Mobile World Key Competitive Advantages

Advanced MNE

Competence Competence
Creation Exploitation

Head-Quarters Fourth was concern for employee

Sourcing Knowledge
R&D
development. The company looked to high
young, talented people who could then be
trained to implement the founders customer-
Subsidiaries
Foreign Locations
oriented vision.

Geographic His goal was for them to behave like fellow

Dispersion
owners, rather than passively viewing
themselves as employees.
Knowledge
Heterogeneity
Creative Employee Development and
Retention Strategies keep competence
Create Competence within Mobile World.
Mobile World Key Competitive Advantages

Emerging MNE

Industry Leaders

Playing Catch Up

Head-Quarters

Accessing Knowledge
R&D
Requires closer negotiation and compromise,
since subsidiaries may have other motives
and are more powerful than HQ
Subsidiaries
Foreign Locations

Increases subsidiaries bargaining power Geographic

Dispersion

Increases HQs exposure to opportunism Knowledge

Heterogeneity

Innovation Capabilities develop more slowly,

and with greater difficulty than AMNEs Create Competence
Mobile World Key Competitive Advantages

Advanced MNE Emerging MNE

Competence Competence
Industry Leaders
Creation Exploitation

Playing Catch Up

Head-Quarters Head-Quarters

Accessing Knowledge
Sourcing Knowledge
R&D R&D

Subsidiaries Subsidiaries
Foreign Locations Foreign Locations

Geographic Geographic
Dispersion Dispersion

Knowledge Knowledge
Heterogeneity Heterogeneity

Create Competence Create Competence

 Question 1

What are MWGs key competitive advantages?

Case (2009) Mobile World

Mobile World
Mobile phones, tablets, laptops, accessories
(Targeting the Younger Population)

40 Stores 100 - 200 M2

HCMC and Hanoi

45

VND
40
40

1,500B
35 31
30 27

=
25
20
20

USD
15
10

0.07B
5
0
2006 2007 2008 2009

Stores
Todays Mobile World Group

Consumer Electronics
Mobile World Mobile phones, tablets, laptops, televisions, karaoke
machines, refrigerators, washing machines, rice
Mobile phones, tablets, laptops, accessories
cookers, blenders, irons, electromagnetic stoves,
(Targeting the Younger Population)
microwaves, vacuum cleaners
(Targeting Customers with Families)

1,276 Stores 100 - 200 M2 190 Stores 800 - 1000 M2

63 Cities & Provinces 63 Cities & Provinces

1000 200 190

VND
880
180
800 160

600
564 44,613B 140
120

400 344 = 100

80 69

USD
211 232 217 60
200 40
84 12 12 17

1.9B
31 40 20 4
0 0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2011 2012 2013 2014 2015 2016

Stores Stores
Case (2009) Mobile World

Nguyen Duc Tai was on a mission one sweltering

January morning in Vietnam's commercial capital, Ho
Chi Minh City.

Mobile World Flush with cash from his annual bonus, he wanted to
buy his wife a new mobile phone, a gift for the
Mobile phones, tablets, laptops, accessories coming Tet lunar new year holidays. In a country
(Targeting the Younger Population) where the average annual income is about $1,100, a
good phone is a big investment. Tai wanted to make
the right choice with his 5 million dong ($250).

"It was so confusing. I went to two shops, but no one

could give me the full picture of what I could get for
40 Stores 100 - 200 M2 my money. They showed me one or two phones.
HCMC + Hanoi That's not enough. If they could show me 10 at
similar prices I could make a decision.
1000
The 35-year-old smelled opportunity. "I said to
VND
880

800
myself, 'There's something wrong here. I have money.
I'm willing to pay. But I cannot find what I want.
600
564 1,500B There is a mistake somewhere and if I can fix that,
400 344 = the customers will support me'.

USD
211 232 217
200
84

0.07B
31 40
0
2008 2009 2010 2011 2012 2013 2014 2015 2016

Stores
Source: http://www.reuters.com/article/us-vietnam-economy-idUSTRE70C0W420110113
Competitive Environment

Mom & Pop (M&P) Stores

Mom-and-pop shops were simple intermediaries for
wholesalers, operating on extremely low margins, and thereby
offered very limited additional services or customer experience.
Retail Chains
MobileWorld was one of just three main large mobile phone
retail chains in the country, along with more experienced,
family-owned Viet Thong A and the particularly deep-pocketed
and partially state-owned FPT.

