Weaknesses of Vietnamese Businesses: Risk Management and Communication

10:38:04 AM | 7/16/2019

“Like most other Vietnamese businesses, we focus on controlling outcomes rather than processes. Our risk management is only applied at a certain extent,” a business manager said at a workgroup discussion on private business management in a research study conducted by the Vietnam Chamber of Commerce and Industry (VCCI).

According to the report “Applying Internal Control and the Code of Conduct in Vietnamese businesses: Current status and recommendations” launched by VCCI, when asked about measures to identify and evaluate general risks, less than 50% of respondents said they have risk identification mechanisms and more than 57% said they have risk tackling measures. This needs to be further improved by companies in Vietnam.

The study showed that respondents’ subjective assessments reaffirmed that risk assessment is a major weakness among enterprises in Vietnam. At each question, about 30% of respondents choose “rather not answer.” Nearly 56% of businesses surveyed said that their risk analysis and management could be more effective. Only more than half (52%) said they have reliable measures and their managers have identified risks and take risk management measures. More notably, only 47% believed their managers actively assess risks and only 43% said to have conducted risk analysis in the previous year (2017). Thus, these results show that risk management is an important weakness that businesses in Vietnam need to overcome if they want to develop in a long term.

Besides, internal control by Vietnamese businesses is reportedly problematic. According to the VCCI research, when asked whether they have applied control measures or not, the two most common measures answered by surveyed enterprises are “encouraging employees to identify problems and propose solutions” (64%) and “building and applying the code of conduct” (63%). These two measures are “soft” and more inclined to humans and values and do not require important technical knowledge. Two very important measures - “building inspection mechanisms” and “providing detailed executive financial reporting” - are only applied at 53% and 50%, respectively. These two measures are more technical, requiring a deeper understanding of concepts and processes. The use of hotlines and independent audits also depends on many factors such as the size of the business. These measures are only applied by 35% and 39% of respondents.

When asked to assess their internal control, about 50% -57% of respondents said they have applied four measures. Less than a half (49.5%) said that they have updated their job description for each position, while 57% primarily paid attention to special demands when they assign tasks to individual employees. Building job positions and job descriptions is still a weakness for businesses. Similarly, detecting and handling unusual and undesirable issues has not been implemented in time. Therefore, more than half of respondents said that internal control in their businesses could have improved better.

This once again showed the need to enhance internal control measures. It is noted that, for each question, about 30% of respondents do not answer. Therefore, the ‘yes’ option is responded by 70 -80% of companies surveyed.

And, information and communication seem to be the weakest point in the internal control system in Vietnamese enterprises. While 59% of respondents said they have policies and procedures for business operations, only half said their employees are trained and informed of company policies. Worst, only 43% said they have measures to raise employees’ awareness of internal control. Without good information and communication systems, good policies and systems will not be launched.

In particular, less than a half of respondents said they have applied three common measures to carry out control monitoring. Only 43% said they have monitoring plans and 47% have capable and competent supervisors. This shows that monitoring capacity, including planning capacity, still needs to be improved for businesses in Vietnam.

Thus, the study revealed that Vietnamese enterprises are weak in most internal control activities, especially risk assessment, information, communication and supervision. Technical skills in internal control such as financial management and internal inspection are also weak. These results suggested that the need to improve capacity and train Vietnamese enterprises on internal control is essential and urgent.