BUILDING INITIAL STRATEGIC BUSINESS RELATIONSHIP WITH JAPANESE ENTERPRISES THROUGH MERGER AND ACQUISITION (ma)

Merger and acquisition (MA) is a very importance restructuring activities for enterprises. In the world, MA has appeared for such a long time and been popular among countries with market economy where intense competition between multinational corporations is unavoidable. Starting in 2000 in Vietnam, MA activities in general still confronting a number of obstacles that put the brake on the expansion of this market. In the seminar held in March 2012, Dr Vu Tien Loc – President of Vietnam Chamber of Commerce and Industry (VCCI) cited three primary reasons for this problem. Firstly, Vietnam lacks legal framework exclusive for MAs which causes much troubles to management agencies, businesses and finance consultants. Secondly, MAs are quite new and complex, hence, the support of involved organizations is still limited. Finally, relatively tight liquidity conditions constrain MAs breakthrough domestically and internationally. However, Mr Nguyen Tuan Anh, Head of Vietnam MA Forum 2012 also said that the country now ranked 8th among nations which witnessed the busiest MA activities in the AsiaPacific region, adding that the total MA transaction value of the region, excluding Japan, reached 92.4 billion. The fact that GDP growth by 6% and the target of attracting domestic and foreign investment capital and developing all kinds of markets make Vietnam more potential to increase MA activities both in quality and quantity.

FACULTY OF ECONOMICS AND INTERNATIONAL BUSINESS

- -MID-TERM INTERNSHIP REPORT

BUILDING INITIAL STRATEGIC BUSINESS RELATIONSHIP WITH JAPANESE ENTERPRISES THROUGH MERGER AND ACQUISITION (M&A)

Name Nguyen Thi Khanh Huyen Class A4 High Quality – Term 48 Instructor Dr Tran Thi Ngoc Quyen

Hanoi, August, 2012

Preface 2

Chapter I: Introduction to Vietnam Chamber of Commerce and Industry (VCCI) 4

1 History 4

2 Function 5

3 Activities 6

Chapter II: Boosting M&A between Vietnam and Japan through understanding our partner 8

1 M&A of Japanese enterprises in Vietnam 8

1.1 Trend of Japanese outbound M&A 8

1.2 Japanese enterprises’ interests in Vietnamese market 11

2 Japanese companies’ needs for M&A in Vietnam 14

2.1 Transaction types 14

2.2 Functions to be required 14

2.3 Target industries 15

2.4 Transaction size (by investor company size) 15

3 Characteristics of Japanese companies in the M&A transactions 16

3.1 Selection of target companies 16

3.2 Deal structure 16

3.3 Decision making process 17

4 Conclusion 18

5 Role of VCCI in trade promotion between Vietnam and Japan 19

5.1 Information supply 19

5.2 Trade and investment promotion activities 20

5.3 Japanese market investigation activities 20

Reference 22

Internship diary 23

In the context of a challenging global economic situation, Vietnam has faced bouts ofmacroeconomic turbulence in recent years regarding double-digit inflation, depreciatingcurrency, capital flight, and loss of international reserves which have eroded investors’confidence Therefore, how to approach external capital sources through cooperaterestructuring in line with business models should be given the priority at this time Merger and acquisition (M&A) is a very importance restructuring activities forenterprises In the world, M&A has appeared for such a long time and been popularamong countries with market economy where intense competition betweenmultinational corporations is unavoidable Starting in 2000 in Vietnam, M&A activities ingeneral still confronting a number of obstacles that put the brake on the expansion ofthis market In the seminar held in March 2012, Dr Vu Tien Loc – President of VietnamChamber of Commerce and Industry (VCCI) cited three primary reasons for this problem.Firstly, Vietnam lacks legal framework exclusive for M&As which causes much troubles

to management agencies, businesses and finance consultants Secondly, M&As are quitenew and complex, hence, the support of involved organizations is still limited Finally,relatively tight liquidity conditions constrain M&As breakthrough domestically andinternationally However, Mr Nguyen Tuan Anh, Head of Vietnam M&A Forum 2012 alsosaid that the country now ranked 8th among nations which witnessed the busiest M&Aactivities in the Asia-Pacific region, adding that the total M&A transaction value of theregion, excluding Japan, reached $92.4 billion The fact that GDP growth by 6% and thetarget of attracting domestic and foreign investment capital and developing all kinds ofmarkets make Vietnam more potential to increase M&A activities both in quality andquantity

Why Japan?

