Thai Nguyen University Socialist Republic of Vietnam Southern Luzon State University Republic of Philippines DOCTOR OF BUSINESS ADMINISTRATION DISSERTATION CORPORATE RESTRUCTURING IN STATE-OWNED CONSTRUCTION SECTOR IN VIET NAM: THE CASE OF VINACONEX CORPORATION (Summary) Supervisor:Dr Melchor Melo O Placino Researcher:Nguyen Phuc Huong Researcher ID: SLSU-DBA12009-21 Date of birth: November 30, 1975 Course: SLSU-DBA1 (2009-2013) Chapter I: INTRODUCTION 1.1 Background of the study In Viet Nam, the State Owned Enterprises (SOEs) are holding a key role in the national economy and is making an important political mission in the country SOEs have occupied a big resource of the economy; however, the profitability from state capital is limited Many SOEs have been latent risk and disruption Government, ministries, industries, including the construction industry has project for restructuring the economy The construction sector corporations also simultaneously make plan for restructuring the economy of its business; but actually implementing specific process for restructuring the economy in the construction business are confused, and have not actually achieve the desired effect Currently, Vinaconex is a corporation headed scale construction sector in Vietnam Vinaconex Corporation is kind of Joint-Stock company with controlled shares owned by State (> 51%) Vinaconex recently has been processing corporate restructuring; however in the process of corporate restructuring, Vinaconex Corporation has faced many of the problems that the previous inadequacies were not fully foreseen This is the reason for carrying out the study of: “CORPORATE RESTRUCTURING IN STATE-OWNED CONSTRUCTION SECTOR IN VIET NAM: THE CASE OF VINACONEX CORPORATION” 1.2 Objectives of the study This research explores and indicates five objectives: To determine the awareness of the managers of Vinaconex Corporation on the concept and the implementation of the corporate restructuring in state-owned firms in Vietnam To identify the main factors/problems and issues that affects the process of corporate restructuring at Vinaconex Corporation To examine the effects on the ownership structure on the corporate restructuring of the construction sector in the SOEs To propose the most appropriate model for Vinaconex after restructuring To formulate policy suggestion to the government's to support business sector in corporate restructuring 1.3 Research Questions This study intends to answer the followings questions:  Q1: How Vietnamese managers perceive and interpret corporate restructuring?  Q2: What framework (factors/problems and issues) is used in analyzing corporate restructuring in Vietnam SOEs?  Q3: How restructuring in the construction sector in SOEs affect the state shareholders and the ownership structure?  Q4: What is the most appropriate model for VINACONEX Corporation after restructuring?  Q5: What policy can be suggested in order to support a successful SOEs restructuring? 1.4 Hypotheses The following hypotheses are outlined and tested by using statistical methods to answer the research questions and to orientate the survey and data collection  H1: Restructuring will improve the competitiveness of the company on its core business  H2: Restructuring will improve the situation on current ownership of the company  H3: Restructuring will improve the leadership and human resource management of the company 1.5 Scope and Limitation of the Study Subject of the study are Vinaconex Corporation (including the head-office and all subsidiaries of Vinaconex) The actual survey data (primary) are conducted during the period from May, 2013 The secondary data are based on national statistics and company reports from 2010 to 30 June 2013 1.6 Structure of the Study The dissertation consists of five chapters including: - Chapter 1: Introduction - Chapter 2: Literature review - Chapter 3: Methodology - Chapter 4: Results and Discussion - Chapter 5: Findings, Recommendations and Conclusion Chapter II: LITERATURE REVIEW Restructuring of state-owned enterprises in general and specialized management enterprises in particular has been an issue concerned by international and national researchers, learners and managers and also a topic referred in international and national conferences Some relevant researches are as follows: 1.1 International related research 1.2 National related research 1.3 Theoretical and conceptual framework The concept of "change management" is a familiar one in most businesses today But, how businesses manage change (and how successful they are at it) varies enormously depending on the nature of the business, the change and the people involved And a key part of this depends on how far people within it understand the change process One of the cornerstone models for understanding organizational change was developed by Kurt Lewin - a physicist as well as social scientist who explained organizational change using the analogy of changing the shape of a block of ice Kurt Lewin’s Change Management Model