Editorial Note

October 13, 2024, marks the 20th anniversary of Vietnamese Entrepreneurs' Day. Over the past 20 years, the private sector has grown from modest beginnings into a dynamic force, full of energy and ambition to contribute to the nation’s prosperity.

Once stigmatized as exploiters, entrepreneurs today are honored like professionals in any other field. Most began their careers with nothing, and now they are business owners, generating wealth for society and creating the most jobs for their communities. However, this entrepreneurial spirit has waned in recent years due to the COVID-19 lockdowns and the “fear of making mistakes” that pervades the system.

Entrepreneurial energy needs to be revitalized, the desire for wealth must spread, and fear must end. Above all, over the decades, Vietnamese entrepreneurs have consistently demonstrated adaptability, flexibility, and enduring resilience, proving themselves as key players in the national economy.

They will undoubtedly remain a pillar in Vietnam’s goal of achieving prosperity by 2045.

To celebrate the Vietnamese Entrepreneurs' Day, VietnamNet is publishing a series of articles to encourage entrepreneurship and share with businesspeople the challenges and barriers they currently face, aiming for a “New Era of National Growth” that is fast and sustainable.

VietnamNet introduces the first part of a conversation with Tran Si Chuong, an economic expert with nearly three decades of experience working with the private sector, discussing the entrepreneurial spirit in Vietnam.

tschuong1 6164.jpg
Mr. Tran Si Chuong: The entrepreneurial spirit and business acumen of the Vietnamese people have developed strongly. Photo: VietnamNet

What is your view on the development of the private sector in Vietnam over the years?

Tran Si Chuong: When I first returned to Vietnam in 1997, I collaborated with Professor James Riedel from Johns Hopkins University to conduct the first report on Vietnam’s private sector for the World Bank.

One of the main goals of the report was to determine whether the Vietnamese people possessed an entrepreneurial spirit. We conducted surveys across various regions. After just two weeks, we were astonished - everywhere we went, people were talking about business, discussing how to make money.

On one occasion, we were on a ferry in Can Tho, and a foreign member of our group ordered a cold beer. However, by the time the vendor, a young girl, returned with the ice, the ferry had already departed. Yet, somehow, when the ferry docked, she had managed to bring the cold beer to him. The foreign researcher was surprised and said, “With this entrepreneurial spirit, this country will thrive.”

More than 20 years ago, I helped many young entrepreneurs get started. Most of them had nothing - at best, a few hundred million VND to import raw materials for production. Yet, many now have assets worth tens of millions of dollars. And now, there are quite a few with such wealth.

There are also many female entrepreneurs in their sixties who are now industry giants in pharmaceuticals and apparel. These women used to cycle into remote areas to sell each piece of clothing or pill, a reality that today’s youth can hardly imagine.

The entrepreneurial and business spirit of the Vietnamese has grown remarkably. Given this level of absolute growth, the private sector's development is significant, though relative to its potential, it could have expanded even further.

However, today, the entrepreneurial spirit has declined significantly, seemingly hitting rock bottom. According to a recent VCCI survey, only 27% of businesses plan to expand in 2024 and 2025, a lower percentage than during the 2012-2013 economic trough. Have you observed this decline in practice?

Entrepreneurs are highly perceptive - they can read the risks in the economy better than anyone else…

Indeed, the situation has become very challenging in recent years. Internationally, various economic and political shocks, such as the Russia-Ukraine war and Middle Eastern conflicts, have created uncertainty. Global value chains have been disrupted, globalization is fragmenting, inflation remains high, and interest rates are elevated.

Domestically, Vietnamese businesses continue to face high interest rates and numerous barriers to doing business. In addition to challenges stemming from the COVID-19 pandemic, the bureaucratic system has become increasingly stagnant. Despite this, Vietnamese entrepreneurs continue to work tirelessly. One must acknowledge that Vietnamese businesses possess an extraordinary resilience.

The combined assets of the 12 largest private conglomerates in Vietnam are estimated at $70 billion. What is your take on this figure?

This $70 billion is equivalent to the assets of just one large foreign corporation. For perspective, Elon Musk's personal wealth is double Vietnam's GDP. This shows that, relatively speaking, Vietnam's private sector remains “poor” compared to the world.

That being said, I believe there are currently around 20 billionaires in Vietnam - they just haven’t publicly disclosed it. In this digital age, it’s not uncommon to see financial billionaires emerging overnight. It wouldn’t be surprising to see more billionaires in the AI era. However, the key question remains: while some people are getting rich quickly, is the country becoming stronger?

Let me reiterate: in absolute terms, the private sector's development is significant, but relatively, it should have grown much more.

Ttg voi DN.jpg
Prime Minister Pham Minh Chinh speaking with representatives of private conglomerates. Photo: VGP

The freezing of the real estate market is currently a major issue for the economy. Many businesses sell homes to the public without having complete legal documentation, leaving people’s assets tied up, businesses facing risks, and banks also becoming entangled. How should this be resolved?

Businesses that sell homes without full legal documentation are not solely at fault. The State also bears responsibility. Since people have already moved into these homes, how can you ask them to move out? I believe the government should find a way to legalize these homes to address the issue, as it’s better to resolve it now than 10 or 20 years later. The sooner this bottleneck is cleared, the better for everyone.

Another issue is that the Land Law, a crucial piece of legislation, must provide optimal solutions that ensure the rights of those who lose their land while also encouraging investors. Fair protection of all parties' interests will allow the market to grow harmoniously. For those who break the law, swift penalties should be enforced to create fairness and trust in society.

