Vietnam Semiconductor Investments with President Biden, Professional Learning White Space & Local Consumer Trends - E332

In this episode, Valerie Vu, Founder of Ansible Ventures, and Jeremy Au discuss three main topics:

1. Vietnam's Semiconductor Investment: Valerie and Jeremy shed light on the substantial investments pouring into the microchip space. They talked about President Biden’s recent visit to Vietnam, accompanied by senior executives from Intel, Google, and Amkor, which served as a catalyst for furthering ties and promoting investments between the two nations. They also discussed how the US is steering its capital toward this sector in Vietnam and highlighted the country’s potential to become a hub for microchip production and innovation. They explained the broader implications of these investments, suggesting that they are likely to create job opportunities, boost local economies, and position Vietnam as a significant player in the global semiconductor market.

2. Adult Learning Space in Vietnam: Valerie conveyed her frustration with the current state of adult education in the country, indicating a need for reform and innovation. While Vietnam is witnessing a surge in foreign direct investments, there's a looming skill gap among its adult population, potentially hindering the country's progress and adaptation to a rapidly evolving global marketplace. Despite this, she’s optimistic about the investments in this sector, which will reshape the adult learning landscape where they can easily access resources to enhance their skills, align with the nation's growth trajectory, and meet the demands of the global market.

3. Capital Investment & Consumer Trends: They discussed the $643M investment of South Korea’s conglomerate, Lotte, and its recent launch of a retail complex in Hanoi, signifying its pivot away from the Chinese market and a focus on Vietnam. Valerie explained Lotte’s familiar presence in Vietnam for years, with projects like Lotte West Lake having been in development for over a decade. Despite the significant investment, she observed that the shopping mall culture hasn't entirely resonated with the Vietnamese consumer base, which tends to prefer shophouses and street coffee outlets, signifying a cultural preference for value-for-money and localized shopping experiences.

They also delved into the welcoming approach of the Vietnamese government towards global tech giants like Facebook, Netflix, and Amazon, the competitive positioning of TikTok shop against Shopee, and whether Vietnam would follow Indonesia in enacting a TikTok Shop ban.

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(02:07) Jeremy Au:

Hey, Valerie, excited to have you again on our monthly show discussing all things Vietnam.

(02:12) Valerie Vu:

Hi, Jeremy. Excited to see you. And yeah, so happy to come back to a second Vietnam show.

(02:17) Jeremy Au:

Yeah. So what's interesting is that we were discussing and we were talking a lot about VNG last month and it turns out that VNG delayed its IPO, pretty much a second time in terms of the news experience. So what do you think about that, Valerie?

(02:31) Valerie Vu:

Yeah. So to be honest, I am not surprised because it's still not a favorable market condition for tech IPO. Even if you look at all the US companies' IPO recently, like Instacart or Klaviyo. It's even, they are bigger in terms of tractions, market share, the IPO have been facing issue as well. So I'm not too surprised that VNG decided to delay its IPO again.

(02:56) Jeremy Au:

Yeah. What's interesting is that listener left a message to say Hey, we were talking about the parallels between VNG and Tencent in terms of their growth strategy about starting from games into different businesses, but this person also said that we should also highlight the shared stock ownership as well. So I felt like I wanted to share some of these numbers which was a good flag. So, Tencent currently is the largest foreign shareholder owning 65 million class A shares, which is about 23% of the voting rights for VNG group. And not only that GIC, which is from Singapore has about 11.1%. Silita investments has about 6.9% and then Ant Group, which was once owned by Jack Ma from Alibaba has 5.7%. So I thought that was an interesting dynamic in terms of the ownership as of, honestly, it's just like a week ago, this news, so I thought it was interesting just to talk about it.

(03:46) Valerie Vu:

I mean, like looking at the cap table, you can clearly see VNG has a really international composition of investors and that's why the company direction is also getting to work to developing into a super app. So not only just game, but also a chat app. And now, they are investing and bringing a lot of money into the fintech strategy, which is the e-payment, e-wallet, developing their own trading platform as well. So they are taking a lot of learning from the global players like Ant Financials and Tencent. So if you look at the cap table, it can clearly see why VNG is sacrificing and burning a lot of money still into the FinTech arm. I think they have a lot of influence from the Chinese investor in the cap table, like Tencent or Ant Financial.

