This year has seen a number of Vietnamese companies diversifying into agricultural sector, which is a departure from the prevailing trend of investing in sectors related to finance, insurance or real estate.
Companies like LienVietPostBank, Hoa Phat Group, Hoang Anh Gia Lai, FIT Group, Vinamilk, Pan Pacific have already ventured into agri business with activities related to planting, producing food and farming.
In keeping with the industry transition, the Pan Pacific Corporation too has increased its investment allocation to reflects the changing trend. It’s portfolio includes Aquatex Ben Tre, commercial baker Bibica, Northern Seed JSC and Southern Seed Corp.
The company’s chairman, Nguyen Duy Hung, who is also the chairman of brokerage firm Saigon Securities Inc and is a well-known name in the country’s financial sector says that the new area of investment, has achieved remarkable success for the company. Already, it has been in the top 200 of Asia’s best companies with sales under $1 billion, by Forbes in 2013 and has proved to be attractive to foreign institutional investors.
Also read: IFC invests $6.5m in Vietnam’s Pan Pacific
Hung spoke in detail to DEALSTREETASIA about the general business environment and the sector prospects even as he discussed operation, development, branding, expansion and investment strategy of Pan Pacific.
Edited excerpts from the interaction:
What made you establish an agro business instead of diversifying into other sectors, such as real estate or technology?
Vietnam has developed from agriculture. Agriculture, forestry and fisheries account for 18 per cent of the country’s gross domestic product (GDP). In 2014, the value of agricultural exports from Vietnam reached more than $26 billion. There are lots of potentials to tap.
When starting a business, you consider two elements: whether there will be demand for it in the future, and which kind of customers you will serve.
Investing in agriculture in Vietnam guarantees these two elements. In addition, one creates jobs for a large number of people.
Pan Pacific has a mission to contribute a part in developing agricultural products, and I think many other companies will follow that mission. Some five years ago, I was alone in promoting the agro-business, but today, most of Vietnam’s major firms are investing in agriculture.
The concept of business has been shifted from real estate, asset or finance investment, which quickly generate profits, to producing goods. If the leading companies, with all their resources, expertise and network, join this industry, the Vietnamese agro-business will prosper.
However, there are challenges of poor infrastructure, low productivity and quality.
Apart from the International Finance Corporation (IFC), several other foreign large investors have shown interested in your company. why?
An investor will consider the efficiency of the business they are planning to invest in. Pan Pancific is attractive to investors like IFC or GIC not only because of its effective operation but also due to the mission.
If we put the situation in the context that there will be foodstuff shortage in the next 50 years, Pan Pacific’s idea and mission is to solve this. The partnership with IFC was one of the quickest deal to be closed. They reached the agreement within just two months after learning about us.
In their valuation, IFC stated that few companies in the world possess higher environmental standards in production than ours.
How do you evaluate the companies that Pan Pacific has acquired?
We always evaluate each investment thoroughly, its advantages and whether the market will allows us a chance to expand. The segments of seeds, seafood and confectionery, which we have included in our portfolio, will grow in the coming years.
The companies that Pan Pacific has acquired are leading enterprises in their industry. Northern Seed Company and Southern Seed Corp, along with Pan Pacific, are shortlisted in Forbes 200 typical Asian small and medium companies in 2013 (Pan Pacific was in the top 10). Those companies have high reputation and competitiveness in the market. In addition, the purchasing prices were effective investment.
Meanwhile, there is an intangible value of these firms which is their people and this is really critical to our business. For new investment, we will look for businesses, which already have assets and markets. The people element will not be an important factor to consider, because we have already have a qualified human resource to transform the companies.
A spate of Vietnamese companies are eyeing agricultural investment, but I do not think 100 per cent of their investment deals will be successful. Therefore, the deal failure will become our targets in the future to expand at lower costs.
Also read: PAN subsidiary acquires Southern Seed Corp
What are other future plans for Pan Pacific, particularly overseas expansion?
The demand in the domestic market is enormous, but export to foreign market is also in our schedule. We are constantly increasing productivity and product qualities in the subsidiaries, along with branding and broadening retail network. In terms of brand building, one possible way is to purchase foreign brands.
Also, one of our strategies is to set up joint ventures with foreign companies to penetrate other markets. This will help us in avoiding technical barriers that the host countries build to protect their enterprises as the world is more integrated with a series of free trade agreements.
How about the challenges in developing an agricultural business?
There are lot of difficulties, from inputs, processing and packaging technology to finding markets for consumption. Everything has to be executed on a daily basis. Another challenge is the fragmented material supply, while you have to ensure consistent quality outputs. Aquatex Ben Tre, for example, received large investment from us to secure the standards for export to Japan.
How is the competition in this sector?
Competition in the agriculture and consumer goods sector has always been fierce. The critical factor for a business operating in this area is to understand what the market wants and how to meet the needs.