consist three stages of change: Unfreeze – Change – Refreeze To begin any successful change process, you must first start by understanding why the change must take place As Lewin put it, "Motivation for change must be generated before change can occur One must be helped to re-examine many cherished assumptions about oneself and one's relations to others." This is the unfreezing stage from which change begins 1.4 Analytical framework Organizational restructuring involves major changes in the organizational structure for enhancing the ‘efficiency and effectiveness’ of firms (Bowman & Singh, 1993) It involves reorientation of the business units to rearrange resources within a firm for better performance According to Gibbs (1993), there are three types of corporate restructuring includes: (i) financial restructuring including recapitalizations and changes in capital structure; (ii) portfolio restructuring involving refocusing on core business, resulting in change of the diversity of business in the corporate portfolio; and (iii) operational restructuring including reorganization and changes in business level strategies Corporate restructuring is intended to either reacting to crisis or to be part of the company’s preemptive plan for their survival in the industry Restructuring process is a lengthy and a painstaking one It presents many challenging tasks and requires analysis of social benefits and costs The most difficult task is to persuade the most suffered to understand the desirability of the reform efforts (Soon, 2004) In the mean time, strategic evaluation of re-engineering, restructuring and downsizing policies are perceived as the influential management paradigm With this, companies are able to fully leverage on their core competences in creating superior competitiveness (Tony, 1997) Miller and Friesen (1984) suggested that the environment shift, technology changes, organizational grow and leadership changes are the reasons that lead to restructuring Massimo and Delmastro (2002) deemed that the adaptation of advanced manufacturing technology and new human resource management practices favors organizational change Miles, Covin an Heeley (2000) suggested that environmental dynamism impacts the strategies chosen by firms and moderates the relationships between organizational structure, organizational strategies, and firm performance Moers (2000) suggested that restructuring is also associated with strong market competition Jensen (1986) believed that the restructuring could be described as returning free cash flows to owners The work of Hariison et, al (1991) suggested that a significant amount of restructuring is associated with high levels of diversification strategies, while the study of Hoskisson and Turk’s (1990) concluded that restructuring is primary directed at overcoming control problems that are associated with diversification and that result in poor performance It is partially explained by free cash flow because free cash flow is a function of investment opportunity, operating cash flow, diversification, financial leverage, and corporate governance Hill and Snell (1988) found that ownership concentration was associated with lower levels of diversification in research and developmentintensive firms Thus ownership diffusion is positively related to diversification Based on this literature, we proposed an analyzing framework indicating the relationship between the dependent variable (corporate restructuring) and independent variables is presented in figure Chapter III: METHODOLOGY This chapter presents the methods used for this research The methods in use show a combination between quantitative and qualitative research Data include secondary data from statistical reports and primary data from survey by questionnaires 3.1 Overview of the Vinaconex Corporation - Established: 27 September 1988 under Ministry of Construction formerly known as the building service and manpower export company - In 1995, Vinaconex became a Corporation 90 of the Ministry of Construction, called: Vietnam construction, import and export Corporation - Make the Decision dated 05.13.2004 84/2004/QD-TTg of the Prime Minister, Vinaconex is one of the State Corporation first pilot equalization of the whole company November 27, 2006, Congress established the General Shareholders Company has been conducted and Vinaconex has officially come into operation in the form of joint-stock company - Currently VINACONEX has conducted corporate restructuring They have 58 units of attached units in which 33 subsidiaries with dominant capital (over 51%) operate nationwide with a staff of over 34,000 staffs, engineers, professionals and workers - Field operations: Construction, Real – Estate, Production of construction materials; design consultancy; supply power and water; Insurance; Finance and Banking; Service, trade, Education… - Charter capital: 210,33 US millions dollars (4.417 billion VND) - Owner equity: 233,24 US million dollars (4.898 billion VND) - Total Assets: 1.353,14 