A strategy of striking at niche segments in the tourism and hospitality industry to become the leader in each turned the $2,000 Buffalo Tours into the hundred-million dollar Thien Minh Group.
On a Saturday morning, just like any other morning, on the ninth floor of an office building in Hanoi’s central Hoan Kiem district a middle-aged man with a touch of grey hair and a weather-beaten appearance works passionately. His office is full of light, with a panoramic view to his front and a crowded bookshelf to his back. He may not notice it himself, but the layout of his office says a lot about his success. Its glass walls not only allow him to see his staff but also allows them to see him. He is open and transparent to every employee, which are key characteristics in becoming a successful entrepreneur.
He is Mr Tran Trong Kien, CEO of the Thien Minh Group (TMG); a hundred-million dollar business and one of the leaders in Vietnam’s tourism and hospitality industry.
Best in segment
Incredibly, Mr Kien began the business at the age of 21 with a modest $2,000. That was in 1994 and at the time he had not even finished his studies at the Hanoi Medical University - something totally unrelated to doing business in tourism and hospitality. In the very first days of the start-up the company’s assets amounted to little more than a desk and a telephone that hardly ever rang. They were arduous and challenging times.
Explaining why he took the path to the travel business instead of following the medical profession, Mr Kien explained that he was born to an ordinary Vietnamese family with financial difficulties. “I don’t want to see my kids grow up lacking things, like I did,” he said. Financial difficulties, a passion for adventure travel and the bonanza of starting the business at the very moment the travel market opened up lie at the heart of the achievements of TMG over the last 20 years. But that’s only part of the story.
Entering the market with his modest $2,000 in hand and facing experienced competitors who had successfully created firm footholds, “being different” became the only way for Mr Kien’s Buffalo Tours (now within the TMG portfolio) to survive back then. While most other tour operators simply provided sightseeing tours, Buffalo Tours became a pioneer by introducing adventure tourism and quickly attracted a healthy number of foreign customers. “I wasn’t selling a tour,” Mr Kien remembers, “I was selling an experience.”
Choosing adventure tourism along with cultural exchange and community tours, Buffalo Tours productively put Vietnam’s natural history and culture to good use. In the early 2000s many may have mistaken Buffalo Tours for a foreign tour operator because of its eye-catching appearance and professional services. After some time settling down and gaining stability, the company had a clear orientation: targeting foreigners with money to spend.
While other tour operators were offering similar products to customers from all over the world, Buffalo Tours carried out extremely detailed research and came up with a range of new product lines. According to Mr Kien, the concept of adventure tour varies. American tourists are willing to pay $500 to $800 for a tour, seeing it as a high-class service. Australians, meanwhile, are willing to pay no more than $100, as they consider such tours as being fun yet affordable. The company’s tours were then designed based on the particular psychology of each customer segment.
With relentless effort, Buffalo Tours is now present in a number of countries and most of its agencies are experiencing solid growth. It’s recognised as the leading adventure tour company in Vietnam and in Southeast Asia, with steady growth of 20 to 40 per cent annually. “TMG may not be the biggest but it must be the best in each segment and each niche market that it competes in,” was the company credo back in the early days and it still holds true today.
M&A the way
Besides operating tours, the hotel business is a key part of TMG’s portfolio. In 2011 it implemented a $45 million acquisition of EEM Victoria (Hong Kong) Limited’s six Victoria hotels in different provinces throughout Vietnam. At the same time it also opened the Xiengthong Place Hotel in Luang Prabang in Laos. To complete the deals TMG received support from foreign financial institutions, including the International Finance Corporation (IFC), the World Bank’s private lending arm that finances and provides advice to private sector ventures and projects in developing countries, which provided a $12 million loan. It remains one of the biggest deals ever in Vietnam’s tourism and hospitality industry.
After the acquisition it took TMG more than a year to stabilise the operations of the Victoria hotel chain and it even had to invest an additional $2.5 million on improving room capacity, human resources, and technology, and conducting advertising and marketing activities. The hotel chain had now doubled its EBITDA (earnings before interest, taxes, depreciation and amortisation) compared to pre-acquisition. “Buying a chain of hotels is easier than building new ones, and the results to date are within our forecasts,” Mr Kien said.
