Evaluating intangible asset using panel data, applying for vietnam listed companies

When these factors could be presented clearly,shareholder will be more loyalty with company and cost of equity could be lower also.Beside financial purpose, some intangible assets such a

UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES

VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

BY

LAI THANH BINH

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

HO CHI MINH CITY, DECEMBER 2014

A thesis submitted in partial fulfilment of the requirements for the degree of

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

This research tends to investigate the effect of intangible assets to company’sperformance In this research, some of methodology to evaluate sum of intangibleassets will be represented and panel data will be used in model estimation All firmsused in practical examination are chosen from 250 Vietnam listed companies standingfor different industries Firms in industries could use these results to allocateinvestment on sum of all intangible assets other than just constructing new factories oropening new brands.

Estimation shows that intangible asset take a huge proportion on total companyasset Intangible asset not only take an important part in the past performance but alsoexplain their role as the key factor of future development When interpretingrelationship among kinds of asset and firm’s value, we recognize that intangible assetsignificantly impact on firm’s added value, however it do not show a clarifyrelationship with firm’s stock price Reason comes from fluctuation of stock marketand some external factor affecting to stock price

M&A: Merger and Acquisition

R&D: Research and Development

IAS: International Accounting Standard

EBIT: Earning Before Interest and Tax

CAPM: Capital Asset Pricing Model

GSO: Vietnam General Statistics Office

WTO: World Trade Organization

SBV: State Bank of Vietnam

WACC: Weighted Average Cost of Capital

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TABLE OF CONTENTS

CHAPTER 1 INTRODUCTION 9

1.1 Problem Statement 9

1.2 Research Objective 10

1.3 Research Questions

11 1.4 Structure of Thesis

11 CHAPTER 2 LITERATURE REVIEW 12

2.1 What Are Intangible Assets 12

2.2 Types Of Intangible Assets 12

2.3 Intangible Asset Valuation Approaches 14

2.3.1 Cost Approach 1

4 2.3.2 Market Approach 1

5 2.3.3 Income Approach 1

5 2.3.4 Panel Data Approach 1

6 2.4 Conceptual Framework 17

CHAPTER 3 ECONOMETRIC MODEL 18

CHAPTER 4 EMPIRICAL RESEARCH 22

4.1 Data Sources 22

4.2 First estimation: Calculate α and β 25

4.2.1 Consumption 3

0 4.2.2 Banking 3

4 4.2.3 Steel Industry 3

7 4.3 Estimate Cost Function 40

4.4 Compute Firm’s Equity Value 42

4.5 Compute Firm’s Equity Value with Non Intangible Asset 44

4.6 Evaluating Firm’s Intangible Asset 45 4.7 Examine Relationships among Firm’s Revenue, Intangible Asset and

5

4.8 Firm’s Intangible Asset and Policy Implications 51

REFERENCE 65

LIST OF TABLES

Table 1: Category of Intangible Asset 13

Table 2: Categorized Intangible Assets 22

Table 3: Result of equation 5 using fixed-effects and random-effects model27 Table 4: Hausman test 27

Table 5: Testing for heteroskedasticity using Wald test 27

Table 6: Testing for multicollinearity using VIF index 28

Table 7: Effect of Industry on Firm’s Output 28

Table 8: Estimation with all variables 48

Table 9: Effect of intangible asset and industry development on firm’s added value 48

Table 10: Effect of intangible asset on firm’s added value 49

Table 11: Association among intangible asset, tangible asset, industrial growth rate and stock price 50

Table 12: Association between tangible asset and stock price 50

Appendix 1: Fixed effect estimation without industrial dummy variables 61

Appendix 2: Random effect estimation without industrial dummy variables61 Appendix 3: Random effect estimation with industrial dummy variables 61

Appendix 4: Random effect estimation with industrial dummy variables after adjusted heteroskedasticity 62

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LIST OF FIGURES

Group 34

Figure 2: Steel scrap price in period from April 2008 to December 2014 38

CHAPTER 1 INTRODUCTION

1.1 Problem Statement

The fantastic merger and acquisition (M&A) stories of famous Vietnam brandsmake a lot of financial researchers actually confuse According to Kinhtedautumagazine (April 2014), foreign companies bargained these acquisitions at unexpectedprice, more higher than total tangible assets of these companies, such as Phở 24 (about