(04:30) Jeremy Au:

Yeah, I thought what was interesting was that, I got to dig deeper and I was actually surprised that how big a percentage the game business is of VNG. So obviously from outside Vietnam, who doesn't play any of these games, I always primarily look at VNG from all of these other businesses that we talked about in the last episode.

But it turns out that last year, the game business contributed 80% of the total revenue. And what was interesting was that almost half of that was effectively licensed games from Tencent as well as Kingsoft. And as a result, VNG paid about 26 million of royalties last year to Tencent. So I thought it was interesting to see that it's not just investment, but it's such a very deep relationship, especially on the game side.

(05:09) Valerie Vu:

So I actually visited the Tencent office back in August when I was in Hong Kong. They come visit VNG office quite often according to the person that I had meetings with. And it's interesting because they're kind of slowing down the investment activities in Vietnam right now because, as you aware of it, P&G has been one of the largest investment into Vietnam for Tencent and they're still holding on for and waiting for that IPO event to happen . So we are all watching out for when the market recover next year and welcome Tencent to come back and further big tech investment from China to back and kind of, share expertise into the tech ecosystem in Vietnam.

(05:48) Jeremy Au:

Yeah. And, I think what's going to happen is a lot of other tech startups continue to schedule reschedule IPO, continue to, fingers crossed. I hope that VNG successfully list in Vietnam because as we discussed last month, this is actually a really important pioneer to show that you can go public both on the legal front, but also from an economic front as well. So a lot of the ecosystem rides on them, pioneering and showing global funds that companies can go public from Vietnam as well.

On that note, I think there was a big visit from Joe Biden that you wanted to talk about.

(06:19) Valerie Vu:

Yeah. So, a month ago in um, President Joe Biden visited Vietnam which is a very historic site visit elevate US-vietnam relationship to I think the highest level which is comprehensive strategic partnership. So it's really showing the new page and the strong tie between Vietnam and the U. S. In terms of not just economy business trade but also political relations, humans, people, like education and training between the Vietnamese and the American and for sure, signaling more investment into the economy and in particular, the digital economy, STEM industry. So, I'm super excited from this events and expecting to see further developments into making Vietnam a more attractive destination for FDI and more attractive destination for a lot of talents to come back or to come to Vietnam and contribute.

(07:07) Jeremy Au:

Yeah, I thought it was interesting because the foreign minister for China, Wang Yi, also visited Vietnam the month before Biden came. So always interesting to see both the U. S and Chinese diplomats all going to Vietnam and making Vietnam part of their pit stops and trying to sell their respective points of view. That was interesting for the US side, especially was that Joe Biden was accompanied by senior executives from Google, from Intel, from Amkor, which is a counter Vietnamese partner for a lot of these businesses, as well as global foundries. So it's interesting because Intel has a $1.5 billion factory in Southern Vietnam for assembling, packaging, and testing microchips. Amkor is building a factory for semiconductor assembly and testing. Marvell was part of the group, which also does chip designing. Obviously, GlobalFoundries is also building chips. So a lot of microchips in this delegation.

(07:55) Valerie Vu:

Yeah, I think you're also missing Synopsys. They are also signing on a partnership with the second high tech park and planning to ship some of the design to Vietnam as well. So we can clearly see the team, the biggest team from this big partnership upgrade is to invest further into the semiconductor and chip manufacturing industry. However, if we look at the entire talent workforce in the chip design sectors in Vietnam, right now we only have about 5,000 chip design engineers. In fact, we need at least 20,000 to actually accompany for all the movement of this factory that all the company that we just mentioned to Vietnam.

