Vietnam - Performance of Foreign Firms In 2011

Although 2011 was difficult year for the Vietnamese economy, the performance of FIEs is noticeably better than in the first iteration of the PCI-FDI.

The median FIE in the PCI-FDI survey had gross revenue of 1.3 million, up 300,000 USdllar from the previous year, with the strongest increases experienced in manufacturing.

Of course, profitability measures should be treated with caution on a self-administered survey, but compared to 2010, there appears to be a substantial uptick in performance.

FIEs report profits equal to 22 percent of capital investment in 2011 - roughly twice last year's performance. Once again, the manufacturing sector stands out with profits equal to 25 percent of investment.

Interestingly, while business performance is improving, FIEs are actually becoming more pessimistic in their perceptions of performance. When we calculate firm performance based on their reported total revenue and expenditures, only 16 percent of firms experienced losses in the first three quarters of 2011 (compared to 20 percent in 2010).

However, when firms were asked to report their own performance, 22 percent listed their operations as loss-making. In short, the gap between calculated and self-reported performance is six times the size of 2010. (19.4 percent calculated vs. 19 percent selfreported).

The pessimism of FIEs carries over into their investment plans for the next two years, according to the Business Thermometer. Whereas in 2010, 66 percent of operations planned to expand their operations in Vietnam, this year, only 38 percent were as optimistic.

More puzzling still, pessimism was most pronounced among the relatively high-performing manufacturing sector (33 percent), compared to the under-performing service business.

Probing a bit further, the survey asked firms to speculate on what factors they perceived to be contributing to the performance. To do this, the researching team used a standard question asked on business environment surveys around the world.

Six percent of respondents credit general market conditions over other factors, which is high by international standards, but down from 70 percent in 2010. The decline likely reflects beliefs among some respondents that inflation is under greater control.

Once again, only about 10 percent of respondents believe their success or failure in Vietnam can be attributed to government policy and labour. managers receive the least credit for success or failure, cited by only 8.5 percent of respondents.

Wide discrepancies are obvious across sector. Manufacturers, the most pessimistic firms, are more likely to cite government policy and the ability of managers and owners.

Service sector operations ignore government and management entirely, and instead focus on labour and general market conditions.

Unsurprisingly, commodity producers in agriculture and natural resources are more heavily concerned with market conditions, due to the turbulent global economy.

The 866 FIEs (47 percent of sample) in industrial zones (IZs) hold marginally different views on the factors that affect their performance. They are more likely to credit government policy (3 percent) and hold market conditions responsible (65 percent) for their success or failure.

Alternative, they are slightly less likely to highlight manager acumen or the quality of labour. These small differences, however, are not robust to regression analysis, controlling for business sector or size.

CPV

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