Setting up subsidiary companies now in fashion

Despite the stricter control by the government, state owned economic groups and general corporations still keep expanding their business by establishing a lot of new subsidiaries.

Establishing subsidiaries is the way to expand business…

In a plan to expand its business scale, SMC Trade Corporation has established five subsidiaries which operate in different specific fields and target different groups of customers.

SMC’s General Director, Nguyen Ngoc Anh said the five subsidiaries have been operating well. He believes that it is a right decision to set up the subsidiaries: the one which specializes in making steel now operates independently from trade subsidiaries. The new management model has helped SMC much in heightening the business efficiency and improving the competitiveness of its products on the market.

“I believe that it would be better to operate the production and business in accordance to categories of products, because the mechanism allows the corporation to promote specific characteristics of the products,” he said. “Meanwhile, subsidiaries will better and more timely take care for different market segments”.

Analysts believe that the existence of subsidiaries can help corporations to take initiative in implementing the strategies to expand the business and production in the context of the stiff competition.

The Vietnam Engine Agricultural Machinery Corporation (VEAM) now has 20 member units, including 12 mechanical engineering subsidiaries, two research institutes and an import-export subsidiary with 7000 workers in total.

Nguyen Thanh Giang, VEAM’s former General Director, believes that with such an operation model, VEAM has been able to successfully support subsidiaries in terms of capital and technology applications in the production.

“We make heavy investments in the research and development which can help subsidiaries manufacture good and low cost products for farmers. The products are completely competitive with import products,” Giang said.

The Vietnam Coal and Mining Industries Group (Vinacomin) now has 23 subsidiary companies, four companies in foreign companies and 34 joint stock companies. The Vietnam Shipbuilding Industry Group (Vinashin), after  restructuring, now has 35 subsidiary companies, where Vinashin holds 100 percent of capital, 35 joint stock companies, 24 associated companies and three two-member limited companies.

… but, it is not the solution for all

While many businessmen try to set up more and more subsidiaries, considering this the easiest way to expand business, other businessmen feel discouraged about the subsidiaries they once set.

Le Phuc Dai, General Director of Vinagas, said that he once set up subsidiaries in charge of distributing the products of the company. However, the operation of subsidiaries has not been as good as expected.

“We are considering shifting the distribution subsidiaries into the independent companies which operate under the mode of business cooperation with Vinagas,” Dai said.

“Our management apparatus has become bulkier to run the subsidiaries, while the efficiency is not high,” he added.

Besides, in order to take the financial management over the subsidiaries, the holding companies need to have good auditing system, which means the apparatus needs to be enlarged, while the corporate governance skills need to be heightened. In order to do these things, enterprises will have to spend more money.

Anh from SMC has also admitted that there is always the “other side of the coin”. Especially, the interest conflict is the thing which regularly occurs in big groups with many subsidiaries. It happened that subsidiaries scramble for clients, or they operated just for their own benefits, while they did not care for the general benefits of the whole groups.-TBKTSG

Tags: Vietnam enterprises, Vietnma companies