DEVELOPMENT OF THE VIETNAM NATIONAL CHEMICAL GROUP … 2016/3_ Tom... · reasons, the graduate student selected the topic: "Development of the Vietnam National Chemical Group in the

MINISTRY OF PLANNING ANDINVESMENT

MINISTRY OF EDUCATION ANDTRAINING

CENTRAL INSTITUTE FOR ECONOMIC MANAGEMENT___________________________

NGUYEN HOANG MANH

DEVELOPMENT OF THE VIETNAM NATIONAL

CHEMICAL GROUP IN MARKET ECONOMY

Major : Economic Management

Code : 62.34.04.10

SUMMARY OF THE PHD IN ECONOMICS THESIS

Hanoi - 2016

The work is completed at:

The Central Institute for Economic Management

Academic Supervisor: 1. Dr. Tran Tien Cuong

2. Assoc.Prof. Dr Tran Kim Chung

Judge 1: Assoc.Prof. Dr Ho Sy Hung

Judge 2: Assoc. Prof. Dr Nguyen Van Thao

Judge 3: Dr. Duong Dinh Giam

The thesis is defenced before Council of Examiners at the Central Institute for

Economic Management at ……………..on ……………..2016

For further information of the thesis, please visit:

Library of the Central Institute for Economic management

Hanoi National Library

LIST OF PUBLISHED SCIENTIFIC WORKS

OF THE GRADUATE STUDENT

1. Nguyen Hoang Manh (2015), "Improving the legal framework foroperations of state-owned economic corporations in Vietnam", Journal of StateManagement (236), pages 61-65.

2. Nguyen Hoang Manh (2015), "Solutions to complete organizational andmanagement models of the Vietnam National Chemical Group" Journal ofEconomics and Forecast (17), pages 40-42.

3. Nguyen Hoang Manh (2015), "Innovation of management methods of state-owned economic corporations in the new periods," Journal of State Management,(234), pages 54-58.

4. Nguyen Hoang Manh (2015), "Several solutions to improve the model CTM- CTC in the Vietnam National Chemical Group", Journal of Economics andDevelopment, number (216) (II), pages 96-104.

5. Nguyen Hoang Manh (2009), "Improvement of operational efficiency ofstate-owned economic corporations in Vietnam", Journal of Economics andDevelopment, special one (May), pages 6-9.

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PREAMBLE

1. Necessity of the topic of the thesisEstablishment and development of the State-owned economic corporations are

consistent with rules of accumulation, concentration of production, development of

production forces, science and technology, cooperation and development of businesses

and trend of socialization of ownership in market economy. In Vietnam, the

establishment of the State-owned economic corporations has implemented under

decisions 91/TTg dated 07-3-1994 on pilot of establishment of businesses on basis of

large-scale enterprises (Group of factories) and subsequent decisions of the Prime

Minister in late 2000. However, through development, the State-owned economic

corporations have not really become core factor of the economy. In many cases, the

new State-owned economic corporations just stop at mere sum or as administration

organization, including Vietnam National Chemical Group. As a result, though research

of development of the State-owned economic corporations is derived from recently

urgent request, in terms of theory and practical application, as well as restructuring of

this model in long term posing a series of issues needed further study. For these

reasons, the graduate student selected the topic: "Development of the Vietnam

National Chemical Group in the market economy".

2. Significance of the thesis2.1 In terms of science: systemization of basic theoretical issues of development

of the State-owned economic corporations in the market economy in line with

organization and management of the economic corporations.

2.2 Practical significance: Clarify the roles and contents of organization and

management issues during development of the State-owned economic corporations;

Contribute solutions to complete of development policies of CTM – the Vietnam

National Chemical Group in immediate future.

3. Overview of studies related to the thesisSo far there have been numerous studies on the State-owned economic

corporations both at domestic and abroad. However, domestic studies mainly focus on

the establishment and development conditions of the State-owned economic

corporations; overseas studies focus on aspects of growth. The studies of development

of the State-owned economic corporations from the perspective of organization and

management- factors creating depth of development of the State-owned economic

corporations remaining plenty of areas, and this is considered research direction of the

thesis. The thesis has inherited the results of the published works.

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4. Objectives of the thesis4.1 General objectives: Clarify theoretical development background of the State-

owned economic corporations from organization and management; to assess situation

of development of the Vietnam National Chemical Group; and then draw up solutions

for development of the Vietnam National Chemical Group in the market economy.

4.2 Specific objectives: (1) To clarify the concept of development of the State-

owned economic corporations and the development of the State-owned economic

corporations in dependent relationships under the impact of organization and

management issues, including internal issues of the State-owned economic corporations

and State ownership. (2) Research of experience of major state-owned economic

corporations in the world and lesson for Vinachem. (3) To clarify the status of

development, irrational points of development policies of Vinachem, limitations and

reasons from the perspective of organization and management need to be changed to

Vinachem. (4) To propose solutions in respects of organization and management to

promote the development of Vinachem in immediate future.

5. Objects and limit of the scope5.1 Research subjects: Subjects of study of the thesis is development of the

Vinachem in the market economy.

5.2 Scope of the study- The scope of content: Focus on study of development of the State-owned

economic corporations and in respect of organization and management and under the

impact of innovation on organization and management within the State-owned

economic corporations and in respect of state ownership of the State-owned economic

corporations.

- The scope of time: Since the Vinachem was incorporated until now (1996-2015);

which is clearly separated into 2 phases: Period from 1996 to 2005 without applying the

model CTM-CTC, and the period from 2006 – present with applying the model CTM-

CTC (the economic corporations).

- The scope of space: At CTM and CTC are headquartered in the territory of

Vietnam and relationship of state ownership of CTM.

6. Study issues- Business results of the Vinachem have so far really reflected development

process with the scale and potential or not?

- Do we can find any viable solutions in terms of TC, QL to promote development

of Vinachem to achieve economic efficiency with its scale?

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7. Study hypotheses- Business activities of Vinachem do not achieve economic efficiency by scale, ie

the development model of the Vinachem have so far focused on growth factors (sales,profits, capital ...) that overlook the quality of growth issues (innovation on the work ofthe organization and management...) and it is unreasonable in the market economy.

