summary of doctoral thesis on public administrative management state management over corporations 90 – 91 towards forming economic groups

State management creates legal standards, conditions, premises…for State enterprises to develop into economic groups sufficiently strong, playing the core role in the economy.. For that

MINISTRY OF EDUCATION AND TRAINING

HO CHI MINH NATIONAL ACADEMY OF PUBLIC ADMINISTRATION

ACADEMY OF PUBLIC ADMINISTRATION

-

STATE MANAGEMENT OVER CORPORATIONS 90 – 91

TOWARDS FORMING ECONOMIC GROUPS

SPECIALTY: PUBLIC ADMINISTRATIVE MANAGEMENT

CODE : 62 34 82 01

SUMMARY OF DOCTORAL THESIS

ON PUBLIC ADMINISTRATIVE MANAGEMENT

Hanoi, 2010

This work has been completed at: Academy of Public Administration (National Academy of Public Administration)

Scientific Instructor: Dinh Van Tien Prof.Dr

Judge 1: Luong Trong Yem Prof.Dr

Judge 2: Nguyen Manh Kiem Prof.Dr

Judge 3: Vu Huy Tu Prof.Dr

The Thesis shall be defended before the State level Thesis Assessment Council held at:

Academy of Public Administration, No 77, Nguyen Chi Thanh, Dong Da, Hanoi

at……… hours, on November, 13th 2010

The Thesis can be further referred to at: Academy of Public Administration

PREFACE

1 Rationale of the Subject

In implementing renovation, building the socialist-oriented market economy in the tendency towards international integration, setting up and developing Economic Corporations, Groups which are big and with competitive potential on both domestic and foreign markets become strategic goal of the State of Vietnam This is regarded

by the Party and the State as a major policy in the country’s economic guidelines In the course of building strong Economic Corporations, Groups, State management plays a decisive role State management creates legal standards, conditions, premises…for State enterprises to develop into economic groups sufficiently strong, playing the core role in the economy To achieve that goal entails unceasing completion and renovation of State management over Corporations 90-91 and economic groups of the State This is a new issue, which is to be done and completed

at the same time in Vietnam For that reason, research, in a comprehensive and specific manner, both theoretically and practically, into the State management over State-owned enterprises towards forming strong economic groups is a pressing need

of the cause for State management renovation in terms of economic and public administrative reform

Being a senior manager in Corporations 90-91, having deep approach to reality and gaining some certain experiences, I opt to choose “State Management over Corporations 90-91 towards Forming Economy Groups” as the subject for my Doctoral Thesis on Public Administrative Management Research on this subject on the one hand can solve the pressing issues imposed to our country, in conformity with the public administrative management profession, particularly, it will enable combination of theoretical study, research with practical activities of myself

2 Research Objectives

- To systemize, with supplementing and completing, scientific grounds for State management over Corporations 90-91 towards forming economic groups

- To analyze the situation of forming and operation of Corporations 90-91 towards forming economic groups in Vietnam From that, to point out which pressing issues that needs to be handled in completing State management over Corporations 90-91 towards forming economic groups

- To propose direction, solution system as well as conditions for carrying out solutions for completing as to State management over Corporations 90-91 towards forming economic groups

3 Object and Scope of Research

4 Method for Research

Based on principles of Marxism-Leninism; Ho Chi Minh’s thoughts; points of view, guidelines of our Party and State; dialectical materialist, dialectical historical methodology; in the thesis, the following main methods were used:

- Analyzing, collating, comparing;

In addition, the published results of researches relating to the subject at home and abroad were also used in the thesis

5 New Scientific Contributions of Thesis

First, in terms of theory,

- Points out criteria of cooperation for differentiation with other types of enterprise;

- Provides theoretical grounds for developing Corporations 90-91 towards forming economic groups;

- Provides the conception of State management over Corporations 90-91 towards forming economic groups;

+ Points out the subject, object of management;

+ Proposes methods for management and tool system for implementing the methods

- Sets up in a systematic manner contents of State management over Corporations 90-91 towards forming economic groups

These are theoretical issues that no documents available have touched upon

Second, in terms of practice,

On the basis of analyzing the situation of Corporations 90-91, economic groups, the process of developing Corporations 90-91 towards forming economic groups and the real state of State management over Corporations 90-

