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Press Release
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Vietnamese companies have often used the term “restructuring” recently to try to fit in the new economy as Vietnam became a member of the WTO. Behind the difficult renovation process, there are so many questions raised, so much experience to share. Such was the sentiment of most businesspeople participating in the seminar “Corporate Restructuring – Reality and Solutions” organized by Doanh Nhan Saigon Cuoi Thang as a cover story of the October issue.
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Saigon Entrepreneur @ 10/25/2007
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Keep the core and strive for advancement
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| Vietnamese companies have often used the term “restructuring” recently to try to fit in the new economy as Vietnam became a member of the WTO. Behind the difficult renovation process, there are so many questions raised, so much experience to share. Such was the sentiment of most businesspeople participating in the seminar “Corporate Restructuring – Reality and Solutions” organized by Doanh Nhan Saigon Cuoi Thang as a cover story of the October issue. |
| Flexible mechanism for talents |
Mr. Nguyen Quoc Khanh, General Director of AA Company, who has implemented corporate restructuring early on, thought the most headache for him was the lack of management personnel who had professional expertise.
“For AA, to recruit people from overseas to supplement or to stimulate domestic resources has its own advantages and disadvantages,” he said. “We are leaning to the second option because of its effectiveness in improving the professional level. Overseas managers can stimulate the progress of domestic managers so that within 3-5 years they can catch up. The difficult thing for interior design companies, however, is not time constraint or expenses as foreign managers would not stay long; it is the difference in culture and languages. On the other hand, Vietnamese people stay longer, they are more loyal and if they bend on learning professional practices, they will be the most stable human resources.” |
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| Mr. Tran Kim Thanh, Chairman of the Board of Kinh Do Company, had many practical things to say and share about human resources. “Kinh Do’s restructuring starts from the change in the company mission, which is to become a multi-function company (foodstuff, retail, real estate, financial services…). Each of these fields is run by one corporation, and each corporation manages several subsidiaries,” he said. “That’s why Kinh Do needs a lot of middle-level and high-level management staff. We only realized how much we lacked when we started to fill positions. Kinh Do has taken a pro-active approach in solving the human resource issue by holding training sessions. We were able to train 200 people from various sources. I think talent does not come from one single individual; it comes from many people working together towards the strategic objectives of the company. It is not important if the resources are foreign or domestic so long as we have the right people for our team. The problem is how to make the best out of them. It’s best to adopt the matrix management style having sub-groups for each professional function so that whenever crises arise, the sub-groups can sit down together and find a solution. |
| “We often recruit foreign managers for functional departments with the requirement that they have to train and hand over expertise to at least 3 domestic managers within 3 to 5 years. This approach has helped Kinh Do respond quickly to any turbulence and compete effectively in any market, and in different segments. To avoid differences from generation gaps, Kinh Do asks ACNielsen to do annual internal surveys on personal wishes, objectives and characteristics so that their salaries can be adjusted accordingly.” |
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Mr. Nguyen Trung Thang, General Director of Masso Group, who has a lot of experience in giving restructuring advice for other companies posed a question for Mr. Tran Kim Thanh: “Matrix management style can bring about conflicts between managers in the horizontal and vertical hierarchy in making decisions. How do you handle these conflicts?” |
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| Mr. Tran Kim Thanh replied, “In general, there is no ideal management model. The most important thing is to handle psychological and mechanism issues. A perfect organization coupled with a good mechanism will stimulate people to work towards a desired goal. Unilever has been able to do just that in recent years; their goal of increasing sales by 50% forces everybody to work together. In principle, I always keep the mechanism of evaluation through three levels of management but I consider the horizontal level is the key and give priority to the business section rather than functional departments because it is a profit center. Problems often arise from the horizontal level and not from the vertical level. This model helps people to work closely together and despite the presence of two bosses, there seems to be no problem. This is especially promising in the fact that when we set up many new subsidiaries, Kinh Do can still manage risks. This model has helped Kinh Do attain an annual increase of 30% in sales and 70% in profits.” |
| Internal and external linkages to improve strength |
| Talking about the M&A trend in the future, Mr. Tran Kim Thanh seemed confident, “Each company, each owner cannot possess all the strength. We started our linkages five years ago on a win-win philosophy in doing business. Cooperation is one of the most important solutions. Local companies have not had this practice yet and often consider partners as competitors. We have to find a way to make everybody win. We have our own strength in the distribution system, we know our culture and if we know how to re-organize the business, standardize the system in a professional way, we won’t be afraid of foreign retailers once they come here. On the revenue side, all foreign retailers in Vietnam are suffering losses. In fact they are focusing on securing the best locations. One of the most important factors in the retail business is location; it is a success or failure factor. So I think the trend of cooperation in the retail business will get stronger in the future because it can bring about advantages in the shortest time.” |
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Mr. Tran Bao Minh, Deputy General Director of Vinamilk shared his experience in linking old and new staff. “I’m not pessimistic about the domestic retail system as major retailers in Indonesia and China are domestic and not foreign,” he said. “But the stock market is raising a question for Vietnamese companies – how to control their equity. We are not lacking investment projects; what we lack is people. The more equity we can raise, the more projects and products we launch, the scarcer our human resources become. This situation requires us to restructure. And a lot of American corporations faced the same situation when they went abroad and faced bankruptcies. Restructuring does not stop with human resources; it should involve management systems, brand names, and product lines. It is difficult to break up a company, especially when it enjoyed successes in the past. There is also the issue of old and new personnel. The first thing to do is to have a comprehensive review of the budget set aside for restructuring. We cannot pay new staff as we pay old staff, and there are fringe benefits like vehicles or stocks to consider as well. We have to raise the skills of old staff to the level of the new staff so that they can enjoy the same level of salaries, avoiding possible conflicts. Unilever used to have 2,000 product brands but they had the courage to cut down and only kept the most successful ones. One challenge is that if a product brand is generating several hundred billions dong each year, it is difficult to end it and convince people who gave birth to it that focusing on several major brands will increase revenues manifolds. If we can’t do that, just forget the whole restructuring thing.” |