- Management supervision of state activities for Vinachem based on charterorganization and operations cannot promote the development of the corporation toachieve economic efficiency by scale.

8. The method to prove hypothesis8.1 Approach method of the objects:The thesis mainly applies following approach: Analysis and synthesis approach,

systematic and structure approach, approach to field observation, individual andcomparative approach, historical and logical approach, statistical approach, quantitativeand qualitative approach, introspective and extrospective approach.

8.2 Method of data collection- Primary data: The thesis mainly uses interview method, namely: 25 participants

are interviewed over the phone or discuss face-to-face about the contents prepared inadvance. Interview has conducted since 2014. In addition, one questionnaire surveytowards Yes/No questions come along with interview questionnaire to ensurequantitative results to clarify ideas of interviewees. Contents of the interview arerecorded, coded and analyzed by using statistical methods (or qualitative analysissoftware NVIVO 7.0); Qualitative analysis results will be presented in the form ofpercentage (%), or summary directly or indirectly to explain or quote.

- Secondary information and data: The thesis mainly uses research methods bycollecting data from relevant documents.

8.3 Method of processing information and data- For quantitative information: The thesis uses statistical methods and modeling

methods, using Cobb-Douglas production function. Objectives of using the Cobb-Douglas production function are to assess impact of the inputs to output growth of theGroup, the Vinachem's business activities are done by scale or met quality or not.

The production function has the general form is: Y=A.x1α.x2

β; where Y: Revenue(or output), x1 and x2 is capital and labor factors, A is general productivity factor(TFP) and A> 0, α and β is coefficient of variation (elasticity) of Y by the capital andLabor and α> 0, β>0. On method of calculation (to estimate the coefficients) aftertaking logarithm for left and right sides, logarithmic functions of Cobb-Douglasfunction returned to linear form: LogY = C + α*Logx1 + β*Logx2; where: C= log (A);using software tool Eview8 to estimate to gives α and β results; if:

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• (α + β) = 1: enable to give conclusion that set of the Group has constanteconomic scale;

• (α + β) > 1: enable to give conclusion that set of the Group has economic scale;• (α + β) < 1: enable to give conclusion that set of the Group does not have

economic scale;- For qualitative information: On the basis of the above study approach, the thesis

handle qualitative information logically to show its relation in reflecting nature ofdevelopment of Vinachem.

8.4 Study model of the thesis

(Source: Set up by the graduate student)

9. Structure of the thesis

The structure of the thesis consists of 3 chapters:

Chapter 1 – Theoretical basis of development of the State-owned economic

corporations in the market economy

Chapter 2 – Status of development of the Vietnam National Chemical Group

Chapter 3 – Solutions of development of the Vietnam National Chemical

Group in the market economy

THEORETICALFRAME OFSTUDY OF

ECONOMICCORPORATIONS

DEVELOPMENTCONTEXT

INTERNTIONALEXPERIENCE

GOALS,ORIENTATION,

SOLUTIONS

STATUS OFDEVELOPMENTOF VINACHEM

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CHAPTER 1 – THEORETICAL BASIS OF DEVELOPMENT OF THE STATE-

OWNED ECONOMIC CORPORATIONS IN THE MARKET ECONOMY

1.1 Concepts1.1.1 Concept of economic corporationsThe economic corporations have an important role in economic development, but interms of academic, it still does not have a uniform definition. In different countries, theconcept of the economic corporation is interpreted differently and even within acountry, economic corporations are differently interpreted in various stages.There are many reasons to explain the inconsistency in the definition of the economiccorporations which the fundamental reason is mainly the complex nature of therelationship of cooperation and association of member companies of the economiccorporations, connotation of association is a reflection of economic development levelof each country in each different stage of development. Also, the economiccorporations do not have legal status but its member companies have legal status.

It can be confirmed that concept of the economic corporations is essentiallyunchanged to reflect a group of companies having common business activities in acertain mechanism to create competitive strength and bring efficiency to each membercompany and for the group. And the economic corporations are considered to indirectlyreflect issued on linking mechanism between member companies on the basis ofdevelopment in each period of the corporation, at the same time on one certaindevelopment stage, the national economy will create the economic corporations. Thestate-owned economic corporations in Vietnam are established by the state and ownedby the state.

With the objective of this thesis to reflect the essence of the development of thestate-owned economic corporations; on the basis of such approach, could understand:"the economic corporations are set of companies linked together in the form of CTM -CTC to create competitive advantage through efficient economies by scale."1.1.2 Concept of development of the economic corporations

Due to the concept of philosophers, development is the change in the direction ofincreasing, from less to more, from low to high in both scale and quality, from simpleto complex referring things and objects in nature and society; to sum up, developmentis the result of the gradual change in quantity and then quality.

In this thesis, development of the economic corporations is the process of TC, QLto achieve an increase in economic scale and quality of the increase of the economicscale, in which economic efficiency by scale advantages is decisive and the mostimportant factor for the economic corporations. From this concept, we can map factorsof the development of the economic corporations and their inner meaning as follows:Development of the economic corporations = growth of the economic corporations +

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quality of growth of the economic corporations; in this expression, signs "=" and "+"are referred to relationships, not the true meaning of the signs in mathematics.

Growth of the economic corporations: an increase in scale or rate of increase inoutput, which means the increase of the results of the physical production and serviceof the economic corporations in a certain period; it does not reflect the change in thequality of the economic corporations.

Quality of growth of the economic corporations: reflect the effectiveness andsustainability (economic, social and environmental issues) of the growth process;assessed at the output shown by the results achieved through growth, but also at theinput through the effective use of the resources of the economic corporations.

