Vietnamese enterprises in the storm of merger and acquisition

By Hong Phuc - Jun 30, 2017 | 04:27 PM GMT+7

TheLEADERAlthough many policymakers and economists have offered solutions to oppose against the “storm” of M&A acquisitions, many companies are struggling even in the home market. Domestic brands use a variety of solutions, such as changing business strategies, making long-term competition in the market, etc., but the majorities acknowledge that branding is difficult while protection and development of local brands is becoming more difficult, nearly alone in the fight against the “storm” of M & A.

Vietnamese enterprises in the storm of merger and acquisition
Domestic businesses have to deal with many obstacles. Photo: Internet

Many barriers surround

In fact, domestic businesses are alone in their production and business problems while they still suffer from the burden of taxes, charges and hundreds of cumbersome administrative procedures.

Mr. Truong Van Cam, Vice chairman of Vietnam Textile and Apparel Association (VITAS), has complained when a number of enterprises in the domestic textile and garment industry reflected many difficulties in import and export procedures. 

Mr. Cam cited that regulations on imported materials including feather, fox and bear fur to make Jackets for export had to go through the “sublicensing” phase in Vietnam for a long time despite having experienced animal quarantine and got C/O from exporting countries (registering the CITES convention). 

In particular, sending the official letter to the Department of Animal Health for animal quarantine takes 5 - 7 days. Making the procedures to open a registered fumigation quarantine account at the border gate also takes 1-2 days ... VITES has repeatedly recommended the Ministry of Agriculture and Rural Development to reduce the quarantine procedures for import of treated feather, fox and bear fur if enterprises fully provide C/O and animal quarantine certificates of exporting countries.

Not just for difficulties in the applicable regulations, businesses such as Hami Handbags Company Limited acknowledged that it had many agents in Ho Chi Minh City but they were forced to withdraw from this market because they could not afford the rent and do inefficient business when the traditional sales channel was shrunk. 

Mr. Do Kim Dung, Chairman of An Tiep Advertising Company Limited, also said that at sometimes the company encountered a lot of difficulties due to pressure of wages and a continuous increase in electricity and water costs, rent of premises and cost of raw materials. As a result, most companies had to offset losses over the years. In addition, the enterprise had to “spend money” wherever, which was a very big obstacle in its market competitiveness.

Cotton businesses also act single-handedly in difficult battles with taxes and fees. Many enterprises said they were not afraid to innovate to compete with imported products in kind, but the period and costs of administrative procedures were the major causes to reduce the competitiveness of enterprises. 

For example, at some times these businesses have encountered the “difficulty” in time-wasting animal quarantine procedures. Meanwhile, imported cotton materials are subjected to the frequency of inspection up to 50% of imported goods from the highly risky infected areas and 30% from the safe area.

In the printing and dying industry, Mr. Thanh Phong, a representative of Thang Loi International Development Investment Joint Stock Company, also reflected the fact that the company was preparing to import some printing devices but it was entangled because of regulations on “diploma”. 

Currently, the applicable regulations only require the full certificate of professional recognition is sufficient, but in accordance with provisions on diploma in the printing industry the persons getting degrees from college or higher are not qualified to be the Company’s legal representatives, which causes the legal entity not to guarantee overseas export. 

Mrs. Pham Thi Thu Lan, Deputy Head of Import Export Office from Saigon 3 Garment Company, also mentioned that this company had to solely solve the number of exports when regulations were making it difficult upon export. 

For example, the regulations on testing the sample content require the company to experience customs inspection for the content of formaldehyde and aromatic amine metabolized from azo upon import of samples. In Mrs. Lan’s opinion, such provision is unclear, which lead to misunderstandings, and not in accordance with the spirit of Decree 19 transferring the basic management to post-control.

Mr. Nguyen Thanh Hung, Vice Chairman of People's Committee of Dong Thap Province once said that when meeting the local rice exporters the provincial authorities also found that there were many barriers that kept the enterprises alone and made them hard to compete. Therefore, the enterprises have encountered many difficulties because the industry has been inherently subjected to many barriers of importing countries so its effect was not the same as expected.

Tax & fee refrain

PhD. Nguyen Dinh Cung, Director of the Central Institute for Economic Management (CIEM), admitted that current taxes and fees still caused nuisances for domestic businesses. Because Vietnam is now considered as the taxing country, charges are the highest in the region. 

Over the periods, although the Government has made great efforts in administrative reform and laid down a policy to reduce taxes in order to remove difficulties for businesses, the situation has not been significantly improved. PhD. Cung said that taxes and charges were not a big problem for large enterprises but reduced the competitiveness of small and medium enterprises, household businesses.... 

He also mentioned that even private businesses are now exhausted and have to suffer from the heavy burden of taxes and fees accounting for more than 39% of profits as well as the overlap of other barriers and hurdles. And the Vietnamese enterprises are not only alone in the domestic market but also lose their advantages upon abroad integration

A survey showed that taxes and charges in Vietnam accounted for 39.4% of corporate taxable returns. Meanwhile, this percentage in Singapore was only at 18.4%; 27.5% in Thailand and 29.7% in Indonesia…

Many businesses were under the miserable circumstances because many times they submitted lawsuits for VAT refund. The enterprises acknowledged that they were unwilling to file lawsuits despite knowing that they would encounter many distractions. 

The lawyer Tran Xoa, Minh Dang Quang Law Office said that a wood processing company had filed a lawsuit against Binh Duong Province Tax Department and Thuan An District Tax Office, Binh Duong Province for many years but it had not been resolved thoroughly and such company was struggling for asking for a VAT refund of VND 700 million. However, the company did not receive such refund but it was also made difficulties upon filing despite having submitted its application to many authorities.

Mentioning the Vietnamese enterprises were alone in the home market and had to be “bothered” by taxes and fees of all kinds, Mr. Luong Van Vinh, General Director of My Hao Chemical Joint Stock Company said that My Hao had hired an active shipping company and made a full tax report. However, when such company stopped operating and when the tax settlement was finalized, the management agency “shifted” the responsibility backwards My Hao with the billed expenses between both parties in the previous period. 

Not just My Hao, a certain enterprise was shifted from “advanced refund – later examination” to “advanced examination – later refund by the local tax authorities in any way when applying for tax refund and it usually lasted at least 2-3 months to complete the tax refund procedures. Such long time not only greatly affected its production and business activities but also reduced the main competitiveness of domestic brands with foreign investors.

In addition to the sole competition, domestic enterprises are affected by the situation of fraud, counterfeit and imitation ... that will “kill” them if the authorities do not take strict measures.

The economist, Pham Chi Lan, said that the most worrying thing was currently that businesses were choosing how to purchase, sell and merge but actually sold their businesses and brands to foreign partners to deal with their own difficulties. It was alarming and if the business environment had been improved more enterprises would have to stop operating. Mrs. Pham Chi Lan pointed out five factors to develop the Vietnamese enterprises. 

Particularly, domestic enterprises needed business spirit; improved the management qualification of enterprises whose capital were low and whose senior staffs had not been fully trained in business administration so their level of management was limited; Thirdly, the labor quality needed improving; Fourthly, the policy for domestic enterprises had to be improved, in the context where start-up conditions for domestic enterprises have not been met and the final factor was the link between enterprises.

This expert confirmed that there were very few links between small enterprises and larger enterprises, which had caused many businesses to be alone in the home market. Mrs. Pham Chi Lan hoped that when the free trade agreement was effective and opened widely domestic enterprises needed to speed up their efforts to become more ready for integration. “Let's welcome the investment from foreigners to make it an opportunity to develop the economy as well as business activities of domestic enterprises,” she suggested.