A great new wave of Japanese investments is rolling towards Vietnam

Since the country began opening up its economy in the late 1980s, Vietnam has been an attractive destination for foreign investors. In 2019, data from the Foreign Investment Agency (FIA) shows that Foreign Direct Investment (FDI) reached USD38.2 bn an increase of 7.2% compared to the same period in 2018. Japan has been highly active in the field of M&A as illustrated in the chart -below. In 2019, total Japanese inbound M&A deals amounted to more than USD 450mn in Vietnam with 12 deals*. During the same year, Japan was the 3rd largest contributor of foreign M&A deals in Vietnam in terms of deal value after South Korea and Singapore.

  Source: Mergermarket, IGPI analysis * For disclosed deal value to be greater than or equal to USD 5 mn and / or the target’s turnover/revenue is greater than or equal to USD 10 mn

Financial services, agriculture, consumer among the key sectors of investments by Japanese firms

Historically, Japanese investors have been focusing on Vietnam’s rapidly growing financialservices sector. One of the notable transactions took place in December 2012 where Tokyo Mitsubishi UFJ purchased a 20% stake in Vietinbank for USD 743 mn. Local financial institutions are looking for strategic foreign investors to improve their business performance and to strengthen their balance sheet through capital injections. Recently in January 2020, Vietnamese mid-sized bank, Orient Commercial Joint Stock Bank (OCB Bank) divested 15% stake to Japanese Aozora Bank for USD 138 mn and the transaction currently represents the second largest deal in Vietnam by Japanese companies over the period 2019 – H1 2020 as shown in the table here-below:     Source: Mergermarket, IGPI analysis *For disclosed deal value to be greater than or equal to USD 5 mn and / or the target’s turnover/revenue is greater than or equal to USD 10 mn   Agriculture is also another driving force behind acquisitions as agricultural companies are looking to expand their technical capabilities. As the demand for increased productivity rises, the players in agriculture sector are looking into adopting technologies (i.e. agriculture technology or “Aggrotech”) to improve yield, efficiency, and profitability. In May 2019, Mitsui acquired a 35.1% stake in Minh Phu Seafood, a Vietnamese shrimp producer and processor for USD 153 mn and is the largest transaction by Japanese companies in Vietnam over 2019-H1 2020. According to Mitsui, this transaction will enable Minh Phu to achieve further growth through the application of digital technology including AI in farming ponds and processing plants and the enhancement of the efficiency in shrimp supply chain from farming to marketing. Additionally, manufacturing is another area of interest for Japanese investors since Japanese companies have higher technological capabilities in comparison to their Vietnamese counterparts and want to bring their expertise to the local companies to expand. Especially, during the current COVID-19 situation, many Japanese consumer and industrial goods manufacturers are considering to shifting their manufacturing bases from China to Vietnam in order to take advantage of more affordable labour costs here in Vietnam. Notably, Hoya Corporation, which manufactures hard-drive components, is expected to move from China to both Vietnam and Laos. Lastly, a large number of workers in Vietnam speak Japanese, which is a distinct advantage compared to other countries in the ASEAN region. On this matter, it is also important to highlight that around 300,000 Vietnamese people live and work in Japan, proving further benefits for both countries.

ICT and digital transformation development

The information and communications technology (ICT) services is a fast-growing sector in Vietnam and will provide further foundation for the digital development of the country. In 2018, the country had an estimated 30,000 businesses across IT hardware, software, digital content and ICT services1. Vietnam benefits from a flourishing community of software developers and start-ups and developing digital products and services, attracting Japanese firms but also global attention as a significant regional hub. Though the digital transformation of Vietnamese firms is taking place slowly, the Vietnam government, large corporates and small-medium enterprises are playing the active roles of adopting and implementing digital transformation initiatives across their organizations. For example, FPT the leading ICT company in Vietnam, has set as one of its mission to be a pioneer in digital transformation to transform the country’s economy and society. On this aspect, in September 2020, IGPI and FPT Japan will jointly hold a webinar to provide insights on how corporates can design its digital transformation through corporate transformation in the Southeast Asian region. 1. Source: Vietnam Information Technology Outsourcing Alliance. 2018. Why Vietnam?  