So I think it's exciting that we are attracting so much new movement from the chip design and chip manufacturers to Vietnam. But we also face a lack of human workforce especially high skill talents. And if we look at like the actual number, vietnam's semiconductor export is just about 4 billion which is still behind a lot of major semiconductor exporters such as China, Japan Taiwan, Korea. So I think we need to increase and somehow attract more chip designer, engineers to Vietnam and also improve our productivity of labor which is still low comparing all the country in the APAC region.

(09:08) Jeremy Au:

Yeah, that's semiconductor exports. Vietnam's about 4 billion. So China's at 35 billion, then going descending order, Japan is 9.6, Malaysia is 8.7,, which I think a lot of people don't understand. Then you have Germany at 6.4 billion, then Taiwan at 5.5 billion, Singapore at 5.3 billion, US at 5 billion, Korea at 4. 9 billion, and then Vietnam for 4.2 billion. That was just a really interesting dynamic where adding two more ASEAN countries, Thailand's at 2.9 billion and Philippines is 2.2 billion. So it's actually quite interesting that there's so much microchip activity across Asia. It feels like the vast majority of chips exported is built in Asia and a good chunk of it is being built in Southeast Asia.

(09:50) Valerie Vu:

Yeah. So it's Asia or Northeast Asia like Korea, Japan, Taiwan.

(09:55) Jeremy Au:

Yeah. It's interesting because when you think about high tech, a lot of people are thinking about the U. S., but then you're thinking about chip manufacturing, semiconductors, then you're like, whoa, Southeast Asia is effectively, and Asia is effectively the vast majority of these exports. And I thought it was interesting as well that Biden, in his coming, he signed the act, an agreement that money from the Chips Act, which is a bipartisan policy to improve domestic US chip production. Some of that money is actually going to Vietnam to help train those engineers, the deficit you talked about, right?

The 20, 000 missing engineers. So that was really interesting because you have American money, the design for American production and manufacturing is going to Vietnam for education. I just thought it was an interesting dynamic.

(10:35) Valerie Vu:

Yeah. So Vietnam has the capability to design and produce our own chip, but we don't know if we can ramp up the quality fast enough fill the gap that China is producing chip in a very accelerated rate. And U. S. wants to diversify that supply chain and Vietnam is one of the largest candidate. So we have Viettel, which is our largest telecom company that is run by military and FPT Technology Corp., which is our largest publicly traded technology conglomerate in Vietnam. So those two announced that they were able to produce their own chips last year in the end of 2022. FPT even spin off in unit called FPT Semiconductor and they even have ambition to IPO in 2027, which is, I think it's very likely, if they are able to achieve a profitability because FPT has done it before. They had spin off the retail unit to FPT retail, and now it's like an independent ,publicly-traded company in the VN index.

So I think it's interesting if this spin off of FPT semiconductor proof that they can ramp up the quality of cheap to be on par with what us buyers are looking for. So, let's see.

(11:45) Jeremy Au:

Yeah, I think there's a lot of innovation because a lot of this, everybody's trying to design chips and research because of all these sanctions and everything. The big news of that, last month as well was like Huawei also innovated. They built a seven nanometer chip and then America was very unhappy because the whole point of sanctions was to prevent them from building a seven nanometer and it's been barely a year and Huawei's already have either engineered or reverse engineered the approach of how to do it. So the sanctions are not as potent, and in terms of stopping the R&D dynamic that US intended.

(12:16) Valerie Vu:

Yeah, that's right. I mean, especially the Chinese, they have been investing and developing their own technology for years. So I think any immediate sanction will not stop them from keeping R&D or keep innovating overnight. Yeah, this catalyst might shock them for a short period of time, but I'm sure they will always find a way diversify the supply chain or even spend some of the education and and training to the Vietnamese workforce as well. So, I think we are the biggest beneficiary of this global trade war or chip war.

(12:45) Jeremy Au:

Yeah, it's good because both Vietnam and Singapore have been benefiting as well. So, we talk about US investment, but we also have South Korea. Hana Micron, which is a Samsung supplier also is investing $1 billion in Vietnamese chip production. I think we're just seeing a lot of flows all around the place as well. I think GlobalFoundries also opened a $4B Singapore chip fabrication plants. So everybody's just trying to build as much chip fabrication, from the US perspective, anywhere but China, I guess, and if there are Chinese, obviously, they're also looking to build domestically.

