The holding company model, a managerial and organisational form used widely in most countries with a developed market economy, made its first steps in Vietnam last week, following the awarding of the first licence to the Japanese giant Matsushita Electric Industrial Co Ltd (MEI).
The licence paves the way for MEI to establish a wholly foreign-owned holding company in Vietnam as part of its strategy to expand operations and turn the country into a new manufacturing centre for Panasonic-branded products in Asia.
“Vietnam is a strategic location for us in terms of both manufacturing and marketing,” said MEI’s Corporate Management Division for Asia and Oceania executive director Tomio Kawabe at the awarding ceremony.
“MEI has groups of companies that are planning to invest in Vietnam,” he added.
Kawabe declined to elaborate on more details in the plans but said that moves will take place from October this year in northern Vietnam, and the new holding company will play a key role in maximising MEI’s investment efficiency in the country.
The establishment of Panasonic Vietnam Co. Ltd (PV), the holding company’s name, will enable Panasonic to integrate its existing management resources and thus facilitate the optimum allocation of investment in future projects, Kawabe said. PV will also handle marketing, sales, services and the export of locally manufactured products by MEI’s two existing ventures in Vietnam, as well as products imported from other Panasonic manufacturing companies worldwide.
However, the licence fails to grant PV the right to tax consolidation, one of the pivotal objectives of holding companies. If it is allowed to work as an internal treasury, the holding company would be able to consolidate the debts and profits of its subsidiaries and maximise tax consolidation between profitable and non-profitable activities.
A simple instance is that if one PV factory loses $150 million while another makes a profit of $350 million in a fiscal year, the holding company can then consolidate its losses and be only taxed on the $200 million combined profit.
Currently, Matsushita has invested in two enterprises in Vietnam. The first one is the Ho Chi Minh City-based $8-million Panasonic AVC Networks Vietnam – an audio and visual appliance manufacturing joint-venture set up in 1996, in which MEI holds 60 per cent of shares.
The second is Panasonic Home Appliances Vietnam, a wholly Matsushita-owned $23-million investment set up in Hanoi in 2003 to manufacture home appliance products. As two separate legal entities in Vietnam, the two ventures have had to develop individual sales, marketing, post sale services and management systems, which are viewed by Panasonic executives as quite complicated.
Once PV commences operations in October this year, the issues will be addressed and Matsushita will enjoy more flexibility and be able to respond quickly to the market.
Vice minister of the Ministry of Planning and Investment Nguyen Ngoc Phuc underscored the importance of the establishment of PV.
“We expect that the successful operation of the PV will provide good experience [for Vietnam] to complete a legal framework for the holding company model,” he said, pointing to the trial scheme of allowing private holding companies to operate in Vietnam.
So far, only state-owned enterprises have been allowed to develop this model, Phuc said. “Some [domestic] private businesses have applied for the establishment of holding companies but they are yet to be approved,” he explained.
He said that the lack of experience and an incomplete legal system were the main reasons behind the government’s cautious steps.
Phuc also stressed that the approval of PV’s establishment confirmed the Vietnamese Government’s commitment to diversify investment models for foreign investors and adapt the local legal system to international practices.