Vietnam – Japan have enjoyed a friendly relationship and a multilateral co-operation forsuch a long time Japan has a strong development of M&A activities and alwaysconsiders Vietnam a destinated location for foreign investment Although havingexperienced a terrible earthquake Tsunami and nuclear crisis in 2011, it has basicallyrecovered and is enjoying higher growth Among over 20 countries having theircompanies doing M&A in Vietnam, Japan comes as the first place in terms of quantity aswell as quality In 2011, Japan had 16 M&A deals with Vietnam which accounted for 23%

of the deal value totally Addressing the importance of Japanese partners, in this report,

I would like to analyze the characteristics of Japanese enterprises in a M&A transaction,understand their requirements for Vietnamese counterparts to suggest some areas thatVietnamese firms should focus if they want to attract Japanese investors I also highlightthe role of VCCI, especially the International Relation Department where I am currentlydoing my internship, in promoting M&A between Vietnam and Japan

Industry (VCCI)

1 History

The Vietnam Chamber of Commerce and Industry is a national and independentorganization of the Vietnamese business community It is devoted to accelerating socio-economic development of the country and promoting commercial, economic andtechnological cooperation between Vietnam and the rest of the world, on the basis ofequality and mutual benefit

Experiences of nearly 40 years and its large membership base have made the Chamber

an indispensable bridge to connect Vietnamese and foreign businesses, as well as thebusiness community and Vietnamese Government The Chamber has greatly contributed

to the improvement of business environment in Vietnam and efficiently assisteddomestic and foreign entities in their business operations in Vietnam

Founded in 1963 in Hanoi, the Vietnam Chamber of Commerce and Industry (VCCI),originally named Chamber of Commerce of the Democratic Republic of Vietnam, servedthe promotion of trade between Vietnam and other countries in the world With only 93member organizations at the foundation convention, the Chamber has undergoneseveral phases of evolution corresponding to different periods of Vietnam 's history

During the years of war, the Chamber focused activities on maintaining trade relationsbetween Vietnam and certain countries and territories in response to the export -import demand of the country

After the war, the Chamber expanded its activities all over the country, establishedrelations with more and more countries in the world and involved in its fold anincreasing number of economic entities In 1982 the Chamber renamed itself the

Chamber of Commerce and Industry of the Socialist Republic of Vietnam so as to expandits scope of operation to manufacturing sectors.

Since the "opening up" of Vietnam, the Chamber has embarked on a new phase of fastdevelopment in its own history with its Second National Congress in 1993, Third NationalCongress in 1997, and Fourth National Congress in 2003 It continued to develop thescope and scale of its activities in keeping with the pace of the development of thecountry Through its activities both in Vietnam and abroad, the Chamber has activelycontributed to the renovation of the country, playing a significant role in the economicgrowth and transformation of the nation and the integration of Vietnam in the regionaland international markets

2 Function

At the recent National Congress (March 28-29, 1997) the Vietnam Chamber ofCommerce and Industry adopted new statutes According to the present statutes theChamber is a national organization, which assembles and represents businessenterprises of all economic sectors and business associations in Vietnam The purpose ofthe Chamber is to protect and assist business enterprises to contribute to the socio-economic development of the country, and to promote commercial, economic andtechnological relations between Vietnam and other countries in the world on the basis

of equality and mutual benefit

The Chamber is an independent, non-governmental organization enjoying the status ofjuridical person and operating on financial autonomy It has the following functions:

protection of its interests in domestic and international relations

 To promote and offer assistance in trade and investment, economic andtechnological co-operation and other business activities of enterprises in Vietnam andabroad

3 Activities

reflection, recommendation and advice to the State on legal matters and economicpolicies for the improvement of the business environment;

socio-economic development and international socio-economic integration, to participate in theconferences, and missions for economic and trade negotiations in line with Stateregulations;

labor users (employers) and governmental agencies, between business enterprises andthe representative of workers (employees) and other relevant domestic and foreignorganizations for the exchange of information and views on matters relating tobusinesses environment;

business enterprises and labor users (employer) in domestic and international businessrelations;

enterprises on the strict observance of laws, improvement of social accountabilities,good business ethics and culture and sound working relations, protection ofenvironment, and participation in other social activities in line with the Chamber'sobjectives;

 To assemble and align with business associations in Vietnam, to co-operatewith chambers of commerce and industry, and relevant organizations in foreigncountries, to join international and regional organizations in line with the objective ofthe Chamber and to help business enterprises participate in those organizations’activities.

reputation of the business enterprises, entrepreneurs, commodities of Vietnam; topromote business supporting services; to assist businesses in developing trade andinvestment relations in Vietnam and abroad through such approaches as : match-making, seeking partners, providing information, guidance and consultancy tobusinesses; organizing study, market research, seminars, conferences, trade fairs,exhibitions, advertisements, and other promotional activities;

 To organize training activity in appropriate forms to develop the humanresources for business enterprises, to help entrepreneurs enhance their knowledge,management skills and business capacity;

 To help in the registration and protection of intellectual property andtechnology transfer in Vietnam and abroad

 To issue Certificates of Origin for Vietnamese export commodities and tocertify other necessary commercial documents, and the cases of force majeure

 To help domestic and foreign business enterprises in settling discrepancy,disputes through negotiation, mediation or arbitration, and to conduct in generalaverage adjustment, if requested

 To conduct other activities which are assigned by the Vietnamese State or byother organizations.

