Saturday, February 27, 2010

Day Eight: CyWorld, IDG Ventures and Ho Chi Minh Stock Exchange

26 February 2010

CyWorld and IDG Ventures

Michael from CyWorld gave us an overview of CyWorld and the challenges of the use of the Internet in Vietnam, particularly in regards to Social Networking. Michael introduced CyWorld as a Social Networking Internet Application which started out in South Korea. CyWorld is currently in many countries around the world and is similar to Facebook but with some noticeable differences.

I enjoyed Michael's presentation and the discussion session afterward. I learned several things which I had not given much thought to in the past. The first thing that I took away from the presentation was that you can not simply change the text on your site or application and expect it to do well in another country. In particular if Facebook simply changes to add the Vietnamese language as a choice on it's site without taking cultural norms and behaviours into consideration then they will fail in Vietnam. This lesson can be applied to other countries as well. The second thing that I took away was that just because something seems difficult or nearly impossible does not mean it cannot be done. I thought it was interesting that credit card usage is nearly nonexistent in Vietnam but on-line gaming, CyWorld, and others have found other ways to receive payment from customers. The most noticeable method for obtaining payment is by using prepaid cards. I found it even more interesting that they have been able to find unique methods of selling these cards. One of the most impressive was selling them at ATM machines.

Ms Thu Huong Duong from IDG Ventures gave us an overview of IDG and the marketplace in Vietnam. One of the areas of the greatest opportunity is in on-line payment in Vietnam. The greatest barrier to developing an on-line payment system is gaining the trust of banks. It is necessary to gain the trust of banks to make on-line payment systems work in Vietnam. Once again it goes back to building relationships. This is one aspect of both the culture in China and Vietnam which is very important in doing business in the region.

Thu was asked about the investment climate in Vietnam versus other countries that IDG operates. Thu replied that Vietnam is growing quickly and that investments in Vietnam are paying off much faster than other countries along with a high rate of return. Typically start-up companies become profitable after 5 to 7 years and generate returns between 20 and 30%. IDG has been very successful with their investments do to their hands on approach. All candidate companies are carefully screened and must meet specific criteria. Once a company is chosen, they are given support in helping form relationships and advice is given to them on various decisions and the companies are given the latitude to decide on their own. This has worked out well for IDG and they have only had a few instances where a company did not follow the advice given to them. IDG has had to assist these companies after making a mistake or two but IDG knows that letting one make mistakes is the best way for the company;s management team to learn.

Both Michael and Thu pointed out several threats and opportunities of doing business in Vietnam. The government is always a concern in any country and is no different in Vietnam. It is important to have close ties with the government so that you are aware of challenges which may impact your business and so you may attempt to influence the government. One such example which Thu gave was with a popular on-line game which IDG is involved with. Many people had been complaining to the government that children are more concerned with playing on-line games rather than doing their homework. As crime among the youth was up as the children are stealing and doing other things in order to get enough money to continue playing these on-line games. The government decided to put together a set of media laws and one of the provisions of the law would have made it impossible for the on-line gamers to play the games so the company would need to find something else to do or go out of business. IDG was able to work with the government to compromise by having CyWorld limit players to a maximum of 3 hours of play time per day.

Below is a list of a few other threats which were identified in the meeting
  • IT has a lower barrier to entry
  • On-line ad revenue is on a decline
  • Many business functions still require government approval

Ho Chi Minh Stock Exchange

The visit to the Ho Chi Minh Stock Exchange (HOSE) was very interesting. We saw some similarities to the Hong Kong Stock Exchange such as the presence of a trading pit even though not many companies use it. Both exchanges stated that the pit is maintained as a backup. Another similarity between the two exchanges was that the Hong Kong Exchange has been incorporated and HOSE is in the process of doing the same.

The most noticeable difference between the two exchanges was the level of development between the two exchanges. The Hong Kong Exchange has a long history and is well established whereas HOSE is a young developing exchange. Also the volumes of shares and investment vehicles traded are much different between the exchanges.

HOSE is a small exchange and has some competition within Vietnam from the Hanoi Stock Exchange. To help increase listings and volume within HOSE they are working with six other Association of Southeast Asian Nations (ASEAN) nations to make it easier for investors to invest in the member nations exchanges. The exchange has signed a Memorandum of Understanding (MOU) with the Korean Exchange to facilitate trade in the derivatives market.

The Ho Chi Minh Stock Exchange is young but has a great deal of potential if some issues are worked out such as having stiffer penalties for insider trading, convertibility of the Dong, and government control over the market. Regarding the last note, the government appears to be doing a good job in creating a supportive business environment in Vietnam however it is still of some concern to investors. One particular area of concern is the wide gap between rich and poor in Vietnam. One must wonder how long will the government be able to tolerate such a discrepancy. Hopefully Vietnam's middle class will continue to grow and as more opportunities become available to the people of Vietnam so that this will not be a concern.

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