Standout opportunities for business success in COVID-19

Cash flows accelerated by technology

2020 was a very difficult year for not only Vietnam but also the global economy. Although Vietnam boasted the highest economic growth rate of 2.91% in the region and ranked among the world’s top performers, we all felt the headwinds, especially in industries like recreation, aviation, or transportation. The ensuing pressure has decelerated the country’s GDP growth to the point that it could pose impacts for many years to come if we fail to tackle the challenges. Just like a machine, if the economy grinds to a halt, it will take time and substantial fuel and raw materials to get back to speed.

However, the financial sector has been moving in the opposing direction to the overall economy. The past year has been fruitful for financial institutions and financial services providers such as insurers, securities companies, and fund management companies, not only in Vietnam but also in international markets. The stock markets in Vietnam and around the world rose spectacularly. Specifically, as of December 31, 2020, the VN-Index reached 1,103.87 points, 14.9% higher against 2019. Other Asian stock markets also rebounded to pre-pandemic levels, primarily driven by technology companies.

This is the first year these trends have emerged and the stock indexes diverge from the overall economic performance. Many have chalked up the appreciation of financial assets to the simultaneous launch of unprecedented stimulus packages across the world, but I also believe the advent of technology has also been a significant – and less transient – impact that would sustain these trends over a longer timescale.

For one thing, technology has enabled capital flows to continue uninterrupted and circulate even faster across the world, creating a cash surplus. At the same time, the pandemic has accelerated IT in management and operations across all areas. Technology is now being applied in all reaches of the economy, even in education and healthcare, sectors that were previously slower in embracing digitalization, increasing the efficiency of operations and optimizing cash flows.

The resulting good liquidity and abundant cash flows have boosted the valuation of most assets, particularly financial assets like stocks, cryptocurrencies and gold, along with fixed assets like real estate.

Despite the overall positive performance of the banking industry and the booming stock market in 2020, the risk of non-performing loans (NPLs) has been looming large. What prospects do you foresee for the banking industry in the coming year?

In general, banks have strong income statements and made high provisions for NPLs. That means they expect and are prepared for a surge in NPLs and various other future risks.

In light of this, I am confident that the results posted by banks are generally in line with where the market stands today, as well as the health of banks and their customers.

The booming stock market and the elevated valuation of various assets have made investors bullish. Should the market be concerned about a bubble caused by excess liquidity?

Capital and cash flows generally flock to the investment channels that seem the most profitable. Of course, excessive liquidity could be cause for worry, but – record valuation or no – is the stock market actually overheating? True, many stocks have been soaring, but the price to earnings ratio of the Vietnamese stock market is still lower than neighbors, at a level that is considered reasonable by numerous international institutions.

As such, in the current context, I do not think there is a bubble forming in Vietnam – but that’s not to say that in the future, when investment channels shift or fiscal and monetary policies change, it could not be a possibility.

Undoubtedly, investors' interest in the country’s stock market will help listed companies to be proactive in mobilizing and utilizing the funds more efficiently. 

Overcoming challenges in our "DNA"

Many Vietnamese companies are very bullish on their current prospects. As one of the most widely trusted audit firms, are local companies ready for recovery in 2021?

Obviously, Vietnam has responded very well to the pandemic, especially from the Government side. Had we failed to control the pandemic at the national level, businesses would not be able to operate with the efficiency they report today. While the circumstances are definitely harder for business, Vietnamese companies have been showing admirable skill and resourcefulness to survive.

Perhaps this is part of the special skillset of Vietnamese businesses. Hardships, including wars, post-war reconstruction, and natural disasters have made Vietnamese people, including entrepreneurs, more resilient – it is in our DNA, so to say. This ability to always rise to the occasion has enabled businesses to drive bold changes and repurpose their strategies, sometimes at the drop of a hat.

What were the most effective changes that you have seen made by local companies?

Several large-scale corporations have spun off or sold non-core business units. In many cases, it has been the right call to refocus on their core advantages and strategies while carrying on R&D. Many of these groups will emerge from these turbulent times even stronger.

As a mild surprise, services related to corporate governance consulting have been blossoming recently. During difficult times, businesses tend to limit spending on services that are not essential. This time around, however, many companies have in fact accelerated the innovation of their business models, operating processes and technology to build a solid base for the next phase of development and expansion.

In addition, businesses are also very resolute in cost management to increase operational efficiency. This has not only brought immediate financial efficiency gains but also laid down the groundwork for future recovery when revenue can grow again. These actions are very effective in securing the future of corporations and the country’s economy.

These are mostly temporary solutions to allow them to overcome the crisis caused by the COVID-19 pandemic. What do you think businesses will need to pay attention to in the long term?

This is a time when businesses have to take a hard look at themselves and review their development strategy. Even if businesses remain steadfast in their strategies, they should reevaluate their operating models. The market is changing, consumers are changing, the very way we consume and communicate is changing. A company needs to consider which business model is suitable and which technology matches best its strategic development directions.

The companies that are currently successful are those that have taken radically action to transform. All the big names have market-leading technology and information management systems. This allows them to survive, grow and continue to lead the way when difficulties arise. The application of technology and information management combined with rational business strategies can never be far off the mark, whatever direction the market is heading.

It is a good sign that not only large corporations but also many small enterprises are showing interest in digitalization and digital transformation. For instance, EY Vietnam has been supporting agricultural producers and exporters to roll out bold digitalization strategies – in a sector that has been among the slowest to modernize. If they continue down this path, they are sure to become a powerhouse in agriculture in Vietnam and the world. Of course, this is a very long and arduous journey.

