INTRODUCTION
Rationale of the study
The financial crisis significantly impacts the economy, affecting not just individual countries but entire regions It results in decreased growth rates and investments, which in turn lead to high inflation and rising unemployment.
The global financial crisis in 2008 had a huge impact on the economy in the countries, especially developed countries such as Russia, Japan, Germany, and the
The crisis significantly impacted enterprises and corporations, leading even well-established businesses with over a century of experience to declare bankruptcy Consequently, it is reasonable to anticipate that companies in developing countries, such as Vietnam, will also encounter substantial challenges.
In my graduation thesis, titled "Solutions to Enhance the Operational Efficiency of Vietnamese Enterprises After the Global Financial Crisis," I aim to analyze the challenges faced by Vietnamese businesses during the crisis and provide actionable recommendations to improve their effectiveness and resilience in the post-crisis landscape.
Aims of the study
This thesis analyzes the effects of the global economic crisis on Vietnamese enterprises, focusing on capital, labor, and business markets It begins by exploring fundamental theories related to financial crises and examines government measures designed to assist businesses during challenging times Additionally, the research highlights the proactive efforts of enterprises to adapt and thrive in the aftermath of the global financial crisis.
Research questions
This thesis aspires to provide answers to the following questions:
What are the impacts of the global financial crisis in 2008 on Vietnamese enterprises?
What are the feasible recommendations to help Vietnamese enterprises take advantages of current conditions to develop after the crisis?
Research methodology
The thesis primarily utilizes secondary data sourced from websites and organizational reports, with the theoretical framework derived from various books and online resources This data is then synthesized into tables and figures Through analysis and discussion, the research identifies both challenges and opportunities, ultimately providing recommendations for enterprises in Vietnam.
Research scope
The thesis highlights the challenges faced by Vietnamese enterprises during the 2008 global financial crisis and examines the current conditions that can foster their growth and development in the post-crisis landscape.
Thesis organization
The thesis consists of four main chapters: (i) Introduction; (ii) Literature review; (iii) Research methodology & data analysis; (iv) Recommendations and conclusion
In the first chapter, the author outlines the process of selecting the main topic, detailing the study's objectives, research questions, methodology, and the overall structure of the thesis.
In the second chapter , the literature review of the financial crisis has been illustrated with the definition, the different types, the causes and consequences of the financial crisis
In the third chapter, the author explores the 2008 global financial crisis and its effects on Vietnamese enterprises, while also highlighting the favorable conditions that emerged in 2015 to support their development.
In the last chapter , some recommendations will be suggested to improve the operation of Vietnamese after the crisis.
LITERATURE REVIEW
Definition
Financial crisis is a situation in which the value of financial institutions or assets drops rapidly
A financial crisis typically triggers panic among investors, leading to a rush to withdraw funds from savings accounts or sell off assets This behavior stems from the fear that the value of these assets will decline if left in a financial institution.
Types of financial crisis
A bank run occurs when a large number of depositors withdraw their funds simultaneously, leading to potential insolvency for the bank, as it typically loans out most of its deposits This sudden demand can result in customers losing their deposits if they are not protected by deposit insurance When such bank runs happen on a widespread scale, it is referred to as a systemic banking crisis or banking panic.
Examples of bank runs include the run on the Bank of the United States in
1931 and the run on Northern Rock in 2007 Banking crises generally occur after periods of risky lending and resulting loan defaults
A currency crisis, often viewed as a subset of a financial crisis, lacks a universally accepted definition According to Kaminsky et al (1998), it occurs when the weighted average of monthly percentage depreciations in the exchange rate and declines in exchange reserves exceeds the mean by over three standard deviations Frankel and Rose (1996) characterize it as a nominal depreciation of at least 25% or a 10% increase in the rate of depreciation Ultimately, a currency crisis arises when market participants recognize the impending failure of a pegged exchange rate, leading to speculation that accelerates the devaluation or appreciation of the currency.
A speculative bubble arises when a specific class of assets is significantly and persistently overvalued, often driven by buyers who focus on future resale potential rather than the asset's income-generating capacity This situation poses a risk of a price crash, as market participants continue buying only while they believe others will do the same, leading to a rapid decline when selling begins However, accurately determining whether an asset's price reflects its fundamental value complicates the reliable detection of bubbles, with some economists arguing that such bubbles rarely, if ever, occur.
Well-known examples of bubbles (or purported bubbles) and crashes in stock prices and other asset prices include the Dutch tulip mania, the Wall Street Crash of
The history of economic bubbles includes significant events such as the 1929 stock market crash, Japan's property bubble in the 1980s, the dot-com bubble burst in 2000-2001, and the current decline of the United States housing bubble The 2000s witnessed a notable real estate bubble characterized by a substantial rise in housing prices, highlighting real estate as a valuable asset.
A currency crisis, or balance of payments crisis, occurs when a country with a fixed exchange rate is compelled to devalue its currency due to an unsustainable current account deficit Conversely, a sovereign default happens when a nation fails to repay its sovereign debt Although both devaluation and default can be voluntary government decisions, they are frequently viewed as involuntary outcomes triggered by shifts in investor sentiment, resulting in a sudden halt in capital inflows or a sharp rise in capital flight.
During the early 1990s, several currencies within the European Exchange Rate Mechanism faced crises, leading to devaluations or withdrawals This was followed by another wave of currency crises in Asia from 1997 to 1998 Additionally, many Latin American nations defaulted on their debts in the early 1980s, and the 1998 Russian financial crisis culminated in a significant devaluation of the ruble and a default on government bonds.
