The Mighty Mekong

There is an oft-told story of a new recruit at a company asking an experienced co-worker what an employee should do when a customer calls. The old-timer responded “There are three ways to do any job, the right way, the wrong way and the company way”. In the case of Mekong Capital, the “company way” is derived from the corporation’s ambition to build a culture of leadership in Vietnam.

The American Chris Freund founded Mekong Capital in 2001 with a plan to shape the Vietnamese private sector by forging strong management teams that empowered their companies to perform better. Starting in 2007, a new set of core values were implemented which included: communication, integrity, responsibility, results and leadership.

Freund claimed that a comprehensive transformation process – kick-started in 2007 – would help Mekong Capital in its vision through 2015 to have the most consistently high investment returns in Asia. The new core values ensure tasks of each employee are fulfilled and contribute to the advancement of the firm’s vision.

Deal partner Pham Vu Thanh Giang, for instance, demonstrated Mekong Capital’s far reaching philosophy when she took over the deal partnership with DigiWorld in 2009.

Her first step was to clean up whatever had not been working in the past. Meanwhile, the DigiWorld management team asked to decrease its net profit target for 2009 by around 50 per cent, and Giang’s challenge was to keep them on track to meet this goal.

With the support of Freund in meetings, the two companies identified the problems in their working relationship. Freund and Giang listened to the CEO’s concerns and afterwards Giang started working with DigiWorld management to create a common vision for the company’s future by setting targets, and establishing an action plan.

As a result, DigiWorld committed to achieving a net profit target for 2009 that was 40 per cent higher than previously planned. The group reorganised itself to maximise net profit rather than shore up market share or generate revenue growth. By the end of 2009, DigiWorld had exceeded its net profit goal by 20 per cent.

Another new added dynamic at Mekong Capital is the role of mentors – basically, a sort of “buddy system” to help the development of junior members on the team.

Le Tuan, a deal partner overseeing Traphaco – a pharmaceutical production company – successfully managed to build a common vision with the company’s senior management with the aid of his mentor, Tran Thu Hong.

Traphaco had initially been reluctant to move out of its comfort zone, take risks, or set aggressive targets. But under Hong’s guidance, Tuan inspired the management team to imagine a new future for the company. Management became excited and Tuan was able to seal the CEO’s approval. The resulting action plan drafted by Traphaco outlined major development plans for the distribution channels and market share in southern Vietnam and estimated a net profit growth of 50 per cent for the pharmaceutical company in 2010 – a much higher target than originally anticipated.

The buddy system had a secondary effect. By working with people at different levels, employees started to think about what was best not only for their own careers, but for the company as well.

As Freund explains: “Without having a strong culture internally, it is difficult for us to convincingly transmit our wishes to investees; having the culture we have now empowers myself and my colleagues to effect change in our companies. We can better inspire them to make the strong commitments for the long-term future of their companies, and to set and reach their long-term targets.”

Few fund management companies have been as successful as Mekong Capital in transforming new corporate culture both internally and externally when working with investees. Mekong Capital dreamed to build a culture where people no longer attributed causality to external circumstances, but rather where they saw themselves as the source of whatever was or not working – a sense of accountability was the key.

The process required a number of open dialogues where people could safely reconsider what responsibility meant in their lives without fear of retribution. Over time employees went from resisting to accepting and even embracing the point-of-view that they were fully responsible. One of the biggest motivations for change was observing how people who took on full responsibility achieved better results than those who blamed external circumstances.

“In Mekong Capital’s case, while our transformation was ultimately successful, I think that my biggest mistake was that I failed to inspire each of the key managers about the benefits of transforming our culture and our value creation framework at the beginning of the process in late 2007,” adds Feund. “If I had done this more effectively, I think that our transformation would have been successful more quickly, and with lower employee turnover.”

Having made around 20 investments between 2003 and 2007 and been closely involved with investees’ companies, the company became better at knowing what kind of evidence to look for and became less susceptible to buying into excuses and explanations for gaps in their existing management team. 

In 2009, one and half years since the transformation began, Mekong’s investee companies as a group achieved 106 per cent of the net profit targets that Mekong and its companies had established – the first year that the investee companies as a group exceeded their targets. A large factor contributing to the investees’ success was undoubtedly the transformation process of Mekong Capital. The mighty Mekong rolls on.