Investing in digital transformation takes a lot of time and resources, especially as companies are often at a loss as to where and what to start with. How can they succeed in digital transformation?

There is no one-size-fits-all business model or IT management system that can ensure success. Each business has a completely unique set of goals and strategies, depending on their profile, market and customers. Adopting technology for technology’s sake will not generate economies of scale or tangible improvement in any key metrics/KPIs. Businesses need to come up with a clear strategy first, outlining a vision for the future and the steps that would take them there. Once a strategy has been formulated, they can determine which information management system and technologies can best support them.

The key is to have a distinct strategy and an operating model that is appropriate for the market – only can they begin thinking about the technology. There is often a discrepancy here: there are many good strategists who are not tech-savvy and many young tech-savvy people who are not business strategists. This makes it difficult to make full use of the vast amount of information generated by technology. Bringing together these different people for the best possible outcome is the key.

This is simple in theory, but very difficult in practice. To demonstrate, one of our clients – a very successful businessman – was concerned about applying technology because he thought that the more modern the technology is, the greater the risk of information leakage and security breach. He was convinced that doing the brunt of the work manually minimized data leakage and would enable the company to safeguard its business secrets against cyberattacks.

However, with the company’s existing system, it took at least a month to compile a report, which meant the company made decisions based on data that was a month out of date – not to mention the level of detail and accuracy of the information in the report!

Now, after a mammoth investment, the company operates with a cutting-edge information management system. From a technoskeptic, the client has gone into the owner of the multi-disciplinary business group with perhaps the leading information management system in Vietnam or even the region.

Every investment is a risk, and this is the same with investing in information management systems or technology. However, some risks are more controllable and others and investing in technology is rarely a wrong choice. A grand vision more often than not benefits from advanced management capabilities and up-to-date technology. Most leading corporations are at least to some degree "digital".

Aspiration for prosperity 

In addition to the internal resources and the ability to manage critical situations, which you said is already part of the DNA of Vietnamese entrepreneurs, what else do companies need to fast-track development and set foot on the world stage?

Vietnam is a very open market right now, with membership in numerous free trade agreements tying it to 55 markets across the world, two-thirds of the global GDP and three-quarters of the global population, according to statistics from the Ministry of Planing and Investment (MPI). By entering the Regional Comprehensive Economic Partnership (RCEP) and UK-Vietnam Free Trade Agreement in 2020, Vietnam has emerged into the spotlight in the global supply chain.

Economic growth, a burgeoning middle class, favorable demographics, and attractive stock market returns have naturally made Vietnam an attractive investment destination and this certainly poses an opportunity not to be missed. However, to ensure sustained long-term investment by foreign-invested enterprises, Vietnam will need a sufficient institutional framework, as well as a free and equitable business environment, beyond immediate investment incentives.

Soaring FDI inflows also put a lot of competitive pressure on Vietnamese businesses. I am confident Vietnamese businesses can adapt to modern challenges and can cope with this level of competition – but they need to formulate the right kind of long-term strategies that will allow them to not only overcome the current challenges but to grow, develop and mature in the future.

As the saying goes, if you want to go far, go together! Vietnamese businesses need to cooperate and support one another to develop together. There are only a handful of large-scale Vietnamese corporations operating beyond the national borders, but Vietnamese companies are very well positioned for regional expansion.

Several local business groups are mulling regional expansion. For instance, a client in the manufacturing sector has reached the point where they had to decide whether to reinvest or stop. The group’s leadership was divided over stopping because the international and local competition in their industry was very challenging or expanding to become one of the top global firms in the industry. The group’s leaders questioned themselves and finally decided to carry out the next huge project and now has achieved a tremendous success.

Does that mean we need to have aspirations, nurture them, and dare to fulfill them?

We must have an aspiration and know how to realize it. We must be very open to learning international management technology and applying technology in the current situation. 20 years ago, Bill Gates said that whoever able to master technology will dominate the world in the upcoming decades. In fact, when looking at corporations like Facebook, Twitter, or Google, they are seen as the dominators of the world today because they hold customers, data and technology. Those who master technology are set to develop faster and stronger. I believe that information management cannot be segregated from technology in the current and future business strategies.

To do this, business people must be open to and change along with technology. One is not able to be good at everything, but can find others to help. A company can work with various advisory firms, technology companies, startups, even hire more than one consultant at the same time in order to arrive at several solutions to choose from. If entrepreneurs are open-minded, coordinated and make good use of different service providers and technology resources in the market, they will surely successfully realize their business goals and strategies. 

What are your expectations for this new year 2021? 

I think it will be difficult to achieve the country’s growth target for the year. Reaching the 6-6.5% GDP growth target in 2021 would be a huge leap compared to the slowdown in the previous year, especially as the pandemic is still raging across the world. I think, besides controlling the epidemic as well as in 2020, we need to be more flexible and proactive to take advantage of this special opportunity to accelerate the country’s development.

For example, we need flexible policies to facilitate the entry of international experts and cash inflows. The government needs to consider how to reopen the doors for experts and business leaders who have been vaccinated to enter Vietnam. Is it possible to combine the introduction of passport/vaccination certificates with rapid testing at border gates in a scientific and safe way, to allow selective and orderly entry, instead of a 14-day quarantine?

Vietnam has been very assertive and nimble in fighting the pandemic while maintaining economic development last year, which has been recognized by the whole world. However, if only rely on our internal resources, the 2021 growth target will be difficult to reach. New impulses, vibrancy, new capital inflows, confidence, and stronger competition are needed to achieve the GDP growth target set by the National Assembly and the Government. 

This articles was published in Dau Tu Chung Khoan on 2 February 2021