Domestic firms losing out to foreign investors

TN News

Email Print

Workers pack floor tiles at a plant of Viglacera Tien Son Company. Photo by Ngoc Thang

Unless local firms become fully resource-independent and improve management, they’ll be crushed by foreign investors, especially major players from China whose close cooperation strengthens their competitiveness, according to analysts.

Economists say that nearly 70,000 Vietnamese businesses dissolved or suspended operations in 2013, reflecting what many consider a worrisome reality.

They say that most local firms have been outpaced by their foreign counterparts, including many from China. Analysts also argue that successful Vietnamese businesses are only successful at home, and not abroad.

A report by the Ministry of Investment and Planning showed that there were 27.7 percent more healthy Vietnamese business this January compared to January 2013. The report also said there was a 79.5 percent increase in registered capital compared to the same period last year.

But To Hoai Nam, vice chairman and general secretary of the Vietnam Association of Small and Medium Enterprises, said 90 percent of around 600,000 operative businesses in the country are small and medium-sized enterprises (SMEs), and many of them are weak and facing bankruptcy or the risk of being gobbled up by Chinese firms.

Nam accused the Chinese companies of not caring much about the local environment or business ethics.

“They cooperate with each other very well, all for the purpose of squashing local firms.”

He said the situation is “really stressful” as it goes alongside a rise in unemployment and social instability.

Dr. Le Xuan Nghia, former vice chairman of the National Financial Supervisory Commission, said local firms are losing out due to poor management, their over reliance on government support and their inability to effectively cultivate natural resources.

Nghia said foreign firms are “taking over” local industries like chemicals and cosmetics, beverages and animal production, and possibly the growing e-commerce market.

He said 44 animal production businesses went bankrupt in 2011, with Vietnam’s leading animal production firm CP taken over by a Thai firm, which then sold the shares to a Chinese group.

Chinese fund Gaoling had spent tens of millions of dollars buying 6.2 million shares at Vietnam’s top coffee exporter Vinacafe by the end of 2013.

Chinese imports

Dr. Tran Dinh Thien, director of the Institute of Economics, said China also controls Vietnam’s economy by being its main supplier.

China was Vietnam’s biggest import market for another year in 2013 with US$36.8 billion in revenues, posting an increase by 26.7 percent year on year. Vietnam’s trade gap with China last year reached $23.7 billion, or more than 100 times the amount recorded in 2001.

“[The fact that] we rely too much on imports from China… is no less serious than that Vietnamese brands are being taken over,” he said.

Nguyen Truong Son, vice chairman of Vietnam Young Entrepreneur Association, said the Kunming (China)-Hanoi-Hai Phong economic corridor that is currently under construction is supposed to facilitate increased Vietnamese exports to China.

But if Vietnam cannot increase its exports, it will work the other way around.

“It’s a matter of course that if we don’t export a lot to China, we will have to use a lot of their products,” Son said.

Economists also blamed the government for lax policies issued to attract foreign investors without protecting domestic businesses at home.

Nghia said the Competition Management Department at the trade ministry was failing in its job by leaving local firms exposed to such harsh and unfair competition.

He took the example of the US market, which is open but strictly protects its brand, making Toyota still wait 16 years for approval to establish a joint venture there.

Nam said the government should set a New Year’s resolution to improve the investment environment, especially for the private sector.

Business resolutions

Economists said businesses can save themselves by focusing on and improving their core business first, which several companies have started doing.

An Giang Plant Protection JSC in the Mekong Delta’s An Giang Province, the pioneer in working with farmers to create large fields by combining smaller ones to achieve economies of scale, is set to develop the model further.

The large field area has increased from around 19,500 hectares in 2012 to 61,600 hectares in late 2013, with a triple increase in participating families at 20,500.

Farmers are provided seeds, fertilizers and pesticides at zero interest during the crop season that usually lasts four months, besides free packaging, transport and air services, and they have all their harvest bought by the company at market prices.

They can leave their rice in the company’s stores for free for 30 days to wait for better prices, and they can also sell rice to other customers after paying fees signed in contracts.

The company also distributes profits by selling shares to the farmers at preferential prices.

Dam Cong Hoat, general director of egg supplier Vietfarm, said the company has plans to introduce more egg products to increase consumption, and has invested in a production chain for instant sterilized eggs that are popular in fast food industries in other countries.

Hoat said the product, which appeared on the market for the first time early this year, was unprecedented and thus a “breakthrough” to cater to new consumption habits in Vietnam.

The new system, costing VND5 billion ($237,650) and taking 15 months to implement, includes four tanks for steaming eggs, four machines for peeling eggs, a sterilization system, one for cooking the eggs and another for vacuum packing.

“The final products can be preserved for three months at room temperature, and thus the company can help farmers clear their harvest,” Hoat said.

Ho Chi Minh City’s popular supermarket chain, Saigon Co.opMart, has announced projects to improve its appearance and management, save logistics expenses from the city to Mekong Delta destinations and connect suppliers for information sharing.

The chain is going to open eight more supermarkets this year while Saigon Trading Company (Satra) has planned 18 more convenience stores.

Le Minh Trang, general director of Satra, said it will withdraw money from non-core investments and focus resources on its advantages such as commerce and commercial infrastructure.

Economist Dinh The Hien said businesses need to focus on improving the quality of their products and paying interest on time, which will help them win both consumers’ confidence and creditors’ trust when they want to expand.

Like us on Facebook and scroll down to share your comment

More Business News