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this study selects 3 Vietnamese companies: Mai Linh group, Tribeco Joint Stock company which have failed in their business ventures, investigate how they failed and recommends how for future century entrepreneurs in Viet Nam could respond.
NOVEMBER SEMESTER 2013 BPNV 5103 – NEW VENTURE DEVELOPMENT INDIVIDUAL ASSIGNMENT (60%) INTRODUCTION: Since its accession to the World Trade Organisation (WTO) on 11 January 2007 Vietnam has taken active steps to revamp its legal framework for business and investment in Vietnam The changes are largely favourable to both foreign and local investors As most Vietnamese firms are used to operating under a protected setting, they may face difficulties competing in the globalized environment Obviously, the new manufacturing ventures play a crucial role in the national economy It is not hard to understand why policy makers always issue preferential policies to develop this sector However, in Vietnam's case, there is still a lack of empirical research about the new manufacturing ventures, especially studies about their characteristics, and the factors affecting their performance This study selects three Vietnamese companies which have failed in their business ventures in the past, investigates how they failed, and recommends how for future venturing entrepreneurs in Vietnam could respond This article is organized as follows: the following section briefly reviews the profiles of the selected companies and find out the reasons behind their failures The data analysis, findings and discussion are reported in the following section to obtain sufficient information pertaining to profiles of the companies and their key reasons on why they failed in their marketplaces respectively The final section presents the conclusion and implications of the study 2|Page MAI LINH GROUP: 1.1 BACKGROUND: Mai Linh Group was founded in 1993 Its main business was transportation service starting with 25 cars and 25 staffs Nowadays, Mai Linh Group has become a company of national and international network with 5,000 cars of all kinds and 16,000 employees Its turnover reaches 3,800 billions VND per year Transportation operation, services are the key of the group, including: i Mai Linh Transporation: Taxi, rent car, intercity express, maintenance centres ii Mai Linh Toursim: tour providers, flight agents, VIP tour services iii Mai Linh Trading: import and export, car saloon, automobile distribution iv Mai Linh Training: internal intensive and advance training, The Vocational Training School, international education consultancy v Mai Linh Construction: real estate development, construction vi Mai Linh Information Technology & Communications: distributing IT & communication products, applying IT into management vii Mai Linh Finance: developing multi-function payment card, bank partnership, stock trading, foreign exchange and other financial services viii Mai Linh Consultancy & Management: management consultancy, branding development, quality control, printing and advertisement, security services, health care services Although being the leading firm but Mai Linh Group have continued losses in the past year Recently, the group is financially incapable of repaying these debts on time 3|Page 1.2 TIMELINE: − On 7th December 1993: Mai Linh Co., Ltd was founded by Mr Ho Huy with an initial capital of 300 millions VND Mai Linh started out field car rental, travel agent with 20 vehicles and 25 personnel on active range of Ho Chi Minh City − On 1st November 2007: the Company changed its name to Mai Linh Group Joint Stock Company − From 2007-2009: the Company net loss was 224 billions VND in years The continuous losses make Mai Linh’s shares are always at low price 2000 VND/share − End of year 2011: With a record loss in 2011, accumulated losses of Mai Linh Group increased to 439.7 billions VND, equal 50% of the charter capital − September 2012: Mai Linh Group increased its chartered capital to 1,017 billions VND through the conversion of bonds into shares for VOF Investment Limited − End of year 2012: Mai Linh Group sold a number of its real estate projects, rest stations and old vehicles to settle a total debt of 500 billions VND Total liabilities of Mai Linh are more than 4,600 billion VND, equal 84% of total assets 1.3 PROBLEMS: Until 30th June 2012, Mai Linh Group invested in 59 subsidiaries and corporate companies with business activities are: transportation, tourism, trading, training, construction, finance In particular, Mai Linh Group directly invested in 10 subsidiaries by regional and the regional subsidiaries continue to invest in companies which doing business in each provinces 4|Page Mr Ho Huy is Chairman of board and CEO of Mai Linh Group He also held the position of Director of some subsidiary Relatives of Mr Ho Huy also held many important positions in corporations Currently, Mr Ho Huy and his wife are holding over 54% shares of Mai Linh Heavy organizational structure and infficient investment strategy make Mai Linh’s revenue decline and profits reduce Figure 1: Organizational structure of Mai Linh Group 1.4 DICUSSION: Mai Linh Group revenue growth year over year but frequently is losses Causes loss