91 towards forming economic groups, the thesis points out the results achieved, its limits and their causes In particular, it provides the five pressing issues which need to be handled in completing State management over Corporations 90-91 towards forming economic groups, namely:

- Creating environment, abilities, conditions for economic corporations, groups

to accumulate, concentrate, and strengthen their competitiveness;

- Self-control, self-responsibility of corporations as well as their subordinate companies, entities;

- Executive order in management;

- Managers of corporations and their subordinate entities;

- Legal grounds for the relationship between holding company with its affiliates and among the affiliates within the corporation

Third, research results,

Proposes scheme and solution system (6 solution groups) and conditions (5 condition groups) for completing State management over Corporations 90-91 towards forming economic groups

Especially, in the thesis, specific ways, roadmaps for carrying out the solutions were designed

New scientific contributions of the thesis shall serve as grounds for making policies on renovation of State management over Corporations 90-91 towards forming economic groups

OVERVIEW OF RESEARCH SITUATION

Economic group is the modern economic organization form in countries over the world In competitions on the market, the economic group form demonstrates its many advantages That is why in other countries as well as in Vietnam, great attention is being paid by the State, scientists to the economic group form in both respects of theory and practice

To date, with reference to major State-owned enterprises, including economic corporations and groups, there exist innumerable State legal documents, scientific works and materials at home and abroad dealing with this issue

Among the above works and researches, their authors usually concentrate on the process of forming and developing of groups in general: chiefly on history relating to the formation of economic groups, politico-socio-economic conditions, market development; some workers also touch upon the elements, circumstances for the formation and development of economic groups in general and of Vietnam during the process of renovation and integration in particular

However, State management over Corporations 90-91 towards forming economic groups has not yet been dealt with in such works Theoretically, many contents, conceptions (for instance, theory of the development of Corporations 90-91 towards forming economic groups, conception of State management over Corporations 90-91 towards forming economic groups, contents of State management over Corporations 90-91 towards forming economic groups…) were not referred to These are also the main contents with which the thesis will deal on a systematic, concrete way, both theoretically and practically, and proceeding from that, to propose solutions for completing and conditions for implementing as well In other countries, particularly those with developed market economy, during economic development process, economic groups were formed and constitute a mode of organizing production, which plays a special role in the economy Building and completing economic group has been under research for long and innumerable workers by

scientists have been announced Nevertheless, the mode of organizing production of Corporations 90-91 was invented only by Vietnam and the development and conversion of 90-91’s corporations into economic groups are also the exclusive form

in Vietnam’s economy State management over Corporations 90-91 towards forming economic groups is the exclusive task of the State of Vietnam In the developed and developing countries over the world, there have never been such as form, thus no documentation touching upon this issue is available theoretically and practically so far

It is possible to arrive at the conclusion that the thesis research subject, as well

as the contents that it deals with, analyses, explains, does not coincide with any other scientific research work By researching in a specific, systematic way, both theoretically and practically State management over Corporations 90-91 towards forming economic groups, this can be taken as the first work of this kind

Research on “State Management over Corporations 90-91 towards Forming Economy Groups”, therefore, will surely be of certain value, theoretically and practically, for the science of public management in general, including State management over Corporations 90-91 towards forming economic groups, and especially it would make valuable scientific contributions to the policy-making process in reality

CHAPTER 1 SCIENTIFIC GROUNDS FOR STATE MANAGEMENT OVER

CORPORATIONS 90-91 TOWARDS FORMING ECONOMIC GROUPS 1.1 Overview of Corporations 90-91, Economic Group and Formation of

Economic Group

1.1.1 Awareness of Corporations 90-91

“Corporations are large-sized businesses comprised of many member companies, enterprises manufacturing the same type of product or parts of product;

trading in the same area; having close possession relationship, under a unified control, on the basis of assignment, decentralized administration between the Corporation and its member entities on the aspects of activities for production and business”

Criteria for Differentiating between Corporation and Company:

- Corporation is of large size in terms of capital, labour and scope of activity

- Corporation’s operations conform to certain lines of products, services

- Corporations are usually closely structured lengthwise; with assigned, decentralized administration in accordance with task and duty of each entity, level of business

The above criteria for Corporation constitute the form of organizing business developed from companies in order to meet the requirements for competition of the modern market economy

Pursuant to Article 44 of State Business Law:

“State Corporation may have the following types of member entity:

+ Financially independent entities;

+ Financially dependent entities;

