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Local and foreign partnerships a good fit

Released at: 08:42, 02/11/2019

Local and foreign partnerships a good fit

Photo: Viet Tuan

Partnerships between private Vietnamese companies and foreign enterprises can bring a wide range of benefits to both when there's a perfect fit.

by Hong Nhung

Since setting down roots in Vietnam more than ten years ago, Bosch has been ramping up efforts in innovating tailor-made solutions to help local businesses increase efficiency and productivity while at the same time conserving natural resources and improving the quality of people’s lives. “When working with any partner, we focus on win-win partnerships that will benefit both sides,” said Mr. Guru Mallikarjuna, Managing Director of Bosch Vietnam. “Our local partners have a lot of potential and advantages, such as flexibility in doing business, quick adaptation to changing markets, a deep understanding of Vietnamese culture and market, an ability to easily mobilize available resources as raw materials, and a local workforce.”

Vietnam’s business community, including domestic and foreign enterprises, is growing faster in both maturity and potential and has been an important driving force in the country’s economy in recent years. Building a mutually-beneficial relationship between domestic and foreign-invested enterprises (FIEs) is what the latter always seeks when stepping up to do business in Vietnam, as the further this partnership goes the more benefits both can gain from each other.

Win-win partnerships

Cooperation between Vietnamese and foreign enterprises is expected to bring about mutual benefits by utilizing the strengths and potential of each party. “For foreign businesses, this is a way to penetrate into the domestic market with quality products, solutions, and services, enabling them to promote and enhance their brand influence on a global scale,” said Mr. Mallikarjuna. “For domestic enterprises, it is an opportunity to assert their capacity, brand value, access to new financial resources, technologies, and quality raw materials. In particular, brand cooperation will help launch new and better quality products to meet market demand and increase competitiveness.”

Foreign businesses can exploit local markets of potential at the lowest cost and enhance their market presence and brand influence on a global scale. Domestic enterprises, meanwhile, can access abundant capital resources, advanced technology, and high-quality raw materials, according to Mr. Andy Ho, Chief Investment Officer at VinaCapital. “This is a solid premise for domestic enterprises to integrate internationally,” he told VET. “As the market matures, ‘high-value’ FDI should be prioritized, such as in advanced technology and manufacturing, tourism, and high-tech farming. To cope with the new trend, the quality of the working population for important sectors is becoming a key issue.” 

With over 60 official channel partners providing a range of value-added services, for example holding stock, providing technical and after-sales support, and conducting product marketing to reach the widest possible customer base in Vietnam, ABB has been fortunate to cooperate with a range of local businesses over its 26 years in Vietnam. “This has been a mutually-beneficial relationship, where we can supply leading-class technology, training, and support complemented by their local knowledge and reach,” said Mr. Brian Hull, Country Managing Director of ABB in Vietnam.

Mr. Hull sees positive developments in partnerships between domestic enterprises and FIEs. For example, during the recent rush for solar farms, ABB dealt with many local enterprises who were first-time investors in the sector but who wanted to work with an FIE who could bring knowledge and experience from overseas. 

Great expectations

Part of reaching an agreement on mutual benefits and outcomes, negotiation is nonetheless a time-consuming process for both local and foreign parties. Mr. Ho said Vietnamese businesses not only target successfully accessing abundant capital resources but also exposure to worldwide business connections offered by foreign enterprises and investors. 

In most cases, local Vietnamese companies aim to seek strategic advisory and professional advice on standard business practices, especially in corporate governance and internal control, finance and accounting, and human resources management from foreign professionals. They also still expect a certain level of discretion that allows them to exercise their unique industry experience and knowledge in daily business operations.

On the other hand, foreign investors typically set out a clear mutually-agreed business plan, in which revenue growth, rising market share, and business attractiveness are common expectations. Foreign investors are keen on realizing their partnerships in terms of enhancements to their business ecosystem, market position, and financial returns.

In past projects with local partners, Bosch learned many new things while exchanging knowledge, experience, and technologies in working toward mutual success. Many partners in the company’s network are now major players in the local market. “We are proud to be a companion on their journey,” Mr. Mallikarjuna said. “In return, they give us many opportunities to challenge ourselves to be more effective and efficient.”

He shared a story about the company’s key strategic partnership with VinFast, established in October 2017 for both e-scooters and car models. “VinFast has been working extremely quickly to get their projects completed within deadlines,” Mr. Mallikarjuna remarked. “Together we are running fast and strong. Communicating with each other in a close manner is key to a successful intercultural business. To optimize our future opportunities, we need to have advanced partnerships and long-term relationships with Original Equipment Manufacturers (OEMs) like VinFast, where we offer services and solutions alongside our systems and components.”

Another story from ABB involves a local partner who builds low voltage panels using ABB’s network to understand the requirements for delivering products to Singapore. “We helped them meet the standards required, and as a result they have now secured their first export orders to Singapore, and I am sure they will successfully expand their exports,” Mr. Hull told VET. “We have also collaborated with a number of local companies to help them develop their engineering competence and transferred knowledge so they can add increasing amounts of local ‘value add’. But we don’t just see positive developments on the customer end of the supply chain; we are constantly looking to develop suppliers who can meet our standards when serving our local manufacturing base, and here we are pleased with the development as well. This gives us competitive advantages, especially in reducing lead-times by using local sourcing.” 

Addressing issues

On a few occasions, foreign firms have found they must terminate their relationship with local partners, and probably the most common issue is finding evidence that local partners have not followed the high standards of integrity and compliance foreign companies insist upon. In the future, foreign enterprises will see many more opportunities as e-commerce applications become increasingly important in the B2B environment, and they look forward to developing the necessary platforms to enable their partners to transact in the most efficient way possible.

Entrepreneurial and business professionals across Vietnam are, in ABB’s experience, committed to investing in training for staff in Vietnam and abroad and investing in physical assets to allow their business to expand. “When it comes to meeting international standards in areas such as health and safety, quality, and energy management, we are happy to share our experience in implementing such systems both globally and locally, to help our partners raise their standards,” Mr. Hull said. 

In addition, a lack of professional preparation and limited communication on unresolved business problems are two main limitations of local businesses when partnering with FIEs, according to Mr. Ho from VinaCapital. In terms of preparation, local businesses typically do not have a well-structured business plan for the long term (usually from three to five years) readily available for negotiation. It usually takes quite some time for these companies to prepare and finalize internally, especially those with many associates and subsidiaries. 

Moreover, when the business plan is unable to properly and fairly capture all future business initiatives and growth drivers, the enterprise valuation becomes a big question for VinaCapital in any potential investment consideration. For other strategic foreign enterprises in general, it could be difficult for them to see business synergies in potential partnerships.

For local private enterprises, he said limited communication on unresolved business problems, especially with professional FIEs, may mislead expectations among counterparties and eventually negatively impact on business relationships even if partnerships are formed. “We believe sufficient communications between related parties and a considerable amount of time spent on due diligence can help to effectively address those limitations,” he said. “Moreover, the involvement of professional advisors and consultants is believed to smooth the information exchange process and ensure more ‘true and fair’ negotiations for both local and foreign parties.” 

Moreover, he advised that local enterprises should be clear about their long-term business strategy, supported by feasible business initiatives, well-defined development plans, and obtainable outcomes, when they approach foreign enterprises for potential partnerships. “Doing their homework” before negotiating with foreign enterprises would help manage the expectations of both parties, save time in the negotiation process, and increase the chance of success. 

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