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| Seeking for CEOs |
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Mr. Tran Minh Tam, TTT Chairman of the Board, raised one issue: “The majority of Vietnamese companies are doing their restructuring as some poor people building their houses, from a thatched hut to a brick house and then expanding to a high-rise building on the same premises. This leads to a patchy situation, covering this hole and revealing a new hole. It is very unprofessional. I think for business development, we cannot patch new staff to an old mechanism.” |
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Responding to this reality, Mr. Dang Van Thanh, Sacombank Chairman of the Board said, “Corporate restructuring should start with building a vision of at least 5-10 years. The banking sector is enjoying new opportunities that can’t be missed. Sacombank is expanding very fast in a systematic way. We occupy larger market shares thanks to continuous restructuring to improve the level of professionalism, internal strength and train human resources for each period. We change the names of positions, getting rid of positions to enhance competition. Every risk is predictable and the biggest risk involves human resources. In order to have good restructuring, we have to prepare long-term vision for our staff, train and re-train them continually, update their knowledge and re-organize the staff to fit the organization chart. We must avoid the situation when the CEO is deep into power play. Staff turnover should not exceed 10%. A business that is well-prepared for competitive capacity has to make adequate investment in management, and help the staff withstand ever increasing pressure. Vietnamese companies, given good strategic vision and suitable human resource management model, can attract foreign talent within the next 3 years. CEO positions are “hot” now in the human resource market because they lead the restructuring process. They have the right to demand salaries, shares and preferred stocks… |
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| “This is good news as companies start to realize the CEO’s value. Recognizing that labor value is one kind of goods that need not only material benefits but also spiritual incentives will bring stability, confidence, and initiative to our employees.” |
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The seminar also saw heated debates on when restructuring was needed. Is solving issues restructuring? What risks will be involved if restructuring starts with the CEO and not based on the board’s strategies? Mr. Ly Quy Trung, Director of Pho 24 said, “Restructuring is for the management of changes, creating new specific and continuous values for development. It is not advisable to be rigid in definition. If we leave everything to the CEO and do not start from strategies, a lot of risks might be involved because the CEO may change the entire staff and when restructuring is a failure, the owner will be left with unfamiliar staff and will not know what to do with it. Foreign managers often take layoffs for granted. Many people think that restructuring needs to be done by foreign experts but I think it should start with local employees. Using foreign staff is just the start of coming back to domestic staff in the long run.” |
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Mr. Tran Kim Thanh added, “Restructuring is a compulsory cycle every two years at Kinh Do to adjust the apparatus, build new standards, and enhance our competitiveness. This requires “cold blood” people to change the mentality and old way of doing things. People with a soft heart will find it hard to proceed.”
Once a company outgrows itself and can no longer be managed as a family-owned business, the common mistake often happens when the restructuring process gets stuck in the empowerment stage as the owner does not have enough confidence to delegate power. Mr. Dang Van Thanh was often asked by the press if Sacombank was a company run as “family-owned”. He said: “The concept of family-run is non-existent in public share-holding companies. But “family-owned” is quite good as it gives people a sense of closeness. Family-run management style will lead to bankruptcy and we have to improve the science of management to a new level. Sacombank plans to recruit 2.000 more people. At present, we are talking with universities to recruit 50 students with good record in advance.” |
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Mr. Gian Tu Trung, the founder of PACE education group, closed the seminar with a fairly comprehensive remark. “Corporate restructuring is often seen under two approaches: strategy restructuring and organization restructuring. Organization restructuring consists of the “hard core” – the management system, the “soft core” – the system of values, and “the flexible core” – the people. There might be three levels of restructuring: Re-arrangement and re-adjustment of the systems; consolidation, fixing and re-adjustment of the systems; and starting anew as the old systems are unacceptable and have to be destroyed. I agree with Mr. Khanh’s remark that it is risky to hire a new CEO to build a new system as it is highly possible that we stand to lose everything we ever build. It is a disaster if we choose the wrong person. The company founder is like the leader of a country who should have a very long-term vision and should build a very strong foundation. Only then can it be possible to have a perfect transfer from one generation of managers to the next. Seeking for CEOs, or “the scavengers” takes a lot of time and we have to be sure that we find the right person. It is possible to divide CEOs into two categories: CEOs who set the path and CEO who run the operations. It is rare to find the former and the latter needs a whole supporting system. Not all Vietnamese companies have a system of values like ambition, mission, and company strategy. It is necessary to have ambition, and know where one’s system is going before one can set up one’s own business strategy and then, the restructure of one’s organization, human resources, systems and mechanism. CEOs need to understand the corporate system of values to keep the cores and strive for advancement; otherwise, renovation is meaningless.” |
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- Nguyen Anh Duc – Deputy Head of Saigon Co.op’s Planning Department
- Tran Bao Minh – Deputy General Director of Vinamilk
- Nguyen Quoc Khanh – General Director of AA
- Dang Van Thanh – Sacombank’s Chairman of the Board
- Tran Kim Thanh – Kinh Do’s Chairman of the Board
- Tran Minh Tam – TTT’s Chairman of the Board
- Nguyen Trung Thang – Masso Group General Director
- Gian Tu Trung – PACE Education Group
- Ly Quy Trung – Pho 24’s General Director
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By Kim Yen
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