A recession is defined as negative GDP growth that persists for two or more consecutive quarters When a recession is particularly prolonged or severe, it may be referred to as a depression Additionally, a prolonged phase of slow growth, which does not necessarily result in negative GDP, is often termed economic stagnation.
Many economists believe that financial crises significantly contribute to recessions, with the Great Depression serving as a key example, as it was marked by widespread bank runs and stock market crashes Additionally, the subprime mortgage crisis and the collapse of real estate bubbles globally triggered recessions in the U.S and several other nations during late 2008 and 2009.
Some economists contend that recessions, rather than financial crises, are the primary drivers of economic downturns They suggest that even when a financial crisis initiates a recession, other underlying factors play a more significant role in extending the duration of the recession.
Milton Friedman and Anna Schwartz contended that the economic downturn following the 1929 crash and the subsequent bank panics of the 1930s could have been avoided if not for the Federal Reserve's monetary policy errors, a viewpoint that has gained support from Ben Bernanke.
Causes and consequences of financial crisis
2.3.1 Strategic complementarities in financial markets
Successful investing often hinges on predicting the actions of other investors, a concept termed 'reflexivity' by George Soros John Maynard Keynes likened financial markets to a beauty contest, where participants aim to guess which models others will find most attractive This phenomenon can lead to circular reasoning and self-fulfilling prophecies, particularly in environments lacking reliable information due to poor or absent disclosures.
Investors often have strong incentives to align their decisions with those of others, a phenomenon known as strategic complementarity For instance, an investor anticipating that others will purchase large amounts of Japanese yen may foresee an increase in its value, prompting them to buy yen as well Similarly, a depositor at IndyMac Bank who expects a mass withdrawal by others may predict the bank's failure, leading them to withdraw their funds This behavior illustrates how individual choices can be influenced by the expectations of collective actions in financial markets.
Self-fulfilling prophecies can occur when individuals or firms have strong incentives to act based on their expectations of others' behavior For instance, if investors anticipate an increase in the yen's value, their actions may lead to that outcome Conversely, if depositors fear a bank's failure, their behavior can trigger that very failure Consequently, financial crises are often seen as a vicious cycle where investors avoid certain institutions or assets due to the belief that others will do the same.
Leverage, the practice of borrowing to finance investments, is often linked to financial crises due to its potential to amplify both gains and losses When individuals or financial institutions invest solely their own capital, the maximum loss is limited to their initial investment However, by borrowing to increase their investment, they can achieve higher returns, but they also risk losing more than their total investment, leading to potential bankruptcy This bankruptcy can have a cascading effect, spreading financial difficulties from one firm to others, thereby exacerbating the overall financial instability.
Prior to financial crises, the average degree of leverage in the economy tends to increase, as seen before the Wall Street Crash of 1929 when borrowing for stock market investments became widespread Scholars suggest that financial institutions may exacerbate economic fragility by concealing leverage, which leads to a mispricing of risk.
Asset-liability mismatch is a significant factor contributing to financial crises, where the risks linked to an institution's debts and assets are misaligned For instance, commercial banks accept deposits that can be withdrawn at any time, while utilizing those funds to issue long-term loans to businesses and homeowners This discrepancy between short-term liabilities (deposits) and long-term assets (loans) can lead to bank runs, as depositors may panic and withdraw their funds faster than the bank can liquidate its loans A notable example is Bear Stearns, which collapsed in 2007-08 due to its inability to refinance short-term debt used for long-term investments in mortgage securities.
Many emerging market governments struggle to issue bonds in their local currencies, leading them to sell US dollar-denominated bonds instead This creates a discrepancy between the currency of their liabilities and their assets, as their local tax revenues are in their native currency Consequently, these governments face a heightened risk of sovereign default due to potential fluctuations in exchange rates.
Numerous analyses of financial crises highlight how investment errors stem from a lack of knowledge and flaws in human reasoning Behavioral finance examines these mistakes in economic and quantitative reasoning, shedding light on their psychological underpinnings, as explored by psychologist Torbjorn.
K A Eliazon has also analyzed failures of economic reasoning in his concept of 'œcopathy'
Historians like Charles P Kindleberger have observed that financial crises often emerge shortly after significant financial or technological innovations that create new investment opportunities, termed "displacements" of investor expectations Notable historical examples include the South Sea Bubble and Mississippi Bubble of 1720, which arose during the early days of company stock investments, and the 1929 Crash, which followed advancements in electrical and transportation technologies More recently, financial crises have frequently been linked to shifts in the investment landscape due to financial deregulation, with the dot-com bubble crash in 2001 being fueled by "irrational exuberance" surrounding Internet technology.
Lack of awareness regarding recent technological and financial advancements can lead investors to significantly overvalue assets When early investors in emerging asset classes, such as "dot com" stocks, experience profits from increasing values, it attracts more investors who, eager for similar gains, drive prices even higher as they rush to invest.
Herd behavior can lead to asset prices soaring well above their actual value, making a market crash likely If prices drop even slightly, investors may recognize that further gains are uncertain, triggering a reverse spiral where falling prices prompt a wave of selling, further driving down the market.
Governments strive to prevent financial crises by regulating the financial sector, primarily aiming for transparency through mandated regular reporting based on standardized accounting practices Additionally, regulation ensures that institutions maintain adequate assets to fulfill their contractual obligations by enforcing reserve and capital requirements, as well as imposing limits on leverage.
