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Tentacles spread

Released at: 20:00, 15/02/2017

Tentacles spread

Photo: Viet Tuan

South Korea’s CJ Group has a host of different interests in Vietnam and has set its sights on expanding.

by Quynh Nguyen

Since CGV Cinema opened at Vincom Nguyen Chi Thanh Street in Hanoi, Mr. Pham Thanh Tung, second-year student at the Hanoi Law University, and his girlfriend have often gone there instead than other cinemas. “I prefer CGV because of its good quality sound and images, despite tickets being more expensive than elsewhere,” he said. Owned by CJ E&M, a subsidiary of the South Korean giant the CJ Group, CGV Cinema now has the most cinemas in Vietnam. The Vietnamese film “Em la ba noi cua anh”, based on the South Korean film “Miss Granny” and produced by CJ E&M, recorded the highest box office receipts in Vietnam’s history, of VND102 billion ($4.48 million). 

From food to film

Film and entertainment have brought CJ closer to Vietnamese consumers. There are now 41 CGV cineplexes, or 40 per cent of the country’s total, with ticket sales of around $105 million in 2015, a 26.5 per cent increase against 2014. 

CJ E&M specializes in film production, TV, and games, and in October 2016 announced it would establish the CJ Blue Corp. in Vietnam by acquiring the Blue Group, a leading content producer and advertising agency. It had set a goal of becoming a global Top 10 culture company by 2020 through diversifying its content business in Southeast Asia, choosing Vietnam and Thailand as a beachhead for entry into the market. 

While stepping up its investment in movies and TV shopping, CJ Vietnam also continues to exploit Vietnam’s advantages in agriculture to expand. In areas where CJ invests in the country, food and food processing grew 86 per cent in the 2011-2015 period. “CJ wants to establish a closed system, from creating material areas to purchasing, processing, distribution and exporting,” said Mr. Chang Bok Sang, Chairman and CEO of CJ Vietnam. 

CJ CheilJedang, one of the CJ Group’s other subsidiaries, signed deals at the end of 2016 with local retail giant the Saigon Trading Group (Satra) to develop a distribution network for meat and fruit products. The South Korean food manufacturer will establish special zones inside Satra outlets to sell its meat, sauces, and new products customized to meet local tastes. 

The company also acquired more than 47 per cent of Cau Tre Export Goods Processing, one of the largest food companies in Ho Chi Minh City. Cau Tre, a subsidiary of Satra, was equitized ten years ago and has charter capital of VND117 billion ($5 million). Its shares are not listed on the country stock market. Satra, one of the large State-owned enterprises in Ho Chi Minh City, now holds 45 per cent of Cau Tre. 

In July last year, CJ spent $2.1 million and cooperated with the Korea International Cooperation Agency (KOICA) and farmers to grow chili on 10 ha in the south-central province Ninh Thuan. Four hectares are being trialed, which will finish this year. Two-hundred tons of fresh chili are expected from the 10 ha. The chili and other CJ products in Vietnam will be sent around the world. “We are able to do that with our existing network,” Mr. Chang said. 

The CJ Group has been implementing development strategies globally since 2006 and are now present in China, Southeast Asia, the Americas, Japan, Europe and South America. It targets sales of $110 billion by 2020, of which 54 per cent is to come from overseas. 

In Vietnam since 1998, CJ now has 13 subsidiaries with 4,000 employees in 19 cities and provinces. Its sales soared in 2014, reaching VND14 trillion ($616 million), more than double the VND6 trillion ($264 million) recorded in 2013. Profits stood at VND400 billion ($17.6 million). The figure rose to VND15 trillion ($660 million) in revenue and VND500 billion ($22 million) in profit in 2015 and revenue in 2016 is estimated at VND17 trillion ($769 million). In addition to food, agriculture and entertainment, the CJ Group has also invested in biotechnology and pharmaceuticals, home shopping, and logistics in Vietnam. 

Ambition to be leader 

After 20 years in Vietnam, according to Mr. Chang, CJ has achieved sustainable development in its business activities. While it has a presence in many countries, including Indonesia and the US, Vietnam has proven to hold great promise, with its businesses growing 26.73 per cent each year on average from 2011 to 2015. 