US million dollars (28.415 billion VND) 3.2 Determination of sample This study used stratified sampling method at enterprises under Ministry of Construction, some corporations, groupespecially focusing on Vietnam Construction and Import-export Joint Stock Corporation – VINACONEX and other companies under the Corporation Vinaconex The author uses the Slovin’s formula to define the sample size for the survey: n= N 34201   395,39  400  34201 * (0,05)  Ne (population) Where n: sample size N: Population size that is more than 34 millions totals staffs of Vianconex e: Probability of error committed due to the use of sample instead of population The error level in sample survey was chosen to be at 5% Thus, the sample size of the survey is 400 respondents 3.3 Research design - The questionnaire was developed based on the analyzing framework above - It consists of 35 statements related to competition, financial, corporate governance, new business strategies, human resource management, conflict, ownership, leadership, technology development… in order to gain in-depth knowledge on the issues - The typical five-level Likert item (Agreement scale: 1=strongly disagree, 2=disagree, 3=neither agree nor disagree, 4=agree, 5=strongly agree) was used for this study - 400 questionnaires were sent to senior manager, medium level manager and nonmanagerial staff of the selected of Vinaconex, other construction state-owned enterprises and some leaders of Ministry of Construction of Vietnam - Use both SPSS and EXCEL for data processing Chapter IV: RESULT AND DISCUSSION 4.1 Description of respondents - The table below indicates that majority of respondents are males (91.25%) and only 8.75 % are females (35/400 persons) Of which over 52.6% of males are at the age of 50 or older (higher than the average level 50%) and only 23% of females are of this age - Regarding job position: 27.75% are senior executives; 32% are managing directors and 40.25% are officers This shows that most of respondents of the questionnaires are relevant to restructuring process in enterprises and nearly 60% of them are executives, directors or managers of various levels It can be said that through these samples, the survey results are appropriate with the reality and will reflect reliably the research theme - Age structure based on job position: Senior executives Managing Director Officers 10 - The study shows that the average age of senior executives is much higher than that of managing directors and officers Therefore, there will be different opinions about corporate restructuring 4.2 Verification of rating tools - All content of the questionnaires (except for the general information about respondents) use Likert (order rating tool) for 35 items with levels reflecting the consent of the respondents - The verification followings shows that Cronbach’s Alpha indicator is > 0.6, meaning that the rating tool used in the questionnaires are reliable and can be used as data for analysis Alpha Cronbach's Alpha Based on N of Items Standardized Items 0.693 0.679 Cronbach's 35 4.3 Analysis on each issues relating to restructuring process The content relating to restructuring process in SOE in the construction industry are categorized in 10 major issues including: 4.3.1 Reasons for restructuring of SOEs in the construction industry of VietNam The study show that majority of respondents strongly agreed that the restructuring resulted from their urgent needs which aimed to help them come out of recession, or avoid bankruptcy, etc The average level is 4.62/5, which is a highly concentrated level In general, 362/400 respondents (accounting for 90%) agreed with this reason Meanwhile, only 36 respondents (9%) agreed that the restructuring came from pressures and requirements of the Group/Parent Company/State Capital management Company/Industry/Government, etc and 77 respondents (19%) agreed that the restructuring arisen from themselves with an objective of self-renewal for suitable with their strategy and the 11 needs of the business development – identifying that restructuring was an indispensable phase in the development process of the company The average rating level of these reasons are fairly low (2.74 and 2.58 respectively) Therefore, it can be concluded that the objective for enterprises to get out of recession or threat of bankruptcy is the basic reason for their restructuring However, officers in different job positions have different attitudes It can be easily realized that percentage of senior executives agreeing strongly with the above reason are high (83.73%), but reduce gradually among managing directors and officers Hope that with this consent on the reason for restructuring as such, they can easily cooperate with each other during the restructuring process 4.3.2 Competition Regarding competition, as enterprises implement restructuring, majority of respondents (average agreeing level of 4.64) agreed that the restructuring helped companies focus their resources on their competitive products in the