Businesses should opt for “hibernate mode”, economists suggest

Shortage of capitals, high lending rate, increasing input costs and slow sales are among tough puzzles that chief executive officers (CEO) of local businesses are struggling with.

Economist Pham Do Chi said it was hard to estimate the interest rate in the second quarter and even the whole year of 2011 as the government would continue to tighten the monetary policy in the next three months starting from April.

The lending rate amounts 18-20 percent per annum and some lenders even offered the rate of 26 percent, Chi said. However, the dong and US dollar interest rate will likely to retreat if the government succeeds in curbing the accelerating inflation.

The consumer price index rose 17.51 percent in April from a year earlier after rising an annual 13.89 percent in March.

The April inflation rate was the highest since December 2008, and economists say it follows an over-emphasis on growth last year and inaction in the face of signs that inflationary pressures were rising.

The State Bank of Vietnam increased both the refinance rate and the discount rate by 100 basis points. Economists say high inflation has persisted in part because of double-digit increases in the prices of electricity as well as petrol, diesel and other fuels.

Businesswoman Nguyen Thuy Lien from a Ho Chi Minh City-based company said she was grappling to set up long-term development strategies for her firm due to many difficulties.

Lien also wondered how to make new business plans to boost her company’s sales and how to smooth out the information system between levels in the firm.

“Local producers are suffering the increasing input costs. The global crude oil price last year moved up US$150 per barrel before losing some grounds to $110,” said Bui Van, director of newswire FBNC.

“Local businesses, meanwhile, are not familiar with the constant fluctuation in input costs, so they have no preparation for that. Businesses in the state-subsidized sectors including gasoline, oil, electricity and coal will find themselves vulnerable once the government stops subsidizing.

Le Chi Hieu, chairman and general director of HCMC-listed property firm Thuduc House, said the “hibernate mode” was an appropriate strategy for businesses during difficult times.

“They should focus solely on their core businesses and reduce secondary investments. They should also reduce the operation, but still have to prioritize efficient departments,” Hieu told Dau Tu Tai Chinh Newspaper.

Economist Ly Truong Chien agreed with his counterpart, adding that chief executive officers should initially restructure their enterprises in order to survive from tough times.

“CEO have to always be confident that they can overcome the problems during the difficult time. They also have to opt for adequate business plans for their firm, which can be joint venture, cooperation or merger and acquisition. They can seek financial funds from credit institutions and investment funds,” Chien said.

Tags: Vietnam business