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Harvard man says originality helps growth
Professor Michael Porter of the Harvard Business School, a leading guru on competitive strategy, said during his Viet Nam visit last week that both businesses and the Government needed to renovate their development strategies to ensure sustainable growth.
He advised Vietnamese companies to employ high technology, improve labour skills and create differentiation and originality in their competition strategies.
He based his suggestion on an analysis of the mistakes usually committed by the firms. They have the habit of aiming to become the best company while this is impossible because customers have different criteria for the products and services they choose.
When companies directly compete against rivals with the same product/service and price, profit for one means loss to the other, and this would lead to bankruptcy, mergers or acquisitions.
Another mistake is to set the utmost priority for growth, even sacrificing profit for the purpose, which is not a sustainable practice. He also advised businesses to pay attention to their responsibilities to society so that both could grow.
At the Government level, Porter said he was impressed by the high growth and significant poverty reduction achieved by Viet Nam in the last two decades, but added the country needed a new model for sustainable development. The model that has helped the country thus far would no longer work, and it was time for socio-economic development strategy to focus on improving the nation's competitiveness, he said.
The professor, who guided members of the Singapore-based Asia Competitivess Institute and Viet Nam's Central Institute for Economic Management in preparing the Viet Nam Competitivess Report that was released last week, said the country's growth relied mainly on available advantages of cheap labour and natural resources.
Now, it needed to focus on improving productivity, he said.
Amongst other things, the Government should redefine its role to suit the emerging, dynamic market economy and offer a more balanced environment for State-owned enterprises, private and foreign firms.
In the report's list of 500 biggest companies, those in the oil and gas, banking, power and telecommunication sectors take the leading positions, like elsewhere in the world.
Vu Thanh Tu Anh, a lecturer for the Fulbright Programme, identified some salient features: Viet Nam is not a major oil producer, 21 out of the 100 biggest companies have operations relating to petroleum and gas. Five of the firms trade in gold, silver and jewelry and another six, all local and serving the domestic market, are in alcohol, beer and cigarette businesses, all are local and serve domestic markets, though the prosperity level in the country is below the world average.
Two-thirds of the top 100 were State-owned enterprises, who earned their positions through near exclusive access to natural resources or monopolistic control in the domestic market in sectors like electricity and not because they were competitive, Anh noted. Many of these firms were big, like the national power utility, but not strong, he said, citing Vinashin as an example.
Banks face uphill climb
With more than 80 banks in the fray and just 20 enjoying a major market share, there is concern that the weaker ones could threaten public confidence in the banking system because of their instability. To address this, Viet Nam plans to set stiff minimum capital requirements for the banks under which all of them should raise their charter capital to VND5 trillion (US$256 milion) by 2012 and VND10 trillion ($512 million) by 2015.
Brett Krause of CitiBank Viet Nam, who chairs the Banking Working Group, noted during last week's Viet Nam Business Forum that "these were inappropriately high levels (To attain) in a short period of time." He said the Vietnamese market was not sufficiently large to be able to prudently deploy and leverage such an influx of capital from both domestic and foreign banks.
The BWG has calculated that if all banks in Viet Nam raised capital as envisaged, the sector will be marked by fierce competition pressures, higher risk appetites and poor returns on capital.
The group advised the State Bank of Viet Nam to use tools promoting mergers by weaker banks rather than requiring higher charter capital from all banks.
The BWG chairman said he expected the central bank to encourage competition, risk management and safe and sound use of capital where banks with different capital scales could operate. Banks' mergers should be supported with adequate legal framework, he said.
It is estimated that almost 20 joint stock banks will find it difficult to increase their capital to VND3 trillion ($153 million) before the year's end as required, though their capital-augmenting projects have been approved by the State Bank as well as the State Securities Commission. If they fail, they will face mergers or acquisitions.
Industry insiders have questioned the need for small rural banks to upgrade themselves, saying they should be limited to activities that suit their size so that safety is ensured. While they are well equipped to perform their typical functions of mobilising capital and providing loans to local customers, the small banks would face difficulties in meeting upgraded criteria in governance, operations, capital and technology that they cannot put to full use.
Acquisition buzz
Acquisition activities have picked up in recent days with several companies announcing the sale of stakes to strategic partners.
The Gia Quyen Securities Company (EPS) plans to officially announce its strategic partnership with Korea Investment and Securities Company (KIS) tomorrow (Dec. 7). The Korean firm has completed procedures to take a 49 per cent stake in the Vietnamese company. Its investment will help EPS increase its chartered capital to VND363 billion from the current VND135 billion, though the deal's value has not been announced.
KIS will also assist with training brokerage, investment consulting and financial analysis staff, improve the trading system, developing new products and increasing customers.
Last Saturday, the HCM Stock Exchange listed property developer Dat Xanh Group (DXG) concluded an agreement to sell its shares to the fund management company FPT Capital. The move is part of its plans to increase its chartered capital to VND320 billion from the current VND160 billion in which 16.25 per cent (5.2 million equities) will be released. FPT Capital will acquire 7.34 per cent. This increased capital will help the seller develop its residential projects including The Morning Star and Phu Gia Hung Apartment complexes.
Another acquisition relating to a subsidiary of the Financing and Promoting Technology Corp (FPT), which is listed on the southern bourse, has been announced. The Japanese financial services company SBI Holdings has said its affiliate SBI Securities Co. has reached a basic agreement to acquire a 20 per cent stake in FPT Securities Joint Stock Company, which is issuing new shares to external investors. An FTP Securities spokesperson said negotiations were ongoing.
Last week Viet Nam-based fund management firm Indochina Capital entered into a partnership with Japanese financial services group, ORIX Corporation.
The Tokyo headquartered firm acquired a 25 per cent stake in Indochina Capital. It plans to support Indochina Capital expand its
fund management and advisory businesses in Viet Nam, one of Asia's fastest growing economies.
ORIX will also provide advisory services to Japanese companies entering Viet Nam and expand various business opportunities in collaboration with Indochina Capital.
Indochina Capital now manages several real estate funds worth around US$500 million.
The firm's fund management division has approximately US$60 million in assets under management and invests in a diversified portfolio of public and private securities in areas including financial services, consumer durables, healthcare, food and beverages, natural resources and construction.
Thuy Anh
vietnamnews
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