Challenges in investing in Vietnam

The long-term outlook for further M&A activity by Japanese investors remains highly positive as Japanese firms continue to look outward and see Vietnam as an important and stable investment location that is growing. Vietnam has been a strategic market for Japanese companies investing overseas due to its close geographic proximity, low labour costs, large work force, its openness to investment by Japanese companies and the positive relationship that exists between the two countries. Furthermore, Vietnam targets to become the leading digital country and economy in the ASEAN region by 2030. Under the national e-commerce development master plan in 2021-25 and the national digital transformation programme to 2025, digital transformation represents a vital process to increase the competitiveness of the economy, while further developing the domestic market and increasing exports. Altogether, this will impact positively and transform multiple key sectors from manufacturing and agriculture to trade, payment, transportation, finance, healthcare and education. However, there are challenges to consider when foreign companies are investing and doing business in Vietnam. As with many developing economies, Vietnam is experiencing the rise of its cost of labor year by year. Therefore, it is necessary for Vietnam to create other advantages for itself. Another key challenge faced by foreign investors when acquiring Vietnamese companies is the lack of reliable and publicly available information on target companies. When conducting due diligence on a company in Vietnam, foreign investors often have to heavily rely on the documents and information provided by the target company and some private companies may also lack adequate financial reporting standards which provide further challenges for foreign investors. Finally, given the country still enjoys a strong economic growth compared to other ASEAN countries, foreign investors have to negotiate with high premium valuation of target companies particularly in fast growing sectors such as consumer, healthcare, retail, etc.  

Government support for M&A and other areas of investment opportunities

Despite the existence of these difficulties, we believe that M&A is still one of the most effective and rapid ways by which Japanese companies can gain access to the attractive Vietnamese market. Japanese companies are likely to continue to be one of the key countries leading the M&A investments in Vietnam. Moreover, the Vietnamese government has also streamlined the M&A process to encourage foreign investment. One the key initiatives is the upcoming equitisation process of state-owned enterprises. This represents great opportunities for foreign investors including Japanese firms to acquire a stake in large state-owned enterprises (SOE). Some examples of SOE include Vinacomin, VNPT, VinaPhone, MobiFone, VTV Cab, Thang Long Tobacco Company, Vinafood 1 and 2, Vinacafe, Vietnam Rubber Group, and Vietnam Chemical Group. In addition to SOE, the Deputy Prime Minister, Vuong Dinh Hue, has recently mapped out core fields for restructuring, all of which are to welcome capital injections from investors from Vietnam and abroad. These areas include finance and banking, public debts, and streamlining nonmanufacturing units, which will provide further business and investment opportunities for Japanese investors in the country.  

How can we help? IGPI Vietnam

IGPI Vietnam was established in 2016 to support the Vietnam government in the business revitalization of state-owned companies and disposal of non-performing loans of financial institutions. Through these projects, IGPI Vietnam supported the Vietnam government in reaching the ultimate goal of transforming and improving the quality and competitiveness of Vietnam economy. Today, IGPI Vietnam focuses on management consulting and M&A advisory supporting Japanese investors and local enterprises to expand their business and to find the best partners across sectors. We also act as a bridge between Japan and Vietnam and advise on a wide range of areas that include market entry strategy, potential target search, valuation, due diligence, M&A process management, post-merger integration. Our consultants are also able to speak both Vietnamese and Japanese languages fluently to assist our clients in their projects.  

About the Author

Kim-Lân Dang is Vietnamese born in France and is a Senior Manager at IGPI Singapore. He started his career in 2008 with PricewaterhouseCoopers Luxembourg and later joined in 2012 Ernst & Young Singapore. Before joining IGPI, he worked at BDA Partners and TC Capital in Singapore. Kim-Lân has vast experience in advising blue-chip private equity funds, entrepreneurs, and corporates on divestments and capital raises. He has executed M&A transactions across Vietnam and the rest of Southeast Asia covering various industries including consumer/retail, IT, telecommunications, financial services, and financial technologies.

About IGPI

Industrial Growth Platform Inc. (IGPI) is a premier Japanese business advisory firm with presence and coverage across Asian markets. IGPI was established by former members of Industrial Revitalization Corporation of Japan (IRCJ) in 2007. IRCJ, a USD 100 bn Japanese sovereign wealth fund, is known as one of the most successful turn-around fund supported by the Japanese government. In 2017, IGPI collaborated with Japan Bank for International Cooperation (JBIC) to form JBIC IG, providing investment advisory services and supporting overseas investment. In 2019, JBIC along with BaltCap has jointly established Nordic Ninja, a EUR 100 mn venture capital fund to focus on deep tech sectors such as autonomous mobility, digital health, AR/VR/MR, artificial intelligence, robotics and IoT in the Nordic and Baltic region. In 2019, IGPI established IGPI Technology to focus in the area of science and technology. The company invests in technological ventures and provides hands-on management support. The company also provides business development support towards commercialization and monetization of technologies. Get in touch with us on strategic planning, market assessment and M&A related topics! IGPI Vietnam and Singapore – contacts:
 
   
Kohki Sakata Chief Executive Officer +65 81682503 k.sakata@igpi.co.jp
Kim-Lân Dang Senior Manager +65 91000273 k.dang@igpi.co.jp
 Son Tran Phu Head of IGPI Hanoi +84 24 3938 8729 tran.phuson@igpi.co.jp
This material is intended merely for reference purposes based on our experience and is not intended to be comprehensive and does not constitute as a digital transformation advice. Information contained in this material has been obtained from sources believed to be reliable, but IGPI does not represent or warrant the quality, completeness and accuracy of such information. All rights reserved by IGPI.