20 million dollar) or ICP (higher than 60 million dollar) These businesses raised aquestion about original source of firm’s intrinsic value Firms are unable to fullyevaluate benefit of intangible assets or misunderstood about importance of devotingmoney on invisible assets Because of these distortions, calculation about operationefficiency and payback period of project or firms could be inaccurate For instant,brand is one of intangible asset and it could make firm’s product sell at higher volumewith higher price If analysts do not evaluate strength of brand, he could get stuck insome problem with forecasting future revenue

There are some reasons why intangible assets have to be correctly evaluated One ofthese reasons is about unstable characteristic of economy and it is the most importantinformation not only for company’s management board but also for investor’sdecision Companies always change themselves, from operating activities to expandingactivities, to appropriate with market, if they don’t want to narrower their market shareand to lower their income However, general financial statement might be unable totell us all of company’s effort to change their business According to a research ofBaruch Lev and Paul Zarowin (1999), our current report-system such as balance sheet,income statement or cash flow statement deteriorated their usefulness over the pastseveral years A lot of money spends on R&D activities or advertising were not beshowed on these statement and just record as expense Secondly, economic situationchanges day by day and the firms will hard to keep their customers buying theirproduct if it does not create any interesting thing By this reason, spending money onintangible asset seems to allocate fund on innovative activities Finally, if

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companies couldn’t appropriately assess value of intangible asset, they might beviolated matching concept in accounting standard Each earned revenue need tosuitable with expense creating it.

In addition, valuating intangible asset used to apply on some important sectorsincluding financial reporting, commercial strategy and strategy for development Itcome to financial purpose, shareholders do concentrate on company’s financialposition and corporation’s expectation When these factors could be presented clearly,shareholder will be more loyalty with company and cost of equity could be lower also.Beside financial purpose, some intangible assets such as brand or intellectual capitalalso help firm create differential rate of return via increasing customer loyalty andcreating differential margin on sale (according to Parble Fernandez (2013)) A famousbrand can sell their product at higher price and reduce their cost by negotiating price ofinput with suppliers In sense of strategy development, according to Mike Rocha(2014), manager of company could plan their investment strategy, how much forfactory constructing and what proportion for marketing…

After all, demand for measuring value of intangible assets is very clear.Furthermore, finding an appropriate method places an important role in intangibleasset research As Parble Fernandez (2013) said, we are just at the begin point on theway to evaluating intangible assets Up to now, there are three methods to calculatetotal value of these assets This research will apply a new method to do this job

1.2 Research Objective

Specially, this research measures magnitude of intangible asset effect on companyperformance in different industries This result will help firms decide to allocate theirresources in different kind of asset New method, indirect approach using panel datamethod, will be used to calculate total value of intangible assets for Vietnam selectedcompanies

This thesis also solves another objective related to development policies It rises aproblem about supporting policies between small and medium enterprise (SME) andlarger companies.

1.3 Research Questions

Base one research objectives above, this research will solve two questions:

 Why should companies allocate their resources in both tangible and

In this section, we will go through the different approaches to evaluate intangibleassets The strengths and weaknesses of each method will be analyzed in detail,thereby, highlighting the advantages of T.Yamaguchi (2014) The second part explainsthe improvement in model of Yamaguchi paper, and generalizes the idea that makes thevaluation method of the author Next, evaluation process will be visualized thediagram in section two In part about econometric model, it will raise qualitativemethods used in the study and interpretation of the calculation method This sectionwill interpret specific econometric model is applied in the study The final sectionexpresses the process applying the evaluation method of intangible assets forbusinesses in Vietnam stock market The specific calculation is applied to illustrate thevalue of intangible assets for each business and each industry Section 4 also studiesthe relationship between intangible assets affect the performance of the business

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CHAPTER 2 LITERATURE REVIEW

2.1 What Are Intangible Assets

Because of different perceptions about intangible assets, so that definition aboutthem also different In accounting point of view, prudent concept keeps definitionabout these assets more rigorous Besides that, in investor or manager point of view,they will assess and define intangible asset broader

