Expansion Of Private enterprises and State owned enterprises: What is the Difference?

Economist, PhD. Nguyen Minh Phong

Please, tell us: What are the different points of the question of multi-sector investment of private enterprises and SOEs?

First of all, it is important to make clear that the concept of "multi-sectoral investment" of SOEs and the private sector is completely different. The state-owned enterprises, when set up, target as well as the functions, tasks and fixed structure of the industries must be directed by the related authorities and agencies, hence when enterprises invest in multi-sector, it is called as “investment outside the sector”. For private enterprises, this community operates under the dominance of the business leaders, so only when any sectors get profitable, they will implement, so qualified private enterprises can invest in many sectors and different areas.

Do the above differences cause the paradox of the losses by many SOEs and the profitable business of many private enterprises when investing in many sectors?

As I mentioned above, it can be seen that such different operating criteria should lead to the paradox of success and loss of these two types of enterprises. With the private sector type, because the investment sector can change rapidly according to the market call, with a rapid conversion to catch the trend, they should be able to quickly profit. Moreover, the way of administration of private enterprises has advantages over SOEs, because of the use of capital from individuals and organizations to set up business, so aiming to maximize profit and economic efficiency are the key targets. If there are losses bankruptcy is possible, and they can even go bankrupt violating legality.

For SOEs, with the direction of the related authorities and State capital, business leaders taking responsibility for carrying out and operating the activities are not likely to be really enthusiastic and determined to make higher profits. Furthermore, if the target of private firms is economic profitability, SOEs may operate on a non-profit basis or for political purposes, the direction of the operation will be different. The SOEs’ mechanism of operation is also a rigid, non-flexible one to follow a market trend, unlike the private sector, although there are directives operating and developing, but in fact the organizational apparatus, labor recruitment and other regimes in the enterprise do not allow autonomy. In addition, SOEs, especially state-owned enterprises with 100% state capital, are increasingly shrinking, being equitized, divesting out of profitable businesses, so fewer and fewer SOEs operate economically effective.

But in order to have stronger development in the coming time, according to you, which direction should the private enterprises continue to follow?

The successful nature of private enterprises is to earn as much profit as possible, in order to be able to operate under the market mechanism as well as other management requirements without running into lawsuits, while SOEs have had a great deal of support from the regulators.

Therefore, to develop in the coming time, private enterprises must find the right road and hit their way. Enterprises must depend on the conditions, scale and advantages to determine the strengths and areas of operation, and there are large corporations, financial resources being developed in the direction of multi-sector, multi-field, but with small companies, it should be developed in a single direction. In my opinion, whether developed in a single-sector or multidisciplinary direction, enterprises must participate in the value chain, joining the community in the same field to work together, because the story of a company making it from the beginning to the end does not exist any longer; it is difficult to survive in the present context.

For example, a large corporation in Vietnam is now investing in the field of automobile production. This corporation has great financial potential, but this corporation, certainly, can not self-complete a car, so the corporation has to cooperate with many businesses in the same field, including famous enterprises in the world for development together. Therefore, other businesses are no exception, they must form links in the chain; it is likely that it is a company producing materials, a product manufacturing company, a distribution company to link with a view to creating a complete supply. Done well, these things for the private sector of multi-sector investment will make it more sustainable, and the future of the business community in Vietnam will have more optimistic chances.

Thank you Sir!