VN’s private sector: Growing but not strong

Analyst’s Pick

VN’s private economic sector: becoming big but not strong

Võ Trí Thành*

The Vietnam Private Sector Economic Forum 2019 – an important channel for Government agencies and ministries to identify bottlenecks restricting the development of the private sector and listen to recommendations from the business community – finished last week. But how to make Vietnamese private enterprises grow strongly and sustainably remains an issue that cannot be addressed by just a two-day forum. 

Since Resolution No 10 of the Party's Central Committee on developing the private economy into an important driving force of the socialist-oriented market economy was issued two years ago, the Vietnamese economy has witnessed the expansion of dozens of large-scale corporations.

 

Economist Võ Trí Thành

Every year, the VNR500 Ranking announces the 500 largest enterprises in Việt Nam, many of which are private enterprises with turnover and total assets reaching hundreds of trillion đồng.

The reputation and brand value of Việt Nam are also internationally recognised. According to Brand Finance, in the list of the 100 most valuable countries in the world in 2018, Việt Nam ranked 43 (up two places compared to 2017) with the value of its national brand reaching US$235 billion (compared to $203 billion in 2017).

According to Forbes, the 40 most expensive brands in Việt Nam in 2018 had a total value of more than $8.1 billion, up by over 30 per cent compared to the list announced in 2017. Of the 15 businesses with the most valuable brands, we can see the dominance of private consumer goods, banking and telecommunications businesses (Table 1).

Table 1: 15 enterprises with most valuable brands in Việt Nam

Source: Forbes

However, large private enterprises have not shown a leading role in innovation and growth. Private enterprises currently contribute less than 10 per cent of GDP with little investment in R&D. The value of Vietnamese brands is still low compared to many countries in Southeast Asia including Singapore, Malaysia, Thailand, the Philippines and Indonesia.

In addition, some large enterprises have been unable to gain public trust. Along with the development of the private sector, there appears some super rich entrepreneurs of whom the integrity and true talent are questionable. The way people call big firm owners "tycoons" implies unfriendly implications.

Addressing the forum, Nguyễn Văn Bình, head of the Party Central Committee's Economic Commission, acknowledged the significant role of private economic development in the process of building a sustainable market economy and emphasised the need to remove obstacles for the private sector to prosper. But he also highlighted their determination to prevent ‘vested interests’ or ‘crony capitalism’, creating a fair environment.

All of this proves that the big private firms face many challenges caused by both objective and subjective factors. They have been bigger but not "really strong enough" to become the main driving force for Việt Nam's economic growth and sustainable development.

As time has shown, the average ‘life expectancy’ of the 500 most prominent businesses in the world has dropped from 60 years to 15 years. If even well-known businesses do not change, adapt or innovate, then can "die prematurely". Moreover, the opportunity to "grow strongly" is for all who dare to rethink, redesign and rebuild.

"Strong companies" does not necessarily mean “large scale”, although the size is an important factor to consider, so large companies/corporations must shift their strategy from "enlarging scale" towards "promoting strength".

They must be not only financially but also technology strong. Large companies/corporations have more or less favourable foundations to "take the initiative" to master technology, have high creative capacity and be able to catch up with new trends.

Globally, for the business community in general, especially for large enterprises, a new trend is emerging: it is the strategic change through digital transformation to create a breakthrough in management capacity, customer experience and business model. Digital transformation has been changing the competitiveness map of large corporations/companies around the world, becoming a vital priority and development requirement.

In this context, Vietnamese enterprises are also not outside the process of converting. In fact, many Vietnamese enterprises (trade, finance, banking, education, health, tourism, logistics, manufacturing industry, etc.) have embarked on digital transformation. Some Vietnamese corporations/groups claim to have become digital enterprises.

There is also no single answer for digital conversion for every business. But practical experience to deal with key issues and lessons from the formation and implementation of digital transformation strategies are worth considering. There are three main lessons here.

Firstly, the strategic vision must be long enough and deep enough, but it should start drastically from the small, specific and creative works with high spillover effects.

Secondly, it is necessary to attach importance to the close relationship between digital conversion and business strategy. According to McKinsey's 2016 survey, 55 per cent of correspondents from businesses successfully implementing digital conversions said that their digital transformation strategy was closely linked with their business strategies; they were even willing to adjust their business strategies to match the digital conversion.

Thirdly, leaders must be pioneering. They must really have aspirations and commitments to creating products that meet the standards of the new consumption revolution (green, convenient/smart and sustainable) and to gain the trust of consumers.

In the new context, the large corporations' self-endeavour has a decisive meaning to grow strongly. Appropriate and practical support from the State is also essential for that process. Ensuring market competition and international commitments, especially in the free trade agreements (FTAs) that Việt Nam has signed, is the first principle to be respected. Competition will limit monopolies, which large companies/corporations can easily abuse, and therefore encourage creativity.

Other important measures include supporting R&D and technology transfer, and developing high-quality human resources through education innovation. Large enterprises can also receive R&D orders from the State through a competitive and measurable assessment and appraisal process.

In short, a highly dynamic and competitive private sector is a solid guarantee for Việt Nam's prosperity in the new development phase and new world context. Thus, we need to build and develop powerful private companies/corporations. We have important prerequisites for realising that process, from the State's and businesses’ determination to actions in practice.

* Võ Trí Thành is a senior economist at the Central Institute for Economic Management (CIEM) and a member of the National Financial and Monetary Policy Advisory Council. A doctorate in economics from the Australian National University, Thành mainly undertakes research and provides consultation on issues related to macroeconomic policies, trade liberalisation and international economic integration. Other areas of interest include institutional reforms and financial systems. He authors Việt Nam News’s new column, “Analyst’s Pick”.