Some financial crises have been blamed on insufficient regulation, and have led to changes in regulation in order to avoid a repeat For example, the former
Dominique Strauss-Kahn, the Managing Director of the International Monetary Fund, attributed the 2008 financial crisis to a regulatory failure that allowed excessive risk-taking within the financial system, particularly in the United States Additionally, the New York Times highlighted the deregulation of credit default swaps as a significant factor contributing to the crisis.
Excessive regulation can contribute to financial crises, as seen with the Basel II Accord, which mandates that banks raise capital during heightened risk periods This requirement may lead banks to reduce lending at critical times when capital is already limited, potentially worsening a financial crisis.
International regulatory convergence can lead to regulatory herding, which may exacerbate systemic risk in financial markets To mitigate this risk, it is essential to maintain diverse regulatory regimes that can act as a safeguard against potential vulnerabilities.
RESEARCH METHODOLOGY & DATA ANALYSIS
Global financial crisis in 2008
In August 2007, American financial institutions like New Century Financial Corporation faced bankruptcy, while others, such as Countrywide Financial Corporation, saw significant declines in their stock prices This led to widespread panic among depositors, prompting many to withdraw their funds and exacerbating the financial strain on these organizations Consequently, the risk of a credit crunch emerged, and the financial crisis officially began in the US, quickly spreading to other countries Many financial institutions in developed nations were also tied to the US secondary housing credit markets, which meant that when the US housing bubble burst, they faced similar challenges.
The economic downturn had pushed leading US financial banks into danger respectively The opening was Bear Stearns specializing in mortgage By March
In 2008, the Federal Reserve intervened to rescue Bear Stearns with a $30 billion sponsorship package By August of the same year, the stock prices of Fannie Mae and Freddie Mac, government-sponsored entities in the housing market, experienced a significant decline Subsequently, on September 7, 2008, the U.S government allocated $200 billion to take over Fannie Mae and Freddie Mac, highlighting the escalating financial crisis.
On September 15, 2008, Lehman Brothers, a 160-year-old bank, filed for bankruptcy with a staggering debt of $613 billion, marking the largest bankruptcy in U.S history and plunging the global financial system into turmoil In response to this crisis, Merrill Lynch sold itself to Bank of America, and the Federal Reserve intervened on September 16, 2008, by allocating $85 billion to rescue AIG, a leading insurance giant facing collapse due to risky insurance practices.
In late September and early October 2008, the world faced a severe financial crisis marked by the collapse of major banks and a paralyzed credit market On September 25, Washington Mutual was taken over by the Federal Deposit Insurance Corporation, marking the largest savings bank failure in U.S history with losses of $19 billion By September 29, the six largest banks in the U.S had incurred $17.2 billion in losses, with shares plummeting by 93%, leading to the acquisition of Machvia by CitiGroup for $2.2 billion As financial conditions deteriorated, central banks in the U.S., UK, Japan, EU, and other nations were compelled to cut interest rates to restore liquidity in the markets.
The United States, accounting for 25% of global GDP and a significant share of international financial transactions, has seen its economic crisis reverberate beyond its borders, affecting economies worldwide Following the US downturn, countries such as Singapore, Japan, and those using the euro also reported recessions, leading to severe repercussions for emerging and developing economies.
Following the Dotcom bubble's burst in 2001 and the subsequent recession after the September 11 events, the Federal Reserve implemented monetary measures to revive the economy, notably lowering interbank overnight loan rates from 6.5% in May 2001 to 1.75% by December 2002 This reduction in interest rates spurred growth in the real estate and construction sectors, encouraging financial institutions to lend to higher-risk borrowers, including illegal immigrants As a result, lending for speculative purposes surged, leading to a housing bubble where 28% of purchases in 2005 were for speculation The bubble peaked in 2005 before bursting, causing a 3.3% drop in median housing prices from Q4 2005 to Q1 2006, while the total cumulative value of secondary housing credits rose by $600 billion.
Figure 3.1 House prices during the housing market bubble in the US (Source: Wikipedia)
Following the housing bubble's collapse, many borrowers struggled to repay their loans, leading to significant issues for credit institutions burdened with irrecoverable debts The rapid decline in housing prices severely impacted asset-backed securities, such as collateralized debt obligations (CDOs) and mortgage-backed securities (MBS), which were heavily discounted Consequently, the asset balances of these financial institutions deteriorated, resulting in lowered credit ratings and triggering a secondary housing credit crisis.
Securitized products appeared from the early 1970s and thrived in the environment of monetary policy in 2001
Securitization and the launch of the products of this process such as MBS, CDOs and other similar types were great inventions of financial instruments
The emergence of securitization introduced at least four economic subjects beyond the traditional two—mortgagers (borrowers) and mortgagees (credit institutions) This evolution included the creation of securitized insurance products like credit default swaps (CDS) and the rise of special purpose entities (SPEs) that acquired mortgage-backed securities (MBS) and collateralized debt obligations (CDOs) Consequently, systemic risks such as moral hazard and adverse selection became prevalent Additionally, the financial supervision model in the United States prior to the crisis was inadequate for effectively monitoring these emerging risks.
Systemic risk has long been a concern, particularly when asset market bubbles arise, leading to significant distrust among stakeholders Additionally, interbank lending practices can exacerbate credit losses, causing a ripple effect throughout the banking system, where the failure of one bank may trigger the collapse of others This growing distrust prompts depositors to withdraw their funds, intensifying the crisis and accelerating the downward spiral.
