Should family corporations develop holding company model?

By Dang Hoa - Nov 22, 2017 | 07:54 AM GMT+7

TheLEADERExperts said that the holding company model is suitable for the growing family corporations in Vietnam.

Should family corporations develop holding company model?
Experts at the seminar on the holding company model held by CEO - Key to Success program

"The CEO - Key to Success" program estimated that family businesses account for more than 95 per cent of the total number of Vietnamese enterprises. These enterprises are growing strongly with mass production of subsidiaries.

However, Hoang Duc Hung, deputy general director of PwC Vietnam, said that a company expanding its business to many other fields with a large number of subsidiaries will lead to the overlapping ownership among the members of the company and among subsidiary companies. The trading areas of affiliates will be also overlapped, raising issues of governance, management and operation efficiency.

These issues force family businesses to reconsider their restructuring options to rearrange their ownership and business structures in a strategic and risk controlling way, seeking strategic partners and capital, enhancing transparency and professionalism as well as resource efficiency.

Hung said that the holding company model is suitable for home businesses in Vietnam. Holding companies essentially invest in a variety of securities in the form of assets. Holding companies are the most appropriate for large entities with diverse investments in various businesses and industries. A holding company means an entity that has no operating system and has no other purpose than holding valuable assets. Holding company’s main activities are doing executive oversight, supporting, setting risk management parameters, and putting the right people in the right places to align with its corporate strategy.

Currently, the holding company model has grown tremendously in many countries around the world. In Vietnam, the scale of businesses is expanding; the demands for multi-sectoral and multidisciplinary development and the connections among enterprises and shareholders are increasing. Besides, the risk management has become tougher. These factors have pushed many Vietnamese enterprises to develop the holding company model to optimize their operation.

However, Hung said that there is no real model of the holding company in Vietnam. In the holding company model, the parent company acts as a major shareholder in the subsidiaries, but it does not directly control the business. Nevertheless, many large corporations in Vietnam are just applying the mixed management model and still interfering too deeply in the activities of their subsidiaries.

At the seminar on the holding company model held by the CEO - Key to Success program on November 16 in Hanoi, experts said that the term “holding” is quite new and vague to many Vietnamese CEOs. Despite investing in a large range of companies, many CEOs are misunderstanding that their model is a holding company, while they dominate and interfere too deeply in the companies they invest.

Pham Dinh Doan, Chairman of Phu Thai Group, a distribution and retail group in Vietnam, said that the holding company model is likely an investment model. Specifically, holding company will invest in other companies and become the largest shareholder, but it will not have much intervention, which means that the subsidiaries will be more proactive, independent and self-operating.

Phu Thai Group, of which 100 per cent stake owned by Pham Dinh Doan, was established in 1993 and has developed the holding company model for nearly 10 years. The Group currently has six subsidiaries operating in various fields and having successfully expanded their joint ventures with strategic foreign partners.

However, Thai Quoc Minh, Chairman of VP Capital, said that Phu Thai is not a real holding company model as Pham Dinh Doan still has to regularly manage strategic activities in its subsidiaries.

Answering CEOs’ questions about the right time to develop the holding company model, Minh said that enterprises should only develop this model when their capital scale is out of control, when the family businesses are transferred to the next generation but lack management capacity and when the companies operate in different sectors.

Experts also emphasized that whether enterprises are holding companies or not depends greatly on the strategic direction of the head. Therefore, the holding company model can only really develop when businesses are willing to take a step back and trust and empower the heads of their subsidiaries who are excellent and have the vision to develop the company.