities • To collect and study the views and suggestions of business enterprises for reflection, recommendation and advice to the State on legal matters and economic policies for the improvement of the business environment; • To participate in the formation and implementation of the strategy for socio- economic development and international economic integration, to participate in the conferences, and missions for economic and trade negotiations in line with State regulations; • To organize forum, dialogue, and meetings between business enterprises, labor users (employers) and governmental agencies, between business enterprises and the representative of workers (employees) and other relevant domestic and foreign organizations for the exchange of information and views on matters relating to businesses environment; • To conduct necessary activities for the protection of the legitimate interests of business enterprises and labor users (employer) in domestic and international business relations; • To organize activities for the promotion and encouragement to business enterprises on the strict observance of laws, improvement of social accountabilities, good business ethics and culture and sound working relations, protection of Foreign Trade University. August 2012 6 Nguyen Thi Khanh Huyen Instructor: Dr Tran Thi Ngoc Quyen A4 High Quality Class – Term 48 environment, and participation in other social activities in line with the Chamber's objectives; • To assemble and align with business associations in Vietnam, to co-operate with chambers of commerce and industry, and relevant organizations in foreign countries, to join international and regional organizations in line with the objective of the Chamber and to help business enterprises participate in those organizations’ activities. • To conduct activities for the development, promotion and improvement of the reputation of the business enterprises, entrepreneurs, commodities of Vietnam; to promote business supporting services; to assist businesses in developing trade and investment relations in Vietnam and abroad through such approaches as : match- making, seeking partners, providing information, guidance and consultancy to businesses; organizing study, market research, seminars, conferences, trade fairs, exhibitions, advertisements, and other promotional activities; • To organize training activity in appropriate forms to develop the human resources for business enterprises, to help entrepreneurs enhance their knowledge, management skills and business capacity; • To help in the registration and protection of intellectual property and technology transfer in Vietnam and abroad. • To issue Certificates of Origin for Vietnamese export commodities and to certify other necessary commercial documents, and the cases of force majeure. • To help domestic and foreign business enterprises in settling discrepancy, disputes through negotiation, mediation or arbitration, and to conduct in general average adjustment, if requested. • To conduct other activities which are assigned by the Vietnamese State or by other organizations. Foreign Trade University. August 2012 7 Nguyen Thi Khanh Huyen Instructor: Dr Tran Thi Ngoc Quyen A4 High Quality Class – Term 48 Chapter II: Boosting M&A between Vietnam and Japan through understanding our partner. 1. M&A of Japanese enterprises in Vietnam 1.1 Trend of Japanese outbound M&A In recent years, inbound M&A in Japan has slowed to a trickle while outbound M&A has rapidly increased, reaching a record of $86 billion in 2011. While the strong increase of the Japanese Yen against other currencies can partially explain this trend, demographic pressures (i.e.: rapidly aging and declining population) are causing Japanese companies to focus more on the international side of their development strategies as domestic market seems to be unavailable for further growth. 1.1.1 Japan outbound M&A market figures Figure 1: M&A market in Japan Foreign Trade University. August 2012 8 Nguyen Thi Khanh Huyen Instructor: Dr Tran Thi Ngoc Quyen A4 High Quality Class – Term 48 Source: RECOF M&A database (Collected from VCCI) It can be clearly seen that for the last 3 years, the percentage for cross-border M&A increased significantly from 22% in 2009 to 36% in 2011. M&A deals dramatically surged between 2010 and 2011 after a decline in 2009 due to the effect of Lehman Shock (1). The same trend can be looked at M&A of Japan with Asian companies. The number of Japan M&A outbound with Asian companies also decreased in 2009, however, it grew to a faster pace in 2010 and 2011 and surpassed the growth rate of overall Japan outbound M&A deals. The following bar chart will show more details about the target regions of Japanese outbound M&A in recent years, including Asian region. Figure 2: Number of Japan outbound M&A deals by target’s regions Foreign Trade University. August 2012 9 Nguyen Thi Khanh Huyen Instructor: Dr Tran Thi Ngoc Quyen A4 High Quality Class – Term 48 Source: RECOF M&A database (collected from VCCI) Before 2009, the number of Japan outbound M&A with American companies and Asian companies were almost the same. Since 2010, the number of Japan outbound M&A with Asian companies has been increasing and it accounted for approximately 50% of total Japan outbound M&A deals in 2011. It is forecasted that the M&A deals with Asia will be still predominant in Japan outbound M&A market. 