Firms busy reinventing the wheel

Many local enterprises have been besieged by a sharp decline in domestic consumption, high inventory levels, narrowed credit access and bad debts. VIR’s Khoi Nguyen finds out what solutions some big firms have deployed to ride out the storm and reap fruit.

State-run Vinatex is one local firm which has managed to get its house in order and ride out the current economic storm.

The textile and garment maker’s total revenue in this year’s first half was about $937.5 million, up 11 per cent on-year. Last year, Vinatex’s total revenue touched $1.73 billion, up 25 per cent on-year and exceeding its initial target by 3 per cent. Its profit was $64.4 million, up 26 per cent on-year and exceeding its initial target by 8 per cent.

Vinatex’s deputy general director Le Tien Truong ascribed the impressive figures to the group’s efforts to expand the local market, given the global economic crisis shrinking foreign demand for garment and textile products.

“We have closely supervised operations of Vinatex’s enterprises. Any managers failing to run their enterprises effectively within two or three years are punished. We have also ensured good salaries and allowances,” Truong said.

Vinatex recently opened its 75th mart in central Quy Nhon city. Duong Thi Ngoc Dung, general director of Vinatex Mart Company, said an additional 12 Vinatex marts were opened in this year’s first half. In 2012, the newly opened marts would hit 37. “At present, site rentals have reduced 40-50 per cent and this is a big opportunity for us to swell marts,” Dung said.

Vinatex’s story is among many others about local enterprises finding their own ways to navigate through the current economic woes.

Kinh Do Group’s Kinh Do Saigon Food Company is another success story as having since 2009 applied a US-backed globally famous “Bakery & Café” business model, a combination between a traditional bakery and a modern café. This K-DO Bakery & Café model serves young people with big consumption as it provides fresh cakes and assorted drinks. The company currently has 12 bakeries of the type in Hanoi and Ho Chi Minh City.

In the coming time, Kinh Do Group, one of Vietnam’s most high-profile private companies, will focus on developing its two main business models including K-DO Bakery & Café and its traditional Kinh Do bakery.

Adversity brings wisdom

Vietnam’s economy has been experiencing big difficulties and the government has resorted to sturdy fiscal and monetary measures to monitor the macro-economy. The on-year inflation rate was slashed from a peak of 23.02 per cent in August, 2011 to 5.04 per cent in August, 2012.

However, the Ministry of Planning and Investment last week reported that in this year’s first eight months, nearly 35,500 enterprises were either dissolved or stopped operations, up 7.1 per cent on-year. Also, in this year’s first eight months, the index for industrial production (IIP) rose only 4.7 per cent against the same period last year, when the IIP augmented 7.3 per cent on-year.

Still despite difficulties, some big private companies like Hoa Sen Group making plated iron sheets have performed well. The group expanded its local market share from 33.7 per cent in 2010 to 42 per cent now. In the financial fiscal year 2010-2011, Hoa Sen earned an export turnover of $100 million and became one of the region’s top exporters of plated iron sheets.

The group’s general director Tran Ngoc Chu attributed the fruits to the group’s concentration into manufacturing and marketing assorted steel, while continuously improving production technologies and distribution system and bettering its corporate cultural values.

Vinamilk’s story is also noteworthy. In this year’s first half, Vinamilk reaped a net revenue of $625 million, up 30 per cent on-year and its after-tax profit rose nearly 32 per cent. It is expected that Vinamilk’s total revenue for 2012 will be $1.27 billion. According to Vinamilk, the big achievement is ascribed to its concentration into producing and selling milk only, its core business. Two years ago, Vinamilk also marketed some non-milk items but unsuccessfully.

In another case, fresh foodstuff producer Vissan Company has just opened its representative office in Cambodia. In the year to date, Vissan has opened seven outlets in Vietnam, raising its total outlets to 88 nationwide now and this figure is expected to rise to 100 by the year’s end. “Despite high input costs, it is more necessary for us to expand our distribution network. This will create a stable distribution network, which will help us have more information to create more new products,” said Vissan’s general director Van Duc Muoi.

Over the past two years, Vissan has been restructuring its business structure via changing its 1,000 agencies into 100 distributors and investment into improving these distributors’ quality.
In 2012’s first half, Vissan’s total revenue touched $111 million, including $96.1 million earned from the distribution network, up 5 per cent on-year.

Words of wisdom

Le Kinh Luan, a senior consultant from US-backed global professional services company Towers Watson Vietnam, said a change in staff restructuring was needed for an enterprise to operate effectively amid the current economic woes.

“This change can create a new leadership style and support the firm’s business performance and strategy. Staff restructuring also means a change in corporate culture, allowances and talent management. It has in many firms created a 901 per cent increase in the share value and a 756 per cent increase in net income, against the respective rates of 74 and 1 per cent in firms having no staff changes,” Luan said.

Meanwhile, US-backed Open Minds Foundation director Douglas Coulter said restructuring was now the sole way for effective operations. Talking about international experience, he cited German-invested ball and roller bearings maker FAG Kulgelfischer Company in Germany  as one having taken large debt to purchase too many plants. This company was called by banks for emergency measures.

“The company’s operation has revived in a short time following its CEO’s reactions such as taking extreme measures and focusing on the value to shareholders, selling all the non-core businesses, cutting the workforce by half and forcing the original family owners to give up their controlling shares,” Coulter said.

In another case, Swedish ball bearings maker SKF in Germany using over 3,000 workers has had proactive restructuring. When SKF got bogged down in difficulties, it was divided by its leaders into three areas including large-scale bearing production for the main industries, concentration on services to handle all after-sale services and specialty bearing products.
“This move was immediately resisted by SKF’s shareholders. But the company’s CEO put in place those sharing his view, gave them great latitude and power and forced the change through. One year later, SKF’s profit doubled,” Coulter said.

At the CEO World Forum organised early this year in Hanoi, former Deputy Prime Minister Vu Khoan noted that to weather current difficulties, business leaders should seek energy-saving solutions and apply new technologies. “If enterprises fail to do business effectively, do not have innovative technologies and methods of business management, and do not take care of environmental protection, there will be no effective and sustainable development for the economy. In other words, the new development model of the country starts from the effective business model of enterprises,” Khoan said.