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January - February 2010

The High Cost of Market Economy Label It has fascinated Vietnam watchers, particularly those from the West, to discover the metamorphosis of the country transforming itself from a closed political system into an aspiring market economy.

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Riding the Consumer Market in
Walter Blocker, CEO, GANNON  Vietnam LTD.

The GANNON Group

GANNON is one of the oldest and most well-established private companies operating in Vietnam today, with a history of building solid business platforms for long-term growth.

Since 1994, GANNON has been recognised as a leader in full-service asset management including importation, bonded warehousing, delivery and invoicing. In addition, GANNON owns and operates a large-scale, state-of-the-art TetraPak-based beverage packing facility engineered to produce a variety of ready-to-drink beverages.
GANNON has led the nation's development of premium cosmetics and skin care since first establishing Maybelline in 1995. GANNON is also the nation's largest logistics provider for beer and spirits and is now licensed to brew beer in Vietnam. Its facility, currently under development, will provide premium beer for Vietnam and will serve as an export hub to Asean and beyond.

GANNON holds 60 percent market share for premium imported floor coverings and hardware. Its products can be found in four- and five-star hotels throughout the nation. GANNON is the largest lessee of warehouse space at the Saigon Port and distributes raw materials to the industry throughout the country.

GANNON is a joint venture partner in multiple industrial zones within the southern focal economic zone. These high quality environmentally sensitive facilities are supported by a gas-fired multi-cycle independent power plant. GANNON has been able to achieve market access quickly in Vietnam resulting in sound and dominant long term positions in the economy. Most recently, GANNON acquired the licensing agreement for Budget Car Rental, the first international rental car franchise to operate in Vietnam. GANNON is committed to long-term investment in Vietnam and is strategically positioned to benefit from the most rapid economic growth period in Vietnam's history.

AseanAffairs’ interview with GANNON Group CEO Walter Blocker

Q: How would you describe Vietnam’s strengths and weaknesses as an investment destination?

A: Vietnam is actually a pretty easy place to invest when you consider the biggest challenges are people, money, and a sound business plan. Although it has a reputation for corruption, this is generally overblown and basic, straightforward businesses like light manufacturing and service companies almost never complain about corruption. I always say that corruption in Vietnam often comes from within an organisation because it is easy to break or ‘bend’ the rules in this country and that can be tempting to the benefit of short-term bottom line profits. But like all things in life, you have to ‘pay the piper’ eventually and in Vietnam you will eventually get caught -- that’s where the corruption comes in! Generally, I believe Vietnam is a much easier place to make money than China or India, at least in the short/medium term, and has an economy that has had bulletproof growth since 1992 or so, even during the Asian Crisis in the late 1990s and of course 2009.

Q: You may be aware of the ‘brand’ dispute between the Vietnamese regulators and Jetstar Pacific Airlines. This problem is seen by some critics as an instance of a political pitfall due to the apparent rivalry between the country’s Communist ideologues and the pragmatic members of the party. What is your take?

A: I am not familiar with this case, but to assume it has something to do with communism does not register with me. In general, the government here is very pro business and pro foreign investment. Blaming a dispute like this on politics or ideology is counter to my experiences here.

Q: Global branding of cross-border franchises contributes to the expansion of Vietnam’s economy. Do you agree with this statement? Why?

A: As a producer of branded goods, Vietnam is quickly gaining a reputation as a producer of high-quality goods. Some of the world’s best brands now carry the ‘Made in Vietnam’ label. Consumers understand that a chip made in Vietnam by Intel, for example, is as reliable as an Intel chip made in the US. A young, dynamic population and a large, untapped domestic consumer market fuel the market for these same goods within Vietnam. Cross-border franchises are keyed into a great opportunity here. I am taking advantage of that firsthand with Budget Car Rental, GANNON’s first franchise.

Q: Is there any impact from the devaluation of the currency dong on GANNON’s businesses? If so, how deep is the impact and how are you adapting to the situation?

A: We have a large trading arm, so yes, we are impacted. After 15 years in the country, we are used to this kind of currency fluctuation and have mechanisms in place to protect ourselves by passing the forex burden off to our customers and suppliers. GANNON is not a financial institution but a service provider for the efficient delivery of goods. We are also affected by currency in our manufacturing arms because most of our utilities and raw materials are USD denominated. We get paid in VND (Vietnam dong) but have many costs that are USD. We have mitigated this in some cases by converting to USD and then back to VND on the day of invoicing.

Q: GANNON is well established in Vietnam. Tell us about your growth strategy and the progress made over the last decade.

A: GANNON is focused on the development of the consumer market in Vietnam and our relationship with that consumer and the suppliers and brand owners that supply them. In some cases we trade, in some cases we manufacture, and in some cases we distribute. This evolution has led to the new phase of our company where we do all those things together and vertically integrate. That is what is so exciting about our relationship with beer. It brings us to a playing field where we are the brand owner/custodian and also responsible for the complete supply chain including brewing and bottling.  We have grown, on average, 10 times the rate of GDP over the last decade. Year in, year out this is a strong performance by our company but it has relied on constant refinement of execution with our core businesses and growth through acquisition of new customers. Ten years ago I was afraid the big guys would come in and eat our lunch after Vietnam opened up with WTO. In the end, we became the big guys. The regional multinationals lack the people, local know-how, and infrastructure to compete with us. The barrier of entry has become huge. We want to put some more space between the competition and us so that it never catches up. We are doing it the old-fashioned way too -- delivering quality products and services to our customers at a fair price with long-term strategic goals.

Q: Do you have plans to expand your businesses further in the near term?

A: We expand every year and 2009 was no exception. When everyone put their foot on the brake, cut expansion plans and projects, I sat down with my team and we agreed to do just the opposite. We pushed the gas pedal completely to the floor and drove growth and innovation throughout our organisation and had a tremendous result. What is our outlook for 2010? Huge growth in both top and bottom line and significant investment in upgrading our existing facilities and two new development projects, including Deerfield Park -- the first US-led industrial park in Vietnam -- and the brewery, which is nearing completion. We also have our eye on some acquisitions for assets that complement our existing platform.

Q: Which markets other than Vietnam do you think are potential investment destinations for GANNON and why?

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