Because of this potential, the CJ Group last year decided to invest $500 million in Vietnam to turn it into its second-largest overseas market, after China, within the next five years. The amount is larger than the total of $400 million the Seoul-based conglomerate has invested in Vietnam over the last 20 years and expresses its determination to see Vietnam become a major center for the group over the next few years. 

Its ambition has hit a few stumbling blocks along the way, however. In 2016, CJ CheilJedang failed to acquire 14 per cent in the major Vietnamese processed food producer Vissan, and holds just 4.18 per cent at the moment. Cau Tre was therefore considered an important piece of the puzzle in it completing a closed chain in Vietnam, where the group has large poultry and pig farms and food processing plants. Cau Tre’s export markets include Europe, North America, Japan, Hong Kong, South Korea, and Taiwan. 

Cau Tre’s business performance, however, has not been great. According to its 2015 annual report, net revenue was VND743 billion ($32.6 million) and pre-tax profit VND8 billion ($352,000), for a profit margin of only 1.1 per cent. As at the second quarter of 2016, revenue had slipped to VND334 billion ($14.6 million) and pre-tax profit to VND1.2 billion ($52,800), less than half of those recorded in the second quarter of 2014. 

Food and film have helped Vietnamese people become familiar with the name CJ but animal feed and livestock brings in more than 50 per cent of its revenue and 40 per cent of its profit in Vietnam. This is the largest segment of CJ in the country, through the CJ Vina Agri Co., Ltd, which specializes in animal husbandry and the production and trade of all types of feed. 

CJ Vina Agri built its first food factory in the Mekong Delta’s Long An province in 1999, followed by one in northern Hung Yen province and Vinh Long province in the Delta. In July 2015, it opened a fourth animal feed factory, with investment of $20 million, in southern Dong Nai province. Four factories producing animal feed will increase production to 2 million tons per year with investment capital of $80 million in the next four years, taking CJ closer to its goal of becoming the leading company in Vietnam’s animal feed market by 2020. 

Whether it reaches this goal is an open question. The battle for market share in the feed sector is becoming increasingly fierce, with many large domestic companies also involved in the game via M&A. In 2015, Masan Nutri-Science, a subsidiary of the Masan Group, acquired 52 per cent of Proconco and 70 per cent of Anco; both leading companies in the animal feed market. Masan then accounted for 14 per cent of the animal feed market, while Thai giant CP holds 21 per cent. 

In terms of film and entertainment, though dominating Vietnam’s cinema landscape, CGV has recently faced a couple of scandals. In May last year it was alleged to have imposed unfair profit sharing arrangements on the distribution of Vietnamese films throughout its extensive cinema chain. In a joint petition to the Vietnam Cinema Association, eight domestic film producers and distributors alleged that CGV put them at a disadvantage by using its market dominance to claim an unreasonable share of box office receipts from the Vietnamese films it screens and distributes through the largest multiplex cinema chain in the country. 

“With an overwhelming number of cinemas, CGV has been imposing an unreasonable revenue sharing ratio on movies distributed at its cinema chain,” according to the petition, signed by BHD, Galaxy, Skyline, Golden Media, Saigon Media, MVP, Early Risers and the VAA Company. “Vietnamese movies produced by CGV and screened at other theaters have a share ratio of 55/45, in which CGV enjoys 55 per cent of the profit. Domestically-produced movies released at CGV theaters have the opposite ratio, of 45/55, in the first week, and that falls in later weeks.”

In 2010, when the cinema company was still operating under the name Megastar, it was sued by domestic film distributors for imposing limited time slots and theater and over film rental-related issues. After an investigation conducted by the Vietnam Competition Authority, the plaintiffs, including Galaxy Studio, withdrew their complaint while CGV bore VND100 million ($4,482) in court costs. 

Subsidiaries Year of establishment   Business
CJ Vina Agri 1999

Production of animal feed for cattle, poultry, and seafood 
Four factories, in Long An, Hung Yen, Vinh Long, and Dong Nai provinces
41 cineplexes around the country

CGV 2011  
SCJ Home Shopping  2011  
CJ Foodville  2007 - TOUS les JOURS: 32 stores around Vietnam 
- bibigo!

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