market On the contrary, most of opinions (over 75%) disagreed that the restructuring helped companies focus on improving customer service quality, and enhancing companies’ image and trademark This shows positive awareness of officers in the construction industry, who know that the restructuring is not an appearance or image but must be real and enhance their enterprises As such, in terms of competition, the corporate restructuring is aimed at helping companies focus their resources on their competitive products in the market Therefore, there’s a need to share with each other about the situation and policy for better understanding and consent on implementation 4.3.3 Strategy It is obvious that 315 respondents agreed that in the context of Vietnam, the construction companies should focus on their core business areas related to the construction industry with an average agreeing level of over 12 On the contrary, many respondents disagreed with the opinion that restructuring should decisively implement merger, closure or withdrawal from those business areas which were not profitable The same was as with the opinion that construction companies in Vietnam should expand their business into developing country markets where infrastructure and the construction were still under developed Regarding strategy, construction companies should focus on their core business areas related to the construction industry There is a difference among respondents of different job positions The almost of senior executives agreed with this strategy and 76.6% of them strongly agreed with the opinion while percentage of managing directors and officers was only approximately 20% The verification results show that there is actual difference in opinions of respondents in different job positions, which shall easily lead to conflicts during implementation of strategies and restructuring process 4.3.4 Conflict During restructuring, there will certainly be several conflicts between the management team, unions and the laborers as well as conflicts regarding perception and benefits, etc The study shows the most concern of many people that restructuring is essentially to dismantle and replace the old structure with a new one, so that the conflict of perception and/or benefits will occur vigorously Any industry when implementing restructuring always copes with this matter Moreover, restructuring shall require the companies to cut off staffs that mean they will also face fierce resistance from a number of their owned managers and employees, which is an issue that capture much attention and obtain agreement by many respondents As for them, propaganda, seeking consensus from the political organizations, group of leaders and workers in the companies shall play an important role for success of the restructuring The concern about the fact that some of key personnel as well as qualified and skilled staffs may leave the company in the process of restructuring are also mentioned but at average level 13 According to the author, this is reasonable as during restructuring, we should implement propaganda so that all subsidiaries under the corporation can see their benefits as well as show their consensus It is notable that most of senior executives agreed that restructuring shall create conflicts in perception and benefits vigorously yet nearly 29% of managing directors and over 35% of officers ignore and disagree with the issue 4.3.5 Ownership: The role of owners of the company also has impact on the restructuring results It is concluded that majority of respondents (nearly 80%) agreed with the opinion that the profound understanding and compatibility of business operation fields of those organizations/ companies who owned the shares of the company, should substantially affect the success or failure of the company with a high agreeing level of 4.27 and consensus by all of categories of staffs In addition, the role of the state shareholder’s representatives are not effective enough in the companies where the State holds majority of shares (>51%), which were agreed by more than 74% of respondents More than 50% of respondents disagreed with the opinion that enhancing the role of independent directors in the BOM should help the restructuring on the right track and improve risk management of the Company The Companies should review the role, impact and effectiveness of independent BOM members 4.3.6 Leadership: The leaders play an important and direct role to success or failure of the corporate restructuring process 14 There are 358 out of 400 respondents (nearly 90%) confirmed that the qualification, knowledge and the profession of BOM members in the operation fields of the companies shall greatly impact on the success of the restructuring When restructuring and merging, who are the leaders are important and always paid much attention However, it does not mean that “Replacing of leaders happened in vast majority of companies conducting restructuring” Many respondents disagreed with this opinion (average