Growth and quality of growth of the economic corporations having organicrelationship with each other are two sides of development of the economiccorporations. The growth of the economic corporations is a necessary condition, qualityof growth of the economic corporations is sufficient condition for the development ofthe economic corporations; the development of the economic corporations is the goal,growth of the economic corporations is a motivation and the quality of the growth ofthe economic corporations is as a means for the motivation towards development goals.1.2 Contents of development of the economic corporations

According to the concept and connotation stated, development of the economiccorporations includes 3 main topics: economy, society and environment; of whicheconomic content is core issue.1.2.1 Economic contents

Economic contents of the development in general and of the economiccorporations is reflected by basic input factors of the production process includingcapital, labor and economic output indicators such as revenue, profit.1.2.1.1 Scale and growth rate of the economic corporations

The scale of the economic corporations is often expressed by indicators includingcapital, revenues, profits and employment. The growth of the economic corporationsreflects the increase in the scale of the economic corporations through different periods,and it is measured by absolute growth when comparing the periods (scale of thegrowth); or directed number of increased percentage of the study period compared withprevious periods or base period (the speed or rate of growth).

About methods to achieve growth. In business activities of an economic unitincluding the important factors for the development: (1) Equipment, machinery,materials, fuels (Capital (K); (2) Live labour (L), (3) scientific and technicalqualifications, ability of TC, QL of the unit in particular and the society in general(total factor productivity (TFP). Performed relationship as formula, we have Y = F (K,L, TFP), in which Y is income of the economic corporations (revenue). Therefore, thegrowth of the economic corporations is divided into 02 categories: growth in width,

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reflecting increased income depending on increase the level of capital (K), the numberof employees (L); and intensive growth depending on total factor productivity (TFP), ingeneral, or science and technology as well as issues on TC, QL in general.1.2.1.2 Competitiveness of the economic corporations

The competitiveness of the economic corporations is understood as a set oflucrative factors which is higher than other the economic corporations. Thecompetitiveness of the economic corporations is reflected through labor capacity,creativity, and innovation of the economic corporations to create high effectiveefficiency1.2.2 Contents of social issues

Social contents in the development process of the economic corporations is to

strictly implement the obligations and responsibilities of the economic corporations on

the provisions of the law and its commitments of the economic corporations for local

communities as well as overseas activities of the economic corporations.

In the scope of internal of the economic corporations, the social aspect of

development of the economic corporations is that the growth must be coupled with

ensuring fairness of opportunity and progress in the use of labor. Implementation of

social contents will have the effect of raising labor productivity and marginal products

of the economic corporations besides indicators on job creation and revenue. From

economic perspective, the State should strictly apply rules on awards and fines for

senior leaders such as Chairman of Members council, General Managers ... to

determine rights and obligations to avoid negative impact on society in the overall

development of the country.

1.2.3 Environmental ContentsEnvironmental aspects of the development process is the expression of

relationship between growth of the economic corporations in environmental protection,

is shown in both positive and negative side. For positive side, the growth of the

economic corporations will generate necessary funds to renovate and protect the

environment. On the negative side, the growth of the economic corporations have

impact on environment indicating two issues: the use of natural resources as raw input

and waste from manufacturing process of the economic corporations.

From the economic management perspective, the state should issue rules and strict

control of environmental protection. To achieve sustainable development goals, the

economic corporations need to promote the application of science, technology into

production, improve labor productivity and on the other hand further meet

environmental protection requirements.

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1.3 The factors and criteria for evaluation of development of the economiccorporations1.3.1 Factors affecting the development of the economic corporations

There are many ways to classify elements impacting on development of theeconomic corporations, in this thesis, from the perspective of the TC, QL, the factorsare divided into 2 groups: production and non-production factors.1.3.1.1 Production factors

This is a group of factors that directly impact on the growth rate of the economiccorporations. Impact of these factors is to directly alter the scale and speed of growth.Group of four production factors includes capital, labor, natural resources andtechnology.1.3.1.2 Non-production factors

Non-production factors have indirect, slow impact to the growth of the economiccorporations; but it has an important role to maintain the growth of the economiccorporations in a stable and sustainable way and determine the development of theeconomic corporations towards improving the quality of growth or not. The basicelements of this group are: (1) Management of the State; (2) development model of theeconomic corporations; (3) Model of organization and management of the economiccorporations; (4) Internal relationship of the economic corporations.1.3.2 Criteria for evaluating development of the economic corporations1.3.2.1 Group of economic criteria

(1) Group of criteria relating to the quality of growth of the economic corporationsIncluding the following basic criteria: labor productivity and total factor

productivity (TFP); Investment capital efficiency; economic efficiency by scale. Inparticular, the criteria of economic efficiency by scale is highlighted the role of thework of the TC, QL of the economic corporations, ie the quality of growth or affiliaterelationship of the economic corporations-an important feature of the economiccorporations. To assess the economic corporations having economic scale, the thesisuse Cobb-Douglas production function as described.

(2) Criteria to reflect competitiveness of the economic corporationsFor the economic corporations, commonly used indicators include: Rate of return

on capital or revenue. In the comparison between the economic corporations, the higherrate of return means higher competitiveness of the economic corporations.

To meet current regulations of the State (Decree No.87/2015/ND-CP dated 06 Oct2015 on monitoring of state capital investment in enterprises, financial supervision,performance evaluation and financial issues of state-owned enterprises with state-capital enterprises) and combine with 2 groups of the above criteria, the criteriaevaluated in this study are: (i) revenue, (ii) after-tax profit and rate of return on equity,after-tax profit on revenue, (iii) labor, (iv) economic efficiency by scale.

