Background:
The Chiaphua Group (CHG) was founded in 1922 with the intention of becoming a metal stamping company. Located in Hong Kong, CHG quickly became one of the largest private companies with revenues over $1 billion dollars. Their main business unit is the Meyer Group that specializes in aluminum sheeting rolling and the production of kitchen utensils. Family plays a large role in the success of the CHG. The company is still overseen by 20+ Cheng family members in both fields of investment and management.
Problems with CHG:
The success of CHG was not without its challenges. One of these challenges can early on in their business when they were informed that a new law implemented meant that foreigners could no longer own or invest in land within Vietnam. As a result CHG was forced to refund their presales for the Legavilla project they had in the works. In order to recover their losses, CHG took a different approach and changed the project from condominium complexes to apartments. This was a cleaver option but meant that construction would now exceed the current budget leading for a need to find more financing.
The Asian currency crisis also led to issues for the company. The Saigon Tower was completed just shortly before the crisis. Fortunately there was still interest in the rental of the space, but the crisis meant that rent would be lower than previously thought. The crisis also contributed to cash flow problems in other projects as well.
In 2006 new law changes meant that groups could once again invest in Vietnam land interests, yet CHG was forced to remain competitive against some major players in the real estate business, primarily Taiwan’s Central Trading and Development Group (CT&D Group). Real estate investment in Vietnam was becoming a booming business causing CHG to rethink their investment strategies to change with the new changes both socially and economically in Vietnam. CHG is no longer one of the only major companies to have interests in Vietnam, they are quickly loosing business to their competitors.
Conclusion and Recommendations
In conclusion, it would seem that CHG should take better precautions in preparing for any future changes. Their inability to manifest hard market data is to their detriment. While interviews and onsite visits do give the Chengs a basic understanding of issues at hand, hard market data could paint a better picture of budget and financing concerns. Taking an active approach to better understand current social, political, and economic concerns both in Hong Kong and Vietnam is crucial to keep up with the changing pace of business. Currently it seems that Vietnam has made many policy changes that will benefit the CHG investing sector in the future, however if policies continue to change and economic political strife interferes with business, CHG might was to reconsider Vietnam and focus on Hong Kong ventures. Based on the projects outlined in the case study, it seems that the Hong Kong ventures were most profitable and in the highest demand. Growing competition in Vietnam could hinder their strategies going forward. Overall, had the Chengs been better prepared they may not have been faced with so many setbacks due to political and economic change. Hard market data might have prevented them from sustaining substancial loss on some of their projects.
Alternatives/Solutions Pros Cons
1. Hard market data /better understanding of finances /lack of practical experience
2. Develop financing strategies/ allows preparation for budget changes / it can be difficult to always accurate predict change and find investors
3. Avoid investing in Vietnam /would prevent policy changes in the country from effecting their business/ they would lose a lot of opportunities and cheaper labor/ production costs
