Vietnamese enterprises shrink by half in 10 years

The Vietnam Chamber of Commerce and Industry’s (VCCI) research reveals a startling truth: the size of Vietnamese enterprises has shrunk by about half after ten years. The question is why did not they grow up? VietNamNet introduces the second part of the roundtable talks with economist Pham Chi Lan and expert Dau Anh Tuan, head of VCCI’s Legal Department.

Part 1: Why Vietnamese enterprises always wait for the state’s assistance

VietNamNet: When Vietnam prepared to join the WTO, many policy makers said that if Vietnamese are pushed into the water, they will know how to swim. If we keep discussing the challenges, Vietnam will miss the chance of integration. Probably, this concept still exists somewhere, so it turns out that we are talking about opportunities rather than challenges. 

Through Vietnam’s integration into international organizations before and now into the ASEAN Economic Community (AEC), what do you think about the ability to swim of Vietnamese enterprises once they are pushed into the water?

Dau Anh Tuan: I am not so pessimistic about the ability of Vietnamese businesses. If you look at the past time, the ability of Vietnamese businesses to manage is relatively good. But they just managed to survive. 

They were not active in making the plan of development for themselves. It seems that they are strong in managing by themselves only. That is what I find not too pessimistic about Vietnamese businesses. 

Over the past few years, there were some areas that seem to be very difficult to compete, such as added value on the Internet, which was completely new to Vietnamese businesses, but they adapted very well.

The thing I want to emphasize is that the thinking of many officials of letting our businesses to swim themselves is disturbing because businesses can swim, but in a healthy environment. 

Businesses must compete with others, but the state must also compete in a fair way. How can Vietnamese businesses compete when the tax procedures in other countries totals more than 100 hours while in our country it is 872 hours. 

How can they compete when customs clearance in other countries take a few hours and it is a few days in Vietnam? How can they compete when their unofficial fees are three to four times higher than that of other countries? Competition must be fair, and in the same environment, not in such a context.

Recently I have seen positive signals from the government, such as Resolution 19 that shows a different thought: accepting competition for administrative procedures in certain sectors that meet the criteria of ASEAN 6 and ASEAN4. 

That is very progressive. It can be said that Resolution 19 is a very different one from the previous resolutions. In the past, resolutions always used the general words like speeding up, promoting, while Resolution 19 sets the specific number of hours for the fulfillment of tax procedures, customs clearance and access to electricity... That is a very good sign and the business community also expect changes in practice. 

Clearly, the thinking of the government is different now. We believe that when the state creates a clean environment for businesses, they can swim well. And the state should not interfere in business activities. 

So the burden of institutional reform in the present context must be set first. It is pressure not only for businesses but also for state agencies.

Pham Chi Lan: I would say that the thought “one will be able to swim if he is thrown into the water” is just a saying. Because if you do not let people practice swimming before throwing them into the water, who will bear the risk? 

Vietnamese enterprises shrink by half in 10 years

Ms. Pham Chi Lan and VietNamNet's reporter.

It is not the way of the responsible person. When they pay taxes to support your work, your duty is to create conditions for these people to work, not to let them swim alone, without any responsibility. That approach is unacceptable and irresponsible.

Will Vietnamese businesses drown if they are thrown into water like that? I believe that the Vietnamese are good at managing themselves and can survive. It is not bad but it makes me feel anxious. 

Because according to the recent survey on the development of Vietnamese enterprises to the year 2035, I see an alarming reality: Most Vietnamese enterprises nowadays, especially the small and medium ones, only focus on making their living through doing business. 

It means that they only try to cling to business to earn their livelihood and their business is enough for them to survive, not to develop. Thus, they will be small forever.

A VCCI study reveals another startling fact: the size of Vietnamese enterprises shrank by half in ten years (2002-2012). 

It means that our enterprises are getting smaller while it would be normal for a business to go from super-small to small, from small to medium, from medium to relatively big, and then to really big. In fact, the scale of our enterprises got smaller, reduced by half in terms of labor. 

The capital increased, but if the factor of inflation is taken into account, the capital also fell. Many businesses reported their sales but in fact they did not earn revenue, so many of them died.

The phenomenon that the number of enterprises stopped operating continuously increasing over time is not the norm of market rejection. 

Under the rule of the market, it is normal to have 20,000-30,000 enterprises out of the market a year but it is abnormal as the number reached 6,000 to 7,000. 