(13:15) Valerie Vu:

Yeah. And I mean, because we are working with startups, they don't have billions or hundred millions US dollars to invest like this conglomerate. But I think this is a golden time for startup to tackle on this. opportunity I'm sure they're going to have to spend a lot of money into upskilling training the workers. So again, in the edtech event two months ago, I mentioned that I'm really interested in the edtech company that is building products for upskilling professional in Vietnamese language, because what's struggling right now is this global edtech company expanding to Vietnam. They don't have Vietnamese materials. So this golden opportunity for edtech in upskilling space.

And the second one I think AI or machine learning startups, if they can work with a solution that is serving the hardware, like the integrated circuits design and cutting the manual cost in terms of design by implementing their own machine learning or AI solution, I think will be really compelling for buyers like Viettel. So yeah, if there's any startup solving or looking in these two solution or to these two problems and willing to either move to Vietnam or have a team, have a local team in Vietnam who are willing, who are able to talk to Vietnamese enterprise of it a bit conglomerate and can sell this solution to Vietnamese enterprise, I would be really interested. And I think this is like golden opportunity for startups. Yeah, just want to add that in.

(14:40) Jeremy Au:

Yeah, I agree with you. And I think that's where I also met you a few months ago. That was a Singapore delegation organized by the Singapore Ministry of Foreign Affairs that was partnering with Vietnam on education, education tech. And there were a few folks that were focused, not just on the K-12 system, but also some of them more on the adult learning side as well. So what's interesting is that Vietnam is benefiting from this influx of capital, because like you said, it is a beneficiary of the global, friendshoring movement America is trying to push for. So people are trying to move to supply chains to accommodate, but it seems like there's a big gap on the human capital side, because you can pour in billions of dollars to build a plant, but then the truth is you pour billions of dollars into education. It takes years for people to learn and get there anyway, so that being said, a lot of people are in love with the Vietnamese education system. They've done well, obviously in math. And The Economist recently had a whole article on why the Vietnamese education system is amazing. So I guess when you read these articles you're like, Oh, Vietnamese education system is perfect. There's nothing else needs to be done. From your perspective as a local, what do you think is good about the vietnamese education system? And what parts do you think needs to change and get better?

(15:42) Valerie Vu:

Yeah, so I'm the product of the public education system. I've never gone to any private schooling myself. So the biggest advantage is the affordability of the public education system. I think my tuition back then was like a hundred dollars for a year or less. I can't remember, but I think less than a hundred dollars, maybe 50 or something. So too long ago. But the affordability, if you look at actual holistic development of a person is still kind of missing because every class is a bit packed with 50 or plus students. So that means a teacher cannot really spend time focusing on one child because she has 50 other kids worry about. And so the curriculum is also not optimized for every child development. It's very standardized, very textbook, theoretical focused as well. Lack of practical skill set, if you look at, let's say, language learning. The curriculum is more like on grammar and mostly on grammar and not focusing on actual communications, pronunciations, or, developing soft skill, critical thinking skill, et cetera.

I think the good thing is it's it's affordable. It kind of change the students on discipline. There's still some disadvantage, the largest one is lack of practical training. So not all students will go into university, field university, higher education, but we don't have the system that help in training the student who don't want to pursue higher education, but more like vocational training. That's why, that kind of resulted in why we still, for example, chip design engineers and maybe in terms of like language learning, we need more program that are actually focusing on communication skillsets or speaking skillset rather than just like grammar or writing.

(17:27) Jeremy Au:

Yeah, I think there's a company called Phonos that has been building for some of that adult learning perspective, more from an audio book version. So I thought it was interesting where this founder basically says, hey, what are people interested in? It turns out people are very interested in Vietnamese translations of books, like Rich Dad, Poor Dad, Seven Effective Habits, all these business self help books. And very hungry, right? Which is great to hear. Have you seen any other interesting startups that are looking to tackle this adult education space or lifelong learning?

