Tough Year for Vietnam Businesses

Under the theme of "Business Linkage", the report delved into the capability of Vietnamese businesses on four aspects: Labour, finance, innovation and market access. It also enquired into operating realities of businesses according to annualised themes.

 

Global economies are forecast to continue facing difficulties in 2012 and this will leave a considerable effect on the Vietnamese economy as it is penetrating more deeply into the world economy, said the report. Economic slowdown in combination with austerity measures, tax hikes, public spending reduction and unemployment rise in Europe, the US and many other nations will lead to a contraction in consumption and import. This will greatly impact Vietnam’s exportation in 2012. Although its exports increased 33 percent in 2011 in Vietnam, this was resulted from higher prices. Hence, the situation will be harder in 2012. The Government of Vietnam anticipated this tendency when it set the export growth target of just 12-13 percent in 2012.

 

But, the economic prospect in 2012 will also provide opportunities for the Vietnamese economy. First of all, capital flows are being withdrawn from turbulent, risky economies to reach more stable and beneficial markets like Vietnam. The country is widely known for its social and political stability and its huge investment potentials. If macroeconomic data are good enough, Vietnam will attract a lot of foreign investment capital.

 

Despite economic difficulties, consumers still have to spend on essential goods like clothes. As its major exports are essential goods, Vietnam is capable of increasing their value. On the other hand, the country can redirect its export focus to emerging markets and developing markets where economic activities are more exciting. The ongoing reconstruction of Japan at the wake of devastating earthquakes and tsunamis last year will grant an opportunity for Vietnam to boost exports to this market.

 

The report said expected lower commodity prices on global markets in 2012 will have positive impact on Vietnam’s inflation target. Oil prices are expected to decline in 2012, thus easing input pressures on domestic firms.

 

Although production and business operations in the first quarter of 2012 were forecast to decline over the fourth quarter of 2011, 32 percent of surveyed enterprises revealed their expansion plans in 2012; 52 percent decided to maintain the scale; 15 percent planned to shrink operations; and only 1 percent planned termination.

 

The primary reason for production expansion in 2012 is the trust of businesses in domestic and export market growth. Another reason is tax preference and infrastructure improvement. Meanwhile, companies wanted to scale down operations because they kept pessimistic look on Vietnamese and global economic prospects. Excessive production costs are also a cause.

 

Most respondents agreed that they are making great effort to restructure to suit post-crisis period. Cost price reduction, productivity improvement, market expansion and quality improvement are major restructuring measures. These measures are highly effective. 65 percent of respondents said the product quality increased significantly and 57 percent said labour productivity increased strongly.

 

In support for the business community to overcome challenges, the report recommends the Government continue with aggressive measures to stabilise macro economy, control inflation and bring down interest rates. Besides, the Government needs to improve market foresting activities in order to make timely amendments to policies. Banks necessarily bring down bad debts as this may lead to a downgrade in national credit ratings. And, as a result, domestic companies will face more difficulties to borrow foreign capital.

 

In addition, the report said that the Government necessarily reviews public expenses and projects, especially at the local level; pays more attention to petroleum and electricity pricing roadmaps to avoid ‘shocking’ impacts on the market and the economy; and considers tax breaks and reductions for companies, especially small and medium ones.

 

According to the report, the Government essentially quickens the deployment of SME Development Plan for the 2011 - 2015 period. Accordingly, SMEs will be provided practical support to set up effective business plans, seek markets and have credit guarantee. It needs to build an institutional frame to strengthen regional business linkages by forming business associations or supply chain and value chain. It needs to introduce specific development plans for established economic zones on the basis of capitalising on local competitive advantages, particularly materials. It must have clear-cut orientations when it allows the formation of industrial zones.

 

As regards the business community, the report said companies need to continue with their corporate restructuring, with focus given to enhancing labour productivity, applying science and technology, and improving smart governance.

 

They need to diversify capital sources to avoid being too dependent on bank loans. They need to have good investment plans and product structures to keep key markets and regular customers in order to have better margins on return.

 

Large businesses must focus on their core business fields and review their business plans to have best performance to their capacity.

 

The report said food processors need to reorganise their production towards a vertical model where breeding farmers are the centre, processors unite or organise horizontal links (cooperatives, clubs, production groups, etc).

 

Especially, businesses need to form associations to synergize their strengths to expand operations for mutual benefits. Business associations play important roles in developing macro-level linkages as well as specific product and service supply chains.