Adoption of new technologies in Agriculture market in Asia Pacific

Asia Pacific is the largest region in the agriculture market by far, accounting for USD 6,419 bn or 54.5% of global market share in 2018. It is expected to continue growing over the long term as populations and consumption demand increase both in Asia and globally. However, along with weather risks and climate change, Asia Pacific’s agriculture industry faces supply side challenges due to labour (related to ageing farmers, increased urbanization), reduced access to capital and natural resources and fragmented supply chain leading to food wastage. Urgent actions and shared responsibility are required to face these challenges but it also provides significant opportunities for innovation and disruption for the industry. As the demand for increased productivity rises, the agriculture sector is looking into adopting technologies (i.e. agriculture technology or “AgriTech”) that improve yield, efficiency, and profitability. These technologies have already started to help farmers in the region including the following:

• Information and data analytics: farmers and producers are able to plan their production according to accurate data patterns; • IoT and automation: technologies that help in automation of farming processes (such as monitoring the crop field with the help of sensors (light, humidity, temperature, soil moisture, etc.) and automating the irrigation system); • Marketplace platforms: platforms that aid in connecting small scale farmers with larger consumer markets; and • Agronomy and agricultural biotechnology: innovate inputs for crop and animal agriculture (such as seeds, pest control, seeds with new genetics) with the use of scientific tools and techniques.

  There are many technological opportunities throughout the value chain as illustrated in the below chart:

During the COVID-19 pandemic, investments in AgriTech to further strengthen the industry

  Though businesses are resuming slowly in Asia Pacific, the coronavirus pandemic and resulting lockdown restrictions are inevitably still impacting most industries in the region and globally, including agriculture. Global supply chains are disrupted, labour availability is further limited and market access is restricted due to issues in transportation and operation temporary shutdowns. However, Covid-19 represents a unique opportunity for AgriTech startups to highlight how the adoption of technology and innovation in agriculture can solve the problem of not only yield, but procurement and speed up the entire agriculture supply chain. As an example in Indonesia, farmers have great experience but are limited in their ability to predict weather changes. As such, a more data driven approach can help farmers increase productivity and manage risks. HARA, a blockchain-based data exchange platform for the food and agriculture sector in Indonesia, provides farmers and stakeholders with hard-to-find data to improve their production. This data has also been beneficial for several financial institutions to make data-driven decisions by digitizing loan administration and disbursement process. Example of AgriTech in Indonesia, HARA: AgriTech is also a driving force behind acquisitions as agricultural companies are looking to expand their technical capabilities. For example, Japanese conglomerates are acquiring startups and investing in companies that have promising new technology in order to provide further growth outside their domestic market. In February 2020, Sojitz Corporation, a listed Japan based conglomerate that operates in various sectors including agriculture, acquired RYNAN Holdings Joint Stock Company, a digital farming platform startup in Vietnam. With the development of software for IoT and AI services, the startup is able to help farmers improve productivity by offering an app-based system for procuring agricultural supplies, as well as for monitoring crop cultivation and managing water systems. Sojitz is looking to utilize its existing network both in Vietnam and overseas to expand the farming platform’s business with this investment in RYNAN.  

Government initiatives in AgriTech

  Furthermore, in order to keep pace with demand, governments have been supporting the adoption of technologies in agriculture to improve productivity of agriculture. They have implemented various technology schemes over the last few years to help their domestic agriculture producers become more efficient through adoption of relevant technologies. Examples of government initiatives are as follows:

IGPI – Trends and opportunities in the Agriculture sector in ASEAN – May 2020 report

