State owned enterprises in VietNam perceptions of strategic direction for a society in transition

The current issue and full text archive of this journal is available at http://www.emerald-library.com State-owned enterprises (SOEs) in Vietnam Perceptions of strategic direction for a society in transition SOEs in Vietnam 169 Philip C Wright School of Business, Hong Kong Baptist University, Kowloon Tong, Hong Kong, and V.T Nguyen National Economics University, Hanoi, Vietnam Keywords Vietnam, Change, Macro-economics Abstract Explores, using face-to-face interviews, the perceptions of managers in state-owned enterprises in Vietnam, as to their strategic plans Given that many of these enterprises will have to be privatized, sometime in the future, it is surprising that little thought has been given to this eventuality Suggests that the massive nature of the state sector (40-50 per cent of the economy) will make it difficult for policy makers to enact change Outlines a macro-economic formula for planned, gradual conversion, keeping this reality in mind Introduction In Vietnam, the state-owned industrial/business sector still comprises 40-50 per cent of GNP and 60 per cent of domestic income (Tran, 1998) The Vietnamese currency is not traded in world markets, and government policy seeks to merge market economy concepts with a strong tradition of socialism (Draft, 1996) Thus, the state-owned sector is expected to play a major role in the modernization of the country Faced with what might become a long-term economic slowdown, the key question appears to be: how to build a competitive economy when confronted with the forces of globalization, while still remaining true to socialist principles Thus, strategic planning within SOEs becomes critically important, as (in macro terms) the direction taken by the state-owned sector will, in large measure, determine the strength and the direction of the economy It must be stressed here that Vietnam is not a centrally-planned economy Managers in SOEs have considerable latitude in charting strategic direction Although the state sector cannot be described as vibrant or dynamic, these companies are not all moribund, revenue-losing organizations (Ngo, 1998) VINA Milk, for example, has developed an excellent line of products that compete successfully with foreign competitors Conversely, the government has been actively reducing the number of SOEs (from c 12,000 to c 6,000), through a series of amalgamations and privatization (Tran, 1998; Thanh, 1998) While this process has not gone smoothly, The International Journal of Public Sector Management, Vol 13 No 2, 2000, pp 169-177 # MCB University Press, 0951-3558 IJPSM 13,2 170 government policy seems firmly set towards freeing some large portion of the state-owned economy (Nguyen, 1998a) Therefore, managers in SOEs now are faced with the problem of survival, many for the first time Either their particular enterprises will remain within the arms of the state, but with stricter performance targets and fewer subsidies, or they well be ``equitized'' (equitization is the Vietnamese term for privatization), and forced to make their own way in the world Either way, the task will not be easy Carrying high debt loads and burdened by a lack of skills, many (but one should stress ± not all) of these organizations face an uncertain future (Nguyen, 1998a; McCornac and Wright, 1998) Therefore, it is critical to understand how SOE managers plan their organizational futures, in that, despite ``equitization'', much of the economy still will consist of SOEs, at least in the medium-term future This paper, therefore, will explore both the concept of strategic planning within SOEs and perceptions of what should be changed, in macro-economic terms From these data, we will create a model that outlines possible future directions, in both policy formation and strategic planning Methodology Conducting research in Vietnam is a difficult experience, since (as in many societies) there is little tradition of independent, confidential inquiry (Adair, 1995; Yin, 1989) In addition, the role of relationships in securing information from managers cannot be underestimated (Berrell and Wright, 1999) In this project, for example, contacts were made through students, in order to gain entry to suitable research subjects ± individuals in the top levels of management Indeed, the fact that 36 senior SOE executives agreed to participate in academic research is regarded as a major breakthrough Thus, while our ``sample'' (n = 36) comprises a mere 13 per cent of SOEs (n = 280) in the Hanoi area, we view this research as a unique and a valuable contribution to scholarly knowledge In this situation, a convenience, or judgmental sampling process, i.e working through relationships, was the only feasible way to gain access to this group of senior managers (Sekaran, 1992) Supported by the work of Weiss (1994), we argue that it is preferable to create a pilot study using a small sample, rather than to conduct no research at all! We note Weiss's warnings, however, concerning the inappropriateness of generalizing from these findings and we will be cautious when drawing conclusions The research instrument consisted of a short, three-item questionnaire, administered through face-to-face interviews The data then were categorized and frequency tables generated to draw out common themes The sample consisted of four banks, 11 trading companies (import/export), seven public utilities enterprises (housing, gas, water, electricity), two in hospitality management (hotels and tourism), nine manufacturers, one airline and two service companies With such an eclectic sample, no attempt was made to present the data by category It was felt that their common status as SOEs, operating under roughly the same regulations and economic conditions, ensures the integrity of the sample In addition, much of the literature combines all SOEs into one category (Ha, 1998c; Thanh, 1998) The research findings Perception of how the ``Asian crisis'' will affect SOEs in the next five years The first question: ``How will your enterprise be affected by the ongoing Asian financial/business crisis for the next five years? Please list the areas'', was answered by all but one respondent (n = 35) and several respondents listed more than one area (see Figure 1) It is obvious from Figure that productivity is a major concern Despite the relatively low wage levels in Vietnam, many state-owned industries are not competitive The textile industry, in particular, has been singled out, as manufacturers have been forced to subcontract ``in order to survive fierce competition of [sic] international markets'' (Huong, 1998; Manh, 1998) In other areas ± cement is but one example ± poor quality and price combine to make the product susceptible to off-shore competition (Nyoc, 1998) The importance placed on the productivity issue, therefore, fits well with conclusions drawn from the professional literature (Le, 1998) As for the fear that domestic growth will slow down during the next five years (Figure 1), reducing the considerable market for goods and services, this issue was likely to be a major concern, as the Vietnamese have grown accustomed to phenomenal growth rates In 1996, for example, exports grew by 33 per cent to US$7.2 billion and GNP grew by 9.3 per cent This growth compared favourably with China's 9.7 per cent, greatly outstripping Western economies (Canada +1.5 per cent; USA +2.4 per cent) (PECC, 1998) By June 1998, exports were forecast to grow by `` just'' 13 per cent and, despite official denial, in August 1998 the Dong was allowed to depreciate slightly (Ha, 1998a) It is little wonder, then, that slowing domestic demand is a major concern (Vietnam Economic News, 1998), as it is not difficult to equate a sluggish domestic economy with a weakening export sector (Vietnam Economic Times, 1998a) SOEs in Vietnam 171 Figure Perception of issues affecting SOEs during the next five years IJPSM 13,2 172 Conversely, it is surprising that mobilization, or availability of capital, was perceived to affect only six enterprises, as there has been much debate over this issue (Chi, 1998a, 1998b; Ha, 1998b; Nguyen, 1998b) Similarly, exchange rate fluctuations, a major concern elsewhere, were mentioned only five times, lack of foreign investment only four, and cost of imported materials and equipment only three times All these issues seem to be major concerns in both government and private-sector circles (Vietnam Economic Times, 1998b) Three of the issues listed only once ± debt payment, fewer exports and bad loans ± might be subsumed into the general category: ``availability/mobilization of capital'' (Figure 1), so they will not be discussed further It is surprising, however, that changing government policies were not regarded as a major concern, in that SOEs appear (in the press at least) to be in for a major restructuring (Ha, 1998b; Tran, 1998) As the equitization programme has faltered, however (Thanh, 1998), one might speculate that, as the respondents have seen government policies come and go, they are no longer concerned Obviously, then, it is not what is in Figure that is surprising, but what is not in, or what was not perceived as important that surprises Except for some broad economic concerns, it is as if managers of these SOEs have been divorced from many of the major economic and regulatory challenges facing Vietnam As the debt owed by SOEs now amounts to more than half of the country's gross national income (McCornac and Wright, 1998), perhaps it is felt that government ``loans'' will continue to isolate SOE managers from drastic change, for to allow SOEs to go bankrupt would be too great a shock to an already feeble economy How SOEs' strategy has changed to cope with the Asian crisis Based on the answers to question one, outlined in Figure 1, the respondents then were asked to detail how strategy within their SOEs had changed Note that the question was purposely worded so that managers could indicate that no change had occurred All respondents, however, were able to point to changes in direction, some major, some minor (Figure 2) While only one respondent suggested that little change would be necessary, however, there is only moderate evidence that SOEs' managers are planning to take the painful decisions made by organizations in other parts of the world While there was some willingness to reduce costs (n = 7), or to substitute domestic equipment/materials for foreign imports, only five (14 per cent) had plans to downsize their enterprises Indeed, it would appear that, in large measure, diversification and market development were seen as the way ahead This perception does not match with reality of the marketplace, nor does it seem to take the government's desire for privatization (equitization) into account Just as, in general, the SOEs' managers' view of the next five years (Figure 2) does not seem to include many of the challenges widely thought to lie ahead, the