Economic difficulties combined with financial burdens are the dilemma facing more and more Vietnamese companies. Mr Do Thanh Nam, President of Win-Win Strategy Consulting Joint Stock Company, shares his solutions to these difficulties. Thu Huyen reports.
You once said that crisis was an opportunity for enterprises to become more powerful. Do you think Vietnam’s enterprises are stronger?
This is time for companies to review their operations to shape a better form and boost up resistance to difficulties. Some Vietnamese companies have built their in-depth sustainable development strategies, rationalised debt balances, cut costs, ended unprofitable business lines, boosted operations in businesses that are free from or little impacted by crisis, or selected good seasonal businesses to survive and wait for a better future. Therefore, they are staying firm ahead of hailstorm. However, this kind of businesses is not the majority. They are mainly powerful corporations financially supported or involved in businesses that are free from or little impacted by crisis.
The rest - mostly small and medium-sized enterprises - is in a very difficult situation. In early 2012, global economies remain uncertain while difficulties starting in 2011 have not been over. Inflation growth and interest rates have slowed down though, they are still quite high. Credit supply has increased but the improvement was insignificant. Consumption remains stagnant. Worse, in 2011, about 50,000 bankrupt companies dulled the Vietnamese economic picture in the first months of 2012. A harder scenario has been anticipated for 2012 and the number of 100,000 bankrupt companies is possible.
What is the biggest difficulty for Vietnamese companies?
First, interest rates remain high and not all companies can borrow money from banks. Given limited supply, banks usually give lending priority to their big shareholders. In the first two months, cash shortfall and illiquidity sent many companies to the verge of bankruptcy
Second, rising input costs and shrinking output markets have increased inventories of many commodities, with some sources revealing a double amount from a year ago. Therefore, variable and fixed costs on a unit of product go up while selling price hikes usually lead to consumption contraction.
Third, the crisis starting in 2008 weakens the resistance of businesses. Many businesses become depressed and lose patience while disregarding the improvement of business environment, more business-supporting policies, etc. As a result, they lack proper orientations and policies to revive their businesses.
As an experienced strategy consultant and supporter for businesses, in your opinion, how can businesses overcome those difficulties?
Solutions for them vary, depending on their reality. But, the following solutions are possible good for them.
First, they necessarily speed up debt collection and prioritise immediate-paying customers. Due payment of customers is a crucial criterion. They need to rate customers to make a priority list. For damaging customers, i.e. those bringing in small revenues but demanding time and costs and delaying payment, they need to have appropriate measures.
Second, they need to seek ways to boost sales and reduce inventories. The base for determining selling prices is variable costs (not cost price as earlier) and customers’ payment capacity. They must try to minimise damage and maintain operations to wait for economic recovery.
Third, they necessarily strengthen cooperation and association to reduce production and distribution costs and to support each other to increase sales. Competing businesses need to work together to discuss ways to cut costs for customers by combining comprehensive solutions from marketing, selling and transporting. In addition, they need to pay attention to outsourcing form. With this form, they can hire other producers to manufacture products and they can minimise investment in fixed assets. Then, they can convert fixed costs into variable costs to mitigate risks. Meanwhile, outsourcers can run at full capacity and reduce unit cost. They also diminish costs that do not generate added value, reshuffle management apparatus to increase resistance to market volatility.
Fourth, they should abandon business fields they are not strong at. They must focus their resources on important projects that can generate effects immediately.
Fifth, if they have good financial capacity, they should carry out M&A deals, diversify products and markets. They should focus on fields that they can do well and generate much value.
Sixth, they should settle due bank loans by any possible source of capital and seek new loans to expand operations.
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