Vingroup lays it all on the table in name of progress

VinFast could stage the very first IPO by a Vietnamese company in the US market. Photo: Duc Thanh

Just over a year ago, Vinpearl JSC revealed its ambitious strategy to expand in international markets in the form of comprehensive collaboration with domestic airlines and the provision of premium travel packages.

As part of the plan, Vinpearl was to first establish offices in strategic markets such as Russia, Australia, Japan, South Korea, and China in order to promote tourism products and develop business directly. Also included in the strategy were outlines for the potential of other regions such as Europe, North America, and neighbouring Southeast Asian countries.

It was the worst time to reveal such a strategy, as February 2020 was smack-dab in the middle of the first worldwide coronavirus explosion. The hospitality and entertainment arm of conglomerate Vingroup was forced to shut down some resorts and golf courses; demand disappeared, and first-half losses tripled on-year in 2020 due to the crippling effects of pandemic restrictions.

But instead of floundering or resting on its laurels, Vingroup simply moved onto the next thing in order to alleviate the financial strife across its businesses. By July, it was building ventilators.

The medical device market was one of the few areas in which Vingroup, founded by Vietnam’s richest man Pham Nhat Vuong, had never paid interest in before 2020, but leaping into something new has seemingly never been difficult for the conglomerate. Last year it built ventilators at a cost of $7,000 each, around 30 per cent less than the price of the model on which they were based, according to Bloomberg.

This action alone, observers say, points to a company and a founder that have been obsessed with building a corporation fast enough to keep up with Vietnam’s growing middle class. And today, the Vingroup reach covers dozens of businesses that affect the everyday lives of the typical Vietnamese person, from childhood and beyond.

“There are very few companies in the world like it, and the ambition is astounding,” said Mark Mobius, founder of Mobius Capital Partners LLP last year.

Branching out

The Vingroup umbrella opened up to its widest point yet in 2019 when VinFast became Vietnam’s first fully-fledged domestic carmaker, with gas models taking to the streets only a short period after initial announcements were made. The previous year, VinFast took over a General Motors (GM) factory in Hanoi to build a new line of vehicles licensed by GM but manufactured and sold under the VinFast trademark.

VinFast, which also produces electric motorbikes and buses, even obtained approval to test autonomous vehicles on public streets in California earlier this year.

Demonstrating that even becoming a domestic powerhouse is not enough for Vingroup, last week the conglomerate announced it was mulling over an initial public offering (IPO) or a merger with a “blank check” company as part of options to raise money for VinFast.

Earlier reports that it was considering an IPO in the US, which would be a first for a Vietnamese company, drove up Vingroup shares in Ho Chi Minh City by 6 per cent on Tuesday of last week.

Despite all the commotion over the automotive arm of the group, it continues to branch out and lock up market share in all sorts of other fields, from its traditional core markets like real estate to newer areas, such as smartphones.

Vinhomes, Vincity, Vincom, and Vinpearl are all from the same conglomerate, and all hard to avoid for the regular Vietnamese traveller. The brands have garnered wide recognition and take up prime locations across the country, with Vinpearl in particular a highlight in the resort arena with its golf courses, luxury entertainment areas, and even safaris.

Another subsidiary, tech firm VinSmart, revealed its first 5G smartphone last summer. But it has yet to offer details on when the phone, provisionally called the Vsmart Aris 5G, would be available or how much it would cost.

In agriculture, Vingroup established VinEco in 2015 and after only two years, it boasted 1,000 cooperatives for farmers, and 3,000 hectares of production that generated 2,000 tonnes of agricultural products each month. At the end of 2019, Vingroup transferred both VinEco and VinCommerce to Masan Group in order to focus on the rapid VinFast expansion.

Understanding the need for cooperation, the conglomerate has also worked closely with influential partners in a wide range of sectors over the years. Examples include British firm Atkins and Gensler from the US in real estate; GE Healthcare of the US and DKSH Switzerland in healthcare; and South Korean telecommunications giant SK Group.

Carrying a back-up plan

It has not all been plain sailing for Vingroup, however, and experts have highlighted that risks are inherent – especially in uncertain times just like the unceasing coronavirus pandemic.

Along with the aforementioned Vinpearl losses during the rise of COVID-19, Vingroup as a whole reported a 60 per cent drop in earnings in the first half of last year.

On the bright side, manufacturing units for the group took in revenues of $266 million over the period, triple that of the same time in the previous year, as cars and phones began to make a mark with consumers.

Over the past decade or so, founder Vuong has been able to guide his creation through similar tough times. When the real estate market dropped out in 2011, it so happened to be the same time the founder launched his company’s first master-planned community, featuring luxury villas along a man-made canal. After consolidated net income plunged nearly 65 per cent that year, Vuong merged the real estate and tourism units to form Vingroup proper.

The move was a success, and by 2019 revenues had grown to $5.6 billion. Again showing the group’s ability to dodge and weave through events, an initial plan to create a brand new airline was shelved around the same time it dumped the majority of its grocery and agriculture businesses.

As Vuong himself pointed out during the pandemic, there is always a Plan B. “The ongoing businesses now are the ones with the biggest potential,” he said. “We won’t change our business strategy – if the global recession is severe, we can adjust some of our short-term plans.”

Now, stronger focus seems to be headed towards creating an opening for VinFast in the States. But experts continue to point out that the risks must be acknowledged.

Michael Dunne, CEO of car consultants ZoZo Go, which focuses on the Asian market, said Vingroup’s plan to export electric vehicles to the US anytime soon is simply “not realistic”.

US safety, environmental, and regulatory approvals typically take at least 2-3 years, Dunne said, and it is not yet clear whether Vingroup has even begun the process. The US Environmental Protection Agency has thus far also declined to confirm whether or not the company has filed necessary paperwork.

On a more general scale, there is always the chance that massive companies which spread out too thinly could eventually struggle beyond repair – even Vingroup. “There’s a moral hazard if they believe they make such a key contribution and take on more and more risks, thinking perhaps the government will help them out,” said Le Hong Hiep, an expert on Vietnamese economy and politics at the ISEAS-Yusof Ishak Institute in Singapore. “That’s a common problem with other national champions in Asia. But if Vingroup ever collapsed, it would be the government and the whole country that would pay a heavy price.”

Vuong previously addressed the warnings, admitting to Bloomberg last year that “any company can collapse,” but said Vingroup has carried out contingency scenarios in case of a real estate catastrophe, for example like in 2009, and it continues to plan for divestments across the group. With that in mind, the conglomerate is also now looking at developing industrial parks that are expected to be in much more demand as manufacturers continue to diversify from China.

On the government’s part, Vietnam’s leaders have supported and praised Vingroup’s stellar expansion, which it sees as part of the country’s general modernisation ambitions over the years. And if Vingroup can upset the odds and succeed in a country like the US, there may be no telling what benefits it could bring for Vietnam.

Many Americans, Vuong acknowledges, still assume Vietnam is a “poor, backward country where it’s impossible to have modern and high-tech products.” But he is steadfast in believing that wider success of a Vingroup product – anything from electric cars to medical ventilators – could ultimately change the way the world sees Vietnam.