3.1.3 Effects on the global economy
Following the collapse of Lehman Brothers, a significant increase in bank bankruptcies, mergers, dissolutions, and nationalizations occurred not only in the United States but also across countries like France, Germany, and the Netherlands In 2008, 25 banks failed in the U.S., with 15 of those bankruptcies happening between September 15 and the end of the year From February 22, 2008, to March 29, 2009, a total of 33 banks in the U.S and EU were acquired Although Japan was initially viewed as stable and had previously supported U.S and EU markets, Japanese banks subsequently refrained from purchasing corporate bonds due to heightened default risks following the financial crisis.
3.1.2.2 The stock market was staggered and sharply dropped
In 2008, the global stock market experienced a staggering loss of approximately USD 17 trillion, with emerging markets declining by 54.72% and developing countries by 42.72% Notably, Brazil, Russia, India, and China faced the most significant declines during this period.
During the global financial crisis from December 2008 to January 2009, stock indexes experienced significant declines, with the USA's Dow Jones, Nasdaq, and S&P falling by 25.81%, 32.03%, and 30.4%, respectively In the UK, the FTSE 100 dropped by 18.29%, while Japan's Nikkei 225 decreased by 31.12% In contrast, Morocco and Israel demonstrated the best performance amidst this turmoil The primary driver of these declines was the urgent sell-off of shares by investors in both the financial and industrial sectors.
3.1.2.3 Real estate price dramatically fell
Figure 3.3 Sales Prices of New Houses Sold in the United States 2002 – 2010
(Source: U.S Cencus Bureau New Sales Residential Index) Figure 3.2 The movement of some indexes on stock market in 2008 (Source: Wikipedia)
In November, property prices in the US experienced significant declines, ranging from 21% to 50% in various regions Contra Costa saw a staggering 50% drop, followed by Solano at 39%, Alameda at 37%, and Santa Clara and Marin both at 34% Additionally, Napa and San Mateo recorded decreases of 28% and 26%, respectively, while San Francisco faced a 21% decline This downturn led to a surge in the number of homes for sale, as many homeowners struggled to make payments, resulting in increased bank sales by 15% to 90% Notably, Solano experienced the highest increase at 90%, with other areas like Contra Costa at 62% and Alameda at 20% This situation can be traced back to the collapse of the real estate bubble that began in July 2007.
3.1.2.4 Prices of most of goods in the word experienced significantly decreases
Figure 3.4 Prices of some exported commodities (Source: Thomson Rueters)
The crisis significantly affected the real economy, leading to a sharp decline in commodity prices Oil prices plummeted due to decreased demand amid the global economic recession, reaching a low of USD 30.28 per barrel on December 23, 2008 Concurrently, the US dollar strengthened against major currencies, and speculative activities diminished This downturn in oil prices triggered a cascading decline in various other commodities, impacting countries reliant on these resources.
Gold Oil Grain Rubber Sugar Gas Rice Café
From December 12, 2008, to January 12, 2009, countries heavily reliant on oil revenues, such as Iraq, Iran, Nigeria, Mexico, and Venezuela, faced significant economic challenges, with oil exports constituting 90% of their budget revenues In contrast, gold prices experienced an upward trend as investors sought safer investment options during this turbulent period.
Impacts of global financial crisis on Vietnamese enterprises
The global financial crisis significantly impacted foreign investments in Vietnam, with overseas investors holding approximately 20% of the stock market value In 2008, foreign direct investment (FDI) approvals reached USD 71 billion, tripling the amount from 2007 However, the actual disbursed capital was only about USD 11 billion, representing just 17.2% of the approved amount.
In 2009, Vietnam saw a significant decline in foreign direct investment (FDI) due to the global financial crisis, with only USD 2.1 billion absorbed in the first quarter, a 40% drop from the same period in 2008 The total committed investment for projects was estimated at USD 6 billion, while high budget deficits hindered community investment recovery Many enterprises faced capital and market challenges, leading to reduced business expansion and a sharp decline in overall societal spending Although registered FDI in 2008 reached a record USD 71 billion, the global economic downturn narrowed market opportunities, impacting the financial capacity of parent companies and limiting the execution of export-oriented FDI projects.
Figure 3.7 FDI into Vietnam (Source: GSO)
The global crisis has significantly impacted domestic companies by reducing investment, yet many have capitalized on high interest rates, with lending fees reaching up to 21-22% at various commercial banks This situation provided some enterprises, particularly those lacking production capital, with a temporary relief despite the elevated bank rates By 2010, while profits improved for many businesses, several export companies faced challenges, ultimately having to decline lucrative export contracts due to insufficient funds.
In 2010, Vietnam experienced a significant decline in agricultural produce, with pepper output decreasing by around 20% and cashew production dropping by 20-30%, resulting in elevated export prices Due to rising interest rates, local enterprises could only procure 300,000 tons of domestic raw cashew and imported an additional 100,000 tons, necessitating VND1,100 billion to acquire the remaining 50,000 tons domestically and VND5,700 billion for importing 350,000 tons to satisfy production demands in the latter half of the year Meanwhile, the coffee sector faced financial constraints, leading to storage levels of only 7-8% of the planned 200,000 tons, coupled with falling coffee prices, intensifying pressure on coffee enterprises, especially those in foreign joint ventures.
3.2.2 High price of input factors
The 2008 global financial crisis significantly increased input material prices, severely impacting various industries, particularly the textile sector, which struggled with rising import costs From October 2008, steel prices surged by 55%, reaching VND16,000 - 20,000, while brick prices plummeted by 50% This price volatility in the global market led to a 14-18% increase in construction steel prices during the first two months of 2009, driven by higher costs of imported steel, scrap steel, and mazud oil, further complicating the construction industry's challenges.