+ Non-productive entities

Member entities of State Corporation have their own seal, can open bank account in conformity with mode of payment by State Corporation

Corporation is structured according to several models as follows:

First, as per the relationship among the member entities, Corporations are

organized according to one of the following three:

- Model of horizontal linking;

- Model of lengthwise linking;

- Model of mixed linking

Second, as per size of capital of Corporation:

- Corporation 91 (established under Decision No 91/TTg dated March 7, 1994), according to scheme upon establishment, it had to have a minimum chartered capital of VND 1,000 billion

- Corporation 90 (established under Decision No 90/TTg dated March 7, 1994), those Corporations established according to this model has to have a minimum chartered capital of VND 500 billion

1.1.2 Economic Groups

1.1.2.1 Generalization of Features and Conditions for the Formation of Economic Groups

Definition of Economic Group: Economic group is an economic group

comprised of economic entities operating within a line or lines of business, within a country or countries, having close relation in terms of economic, technological, and marketing benefits The chief goal of economic groups is to optimize profit on the

basis of husbanding resources of labour, technology, finance, intelligence…

a Basic Features of Economic Group

Economic group is of large size in terms of capital, turnover and scope of activities

- Multi-disciplinary, multi-area activities;

- Diverse in terms of organization and ownership;

- Economic groups often have R & D centers;

- Economic groups are often organized, managed, operate in clear order, and controlled in an intensive manner

b Conditions for the Formation of Economic Groups:

- Effect of rule of competition in the market economy;

- Effect of advances of science-techniques and technology;

- Demand of stimulating and concentrating capital, reducing business expenses, and minimizing payable taxes;

- The tendency toward globalization has been becoming a decisive factor which governs the formation and development of economic groups

1.1.2.2 Types of Economic Group

First, classification of economic according to level of linking

First, Cartel is a type of business group

Second, Syndicate is a special form of Cartel

Third, Trust is a business group, formed through the exclusive union of

business and production organizations as industrial businesses

Fourth, Consortium is a complex encompassing exclusive banking

organizations combined together

Fifth, Concern is the most popular form of business group today

Sixth, Conglomerate is the type of business group formed by attracting equity

from companies with highest profits via activity of trading in securities on the market

Seventh, Transnational Corporation is an exclusive capital corporation whose

production and business activities are on a very large scale that crosses the border of

a country

Eighth, Multinational Corporation

Second, pursuant to mode of formation

First, Form of Horizontal Linking

Is the form in which companies in the same line can link together according to the pre-set objectives to form up business groups

Second, form of lengthwise linking

This is the form of linking economic groups lengthwise Affiliated companies have a link as per technological process with the holding company

Third, Form of Mixed Linking

According to this mode, groups often run in a multi-disciplinary and multi-area manner, thus capable of spreading investment capital risks and avoid violation of antitrust laws of governments

Fourth, Form of Voluntary Linking between companies that takes place

when companies volunteer to negotiate around a company having great economic potential or holding a key position of the technological line

Fifth, Mode of Compulsory Linking, which takes place in the two following

cases:

- When a company has a great financial potential (holding company) to take over other companies

- Via the form of company re-organization

Third, pursuant to form of ownership

First, single-proprietary economic groups

Second, multi-proprietary economic groups

Fourth, pursuant to nature of linkage

First, economic group is formed according to the rule of “soft linkage” also

known as “economic linking” group

Second, economic group is formed on the basis of “hard linking” meaning the

member companies are “closely linked in terms of capital” According to this mode, there are the following popular models:

- Model 1: Sample structure

- Model 2: Holding company directly holds shares of affiliated companies

not directly under it

- Model 3: Among the counterpart affiliated companies holding one

another’s shares

- Model 4: The holding company is an affiliated company of some other

companies

1.1.2.3 The Role Played by Economic Group in the Market Economy

First, to attract, accumulative, and expedite capital circulation rate

Second, to transform the socio-economic structure

Third, to apply, develop science and techniques, receive and transfer technology Fourth, to train and develop human resources

Fifth, to promote economic integration

In Vietnam, this role is displayed in the following:

- Via the economic groups, the State have conditions for accumulate and concentrate important resources for the cause of industrialization and modernization

- State corporations serve as a core of the State economic sector - the key sector of the economy

- State corporations are an important factor in transforming economic structure, maintaining high growth rate and stabilizing economy, expanding export, and increasing income for the State Budget