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1.3.2.2 Social criteriaOn the macro aspects of the economy, the criteria relating to the social aspects are

commonly used: human development criteria as the Human Development Index (HDI)and growth human rate (GHR), the criteria for job creation, poverty reduction ... As aneconomic organizations operating for profit, social criteria to evaluate the developmentof the economic corporations is interpreted as strict compliance with the minimum inactivities of the economic corporations for applicable laws and regulations, to ensure nonegative impact on society. Besides, in addition to the obligatory criteria, then issuessuch as creating jobs and increasing incomes for workers and increase the number ofdependents in the economic corporations (directly contribute to poverty reduction), thelevel of contribution to society through charitable programs, building of infrastructurefor surrounding areas ... are also known as the expansion of social criteria.1.3.2.3 Environmental criteria

It is expressed through a variety of quality criteria for environmental componentsincluding air, water, soil, ecology; maintaining the level of renewable resources;exploitation and use of non-renewable resources. For the economic corporations,evaluation criteria relating to environmental aspects are often expressed through theachievement and compliance with regulations and environmental requirements of theenvironmental law, chemical laws; the achievement of the ISO certificates inappropriate business activities such as ISO 14000.1.4 International experience and lessons for the Vietnam National Chemical Group

From experience in the development of a number of the economic corporations inthe world (including Exxon Mobil, Sinochem, Sumitomo, Bayer AG) in same industrywith Vinachem can draw some lessons, which are: (1) the economic corporations aremulti-ownership structure under the regime of shares in developed countries. Thismeans that activities of the economic corporations are subject to strict control of theowners on the basis of applicable laws of the country which having registered office ofthe economic corporations as well as law by international and national scale existingactivities of the economic corporations. (2) CTM always controls activities of the CTCon basis of investment capital and production technology towards the common goal ofthe group. (3) the economic corporations have TC, QL under M-form mixed model tosimultaneously ensure the focus towards strategies of the group, while ensuring theautonomy of each member. (4) Internal linking in the group is very tight from theoperation to capture demand to meet that demand. This implies that the internalinformation system, the scale of production ... is very large, tight, greatly reducing thecost towards economic efficiency by scale. (5) The economic corporations always havecore business and key products, and on that basis to develop related industries to meetmarket demand. (6) In order to achieve the growth, the economic corporations areseeking market opportunities and diversify business methods such as link cooperation

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or merger and acquisition (M & A). This implies, the TC, QL are very closely andscientific to be able to operate the group's activities effectively. If TC, QL areineffective and then lead to very difficult problems of the economic corporations is tosolve the contradiction between the cost and scale, a large scale business withouteconomic efficiency will lead to increase cost... (7) Research and development (R &D), environmental protection are concerned. (8) The economic corporations areinterested in human capital development through the creation of cultural values of thegroup by setting up long-term goals Vision, Mission and Slogans to enable the group tobe admitted in contribution to social benefits.

CHAPTER 2 - CURRENT SITUATION OF DEVELOPMENT OF THE

VIETNAM NATIONAL CHEMICAL GROUP

2.1 Overview of the Vietnam National Chemical Group (Vinachem)2.1.1 The process of establishment of the Vietnam National Chemical Group

Vinachem is incorporated through transition of several models: in accordance withguidelines on pilot of incorporation of business groups under Decision No.91/TTg inperiod 1995-2006; model CTM – CTC in the period 2006-2009; Vietnam NationalChemical Industry Group (set of the groups) in the form of CTM - CTC in 2009-2010.Since 2010, the Prime Minister decided to transfer CTM of the Vinachem into model ofOne member Limited company owned by the State.

2.1.2 Characteristics of organizations and activities of the Vietnam NationalChemical Group

The group includes 2 levels: CTM – Vinachem is 1st level enterprise with 100% ofthe State capital, and the member companies in the form of joint-stock companies, onemember limited liability companies or corporations, and associates are 2nd levelenterprises. Set of groups has no legal status; CTM – Vinachem and membercompanies have legal status before the law. Set of the group associates and managesunder invested capital in two major forms: between CTM – Vinachem with membercompanies and between member companies.

CTM – Vinachem operates in the 2 lines of business: (1) major business activities:Manufacturing and trading of fertilizers and plant protection products; mining andprocessing of minerals as raw materials for production of fertilizers and chemicals;rubber processing industry; production and sales of basic chemicals, consumerchemicals, pharmaceutical chemistry; (2) Related business activities: Consult anddesign the chemical industry; import and export of materials; training of high-qualityhuman resources ... and other business activities approved by the Prime Minister.2.2 Analysis of development situation of the Vietnam National Chemical Group

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The analysis is divided into two stages: 1996-2005 and 2006-2015, respectively tomodels TCT 91 and CTM-TCT (Economic corporations).

2.2.1 Status of economic contents2.2.1.1 Revenue: relatively high growth rate, corresponding to the two periods26.6%/year and 26.4%/year respectively; the growth rate at later period is lower due toeffect of investment in finance and banking (Table 2.1).

Table 2.1: Revenue of set of the Group in period 1996-2015

Unit: Billion VND

Year Revenue Year Revenue1996 3.796 2006 13.5011997 4.547 2007 18.1381998 5.130 2008 23.6841999 5.455 2009 25.5352000 6.713 2010 29.7852001 6.699 2011 39.3162002 7.714 2012 43.6412003 9.087 2013 44.1022004 11.771 2014 49.9122005 12.895 2015 45.592

(Source: Vinachem, annual statement of income [42])

2.2.1.2 Profit: Growth rate in the two periods is 11.2%/year and 17.9%/year

respectively but higher rate at the later period, demonstrating the superiority of CTM-

CTC models and promote the internal strength of the group (Table 2.2).

Table 2.2: Profit and payment to state budget of set of Group in period 1996-2015

Unit: Billion VND

Year ProfitPaymentto Statebudget

Year ProfitPaymentto Statebudget

1996 168 162 2006 682 4941997 164 176 2007 1.154 7151998 175 207 2008 1.987 9151999 221 241 2009 3.948 1.2562000 218 294 2010 2.844 1.2162001 215 353 2011 3.208 1.5812002 248 369 2012 3.318 1.7432003 246 392 2013 2.731 1.7002004 313 396 2014 2.776 2.5232005 337 471 2015 1.658 1.794

(Source: Vinachem, Annual statement of income [42])

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2.2.1.3 Capital and property

State equity and total assets increased fast, high growth rate, respectively reachedin 2 period 1996-2005 and 2006-2015: state equity 14.9%/year and 31.4%/year; totalassets 20,7%/year and 47%/year; but capital and assets in the period 2006-2015 arehigher than the 1996-2005 period.

2.2.1.4 Labor: relatively large-scale and stable, an average of 33,256 and 26,531

respectively in the two period from 1996-2005 and 2006-2015, which at a later stage due

to reduction of TC, QL and focused application of science and technology into production.

