corporate restructuring in stateowned construction sector in viet nam the case of vinaconex corporation

The construction sector corporations also simultaneously make plan for restructuring the economy of its business; but actually implementing specific process for restructuring the economy

IN STATE-OWNED CONSTRUCTION SECTOR IN VIET NAM:

THE CASE OF VINACONEX CORPORATION (Summary)

Supervisor:Dr Melchor Melo O Placino Researcher:Nguyen Phuc Huong

Researcher ID: SLSU-DBA12009-21 Date of birth: November 30, 1975 Course: SLSU-DBA1 (2009-2013)

Chapter I: INTRODUCTION

1.1 Background of the study

In Viet Nam, the State Owned Enterprises (SOEs) are holding a key role in the national economy and is making an important political mission in the country SOEs have occupied a big resource

of the economy; however, the profitability from state capital is limited Many SOEs have been

latent risk and disruption

Government, ministries, industries, including the construction industry has project for

restructuring the economy The construction sector corporations also simultaneously make plan

for restructuring the economy of its business; but actually implementing specific process for

restructuring the economy in the construction business are confused, and have not actually

achieve the desired effect

Currently, Vinaconex is a corporation headed scale construction sector in Vietnam Vinaconex

Corporation is kind of Joint-Stock company with controlled shares owned by State (> 51%)

Vinaconex recently has been processing corporate restructuring; however in the process of

corporate restructuring, Vinaconex Corporation has faced many of the problems that the

previous inadequacies were not fully foreseen

This is the reason for carrying out the study of: “CORPORATE RESTRUCTURING IN STATE-OWNED

CONSTRUCTION SECTOR IN VIET NAM: THE CASE OF VINACONEX CORPORATION”

1.2 Objectives of the study

This research explores and indicates five objectives:

1 To determine the awareness of the managers of Vinaconex Corporation on the concept and the implementation of the corporate restructuring in state-owned firms in Vietnam

2 To identify the main factors/problems and issues that affects the process of corporate restructuring at Vinaconex Corporation

3 To examine the effects on the ownership structure on the corporate restructuring of the construction sector in the SOEs

4 To propose the most appropriate model for Vinaconex after restructuring

5 To formulate policy suggestion to the government's to support business sector in corporate restructuring

1.3 Research Questions

This study intends to answer the followings questions:

 Q1: How do Vietnamese managers perceive and interpret corporate restructuring?

 Q2: What framework (factors/problems and issues) is used in analyzing corporate restructuring in Vietnam SOEs?

 Q3: How restructuring in the construction sector in SOEs affect the state shareholders and the ownership structure?

 Q4: What is the most appropriate model for VINACONEX Corporation after restructuring?

 Q5: What policy can be suggested in order to support a successful SOEs restructuring?

1.4 Hypotheses

The following hypotheses are outlined and tested by using statistical methods to answer the

research questions and to orientate the survey and data collection

 H1: Restructuring will improve the competitiveness of the company on its core business

 H2: Restructuring will improve the situation on current ownership of the company

 H3: Restructuring will improve the leadership and human resource management of the company

1.5 Scope and Limitation of the Study

Subject of the study are Vinaconex Corporation (including the head-office and all subsidiaries of Vinaconex)

The actual survey data (primary) are conducted during the period from May, 2013 The secondary data are based on national statistics and company reports from 2010 to 30 June 2013

1.6 Structure of the Study

The dissertation consists of five chapters including:

- Chapter 1: Introduction

- Chapter 2: Literature review

- Chapter 3: Methodology

- Chapter 4: Results and Discussion

- Chapter 5: Findings, Recommendations and Conclusion

Chapter II: LITERATURE REVIEW

Restructuring of state-owned enterprises in general and specialized management enterprises in particular has been an issue concerned by international and national researchers, learners and managers and also a topic referred in international and national conferences Some relevant researches are as follows:

1.1 International related research

1.2 National related research

1.3 Theoretical and conceptual framework

The concept of "change management" is a familiar one in most businesses today But, how businesses manage change (and how successful they are at it) varies enormously depending on the nature of the business, the change and the people involved And a key part of this depends on how far people within it understand the change process

