The factors to building enduring businesses

February 28, 2024 | 10:46
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Japanese investment in Vietnam has persisted, with a focus on merge and acquisition activities. Masataka “Sam” Yoshida, head of the Cross-border Division of RECOF Corporation, talked with VIR’s Luu Huong how the Year of the Dragon symbolises strength and optimism for Vietnam-Japan relations.

How has Japanese investment in Vietnam evolved over the past few years?

The factors to building enduring businesses
Masataka “Sam” Yoshida, head of the Cross-border Division of RECOF Corporation

Before 2020, there was a steady increase in Japanese investment in Vietnam. Despite the challenges in the time since, the interest from Japanese investors has continued.

The last few years has seen a decline in the number of merger and acquisition (M&A) transactions between Vietnam and Japan. This decrease, influenced by global economic trends and Vietnam's economic challenges in 2023, was less severe compared to other countries.

Furthermore, the real estate market's downturn and fluctuations in the Dow Jones have also affected Japanese investment decisions, leading to a reduced number of transactions in Vietnam.

Have you observed a shift in investment focus among Japanese investors from Southeast Asia to other regions, such as India?

There’s a noticeable trend where some investors are redirecting their focus from Vietnam and Southeast Asia to India, now considered a prime destination for foreign investment.

From my perspective, India is currently perceived as a market akin to China in the late 1990s, characterised by low production costs and significant market potential. However, entering the Indian market poses unique challenges, such as the requirement for provincial licences, due to its vast and diverse landscape.

In our discussions about global strategic positioning with many Japanese investors, the comparison often arises between Thailand and Vietnam.

India represents a distinct strategic entity altogether. Consequently, interest in India does not diminish the focus on Southeast Asia or Vietnam specifically. This was exemplified recently when we witnessed a significant event.

A major corporation, boasting revenues of approximately $2.2 billion, made an unexpected visit to Vietnam. The chairman personally arrived to engage with Vietnamese stakeholders. Their agenda was clear: they intend to relocate a substantial portion of their production facilities to Vietnam over the next 2-3 years. This decision was just announced.

Despite their Chinese base, they’ve now recognised the need for a dedicated factory in Southeast Asia. Their strategy is to establish the Vietnamese factory as a central hub, serving as the primary production and distribution centre for the region. Concurrently, they’re also expanding their investments in India.

From this, it is evident that Vietnam and India are not in direct competition regarding manufacturing and production strategies. Each offers unique advantages and serves different roles in the broader corporate strategies of multinational companies.

India, being culturally and geographically distinct from Japan, influences investment strategies differently. The cultural differences, including aspects like cuisine, play a role in the investment decision-making process.

How does RECOF facilitate business relationships between Japanese and Vietnamese companies, particularly in terms of M&A and cross-border expansions?

Recently, we assisted five Japanese companies with M&A activities in Vietnam. This assistance includes both entering contracts and facilitating more complex business arrangements.

Particularly, there’s a growing interest among Vietnamese companies to expand into Japan. We have the unique position of being a Japanese advisory firm that also assists Vietnamese companies with their expansion plans into Japan.

Our role often involves helping Vietnamese companies find suitable Japanese investors. We provide tailored advisory services to bridge the gap between Vietnamese enterprises and potential Japanese investors, ensuring mutually beneficial partnerships.

What are the positive and negative lessons you’ve learned about successful investments and potential red flags?

Working in the M&A market for a long time has been immensely rewarding, particularly in contributing to corporate strategies. The positive aspect of this work is the pride from facilitating successful transactions. However, there are critical lessons too. Not all transactions lead to success. Post-acquisition, buyers often face significant challenges in integrating the acquired company.

A key lesson is the importance of responsibility in introducing deals. Our role is impactful, but it comes with the weight of potentially influencing the buyer’s future negatively. Fortunately, I haven’t encountered severe negative outcomes, but the possibility is always there.

Another vital point is the honesty and transparency needed in advising clients. Some advisors might conceal negative aspects of a deal to secure success fees, leading to adverse outcomes for the buyer.

We prioritise the investor's best interests, even if it means advising them to halt a potentially harmful deal. For instance, in a recent case in Vietnam, we advised a Japanese buyer to stop a transaction after identifying significant risks. This decision, although difficult, was in the best interest of the client. We are now working on finding alternative targets for them.

What are the key moments and experiences that shaped your career in the M&A market?

My career in the M&A market has been deeply influenced by a sense of mission, and this realisation came about during the late 1980s, a pivotal period in my professional journey. A defining moment was when I found myself advising a CEO of a major Japanese company, and he expressed a willingness to follow my advice.

This interaction made me understand the weight and impact of my role, igniting a sense of responsibility and purpose. It was then that I recognised the importance of my work in bridging countries and corporates, particularly Japan, and how it could facilitate cross-border deals.

This turning point was not just about realising the importance of my role, but also about personal growth. It was a time when I decided to devote myself to this field, understanding that I needed to continually expand my knowledge and expertise to provide more valuable advice to top corporate leaders.

This journey hasn’t been about seeking knowledge through books or movies, as some might assume. Instead, it’s been a path of practical learning, driven by real-world experiences and interactions within the business environment.

My approach has always been about speediness, honesty, and being one step ahead of client needs. In the advisory business, where we don’t have tangible assets like factories or machinery, our strength lies in our human capabilities.

How do you envision the future of RECOF and the Vietnam-Japan relationship over the next 5-10 years, and even longer?

Our aim is to build a business that endures for a century, and the next decade or so is crucial in laying the foundation for this long-term vision. We hold a very optimistic outlook for the business relationship between Vietnam and Japan.

Over the past 12 years, I’ve witnessed significant growth and change in the communication and exchange of consumer resources between these two nations, and I expect this positive trend to continue.

Historically, we’ve seen patterns where developments in one country influence another. For example, events in the US often echoed in Japan, and similarly, what happens in Japan could eventually take place in Vietnam. As Japan may experience an economic slowdown, Vietnam, with its rapid growth, could catch up.

While the current friendly and cooperative relationship is expected to continue, it could evolve into something different, influenced by various political and global trends. The future, though hopeful, is not without uncertainties. Global events could impact these dynamics significantly. Vietnam, like other countries, may find its decisions influenced by a complex mix of factors.

While we anticipate a bright future for Vietnam-Japan relations, we must remain mindful of the potential challenges and changes that global and political developments might bring. This year, being the Year of the Dragon in both Vietnam and Japan, symbolises strength and optimism, reinforcing our hopeful outlook for this bilateral relationship.

By Luu Huong

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