2.2.2 Situation of social contentsIn both periods 1996-2005 and 2006-2015, besides amount paid to State budget is

higher than last years (Table 2.2), social activities are also promoted and implemented

for several years, especially poverty reduction for 61 poor districts under Resolution

No.30a/2008/NQ-CP of the Government dated 27 Dec 2008.

2.2.3 Situation of environmental contentsActivities of set of the group always adhere to the legal provisions and industry

standards on environment; in many consecutive years, the member companies are

always conscious of prevention of chemical incidents, highly appreciated by the

Ministry of Industry and Trade, Ministry of Natural Resources and Environment.

2.3 Analysis of factors affecting development of the Vietnam National ChemicalGroup2.3.1 Current status of state management

Along with the process of reform of the state-owned corporations, state

management has achieved innovation to enable development of the state-owned

economic corporation including the Vinachem: (1) To build strategies and plans for

socio-economic development of the country and of each sector in long-term basis for

orientation of the economic corporations; (2) To set up legal documents creating the

legal environment for the state-owned economic corporations; (3) To set up and expand

the autonomy, self-responsibility for activities of the economic corporations; (4) To

have uniform coordination state management agencies in implementing management

for the economic corporations.

However, state management still exist limitations such as: (1) Mechanism of

formation and development of the state-owned economic corporation focused on

centralized planning; (2) Relationship of the state as owner with the state-owned

economic corporations is not really clear; (3) Using planning tools, planning and

investment policy, fiscal policy, monetary policy, credit ... are lack of market basis and

reliable forecasting.

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2.3.2 Current status of the development modelThe Vinachem is still controlled and influenced by the model of extensive

development applied in Vietnam. In fact, growth of the revenue of the Group is mainlydependent on the number of produced products (as a result of expansion of the Groupand establishment of new member companies), not based on the increase of the value ofthe product. Therefore, development of the set of the Group is less durable. Results ofanalysis on growth rate in section 2.2.1 reflect this fact, especially 2006-2015 period.

2.3.3 Status of organizational and management models(1) The organization models have changes in association, from administrative

association, functional structure of TCT model in the 1996-2005 period, to capitalassociation and in early 2006-2015 period; however organizational structure in phase 2remains centralized structure (function).

(2) Management model transferred from model of the state allocating planning andmanagement according to TCT model in 1996-2005 period into the Vinachem, amanagement and operation unit on the basis of capital alliance under CTM – CTCmodel in period 2006-2015.Table 2.3: Comparison of management mechanism in periods 1995-2005

and 2006-present

Period 1995-2005 Period 2006-nay

Model - TCT 91 - CTM - CTC

Capital - 100% of state capital- The state invests in membercompanies, corporations.

- With participation of non-stateeconomy sector.- The state invest in CTM, CTMinvests in CTC

Ownershiprelation

- Not transparent - Member council of CTM isrepresentative of the owner

Managementactivities

- Traditional, to completeassigned tasks

- Make plan and meet marketdemand, maximize profit

CTM relationwith membercompanies

- Administration relationship - Investor – owner relation

(Source: set by the graduate student)

2.3.4 Situation of internal relationship

Relationship of internal business transactions are very limited. Transactions

between member companies remains low. Relation of information exchange is very

weak, just a type of vertical information within the operating activities from CTM for

CTC, mainly quarterly and annual reports ... The group has prepared consolidated

financial statements, but not reflected closely interconnected, as well as obligatory

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relationship with the state; registered collective mark, set up regulations on application,

but the effect of connecting "soft" through collective mark is limited. The Group is

applying implementation of annual personnel planning to CTM. However, standards

and implementation steps have not been made public and transparent, mechanisms and

methods cannot be agreed in the set of the group.

2.4 Assessment of the development of the Vietnam National Chemical Group

2.4.1 Assessment criteria

2.4.1.1 Labor productivity: Labor productivity of the group in both 1996-2005 period

and the 2006-2015 period is continuous increased, the following year’s labor productivityis higher than that of previous years (Table 2.4), and quite similar to the state-owned

economic corporations in several sectors such as Vietnam Oil and Gas Group (PVN) and

Vietnam National Coal – Mineral Industries Group (TKV) (Table 2.5)

Table 2.4: Labor productivity of the Group in period 1996-2015

Unit: Billion VND/person

YearLabor

productivityYear

Laborproductivity

YearLabor

productivityYear

Laborproductivity

1996 0.115 2001 0.198 2006 0.510 2011 1.473

1997 0.132 2002 0.227 2007 0.698 2012 1.628

1998 0.139 2003 0.268 2008 0.890 2013 1.633

1999 0.167 2004 0.360 2009 0.967 2014 1.849

2000 0.206 2005 0.458 2010 1.111 2015 1.784

(Source: Vinachem, Statement of income [42])

Table 2.5: Comparison of labor productivity between VNC, PVN and TKV

Unit: Billion VND/person

Vietnam NationalChemical Group

(VNC)

Vietnam Oil andGas Group (PVN)

Vietnam National Coal– Mineral Industries

Group (TKV)2003 0.268 2.264 0.121

2004 0.360 2.701 0.163

2005 0.458 2.809 0.229

(Source: Vietnam National Chemical Group, Vietnam Oil and Gas Group,

Vietnam National Coal – Mineral Industries Group [36][39][42])

2.4.1.2 Efficiency of investment capital of the VNC is not high, an average of VND

0.045 and VND 0.08 obtained from VND 01 of investment capital for periods 1996-

2005 and 2006-2015 (Table 2.6), and lower than the PVN and TKV at last 3-year of

each above period (Table 2.7).

