A survey of McKinsey found that multi-field conglomerates make up 80 percent of the turnover of the 50 biggest companies in South Korea, 90 percent in India and 40 percent in China. All the companies reportedly had very high turnover growth rates in 2000-2010, 23 percent per annum in India and 11 percent in South Korea.
The same thing happened in Vietnam. Dominic Scriven, Managing Director of Dragon Capital, cited Bloomberg’s reports as saying that in 2006-2009, the Vietnamese market saw a sharp increase in capital, the majority of which was poured into non-core business fields of the 50 Vietnamese biggest companies.
The companies then incurred big losses in the economic downturn, especially in 2008 with the loss of up to 20 percent.
Le Hung Dung, President of Eximbank, one of the biggest banks in Vietnam, noted that Vietnam has witnessed a lot of “investment movements.”
In early 1980s, investors rushed to set up import-export companies. In 1990s, a lot of joint ventures between Vietnamese and foreign enterprises were established. In 2004-2005, Vietnamese investors rushed to set up banks. The investment in non-core business fields was also one of the investment movements.
Meanwhile, Nguyen Thi Mai Thanh, President of Refrigeration Engineering Enterprise (REE), blamed the “multi-field investment rush” on the unreasonable laws.
Three or four years ago, it was very difficult to get land for production and business. At that time, the real estate investment could bring fat profits, which explained why investors rushed to pour money into the sector.
“It is quite dangerous that the multi-field investments result from fugitive conditions and mechanisms,” she noted.
Dr. Vo Tri Thanh, a well-known economist, agrees, saying that the “easy money policy” applied by the government for the last many years and the consideration of GDP as the major measurement of the national economy have both encouraged the multi-field investments.
In the hot development period 2006-2007, the “easy money policy” Thanh mentioned helped the prices of the assets in the finance markets escalate continuously. It was very easy to mobilize capital from different sources to invest in the banking, real estate sectors or stocks. Since businesses had profuse money, they always tried to seek new investment opportunities.
Having realized the problems in multi-field investments, businesses don’t know how to quit the investments. “We do business in five or six business fields. How can we know what are the core business fields for us?” questioned a general director of a company attending the 2013 investment conference held some days ago.
According to Nguyen Minh Triet, Managing Director of Strategy Asia, the core business fields do not always mean the fields which once brought fat profits to enterprises in the past. Core businesses should the ones in which enterprises have greatest advantages.
While the multi-field business model has been criticized in Vietnam for its low effectiveness, economists believe that it was not the fault of the Vietnamese businessmen’s efforts to invest in many different fields.
The problem, according to Dung, “is not businessmen invest in many business fields, but in the fact that they don’t have core competencies.”