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Restructuring of Vietnamese enterprises in face of new demands (*)
4/11/2013 21:35' Send Print

Enterprises have met with numerous difficulties

According to reports of the Ministry of Planning and Investment, and Ministry of Industry and Trade, key difficulties of Vietnamese enterprises in the current period include market shrinking which leads to increasing number of products in stock; high interest rate which results in limited access to loans; organizational structure of enterprises is outdated and slow to changes as compare to increasing impact of business environment. Many businesses have invested in other areas beyond their core business which lower their efficiency. Most of businesses are short of high quality human resources.

To assess current difficulties of businesses and the demand for restructure of businesses, the group of authors conducted a survey of 187 businesses in Ho Chi Minh city and adjacent provinces of which 70% were small and medium size enterprises, 22% were foreign-invested businesses and the remainder are state-owned businesses. Result of the survey showed that most them were facing difficulties. The most prominent constraint was lack of capital. 66% of them reported they were in need of capital for production and business. As domestic purchasing power has decreased remarkably, businesses’ sale has not been promising. 41% of businesses could not find domestic market for their products. The world economic crisis has affected domestic and international consumption markets. 20% of the surveyed businesses could not expand their export market thus their products remained in stock and their business was ineffective.

There are four main causes of businesses which do not have enough capital and cash for their production and business. These causes include: loans account for high percentage of businesses’ total capital. More than 70% of the surveyed businesses have loans three times higher than their own capital. More than 60% have difficulties in accessing loans. This leads to increasing short-term and long-term debts and difficulties in payment of loans and loan interest.

Difficulties in production lie mainly in increasing prices of input materials which account for 33% of the total investment. The increase of electricity and coal prices has resulted in increase of material prices which accounts for 23% of businesses’ investment. The increasing volume of unmarketable products has led to heightened production cost.

In domestic market, businesses are facing fierce competition with imported products due to unhealthy competition such as prices reduction.

For export businesses, it is most difficult to find consumers for market expansion. Next are limited export capacity, unstable export market, lack of export promotion and high transport fee. In addition, some export businesses have not yet established an effective supply chain. Most of their export products are contracted products without high added value.

Currently, management human resources are concerns and worries of businesses. There are several causes to these concerns. Among them are limited capacity of staff with only 25% of them have management experience and lack of middle and high level managers. Beside, constraints in salary and benefit policies also make it difficult to attract human resources. Policies on human resource attraction are not competitive enough to recruit and retain talents.

Apart from internal difficulties, businesses also met with obstacles in legal procedures due to frequent changes in economic and financial policies which have caused impacts on their business.

Businesses should rapidly restructure for development

Viet Nam has a large amount of medium and small enterprises which account for 95% of the total businesses of the whole country. Some of them are extremely small with family-style management and business. Under the impact of international economic integration, when the scale and areas of business of enterprises change, these old type of management, production and business have become constraints. Moreover, many enterprises are facing with difficulties mention-above, it is necessary to restructure themselves to stand firm in domestic market and extend to international market and develop in a sustainable way. This requires businesses to identify clearly their business direction, professional plans of production and distribution, strategy and plans for foreign market outreach and gradual participation in global value chain.

While restructuring businesses, the following points of view should be strictly adhered to. First, businesses of all economic sectors, especially of State sector (1) should be restructured to improve business effectiveness and contribute to economic development. Second, restructuring of business should be associated with restructure of the economy, renovation of growth model and macro-economic stability. Third, restructuring of business should contribute to enhance competitive capacity of enterprises in domestic and foreign markets and associated with deep integration of Viet Nam’s economy into international economy. Fourth, restructuring of business is a proactive process of each enterprise on the basis of reassessment of its potential and status to rearrange its production, distribution of product, investment in new technology, business administration scientifically and more effective business strategy. The State’s assistance to the process of restructure is indispensable.

Measures to be taken during the process of restructure

First, restructuring of business capital. This measure is implemented given the Government’s policies to capitalize on capital source with low cost, mobilize capital from different sources and quickly sell out unmarketable products.

Second, businesses should proactively change the way of business thinking and expand their products to the global market. To do so, businesses should reassess their plans of business to identify strong and weak points and develop their business strategies.

Third, increase of productivity and reduction of production cost. Beside, recruitment of high quality and regularly trained human resources will help enterprises stabilize their business and expand foreign market outreach. Government’s policies to assist enterprises to invest in renovation and modernization of equipment are extremely necessary in this stage.

Fourth, renovation of business administration and strengthening of partnership in production and business. Enterprises should proactively apply advanced administration models, rearrange management apparatus, identify responsibilities of subordinates and apply information technology in administration. Effective distribution system administration should accompany the system expansion. Forecast of market trends should be made for timely adjustment of business strategies. Horizontal and vertical partnership should be promoted to ensure availability of material area, distribution system and participation in the global value chain.

Fifth, State-run enterprises continue to rearrange, renovate and enhance effectiveness to be aligned with the 6th Plenum of the 11th Party Central Committee. Investment in other sectors and branches outside core business area and competence by State-run enterprises, economic groups and corporations. Business operation and status should be transparent. Inspection and control by concerned organizations should be strengthened. Those corporation and groups which continue to invest outside core areas should be punished. Equitization of state-run businesses should be stepped up.

The process of restructuring needs assistance from the Government in terms of policies and mechanism including policy on reduction of loan interest rate, Enterprise Income Tax and Value Added Tax, none increase of fees on production costs and consideration of case by case to write off loans of enterprises so that they can continue to ask for loans in effectives projects.

By implementing the Enterprise Law, the State has created equal business environment for all enterprises by promoting administration reform to minimize troublesome procedures, and harassment of businesses and effectively prevent corruption. It is necessary to facilitate equal access to capital of all enterprises provided that their business projects are effective and meet the demands of economic development.

There is also the need to have a system of control and monitoring of investment and high value procurement of state-run enterprises to prevent irresponsible purchase that cause serious consequences./.

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(*) Except from Communist Review, Issue No 851 (September 2013)

(1) Document of the 3rd Plenum of the 11th Party Central Committee, National Political Publishing House-Truth, Ha Noi, 2011, p. 24

Nguyen Dong Phong*Bui Thanh Trang** * Prof., Ph.D., President, University of Economics, Ho Chi Minh city ** Ph.D., University of Enconomics, Ho Chi Minh city