According to International Accounting Standard Board, Standard 38 (IAS 38)defines an intangible asset as: "an identifiable non-monetary asset without physicalsubstance." Besides that, this standard also requires future certain economic benefit as

an important characteristic of intangible asset

According to OECD project (2011), with a different perspective, OECD defines

“intangible assets are assets that do not have a physical or financial embodiment” Inaddition, OECD also identifies the difference between intangible asset and intellectualasset Base on OECD definition, intellectual assets are a part of intangible asset.Besides that, intangible asset include three different: “computerized information”;

“innovative property”; “and economic competencies"

In this research, we will follow OECD’s definition to estimate aggregate value ofintangible asset It means that we will use the word “intangible asset” instead of

“intellectual property” or “intellectual asset” This definition allows us not to haveproblem with matching concept and undervaluation of current financial reportingsystem

2.2 Types Of Intangible Assets

There is a lot of way to categorize intangible asset Researchers usually separatelystudy kinds of intangible assets such as brand name, lists of customers, company’satmosphere .etc One of these intangible asset categories is paper of Petros A.Kostagiolas and Stefanos Asonitis (2009) They listed types of intangible assets asbelow:

Table 1: Category of Intangible Asset

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Source: P.A.Kostagiolas and S.Asonitis (2009)

Despite of a lot types of intangible assets, this research just concentrate on effect of

total intangible asset on company’s income However, understanding categorizing of

intangible assets will use to choose Valuation approach and help to interpret root ofindustrial growth rate in later sections

2.3 Intangible Asset Valuation Approaches

According to the book Valuing Intangible Assets of Reilly, R F., and Schweis, R P.

(1999), these are three approach to evaluate intangible asset, include cost approach,market approach and income approach Each approach uses different data sources andhas to go through a lot of procedures In addition, each approach also includes differentmethods and creates a range of reasonable value of intangible assets Usually,researchers only apply one of these valuation approaches due to limitation of collectedinformation and cost of collecting data

2.3.1 Cost Approach

According to Lev and Sougiannis (1996), cost approach evaluate intangible assetbase on total amount of money to recreate this intangible asset or to build a similar onewhich has the same function Lev and Sougiannis interpret value of R&D activities inrelationship with company’s earning To examine this relationship, authors have tocalculate value of intangible asset, and they solve it base on total cost spend on the pastR&D activities This method might record an accurate value of some intangible assetssuch as R&D expense or advertising expense However, it is actually difficult to valueother intangible assets such as brand name, staff’s experience or lists of users On theother hand, determining the useful life of intangible assets is an actual

challenge because it is repeatedly examined to find out suitable lag term of R&Dexpense affecting operating earnings.

2.3.2 Market Approach

Market approach appraises value of intangible asset by market price of a similarasset which is selling on the same market In a paper of Kossovsky (2002), marketapproach were used to indirectly determine value of intellectual assets base ondifferent between book value and market value of firm’s equity This approach couldobjectively measure value of intangible asset due to compare with market price ofcompany Nevertheless, price of company’s stock reflects not only current intrinsictvalue but also shareholder perception about future of firm’s prospective In addition,sometime, stock price also distort by temporary speculation Furthermore, if appraiserestimates value of intangible asset depending only on a comparable asset, thisapproach couldn’t implement if appraiser is not able to find out any similar asset Inreality, it is essentially hard to identify two similar intangible assets

2.3.3 Income Approach

Income approach gauges value of intangible asset base on extreme benefit betweenhaving intangible asset situation and disappearing intangible asset situation Moreclearly, intangible asset value equal subtraction between net present values of two cashflows in these situations

Interbrand’s valuation method is one of income approach based on methods used tocalculate brand’s worth They calculate different earning associating with a newvariable, brand’s strength However, Paulo Fernandez showed some problems related

to Interbrand’s method in his paper, Valuing intangible asset and intellectual property (2013) First, Interbrand identifies extreme benefit of intangible asset by difference of

EBITs between a famous brand and a private label company The problem is how todetermine private label company? Because private label company is the firms whichdon’t have any market power from their brand name, it is obviously hard to recognize

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this factor Second, with Paulo Fernandez, the procedures to calculate brand’s strengthare subjective and it could be manipulate by appraisers.