agreeing level of 2.33) According to the author, as restructuring, it’s not essential for companies to replace leaders but choose those with appropriate capacity and qualification Therefore, in reality, replacement of leaders is sometimes necessary while sometimes is not The study shows that there is a difference in opinions of respondents in different job positions (5%) Several officers and managing directors disagreed with the opinion that the qualification, knowledge and the profession of board members in the operation fields of the companies should greatly impact on the success of the restructuring 4.3.7 Employment The employment is a sensitive issue during restructuring process Most of respondents agreed that restructuring meant the downsizing of staffs of the Companies with a fairly high average agreeing level (4.08) The opinion that restructuring is an opportunity to appropriately adjust key positions in the companies, and it is the right time to attract high quality human resources from outside the Companies was at slightly lower level (3.63) According to the author, attention is paid too much to the form of changes; therefore downsizing of staffs is often the 1st choice However, it’s not the issue of downsizing of staffs but of how appropriately and effectively the personnel with high qualification is arranged Regarding this issue, there is a significant difference in opinions of respondents in different job positions While 31.53 % of senior executives view this to be normal and 1.8% of them totally 15 agreed with the opinion, only 13.75% and over 24% of officers strongly agreed with and consider this to be normal respectively 4.3.8 Technological Innovation It should not wait until restructuring to carry out the technological innovation” were agreed the most with 84% of respondents (among which over 54% strongly agreed and nearly 30% agreed) From this, it is well aware that technological innovation is essential not only in restructuring and is one of the leading issues of the restructuring The opinion is “Technological innovation should be carried out continuously It should not wait until restructuring to carry out the technological innovation” were agreed the most with 84% of respondents The opinion that “Restructuring relating to technology should define that “technological innovation should be carried out as soon as the current technology is not yet backward” was also agreed by many respondents Only 20% of respondents disagreed with the opinion with average agreeing level of 3.46 This is reasonable in the current context of Vietnam 4.3.9 Corporate Governance Regarding this issue, most of respondents agreed that restructuring relating to corporate governance was to comprehensively reform the management approach and methods in the companies rather than to establish and build uniform regulations and procedures for meeting the strategy of the Company in accordance with implement roadmap of the restructuring The above results show that different categories of staff have different opinions regarding the issue The officers agreed with the reforming of management approach and methods at higher level than senior executives 4.3.10 Finance 16 Most respondents were concerned about the policies of state on capital preservation requirements for selling shares or conducting merger which were creating obstacles for the restructuring process For the same reason, they agreed with the opinion that there should be a specific policy regarding "capital preservation requirements" for selling projects/shares of state owned enterprises/companies with control shares owned by state Additionally, about 40% of respondents wished to have a flexible policy of state on purchase and sale of debts in order to help companies to accelerate the restructuring process 4.4 Analysis of different in opinions of staffs at different ages about key issues Ranges of age No Issues 50 20-29 30-39 and 40-49 older Corporate restructuring due to recession 4.19 4.28 4.82 4.77 4.50 4.43 4.72 4.72 Helping companies focus their resources on their competitive products in the market Focusing on their core business areas 3.38 3.47 4.32 4.29 Conflicts in perception 3.5 3.6 3.97 4.22 Qualification of BOM members 4.04 3.85 4.72 4.33 The role of majority shareholders 3.92 3.89 4.42 4.08 4.19 4.17 4.70 4.57 3.42 3.89 4.12 4.23 Impact of knowledge of BOM members on success Restructuring means the downsizing of staffs of the Companies Technological innovation requirements 3.54 3.69 4.50 4.09 10 Frequent and continuous technological innovation 4.38 4.40 4.29 4.41 4.19 4.26 4.20 4.39 Reforming 11 the management approach and methods 17 12 Capital preservation requirements of enterprises 3.62 3.96 4.55 4.52 13 Capital preservation policies of enterprises 4.23 4.21 4.71 4.60 The above table shows that most of issues obtained the highest level of agreement by respondents between 40 – 49 age ranges The younger respondents often had lower level of agreement, which indicated that people at the age between