Foreign investors head to Vietnam, lured by young population willing to spend

Vietnam’s retail industry, among the fastest growing in Asia, has become prime attraction for foreign companies that have experienced slowing growth in their home countries. Retail has accounted for almost 40 per cent of the total deals since 2015, driven by electronics sector. Dinh Thi My Loan, chairwoman of the local retailer association, said that Vietnamese retail firms chose M&A to expand their business and increase competitiveness. “Nguyen Kim could still develop without the acquisition by Central Group. However, it will not be as vigorously,” she said, referring to Thailand’s Central Group, which acquired 49 per cent stake in Nguyen Kim, the country’s largest electronics retailer, for an undisclosed amount in 2015.

The involvement of foreign investors in these retailers has helped Vietnamese companies gain more capabilities, and the sellers were also happy with the transactions, according to My Loan.

The deals of Nguyen Kim – Central Group and Japanese Nojima Corporation’s capital extension in Tran Anh Digital have added to a spate of several other acquisitions in the past.

Nojima has raised its holding in the Hanoi-based electronics store chain to 30.8 per cent, following a 10 per cent stake acquisition worth VND64 billion ($2.87 million) in 2013. Private equity firm Mekong Capital funded Mobile World (The gioi di dong) in 2007 and helped the company list in 2014. Mobile World has been one of the fastest growing stocks since then. Meanwhile, Vien Thong A was one of the retailers invested by Japan’s TD Mobile in 2011.

Entering 2016, FPT Corporation, the biggest private tech firm in Vietnam, expects to sell its retail unit, which has sparked interest from both international and domestic players. While Mobile World said they could consider bidding for FPT Shop, the FPT Corporation subsidiary told local media that it was working with several foreign companies, including Chinese e-commerce giant Alibaba. The FPT Shop sale was estimated at up to $121 million, according to a Nikkei source.

FPT Shop and Mobile World, the two major electronics device dealers, have experienced exponential growth over the past years. FPT Shop recorded a 35 per cent revenue growth in the first quarter of 2016, by end of which the company has built over 300 outlets, already completing the entire year’s plan. Meanwhile, MobileWorld has expanded its Thegioididong store network 142-fold since the Mekong Capital investment in 2007. The electronics retailer has also expand to mini-supermarket model. Foreign buyers are attracted by the growing market, and Vietnam’s young population who are willing to spend on latest electronic products. About half of Vietnam’s 93 million people are below the age of 45.

Average household spending is predicted to be $3,700 per year by 2020, while electronics spending will potentially reach VND157 trillion ($7 billion), said a Gfk Vietnam report. Another research by Business Monitor International (BMI) indicates that electronics sales will grow 28.6 per cent from $6.3 billion in 2016 to $8.1 billion in 2020. “Vietnam’s consumer electronics industry has expanded rapidly in recent years and is an important force driving the country’s strong economic performance. As Vietnam develops rapidly we expect rising wages over the medium term against a backdrop of low device penetration rates will drive spending growth at a CAGR of 6.5 per cent,” the BMI report said.

Vietnam liberalized the retail sector in 2015 and tariffs on products will decline as the country fulfills its obligations that came with joining two major free trade agreements.

Source: Dealstreetasia.com