2.3.4 Panel Data Approach

The panel data approach bases uses panel data analysis to compute invisible effect Unobservable firm effects were interpreted in Motohashi (2005) as managementability, labor’s motivation and R&D expense Even though, because R&D expensecould be exactly identified, Motohashi added it as an independent variable in hismodel Motohashi’ method used components in production function to examine effect

firm-of labor, capital and internet network on firm’s value added However, in this model,Motohashi just interprets internet network effects, other intangible assets are parts oferror term He also recommended estimation using cross-section data, fix effect andrandom effect

Ramirez and Hachiya (2006) presented other method, used fix effect to calculatevalue of intangible assets He used sale growth rate as explained variable and someproduction factors as explaining variable such as R&D expense, sale and generaladministrative expenses This method still relate to market value of firm and might bebiased as market approach, although it began with production function and usedproduction factors

Other method using panel data is research of Sadowski and Ludewig (2003) In thispaper, authors used added value as explained variable instead of market value ofequity Explainatory variable included capital and labor, human capital and socialcapital In paper of Tomohiro Yamaguchi (2014), panel data also use and intangibleassets will be measured by firm’s fixed effects His paper differs from previousresearch due to method to value company’s assets This method will use bothproduction function and cost function to gauge firm’s added value with and withoutintangible asset

Intangible Asset

Firm’s Added Value

Through the studies, we found that each study was caught in specific matters.However, study of T.Yamaguchi (2014) provided a more reasonable approach whenusing panel data and indirect approaches to solve the limitations of the previousstudies His research went through many intermediate calculations to come to theintangible value of the company First, production function and cost function wereused as origin of calculations about firm’s equity Then, he calculated the equity offirm excluded the impact of intangible assets Finally, value of intangible assets wasgot from enterprise’s value minus total value of firm’s tangible assets This approach ismore practical and indirect method based on relizable data It eliminates speculativeassumptions about future economic value of intangible value The final step to checkthe scope of intangible assets is the regression about relationship between enterprisevalue (revenue or stock price) and kinds of asset According to the results, we couldevaluate the importance of intangible assets with businesses

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CHAPTER 3 ECONOMETRIC MODEL

This research bases on Tomohiro Yamaguchi’s method to calculate value ofintangible assets After that, it will examine effects of these assets on firm’s addedvalue (and value of firm’s equity) in comparison with tangible assets

The formula of growth of company is based on Cobb and Douglas production function (1928):

Where: is added value of firm i in year t,

stands for capital of firm i in year t,

is labor of firm i in year t

The parameter in equation 1 indicates effects of total factor productivity (TFP).These factors include advantage of internet using, power of buyer, power of seller,intellectual capital, staff’s motivation etc In total, they are effect of intangible assets

on company’s growth rate However, growth rate of company’s value not only base onfirm’s total assets but also changing firm’s value overtime (Hulten, 2000) By thisreason, intangible asset effects include firm-specific effectsand growth rate λ ofindustry h in time t

To estimate this function, we have to take logarithm form of equation 2 According

to T.Yamaguchi (2014), he replaced β by 1-α to make equation less complicated To dothis replacement, his paper assumes that the researched companies have constant

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economies of scale However, in this paper, αand β will be estimated separately tostudy aggregate market with assumption that we could bot primarily identify type ofeconomic of scale.

The ith firm’s added value is directly calculated from its financial statements,starting at operating profit The firm’s value added includes depreciation and personnelexpense and operating profit In addition, firm’s added value has also to remove fromeffect of inflation, since, firm’s added value will be used in deflator form

Because value of sum of intangible assets is achievement of this research, we arenot able to regress equation 3 without value of The first step will be estimation ofequation 3 to get two parameters αand β We will take difference form of variables inthis equation and expectation of will be zero, fixed effects will be extracted

ℎ

Where d(…) is difference form of variables

Because firm’s added value includes cost of production factors, we couldn’tcompute value of company by discount just firm’s added value flow Instead, we willuse company’s profit

= Operating Profit – Interest Rate – Tax (6)

= – (Depreciation Cost + Personnel Expense + Interest + Tax) (7)

We also have the firm’s total cost C excluding cost of goods sold:

So that, firm’s profit is available to compute via formula:

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Cost of company will be identified base on duality approach which is a principal concept in microeconomics

to approach for production function and cost function, and has been debated by Samuelson (1947), Shephard (1953, 1970), Uzawa (196) etc In duality approach, a certain product could be manufactured by combining production factors at which manufacturer ensures that cost is minimized Cost function will be estimated follow production function.

