Local firms must eye global rivals

At the Vietnam Global Investment Forum, to be held on September 30 by Euromoney, the current issue of competitiveness in the local private sector will be top of the agenda, as this is a crucial factor that can hamper the country’s economic growth and deeper international integration.

According to Chad Ovel, a partner at Mekong Capital-a Vietnam-focused private equity firm that specializes in consumer driven business-Vietnamese private companies that perform everyday business and adopt the same processes and products of yesterday may view themselves as competitive within Vietnam.

However, seen from a global perspective of progressive and dynamic firms who are constantly striving to improve and execute best practices from more mature markets, the country is lagging far behind other countries.

“At Mekong Capital, our observation of the private sector in Vietnam is simple: the only true competitor of a private company in Vietnam is itself,” said Ovel.

“If a company wants to become a market leader in Vietnam, it is a relatively simple goal to achieve, but they must be in the game of comparing themselves to the best companies in the world, not just to their peers in Vietnam,” added Ovel.

The biggest hitch, as observed by Ovel, is a persistent reluctance among local business leaders to embrace the best practices in their industry or business sector.

“We commonly hear founders and CEOs in Vietnam speak of their resistance to adopting best practices which are standards in more developed markets,” noted Ovel. “For instance, we only see a small number of Vietnamese private firms taking up third-party market research to assist their product design or business strategy.”

Another hurdle that impedes the Vietnamese private sector’s competitiveness is a tolerance of under-performing management teams. Ovel noted that there were very few companies that were actively building the best possible management teams in their sector, despite the companies’ overall intention to attract and retain the top talents in the market.

Private equity firms, like Mekong Capital, which are active shareholders providing direct support to their investee companies, are a critical element in enhancing competitiveness within the domestic private sector.

“The support provided by equity firms must be relevant to the investee company’s concerns and must generate measurable outcomes,” stressed Ovel. “While these firms can simply coach or guide the board level of an investee company, deeper involvement in the investee company will guarantee the returns that foreign investors expect.”

At Mekong Capital, according to Ovel, in order to build up the best performing companies under their management, the equity firm strives to support its investees in gaining access to global best practices in a given sector or industry, and to recruit, retain, and develop an excellent management team.

Mobile World and Golden Gate are among the successful investee companies that Mekong Capital has successfully managed by boosting their competitiveness.

The equity firm provided field trips for these companies to observe industry-leaders in advanced markets and learn what they could do with their company to become more effective.

Vietnamese private companies should shift their stance from comparing themselves to industry peers within the country, to other leading industry peers globally.

“Only when they set their benchmark up there (the international standards), will they see the higher goal and strive for it. Along the way, they will of course need to familiarise themselves with the adaptations and alterations that deemed necessary to compete with their peers within the region and internationally,” said Ovel.