Taking the Corporations’ Shirts off

The Vietnamese Prime Minister has recently approved the termination of Song Da and HUD Corporation - two test projects that strived to create two state-own conglomerates in the construction industry. According to many experts, this is also the end of the tenuous and inefficient links among SOEs. The termination is regarded as inevitable given the negative impacts that these SOEs could potentially exert should they be allowed to continue their operation. In fact, the expectation four years ago, that these two would become two powerhouses, strong enough to offer competitive bids in the construction industry did not materialise. The transition from the separate entity to a conglomerate model has resulted in extra costs and overlapping responsibilities due to cumbersome and inefficient operation. For example, like the majority of operational decision making process, members of the subsidiaries who have board seats in the parent companies determine the investment plan ratification. This leads to overlapping responsibilities and inefficiency because no one can do well in all aspects of the business. Therefore, there is an urgent need to revise the operational model of SOE.

 

Regarding the recent weak performance of several SOEs, Minister Vu Duc Dam revealed that the Prime Minister would no longer be in charge of mega-corporations as previously. Instead, this responsibility is delegated to respective governmental ministries and departments in order to have a tighter and more efficient control over these SOEs. The Prime Minister will only be in charge of less than 10 SOEs. In addition, the Prime Minister will have four rights regarding the SOEs’ operation: the right to ratify the establishment, objectives, goals and industries; the right to restructure, ownership transfer, liquidation and bankruptcy; the right to ratify proposals to form 100 percent government-owned subsidiaries; the right to ratify the establishment, reorganisation and liquidation of branches, representative offices and other dependent entities; the right to decide the amount of charter capital upon establishment and adjustment of charter capital during operation; the right to appoint, reappoint, excuse, reward and discipline Chairman and Board Members, the right to determine the number of Board Members and Deputy Directors; and finally, the right to ratify the strategic operational and investment plan in the next five years.

 

The issue of SOE aside, there is light at the end of the tunnel that in October 2012, there were about 6,000 newly established businesses. The number of companies going out of business or ceasing operation has seen significant reduction (about 1,000 companies). During the first ten months, there have been more than 57,000 newly established businesses, while the number of businesses going out of business or temporarily ceasing operation was 41,200 (down 7.4 percent compared to the same period in 2011).