Trends in Vietnam Enterprise Restructuring

11:30:58 PM | 4/4/2011

The Vietnamese Business Annual Report was first carried out by the Business Development Institute under the Vietnam Chamber of Commerce and Industry (VCCI)) in 2006. It is among important documents to help people understand more about Vietnamese enterprises’ development every year. According to the 2010 report entitled “Some trends in Vietnamese enterprise restructuring,” Vietnamese business environment has increased by 10 steps against 2009, standing at the 78th among 183 countries and territories and the 4th among 10 economies with the most favourable business environment. The report draws some major contents during the business restructure process as well as the development of Vietnamese companies in the current time.
Restructuring Vietnamese companies at post-crisis period
In the current structure of Vietnamese companies, the ratio of private firms accounts for over 95%. However, the scale of non-state companies is still modest in terms of both capital and labourer number compared to other economic sectors. Recently, non-state firms have posted higher growth in asset scale, particularly business efficiency, than state-owned ones.
Due to bad impacts of the global economic downturn, non-state firms tend to move to sectors which require labourers’ higher capacity such as post and telecom, science-technology, education and training, administrative and business supporting services and real estate. Meanwhile, financial and banking sectors, engineering, metallurgy, manufacturing, processing, transport and warehouse services see the lowest rise in labourer numbers. They are new sectors which make up a small ratio in the labour structure among private companies.
For state-owned companies, the process of business rearrangement and reform has been implemented since 2001. Last year, for state-owned enterprises, a new method of rearrangement is through Debt and Assets Trading Company (DATC) under the Ministry of Finance. Through this activity, many state-owned firms, which suffered from losses and lost all equity but do meet requirements for equitization, restructured into joint stock firms by DATC. Share listing is the last step during the corporate restructure process through debt and asset trading activities. By December 31, 2010, DATC had 34 businesses formed by transferring debts into contributed capital during the restructure process.
The report said, Vietnamese companies’ restructure process has seen positive changes, particularly in the private sector. For state-owned firms, it required separate management and ownership functions. This affirms that if the national economy operates in line with market rules, its economic sectors will also follow suit. The state role is creating opportunities for these sectors to have effective operations.
Establishment and development of economic groups
In reality, Vietnam has two kinds of economic groups: state-owned and private groups. Currently, the country has 12 state-owned economic groups and no official number of private economic ones has been released.
State-owned economic groups are set up under the prime minister’s decision and operate under the form of wholly state-owned one-member limited companies, focusing on a major area. Establishing private economic groups are decided by private firms through expanding their business activities.
Last year, the focus of restructuring among state-owned economic groups is major business activities; boosting equitization, cutting state ownership at a certain number of enterprises, raising operation efficiency of joint stock companies for being listed on stock markets in the region and the world. Others are preparing for equitising parent companies to diversify ownership form while ensuring the key role in the national economy; increasing groups’ charter capital based on re-assessing their assets in line with the market and particularly labour force structure goes together with the implementation of corporate administration.
For private economic groups, the restructure originates from enterprises’ real demand, particularly in the context of the world economic crisis. When growing into a certain economic model or the market is no longer suitable, owners and private economic groups will face difficulties in managing their business activities. This has created pressure for companies which carry out the restructure process entirely or partially as needed. One of the real problems is the connection of the restructuring process and the strategy to IPO or equitisation of private economic groups.
Vietnam now has legal regulations for the pilot implementation on state-owned enterprises. However, according to the report, the most important thing is a comprehensive policy for economic groups. The policy must be suitable for the local market and avoid failures that some countries have experienced.
The report added that “Restructuring businesses is a matter of concern in Vietnam. Vietnam has had opportunities to make use of both subjective and objective advantages to join the global and regional production chain. It is necessary for companies to restructure to improve labour productivity and better integrate into the world economy, laying the foundation for sustainable development.
Le Tam