In the first five months of 2010, manufacturing products experienced significant growth, with electricity increasing by 17.7%, coal by 4.3%, and gas by 16.7%, while liquefied gas surged twofold and fuel tanks rose sevenfold The mechanical product sector also saw impressive growth, highlighted by electric motors at 26.7%, diesel motors at 41.7%, and machine tools at 44.8% Consumer goods such as garments, powdered milk, and beer rose by 14.4%, 35.8%, and 15.3%, respectively Conversely, agricultural materials like urea fertilizer and NPK fertilizer faced declines, with growth rates of only 2.3% and 14.2%, attributed to limited demand.
The USA remains Vietnam's largest export market, representing 23-25% of total exports The American financial crisis not only disrupted exports to the U.S but also had a ripple effect on Vietnam's trade with the EU and Japan, two key markets Additionally, reduced consumer spending led to a decline in demand for Vietnamese goods Consequently, the EU's share of Vietnam's total export turnover decreased to 16.5%, down from 18% in 2007.
By December 2008, the prices of exported agricultural products experienced a significant decline, with rice prices dropping by 58% compared to their peak, while coffee, rubber, and cashew prices fell by 24%, 48%, and 20%, respectively The total export turnover for agriculture, forestry, and fisheries in December 2008 was USD 1.15 billion, marking a 2% decrease from USD 1.17 billion in November 2008 and a staggering 34% drop from the peak of USD 1.75 billion in July 2008 The challenges in exporting agricultural goods were compounded by issues related to international payments, affecting many businesses involved in exporting wood, tea, seafood, and coffee.
In January 2009, Vietnam's export turnover was approximately USD 3.8 billion, reflecting a decline of 18.6% from December 2008 and a 24.2% drop compared to January 2008 Conversely, import turnover stood at USD 4.1 billion, down 27.6% from the previous month and 44.8% from the same month in 2008 The greater decrease in import turnover compared to exports led to a significant reduction in the trade deficit, which fell to about USD 300 million, representing 7.9% of the total import-export turnover, compared to a trade deficit of USD 2.4 billion in January 2008.
In 2008, Vietnam's export market was heavily concentrated, with six key markets—the USA, EU, ASEAN, Japan, China, and Australia—comprising 80% of total export volume The economies of ASEAN nations and China are interconnected with global markets, making them vulnerable; therefore, economic downturns in the USA, EU, and Japan significantly affected Vietnam's export activities.
In 2009, the primary exports to the US included footwear, textiles, and wood products, while the EU saw similar exports alongside seafood ASEAN's main exports were crude oil and rice, with Japan and Australia also importing crude oil Additionally, rubber exports to China were expected to face significant challenges.
The Keynesian model of aggregate demand posits that a nation's GDP is determined by total private consumption, government spending, investment, and net exports In Vietnam, GDP showed significant growth from 1990 to 2000 and remained stable until 2006, before experiencing volatility in 2007 following the country's accession to the WTO During this period, both private sector and government expenditure structures shifted positively, focusing on reducing spending while increasing investment to foster capital accumulation.
Before 2007, GDP structure remained at a positive level with speed to create investment of 35-36%, which promoted growth in medium and long term
In 2007, Vietnam's accession to the WTO resulted in significant foreign direct investment (FDI) and foreign indirect investment (FII), leading to a trade gap of USD 14.1 billion, or 13.4% of GDP This deficit was offset by USD 8 billion in FDI, USD 6.24 billion in FII, and USD 6.18 billion from overseas currency exchanges The trend continued into 2008, with rising import prices pushing the trade deficit to USD 18 billion, representing 16.1% of GDP Nonetheless, 2008 marked a pivotal moment for FDI, reaching a capitalization of USD 64 billion, with USD 11.5 billion implemented.
The global financial crisis significantly impacted Vietnam, leading to widespread unemployment as many enterprises went bankrupt In Saigon alone, the unemployment rate surged in 2008, primarily affecting workers in industries such as garments, leather shoes, sandals, wood, plastics, and plastic bag manufacturing, which had received investments from countries like Korea, Taiwan, Thailand, Norway, the USA, and France As companies closed their doors, employees faced immense challenges in securing new jobs, exacerbating their daily struggles.
According to reports of 40 provinces and cities, there were more than 85 thousand people losing jobs at the end of January, 2009 The highest figures were in
Ho Chi Minh City and Hanoi have populations of 19,041 and 10,707 people, respectively Additionally, over 40,000 individuals lost their jobs, while more than 20,000 were temporarily unemployed The economic recession in 2009 led to 400,000 people becoming unemployed At that time, Vietnam had approximately 45 million people of working age, with 70% residing in rural areas and only 20% employed as contracted workers.
BAC NINH THANH HOA BINH DUONG DA NANG
Figure 3.8 The number of unemployed people in Jan 2009 (Source: GSO)
Current economic conditions of Vietnam encouraging enterprises
3.3.1 Positive signals for recovery by 2014
In 2014, GDP experienced a notable increase of 5.98%, marking the highest growth rate since 2011 The agriculture, forestry, and fisheries sectors saw a rise of 3.49%, reflecting a 2.64% improvement over 2013 Meanwhile, the industry and construction sectors achieved significant progress with a growth rate of 7.14%, the highest in three years Conversely, the service sector's growth was relatively modest at 5.96%, falling short by 6.56%.
