The decade-long disease of Vietnamese businesses
Part 2: Businesses rush to follow multi-field business model

VietNamNet Bridge – Making investment in many different business fields was once in fashion in Vietnam.




Anticipating the high risks of the multi-field business model, the government has told state owned conglomerates to withdraw money from non-core business fields to gather strength on the main sectors. However, it would take much time to do that.

Xuan Thanh from the Fulbright Economics Teaching Program has pointed out that the wrong decision to make investment in too many business fields is one of the reasons which have driven businesses to the current big difficulties.

According to Nguyen Nam Son, Managing Director of the Vietnam Capital Partners (VCP), an investment fund, the investments in multi fields were made by most enterprises. Especially, big enterprises poured capital into banks, securities companies and real estate projects, thus leading to the sharp increase of the enterprises of these kinds

“I believe that up to 90 percent of securities companies would have to shut down in two years, while only 5-7 companies would exist,” Son said.

Son cited the Saigon Securities Incorporated (SSI) and Sacombank Securities Company (SBS) as the examples to show the operation efficiency of securities companies.

SSI gathers its strength on its core business fields – risk management, stock trading, asset management, investment bank service – with its qualified analyzing staff, providing brokerage service to both institutional and individual investors. Meanwhile, SBS follows the opposite way.

As a result, SBS has incurred loss with the reported accumulative trillions of dong loss since the end of 2011. Meanwhile, the stock market decline has not seriously affected SSI.

The stories about Kinh Do sweets manufacturer and Vinamilk, a dairy producer, are another typical example. The former company once injected too much money in the real estate market, which has turned gloomy in the last few years. It is estimated that Kinh Do has invested 13 percent of its total assets in real estate projects.

The ROE index (return on equity) of Kinh Do Group is approximately 10 percent, the same as the 2007’s index. Meanwhile, the index of Vinamilk has increased by two folds since 2007.

Many factors have been cited to explain the wrong decision of making investment in multi fields.

Firstly, the boards of directors and the boards of management are not professional enough due to the lack of experience and knowledge.

Secondly, the managers of the enterprises could not draw up long term investment strategies, while they did not have sufficient knowledge about the business fields where they poured money to.

Son compared the board of directors of Singaporean Capital Land Company with the board of directors seen in most of the Vietnamese companies.

The leaders of Capital Land, from Chair to General Director, all are over 60 years old, who all have master degree or doctorate of economics. They spent many years working for global conglomerates such as Shell, Goldman Sachs, or Deutsche Bank.

Meanwhile, in Vietnam, a lot of the members of the board of directors are young, aged 32 on average, who still do not have working experiences. Especially, they graduate the schools which do not have any relations relating to finance and business, and they take the CEO position just because they have good relations with high ranking leaders.

With the immature management apparatus, it is understandable why businesses could not draw up long term (5-10 year) business strategy to follow. In general, business leaders can only compile short term (one year) plan.

Compiled by C. V

 
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