- State corporations generate many jobs; train human resources for the society

- State corporations constitute an important factor in expediting the conversion to the market economy, openness and integration as oriented by the State of Vietnam

Nevertheless, besides the positive role, the formation of State corporations, with their advantages in terms of capital, labour, market, may result in such issues as monopoly, unwholesome competition, price manipulation, tax fraud, environmental destruction…Thus, there should be the State management in order to reduce, stop negative aspects that may arise in the market mechanism…

1.1.3 Theory of the Development of State Management over Corporations 90-91 towards Forming Economic Groups

1.1.3.1 Development of Corporations 90-91 towards Forming Economic Groups is a Necessity and also A Major Policy on Economy in Vietnam

First, this is a policy, guideline in economic renovation of the Party and State

of Vietnam

Second, in operation, the Corporations 90-91 have shown their weaknesses in

capacity of competitiveness in the home and international markets

Third, possibility to develop the Corporations 90-91 towards forming

economic groups is very high

Fourth, that the legal environment is built and completed also create

favourable conditions for the inner force development of the member corporations and enterprises

Fifth, the economic environment of Vietnam is fully-fledged for the formation

of economic groups

1.1.3.2 Issues of Concern in order to Ensure the Development of the Corporations 90-91 into economic groups with good results

First, size and scope of capital accumulation

Second, business specialization, cooperation and partnership

Third, exercise of the State’s ownership

Fourth, policy mechanism for development of corporations into economic groups 1.1.3.3 Conditions for Developing Corporations 90-91 towards Forming Economic Groups

First, production must reach a certain level of socialization thus resulting in the

object requirement for the choice of organizing an economic group on a large scale and with high concentration on production

Second, the market economy must reach a certain level and some considerably

complete market structure must be established

Third, that the considerably sufficient and complete legal documentation shall

create the system of regulations and policies relating to the formation and development of economic groups

Fourth, those corporations to be developed into groups must be sizeable

enough in terms of capital, including registered capital of the holding company, total registered capital of the corporation, minimum number of member enterprises, legal entity status of the members…

Fifth, conditions in terms of human resources, management body, level of

science and technology…

These are issues that need to be considered when developing Corporations 90-91 towards forming economic groups

1.2 Grounds for State Management over Corporations 90-91 towards Forming Economic Groups

1.2.1 Conception of State Management over Corporations 90-91 towards Forming Economic Groups

State management over Corporations 90-91 towards forming economic groups means that the State will use a combination of tools of law, mechanism of policies, organization of human resources, finance… to influence, adjust activities by Corporations 90-91 in order to create premises, conditions for corporations to develop toward forming economic groups

The relationship between the State and Corporation 90-91 in State management over Corporations 90-91 towards forming economic groups is represented by:

+ State: Subject of management

+ Corporations 90-91: Object of management

+ Activities by Corporations 90-91: Object of management

The relation above is represented in the following diagram:

Subject of management

Object of management Subject of management

State management over Corporations 90-91 towards forming economic groups

is performed from two angles:

- The State manages Corporations 90-91 with the function of administrative management of the State over the types of business

- The State manages Corporations 90-91 as the owner To exercise the management over Corporations 90-91, apart from the general mode of State administrative management, the State will use the following main modes (represented in the diagram below):

First, direct administrative mode

Second, indirect mode via market

The important matter here is that the management will not be loose nor executive order shall be imposed.→

1.2.2 Rationale for the State management over Corporations 90-91 towards forming economic group

First, proceeding from the inherent role played by the State in the economy in

general and in the Corporation 90-91 in particular

Second, proceeding from the role as owner of capital in Corporations 90-91

and strategic intention of building strong economic groups of the State

State

Activities by Corporations 90-91

towards forming economic groups

Third, through its management over the Corporations 90-91 towards forming

economic groups, the State will take the initiative in adjusting operations by economic groups in keeping strictly with the set objectives, at the same time overcome shortcomings and inadequateness that cause obstruction to corporations

Fourth, proceeding from requirements for development of Corporations 90-91 Fifth, proceeding from requirements for fighting against negativity, corruption

in the course of developing Corporation 90-91 towards forming economic groups

From all matters above, it can be affirmed that State management over Corporations 90-91 towards forming economic groups is an objective demand according with the State’s strategy in the course of building the modern market economy in the tendency toward international integration