(17:59) Valerie Vu:

Yes, I have, but I'm working on the m. Maybe we can discuss after.

(18:04) Jeremy Au:

It's like, it's a deal I'm doing. I don't want to, I don't want to talk about it.

(18:09) Valerie Vu:

Exactly.

(18:11) Jeremy Au:

Okay. Maybe next month or maybe in two months time, we'll come back to it. You'd be like, okay, three, three months ago I was playing, I was teasing you, Jeremy, about this amazing company that is doing adult learning and now I can finally talk about it.

(18:23) Valerie Vu:

Yeah. Yeah.

(18:25) Jeremy Au:

So I think another news as well, some interesting investments. So I think Bain Capital did their first deal ever in Vietnam. They invested 200 million in Masan group. Can you tell us about what Masan group is and what it does?

(18:40) Valerie Vu:

Yeah. So Masan is like number one condo made in Vietnam in terms of consumer, so you can see the products in literally every single house, Vietnamese household, even I have a couple of like fish sauce or chili sauce produced by Masan. So the main product is consumer package goods, but they have number one market share in Vietnam. So I think it's very exciting that this is the first investment. And then, it's not a surprise that they choose the number one consumer company, consumer conglomerate in Vietnam. And from my intel, the check size might be even more than 200 billion. It's main capital being one of the one of the top four largest private equity firm in the world.

They do have intention to even invest more than 200 million and we are super excited for this news. And for the record, Masan has a lot of other, make a public and private equity fund that invested in them as well. So Bain is not the first one, maybe not the first make up PE that has invested in Masan.

(19:37) Jeremy Au:

Yeah. So, TBG, the Abu Dhabi investment authority, GIC, which is a Singapore sovereign wealth fund, as well as Temasek backed C Town Holdings. Alibaba and SK Group, all our prior investors, actually previously worked with Bain Capital as a consultant at Bain and company. So we were working alongside the Bain team. So, kind of perspective on how they work and long story short is Bain capital people are really smart and really savvy investors. So I think it's really interesting to see how and what they're intending to do. Actually, I like this quote that Masan's CEO, Danny Le said. He said, "We aim to be a profitable multiplier in Vietnam's golden consumption era. Bain Capital's partnership is a strong validation of all the consumer centric investments and transformation we have made over the past 18 months to win 80% of the consumer wallet." And after I read this quote, I was like, so why do you need money if you have 80% of the consumer wallet? Because that's already a huge amount of market share. Obviously, I'm not sure how to define it as well, but I just thought it was an interesting quote that was very optimistic about what needs to be done.

(20:37) Valerie Vu:

They have big ambition. They want to be the part of living like one stop convenience shop for Vietnamese. So if the ambition is if I go to WinMart, which is the local supermarket chain owned by CrownX, which is a subsidiary of Masan, I will be able to buy everything, not just consumer goods, but also like if I need to buy medicines, they also have pharmacy store right there as well on Masan. If I need to get financing or banking needs, they would have a touch point of Techcombank, which is a local private bank that has really close relationship, close tie with Masan as well.

And if I want to have F&B, there's going to be like Phuc Lam which is a tea chain that was acquired by Masan last year. So the ambition is to become everything store of daily needs for Vietnamese person. So that's why they need a lot of capital because they have big ambition. Right now, they are number one in terms of market share for consumer good, but there are more elements into Vietnamese life that they are not yet number one.

(21:39) Jeremy Au:

Yeah, so I guess what they're trying to do is go from 80% of the consumer wallet to 100%.

(21:44) Valerie Vu:

A hundred percent.

(21:46) Jeremy Au:

Of the household wallet.

(21:47) Valerie Vu:

Yeah. Put it that way. Yeah.

