VNRE –
Vietnam can’t boast many companies that compete overseas. Nguyen Quoc Khanh started one 20 years ago, and he now wins contracts from New York to Kiev.
It had been years since Nguyen Quoc Khanh uttered a word of French. Although he studied the language as a schoolboy at the French lycée in Dalat, before the fall of Saigon, he never imagined he’d have much use for it under Vietnam’s socialist regime. But when an electrician friend told him about a French banker who insisted on finding a French-speaking architect to renovate his new offices, he gave it his best shot. “I understood most of what he said, but the words didn’t come to me easily, so I just kept saying ‘Oui, oui; non, non; c’est possible,'” recalls Khanh, founder and chairman of AA Corp., Vietnam’s largest high-end interior-design company and furniture retailer.
His language skills, or at least his willingness to try, impressed the banker enough to give him the job, the first of a long string of interior-design contracts with foreign companies that were entering the country after years of economic isolation. This was during the late 1980s and early 1990s era of doi moi, or “renovation,” when Vietnam’s more open economic policies were attracting more foreign investment. In lockstep with these changes, Khanh started a renovation movement of a more literal kind. He knew foreign investors and diplomats would need improvements to the dusty and mildewed villas available to them as homes and offices, and he quickly became their go-to guy for interior design. “It was a great time,” says Khanh, who now speaks fluent French and English and a smattering of Russian and Mandarin. “We were so busy, and we were learning so much.”
Today AA dominates the domestic market for high-end interior design, consistently nabbing 80% of the contracts for four- and five-star hotels around the country, says Khanh. Most corporate offices and up market residences, shops, restaurants and country clubs bear the AA stamp. Over the past five years AA has also pushed for more global business, making its mark on hotels, resorts and residences from the InterContinental in Kiev, Ukraine to the Trump SoHo in New York. Khanh’s firm has completed dozens of five-star hotel projects in the Americas, the Middle East and Europe, as well as in Asia.
Khanh, 50, doesn’t have to go far for the business. Hotel contractors around the world seek him out on his home turf in Vietnam. GER Architectural Manufacturing, the custom woodworking contractor that oversaw the interior design for Trump SoHo, was doing an Asia-wide search for a more nimble and less costly production partner and turned to Vietnam. AA tends to be the first name that comes up on a search for interior-design firms in Vietnam, partly by reputation but also because of its initials, which stand for Advanced Architecture. “We didn’t know much English at the time, but that was one of our best decisions,” says Khanh, who started the company in 1990 in Ho Chi Minh City with two fellow architecture students who have since been bought out.
The connection with GER put AA on the radar in New York and led to more hotel projects, including the Standard and the Royalton. AA now has three similar partnerships with contractors and has completed 19 luxury hotel projects in 12 cities in the U.S.
Despite Khanh’s international success, his company is still small, with $35 million in sales last year. Business was hit by the global recession, which saw hotel construction drop 25% from its peak in 2008 in Asia-Pacific (outside of India and China), Europe and the U.S., according to research firm Lodging Econometrics ( EOMT.PK – news – people ). Profits margins of only 5% to 10% have also held the company back. AA is able to prosper through low operating costs. Labor is extremely cheap in Vietnam: AA pays 1,400 of its 2,000 workers an average of $150 a month, which is still well above the minimum wage. Only three positions are filled by expatriates. His wife helps with the business (the couple has two sons), designing lamps, cushion covers and other furnishings.
AA was partly financed by private equity firm Indochina Capital, which owned a 20% stake. But the fund has had to liquidate and Khanh is buying back the shares. “The standout story about AA is how Khanh navigated his way through the economic downturn by taking quick action,” says Stanley Vukmer, the fund’s former managing director, who oversaw the investment. He cites the company’s decision to focus more on regional markets less affected by the hotel slump, such as Asia and the Middle East, as evidence of AA’s strong management.
The strategy is already paying off. Sales are on track to grow 30% to $45 million this year. Khanh plans to list the company on the Vietnam stock market early next year, “if the markets aren’t too volatile,” he says. He aims to raise enough capital to expand his production capacity and boost his retail furniture business. His factory in Long An Province, about 45 minutes from Ho Chi Minh City, uses only 60% of his land. He hopes more volume will bring bigger profit margins and turn AA into a $100 million company in the next three to four years.
Khanh is betting that much of that volume will come from the domestic market and that half of future revenue will come from furniture sales. It’s a gamble in such a small market, but urban Vietnam’s appetite for luxury goods is strong and growing. Retail sales rose 18.6% last year, to $65.7 billion, according to the government. Of course the pool of people able to afford big-ticket items is still limited. “Domestic consumption is a no-brainer here,” says Dominic Scriven, chief executive of Dragon Capital. “But then, most of the population still collects rubber bands.”
Still, says Khanh, the Vietnamese will always order their spending priorities around their homes. “People here dream of building a home and filling it with beautiful things.”
Khanh has a history of making the right decisions at the right time. When doi moi began many Vietnamese feared the economic freedom wouldn’t last and that starting a business would somehow make them a target. Friends and family warned him it would be a big risk. He thought otherwise. “I figured, ‘Why not?’ I had nothing to lose.”
As an architecture student the last thing he expected to become was an entrepreneur. His parents, who ran a bakery and a housing construction business, left their son in the care of relatives when they moved to Saigon. They didn’t want him to follow in their footsteps. They wanted him to have the best education that Dalat, a prestigious academic town, could offer. Back then a professional degree and a secure position in government or at a state-owned enterprise was the one sure path to security and financial stability.
He was still studying architecture when he spied his first moneymaking opportunities. Under the communist system university graduates were farmed out to the government corporations that needed them most, but Khanh could still freelance. On the side he built small factories, constructed trade show stalls and designed lacquerware shops for Ho Chi Minh City’s burgeoning tourist trade. He and his partners founded AA with dreams of building all the new offices and hotels that the country would need. Then, in 1991, he took a trip to Singapore, his first outside the country. After one look at all those skyscrapers, “I knew we couldn’t compete.” It was then he decided to focus on interiors.
But those interiors would be as international in design as anything you could find in a Milan showroom. Khanh regularly recounts his French banker story to teach staff that the more languages they know, the better. The same goes for the language of design. Unless it’s what a client specifically requests, he tries to get away from that “Indochine” look–French art deco with Asian flourishes. He sends his designers to study all the new trends in the U.S. and Italy. “Westerners make things with Asian accents, so why shouldn’t Vietnamese do contemporary? When it comes to craftsmanship and design, we can compete with anyone.”
Reported by Samantha Marshall | Forbes Asia Magazine dated August 09, 2010
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