Going bankrupt Getting difficulties Working effectively
Figure 3.9 Situation of SMEs in Vietnam in 2008 than the previous year’s figure These figures show that Vietnam's GDP growth was gradually escaping the bottom
In 2014, Vietnam experienced significant growth in both exports and imports, with export turnover reaching USD 150 billion, a 13.6% increase The foreign direct investment (FDI) sector, excluding crude oil, saw a remarkable rise of 16.67%, surpassing the domestic sector's growth of 10.4% Meanwhile, imports totaled USD 148 billion, reflecting a 12.1% increase from the previous year As a result, Vietnam achieved a trade surplus of USD 2 billion, marking the highest trade surplus in the country's history.
In 2014, the economy showed positive signs as inflation was nearly fully controlled, with the Consumer Price Index (CPI) rising by just 1.84%, marking the lowest increase since 2002 Most commodity groups experienced minimal price increases, with the exception of education, which saw a significant rise of 8.24%.
In 2014, Vietnam's currency remained relatively stable, experiencing only minor fluctuations against the US dollar, in line with the State Bank of Vietnam's commitments While many global currencies faced significant depreciation, the limited decline of the Vietnamese dong diminished the competitiveness of domestically produced goods.
In 2014, total social investment rose by 11.5% compared to the previous year, reaching 31% of GDP The non-state sector saw the most significant growth at 13.6%, while foreign direct investment (FDI) increased by 10.5% and the public sector grew by approximately 10% This substantial rise in private sector investment reflects growing public confidence, further bolstered by declining market interest rates.
Interest rates have emerged as a significant positive aspect of the economy, currently reaching near-historic lows Recent cuts in interest rates, coupled with an expanded budget from banks, have facilitated cost reductions and revitalized corporate financing by improving access to funds Additionally, the financial banking system has demonstrated notable stability over the past year, with the Vietnam Asset Management Company (VAMC) actively engaged in acquiring banks' bad debts.
Recent legislative advancements, including the Housing Law, Real Estate Business Law, Enterprise Law, and Investment Law, have introduced progressive changes in Vietnam Notably, the Housing Law now allows foreign individuals to purchase and own property in the country Additionally, lawmakers have emphasized administrative reform by simplifying procedures, enhancing document transparency, and clearly defining time limits for processing applications These significant changes aim to establish a more efficient legal framework that facilitates better business operations.
In its final meeting of 2014, Congress set a target GDP growth rate of approximately 6.2%, aimed for a social investment rate between 30-32%, and projected a consumer price index increase of 5% Additionally, exports were expected to rise by 10%, with a trade deficit estimated at around 5% of exports These key economic indicators align closely with the levels achieved.
2014 With economic recovery now, these economic statistics may not be difficult to achieve
In 2015, the economic landscape is expected to witness a significant wave of initial public offerings (IPOs) in the state-owned enterprises (SOEs) sector The Ministry of Finance reported that in 2014, there were 115 SOEs undergoing equalization, with a target of privatizing 317 enterprises in 2015 While achieving this ambitious goal may be challenging, the process of equalization is anticipated to continue robustly.
In 2015, M&A activity in Vietnam is expected to be vibrant, following a significant increase in 2014 where transactions exceeded USD 2.5 billion, marking a 15% rise from the previous year The real estate sector is particularly active, witnessing a series of project transfers that highlight the growing momentum in mergers and acquisitions.
In 2014, Vietnam experienced a decline in registered foreign direct investment (FDI) capital compared to 2013; however, disbursements continued to increase, indicating strong interest from foreign investors This encouraging trend is anticipated to persist into 2015.
In early 2015, the State Bank of Vietnam (SBV) raised the interbank exchange rate by 1%, leading to significant fluctuations in the market However, these fluctuations stabilized within a few days Despite a sharp depreciation of most currencies against the dollar in 2014, Vietnam's currency only adjusted slightly, maintaining a surplus in the balance of payments It is anticipated that in 2015, exchange rate fluctuations will remain within the central bank's targeted range.
In the latter half of 2014, the real estate market experienced a surge in activity, with numerous projects across various segments rushing to completion and successful sales Market confidence significantly improved, bolstered by a strong influx of reserved cash flow into real estate Many experts anticipated that this upward trend would continue into 2015, driven by macroeconomic stability, low interest rates, and banks eager to expand opportunities in the real estate sector.
Chapter 3 has given the details about the global financial crisis in 2008 and its impacts on Vietnamese enterprises as well as the current conditions of economy in Vietnam The crisis started from the USA and then spread to all over the world, which resulted in collapse of many large financial institutions The year 2008 saw great efforts of many countries and regions to get rid of the crisis As a developing country in process of global economic integration, Vietnam was also affected by the consequences of the crisis However, basing on the achievements after six years of struggling with difficulties, Vietnamese enterprises are expected to enhance their operational efficiency in 2015 Several recommendations for both the government and enterprises in Vietnam will be given in chapter 4.
RECOMMENDATIONS AND CONCLUSION
Recommendations for the government
4.1.1 Continuing to implement production capital support policy
In 2009, the Vietnamese government introduced a stimulus policy that included a 4% interest rate support, tax exemptions, tax reductions, and loan guarantees for businesses, aiming to boost investment The policy encompassed three types of interest subsidies: short-term, medium & long-term loans, and loans for agriculture and housing On December 5, 2009, the Ministry of Planning and Investment announced a stimulus package worth VND 143 trillion (around USD 8 billion), later increased to VND 160 trillion (approximately USD 9 billion), which was allocated across eight sections to support credit loan interest rates of about VND 17 trillion This initial stimulus package significantly enhanced business, bank, and investor confidence in the government's commitment to enterprise support and improved market outlook in Vietnam By facilitating access to lower-cost bank funds, the package reduced business expenses, increased competition, and stimulated goods consumption Companies that received timely assistance were able to maintain and expand production, alleviating unemployment pressures and promoting social stability.