Chapter II: Boosting M&A between Vietnam and Japan through

understanding our partner.

1 M&A of Japanese enterprises in Vietnam

1.1 Trend of Japanese outbound M&A

In recent years, inbound M&A in Japan has slowed to a trickle while outbound M&A hasrapidly increased, reaching a record of $86 billion in 2011 While the strong increase ofthe Japanese Yen against other currencies can partially explain this trend, demographicpressures (i.e.: rapidly aging and declining population) are causing Japanese companies

to focus more on the international side of their development strategies as domesticmarket seems to be unavailable for further growth

1.1.1 Japan outbound M&A market figures

Figure 1: M&A market in Japan

Source: RECOF M&A database (Collected from VCCI)

It can be clearly seen that for the last 3 years, the percentage for cross-border M&Aincreased significantly from 22% in 2009 to 36% in 2011 M&A deals dramatically surged

between 2010 and 2011 after a decline in 2009 due to the effect of Lehman Shock (1).

The same trend can be looked at M&A of Japan with Asian companies The number ofJapan M&A outbound with Asian companies also decreased in 2009, however, it grew to

a faster pace in 2010 and 2011 and surpassed the growth rate of overall Japan outboundM&A deals

The following bar chart will show more details about the target regions of Japaneseoutbound M&A in recent years, including Asian region

Figure 2: Number of Japan outbound M&A deals by target’s regions

Source: RECOF M&A database (collected from VCCI)

Before 2009, the number of Japan outbound M&A with American companies and Asiancompanies were almost the same Since 2010, the number of Japan outbound M&A withAsian companies has been increasing and it accounted for approximately 50% of totalJapan outbound M&A deals in 2011 It is forecasted that the M&A deals with Asia will bestill predominant in Japan outbound M&A market

1.1.2 Background for increasing Japan outbound M&A

I have mentioned about the incentives for Japanese businessmen to seek growth abroadand one of the most important reasons is the decreasing population and domesticdemand

It is forecasted that Japan’s population hit its peak (aprox 128 million) in 2007,remained at the same level and stared to decrease gradually

Japan’s population will decline to less than 120 million in 2025, and will be approx 100million in 2045, reduced by 21% in comparison with that in 2007.

The aging of the population will proceed rapidly after 2010, and the age group over 65years old will account for 38% of the population of the year 2045

Figure 3: Estimate for Japan’s future population

Source: Statistics Bureau, Ministry of Internal Affairs and Communications

Therefore, there is no shadow of a doubt that Japan outbound M&A will keep increasingfor the upcoming years, especially in Asian region which has the population that isexpected to largely surpass that of developed countries and domestic demand isboosted by continuous economic growth

1.2 Japanese enterprises’ interests in Vietnamese market

It can be claimed that Japanese companies are highly interested in Vietnam (after China

and India) (VCCI annual report on Japan 2011)

In 2011, there was a survey conducted by Price water house Coopers Co.LTD of Japaneselisted companies and leading privately owned companies Below are 2 questionextracted from the survey:

Q1: “Which countries among BRICs, VISTA, Malaysia, Thailand and Singapore are you interested in as a possible investment destination through M&A?”

Q2: “What is the attractive point of investing in Vietnam”

The answer to these questions are shown in the following bar charts

Figure 4: Question 1

Source: Pricehousewater Coops Co.LTD “White paper 2011 on Merger and Acquisition in Japan”

Figure 5: Question 2

Source: Pricehousewater Coops Co.LTD “White paper 2011 on Merger and Acquisition in Japan”

The M&A between Vietnam and Japan took off when Vietnam joined WTO in 2007 Afterthe Lahman Shock, the number of M&A deals between Vietnam and Japan increased significantly in 2011 (18, by 80% compared to 2010) and that upward trend is expected

to continue Among that, the share of “acquisition of majority stake” transaction is high That means, Japanese companies prefer to entering Vietnamese market by cooperating with Vietnamese firms with market shares and information on the market Some

companies also think that acquisition of minority stake can limit their investment risk