1.2.3 Requirements of State management over Corporations 90-91 towards forming economic groups

First, ensuring the process of developing Corporations 90-91 into economic

groups will be prompt, in stable and effective operation

Second, in conformity with the law

Third, the State will not interfere by giving executive orders; expanding the

right to self-control; bearing self-responsibility for corporations when these are converted to economic groups

Fourth, publicity

First, publicity in advance

Second, publicity in arrears

Firth, strengthening activities of inspecting, checking, supervising to detect

and handle timely and completely offenses in the course of developing Corporations 90-91 to form up economic groups

1.2.4 Contents of State Management over Corporations 90-91 towards Forming Economic Groups

1.2.4.1 Contents of State Management over Enterprises including Corporations 90 – 91

First, building the country socio-economic development strategy of the

sector, area, locality on the annual and long-term basis

Second, the State issues a system of legal documents to establish conditions

and environment for enterprises including Corporations 90 – 91

Third, the State uses macroeconomic policies for regulating, encouraging

supports for enterprises including Corporations 90 – 91

Fourth, stipulating administrative procedure regulation to realize the

relationships between and among State management bodies and enterprises including Corporations 90 – 91

Fifth, organizing inspection, check over enterprises including Corporations 90 – 91

1.2.4.2 Contents of State Management as Owner over Corporations 90-91 towards Forming Economic Groups

First, issuing regulations on necessary conditions, criteria for permitting

Corporations 90 – 91 to develop into economic groups

Second, stipulating administrative procedures for Corporations 90 – 91 to

realize when converting to economic groups

Third, appraising, approving schemes for converting of each Corporation Fourth, carrying out provision of initial capital, assets for Corporations after

converting

Fifth, appointing representatives of the State to take direct control over

enterprises within economic groups

Sixth, approving financial mechanism of economic groups

1.3 Foreign Experiences regarding State Management over Corporations and Economic Groups and the Issues that can be Drawn for Research of Vietnam

1.3.2 Issues that can be Drawn for Research of Vietnam

First, economic group is the form of corporate widely applicable to developing

countries

Second, economic groups often take in member entities as per objective

programs of the State

Third, economic groups are set up to create key economic sectors including export Fourth, economic groups take hold of sections, phases that will determine the

success or failure of the country economic development objectives

Fifth, very flexible internal management mechanism

Six, the State relies on economic groups to control the national economy

CHAPTER 2 REAL STATUS OF STATE MANAGEMENT OVER CORPORATIONS 90-91

TOWARDS FORMING ECONOMIC GROUPS

2.1 Generalization of Corporations 90-91 and Process of Developing into Economic Groups in Vietnam

2.1.1 Formation and Operations of Corporations 90-91

Pursuant to Decisions No 90 and 91/TTg dated March 7, 1994 by the Government, Corporations 90 and 91 were formed on the basis of re-organizing and restructuring State-owned enterprises These are State Corporations

Corporations 90-91 encompass financially independent entities; financially dependent entities; non-productive entities Member entities of Corporations have their own seal, are permitted to open their own bank accounts in conformity with method of payment by Corporations Financially independent entities have their own Charter approved by Board of Directors of Corporation under provisions of Business Law and Regulations on State Corporations Financial regimes and economic accounting of Corporations conform to the Government’s regulations

By the end of February 2008, throughout the country, there were 94 State economic groups, corporations (07 economic groups and 87 corporations of the State) The State capital in 19 economic groups, corporations of special grade accounted for 84% of the total of State capital in 94 economic groups, corporations of the State The State capital in 2008 increased by 13% compared with that of 2007, which mainly came from after-tax profits, re-assessment of assets in the process of restructuring, converting and capital surplus from amortization of member entities

Table 2.1: Norms of Operation by Groups, Corporations

with 2007

1 Total State Capital (VND thousand billion) 440 + 13%

2 Total Turnover (VND thousand billion) 1.044 + 30,7%

3 Total Profit before Tax (VND thousand billion) 125 + 76%

4 Rate of Return (3)/(1) 28%

5 Total Payment to the State Budget (VND

thousand billion)

182 + 34%

6 Total Investment Capital (VND thousand billion) 177 - 5%

- Including in the areas of securities, insurance,

banking, real estate, investment funds (VND

thousand billion)

7.2 - 26%

Today, State enterprises contributions make up approx 40% of GDP, generating 39.5% of industrial output, over 50% export value and 28.8% of total