New wave of business acquisitions not a concern

(ĐTTCO) - The sudden and widespread outbreak of the Covid-19 pandemic has caused many business stocks to plummet. This has been a serious cause of concern because it has led to a new wave of cheap buying and acquisition of businesses. This issue was discussed in detail with Mr. Dinh The Hien, (PhD) in a talk with Saigon Investment.

Illustrative photo

Illustrative photo

JOURNALIST: - Sir, what do you think about the chance that Vietnamese businesses may be bought out cheaply or acquired in the aftermath of the Covid-19 pandemic?

Dr. DINH THE HIEN: - Talking about acquiring businesses, there are two types. The first is listed companies on the stock market, which have brand names and long listing time period. Second is unlisted joint stock companies. In addition, we often talk about real estate businesses with large land banks.

For listed companies, due to sharp decrease in stock prices during the pandemic, buying power will dominate, raising concerns about the acquisition scenario. However, it must be acknowledged that the stock market downturn is common in many countries, not only Vietnam, so it cannot be considered abnormal.

For businesses with large capital, the possibility of being acquired by investment partners is also low due to huge costs involved. In fact, those who want to acquire a company must consider the relationships of major shareholders, such as financial investment funds. These funds usually buy shares, not acquire businesses. However, when these funds leave and there are not any other investment funds to replace them, the possibility of acquisition becomes very high.

For unlisted or non public companies, there are usually one or few bosses. When the boss feels that he cannot maintain the best for his business, he will sell it. This may be a bad thing for an individual who loses the company, but for the economy, it is a good thing. Because the State cannot and does not have the duty to protect those who are forced to sell the company because of unprofitable business results.

There is also an opinion that when the wave of business purchases emerge, we should find some way for domestic enterprises to be bought up by domestic enterprises only, rather than foreign ones. I think that it is not a good opinion. In the current economy, if a business operates well, it would be considered a good thing, whether its capital is domestic or foreign. Currently, we also have regulations that enterprises with 100% foreign capital are listed on Vietnam's stock exchange.

- Sir, is it normal that weak businesses have to sell, but if many businesses do so, will potential Vietnamese brands lose?

- In the current context, it is important that we have many innovative businesses, rather than many businesses. Many businesses may have to sell, but many other businesses will also be created. In the economy 4.0, the power of creativity is very huge and it can bring businesses from low starting points to quickly becoming major domestic brands, and reaching out to regions and the world. We have seen the rapid growth of many technology companies in the world, in less than ten years, they have surpassed the existing giants with old-style business plans.

Now, it is no longer the time of a large capital company occupying the market with a huge but old fashioned business system. The reality of the past ten years shows that companies with a new business model and good connectivity, who know how to apply 4.0 technologies, are the winners. If we try to retain weak businesses, it will be difficult to form strong brands in the future.

Weak businesses are likely to be acquired. For individuals, the loss of a company can be a serious problem, but for the economy it is a good thing. However, the State does not have a duty to protect those who are forced to sell because of unprofitability in their business.
Of course the State is not indifferent to the difficulties of businesses. Recently the Government has launched packages to support businesses. But it should be affirmed that the State cannot have enough resources to support all businesses, especially businesses that do not know risk management. What businesses need now is the market and consumer demand. When buyers have needs, businesses will boost production and business. It is the fastest way to get rid of difficulties.

- In context of the current pandemic, the weak link between domestic enterprises and the way to further promote the use of domestic products are being mentioned. What do you think about this issue?

- Talking about the interconnection between businesses, we should look at the gradual development of the economy. Twenty to thirty years ago, production enterprises were quite discreet and lacked links. Now, after more development, enterprises have become much more mature and they always know where to buy and sell finished products in the value chain. We are not lacking in linkages but in supply chains, especially in support industries, which are still weak.

To promote the use of domestic products, we can see from the experience of South Korea in the 80-90s. They were very successful with this, partly because the products were supplied domestically, but mainly because their quality was very good and well guaranteed. However, in the long run this was not sustainable development. To be sustainable, trade must be promoted, especially by integration.

For us at this stage, we still need to promote the domestic market to take advantage of the large population, but at the same time, we must promote more trade. In fact, Vietnam's exports have and will benefit from free trade agreements, which also means having to accept competition in foreign goods in the country. That is the general trend.

- Thank you very much.

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