Travails of Korean securities firm in Viet Nam

Thursday, May 12, 2016 08:14

The Hanoi Stock Exchange . — File Photo
by Bak Won CHANG


It is not uncommon for foreign manufacturers to run operations in low-cost countries, but it is usually for a financial company.

If you want to enter less industrialised economies, you must have complete confidence in the potential and future growth of your target country.

A manufacturer can expect cost savings in wages, but a financial company may have more losses than benefits in the early days. A foreign stock brokerage house made a bold decision to enter Viet Nam eight years ago with a positive outlook for its growth.

It is Korea Investment & Securities, one of the top-ranked Korean securities companies. People were sceptical about the company's entrance into Viet Nam, but their feedback could not weaken the spirit of the company's management team who had confidence about the future of the country.

The rationale for the confidence was that there are many young citizens who work faithfully and diligently and the entire population has the desire to be well off. But as expected, challenges were evident in the early days of the company. Back then, not many used banks. There were fewer people who participated in the securities market.

A Vietnamese employee who works at Korea Investment & Securities Vietnam said, "Most Vietnamese are not yet interested in buying and selling stocks. Some 1.5 million retail investors make up a mere 2 percent of the 90 million population. They are aware of banks, but they do not know much about securities and insurance plans. We often have to explain securities business to young people when we hire them."

Korea Investment & Securities spent two years exploring the country's financial market conditions and in December 2010 it acquired EPS, a small Vietnamese stock brokerage firm that ranked in the 70 to 80 range at that time. But the Korean brokerage house had a hard time due to bad economic conditions in Viet Nam after the transaction. A sharp fall in the yields of Vietnamese funds began to sell to Korean customers when it entered Viet Nam led to strong criticism that its investment into Viet Nam was wrong altogether.

Nevertheless, the Korean company stuck to its belief that the Vietnamese economy will rebound one day. It continued investment into business development there despite some losses. It tried to expand the scope of business by further understanding the nature of Vietnamese consumers and the characteristics of the local market. The company is headquartered in HCM City and has one branch in Hanoi and two sales offices each in HCM City and Hanoi. Only three of a total of 169 employees are Korean. But the company's IT and operating systems are inspired by Korean technology.

During this process, the company put more weight on the Vietnamese government, its people and customer trust than anything else. Korea Investment & Securities had already built up trust with the local government before its entrance into the country, working together with Vietnamese government officials for more than 10 years, who visited Korea to learn advanced financing in Korea.

Vietnamese financial authorities recognized efforts of this company, giving extra permission to its plan to increase the upper limit in foreign investment. In 2014, the company was able to increase its 49 percent interest to up to 92.3 percent, completing its plan to stabilise its management control.

That is the outcome of trust Vietnamese financial authorities showed to Korea Investment & Securities.

An official at Korea Investment & Securities said, "Viet Nam has high self-esteem. It was not ruled by China in history, gained independence from France and won the war with the US. We understood that well before approaching it. After the acquisition, we did not forcefully apply our home country policy for business because it could provoke resistance. Rather, we listened to the Vietnamese and explained Korean situations and shared advanced business practices, letting them follow the company policy voluntarily."

Under the management of Korea Investment & Securities, EPS grew to become one of the country's top 10 brokerage houses in 2015, just five years after the transaction.

Still, they have a long way to go. The Vietnamese financial market should develop further so the company can expand its business. This can be solved as time goes by, but what matters is that the Vietnamese need to change first.

A local employee at Korea Investment & Securities Vietnam said, "Those who begin to work at a financial company after college graduation are mostly highly educated, but they often regard market openings to foreigners as something lost to foreigners. The country's high-ranking officials, including the prime minister and president, vowed to lift regulations on the limit of foreign investors on individual stocks during their visits to the US three years ago, but the market remains half-closed.

Supervisory authorities always consider the public's feelings when the country tries to change a system or introduce new financial products."

Korean companies operating in Viet Nam also feel a barrier in the country's laws and regulations. For example, someone who wants to get a license as a stock investment consultant should have a college diploma. Korea has no such rule. In Korea, one can do anything except what is prohibited by law, while in Viet Nam one should not do what is not clearly stipulated by laws.

Korea Investment & Securities Vietnam has a plan to add two more branches and increase its sales force to 200 this year with a goal to represent 6 per cent of the local securities market. It also wants to diversify business into equities, fixed assets and IPO deals.

"Once we come up with a successful business model in overseas markets, it will not be difficult to apply the model to other emerging markets. We will introduce our success formula in Viet Nam to Indonesia," Korea Investment & Securities President Sang-ho Yoo, who headed the entrance into Viet Nam, said.

The company's success in Viet Nam is significant because it means the company will be able to reach its potential in other Asian markets. — Korea Maeil Business Newspaper

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