1.1.2 Background for increasing Japan outbound M&A I have mentioned about the incentives for Japanese businessmen to seek growth abroad and one of the most important reasons is the decreasing population and domestic demand. It is forecasted that Japan’s population hit its peak (aprox. 128 million) in 2007, remained at the same level and stared to decrease gradually. Foreign Trade University. August 2012 10 [...]... M&A deals with Japanese companies, “sale of majority stake” transactions are available as well as “sale of minority stake” Although acquisition of minority stake can limit financial and management risk, Japanese enterprises are willing to take majority if control of business is necessary Due to the lack of management resources at the Japanese companies and to the needs for avoiding business and financial... Ngoc Quyen - Seminar “Handicraft product export promotion into Japan” (25/1/2010) provided information on Japanese consumers’ taste and the way to enter Japanese market by 2 Japanese experts on designing and marketing - Seminar “ Experience on business management and behavior culture of Japanese in Haiphong city (12/5/2011) - Seminar “Japan: business opportunities on cooperation and investment” in Soc... number of outbound M&A of Japanese is increasing rapidly as the decreasing domestic demand is not a short-term phenomenon and many Japanese companies are eager to expand business to the areas where population and economic growth can be expected Many of them are highly interested in doing M&A in Asia and Vietnam ranks the third as attractive destination after India and China Japanese firms look at Vietnam... disclosure and transparency Even in discussing Japanese business custom and efficiency, Japanese management system is sometimes criticized as not being transparent This is because this system only works in Japan and not compatible with global standard, for example lifetime employment, seniority-oriented pay system, a style of management system that gives importance to affiliated companies and cross-shareholdings... mentioned above, Japanese enterprises are interested in both acquisition of majority stake” as well as acquisition of minority stake” The transaction type, hereafter, can be divided into 2 main fields: • Acquisition (acquisition of majority stake): acquisition of the controlling interest of a company, step-up acquisitions of the controlling interest of a company • Capital participation (acquisition of... in to consideration by Japanese investors They care about the existing management and shareholders to stay at companies to make sure that this system is consistent with their expectation Recent data has shown that Japanese companies have inclination to invest on small and medium Vietnamese enterprises with certain advantages If the 577-million-value transaction between Mizuho and Vietcombank is excluded,... Japanese people Once the commitment is made for the partnership, Japanese companies rarely withdraw from the project or the market => Knowing this characteristic, Vietnamese businessmen should be patient when dealing with Japanese firms They should show Japanese partners how the transaction will bring benefits to the companies and value to their brands, not the profitability that they will gain alone 4 Conclusion... between Vietnam and Japan increased significantly in 2011 (18, by 80% compared to 2010) and that upward trend is expected to continue Among that, the share of acquisition of majority stake” transaction is high That means, Japanese companies prefer to entering Vietnamese market by cooperating with Vietnamese firms with market shares and information on the market Some companies also think that acquisition. .. how to start and what to expect from a M&A transaction with Japanese firms Thanks to my internship period in International Relation Department of Vietnam Chamber of Commerce and industry, I have chance to gain access to some valuable information and conversation with the staff specializing in Japanese market I will introduce more about the role of VCCI in promoting trade between Vietnam and Japan in... between Vietnam and Japan 5.1 Information supply - Updates nearly 1000 newsletter last year Website www.vinajapan.com - Maintain and develop E-info gateaway between Vietnam and Japan Until 12/2011, there are 1.6 million views and 2 200 companies registed on E-commerce market Vietnam – Japan with 1 214 products and 600 offers - Support Vietnamese enterprises in attending trade fairs and exhibitions . UNIVERSITY FACULTY OF ECONOMICS AND INTERNATIONAL BUSINESS  MID-TERM INTERNSHIP REPORT BUILDING INITIAL STRATEGIC BUSINESS RELATIONSHIP WITH JAPANESE ENTERPRISES THROUGH MERGER AND ACQUISITION (M&A) Name. which assembles and represents business enterprises of all economic sectors and business associations in Vietnam. The purpose of the Chamber is to protect and assist business enterprises to. promote and offer assistance in trade and investment, economic and technological co-operation and other business activities of enterprises in Vietnam and abroad. 3. Activities • To collect and