(21:50) Jeremy Au:

I like it. It's catchy, right? I mean, I think big things in store for them. Like you said, CrownX is their biggest retail business. The evaluation was 8.2 billion in 2022 and Masan has a market cap of around 4.5 billion. So I think these are unicorns. Maybe people don't think about it as a startup unicorn, but these are definitely billion dollar companies that have been built over a significant period of time.

(22:10) Valerie Vu:

At least 30 years. Yeah. So they don't come across your mind as startup because it takes them years to develop and to be standing as of today. So they're conglomerate as well.

(22:21) Jeremy Au:

Yeah, and I think talking about other conglomerates I think South korea's Lotte opened up a retail complex in Hanoi on Friday. So they did a $643 million investment. Because they decided to withdraw from the Chinese market. And now, they're focused on building shopping malls in Vietnam. So I thought it was interesting to see the South korean conglomerate also moving to vietnam as well.

(22:42) Valerie Vu:

Lotte has been in Vietnam for a long time. The project Lotte Westlake been developed for over 10 years, so I think it's a bit delayed from their end to to eventually open the mall this year. So it's a bit delayed but Lotte has been one of the familiar names for a lot of Vietnamese households. I have never visited the mall itself, but my family is from the surrounding area of that mall. So I should visit the mall soon.

(23:08) Jeremy Au:

It's to go shopping for research.

(23:09) Valerie Vu:

Right, right. But in my point of view, vietnamese consumer prefer shopping at shop houses rather than malls. I'm not sure. So mall is still,

(23:19) Jeremy Au: Is that from your perspective? Just like cultural or legacy?

(23:21) Valerie Vu:

Yeah, I think mostly cultural because the department store that can't afford this shopping malls. Actually, they are not that affordable. And Vietnamese prefer value for their money. And yeah, they like to hang out in shop houses, in street coffees more than going to the mall. So a few days ago, I was, I was in a new mall in Ho Chi Minh City as well. And it's pretty empty. I still think fundamentally Vietnamese consumers are not mall-driven.

(23:47) Jeremy Au:

Interesting. What do you think they're driven by?

(23:48) Valerie Vu:

More shophouses. They like value for money. They like to eat in cheap, local coffee stores or restaurant and local brands.

(23:57) Jeremy Au:

Yeah, I'm just kind of curious, a month ago you shared about how you've been buying stuff in TikTok shop and you kind of like, by quite a bit there, I'm just kind of curious, first of all, did you buy anything else from TikTok shop over the past month? That's one. Over the past. And then two is, we saw that TikTok shop got banned in Indonesia effectively over the past month as well. So I'm just curious about your thoughts here.

(24:19) Valerie Vu:

Yeah, so it's only been a month, so I haven't bought anything new from TikTok shop. We also discussed that event in our own podcast. And our conclusion is I don't think our government will ban anyone. So we welcome anyone. That's the beauty of doing business in Vietnam. We welcome Facebook, Netflix, Google, amazon. And now we work on tikTok and TikTok shop. And TikTok shop has taken Lazada last last week or recently to become the second largest e commerce platform in Vietnam. So now they are neck to neck with Shopee. So I think we welcome international competitions. And I guess the local e commerce has been struggling go head to head with guys like Shopee or TikTok shop.

(25:00) Jeremy Au:

On that note, I'd love to slowly wrap things up. I think the three things that I took away from this conversation was that first of all, it was great to hear about Vietnam in terms of the context of semiconductors, Biden's visit and how there's a lot of investments are happening in the like microchip sphere especially in terms of building factories, as well as steering us capital into the sphere and lots of work there.

Secondly, it was interesting to talk about your frustration in terms of the adult learning space and also your excitement for your hopefully upcoming wonderful winning investment in this category, but helping Vietnamese workers and adults be able to upskill themselves because you need to catch up with a lot of this foreign direct investment.

Lastly, I thought it was interesting to talk a little bit about being capital investment as well. As Lotte's investments and all of the different investments that are being made, not just in microchips, but also in consumer goods and consumer spending as well. On that note, thank you so much Valerie for this month and see you next month.

(25:56) Valerie Vu: Thank you, Jeremy. And see you, everyone next month.