Maybe businesses still manage to survive but that is a miserable existence and their scale gradually shrunk. 

In the upcoming storm of integration, when the huge enterprises of other countries penetrated our market, local firms will lose their foothold. The small firms will disappear.

Vietnamese enterprises shrink by half in 10 years

Mr. Dau Anh Tuan

Of course, there are some businesses that grew, especially those in the private sector, to become big groups. 

However, it must be recognized that most of the large and growing firms are those who are attached to the real estate market, mineral mining or specific businesses they have acquired, not in the manufacturing sector. 

For a country wishing for industrialization, the key is the development of the manufacturing industry, not in the trade of commodity. 

That kind of business yields revenues but it does not bring about actual added value. That’s worrying!

There are a number of local firms growing up by other ways, including in the field of technology, but that number is too small in the broader community of Vietnamese businesses. 

We may fall into the circumstance like it is in some countries: there are two sectors of businesses – the first sector with a majority of businesses that are backward and cannot grow and the second sector with a small number of businesses that reach the advanced level. 

In one economy with two separate parts of business that way, it is certainly not a long-term development path. 

That’s what make me worried about the future time of integration because the upcoming time will be more challenging than the time we entered ASEAN or WTO.

At the time we joined WTO, we thought that we had gone out to the high seas but actually we did not swim far from the mainland. But this time integration is in a much wider framework. 

Even for the ASEAN Economic Community, the level of integration is much higher than the time we entered ASEAN or AFTA 20 years ago. 

Nowadays the difference and competition are more fierce, so we cannot say that our businesses will be able to swim if they are thrown into the water. They had to struggle to survive in small streams before so how will they be if they are pushed into the ocean now?

In my opinion, it should be said very seriously that preparation is required. Without careful preparation, you should not jump into the water because the chance of drowning can be very high.

VietNamNet: According to researcher Nguyen Chi Lan, the disappearance of a large number of enterprises in recent time is unusual, not a normal phenomenon. But in general not many people think that this number is alarming. What do you think about this fact, Mr. Dau Anh Tuan?

Dau Anh Tuan: Businesses are similar to human beings. They are born and they also die. It is the same in other countries, only a certain percentage of businesses remain in the market.

Vietnamese enterprises shrink by half in 10 years

But it is alarming when the number of enterprises that are out of the market is huge. If the number of disappeared firms in two years is equivalent to the total number of ten years ago, it is really worrying. 

If they are out of the market because they are weak, because they have no business opportunity, it is normal. It is a problem if they disappear from the market because of the hurdles of administrative procedures. 

When so many businesses disappear, it will cause social consequences. In recent years, the business spirit in Vietnam has fallen. 

No one has commented on this, but through surveys we find that when the Enterprise Law 2000 was issued or at the time Vietnam joined the WTO in 2007, the business spirit was very high and businesses were very optimistic. But now that spirit is flat and people are no longer eager as before. On the whole, this is a worrying sign. 

Why people, especially young people, are discouraged in doing business? We have to seek measures to urge the young and those who have not much money to have the desire to get rich, to contribute to society. That’s good motivation but it is getting cooler.

The second danger signal, as Ms. Pham Chi Lan analyzed, is that the size of our businesses is getting smaller. It is okay if the size of businesses is small and corporate governance is good, but the question is why do they not grow? 

What hinders them from getting bigger? Is it because they lack business management skills so they are broken when they reach a certain scale or because of other barriers, such as the restriction of land ownership or administrative barriers? 

Some entrepreneurs told us that they had to silently do business and they did not dare to expand business for fear that if they get bigger, their businesses would be inspected frequently by state agencies. 

Also, many businesses are afraid of business security. Some of them plan to protect their assets by dividing their assets or to purchase assets abroad. It’s a worrying signal. 

The problem is that if businesses who identify Vietnam as just a place to make money, and their children are not attached to Vietnam, their assets are also not attached to Vietnam; it is a tragedy for the country. 

I think when businessmen live in this land, do business here, and they determine to develop their business here for 5, 10 or 100 years, it is a good thing. 

If they do business here but they are determined to live in another country, it cannot create a class of national business people who are attached to national development.

It must be said that our business community has experienced a hard time in recent years. According to the tax authorities, the rate of private enterprises which had profits was just over 30%, and the remaining 70% had losses. 