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Table 2.6: Efficiency of investment capital of the Group in period 1996-2015

Unit: Billion VND

YearProfit/Totalassets

YearProfit/Totalassets

YearProfit/Totalassets

YearProfit/Totalassets

1996 0,056 2001 0,041 2006 0,065 2011 0,084

1997 0,049 2002 0,041 2007 0,088 2012 0,073

1998 0,050 2003 0,035 2008 0,114 2013 0,052

1999 0,057 2004 0,041 2009 0,161 2014 0,046

2000 0,044 2005 0,039 2010 0,090 2015 0,030

(Source: Vinachem, Statement of income [42])

Table 2.7: Comparison of efficiency of investment capital between VNC, PVN and TKV

Unit: Billion VND

Vietnam NationalChemical Group

(VNC)

Vietnam Oil andGas Group (PVN)

Vietnam National Coal –Mineral Industries Group

(TKV)2003 0.035 0.177 0.0502004 0.041 0.236 0.1022005 0.039 0.239 0.1952012 0.073 0.067 0.2212013 0.052 0.065 0.0172014 0.046 0.056 0.016(Source: Vietnam National Chemical Group, Vietnam Oil and Gas Group,

Vietnam National Coal – Mineral Industries Group [35][38][42])

2.4.1.3 Competitiveness of the Group shows in rate of return on equity in two periods

1996-2005 and 2006-2015 is 0.129 and 0.234 respectively gained over 01 equity (Table

2.8), lower than the PVN and TKV in the last 3 years of the 1996-2005 period, but higher

than the PVN and TKV in the 03 years from 2012 to 2014 (Table 2.9).

Table 2.8: Competiveness of the VNC in period 1996-2015

Unit: Billion VND

YearProfit/equity

YearProfit/equity

YearProfit/equity

YearProfit/equity

1996 0,137 2001 0,125 2006 0,157 2011 0,2761997 0,112 2002 0,139 2007 0,218 2012 0,2201998 0,116 2003 0,121 2008 0,291 2013 0,1881999 0,144 2004 0,145 2009 0,445 2014 0,1792000 0,133 2005 0,117 2010 0,268 2015 0,100

(Source: Vinachem, Statement of Income [42])

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Table 2.9: Comparison of competitiveness between VNC, PVN and TKV

Unit: Billion VND

Vietnam NationalChemical Group

(VNC)

Vietnam Oil andGas Group (PVN)

Vietnam National Coal –Mineral Industries Group

(TKV)2003 0.121 0.281 0.2132004 0.145 0.423 0.4592005 0.117 0.330 0.7202012 0.220 0.134 0.0822013 0.188 0.132 0.0712014 0.179 0.120 0.065(Source: Vietnam National Chemical Group, Vietnam Oil and Gas Group,

Vietnam National Coal – Mineral Industries Group [35] [38] [42])

2.4.1.4 Economic efficiency by scale

From the database collected, Cobb-Douglas function is presented as follows:

Log (DT) = C + α * Log (Von) + β * Log (LD) (*)

Table 2.12: Business results of the VNC from 1996-2015

Unit: Billion VND

Year Revenue Capital Labor Year Revenue Capital Labor

1996 3,796 2,989 33,052 2006 13,501 10,491 26,4501997 4,547 3,349 34,576 2007 18,138 13,127 25,9751998 5,130 3,501 37,000 2008 23,684 17,399 26,6091999 5,455 3,887 32,700 2009 25,535 24,490 26,4132000 6,713 4,958 32,660 2010 29,785 31,469 26,8002001 6,699 5,236 33,831 2011 39,316 37,969 26,6952002 7,714 6,038 33,963 2012 43,641 45,169 26,8002003 9,087 6,949 33,966 2013 44,102 52,749 27,0002004 11,771 7,650 32,675 2014 49,912 60,749 27,0002005 12,895 8,550 28,140 2015 45,592 54,864 25,563

(Source: Vinachem, Statement of Income [42])

From the above expression (*), we add 02 corresponding variables reflecting

common development of Vietnam economy and changes within the group VND is

(Year) and y04; Cobb-Douglas function extended will be:

Log (DT) = C + α * Log (Von) + β * Log (LD) + γ + δ * Year * y04 (**)and by graphs:

Graph 2.1: Relationship between Revenue, Capital and Labor in period 1996-2015

of the Group VNC

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Using software Eviews8 to estimate the following results:

Table 2.13: Results of estimate of variables including Capital, Labor (Cobb-

Douglas production function the group VNC)

Dependent Variable: LNDTMethod: Least SquaresDate: 03/01/16 Time: 10:56Sample: 1996 2015Included observations: 20

Variable Coefficient Std. Error t-Statistic Prob.

LNVON 0.535405 0.102766 5.209953 0.0001LNLD 0.216902 0.132162 1.653001 0.0836YEAR 0.000107 5.46E-05 1.965023 0.0682

Y04 0.246546 0.080516 3.062072 0.0079C -76.40114 39.33900 -1.942122 0.0711

R-squared 0.995056 Mean dependent var 9.583864Adjusted R-squared 0.993738 S.D. dependent var 0.872401S.E. of regression 0.069038 Akaike info criterion -2.296003Sum squared resid 0.071494 Schwarz criterion -2.047070Log likelihood 27.96003 Hannan-Quinn criter. -2.247409Durbin-Watson stat 1.600507

From the estimated results, apply it in the expression we have: Log (DT) =0.535405 * Log -76.40114+ (Von) + 0.216902 * Log (LD) + 0.000107 + 0.246546 *Year * y04; Or: α + β + γ + δ = 0.535405 + 0.216902+ 0.000107+ 0.246546 = 0.99896<1; or α + β = 0.535405 + 0.216902 = 0.752307 <1, in which C = log (A) = -76.40114;then A = Exp (C) = e-76.40114 ~ 0 (0 <A <1)

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Comments:(1) 0 <α, β, γ, δ <1 is consistent with economic theory, while its total is less than

1; ie when the input factors of production increases, output will be increased and theincrease level will decline gradually, or marginal productivity will be decreasedaccording to the input, the Group does not have the economic scale .

(2) The percentage of contribution of the labor factor in the added value is lowerthan the contributions of capital, corresponding to 21.7% versus 53.5%.

(3) The coefficient R2 = 0.995056, ie the change of variables: capital, labor andother two qualitative variables explain 99.5056% of change of revenue, 0.4944% isdue to random factors.

(4) 0 <A (TFP) <1, consistent with economic theory, which have contribution oftotal factor productivity, but low levels of contribution and consistent and logical withthe results and comment no. (1) mentioned above.