from 40 to 49 can be exploited during the restructuring process … Chapter V: FINDINGS, RECOMMENDATIONS AND CONCLUSIONS 5.1 Findings of study Based on the results have been analyzed in Chapter IV, research indicated the following findings: The research pointed out that the perception on definition, method and timing for corporate restructuring of managers in state-own construction enterprise in general and Vinaconex Corporation in particular is limited The author developed a theory framework on corporation restructuring with 10 major variables; In which, the research identified and analyzed 13 basic factors to handle when carrying out corporate restructuring in state-own construction enterprise in Vietnam The research also introduce opinions regarding the negative effects on corporate restructuring result when individuals/ organizations/ corporations are assigned by the Government to represent the state’s shares of capital without any compatible knowledge or expertise in the core business of the Corporations they are assigned to represent the state-own capital 18 The author proposes a most appropriate model for Vinaconex after restructuring with the following major contents:  The Corporation should only focus on core businesses which are real estates and construction - including support businesses like design services and urban management, etc  The Corporation needs to reduce representatives, transfer its shares at firms not operating in the core businesses of the Corporation; at the same time, increase shares at the flagship firms which the Corporation keeps control to gain better competitiveness  The Corporation must focus its resources on technology advancement upgrade the system when the technology has not been outdated Moreover, it also needs to renew and apply an uniform management policy to match with that of developed countries’ enterprises The Government of the S.R of Vietnam has no enough policies and guidelines on trading, merging and acquisition that support state-owned firms to a holistic corporate restructuring 5.2 Application feasibility and recommendations for further studies - Application feasibility Vinaconex Corporation and other construction firms can take as reference and apply the post-restructuring model proposed in this study - Provide scientific basis or reference to consult for the managers of the construction firms when they decided or engage to perform corporate/industry restructuring - Reference documents for lecturers and students; for policy makers on corporate management on the topic of “State-owned Enterprises Restructuring” Recommendations for further studies 19 - On methodology: for further studies, other researchers may consider other variables in addition to the 10 variables/factors used by the author in this study - On scope and limitation: further studies can consider to made an investigations or research in the other industry level as well as other fields or industry or economy aside from the construction industry - On research instruments: further studies can consider to utilized other instruments such as interviews, secondary data, FGD, and others not limited to the Five-level Likert scale 5.3 Conclusion - Vinaconex needs to focus on two major business areas to achieve its vision which is to become the leading company in the area of development, investment and management of Construction and Real Estate - Implementation of corporate restructuring in accordance with the actual conditions of SOEs and construction market situation in Vietnam is now an essential requirement and is the only way to change business itself new, effective in the business; - Develop effective management mode, transparent to avoid risks better The implementation of the restructuring initiative will help Vinaconex future development as outlined ambitious - Develop strategies for long-term financial management to ensure the sustainable development of the corporation Company need clear organizational structure, focusing on the areas of core business strategy, leveraging the development of key sectors of the Corporation - Manage and better control by 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downsizing policies as flawed paradigm Management Decision, 35(3), 240-249 Zu, L., 2009 Corporate Social Responsibility, Corporate Restructuring and Firm's Performance – Empirical Evidence from Chinese Enterprises Heidelberg: Springer 24 ... affects the process of corporate restructuring at Vinaconex Corporation To examine the effects on the ownership structure on the corporate restructuring of the construction sector in the SOEs... determine the awareness of the managers of Vinaconex Corporation on the concept and the implementation of the corporate restructuring in state-owned firms in Vietnam To identify the main factors/problems... RESTRUCTURING IN STATE-OWNED CONSTRUCTION SECTOR IN VIET NAM: THE CASE OF VINACONEX CORPORATION? ?? 1.2 Objectives of the study This research explores and indicates five objectives: To determine the awareness