Vietnam’s Conglomerates Drive Economy Forward?

Many emerging economies are defying typical Western business models with the conglomerate model. Is Vietnam one of these economies? Is the conglomerate growth model sustainable?


Vinashin is one of Vietnam's most salient conglomerates. (image from VOV News)

A recent article in The Economist may give more hope to Vietnam’s already burgeoning economy. In “Tata Sauce,” the author suggests the ubiquitous conglomerate business model in emerging markets has its own merits and deserves much more credit from the Western business community.

The economy in many developing countries is dominated by conglomerates. As the author points out: “In India, a third of companies belong to wider entities. In Hong Kong 15 families control more than two-thirds of the stock market.” This business model is the antithesis of the Western acclaimed model of intense specialization. As it turns out, many diversified groups such as Tata are very successful, even buying up failing companies in the US and Europe during and after the financial crisis. The article concludes with a strong statement: “The best emerging-market companies have learned a great deal from the West in recent years. It is time for Western multinationals to return the compliment.”

In Vietnam, according to government statistics, state-owned enterprises (SOEs), many of which are diversified, contributed 40% of GDP in 2010. Other expert sources suggest around 27%. Even at the smaller percentage, this is still a very significant part of the economy. And those SOEs are the most diversified of all. A few examples that jump to mind: Petro Vietnam (which has operations in petroleum drilling and distribution, hotels, securities, real estates, insurance and even taxis), EVN (electricity generation and distribution, telecommunications, education ) and of course the notorious Vinashin, which recently ended up in a ocean of debt and contributed to downgrade the country’s credit rating to B1.

In light of the article, does it mean those conglomerates are the underestimated heroes that will eventually propel economic growth? Maybe. Chances are no. The similarity between Tata and Vietnamese conglomerates is that they are both very diversified. Unfortunately the resemblance pretty much ends there. Tata has its core in science and engineering, which creates value and competitive advantages. It also bases it success on attracting the best local talent. Bright graduates from the top universities in Vietnam try their best to stay away from SOEs.

The Economist article, fresh and encouraging as it is, should be read as an indication that there are examples of successful conglomerates out there, but not necessarily as conglomerates in Vietnam will ride the economy forward.  How do you think the article applies to Vietnam?

Further references: Bloomberg | Vietnam Economic Forum


  • tam nguyen

    As you dearly noted, the similarities of India and Vietnam’s conglomerates end with diversification. Vinashin is a prime and disastrous example of Vietnam SOE’s and their irresponsible invesments that are based on speculation and greed rather than due diligence. Others have done fairly well not to their competitive advantages, but to the benefit of being a monopoly. As the market opens up, it’ll be private Vietnamese enterprises (Kinh Do, ICP, THP, etc.) that will have strong similarities to India’s SOE’s. I’ll end here as I’m typing from my blackberry and my thumbs are sore now.

  • http://www.vietnamobserver.com The Vietnam Observer

    Perhaps, something is missing here if the author were to categorize business models into “developing” and “Western.” A lot of American, German and Japanese firms are huge conglomerates (GE, Siemens, Mitsubishi…) that have no clear-cut specialization, and they have an important role in the history of entrepreneurship and capitalization in their respective economies. So, maybe SOEs and “conglomerates” (in the sense of Western-style big firms) are totally different species to begin with.

    The Vietnam Observer.

    • LuanNguyen

      Great point. I have no direct response to this. Some thoughts that come to mind: companies you mentioned have their core roots in engineering and technology whereas conglomerates in VN lack that focus; GE, Siemens, etc. also benefit less on rent-seeking. Any other differences or similarities?

  • http://careersintransition.wordpress.com Tino

    Another key trait…also when you think of some large Asian conglomerates like Samsung, LG, Hyundai, Mitsubishi: they were started by entrepreneurs. After gaining some momentum in the market, their governments picked them to be winners.

    Also, look at China–any successful SOEs? The brand names that come to mind that have the potential to make it internationally: Baidu, BYD—govt connections defintely played a role, but they were not SOEs.

    There’s a book called ‘Asian Godfathers’—basically it says that the SEA model of development, where wealth is concentrated into the hands of a corrupt, rent-seeking elite, does not contribute to long-term S&T innovation like the NE Asian model.

    On a final point, VN must cultivate the mgt talent needed to make their firms (SOEs, entrepreneurial ventures, etc.) internationally competitive. This is where I believe that Viet Kieu can make a positive difference.