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The Top 200: Industrial Strategies of Viet Nam’s Largest Firms
Author: Scott Cheshier and Jago Penrose / UNDP Viet Nam
Published Date: 2007-10-01
Summary:

Viet Nam’s largest firms are big compared to other firms in Viet Nam but in global terms they are more akin to small and medium sized enterprises. Nevertheless, the Top 200 firms account for sizeable shares of labour, assets, turnover and tax across ownership categories (state, private, foreign) and sectors in Viet Nam.  In some cases, the largest firms are the sector. Within the Top 200, almost half of the largest manufacturing firms are one hundred percent foreign owned.

The collapse of the Soviet Union forced Vietnamese firms to find new markets and produce new goods and services. Greater freedom to trade made it possible for them to expand and grow. Over half of Viet Nam’s largest firms are members of General Corporations. Most member companies did not experience high levels of oversight and control and enjoyed greater autonomy to conduct their activities in the 1990s than they had in the past. However, they were at times called upon to perform ‘socially responsible’ acts such as rescuing loss making member companies to protect jobs.

State enterprise reform is changing this. The barriers between state corporations are breaking down and competition is increasing between them. As they equitise member companies, some corporations are losing formal control.  Over time, the precise meaning of the term ‘corporation’ in Viet Nam has become less clear. As they transform into parent-child corporations and economic groups, many corporations are moving into real estate, tourism, securities trading and establishing their own insurance companies and banks.

Viet Nam’s largest firms have shown that they have the capacity to respond to increased competition. They are moving into more complex and higher quality products, diversifying into related products and entering new business lines. They are establishing brands, expanding distribution channels and entering new markets.

Large firms are also making decisions about their future. Some of Viet Nam’s largest firms are investing to extract more value from existing business activities. Some are directing investment into less socially productive but (at present) highly profitable areas. Many firms are choosing a combination of both. The enthusiasm for investment in real estate and equities must be viewed within the broader economic context in which alternative business strategies are risky and often difficult to implement. If core business lines are not very profitable, then leveraging speculative profits to finance core business expansion and upgrading can be a viable strategy. However, reliance on speculative investments as the primary source of profits is also risky.

Product upgrading is not the preserve of firms in more obviously ‘high-tech’ industries. Several firms interviewed in garments, textiles and seafood had invested to create more value in their core businesses. For these firms profits can be found in the development of skills and technologies. However, the process can be as risky as investments in over-valued land and securities. Technology is expensive and difficult to acquire, workers need to be trained and markets understood. Often the alternative is to build hotels, apartment blocks and industrial zones and to establish subsidiaries to trade equities.

The government can encourage firms to invest in core business areas by discouraging speculative investments in real estate and financial markets. Appropriately designed land and capital gains taxes would be a good start. In addition, the government can assist firms in the acquisition of skilled labour by improving the quality of universities and vocational schools. These two policy areas emerged as key issues in our interviews. Addressing them will facilitate the growth and development of Viet Nam’s largest firms and the continued growth of the economy.

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