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Don’t jump into unfamiliar business fields: expert
25 | 10 | 2007
State-owned economic groups have never been so busy as nowadays, injecting money in finance, real estate, banking, securities, insurance, aircraft chartering, and infrastructure, and all other unfamiliar business fields.

Pham Chi Lan, an economist, and former member of the Prime Ministerial Research Team, expresses concern about the tendency of big groups and general corporations to rush to bank on unfamiliar business.

Groups and general corporations are now rushing to diversify their business operations by injecting money in ‘fashionable’ sectors like banking, securities and real estate. What would you comment about the trend?

The government of Vietnam, when deciding to form economic groups, expects to see big and profitable legal entities powerful enough to compete with foreign groups and international corporations. Along the development path, the groups can expand their business scope into fields that relate to their core business fields. The groups can also inject money in different sectors in order to disperse risks. However, the groups seem to be ignoring the principle that they need to expand their business scope into sectors that can support their core business fields.

Will these multi-functional groups face high risks?

There are three problems. First, the groups may face high risks when they make investment in fields in which they do not have advantages, as the competition will be very stiff.

Second, these groups may neglect their main business fields. They may pay inappropriate attention to their main business, thus losing their positions in the market. State-owned economic groups have been assigned by the state to take heavy responsibility for backbone sectors of the national economy. If they make ineffective investment, this will cause damages not only to the groups themselves, but to the economy as well.

The third risk is that the economic groups and the state may be unable to control the enterprises which contribute capital. Collapse and money waste are potential dangers.

Vietnam still does not have any name which can compete equally with enterprises in the region and the world. The latest report about Vietnam’s top 200 enterprises released by UNDP recently showed that the groups in the top 200 are big in Vietnam, but still small- and medium-sized in the region.

The Electricity of Vietnam and PetroVietnam have outward investment projects, but in fact, they situate the projects in countries which have good political relationships with Vietnam, while they did not get the projects through bidding.

The leader of a group once said that the group planned to set up a bank, and the bank just needs to serve the group to make profit. What is your opinion about this?

This is a wrong and very dangerous way of thinking. The bank governance system is quite different from corporate governance. The wrong way of thinking may lead to the fact that groups’ banks ignore the safety principles, providing credit even in dangerous cases.

I have to remind you that the financial crisis that once occurred in Japan also originated from the things I said above.

Do you think that the state should interfere in the movement?

Yes, I do. The state should set strict regulations when groups form up their own banks. For example, it is necessary to stipulate how much strength the groups must gather for the main business (I think 80% at least). As for core business sectors, it is also necessary to state the compulsory growth rate, quality and competitiveness in the domestic and international markets. The state should also set up an alarm system which allows it to ‘whistle’ when it discovers some groups ignoring national benefit and their main business.

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