is mainly heavy interest costs, management costs are also high due to the heavy organizational structure The strategy mistake of Mai Linh Group was sharing two biggest markets for rival companies (in Ho Chi Minh City is Vinasun and in Ha Noi is Taxigroup) While Mai Linh spread out their capital all over the country, their rival companies invest by focus on their main market 5|Page The main cause of the current predicament is due to company business loss for a long, heavy reliance on external sources of capital, overinvestment in long-term assets Consequently, Mai Linh Group is now falling into loss solvency and financial crisis To overcome the financial crisis today, Mai Linh Group leaders need a strategic corporate restructuring effectively Initially, the leadership solutions company needed to restructure assets to improve cash flow, maintaining the company's operations In the long term, company leaders should soon be building and restructuring Mai Linh Group conducted efficiently and sustainably 6|Page TRIBECO JOINT STOCK COMPANY: 2.1 BACKGROUND: Tribeco was once a very famous brand in the drink industry in Vietnam Tribeco’s products were once nominated as the key industrial products of HCM City, while Tribeco’s shares (TRI) were hunted by big investment funds such as VinaCapital or PXP Vietnam Fund Tribeco's main business is beverage industry and nutrition Inside, they focus on to develop and produce high nutritious natural products as soya milk, Bird's Nest White Fungus, Winter Melon Tea, Green Tea Besides, Tribeco also invests in Leasing, Trading, Real estate… However, the golden age of Tribeco is over, since the day its shares fell into the hands of foreigners The company has asked for the permission to leave the stock market, before it is forced to cancel the share listing Like many other strong brands, Tribeco’s brand would disappear from the market after it is controlled by foreigners 2.2 TIMELINE: − In 1992: Tribeco Co., Ltd was established In there, the state capital equivalent to51% of the charter capital, the rest is due to contribution of outside shareholders − In 2001: Tribeco Co., Ltd transformed into Saigon Beverages – Tribeco Joint Stock Company with chartered capital of 27,403 billions VND − In 2005: Kinh Do Corporation became a big shareholder of Tribeco after it purchased 35% of stakes from foreign investment funds Mr Nguyen Xuan Luan, CEO of Tribeco said that it was decided two mutually beneficial; if not cooperation to promote the development of foreign competitors, Tribeco will soon be losing market competition 7|Page − In 2006 and 2007: Tribeco continue to build two factories Tribeco Binh Duong and Tribeco Northern Pacific (Hung Yen) with capital contributions are 80% of Tribeco and 20% of Kinh Do Corporation − In early 2007: Tribeco sold 15% stakes to Taiwan partner from Uni-President − In 2008: Tribeco surprised investors when it reported the 145 billions VND loss − In 2009: In order to rescue Tribeco, the two big shareholders injected hundreds of billions of dong in the company However, the effort failed to bring effects, while Tribeco continued reporting the loss of 82 billions VND − In 2011: The downturn continues with the reported loss of 86 billions VND Tribeco must sold all shares of Tribeco Northern Pacific, late 2011 Tribeco sold out Tribeco Binh Duong − In 2012: at the shareholders’ meeting, Tribeco “asked for the permission from shareholders” to suffer a loss of 140 billions VND 2.3 PROBLEMS: Tribeco has been sliding in doing business since 2008, incurring big loss in 12/13 quarters Foreign investment funds, such as Citigroup Global Market, Vietnam Investment Limited, though affirming their intention to make long term investment in Vietnam, also decided to run away from Tribeco In 2005, Kinh Do Corporation, one of the largest companies specializing in manufacturing and trading of snack foods in Vietnam, purchased more than 35% of Tribeco’s shares, hoping to expand its interests However, after more than six years, Kinh Do has stopped investing in Tribeco and withdrawn its representatives from the company's management board “Kinh Do’s strategy when investing in Tribeco was wrong since at that time, it still had some problems that were not solved Therefore, Kinh Do’s managers could not help to develop Tribeco”, said Nguyen Nam Trung, director of Consultation and Traning company SEG 8|Page Due to the big losses from late 2008 to 2010, Tribeco has gradually sold stock, handed over Tribeco Binh Duong to Uni-President After buying 15 percent of stakes of Tribeco in 2007, the Taiwanese group continued buying more shares, now holding 43.56 percent in Tribeco In the annual shareholders meeting of Tribeco held last June 2012, all staff from Kinh Do has simultaneously resigned to make place for Uni-President Therefore, this Taiwan Group now controls the entire Vietnam beverage brand as well as enjoying a significant market share of this product without any effort to branding Others, 13% Kinh Do Corp., 23.4% Tribeco, 20% Figure 2: Shareholder Structure of Tribeco in 2012 2.4 DICUSSION: Most of the large losses of Tribeco are from provision financial investments, bad debts, advertising costs and losses in the joint venture