The "Bank - Enterprise Connection" program has emerged as an innovative solution within the banking system, enabling businesses to quickly access loans at preferential interest rates for production and business growth Over three years, the program attracted over 4,500 clients, resulting in total loans of VND 67,500 billion Additionally, it provided debt restructuring advice to 10,590 enterprises, with a total structured debt of VND 218,000 billion By 2015, the program aims to support businesses with a limit of VND 60,000 billion, alongside various preferential policies The State Bank of Vietnam (SBV) will not only prioritize lending to manufacturing and five key sectors but will also extend support to high-tech and supporting industries, offering long-term loans to enhance technology and expand production.
To ensure the effectiveness of the demand stimulus package, the government must closely oversee the allocation of resources and prevent unfair competition among businesses in the economy.
The government must establish favorable investment conditions by enacting effective macroeconomic policies and enhancing infrastructure Additionally, only local areas with viable human resources and financial strategies should be eligible for investment fund support and loans By fostering foreign investment, Vietnamese enterprises can gain valuable knowledge and opportunities to assess their products within the domestic market.
The stimulus package serves as a temporary measure during economic crises; however, as the economy recovers, it is crucial for the government to adopt a flexible monetary policy and restructure the economy to promote sustainable development, thereby preventing the resurgence of crisis remnants.
4.1.2 Promoting investment along with solving employment problems
In 2015, the government aimed to generate 1.6 million jobs, comprising 1.51 million local positions and 90,000 export-related roles Achieving this objective requires the implementation of various strategic solutions.
To foster economic growth in rural areas, the government must implement policies that stimulate investment and enhance infrastructure By focusing on production operations and service sectors, these initiatives can boost incomes, generate jobs, and promote the industrialization and modernization of agriculture Additionally, providing enterprises with incentives such as land support, labor training, market development, consulting services, technology application, and assistance with transport costs will further encourage investment in these vital areas.
The state must oversee employment services to ensure effective job center operations, emphasizing counseling and providing essential labor market information Strengthening collaboration between job centers, businesses, and employees is crucial for enhancing employment outcomes.
The government must implement new employment policies aimed at cultivating highly skilled human resources in key sectors, including high-tech agriculture, marine economy, and the information technology industry Additionally, these policies should incentivize overseas employees to return home upon completing their labor contracts or training periods.
Finally, the state must ensure that the implementation of vocational training and apprentices have real economic effectiveness and avoid wasting funds for these process
4.1.3 Continuing to implement business tax support policy
By the end of 2014, the tax solutions aimed at alleviating challenges and fostering enterprise development, as outlined in the Government's Resolution No 63/2014/NQ-CP dated August 25, 2014, were largely accomplished.
By 2015, the government will implement amended laws to enhance tax support for businesses, particularly in agriculture As outlined in Article 3 of Law No 71/2014/QH13, various agricultural production items currently subject to a 5% VAT will be exempt from this tax, including fertilizers, agricultural machinery, and offshore fishing boats This change will enable producers and suppliers of these goods to reduce prices and broaden their market reach.
The government must take steps to effectively implement the Agreement on Avoidance of Double Taxation that Vietnam has signed with various countries For businesses operating in countries that have not signed this agreement with Vietnam, they are required to pay the difference in taxes only if the income tax rate in their home country is lower than Vietnam's tax rate.
Vietnam has signed seven free trade agreements in addition to its membership in the World Trade Organization (WTO) To maximize the benefits of these agreements, the Ministry of Finance, in collaboration with other relevant ministries, must adhere to tariff commitments outlined in the free trade agreements from 2015 to 2018 This approach will enable Vietnamese enterprises to leverage these agreements for business growth and development.
Recommendations for Vietnamese enterprises
The current crisis presents a valuable opportunity for business restructuring, with strategies such as mergers and acquisitions, splits, or transformations serving as effective solutions to navigate challenges Companies should view this crisis as a chance to boost their value and competitiveness in the market During the restructuring process, it is essential for the organizational structure to align with the specific characteristics of each role and sector while adhering to international standards, thereby mitigating potential risks as Vietnam continues to integrate into the global economy.
To navigate crises effectively, enterprises must adapt their business strategies, focusing on centralization to enhance resilience Vietnamese businesses, particularly small and private firms, can draw valuable lessons from global giants that have successfully centralized their brands During challenging times, brand extensions should be approached with careful consideration and integrated into long-term strategies Notable examples include Intel, which has remained committed to its core chip manufacturing industry, Toyota, which continually strives for leadership in the automotive sector, and Apple, which leverages innovation to expand its brand portfolio while maintaining its foundational industry.
Vinamilk, a leading company in Vietnam, has successfully implemented a centralized brand strategy by creating a mega brand across various products and launching marketing campaigns to regain market share from competitors like Dutch Lady while enhancing its brand image Rather than investing profits in real estate or finance, Vinamilk prioritizes investments in milk production facilities and the healthy beverage sector, leveraging its strengths in distribution and marketing In contrast to many enterprises that operate in a scattered manner and focus on broad business development, companies should assess their current customer demographics to concentrate marketing efforts on high-demand, high-purchasing-power segments.