In summary, the group does not have economic scale. From the viewpoint oforganization and management, relationship within the Group fails to keep pace with thescale of growth, economic efficiency cannot be created corresponding scale of growth;and important factors for intensive development of the group is very weak.

2.4.2 Overall assessment2.4.2.1 Achievements and causes

Results: Have changes in performing the tasks assigned annually (plans, equity,employment, income of employees), the operating methods and internal relationshipswithin the group VNC; gradually attract sustainable growth factor (science andtechnology, skills of employees).

Causes: by switching from administrative methods to market mechanisms; modelCTC-CTM create incentives; gradually improve the autonomy and self-responsibilitywithin the group.2.4.2.2 Limitations and Causes

Limitations: Not yet create organic association relationships within the group;methods of operation and management of CTM to CTC is lack of proactive anddiversity; management effectiveness of the CTM through elected representatives intoCTC are not high; inspection and supervision of the state to the Group is ineffective.

Cause: The model of extensive development is no longer appropriate; supervisionof the state is not strong enough; Group benefits.

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CHAPTER 3 – SOLUTIONS OF DEVELOPMENT OF THE VIETNAM

NATIONAL CHEMICAL GROUP IN MARKET ECONOMY

3.1 New contexts and analysis of advantages, difficulties, opportunities andchallenges for development of the Vietnam National Chemical Group3.1.1 New context affecting the development of the Vietnam National ChemicalGroup in immediate future3.1.1.1 International economic context: First, continue to promote globalization andinternational integration, the appearance of global issues. Secondly, science -technology promotes knowledge economy and the international division of laboraccording to the "value chain" globally. Thirdly, the world economy gradually shifts tomulti-polar economic system. Fourthly, investment of emerging economies is the newtrend of international investment.3.1.1.2 Development trend of the chemical industry in the world has an impact onVietnam: World chemical industry recovering from the global financial crisis hasstrong impact on markets of chemicals products, fertilizers, pesticides and rubber inVietnam; but the equality of chemical industry opens up opportunities for fertilizerproducts, automobile tires of Vietnam.3.1.1.3 Domestic economy context: The economy overcome many difficulties andchallenges, macroeconomics is stable, inflation is under control; continue to implementthe policy of international integration, complete market economy.

3.1.2 Analysis of advantages, difficulties, opportunity and challenges for the VietnamNational Chemical Group in immediate future3.1.2.1 Advantages: (i) Apply management models CTM –CTC under principles ofcapital contribution, create open and thrust; executive administrative orders is graduallyovercome. (ii) Raw materials are under control. (iii) The product groups are under theessential commodities of both industry and consumers, with stable demand. (iv) Thereis one school and one research institute to ensure provision of specific humanresources, support for sustainable development of the Group.3.1.2.2 Disadvantages: (i) organizational model has not been renewed, the managementmodel is still under administrative mechanisms; Operating mechanism to meet settargets of the State, of the ministries; (ii) personnel have not really devoted to thedevelopment of the group; gaining achievements and avoiding responsibilities existpopularly. (iii) Investment in technology is not uniform and consistent developmentrequirements. (iv) The quality and competitiveness of products is weak.3.1.2.3 Opportunities: (i) stable politics and policies of development in chemical andfertilizers. (i) The need for development in chemical and fertilizers are greatopportunities for the Group. (iii) Open to integration opportunities to create joint

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venture, cooperation, capacity building governance, participation in global valuechains. (iv) Vietnam has resources to meet demand for the chemical industry.3.1.2.4 Challenges: (i) Equitisation of the Vinachem will have a profound change onthe organization and the role of the Group, generated many mixed opinions. (ii) themacroeconomic difficulties tissue may extend; difficulties in exports, raising capital,infrastructure; competitiveness of domestic products is weaker than imported ones;research and deployment is underdeveloped, not keep up technological innovation ofthe world.3.2 Views and orientations of the development of the Vietnam National ChemicalGroup3.2.1 Viewpoints of development of the Vietnam National Chemical Group

First, to renovate extensive development models, mainly thanks to naturalresources and unskilled workers to intensive development models based on scientific,technological and skilled workforce to achieve sustainable development.

Secondly, under the strategic management of CTM – the Vinachem, the group

should design, build close, interconnected relationship as required and match the

overall development of the economy to achieve economic efficiency by scale.

Thirdly, development of the Vinachem is involved by other economic sectors.

3.2.2 Orientation of the development of the Vietnam National Chemical GroupFirstly, the development of the group will be focused on core business activities

such as basic chemical industry, chemicals for agriculture, consumption and export.

Secondly, the development of the group is in the form of multi-ownership, in

which the State has a majority proportion of shares (over 50% of charter capital).

3.3 Major measures to promote the development of the Vietnam NationalChemical Group

3.3.1 Promotion of restructurePeriod from now - 2018: Continue diversification of ownership in the member

companies within the Group. Period 2019-2020: after equitisation, equitisation of

CTM-Vinachem, the State does not need to hold these trades, in terms of economic

efficiency, the private sector has the ability to do that and even do better to help the

Group to develop in the direction of economic efficiency in market economy.

3.3.2 Innovation of management and supervision mechanismFirstly, it should continue building and perfecting the regulations on internal

relations of the group. Secondly, it should complete administration of the Group based

on science. Thirdly, strengthening the cooperation through the representative of the

CTM capital contribution to the CTC, affiliates.

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3.3.3 Innovation of organizational structure models- Arrange the CTC sector in 5 ranges: (1) fertilizers, plant protection products; (2)

Basic chemical and Pharmaceutical Chemistry; (3) detergents; (4) rubber tires; and (5)Others (possibly give name later) towards creating product value chain produced bydifferent CTC.

- To define and implement roles and responsibilities of the CTM in the group(strategic planning, orientation through representative of capital contribution, necessarysupport...). To consolidate functions and responsibilities of management andadministration of the Group. Structure and managerial personnel are improved towardsensuring full capacity, reducing service work to increase the strategic task. Thestructure of relevant departments will be improved to focus on professional areas (M-form structure model) to support the industries.3.3.4 Development of internal relationships3.3.4.1 Business deals relationship

Developing internal transaction relations targets towards production units in thesame industries to minimize the cost of production, priority for purchase of goods underreasonable prices can be lower than the price market, but it requires transparency.

