Doubts on joint-ventures with FDI companies

A shortage of capital, poor technology, unprofessional administration, along with market difficulties have urged local firms to establish joint ventures with foreign companies to resolve these problem, however, most firms mainly focus on how to escape difficulties without calculating on keeping ownership.

According to income statement of 2012 of Ninh Van Bay Travel Real Estate Joint Stock Company, although the company revenues nearly hit VND205.96 billion, up 117 percent compared to the previous year, its margin was minus, as the economic slump has put some projects of the company behind schedule. This is the second consecutive year this company has reported a loss.

Recently, Hoang Anh Dung, CEO of Ninh Van Bay, cheerfully shared that his company had found a lifebuoy in Recapital Investment Pte.Ltd. The Singapore partner bought 35.87 percent stake in Ninh Van Bay for VND225 billion for the latter to pay for bank interest; return its loan of US$2 million to foreign partners; spend VND10 billion for Six Saigon River projects; VND32 billion for Emeralda Hoi An project; and VND140 billion for Emeralda Ninh Binh to finish construction for this resort to officially open in May.

Cooperating with foreign companies is currently a common trend for many Vietnamese companies amid this present financial crunch, poor technology, and poor resistance against economic recession.

Firms said that even when restructuring, their operations hardly improved but by associating with foreign companies, their problems will be resolved immediately. However, in these business deals, instead of caring about limiting ownership ratio of foreign companies to keep decision-making powers for themselves, firms were optimistic of the handshake that will help them not to face with difficulties but increase potential to expand market share to their partners’ markets.

Therefore, in past few years, there were many market-shaking business deals, such as the largest cement cooperation in South East Asia, Semen Gresik, of Indonesia bought 70 percent stake of Thang Long Cement Joint Stock Company; Thailand’s Siam Cement Group purchased 85 percent stake of tile producer Prime Group at a cost of nearly VND5 trillion; India’s Fortis Healthcare International bought 65 percent stake of Hoan My Medical Group; Korea’s Lotte Group bought all stake of Minh Van Company and Unicharm Co., Ltd, and owned upto 95 percent of chartered capital of Diana Vietnam Joint Stock Company.

With support from foreign partners, local firms have been over joyous because they can increase the company’s chartered capital and solve imminent problems. Nevertheless, experts and associations concerned that foreign companies will take over market share in manufacturing industry, causing bad effect to the country’s socioeconomic development.

According to Vietnam Association for Building Materials, amid the context that the scheme for cement industry has been broken and has redundant production, instead of restructuring cement companies to form bigger cement complexes to increase competitiveness and gain foothold in local market, some firms sold almost of their stakes to foreign businesses.

At this moment, firms only see imminent benefits. However, in the long term, when foreign companies take over local ones, it will cause serious effects to both environment and border security as each cement plant connects closely with national security. Moreover, many projects were built on rare limestone area, and if sold to foreign companies, national resources will be lost.

Meanwhile, Truong Phu Chien, CEO of Bibica Joint Stock Company, frankly admitted his company’s mistake in cooperating with Lotte for five years as the latter has been showing intentions to turn Bibica into its subsidiary. According to Mr. Chien, when establishing joint-venture with foreign companies, local companies should not sell more than 34 percent stake to prevent their companies from foreignization.

Earlier, when asking Lotte to become its partner, Bibica longed for comprehensive cooperation on management, technology, technique, and import and export. However, after coordinating for five years, Lotte started to demand Bibica add its name before the latter’s name.

Experts said that, buying Bibica’s stake was the shortest way for Lotte to enter Vietnamese confectionery market without spending money to build plants. Lotte will simply produce at Bibica Mien Dong factory and exploit distribution network of more than 20,000 stores built by Bibica. However, as Lotte’s stake in Bibica merely touched 38 percent, Bibica still holds decision-making powers. The latter is planning not to continue to cooperate with Lotte when the contract ends this year.

As for companies who sold more than 40 percent stake to foreign companies, the exit narrowed. In future, there will be more Vietnamese companies who lose ownership and become just hired employees in their own companies.

By Yen Lam – Translated by Thuy Doan

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