idea that a strategy of expansion and diversification can be SOEs in Vietnam 173 Figure Strategies to be pursued by SOEs during the next five years successful (without the attendant focus on productivity, efficiency and cost cutting) does not fit with experience elsewhere, either in the West or in other emerging economies, for example, China Question 3: What changes in the economy ± in a macro sense ± are necessary to address the problems facing your enterprise during the next five years? This question elicited a surprising response, as reform of the state-owned economic sectors was seen as one of the two most important (n = 14) macroeconomic changes that needed to be made during the next five years (Figure 3)! That reform of the banking system (n = 14), along with flexibility in exchange rates (n = 9), was mentioned often was expected given the amount of publicity generated by these two issues (Chi, 1998a, 1998b; Ha, 1998b; Hoang, 1998) Corruption, too, is regarded widely as a menace to economic growth, especially smuggling and corrupt practice by government officials (Duc, 1998; Hau, 1998) Figure Perceived changes in macro-economic policy necessary during the next five years IJPSM 13,2 174 It is interesting to note that, while in a micro sense, SME managers seem to be trying to preserve the status quo, their macro-economic solutions are quite liberal, stressing reform and financial flexibility The more regressive, protective measures were suggested by relatively few respondents (Figure 3) Certainly, the major choices are well attuned with generally-accepted, mainstream economic views (Soludo and Shameen, 1998) The explanation for this dichotomy may lie in the realization that, while change is necessary, personal preference dictates that change occur elsewhere One might be quite liberal in a general sense, therefore, but self-preservation determines how we view our own jobs Discussion It would appear that the majority of our respondents not intend to restructure their enterprises to compete within a global economy As Vietnam's economy is not yet open to unfettered competition, however, perhaps the social ramifications of re-engineering the state-owned sector are, at present, too awful to contemplate In an economy where growth has slowed and where export markets have become unstable, perhaps a headlong rush to modernization is not feasible at this time Rather than create massive unemployment, caused by an equally massive shrinkage in SOEs, perhaps the more humane policy would be to encourage private enterprise, while gradually downsizing the public sector The most inefficient, debt-ridden and largest money losers may have to be shut down, merged or restructured but, with such a large portion of the economy owned by the state, turning Vietnam into a capitalist enclave is not feasible at this time This moderate approach flies in the teeth of Western economic orthodoxy More than 50 years of socialism, however, has created a society where expectations of what government can and should are quite different from Western norms This attitude was personified by remarks made during a governmentsponsored conference for young ``entrepreneurs'' held in early September 1998 Typical comments included: The state should set minimum prices for each product and establish a network of purchasing agents Sometimes we have been forced to sell at a certain price [to dealers] whether we like it or not We have proposed that the Government ban imports [that compete with] domesticallyproduced goods (Vietnam News, 1998) This kind of ``entrepreneurial'' thinking, while anecdotal, illustrates the strains felt by many Vietnamese when faced with the economics of the marketplace Also the wars that have given rise to the present political system are not forgotten in Vietnam For the first time in centuries the Vietnamese are free to choose their own destiny (Wright and Newton, 1998) Should another conqueror, this one economic and couched in terms like `` globalization'', be seen to take over, there could be widespread resistance in government, domestic business and the general population Anecdotal evidence suggests, for example, that some young people are being urged by their elders to shy away from joint ventures and to work for domestic companies, so as to be true to their motherland This is a proud nation ± the depth of nationalistic feelings should not be underestimated Having urged moderation, this policy must be coupled with a programme to make SOEs more efficient and, ultimately, to move them towards profitability Long-cherished management practices and work attitudes must be changed (McCornac and Wright, 1998) Managers must be held accountable for results The expected outcomes may be different from in the West, but results need to be measured and responsibility instilled into the SOE system Our proposed policy of moderation does not mean neglect, nor is it a licence to lose money; it is a call to design a uniquely Vietnamese way to modernize an economy It is suggested strongly, based on experiences elsewhere, especially in Russia, that a supportive infrastructure needs to exist before capitalism can be introduced successfully That infrastructure, especially in terms of financial transparency, contract law and freedom from burdensome regulations, has not yet taken root in Vietnam SOEs, therefore, need to remain an economic mainstay in order to prevent widespread social and economic chaos The other side of this issue, of course, is the creation of