Access to land is also very difficult for businesses, particularly with the new Land Law requiring land valuation based on market prices. What are your thoughts on this?

Investors need to demonstrate that relocating people to new areas will improve or at least maintain their quality of life. The key is to avoid using state budgets as much as possible, as it complicates matters. Even for public projects, the State should minimize reliance on public funds and instead attract private sector investment. Unfortunately, despite the existence of the PPP Law, private businesses do not feel comfortable or attracted to participating. This is an issue.

As for high land prices, I believe the market will adjust itself. For instance, some sellers in District 1, Ho Chi Minh City, insist on selling for 1.5 billion VND per square meter, claiming that land prices were already 1 billion VND per square meter years ago, so they cannot sell for less. Yet, no one is buying. So, the market will eventually correct itself.

Gia Lam_Vingroup.jpg
The VinUni university complex and residential area developed by Vingroup in Gia Lam, Hanoi. Photo: Hoang Ha

The rise in bankruptcies has been significant, yet many businesses have managed to survive after undergoing painful restructuring. How do you perceive this situation?

Restructuring involves altering the operational model of a business. First, enterprises must divest unprofitable sectors to alleviate cost burdens and secure cash flow, especially since the duration of the current crisis is uncertain. The fundamental requirement is that businesses must maintain adequate cash flow while minimizing expenses.

Second, it's essential to adopt a long-term perspective. Many companies still lack a vision for sustainable development. While the term "sustainable development" is frequently discussed, there is limited attention given to the concrete actions needed to achieve it. Sustainable development demands discipline and effective governance.

Many businesses thrive primarily through management rather than true governance. Numerous entrepreneurs are adept at taking risks and seizing opportunities quickly, yet this represents management, not governance. They may perceive their business's success as effective governance when, in fact, it is not.

I know an entrepreneur who started with 20 employees and now has over 200. When I asked about his current system, he responded that he oversees every aspect and knows everything happening in the business, believing nothing escapes his notice.

I disagree. I view this individual as managing in a haphazard manner rather than possessing comprehensive oversight of all operations. Many successful entrepreneurs mistakenly consider themselves strategic geniuses simply because they can identify market trends and buy low and sell high. However, this is not strategy; it is merely management.

Thus, effective governance is crucial, particularly in this era of rapid AI advancements. Businesses must establish strategic direction to navigate the fast-changing landscape effectively.

sungroup 3 317.jpg
InterContinental Danang Sun Peninsula Resort by Sungroup in Da Nang. Photo: VietNamNet.

The story you share is particularly relevant today, as the second generation of many Vietnamese entrepreneurs is beginning to take over management. There are numerous instances of failure where businesses have grown large, yet they continue to operate under family governance models. What advice do you have for them?

Indeed, the successful generation of entrepreneurs post-Doi Moi faces this challenge, although it is not unfamiliar in the global context.

Many renowned names worldwide have evolved from family businesses, but they possess strong governance systems and a robust management culture. Consequently, by the time their grandchildren inherit the business, they remain wealthy, even if they only retain a small percentage of ownership. These families maintain a governance structure that is not reliant on any single family member.

For example, the Rockefeller family has prospered into the eighth generation, yet they continue to amass wealth, holding vast fortunes despite now owning only about 5% of their original business. They have representatives on their board and a team of advisors, including lawyers, economists, and financial experts. They do not rely on a single family member to handle all these responsibilities, as it is unrealistic for one person to possess all the necessary skills.

In contrast, many Vietnamese entrepreneurs attempt to do everything themselves. There is a deeply ingrained belief among Vietnamese that one cannot trust others. They often think, "This is my asset, so I must manage it myself," which can be detrimental to their business.

First, the likelihood of successfully training a child to inherit the business is virtually zero. Even if the child is talented, well-behaved, and educated abroad, they may struggle to manage the business effectively in Vietnam. The work their parents undertook may not be replicable by their offspring due to the unique challenges present in the local context.

I know of families that send their eldest sons to study in the United States and then pressure them into CEO roles, resulting in significant declines in business performance within one to two years. Therefore, previous generations of entrepreneurs need to recognize that their businesses must operate through effective governance and structured systems. Naturally, some capable children can take on CEO roles, but their powers should be limited.

Research from McKinsey shows that the probability of a family successfully transitioning management from the first to the second generation is about 30%; the likelihood of success from the second to the third generation drops to 10%. Thus, the overall probability of success from the first to the third generation is only 3%. Following a model where the business is intended to be passed down through generations poses significant risks, with the possibility of the grandchildren ending up in precarious situations.

Of course, this model may not be applicable in Vietnam, as many entrepreneurs are "self-made." It saddens me because businesses represent societal assets, creating jobs for many.

This also explains why domestic enterprises have yet to grow stronger. Domestic companies should enhance collaboration opportunities with foreign direct investment (FDI) firms. If FDI companies see robust, well-governed enterprises here, they will be more inclined to engage in business with them.

Furthermore, domestic enterprises often lack governance systems aligned with international standards, which relegates collaboration with FDI firms to subcontracting arrangements.

Tu Giang - Lan Anh

* Mr. Tran Si Chuong is currently a strategic development and corporate governance consultant and a Senior Partner at 3 Horizons, a consulting firm based in the United Kingdom. He previously served as an economic and banking advisor for the U.S. Congressional Banking Committee. Since 1995, he has regularly worked in Vietnam and several countries in the region, advising international financial institutions and both domestic and foreign enterprises in the areas of macroeconomics, governance, and business development strategy.