Limited After-Service Care

They were also family-run, often by a stay-at-home parent, and

Future Rivals
had limited capacity to help consumers understand product
features or avoid the many fake products, especially
components such as batteries, that had flooded the market.
Tight Margins
Doubtful Reliability With brand manufacturers dividing up winnings across a variety
of actors along the value chain, MobileWorld generally was left
with only about 7-8% margins.
The overall market remained primarily in the hands of the
fragmented network of mom-and-pop shots. This was especially
true outside the two main commercial centers of HCMC and
Hanoi. Operational Challenges ERP*
Required
*Enterprise Resource Planning automation and tracking software
Changing Consumer Behavior
Source: Case
Mobile World Key Competitive Advantages
Competitive Advantages
Employee Development
Recruited young, talented individuals
Trained extensively in customer service
Employee Profit Sharing
Creative Employee-Retention Strategies
Customer-First Policies
First to create Return Policy for non-faulty
products
Free-delivery nation-wide and free product-
showcasing at home
Bonus schemes that are obsessively tied to
customers satisfaction
All Policies Reflect Customer-First Focus
Brand Reputation
Large, modern, and well stocked stores with
high quality products
Staff are knowledgeable about the latest
products with additional services provided
Differentiation from M&P Stores
Omni-Channel Marketing
Integration of online and offline channels
All their stores reliably sold at the prices
advertised online
Detailed marketing and technical
information on electronic products online
Seamless Multichannel Experience
Mobile World Key Competitive Advantages

Competitive Advantages

Employee Development
Recruited young, talented individuals
Trained extensively in customer service
Employee Profit Sharing

Creative Employee-Retention Strategies

To Pay, Or Not To Pay?

Chris felt strongly that Tais new incentive plan for middle
managers gave away too much. Tai, meanwhile, was frustrated
because he thought he had already worked through the logic of
his vision with Mekong Capitals board representative

As reflected in the big argument with Freund over employee

profit-sharing, the founders knew that this also meant a need to
think outside of the box about employee retention strategies

Source: http://mwg.vn/eng/shareholders-news/
Mobile World Key Competitive Advantages

Competitive Advantages

Employee Development
Recruited young, talented individuals
Trained extensively in customer service
Employee Profit Sharing

Creative Employee-Retention Strategies

To Pay, Or Not To Pay?

Chris felt strongly that Tais new incentive plan for middle
managers gave away too much. Tai, meanwhile, was frustrated
because he thought he had already worked through the logic of
his vision with Mekong Capitals board representative

As reflected in the big argument with Freund over employee

profit-sharing, the founders knew that this also meant a need to
think outside of the box about employee retention strategies

Source: http://mwg.vn/eng/shareholders-news/
Mobile World Key Competitive Advantages
Competitive Advantages
Customer-First Policies
First to create Return Policy for non-faulty
products
Free-delivery nation-wide and free product-
showcasing at home
Bonus schemes that are obsessively tied to
customers satisfaction
All Policies Reflect Customer-First Focus
Source: http://mwg.vn/eng/shareholders-news/
Customer-First Policies
First to create return policy for non-faulty products:
thegioididong.com and dienmay.com are the first retail
chains to allow customers to return non-faulty
products if they change their minds after purchase.
As expected, other retailers (e.g. VienThongA,
FPTShop) soon followed.
Free-delivery nation-wide and free product-showcasing
at home:
Free product delivery nationwide
MWG fulfils requests to hand-test different models of
mobile phones at their homes prior to final purchase
decisions even if no final purchases are made
Bonus schemes that are obsessively tied to customers
satisfaction:
Monthly Sales Bonus: Equal weightage given to both
sales volumes (30%) and customer satisfactions (30%)
However, Bonus = 0 if an employee receives one
legitimate customer complaint during that month
Develop Customer Relationships
Mobile World Key Competitive Advantages
Competitive Advantages
Brand Reputation
Large, modern, and well stocked stores with
high quality products
Staff are knowledgeable about the latest
products with additional services provided
Differentiation from M&P Stores
Omni-Channel Marketing
Integration of online and offline channels
All their stores reliably sold at the prices
advertised online
Detailed marketing and technical
information on electronic products online
Seamless Multichannel Experience
Source: http://mwg.vn/eng/shareholders-news/
Reputation & Omni-Channel Benefits
Risk Mitigation for First-Time Customers:
First-time buyers more likely to make in-store purchases
To them, buying a smart phone is identical to venturing
on a new journey, one that calls for physical
experimentation.
Expanding Middle Class majority of smart-phones
purchases in the short-run will be by first-time buyers.
Mitigate Low-Quality Fears:
Customers in Vietnam are particularly worried about
purchasing electronics whose original components had
been swapped out with low-quality counterparts.
If convenience allows, they prefer to buy mobile phones
from reputable retailing chains who offer product
warranties and refund/replacement policies.
Omnichannel Marketing Increases Customer Satisfaction:
Volatile demand + currency fluctuations
Digital price tags are centrally updated twice a day and
linked to the website and retail stores
Customers order by inputting their phone number
Within 30 minutes, they get a call and MW sends a
courier to deliver the phone and collect the money
Differentiation from e-com/M&P
Source: http://www.reuters.com/article/us-vietnam-economy-idUSTRE70C0W420110113
MWG Key Competitive Advantages
MWGs Competitive Advantages
Aggressive Expansion
Aggressive but well-executed expansion plans
e.g. opening stores in affordable but high-
traffic locations, with minimal debt
Not Easily Copied by Rival Chains
Vietnams central bank sent out strict instructions for all banks
to significantly curtail their lending, especially to the private
sector
Source: http://mwg.vn/eng/shareholders-news/
Operational Excellence Benefits
Same Store Sales Growth (SSSG) = 15%, Net Revenue
Growth = 80%
Opening new stores to ensure increasing profits but not
reducing benefits is a key for success.
In case store could not generate positive EBITDA after a
certain period of operating stably, it must be closed.
thegioididong.com = 3 months
dienmayxanh.com = 12 months
Decision based on population density, visitor number,
etc. Reward policy for regional directors depends on
each stores performance.
Ability to leverage on its retail platform and retail
management expertise to expand into other formats
BachhoaXANH scheduled for 2017 nation-wide rollout
Selling fresh foods and professional services
MWG aiming to restructure fragmented markets
Economies of Scale
Operational advantages in inventory management (ERP
System) and purchase strategy (negotiation and in bulk)
Out-grow the Competition!
Mobile World - Summary

