The Government of Vietnam has recently issued the 79/NQ-CP resolution on the list of 80 countries, which their citizens are eligible for the electronic visa (e-Visa), and the list of international border gates, which allow foreigners to enter and exit with e-Visa. The resolution takes effect from July 01, 2020. Whether businesses can get support from the government during this ‘new normal’ period depends on their capacity and level of interaction with the authorities.
Over the last 6 months, the wide spread of COVID-19 has made adverse impacts on multiple sectors of the Vietnamese economy.
Import-export, petrol, hospitality, aviation, and automobile – key sectors in driving investment and promoting development – are severely affected by the pandemic. The global supply chain was disrupted, causing difficulties for the import-export activities in Vietnam, which has achieved a growth rate of only 0.5 percent for the first quarter of the year. This growth rate becomes the lowest over the past 17 years.
Automobile industry is not cast aside from the destruction of the pandemic. During the first four months of 2020, Vietnam Automobile Manufacturers Association (VAMA) revealed the sales of new vehicles nationwide only reached 14,000 units, reduced by 43% year on year. After the economy has received positive signs of recovery, the automobile industry in Vietnam on the other hand shows some cautious moves as everyone seems to be waiting for final changes on the registration fees, which are considered to be the Governmental acts on the demand boost.
Restrictions on travel along with the drop in crude oil price in mid-April are among the main reasons petroleum enterprises in Vietnam suffer from loss. Take Petrolimex for example, this petro giant has reported an unfavourable gross margin of 1,800 billion dong in the first quarter of 2020. The negative crude oil price has greatly impacted Petrolimex when they had to cut losses in oil inventories up to 1,500 billion dong.
Aviation, which is considered as ‘the foot’ of the economy, has been tied up partly because of mobility restriction policies and suspension of entry to foreign tourists. With borders closed and strict social distancing for an entire month, a lot of airlines have been hit hard. While revenues during the ‘new normal’ period have not been recovered, the amount of financial burdens, including the costs of parking, flying, renting airplanes and maintenance services, is growing bigger and bigger day by day. This also explains why more and more airlines have reported their net losses during the first quarter 2020. Vietnam Airlines reports a net loss of more than VND 2,611 billion while Vietjet Air declares a negative profit of VND 989 billion, which is the first time in the quarter since the listing. Following the trend, Bamboo Airways also reports a loss of VND 1,500 billion in the first three months. Such losses of thousands of billions reported by airlines in the first quarter may not be the worst because generated revenues during the Lunar New Year have already compensated the losses of the first quarter 2020 to some extent. Indeed, the worst has yet to come, which may take place in the second quarter as many activities of airlines during April have been somehow paralysed and domestic travels in May have not been enough to generate turnover.
Executive expectations about the shape of coronavirus crisis in the world (Source: COVID-19: Briefing Materials by McKinsey & Company).
In response to such challenges that businesses have to face, the government and authorities have imposed detailed measures for each sector. However, such responses are not that practical in the reality of each industry.
Last month, the Ministry of Finance submitted its proposal for reducing the fees to facilitate the recovery of airlines. However, this measure has not been effective enough to support businesses. In fact, although the costs of providing flying services, including appraisal fees of business licenses, certificates and degrees, have been cut, parking fees were not reduced while all airlines had to leave their airplanes on the ground.
Rescue packages to support all industries of the economy are a challenging puzzle that the government has to deal with at the moment. Lessons learned from bankruptcy announcements of big enterprises due to rejected assistance, such as the cases of Colombia Avianca, Thai Airways, LATAM – the South America’s biggest airlines group – and Virgin Australia, remain valuable for Vietnam.
Indeed, managing authorities could not grasp the realities of every sector’s situation as thoroughly as those working in such sectors. Therefore, increasing exchanges of information with the government is critical for every enterprise nowadays.
Through press releases, companies and business groups can express their concerns and the current issues that the industry has encountered, ranging from obstacles in administrative and legal procedures, difficulties in cash flow due to the pandemic’s impacts to barriers in demand promotion, etc.
In the meantime, press releases can be used as an information channel to propose practical measures specifically for each sector to the government. The business communities, especially those in tourism-aviation industry, can directly provide solutions in fixing the mechanisms and alleviating the problems while closely following with the current situations of each industry, for example, maximising the fee reductions, amending the legal framework, restructuring debts, providing clear principles and detailed procedures in facilitating the access to concessional loans, etc.
In fact, lobbying and advocacy efforts of some organisations and enterprises have been proved effective in several countries during the global outbreak of COVID-19. In April, the Australian Government of New South Wales gathered public opinions before introducing a package of support which includes up to AUD 400 million in land tax relief together with a Commercial Leasing Code of Conduct During COVID-19.
