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?