  Leveraging from its deep experience in the agriculture sector, IGPI has recently conducted a research with analysis of various case studies to understand the current landscape of the agriculture industry: “Trends and opportunities in the Agriculture sector in ASEAN.” IGPI has access to local businesses in the ASEAN region that are adopting technologies, providing significant opportunities to expand their business domestically or within the region. We would be happy to share our key findings in this sector, share investment opportunities or assist you to find the best partners for your business to grow. Please contact us to receive the full report About the Authors Kim-Lân Dang is a Senior Manager at IGPI Singapore. Started his career in 2008 with PricewaterhouseCoopers Luxembourg and Ernst & Young Singapore. Before joining IGPI, he worked at BDA Partners and TC Capital in Singapore. Kim-Lân has vast experience in advising blue-chip private equity funds, entrepreneurs, and corporates on divestments and capital raises. He has executed transactions across Southeast Asia including consumer/retail, IT, telecommunications, financial services, and financial technologies. Yvonne Lim is an Associate at IGPI Singapore. She has varied experiences working with large Japanese companies and multinationals across various industries. During her sabbatical year in her consulting career, she headed operations for a Singaporean travel tech startup in Japan. She started her career as a management consultant in Japan, specializing in technology consulting and project management. About IGPI Singapore Industrial Growth Platform Inc. (IGPI) is a premier Japanese business advisory firm with presence and coverage across Asian markets. IGPI was established by former members of Industrial Revitalization Corporation of Japan (IRCJ) in 2007. IRCJ, a USD 100 bn Japanese sovereign wealth fund, is known as one of the most successful turn-around fund supported by the Japanese government. In 2017, IGPI collaborated with Japan Bank for International Cooperation (JBIC) to form JBIC IG, providing investment advisory services and supporting overseas investment. In 2019, JBIC along with BaltCap has jointly established Nordic Ninja, a EUR 100 mn venture capital fund to focus on deep tech sectors such as autonomous mobility, digital health, AR/VR/MR, artificial intelligence, robotics and IoT in the Nordic and Baltic region. In 2019, IGPI established IGPI Technology to focus in the area of science and technology. The company invests in technological ventures and provides hands-on management support. The company also provides business development support towards commercialization and monetization of technologies. IGPI Singapore was established in 2013 to focus on management consulting and M&A advisory in Southeast Asia across various sectors. We act as a bridge between Japan and Southeast Asia, having advised on market entry strategy, potential target search, valuation, due diligence, M&A process management, post-merger integration and change management for leading Japanese clients. In addition, we have helped businesses in Southeast Asia enter Japan and acted as sell-side advisor for SMEs and private equity fund looking to divest. Get in touch with us on strategic planning, market assessment and M&A related topics! IGPI Singapore – contacts:  
Kohki Sakata Chief Executive Officer +65 81682503 k.sakata@igpi.co.jp
Kim-Lân Dang Senior Manager +65 91000273 k.dang@igpi.co.jp
Chong Han Lim Senior Manager +65 90692611 c.lim@igpi.co.jp
This material is intended merely for reference purposes based on our experience and is not intended to be comprehensive and does not constitute as a digital transformation advice. Information contained in this material has been obtained from sources believed to be reliable, but IGPI does not represent or warrant the quality, completeness and accuracy of such information. All rights reserved by IGPI.

Healthcare industry in ASEAN6 countries is forecasted to grow at a CAGR of 7% from 2017 to 2025

According to our research, healthcare expenditure across ASEAN6 countries is estimated to reach US$740 billion by 2025, up from US$420 billion in 2017. Many factors have contributed to the higher healthcare expenditure and one of the common factors noted is increasing aging population. The elder population (age 65 above) in ASEAN nations is expected to grow three times that of the working age population by 2040. Singapore has the highest aging population (12.4%), followed by Malaysia (6.9%) in 2019. Increase in the elderly population leads to higher demand for healthcare services and products. Furthermore, changing lifestyle, poor diet and environmental factors such as air pollution have resulted in the increase of non-communicable disease (“NCD”) cases in ASEAN. Common diseases include diabetes, cardiovascular diseases and obesity related disorders. On average, NCD is responsible for around 60% of death in ASEAN from 2014-2018 which has further boosted the demand for healthcare.

Unmet demand due to gaps in existing healthcare infrastructure and systems

The healthcare industry is not all boom, it does face challenges in fulfilling the escalating medical demand. One of the key challenges ASEAN countries face is shortage of hospital beds and skilled workers. Based on our research, hospital bed in ASEAN6 for 2018 ranges from 0.9 – 2.7 per 1,000 population and is way below when compared with developed country such as Japan (12.2 bed per 1,000 population).Whereas, the density of doctors in ASEAN6 for 2017 ranges from 0.4 – 2.3 per 1,000 population and is below the global average of 1.5 (except for Singapore – 2.3 doctors per 1,000 population). In addition, there is a lack of or insufficient universal health coverage mostly in developing countries. Government bodies either do not have sufficient funding for universal coverage or there are complications in implementing healthcare reforms for several reasons. This resulted in higher out of pocket expenditure by citizens and also incur higher reliance by the poor on healthcare provided by the government or nonprofit organizations.