−1/( + )

Where is nominal cost of capital of firm i in year t

is nominal wage of firm i in year t

We will calculate cost function through equation 10 After that, firm’s added valueand α, β will be obtained from estimating equation 5.

is cost of equity of firm i in year t

However, includes value of intangible assets To compute value of intangible assets,

we will subtract value of tangible asset from Nominal value of equity

without intangible assets will be obtained by below formula:

( )( ) ( )

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Where: is nominal cost of capital without intangible assets.

is nominal wage of labor without intangible assets

− λ ℎ

λ ℎ

− λ ℎ

ℎ

Where: is value of firm’s tangible assets,

is firm’s stock price or firm’s added value

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CHAPTER 4 EMPIRICAL RESEARCH

4.1 Data Sources

This research will be conducted for Vietnam listed companies in different industries.These are 214 chosen companies and data are collected from 2008 to 2012 We chosethis time range to lower effect of economic recession from previous period

Table 2: Categorized Intangible Assets

R it

W it

Firstly, firm’s operating profit multiplying deflator stands for firm’s added value.This data could be calculated through equation 4 There are some researchesestimating Cobb-Douglas model which use different proxies for firm’s added value.Hsing and Yu (1996) used value added to represent for output On the other hand, B.Lev and S Radhakrishnan (2003) refer revenue to proxy for output In a researchabout intangible asset, T Yamaguchi (2014) used earning before tax, depreciation andamortization to stand for output In this research, EBIT will be used to represent outputbecause it contains added value after subtract value of raw inputs Components tocalculate equation 4 will be collected from VEC database include account TS131,TS132, TS161, TS162 (depreciation); TN11 (personal expense); KQKD8, KQKD12(operating profit)

Secondly, Capital K and Labor L could be collected from VEC database According

to B Lev and S Radhakrishnan (2003), net plant, property and equipment (PP&E)stand for capital K Account of construction in process does not included because thisunfinished asset could not be used to make profit currently It come to labor, they usenumber of labor in firm to present labor component T Yamaguchi (2014) used thesame data of labor and capital as B Lev and S Radhakrishnan’s research Based onthese papers, this research will do one more calculation in which total expense forlabor will stand for L The number of labor more appropriately presents effect of laborfactor to firm’s added value when Cobb-Douglas function is in derivative of logarithmform In the other words, this approach is suitable to interpret change of labor factorand capital factor in relating to EBIT In this research, K and L in Cobb-Douglasfunction were also used to evaluate equity values, so that it will be more appropriate touse total expense of labor instead of number of labor Data related to K and L will becollected from some accounts in VEC database including TS11, TS12 (capital K);LD11, LD13, TN11, TN12 (labor L)

It comes to nominal cost of capital R; it will be calculate from Capital Asset PricingModel Calculating firm’s rate of return (r) is the first step before compute R “r” is thereturn that common shareholders expecting firm’s operations could create, it is alsocalled as cost of equity This rate of return is different from nominal cost of capital R;because R is weighted average among capital flows include equity, debts, andliabilities Calculating firm’s rate of return is a challenge due to uncertain future cashflow We are unable to exactly forecast future inflow and outflow of company becausethey always fluctuate in term of amount and timing To solve this problem, we coulduse one of the common approaches such as capital asset pricing model, the dividenddiscount model, and the bond yield plus risk premium method In this research, we willuse the first one, capital asset pricing model

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Base on CAPM approach, William Sharpe (1964) find out expected firm’s rate ofreturn from relationship between risk-free rate and premium from bearing the stock’smarket risk (beta*(rm-rf)).

