A business dispute between local retailers and a foreign investor may be headed for court. Huyen Thanh reports.
Eighty per cent of cosmetics in Vietnam are international cosmetics brands and Shiseido has been a popular brand among Vietnamese women for a number of years. Looking for brand growth in Vietnam, the Japanese cosmetics maker set up a sales subsidiary - Shiseido Cosmetics Vietnam (SCV) - in the country in January 2010, in response to greater consumer demand and as part of its three-year plan to become “a global player representing Asia with origins in Japan.”
To build Shiseido’s brand in the market, the company has sold its products to Vietnamese consumers via a local distributor since 1997, engaging the Thuy Loc Company (TL) as an importer and distributor. Together with TL, eleven other local investors put their capital into a business cooperation contract. Of Shiseido’s 28 stores nationwide, eleven received a 30 - 60 per cent capital contribution from these investors. With their thorough understanding of local tastes, the investors also made efforts to build up Shiseido’s brand for over ten years. The stores funded by the shareholders enjoyed an annual growth rate of 15 - 20 per cent. One of the shareholders, Ms Nguyen Thu Son from Ho Chi Minh City, said that the store in fashionable Dong Khoi Street earned a profit of more than VND492 million ($23,000) in the first half of 2008 when TL took responsibility for Shiseido’s brand in Vietnam.
But problems emerged when TL transferred management to SCV at the beginning of 2010. The shareholder-funded stores began to see major losses in the ensuing months. Shareholders at the Thuan Kieu Plaza store in Ho Chi Minh City only received VND12 million ($571) in profits in the first half of this year, compared to VND719 million ($34,000) in 2008. SCV explained that increases in shop rentals, input costs and falling revenues were the main culprits. Ms Son, though, believes that these additional costs can not fully account for such a fall in revenues.
Ms Dang Thi Thanh Huong, a representative of the investor group, said that since SCV took over the management role the stores have seen declining revenues while the overall business activities of SCV have been on the rise. Many promotional programmes were not applied throughout the whole system, but were only limited to some SCV-funded stores. “Many regular customers changed to other stores offering promotions, discounts and gifts,” said Ms Huong.
The local investors believed that SCV intended to create an unfair competitive environment that would lead to losses in their stores and make it easier for SCV to take them over. They contacted SCV’s representatives on a number of occasions this year, but the response to issues they raised at meetings between the three sides - SCV, TL and the investors - were unsatisfactory.
SCV’s inconsistent behaviour raised some doubts within local media after the Japanese General Director, Mr Tatsuki Nagao, admitted that TL’s partners had a relationship with SCV in a letter to TL and its partners. Subsequently, though, SCV’s legal representative, Mr Nguyen Thanh Duc, affirmed: “These partners only have a relationship with TL under a business cooperation contract. Shiseido does not manage the business activities at stores where TL’s partners have shares.”
SCV also showed their disregard by relocating the investors’ stores without any announcement, increasing costs or delaying interest payments for them. The local investors demand compensation of VND97 billion ($4.6 million) and have no belief in SCV. Mr Nagao denied compensation was being sought. “If we can’t come to a negotiated settlement, we will take the matter to court,” Ms Huong said.
Although TL has no role in the management of SCV, the company still holds associate responsibility with the investors to resolve the problem. Ms Hoai Anh, General Director of TL, was surprised by SCV’s behaviour. “SCV could have handled these issues a lot better,” she said.
Investing $42 million in a production facility on 100,000 sq m in Bien Hoa city, Dong Nai province, to supply products for all of Asia, Shiseido Japan expected to increase its sales in overseas markets but they actually declined, primarily because of the economic problems in the US and Europe and the appreciation of the Japanese yen against foreign currencies.
Mr Nguyen Thanh Tung, the legal representative for the local investors, said that if a settlement cannot be arrived at then a lawsuit would be lodged with the Ho Chi Minh City court. Compensation may be as much as $20 million. “Based on the evidence, the investors have a 90 per cent chance of winning,” he said.
SCV has refused to specify a time when it will reply to the investors’ concerns. The investors have already sent letters to the Embassy of Japan in Vietnam and relevant local agencies seeking “a thorough review of the case.”
Shiseido’s success in Vietnam can’t be denied, but SCV needs to act to resolve this matter to restore faith among local retailers and consumers about foreigners investing in Vietnam.
In 2010 SCV refused to buy the stakes of TL’s partners and only acquired TL’s rights to importing and distribution. But when the case became more complicated the general director of SCV decided to consider “ending the cooperation under the business cooperation contract as signed between TL and the partners”, in the most recent letter to the partners in November 2011.
The partners expect that SCV will buy out their stakes and pay compensation. Eleven of the 28 SCV stores may shut down because of falling revenues and the behaviour of SCV. SCV opening a fourth type of retail store under its investment licence is believed to be illegal. If it wishes to open more stores it must seek opinions from the Ministry of Industry and Trade and the Ho Chi Minh City People’s Committee. Under Document No 10337/BCT-KH, the Ministry has requested an explanation from SCV.