VinGroup, a conglomerate in Vietnam owning about 48 subsidiaries, diversifies aggressively with an ambitious objective to grow and establish Vietnamese brands in the global markets.
The key objective of VinGroup is to grow fast through expansion with new businesses. They want to create Vietnamese industrial and technological brands at the global standard. The precursor of VinGroup was Technocom, a manufacturer of hydrated foods founded in Ukraine in 1993 by Pham Nhat Vuong. Since 2000 to date, the conglomerate has expanded from real estate to supermarket, hotels, education, healthcare, and car manufacturing. Their 10-year plan is to become a major global player in the high-tech industry.
To grow fast in a developing economy, VinGroup needs to diversify quickly. Since Vietnam is still a developing country, the market capacity (human resources, capital, and consumption) at a given market is limited, even for real estate. The group has executed multiple grow strategies aggressively:
- VinGroup has considered backward vertical integration into construction. However, that strategy will cut costs, not necessarily open new markets and will not help with their objective.
- VinGroup has also diversified into related businesses (or forward integration) such as construction, real estate, theme parks, hospitality, but they decided not to stop there.
- VinGroup has expanded its real estate business internationally with 22.5 million USD investment in Australia.
Although real estate continues to power VinGroup as the core engine, the group will leave many growth opportunities on the table by not getting into high-tech, manufacturing or service industries through diversifications. Diversifications, however, comes with costs.
The cost of diversifications into unrelated businesses is very high, including both transactions and administrative costs. In terms of transaction costs, the acquisition of OceanMart (2014), Maximark (2015), MonPay (2019) have incurred negotiating, monitoring, and contract enforcing costs. With 48 subsidiaries, it is an understatement to say that the efforts to build a hierarchical command and control is a paramount endeavor in itself. VinGroup is fully aware of its potential bureaucracy, week incentives, and ‘too big to change’ mentality. VinGroup appoints a CEO for each subsidiary with full responsibility to run their businesses. The Group CEO, Pham Nhat Vuong, acts as board advisors in vision, high-level strategy, KPI settings, and capital resource approval. Another aspect of administrative cost for unrelated business expansion is talent acquisition and know-how experiences. The Group wants to build and lead artificial intelligence technology in Vietnam and has made great efforts in sponsoring key AI conferences (such as CPVR) to meet and engage with Vietnamese and global talents.
In brief, VinGroup is a conglomerate to watch in the next ten years with their ambitious goal and fearless expansion into new businesses. It is too early for us to tell when they can achieve their ambition of a global-recognized brand, but their dedication to grow, create jobs, bring talents and technology back to Vietnam is working. Their diversification strategy has fueled their growth, attracted capital, and talents to the group.
References
https://www.ft.com/content/84323c32-9799-11e9-9573-ee5cbb98ed36
