Firms told ‘stick to what you know'

Firms told ‘stick to what you know'

Enterprises should focus on core businesses instead of investing in non-core sectors as Vietnamese firms seemed to be too young to participate in the multi-sector playground, said Dominic Scriven, Dragon Capital Managing Director.

He said the multi-sector growth model is seen as a "style" for Asian companies.

A study conducted by McKinsey in 2010 showed that multi-sector enterprises accounted for 80 per cent of turnover at the 50 largest companies in South Korea, 90 per cent in India and 40 per cent in China.

Especially, all of the companies had the highest average income in the 2000-10 period.

He said Viet Nam has seen the same story, as huge capital was poured into the non-core businesses of the country's 50 largest companies in the 2006-09 period.

These businesses showed losses in the economic downturn, especially in 2008, with the average loss as high as 20 per cent.

Vietnamese enterprises have not had enough experience and necessary factors, such strong financial structures and administration and excellent leadership and intelligent divestment plans, to join in the playground, he added.

Le Hung Dung, chairman of the bank for Export-Import of Viet Nam (Eximbank) said the multi-sector boom in the past few years in Viet Nam was rooted in crowd psychology.

Dung told Investment Bridge Magazine that Viet Nam has seen several investment trends. In the 80's, businesses were rushed to establish import-export companies, while they were keen on setting up joint ventures in the 90's and banks in 2004-05.

It was these expended investments that caused businesses to have to pay an expensive price during the economic crisis, he added.

Nguyen Thi Mai Thanh, chairman of the Electrical Engineering Corporation's management board said the fever of multi-sector growth was partly due to policies. In the past few years, several businesses were rush to invest in real estate if they had land.

Vo Tri Thanh, deputy head of the Central Institute for Economic Management shared the idea, saying that loosened monetary policies had contributed to the expanded investments.

Thanh said companies which concentrated on a core business have received consideration from investors, thus being easier in calling for capitals.

For example, Hau Giang Pharmacy Company which was listed in the most 50 effective businesses in Viet Nam has had a high and stable growth rate for years.

Pham Thi Viet Nga, chairman of the company's management board said they have an absolute belief in core business.

We have not had plans to invest in other sectors though we could earn more, Nga said.

She added that businesses should review which sector they have performed in the best or hold competitive advantages over rivals in order to determine their core business.

Dominic said the world has had successful multi-sector groups.

He said the most important factor when investing in a project was its feasibility, profitability and sustainability rather than multi-sector or not.

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