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
Business & Investment Opportunities
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