February 26, 2010
IDG Ventures and CyWorld Visits
Our second day of Vietnam business visits started with Cyworld and IDG Ventures. We met with Michael, the CFO of Cyworld who gave us a brief overview of the company. Cyworld is a Korean based social network company that launched in Vietnam in 2007. In Korea, Cyworld contains 90% of the social networking market share and is the main social network in Vietnam now. Facebook and Myspace are not popular in Korea or Vietnam, making the competition less for Cyworld on a global scale. Michael did mention that Cyworld has a few local competitors however.
Cyworld currently has 1.8 million users of which most are female and college students. Cyworld's entry into Vietnam was successful partly due to the demographic of many people under 30 years of age. Additionally, the increasing use of mobile phones has helped with Cyworld's success. Today 80% of Cyworld usage is over a mobile device.
Cyworld's success is interesting and seems to come from the differences Cyworld has compared to the other large social networks. Prior to this meeting I did not realize the differences in social networks from country to country. Michael explained to us how cultural differences play an important role in the success of a social network. Cyworld has been successful in Vietnam because of the approach they took to addressing cultural differences. One way of doing this is in the meaning behind Cyworld. The word "cy" means relationships in Korean and Cyworld's focus is on real relationships and real friends. This approach is vastly different from Facebook in the U.S. where several Facebook users have "friends" that they do not know well. In order to register and set up an account with Cyworld you must use a real name and in Korea you have to have a government ID# to set up an account. This differs from Facebook in that regard, since anyone can sign up with any name of choice.
Cyworld's revenue model is build around micro-transactions and advertisements. Cyworld hosts several applications and games in which users buy things. We were curious how this took place knowing that Vietnam was not credit based. Micheal informed us that they were able to overcome this challenge by using cards of credit (pre-paid cards) and paypal to make the micro-transactions.
We also met with Thu Huong Duong, PR & Operations Director for IDG Ventures. Thu did an excellent job of explaining the opportunities and threats that exist in Vietnam and how IDG Ventures is able to assist new companies start up. IDG Ventures is the first and largest fund in Vietnam, of which Cyworld is included. Currently IDG Ventures has 5 funds and is managing $1 billion. Thu explained that IDG Ventures usually sees an ROI in 5-7 years and returns are 25-30%!
IDG Venture is also international and will continue to look for opportunity in various countries. In Vietnam, Thu explained there is opportunity in infrastructure, power plants, and online payments. In the near future IDG Ventures sees opportunity in education and medical portfolios.
Thu also explained some of the threats and challenges of business in Vietnam. Much like we learned from the U.S. Consulate meeting, the Vietnamese government poses a challenge with the numerous regulations and laws. There are strict internet and media laws that created challenges for Cyworld. IDG Ventures is able to work with the government on behalf of the clients in their portfolios. For example, when the government wanted to ban on-line gaming in response to an increase in child crime, IDG was able to get the government to agree to place a limit on the amount of time children could play games on-line instead of a complete ban. This was a huge success for IDG and Cyworld, and allowed Cyworld to continue operating in their core competency of online gaming.
When IDG Ventures selects a company to invest in, they are careful to follow strict selection criteria to include:
- Strong Management
- Unique Product/Service
- Defensible Market Position
- Customer Focus
- Operational & Financial Best Practices
- Adaptability
Of the selection criteria listed about, IDG Ventures is most concerned about Strong Management and looks very closely at the management team they are investing in. They look for managers that are able to adapt to the Vietnam culture and have experience operating globally.
Vietnam War Museum
After the morning meetings John took us over to the Vietnam War Museum. The museum holds several war artifacts and U.S. military helicopters, tanks, and planes. The barbed wire containers in the photo below are "Tiger Cages" that prisoners were held in. It was hard for me to imagine someone being held captive in those conditions. The museum was from the perspective of the North Vietnam, which was interesting to read coming from the U.S. view of the war.
Lacquer Factory
John also took us to a lacquer factory where various types of decorative lacquer is made by locals. Plates, bowls, coasters, vases, jewelry boxes, and much more are hand made at the factory. We were given a short tour of the factory and saw how egg shells and mother of pearls are used to decorate the lacquer. At the end of the tour we had the chance to visit a gift shop and purchase lacquer to bring home with us. We were very impressed with the work and spent a lot of time browsing and shopping. Just about everyone made a purchase that afternoon.
Vietnamese locals making decorative lacquer
Ho Chi Minh Stock Exchange Visit
The last stop of the day and final residency business visit was with the Ho Chi Minh Stock Exchange (HOSE). Representatives from various departments at HOSE gave us a presentation on the overview of HOSE, it's market structure, and strategies for future development.
The structure of the Vietnam stock market is interesting. The Ministry of Finance (MOF) leads the State Securities Commission which manages the HOSE and the Ha Noi Stock Exchange (HNX), as well as the Vietnam Securities Depository (VSD). I found it interesting that Ho Chi Minh and Ha Noi have separate stock exchanges and the HOSE representatives commented that there is definite competition between HOSE and HNX.
In comparison to HKE which is well developed, HOSE is relatively new and was opened in July 2000 as the HoChiMinhCity Securities Trading Center (HoSTC). In 2007 HoSTC became HOSE and today HOSE has 17 MOU's wiht other countries to include the HKE. Naturally, due to the emerging development of HOSE and the overall Vietnam economy, the HOSE is operating on a much smaller scale than HKE is. However, like the HKE, HOSE primarily trades online, and while they do have a trading floor (shown below) very few transactions are done on the trading floor.
We also learned that like other stock exchanges, HOSE faces insider trading challenges and when cases are detected they are transferred to the State Security Commission for review. I was surprised to learn that only 2 cases of insider trading and 2 cases of manipulation have been detected thus far. I'm confident there are other cases that are most likely kept quiet within the government.
Free Night: Trung Nguyen Coffee Shop and Market visit
A few of us spent the remainder of the afternoon visiting a local coffee shop, Trung Nguyen, a recommendation from John. The Vietnamese coffee is very good, and one thing I noticed that was a contrast to the U.S., was that the Vietnamese sit down and take their time to enjoy a cup of coffee. While some people in the U.S. do this, most grab a cup on the go. We enjoyed spending a few minutes relaxing with a cup of Vietnamese coffee. During this experience I thought back to our International Marketing class and the Illy Cafe case we discussed. A key takeaway from that case was the success Illy experienced in Europe due to the cultural habits of taking time to sit and enjoy coffee. When Illy entered into the U.S. market they did not experience the same growth due to the U.S. fast paced coffee stop. In comparison, Vietnamese coffee habits are more inline with European and I actually spotted a few Illy coffee signs.
After the coffee break we headed over to the market and took a brief tour of the numerous aisles of "stuff". The market had several things to offer, and we purchased a few t-shirts, DVD's, bookmarks, and hats. Similar to Hong Kong, Vietnam is full of entrepreneurs!
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