Another example shows the opposite: without quickly responding to information in a clear way, businesses could miss the opportunities of being supported by the government. On May 17, replying to the rumour of its bankruptcy, Thai Airways spoke up on its website, which serves as a press release, with a message: “There is absolutely no such thing as Thai Airways files for bankruptcy.” In response to this statement at a press conference on May 18, the Prime Minister (PM) of Thailand said that the government had considered every aspect and that it decided to restructure the airline without letting it go bankrupt. “This airline will keep operating as per normal”, said the PM.
However, after less than 10 days, on May 26, the worst-case scenario eventually happened. Thai Airways officially announced its bankruptcy and submitted its request for debt restructuring and rehabilitation. The Government of Thailand reduced its stake in the airline to 47.86% as the Ministry of Finance sold 3.17% of its majority stake to the Vayupak 1 Fund. Under Thai law, Thai Airways is no longer a state-own enterprise although the government owns a majority stake in the carrier with great authority.
Certainly, strengthening information sharing with the authorities at this moment has become one of the top priorities of every enterprise. “When the whole world is silent, even one voice becomes powerful,” Malala Yousafzai, a Nobel Peace Prize winner in 2014, once said.
TIPS FROM US
CREATIO has compiled some suggestions for simple, necessary and proactive actions at the present time, things that can be applied immediately, so as for enterprises not to lose competitive advantage during COVID-19.
Tip 1: Actively examine the business operation and restructure the management strategy towards sustainable development
Apart from waiting for assistance from the government, businesses need to save themselves by evaluating all financial pressures, including goods in stock, receivables and payables, taxes and salaries, and by prioritising payables that can maintain frequent customers’ relationships, as well as adjusting and reducing cash leakages such as stocked goods and other fees.
Besides, enterprises should be active in various aspects as follows:
- Changing the business mindset and integrating sustainability into the management system
- Setting up departments specialised in sustainable development
- Developing Key Performance Indicators (KPI) related to sustainable development
- Determining a set of Corporate Sustainability Index (CSI) in their business management
- Constantly building capacities of employees for more sustainable human resources in the enterprise; developing new skill sets that align with new economic trends, and hence, helping staff easily respond to new requirements in their works
- Managing sustainable finance: ensuring investments into innovation and driving businesses towards sustainability in the long run
- Implementing Business Continuity Management – a management process that identifies potential risks to the corporate, ensuring businesses actively adapt to unexpected and adverse circumstances in the future, minimising negative impacts on business activities and enhancing business resilience.
Tip 2: Improving supply management capacities
Almost every enterprise still prioritises its productivity targets rather than sustainable management of sources of supply. This makes the supply chain become susceptible to global shocks such as pandemics.
COVID-19 has clearly demonstrated that. To overcome such weaknesses, businesses need to stay proactive in strengthening supply chain through:
- Diversify the supply chain, including both inputs and outputs
- Diversify sources of supply: alongside the existing long-term contractors, enterprises should actively create a network of short-term suppliers to avoid being entirely dependent on big suppliers
- Making projections of different scenarios for risk management in the supply chain
- Developing neat and flexible production plans
- Applying technology in supply management
Tip 3: Referring to force majeure clause
Businesses can negotiate payment conditions and debts with partners, banks in particular, referring to force majeure clause and hence, facilitating negotiation and proposing debt scheduling.
Tip 4: Strengthening connection with other enterprises in the same field
Having strong connections with the business community in the sector can help enterprises have a common voice with the business association, and hence, opening up more opportunities for financial assistance from suppliers and enabling access to rescue packages of the government.
Tip 5: Developing a long-term and visionary strategy
According to a Harvard Business Review survey on business productivity during the past three crises, among 4,700 studied enterprises, those who were the quickest to cutting costs and in the most dramatic way have the least chance of outpacing others as the economy recovers. In other words, the group of businesses that are more likely to recover well from recession and achieve better are those owning a balanced strategy of long-term and short-term goals through both a comprehensive investment in the future and selective cost cutting.
Businesses should actively keep abreast of the government’s long-term economic development plans to develop/adjust a business strategy that corresponds to the national goal and to help corporates receive support from the government as well as get potential opportunities out of the national policies.
Enterprises should also actively do research on global economic trends, such as digital economy using artificial intelligence among others, to develop a future business model, which could make a shortcut for them to adapt well with changes in marketplaces and respond to new demand.
- Enhancing the digitalisation of the business management and manufacturing to keep up with key demand in the digital economy in Vietnam and around the world.
- Strengthening collaboration and partnership, especially within the sector, ensuring no disruptions in the supply chain in the case of such crises like COVID-19 in the future.
- Diversifying target marketplaces, including domestic and international ones, without being dependent on certain traditional markets.
Established in 2011, CREATIO has proven its position and expertise in the industry of creative communications solutions consultancy. With a broad range of services from event management, branding design and production, to content marketing and PR distribution, CREATIO has the privilege to serve more than 120 clients worldwide, from a singular design concept to year-long integrated communications campaigns.