Vietnamese firms unaware of brand as a core element of business value

15:17 | 20/12/2019 Economy- Society

(VEN) - Brand is among the intangible assets of enterprises and a core in creating business value. However, many Vietnamese companies have not paid great attention to brand value.

vietnamese firms unaware of brand as a core element of business value

Typical example

The Ho Chi Minh City Union of Trading Cooperatives (Saigon Co.op) and French company Auchan Retail recently reached an agreement to transfer Auchan’s entire business operations in Vietnam to Saigon Co.op. Under an agreement, goods of Auchan Vietnam will be managed by Saigon Co.op, and all Auchan employees will join the Saigon Co.op staff. The Auchan brand name will remain in use until the end of February, 2020.

According to a Saigon Co.op representative, acquiring Auchan was part of Saigon Co.op’s strategy of expanding scale and market share. Thanks to this deal, reaching Saigon Co.op’s target of 1,000 stores by the end of this year could be far easier as the company has nearly 800 stores already. Saigon Co.op has pledged to protect the benefits of Auchan member customers, who will be converted to Saigon Co.op members if they wish. In addition, Saigon Co.op will restructure Auchan stores.

The 2019 acquisition of Auchan was an outstanding mergers and acquisitions (M&A) deal, with Saigon Co.op targeting Auchan’s global brand value. The combination of a world-class retail brand and local experience is expected to benefit Saigon Co.op’s brand value.

Challenges

M&As do not just mean a change in ownership. They also serve as a lever for firms to grow stronger and improve competitiveness. According to experts, many Vietnamese businesses do not understand what follows a merger and challenges only appear once the deals are completed. The process does not simply merge shareholders, it means creating a completely new body of governance. Therefore, discussions on a partnership between two parties are necessary to lead to a successful M&A deal.

In addition, many Vietnamese companies have not paid attention to the value of brands in M&A deals. Brand has to be a strategic agenda and must be managed like any other business asset and not just as a legal trademark. Many investors are willing to pay higher prices for M&A deals with good brands.

Recommendations

Samir Dixit, managing director of Brand Finance Asia-Pacific, said brand value is a very important aspect of strategy, but it does not get the recognition it deserves in M&A deals. If brand value cannot be determined, it will be difficult to successfully implement such deals.

Vietnamese businesses do not understand the issue of branding. Therefore, each firm needs a professional team to understand brand issues, otherwise Vietnamese businesses will remain underestimated, Samir Dixit said.

Nguyen Lan Phuong of Baker & Mckenzie’s Ho Chi Minh City Office, said some Vietnamese businesses are aware of the value of corporations and take advantage of the brands to negotiate with their partners. However, this is not common. Vendors who want the best price for share transfers will pay less attention to brand value in transactions. Vietnamese businesses rarely pay attention to the valuation of their brands, while international counterparts see their brands as the key value, she said.

She also said that in the process of equitization, Vietnam is struggling with land and workforce issues so there is little focus on brands. However, brand awareness will play a more important role as the economy grows. Vietnamese businesses should look for partners who know how to value their brands.

According to a report released by the auditing and business consulting firm Grant Thornton, Vietnam is among the top three ASEAN countries attracting private equity (PE) investment in terms of deal value. In addition, Vietnam has become Asia’s hottest investment destination, according to a Forbes report. Six sectors are expected to attract large investment in Vietnam, including financial technology (fintech), education, renewable energy, pharmaceuticals, e-commerce, and transport.

Vietnam has been widely and deeply integrating into the world economy. Competition between businesses is increasingly fierce. Therefore, Vietnamese businesses should promote branding to maintain market share and ensure sustainable development.

The real estate sector led the Vietnamese M&A market in 2018-2019 with nearly 20 percent of total value, followed by multi-sector businesses and consumer goods with 19.67 percent and 10.53 percent.

Hai Linh