In term of risk premium, we have to realize and cover all risks in this componentsuch as inflation, business cycle, credit risk and so on One of researches try to capturemultiple-risk is the three factor Fama-French model (Fama & French, 1992) However,the historical equity risk premium approach is the good indicator to estimate riskpremium using data observed over long period This method calculate risk premiumvia historical data of average country’s market return and risk free rate of this country.The most important requirement for database is that collecting period need to enough

to cover almost economic cycle, both expansion phase and recession phase In paper ofDimson, Mask and Stauton (2003), they used this method to compute risk premium for

16 countries, include United State over period 1900-2002 This paper show transparentresult of equity risk premium relative to Treasury Bond and help reader moreunderstand about existing of risk premium

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In this research, historical equity risk premium approach will be used to calculateequity’s risk premium However, we need to deeply understand some limitations ofthis method The first limitation is that stock index always changes, so that, return ofstock market fluctuates over time The second limitation is unstable risk aversion ofinvestors Finally, historical period cover of the data is also one of limitation Despitethese limitation, this approach still prove it appropriation overtime and was employed

by a lot of researchers Finally, IFS database will be used to get deflator data forstudying years

4.2 First estimation: Calculate α and β

We will use equation 5 to determine α and β Before regressing to this equation,form of data would be taken derivative The difference of this regression is largenumber of company in three industry categories It is actually hard to sort and processtime series data of listed companies following their tax ID number I used both SPSSand Excel to solve this problem In the first step, necessary data will be gathered andcategorized in some industries The next step, each firm will be taken derivativeseparately and be created dummy for company’s industries After having derivativeform of K, L, Q and dummy variable D (we have 50 industries so that the number ofdummy variable is 49), equation 5 could be conducted

According to T Yamaguchi (2014), panel data fixed-effect model will be applied toregress equation 5 after conducting Hausman’s test We will use Hausman test in thisresearch to compare efficiency between fixed-effect and random-effect model Aftertaking Hausman’s test, result show that fix-effect model will be more appropriate.Cross-section in this model will be firm level, because we could not make the sameindustry ID and the same time period After that, industrial dummy variable will beadded to test effect of industry growth rate on firm’s performance To regress thisequation with industry’s dummy variable D, T.Yamaguchi used Panel Least SquareMethod with Fixed Effects Model In this research, we will test relationship amongadded value and other input include capital, labor, industrial growth rate using fixed

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effect model and random-effects model Hausman test will help us to chooseappropriate model Heteroskedasticity testing and multicollinearity testing will beconduct to interpret and correct heteroskedasticity problems if it really exist Serial-correlation will not be tested because this is just micro panels (with just five years).First we will compare equation 5 using fixed effects model and using Random-effects model Table 3 shows regression result In the whole results, coefficients oflabor and capital are nearly similar However, we will use Hausman test to identify themost appropriate model Hausman testing result is showed in table 4, indicate thatrandom-effects model give us better explaination about relationship among labor,capital and firm performance However, we should ensure that result in table 3 freefrom heteroskedasticity and multicolinearity Testing for heteroskedasticity will rely onWald test and result of this test is show in table 5 Base on result of table 5, ourregression model express a presence of heteroskedasticity Appendix 4 is theregression after solving hetero-skedasticity problem Another problem we need tosolve is multicolinerity VIF index is used to investigate multicollinerity Testing result

is show in table 6; indicate that regression do not present multicollinearity problem.The regression using random-effects model (Appendix 4) presents an interesting resultthat is sum of α and β less than 1 (estimation of α equal 0.63 and of β equal 0.24).This result indicates that Vietnam listed companies have decreasing return to scale Inother world, when firms increase number of labor and spend more money on capital toexpand their business, operating profit turnover will be lower

Table 3: Result of equation 5 using fixed-effects and random-effects model

Table 4: Hausman test

Table 5: Testing for heteroskedasticity using Wald test

Modified Wald test for groupwise heteroskedasticity in fixed effect regressio model

H0: sigma(i)^2 = sigma^2 for all i

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Table 6: Testing for multicollinearity using VIF index

Table 7: Effect of Industry on Firm’s Output

Coefficient of Industrial’s Dummy Number of

Furniture 0.026 15

Source: Own calculation

Although sum of αand β is less than one, dummy variable of industries show thatgrowth rates of many industries are larger than zero This is an optimistic sign forVietnam economic, because it indicates development of listed companies relies notonly on tangible asset but also on intellectual input According to perspective ofT.Yamaguchi (2014), we expect main resource for long-term and high growth ratecome from intangible assets Table 9 shows growth rate of Vietnam industries We willinterpret some industries which have impressive growth rate in the past period to findout apparent reasons