company Weak management had rendered Tribeco unable to compete with major foreign brands in the domestic market According to some experts, Uni-President might have acquired Tribeco thinking it has enough experience to save Tribeco from suffering losses As the biggest shareholder, Uni-President Vietnam has 9|Page given Tribeco no choice but to dissolve, so that it can easily take over the company completely The Tribeco brand name will no longer exist on the market; instead the company’s products will be sold under the Tribeco Binh Duong brand name, managed by Uni-President Vietnam, a 100% foreign-invested company Tribeco is believed to be the victim of a transfer pricing strategy or the tricks played by foreign partners who have been planning a hostile takeover of the drink manufacturer 10 | P a g e LAN HAO COSMETICS PRODUCTION LIMITED COMPANY – THORAKAO: 3.1 BACKGROUND: Lan Hao cosmetics production limited company has been a prestigious Cosmetic trademark since 60s It is also one of the leading companies in natural cosmetics products In 1987, after 12 years of temporarily suspending production, the Company was re-established with the same traditional trade mark of THORAKAO Through most difficult steps, the company has established a firm market nationwide in Vietnam, with a greater and greater variety of products, models, labels Apart from the fully prestigious trade mark of THORAKAO, the Company has held such other famous trade marks in foreign market as LEYNA, FREEWOMAN, PONSON, JULIET Currently, the Company has over 70 kinds of product including various creams for skin application, nourishment and care, and assorted shampoos, perfumes, toothpastes, detergents Thorakao is trying to expand its market share and, apart from the domestic market, has exported to many other markets such as Singapore, Taiwan, Cambodia, Laos, China, Australia, New Zealand, the U.S.A., Saudi Arabia, Egypt, Russia, African countries… The company is investing in expanding its factory in HCM City to 50,000m2 with modern equipment to meet the need of competition in the context of worldwide economic globalization in future Today, Thorakao although still on the market, the export turnover is high, but the name still exists Thorakao faint, even not a few people said that this company is operating perfunctorily 11 | P a g e 3.2 TIMELINE: − On 15th November 1968: Lan Hao’s products and trade mark were specially issued with Patent No 1779 and widely sold in all South Vietnam by the time − In 1969: Lan Hao opened its branch in Cambodia, and began its export to other South Eastern Asian Countries − In 1987: the Company was re-established with the same traditional trade mark of THORAKAO − Early 1990s: Thorakao became brand names on the domestic market and is widely overseas overseas use the information − Until now: now with over 70 product lines Thorakao but only 20% of the domestic market and it is difficult to find a product Thorakao in market 3.3 PROBLEMS: In the early 90s of last century, Lan Hao introduced to market the cosmetics products which are extracted from turmeric, each product created a craze not only in the domestic market Thorakao then almost had no competitors at that time and became the companion of most women But then, when the market began to appear imported products, everything changes Many multinational corporations to business across Vietnam also made that point acquisition or joint venture Thorakao invited However, Lan Hao management had to stand firm because Lan Hao thought in any case they should preserve heirloom Consistency is so, but in business strategy, Thorakao does not seem interested in branding by that In the development of advertising, if other cosmetic brands regularly focus on advertising on television programs and the designs are constantly changed, Thorakao is not interested in any marketing activities, is still at its standstill, with strategies like the '60s, 70 12 | P a g e Because so quiet Thorakao although still on the market, the export turnover is high, but the name still exists Thorakao faint, even not a few people said that this company is operating perfunctorily At the headquarters of Thorakao now is still using the banner: "Thorakao, reputable brand for over 40 years." Is this just nostalgia? In fact, Thorakao had many efforts but they did not the right way to revive the brand and dominate the market 3.4 DISSCUSION: Even though Thorakao was the first local cosmetic products developed in Vietnam, its product is inability to appeal to the customers has made Thorakao losing it market shares to other rivals The sale of Thorakao cosmetics remains modest and they almost are unable to compete with foreign brands Lan Hao Company currently spend 80% of production for export and domestic accounts for only about 20%, with mainly popular goods in rural markets partly due to price sold quite affordable Thorakao is over-confident to its brand which is very popular and classified as "durable, timeless," but this brand is also being "faded" in the hearts of consumers As a wellknown and favorite brand in the domestic cosmetics market, Thorakao was seen to have much potential Nevertheless, amid a flood of foreign brand names, Thorakao failed to run alluring