Enterprises should engage with industry associations and business organizations to exchange information, foster connections, and coordinate market activities Additionally, they must adapt their marketing strategies in response to shifts in government macroeconomic policies By closely monitoring these changes, businesses can anticipate and capitalize on the opportunities presented by evolving economic conditions.
The global financial crisis led to rising costs and unstable incomes, making consumers more cautious in their purchasing decisions across affected countries This situation left businesses struggling to sell their goods and maintain production, resulting in significant operational difficulties Additionally, unsold Vietnamese exports generated high costs, prompting a need for enterprises to prioritize the domestic market for both inputs and outputs While many countries have traditionally exploited their domestic markets, the focus on export earnings during integration has led to a neglect of the vast potential within Vietnam's domestic market of over 86 million people By concentrating on domestic market development, businesses can decrease their reliance on foreign markets for fuels and other materials.
To enhance the domestic market, businesses should align with the State's supportive policy package by directing stimulus efforts towards local products instead of imports This is particularly crucial for sectors like textiles, footwear, handicrafts, and processed agricultural and fishery products, which traditionally prioritize export markets Additionally, enterprises must concentrate on penetrating rural areas, an untapped market with significant potential for growth.
To successfully penetrate the domestic market, enterprises must undertake several key actions First, conducting thorough market research is essential to understand the demand for design, quality, price, and product line structure Additionally, businesses should focus on developing products tailored for domestic consumers, as many currently prioritize high export turnover, particularly in industries like textiles, leather, and footwear To effectively sell in the domestic market, companies must create offerings that meet local customer needs Furthermore, establishing strong distribution channels is crucial; partnering with firms that have robust distribution networks can significantly enhance product accessibility and sales.
To effectively navigate a crisis, enterprises must prioritize their financial stability by ensuring positive cash flow, maintaining access to capital, and managing liquidity with strict cash controls It's essential to evaluate borrowing rates and enhance operational efficiency while implementing robust financial oversight to prevent embezzlement and fraud Businesses should avoid assigning a single employee full control over financial transactions and consider setting transaction value limits or utilizing third-party audits annually Additionally, with rising product prices and limited consumer income impacting purchasing power, companies must strike a balance between price and quality to encourage consumer spending.
Chapter 4 has given several recommendations for both the government and enterprises in Vietnam in 2015 Only when these solution are synchronously performed with the combination of the parties, the production and business activities of enterprises in Vietnam can be efficiently improved, and the available resources are properly exploited
The global financial crisis in 2008 caused the worst results since World War
The lack of stringent control over derivative products in the US financial market has resulted in widespread bankruptcies among businesses and large corporations globally In response to this crisis, governments implemented various fiscal and monetary policies to stabilize the economy.
The 2008 global financial crisis highlighted the critical need for healthy and stable macroeconomic policies While economic growth is essential, it must be aligned with macroeconomic stability to ensure sustainable development Pursuing growth without regard for stability can lead to significant long-term risks for both the economy and society.
The financial crisis and economic recession present both challenges and opportunities for Vietnamese enterprises to boost their competitiveness and adaptability It is crucial for businesses to address key areas such as effective management, risk mitigation, restructuring, improving production efficiency, and investing in technology, labor productivity, and skills training for employees.
As a developing nation engaged in international economic integration, Vietnam must proactively choose solutions to leverage current conditions and address crisis challenges The government's recent stimulus measures have successfully boosted investment and production, while also ensuring social security and addressing unemployment However, ongoing government oversight is essential to help Vietnamese enterprises fully overcome the effects of the global economic crisis.
1 Nguyen Thi Thu Huong (2009), “Impacts of global economic crisis on Vietnamese economy” Page 17-47
2 Ho Ba Tinh (2015), “Macroeconomics: The year 2015 will be positive, but it is still unclear in medium and long term” Economic Press
3 Vo Thi Thuy Anh (2010), “Problems of the first demand stimulus package – Lessons on demand stimulus policies for Vietnam” Science and Technology
Press of Da Nang University
1 Law No.71/2014/QH13 (amended and supplemented law of the law on taxes)
2 Resolution No.63/2014/NQ-CP dated August 25 th , 2014
Annual report of several Vietnamese enterprises in 2009 (Tuong An Company, Vietnam Land Investment Company, BaSa Company, and Sai Gon Tribeco Beverage Joint Stock Company)
1 Great Recession (n.d) In Wikipedia, the free encyclopedia Retrieved from http://en.wikipedia.org/wiki/Great_Recession
2 Lessons for Vietnamese enterprises after global financial crisis (2014, Jun 6)
The article discusses valuable lessons for Vietnamese businesses following the global financial crisis, emphasizing the importance of financial resilience and strategic planning It highlights the need for companies to adapt to changing market conditions and to prioritize risk management Furthermore, it suggests that fostering innovation and enhancing operational efficiency are crucial for long-term sustainability in a competitive landscape.
3 Solutions about taxes to support Vietnamese Enterprises in 2015 (2015, Mar
23) In Financial Press Retrieved from http://tapchitaichinh.vn/co-che-chinh- sach/binh-luan-chinh-sach/cac-giai-phap-ve-thue-thuc-day-doanh-nghiep- phat-trien-nam-2015-59434.html
4 Solutions to support enterprises (2014) In Business Online Platform Retrieved from http://dddn.com.vn/toa-dam/cac-giai-phap-ho-tro-doanh-nghiep-2014-20140106062726634.htm