There are five high-light industries presenting high growth rate includeconsumption, industrial machine, chemical, banking and steel industry Theseindustries showed impressive development from 2008 to 2012, the reasons come fromsome different factors We will express about this factors to deeply understand aboutbusiness environment of firms in these industries Recognizing forces of industrialgrowth will help us interpret scope of intangible asset related to company’s activities

4.2.1 Consumption

Vietnam consumption market is one of the most developing markets in comparingwith other neighbor countries and maintains high growth rate in previous period.Depending on Global Retail Development Index (GRDI), Vietnam retail market wasranked from 23st in 2011 drop down to 32st in 2012 and at 28st in 2014 It is a clearlyclue for potential development of this industry in the next period There are somefactors affecting in the past progression of consumption industry:

- Population: The growth rate of Vietnam population is the most important

factors supporting for development of Vietnam retail market While size ofVietnam population increases year by year, demand for retail products rise up at

the same time According to Vietnam General Statistics Office (GSO), Vietnampopulation was about 87.84 million people in 2011, increased 1.04% incomparing with 2010 Number of citizen was about 26.88 million people; takeinto account about 30.6% in total population Vietnam population in 2012 comes

to around 90 million people These number partly help us image aboutexpanding of this market and its potential

- Spending on consumption: Average income per capita in 2002-2007 periods

was about 7.3% per year and lead to 10.3% per year in the next period from

2008 to 2012 Earning more money improves purchasing power of customersand improves revenue of consumption industry in the future Proportion ofconsumption in total personal income was about 14.8% in period 2002-2007 andslightly increased to 14.8% in period 2008-2012 and created 89.7 billion dollar

at last 2012

- Economic development: Recovery of economics takes an important part in

growth of retail market Vietnam is one of Asia developing economics, GDP’sgrowth rate per year is about 6-7% Vietnam’s GDP increased from 31 billiondollar in 2000 up to 140 billion dollar in 2011 In spite of recession of the worldeconomic, Vietnam’s growth forecasting is still about 5%

- Urbanization: One of reasons of high-growth economic is high speed of

urbanization This factor will create more demand and higher level of demand.Almost retail model focus on urban, the reasons are not only from bigger marketsize, but also citizen characteristic Citizen usually absorbs new products moreeasily than villager This trend shows a great chance to strong development ofVietnam retail market According to World Bank Report, speed of Vietnamurbanization is about 3.4% per year

- Labor force: Young population structure is the main factor to earn more money

and create permanent demand for economic According to GSO report, Vietnam

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labor force is about 46.48 million people in 2013, and will maintain its growth inthe next few years.

- Travel: Travel is another supporting factor of retail market, specially food,

beverages and clothes segments In low-growth economic situation, Vietnam stillattracts about 6 million foreigners per year Besides that, Vietnam travel alsoserve for about 30 million domestic travelers Total profit of travel industry isabout 130.000 billion Vietnam dong in 2010

- Market Openness: Although Vietnam government strictly controls foreign

companies in retail market, openness of market will more expand follow WTOengagement From 01/01/2009, foreigner was permitted to establish firm whichhas 100 percentage foreign capitals to work in retail industry After 11/01/2010,foreign companies working in service segment were allowed to open new brandsand new franchises at Vietnam market More competition force is an importanteffort for domestic retailers to upgrade technology, increase productivity,upgrade company’s control system and change business strategy with morefocus on advertising, after-purchasing services

- Development of Banking System: Having more payment facilities helps

Vietnam to attract foreign retailers According to State Bank of Vietnam,Vietnam has about 11 thousand ATM at the end of 2010 and more than 24million banking cards Nowaday, proportion of cash payment on total paymentquickly decreases year by year and this trend will continue (from 31.6% in 1991

to 15% in 2010)

Distribution channel is the key factor or key intangible asset to success of firms in

consumption industry Any firm owns strong distribution channel could easily increasetheir revenue and rise successful proportion when they want to launch a new product.However building a distribution channel at Vietnam requires some factors anddevotes a lot of money This activity will increase distribution and administrationexpense and lower company’s profit We could recognize firms with large distribution