Some believed TMG had made an error of judgement in deciding to make the 100 per cent acquisition at that time, as the global economy was in decline and tourist numbers had slumped. But seizing opportunities at a time of crisis differentiates TMG from its competitors and created solid foundations for its development. The hotel chain permits TMG to cater to more than 250,000 visitors (both foreign and local) each year and generates remarkable revenue of over VND1,400 billion ($70 million) annually.
Mr Kien believes that new hotels and new services should be introduced every two or three years. With favourable business results, the $12 million IFC loan will be repaid soon and TMG has confidently spent $32 million on the acquisition of two four-star hotels and three three-star hotels in Vietnam and Laos, raising its hotel numbers to 13.
The revenue generated by the hotel portfolio accounts for only 35 per cent of the group’s total but 65 per cent of its profits. That it was the right move for the board of directors to take is beyond question. Looking back on the development of TMG, since 2003 transparency and ISO standardisation in risk management and systems operations have been applied to the fullest and represent a sustainable advantage for TMG in any M&A deals to come.
In addition to tours and hotels, its online booking service at iVIVU.com is considered the group’s third pillar. There are approximately 200,000 hotels with services to promote online but only 400 or 500 at most are capable of doing so alone. This was a significant opportunity that TMG didn’t waste, introducing iVIVU.com in August 2011 as a joint venture between itself and Wotif.com - the Australian’s international booking system with more than 1,600 hotel partners in Vietnam and 30,000 globally.
Just three years in and iVIVU.com occupies some 7 per cent of the Vietnam market, exceeding the results of many of its competitors. While it’s still too early for a full business efficiency evaluation, iVIVU.com is expected to increase its market share to over 20 per cent with turnover in the several millions of dollars annually within the next three years and will then start turning a profit.
To increase added value to the group as regards transport, TMG also has 12 high-end sailing vessels (all branded Victoria Cruise). Tourists are not only able to visit the Mekong Delta during the day but can also spend the night on board. TMG also recently spent nearly $3 million on acquiring an 89 per cent stake in Hai Au Airlines, a licensed private Vietnamese airline, which will allow it to conduct domestic sightseeing flight on routes such as Hanoi to Ha Long Bay and Ho Chi Minh City to Phan Thiet or Ho Tram using seaplanes.
While not denying the importance of organic growth, Mr Kien also realised the necessity of incorporating resources in the early 2000s. He learned what he could about M&As and added value strategies from international corporations at a time when such concepts were scarcely heard of in Vietnam. “We are not looking for cash but for sustainable profit in the long term,” he said.
Mr Tran Trong Kien, CEO of TMG shared with VET
With Vietnam’s tourism and hospitality industry recording average annual growth of just 10 to 15 per cent, how has TMG managed to grow at 20 per cent each year?
The 10 to 15 per cent figure is for the industry as a whole. TMG is only involved in certain segments and most of these grow at a much higher rate than the average. Adventure tours are triple the average growth rate and our hotel portfolio is double. So choosing the right segment to compete in and the significant efforts we make to become segment leader are the two main factors in our notable achievements.
Of the two segments you mentioned, which is the major segment for TMG in the future?
The hotel segment accounts for a modest 35 per cent of the group’s revenue but 65 per cent of its profit. The segment with noteworthy growth opportunities is adventure tours, especially when the rate of return (ROE) is much higher.
What lies behind TMG’s vision?
At TMG we are learning constantly. Vietnam is now open and the line between domestic and foreign enterprises is fading. TMG prefers young talent and foreign staff. We even insist on an English-speaking environment so that we can exchange cultures and better absorb the professional style of foreigners. Last but not least, the balance of power is bridged, so that the CEO may make the decisions but employees are encouraged to voice their opinions. I listen carefully to what they have to say.
What is the latest on your seaplane plans?
TMG will receive two brand-new 12-seat Cessna Grand Caravan 208B EX seaplanes on May 26, which we have paid for in full. The two seaplanes will arrive in Vietnam in July and be ready for take-off in August. Pilots have already been recruited. We have also placed a deposit on a third seaplane, which we expect to be delivered in December.