Vietnam - Businesses cut costs, restructure to survive global economic recession

Many enterprises have had to restructure debt, consider mergers and cut down on costs and product prices to improve their competitiveness in the economic downturn.

The economic recession has caused bankruptcies, closed operations and increased tax debts.

A Ministry of Finance report showed in the first quarter of this year there were more than 18,700 new registered businesses, 10 per cent lower than the same period last year. However, the number of firms ceasing operations matched the number of new ones.

The ministry reported 65 per cent of dissolved enterprises had been operating for only one or two years, meaning new firms had found the situation difficult.

The majority of businesses ceasing operations were in real estate and construction. Almost all businesses saw decreased turnover in the first three-month period compared with the same period last year.

Hanoi's Industry and Trade Department said firms had struggled with high interest rates, increased input prices, exchange rate fluctuations and difficulties accessing bank loans.

Businesses in key production sectors which used a large number of labourers - such as garment and textile, electronics and mechanics - had suffered a worker shortage.

Enterprises producing building materials and electronic appliances had low sales because of the frozen real estate market.

Commerce had faced with the same difficulties.

Trang An Joint Stock Company had only VND180 billion (US$8.5 million) turnover in the first four months of this year, down 20 per cent on the same period last year, while its annual growth rate was 150 per cent in previous years.

The company's products had not been sold because both input prices and basic salaries increased while product prices remained unchanged.

Duong Van Binh, general director of October 10 Weaving Company, said the market had become more narrow.

In the four-month period, the company's turnover was 600 billion dong ($28 million), 60 per cent of the same period last year, he said. It had to reduce its workforce from 2,800 to 2,100; its contracts were half its production capacity.

February 3 Automobile Mechanics Joint Stock Company, reduced its workforce by 8 per cent; May 1 Automobile Company by 10 per cent; Gia Lam Mechanics Company by 20 per cent; Gold Star Rubber Company by 12 per cent.

Do Duc Oanh, general secretary of the Vietnam Cement Association, said the biggest difficulty of the sector was its huge inventory.

"The industry was forecast to consume around 47 million tonnes of cement and export 7 million tonnes. It means that the sector would have an inventory of 10 million tonnes," Oanh said.

He said the association's 100 businesses had faced difficulties. Cam Pha Cement Plant in northeastern Quang Ninh Province reported debt of 1.2 trillion dong ($57 million), Ha Long Cement Plant lost 982 billion dong ($46 million) and Dong Banh Cement Plant 149 billion dong had lost ($7 million).

In responding to the challenges, businesses had cut down on water, electricity, labour and transport.

Trinh Sy, general director of Trang An Joint Stock Company, said it had stopped some projects to expand and improve production. It would focus on expanding its market.

A representative from a real estate company said they restructured 80 per cent of their short-term debt into mid-and long-term debt after the State Bank of Vietnam lowered interest rates.

The company also sold its small projects to increase capital and was considering a merger to restructure investment categories and enhance competitiveness.

The ministry's Institute of Strategy and Policy director Vu Nhu Thang said the ministry had assessed business difficulties through a macroeconomic lense, including import-export, GDP growth rate, inventory and the number of newly established and

bankrupt firms.

"We have seen that businesses, especially those in construction, cement, steel, production, assembly, leather shoes and cotton sectors are having a hard time," Thang said.

This year would be a year for restructuring the economy as well as providing chances for enterprises to restructure their production in combination with financial, monetary and banking policies.

"Businesses have had their biggest difficulties: low consumption, high inventories and increasing input prices," he said

One of the solutions was to accelerate public investment to help firms resolve their inventories, such as cement and steel.

He asked enterprises to renew their business strategies and management methods to fit with the new situation.

VIR

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