The recent time was an important test for private Vietnamese companies. Due to financial bubbles and real estate break-up, many people lost their property but it is a necessary warning step for enterprises, which urges them to focus on the core business, on production and service provision.

I also agree with Ms. Pham Chi Lan that in this context there are also many successful businesses because they found the opportunity. A friend of mine, who leads a  private firm, told me that he could not sleep because he saw many business opportunities that he only wanted to get up immediately to turn  ideas into reality. But unfortunately, such people are not many. 

The matter for Vietnam now is how to arouse the business spirit, so that people take money in the bank or in their safe boxes to invest in business. This is a healthy motive for developing the country. 

A country is rich if the private sector is active. It will not have a strong and stable economy if that country just relies on large projects of foreign investors. I have always believed that the private sector would be the most important driving force for the development of any economy.

VietNamNet: The picture is so chaotic. What can be done immediately to make positive changes?

Pham Chi Lan: Mr. Tuan referred to Resolution 19 issued by the Government, actually two resolutions released on 18/3/2014 and 12/3/2015. Both resolutions aim at improving business environment, improving the competitiveness of the Vietnamese economy. The issuance of the resolutions is timely. 

In previous years, the Prime Minister's new-year message often emphasized the removal of difficulties. Now, it has gone from the spirit of removing difficulties to the spirit of improving the business environment, facilitating business.

The matter now is how to do it. Last year we partly realized Resolution 19, such as reducing the time for fulfilling tax procedures from 872 hours to 350 hours and this year we are trying to further cut the time. The customs and electricity also made a number of improvements. 

But Resolution 19 addresses comprehensive issues of business, including technology support for enterprises, access to capital, land, the specific responsibility of each ministry, and local government. 

Last year we realized part of the resolution. This year’s resolution is expanded, with over 20 pages in the Prime Minister’s documents.

What worries me now is whether we have enough determination and enough powerful tools to do it? 

I wish the Government to put in place strong sanctions in those two resolutions, as these are close issues, with the competitiveness of the Vietnamese economy and the business environment, so that Vietnamese enterprises can develop. 

If we successfully implement the two resolutions, especially this year's resolutions, we can really have a better chance of integrating into the AEC. 

However, it must be straightforward to admit that progress has been focused only on some sectors, such as taxation, customs, electricity, import and export. If you look at the criteria of doing business, we are far behind many countries in the region. 

Even if we improve the criteria on the amount of time to fulfill tax procedures, customs clearance ... there is still a long way to go to have a really good business environment, which is favorable for businesses. T

here are so many things to do and the things to do must be specific, not general.

Resolution 19 also mentions the responsibilities of business associations like VCCI. These organizations also have to strengthen their role, which is assigned by the government to supervise the implementation and periodically report the results to the Prime Minister on the performance of the work of ministries and localities. 

We have no more time to wait because the issue of competitiveness is the key for businesses, while they rely heavily on the business environment decided by the State. 

The state here is not only the head of state but also all ministries, branches and localities involved, even to each of the civil servants. So we need someone to be responsible for the implementation of this resolution.

The last thing I want to say is that the Organization for Economic Co-operation and Development (OECD) has pointed out six decisive factors for doing business. 

The first is the framework of laws and policies of each country. The second factor is technology, research and development. 

The third factor is the competitiveness of enterprises. The fourth factor is the culture or whether the society supports business or not, the awareness of public servants, the sense of corporations about social responsibility. 

The fifth is the ability to access financial sources, which is also our weak point.

 It is difficult for businesses, especially in the private sector, to access finance. The sixth factor is the actual condition of the market.

If we look at our country, besides the factors associated with enterprises, the other five factors depend too much on policy, the framework that the state creates for this country. There must be tremendous efforts of the state so Vietnamese businesses can develop.

VietNamNet: What is the list of must-do tasks of Vietnam in the coming time, Mr. Tuan?

Dau Anh Tuan: I only have two messages for state agencies. Firstly, with state agencies, changes are good and they are going in the right direction, but it is more significant to make changes and practical reforms at all levels. 

Reform should aim at specific goals so that the people and businesses can benefit. For companies, integration into the AEC consists of both opportunities and challenges. Challenges often come immediately. 

For example, when we open our doors, we can see the effect of the opening immediately, while the opportunity is only visible when we meet certain conditions, i.e., we need certain time to invest in corporate administration and we must have sufficient institutional infrastructure created by the state.


Vietnamese enterprises shrink by half in 10 years