an environment in which the private sector will grow That topic is beyond the scope of this paper but, if a ``modernization'' policy is to succeed, it must be coupled with a growing private sector Otherwise, Vietnam will be saddled with a growing list of inefficient, state-owned industries, unable to meet the needs of its people, while being marginalized Towards a model of modernization in Vietnam Under this model (Figure 4), the state-owned sector, now the most important pillar of the economy, gradually diminishes in importance as the private sector increases in size as a result of infrastructure development Note, however, that the state-owned sector remains a noteworthy player on the economic stage for the foreseeable future The second prerequisite is the development of human capital Preparing a cadre of managers capable of performing effectively within such a system will take time and considerable investment over the long term (Wright and Newton, 1998) The key issue, both from a social and from an economic perspective, is to monitor the change process and to make macro-economic adjustments when necessary The expectations of the population need to be given the chance to adapt over time SOEs in Vietnam 175 IJPSM 13,2 176 Figure A ``moderate model'' of modernization References and further reading Adair, J (1995), ``The research environment in developing countries'', International Journal of Psychology, Vol 30 No 6, pp 643-62 Berrell, M and Wright, P (1999), ``Toward a model of teaching through case studies in Vietnam and beyond'', Academic Exchange Quarterly, Vol No 1, pp 32-9 Chi, K (1998a), ``Banking prospects in 1998'', Vietnam Economic News, No 14, pp 20-21 Chi, K (1998b), ``Lost and found'', Vietnam Economic News, No 28, pp 18-19 ``Draft Political Report on the VIII National Congress of CPV'' (1996), Vietnam's Socio-Economic Development, No 6, September, pp 3-24 Duc, H (1998), ``Solution sought to illegal trade boom'', Vietnam Investment Review, No 346, 1-7 June, p Economic Times (1998), ``Law on the State Bank of Vietnam'', Economic Times, March, pp 24-5 Ha, T (1998a), ``SOEs crippled by debt'', Vietnam Investment Review, No 357, 17-23 August, p Ha, T (1998b), ``State bank boss pledges sweeping finance reform'', Vietnam Investment Review, (Finance and Banking section), No 347, 8-14 June, p 16 Ha, T (1998c), ``Officials rule out devaluation'', Vietnam Investment Review, No 346, 1-7 June, p 23 Hau, H (1998), ``Counterfeit goods ± a national calamity'', Vietnam Economic News, Vol 32, p 29 Hoang, T (1998), ``A rusty mechanism'', Vietnam Economic News, Vol 18, pp 18-19 Huong, A (1998), ``Threadbare industry in need of assistance'', Vietnam Investment Review, No 346, 1-7 June, p 10 Le, Q (1998), ``Take the bus'', Vietnam Economic Times, March, pp 21-2 McCornac, D and Wright, P (1998), ``Equitisation floundering as SOE heads fear empty nest'', Vietnam Investment Review, No 361, 14-20 September, Insight section, p 18 Manh, Q (1998), ``Keep up with the times, clothes makers urged'', Vietnam Investment Review, No 361, 14-20 September, p 19 Ngo, T (1998), ``SOE pumpkin blossoms into corporate Cinderella'', Vietnam Investment Review, No 346, 1-7 June, p 14 Nguyen, N.C (1998a), ``Sluggish equitization put back on track'', Vietnam Investment Review, No 348, 15-21 June, p Nguyen, N.C (1998b), ``Improvement of investment capital mobilization and circulation'', Vietnam Economic News, Vol VIII No 32, pp 10-11 Nguyen, N.C (1998c), ``Crisis, a blessing in disguise '', Vietnam Investment Review, No 349, 22-28 June, p Nyoc, D (1998), ``AASC boosting internal force'', Vietnam Economic News, Vol 32, p 13 PECC Pacific Economic Outlook, 1997-1998 (1998), US National Committee for Economic Cooperation, San Francisco, CA Sekaran, U (1992), Research Methods for Business, 2nd ed., John Wiley & Sons, New York, NY Soludo, R and Shameen, A (1998), ``How much longer?'', Asia Week, 17 July, pp 36-44 Thanh, H (1998a), ``SOEs crippled by debt'', Vietnam Investment Review, No 357, 17-23 August, p Tran, C.B (1998), ``Renovating SOEs'', Vietnam Economic News, Vol 32, p Vietnam Economic News (1998), ``Foreign investment down'', Vietnam Economic News, No 16, p Vietnam Economic Times (1998a), ``The gathering storm'', Vietnam Economic Times, No 44, March, pp 12-16 Vietnam Economic Times (1998b), ``Finance facts'', Vietnam Economic Times, March, pp 18-19 Vietnam Economic Times (1998c), ``Textile trouble'', Vietnam Economic Times, March, p 16 Vietnam News (1998), ``Young entrepreneurs push economic development'', Vietnam News, No 8, p Weiss, R (1994), Learning from Strangers: The Art and Method of Qualitative Interviewing, Free Press, New York, NY Wright, P and Newton, B (1998), ``Management training challenges in Vietnam'', Corporate University Review, July/August, pp 40-41 Yin, R (1989), Case Study Research and Design, Sage, Newbury Park, CA SOEs in Vietnam 177 ... suitable research subjects ± individuals in the top levels of management Indeed, the fact that 36 senior SOE executives agreed to participate in academic research is regarded as a major breakthrough... surprising, however, that changing government policies were not regarded as a major concern, in that SOEs appear (in the press at least) to be in for a major restructuring (Ha, 1998b; Tran, 1998) As... especially in terms of financial transparency, contract law and freedom from burdensome regulations, has not yet taken root in Vietnam SOEs, therefore, need to remain an economic mainstay in order to