Current Market Opportunities

Mom-and-pop stores market share:
Branded mobile phones - 42%
Branded consumer electronics 52.5%
Having a strong brand reputation and growing
market presence = Opportunity to consolidate
fragmented market + potential to change
consumer purchase patterns

Opportunity to capture growing MAC by

Expanding Middle and Affluent Class
mitigating purchase risk for first-time buyers
(MAC) 33 million by 2020
through customer service and retail policies

Increasing Internet Penetration Retailers like Mobile World many offline

(from 0.3% in 2000 to projected 51.5% of customers have huge opportunities for growth
population by 2016) through Omni-Channel Marketing

Enhancing
MW is well positioned to capture substantially more market
Competitive
share in Vietnams technical consumer goods retailing industry
Advantages
 Question 4

What are the main risks Freund must keep in mind

and what can he do to mitigate them?
Mekong Capital Risks
Risks Mekongs Mitigation

Foreign investment in many businesses is constrained by Bringing in management level

sector-specific laws regarding foreign ownership threshold, talent and training to develop
CORRUPTION, min. investment requirement, market access, restrictions on leadership capabilities in Mekong
E land ownership and conflicting regulations on land use Capital employees
BUREAUCRACY & Weak legal framework regulating PE investments creates Ensure that Mekong Capital
REGULATORY uncertainty and bureaucracy in regulating funds for FDI representatives were competent
LIMITATION creates higher risks (incl. FX Risk) for foreign investors and empowered to work directly
Tax Treatment currently more favourable for listed stock with portfolio companies to make
transactions key strategic decisions

Shortage of well trained high-level managers in local

P
WEAK companies, where they are still reluctant to hire overseas
MANAGEMENT experts as managers Corporate Governance and
Lack of information transparency and differences in Financial Planning Capabilities are
& DIFFERENCES valuation expectations (especially in SOE assets to avoid two areas where Mekong Capital
IN being charged with destroyed state wealth, a criminal can add value and
offence, are the most critical issues in making deals may professionalize Mobile World
EXPECTATIONS lead to prolonged negotiations on the proper valuation

With a few exceptions, majority of local companies are too Collaborating to ensure minimal
LACK OF small in both size and scope to make them attractive targets debt despite aggressive store
F for PE investors, especially overseas investors expansion (given macro
TARGETS WITH Despite high Interest Rates, Vietnamese entrepreneurs are conditions)
RIGHT SCOPE more willing to take loans than giving up equity to finance 1. Must be profitable within a
AND SIZE their businesses, which might be driven by a cultural certain period of time
preference to hold on to equity ownership and decision 2. Director reward policy based
making rights on store performance

Source: http://www.reddal.com/site/assets/files/2125/reddal-roleofvcpeforeconomicdevofiran-workshop-iramot-v17-161208.pdf
Mekong Capital Risks

Henisz (2000) argues that choosing a minority-owned venture increases the chances of
contractual hazards because it means greater need for negotiation with local partners.
Q&A

What could Mekong Capital meaningfully do to change the still quite difficult external
environment conditions?

Could Mekong Capital, a foreign PE firm, somehow find a way to smooth relations
between the feuding MobileWorld founders and get them behind a common focus on
company goals?

Given its own lack of industry-specific specialization, what competitive advantages,

beyond the capital it had already supplied, could Mekong Capital bring to the table to
reignite rapid growth of this domestically-oriented business? Or was it time for Chris to
quietly shift his attention to maximizing returns on the investments that Mekong Capital
had made after Vietnams market collapse?