advertising campaigns or improve quality and design of products As a result, although Thorakao had developed and distributed 70 product lines, its market share remained low Whereas, with the same product lines, Nivea, Hazeline and Ponds have almost dominated the entire Vietnamese cosmetics market, even in rural areas Foreign cosmetic manufacturers usually use natural ingredients in their products, which is their unique selling point Thorakao also has many products made from natural ingredients such as coconut oil, lemon, citronella, mint, turmeric, and pomelo However, with more attractive designs and aggressive marketing leading to higher visibility, foreign-made cosmetics are more 13 | P a g e familiar and preferred by consumers Therefore, Lan Hao should review its business strategy and upgrade the products to meet market demand so as to revive it brand name once again 14 | P a g e CONCLUSION: According to the Ministry of Planning and Investment, in the first nine months of 2013, Vietnam has 42,459 businesses which are dissolution, decommissioning, averaging nearly 5,000 per month now "dead" No one likes to fail, but failure provides a great growth opportunity To recognize the failure and analyzing it to find lesson for next time are very important Base on the failure cases upon of three Vietnamese business ventures, these are a few reasons to be regarded as the most popular: i Investing in too many business sectors (Mai Linh Group): The taking on all business sectors are considered to bring more profit but in fact, it is not necessarily giving company more profitable A business model focuses on one area of expertise is considered to be more simple and much better When company focus on developing one business and industry, company can aware of goals and responsibilities of company needs ii Poor accounting (Mai Linh Group and Tribeco Joint Stock Company): A company can not be in control of a business if it does not know what is going on With bad numbers, or no numbers, a company is flying blind, and it happens all of the time For one thing, it is a common that an outside accounting firm hired primarily to the taxes will keep watch over the business In reality, that is the job of the chief financial officer, one of the many hats an entrepreneur has to wear until a real one is hired iii The business owner is the worse thing for the business (Tribeco Joint Stock Company): in many cases of business failure the cause is the business owner Business owner constantly lied about the financial position of the business, would constantly blame others 15 | P a g e for their inability to simple tasks and would never admit to or take responsibility of their actions iv No marketing plan (Lan Hao cosmetics production limited company – Thorakao): A company need to know who its target market is and how it will reach them Never think this is something company can ignore in the planning stages and figure out once it is open Marketing should be part of company’s plan before it ever thinks of opening its doors If people not know that the company exits, it will have a very hard time staying afloat v Owners can not get out of their own way (Lan Hao cosmetics production limited company – Thorakao): The owners may be stubborn, risk averse, conflict averse They may be perfectionist, greedy, self-righteous, paranoid, indignant or insecure Although, the advisors even tell these owners the problem, but they continue to make the same mistakes over and over 16 | P a g e REFERENCES: About Tribeco (2013) Retrieved 2013, from http://www.tribeco.com.vn/en/ Having no money, businesses issue shares to pay debts (2013) Retrieved November 6th, 2013, from http://www.vietnambreakingnews.com/2013/11/having-no-money-businessesissue-shares-to-pay-debts/#.UsBwAftX3Fw Mai Linh Group (2013) Retrieved 2013, from http://www.mailinh.vn/ Mai Linh to sell 1,000 cabs to reduce debts (2012) Retrieved December 26th, 2012, from http://vietnamnews.vn/economy/234540/mai-linh-to-sell-1000-cabs-to-reducedebts.html Report from the Ministry of Planning and Investment (2013) Vietnam Economic in the first nine months of 2013 Hanoi, Vietnam Thorakao’s introduction (2008) Retrieved 2008, from www.vietaz.com/store/3790/about.htm Uni-President eyes Tribeco takeover (2013) Retrieved August 18th, 2012 by Vietnam News from http://www.vietmaz.com/2012/08/uni-president-eyes-tribecotakeover/#.UsByFftX3Fw Vietnamese cosmetics brands, one after another, “choked to death” (2013) Retrieved February 15th, 2013 from http://m.english.vietnamnet.vn/fms/business/56711/vietnamesecosmetics-brands one-after-another -choked-to-death-.html 17 | P a g e ... Vocational Training School, international education consultancy v Mai Linh Construction: real estate development, construction vi Mai Linh Information Technology & Communications: distributing IT &... other financial services viii Mai Linh Consultancy & Management: management consultancy, branding development, quality control, printing and advertisement, security services, health care services... of Tribeco said that it was decided two mutually beneficial; if not cooperation to promote the development of foreign competitors, Tribeco will soon be losing market competition 7|Page − In 2006