Opportunities arise for private healthcare players to partake in the lucrative healthcare industry

There is increasing pressure to improve the healthcare infrastructure and system within ASEAN6, some countries have turned to private investor to participate in the healthcare industry. Measures taken by the governments to encourage private healthcare players include incentive for foreign direct investments, reduced customs duty, etc. This presents opportunities for the private healthcare players to tap into the lucrative healthcare industry. For example, capital investment into private hospital, development of healthcare workforce training centre, providing private health insurance, etc.

Covid-19 has created crisis within the healthcare industry

The Covid-19 pandemic that spread across 215 countries (as of 14 May 20) is a great test on the capability on the healthcare industry of each ASEAN country to weather this storm. Disruption in supply chain coupled with forced quarantine, shutting down of factories and export restrictions has significantly reduced the output of the major healthcare sectors (i.e. healthcare services, medical devices and pharmaceutical). Resources are focused on essentials for Covid-19. For example, clinics and hospitals prioritized Covid-19 patients and see a decrease in patients seeking non-emergency or elective treatment; manufacturing shifted towards essentials for Covid-19 such as personal protective equipment (“PPE”), surgical mask, etc. IGPI expects that the overall impact to the industry in the short term will be negative.

Post Covid-19, rise in adoption of technology is expected for healthcare industry

However, this Covid-19 pandemic has presented opportunities for healthcare players and governments to reassess their capabilities and also identify areas for improvement for their future strategy. Government spending on healthcare is expected to increase and more collaboration with private players for standardization of the healthcare industry standards and sharing of resources. In addition, Covid-19 pandemic has also accentuated the role of technology in healthcare industry. For example, telemedicine allows doctors to provide consultation to patients remotely with no physical contact, thus reducing the exposure of the patients and healthcare staff to the virus. This also serves as a medical consultation platform for people in the rural area who are not able to access the nearest clinic or hospital conveniently. Post Covid-19, telemedicine is likely to be the norm as it integrates into people’s daily lives and also the healthcare system.. We can also expect to see industry players looking to adopt more advanced technology and automation in the business operation post Covid-19. For example, in Indonesia, the healthcare player has been looking to digitalize their processes and move away from reliance on paper recoding of patient’s healthcare record. This allows doctor to have quick and more complete access to patient’s historical data and able to provide more accurate/focused consultation to the patients.

How can IGPI help you within the healthcare industry?

SEA is a region with plenty of business opportunities for industry players. IGPI is well connected within the region and would be glad to assist companies that are looking for potential investment opportunities within the healthcare industry.We have access to companies that are looking for investors to expand domestically or within the region. It includes companies that are already well established with strong market presence, companies working on greenfield projects, health tech companies, etc. We believe that we can help you in the search for potential investment opportunities that best fit with your company expansion strategy and support you in the transaction. Some of the past M&A advisory supports that we provided to our clients include:
  • Financial advisory for a global Japanese health equipment and services company
  • Transaction support on potential equity investment into a clinic chain in Malaysia
  • Transaction support on potential equity investment into a hospital in Malaysia
In addition, we have also supported our clients on projects of various nature such as strategy planning support, running an accelerator, etc. Some examples of our past projects include:
  • Strategic, operational advice and implementation support for a large Japanese hospital
  • Strategic advice and organizational restructuring of a healthcare clinic chain in Singapore
  • Market entry and growth advisory for a medical device manufacturer
  • Support in the launching of corporate venture capital for a global Japanese health equipment and services company
Lastly, IGPI has conducted a research to understand the landscape of the healthcare industry for ASEAN 6 countries. The research provides insights for different sectors of the healthcare industry within the ASEAN6 countries. If you are interested to find out more about the growth trend, competitive landscape, and opportunities in ASEAN6 countries, we would be happy to share our research and key findings with you. IGPI can provide supports in multiple aspects of your business – Get in touch with us!
Kohki Sakata Chief Executive Officer +65 81682503 k.sakata@igpi.co.jp
Lei Ling Lim Senior Manager +65 94880526 l.lim@igpi.co.jp 
This material is intended merely for reference purposes based on our experience and is not intended to be comprehensive and does not constitute investment, legal or tax advice. This should not be regarded as an offer to sell or as a solicitation of an offer to buy any financial product, an official confirmation of any transaction, or as an official statement of IGPI. Information contained in this material has been obtained from sources believed to be reliable, but IGPI does not represent or warrant the quality, completeness and accuracy of such information. All rights reserved by IGPI.