Vietnamese Businesses: Solutions for Efficiency

 

According to statistics, State-owned businesses account for a big share in the economy (nearly 40 per cent of GDP, over 50 per cent of the total annual capital of social investment). State-owned businesses are operating in key sectors and most important fields of the country’s economy. According to Assistant Professor and Doctor Tran Dinh Thien, vice director of the institute of Vietnam economics, State-owned businesses are dropping in number and rising in size, thanks to restructuring into corporations, mother companies and groups. However, the rise in size has yet to be accompanied by real growth in competitiveness and efficiency. Basically, the “growing up” of some State-owned businesses is a result of mechanical mergers setting up corporations, mother companies or groups from separate and mostly weak units.

 

Investigations of some leading Vietnamese businesses, conducted by CIEM and JICA, show that Vietnamese business technology is older than the world average. According to the investigation of the Ministry of Science and Technology, only businesses operating in the fields of electricity, electronics assembly, fabric production, textile, installment and building materials use up to date or average technologies. Most of the remaining businesses use equipment and technologies 10-30 years outdated, especially in the field of mechanics.

 

Therefore, the competitiveness of Vietnamese products is low. The price of some items such as iron, steel, fertiliser, cement and building glass is 20-40 per cent higher than similar imported items. “State-owned business, supported in many fields, have stronger financial capability and newer equipment and technologies compared to private businesses, but still can serve as an example of overall weakness,” Mr Thien said.

 

According to the State Audit of Vietnam’s report in August 2006, many State-owned businesses have poor business performance and even operate at a loss. Of 19 audited businesses in 2004, four lost VND 124 billion in 2004; 11 businesses lost a total of VND 1,058 billion as of late 2004.

 

“At the moment, the leading role of State owned businesses cannot be denied in Vietnam’s economy. However, in spite of managing of huge social assets, their efficiency is low and job-generation capability is weak,” Mr Thien stressed. As viewed by Mr Thien, the business sector should operate in line with their main role (providing public goods). In principle, the sector is not allowed to enjoy special incentives, except incentives stipulated by law for production, provision of public goods and service. With their position, they are not entitled to enjoy more incentives, in contrast to market principles. 

Mr Thien also warned that State-owned businesses should invest in technology, train the labour force and apply advanced business management methods. Only by doing so will quality will be improved, labour productivity enhanced, and businesses performance improved. According to Mr Thien, this is compulsory, otherwise businesses will continue to lag behind in the process of integration.

 

Also as viewed by Mr Thien, the government should provide favourable conditions for and support State-owned businesses which partner with FDI and private businesses to help local businesses to expand their global network. This method has been successfully applied in other Asian economies, especially in Thailand, Malaysia and now in China.

 

According to a report on businesses, based on investigation results between 2001 and 2005, the number of businesses with capital below VND 200 billion (nearly US$13 million) accounts for 98.5 per cent. There are only 403 businesses with total capital over VND 500 billion (or US$31 million). Of these, State-owned businesses account for 50 per cent; private businesses, 13.9 per cent and FDI businesses, 35.7 per cent.