One of the cornerstone models for understanding organizational change was developed by Kurt Lewin - a physicist as well as social scientist who explained organizational change using the analogy of changing the shape of a block of ice Kurt Lewin’s Change Management Model

consist three stages of change: Unfreeze – Change – Refreeze

To begin any successful change process, you must first start by understanding why the change must take place As Lewin put it, "Motivation for change must be generated before change can occur One must be helped to re-examine many cherished assumptions about oneself and one's relations to others." This is the unfreezing stage from which change begins

1.4 Analytical framework

Organizational restructuring involves major changes in the organizational structure for enhancing the ‘efficiency and effectiveness’ of firms (Bowman & Singh, 1993) It involves reorientation of the business units to rearrange resources within a firm for better performance According to Gibbs

(1993), there are three types of corporate restructuring includes: (i) financial restructuring including recapitalizations and changes in capital structure; (ii) portfolio restructuring involving refocusing on core business, resulting in change of the diversity of business in the corporate portfolio; and (iii) operational restructuring including reorganization and changes in business level strategies

Corporate restructuring is intended to either reacting to crisis or to be part of the company’s emptive plan for their survival in the industry Restructuring process is a lengthy and a painstaking one It presents many challenging tasks and requires analysis of social benefits and costs The most difficult task is to persuade the most suffered to understand the desirability of the reform efforts (Soon, 2004) In the mean time, strategic evaluation of re-engineering, restructuring and downsizing policies are perceived as the influential management paradigm With this, companies are able to fully leverage on their core competences in creating superior competitiveness (Tony, 1997)

pre-Miller and Friesen (1984) suggested that the environment shift, technology changes, organizational grow and leadership changes are the reasons that lead to restructuring Massimo and Delmastro (2002) deemed that the adaptation of advanced manufacturing technology and new human resource management practices favors organizational change Miles, Covin an Heeley (2000) suggested that environmental dynamism impacts the strategies chosen by firms and moderates the relationships between organizational structure, organizational strategies, and firm performance Moers (2000) suggested that restructuring is also associated with strong market competition Jensen (1986) believed that the restructuring could be described as returning free cash flows to owners The work

of Hariison et, al (1991) suggested that a significant amount of restructuring is associated with high levels of diversification strategies, while the study of Hoskisson and Turk’s (1990) concluded that restructuring is primary directed at overcoming control problems that are associated with diversification and that result in poor performance It is partially explained by free cash flow because free cash flow is a function of investment opportunity, operating cash flow, diversification, financial leverage, and corporate governance Hill and Snell (1988) found that ownership

concentration was associated with lower levels of diversification in research and development- intensive firms Thus ownership diffusion is positively related to diversification Based on this literature, we proposed an analyzing framework indicating the relationship between the dependent variable (corporate restructuring) and independent variables is presented in figure 1

Chapter III: METHODOLOGY

This chapter presents the methods used for this research The methods in use show a combination between quantitative and qualitative research Data include secondary data from statistical reports and primary data from survey by questionnaires

3.1 Overview of the Vinaconex Corporation

- Established: 27 September 1988 under Ministry of Construction formerly known as the building service and manpower export company

- In 1995, Vinaconex became a Corporation 90 of the Ministry of Construction, called: Vietnam construction, import and export Corporation

- Make the Decision dated 05.13.2004 84/2004/QD-TTg of the Prime Minister, Vinaconex

is one of the State Corporation first pilot equalization of the whole company November

27, 2006, Congress established the General Shareholders Company has been conducted and Vinaconex has officially come into operation in the form of joint-stock company

- Currently VINACONEX has conducted corporate restructuring They have 58 units of attached units in which 33 subsidiaries with dominant capital (over 51%) operate nationwide with a staff of over 34,000 staffs, engineers, professionals and workers

- Field operations: Construction, Real – Estate, Production of construction materials; design consultancy; supply power and water; Insurance; Finance and Banking; Service, trade, Education…

- Charter capital: 210,33 US millions dollars (4.417 billion VND)

- Owner equity: 233,24 US million dollars (4.898 billion VND)

- Total Assets: 1.353,14 US million dollars (28.415 billion VND)

3.2 Determination of sample

This study used stratified sampling method at enterprises under Ministry of Construction, some corporations, groupespecially focusing on Vietnam Construction and Import-export Joint Stock Corporation – VINACONEX and other companies under the Corporation Vinaconex

The author uses the Slovin’s formula to define the sample size for the survey:

Where n: sample size

N: Population size that is more than 34 millions totals staffs of Vianconex

e: Probability of error committed due to the use of sample instead of population The error level in sample survey was chosen to be at 5%

Thus, the sample size of the survey is 400 respondents

3.3 Research design

- The questionnaire was developed based on the analyzing framework above

- It consists of 35 statements related to competition, financial, corporate governance, new business strategies, human resource management, conflict, ownership, leadership, technology development… in order to gain in-depth knowledge on the issues

- The typical five-level Likert item (Agreement scale: 1=strongly disagree, 2=disagree, 3=neither agree nor disagree, 4=agree, 5=strongly agree) was used for this study

- 400 questionnaires were sent to senior manager, medium level manager and managerial staff of the selected of Vinaconex, other construction state-owned enterprises and some leaders of Ministry of Construction of Vietnam

non Use both SPSS and EXCEL for data processing

Chapter IV: RESULT AND DISCUSSION

4.1 Description of respondents

- The table below indicates that majority of respondents are males (91.25%) and only 8.75

% are females (35/400 persons) Of which over 52.6% of males are at the age of 50 or

older (higher than the average level 50%) and only 23% of females are of this age

- Regarding job position: 27.75% are senior executives; 32% are managing directors and 40.25% are officers This shows that most of respondents of the questionnaires are

relevant to restructuring process in enterprises and nearly 60% of them are executives,

directors or managers of various levels It can be said that through these samples, the

survey results are appropriate with the reality and will reflect reliably the research theme

- Age structure based on job position:

Senior executives Managing Director Officers

- The study shows that the average age of senior executives is much higher than that of managing directors and officers Therefore, there will be different opinions about corporate restructuring

4.2 Verification of rating tools

- All content of the questionnaires (except for the general information about respondents) use Likert (order rating tool) for 35 items with 5 levels reflecting the consent of the respondents

- The verification followings shows that Cronbach’s Alpha indicator is > 0.6, meaning that the rating tool used in the questionnaires are reliable and can be used as data for analysis

Cronbach's Alpha

Cronbach's Alpha Based on Standardized Items

N of Items

4.3 Analysis on each issues relating to restructuring process

The content relating to restructuring process in SOE in the construction industry are categorized

in 10 major issues including:

4.3.1 Reasons for restructuring of SOEs in the construction industry of VietNam

The study show that majority of respondents strongly agreed that the restructuring resulted

from their urgent needs which aimed to help them come out of recession, or avoid bankruptcy,

etc The average level is 4.62/5, which is a highly concentrated level In general, 362/400

respondents (accounting for 90%) agreed with this reason

Meanwhile, only 36 respondents (9%) agreed that the restructuring came from pressures and

requirements of the Group/Parent Company/State Capital management

Company/Industry/Government, etc and 77 respondents (19%) agreed that the restructuring

arisen from themselves with an objective of self-renewal for suitable with their strategy and the

needs of the business development – identifying that restructuring was an indispensable phase

in the development process of the company The average rating level of these 2 reasons are

fairly low (2.74 and 2.58 respectively) Therefore, it can be concluded that the objective for

enterprises to get out of recession or threat of bankruptcy is the basic reason for their

restructuring However, officers in different job positions have different attitudes

It can be easily realized that percentage of senior executives agreeing strongly with the above

reason are high (83.73%), but reduce gradually among managing directors and officers Hope

that with this consent on the reason for restructuring as such, they can easily cooperate with

each other during the restructuring process

4.3.2 Competition

Regarding competition, as enterprises implement restructuring, majority of respondents (average agreeing level of 4.64) agreed that the restructuring helped companies focus their resources on their competitive products in the market On the contrary, most of opinions (over 75%) disagreed that the restructuring helped companies focus on improving customer service quality, and enhancing companies’ image and trademark This shows positive awareness of officers in the construction industry, who know that the restructuring is not an appearance or image but must be real and enhance their enterprises

As such, in terms of competition, the corporate restructuring is aimed at helping companies focus their resources on their competitive products in the market Therefore, there’s a need to share with each other about the situation and policy for better understanding and consent on implementation

4.3.3 Strategy

It is obvious that 315 respondents agreed that in the context of Vietnam, the construction companies should focus on their core business areas related to the construction industry with an average agreeing level of over 4