Kind of internal business transactions should be developed include: purchase andsale of goods; providing and receiving services; lease; transfer of research anddevelopment (R & D); transfer of the licensed agreement (such as ore mining license);transfer of financial agreements; or the guarantee, debt payments on behalf of this unitto other units within the same industry or other industry ...3.3.4.2 Investment cooperation

Performance of investment cooperation via CTM in strategic projects or theexpansion of investment in production units to ensure the connection and interactionwith existing activities, enhance competitiveness or complementary to the weak sectors.Specifically, the role of the CTM: (i) identify indicators to guide and monitor (such as aloan, the criteria assessing the effectiveness of projects, effective monitoring of projectimplementation...), while loans and implementation of projects will be done by membercompanies. (ii) to distribute capital reasonably between member companies uponrequest. (iii) investment decentralization, focusing on projects that improve the corecompetencies, key products of the Group3.3.4.3 Information exchange

Developing information exchange between CTM with member companies andbetween member companies towards achieving unity in action of the group as perCTM’s set goals on the basis of aspirations and interests of each members. Methods ofimplementation are primarily done through using the power of large shareholders tocoordinate and under trading agreement. Information exchange is mainly used in stageof consumption, also any related activities.

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3.3.4.4 Financial cooperationTo perform consolidated financial statements and Chief Financial Manager model.

To thoroughly towards the effects of the two measures have to be: Firstly, theimplementation of the principle activities of the CTM is to provide funds for newbusiness projects, not transfer funds between projects and not interfere in the dailyoperations of the project. Secondly, implementation of Chief Financial Officer model ismeant that the Chief Financial Officer will be responsible for financial issues of thegroup, arrangement of capital, financial business, seek for investment opportunities,expand opportunities business cooperation…. which makes the role of the CTM’scapital investment is enhanced and controlled for all other activities in the group, activesupport for the process of growth and long-term development strategy of group.Besides, the establishment of capital management division within the finance –accounting department at the CTC, affiliates is responsible for monitoring andevaluation of the business results of units receiving investment capital from CTM, tohelp CTM to make decisions.3.3.4.5 Culture and brand name of the Group

In the future, the VNC need to determine its core values through three elements:Vision, Mission and Slogan, then deploy thoroughly the operations of the Group; whileimplementing the following solutions: To promote human values (human values);Building work standards; Continuously improve the work quality (productmanagement) and product quality; building value of the group and require all officersand employees to follow the set goals3.3.5 Enhancement of application of science and technology

Along with the factors of organization and management, it is necessary to enhanceapplication of science and technology in business and production of the Group, underthe direction of: Innovation, perfect production technology towards high-tech approach,environmentally friendly technologies. Create breakthrough in technology to continueto maintain the leading position in the chemical industry. Use machinery with highscientific techniques, apply the most advanced technologies for new investmentprojects. Continue intensive investment, technological innovation, advanced technologystandards, advanced technology to be synchronized. Implement computerizedmanagement system of the group. Strengthen research and technological applications.Strengthen international cooperation in the exploitation and use of fossil fuels, inevaluating new investment projects to ensure the level of high-tech technology.3.3.6 Focus on trading and production of key products of core business

Focus on the key products of the main business sectors of the Group to ensureintensive development of specific technologies. Groups of key products shouldcontinue to promote such as fertilizers, rubber tires, plant protection chemicals, basicchemicals and pharmaceutical.

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3.3.7 Building of high quality human resourcesFirst, building of work standards within the group. Secondly, the implementation

of training and retraining of management staff. Thirdly, building and implementation ofmeasures of human resources development (namely: building of human resourcesstrategy; specific training plans, improving the regulation of wages and bonuses).Fourthly, flexible transfer of staff to promote human resources. Fifthly, building ofappropriate treatment policies3.4 Conditions for ensuring the implementation of the solutions3.4.1 State management.

Firstly, innovation of thinking of economic development models from extensivelyto intensively, including the state-owned economic corporation and state-owned group

Secondly, accelerate the restructuring, reorganization and operation of the state-owned economic corporations to pave the way for the dissolution or continuingoperation of the state-owned economic corporations without economic efficiency.3.4.2 Sector management.

Conditions for industry and trade: Making plans, medium and long-term roadmapsfor restructuring of products of the Vietnam National Chemical Group in associated,dependent relationships with the restructuring of products of the State-owned economiccorporations and the state-owned corporations in the industry and trade. The next goalsinclude: (1) To continue to implement and promote use of the products between theState-owned economic corporations and the state-owned corporations; (2) to reorganizein the form of transfer or sale under market principles for member units of the variousState-owned economic corporations and the state-owned corporations, but whichproducts and manufacturing technologies in interdependent manufacturing value chaininto the same corporation or in a group; Meanwhile the State-owned economiccorporations and the state-owned corporations may have to adjust the product structureto suit the actual conditions and industry sectors ... but the economics corporations stayfocus on intensiveness and economic efficiency.

Conditions directly related to operation of the Vietnam National Chemical Group:(1) To provide information for the chemical industry projects, programs and projects ofbilateral and multilateral cooperation with foreign partners in order for the Group tomake plans and give ideas. (2) To give direction of reserve planning, priority to provideanthraxite coal for the production of fertilizers and chemicals. To continue to assign theVinachem to manage apatite ore resources. (3) To create mechanisms for fertilizerproduction enterprises of the Group to access funds to implement the project onschedule of renovation and new investment projects. (4) To put the fertilizers onimported products to controlled to regulate the market. (5) To accelerate transportprojects, particularly Hanoi - Lao Cai railway route.

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CONCLUSION

The topic “Development of the Vietnam National Chemical Group in market

economy” has achieved the following results:

1. The systemization of theoretical framework on development of the economic

corporation in market economy.

2. Analysis of development experience of several of the world's major economic

corporations within the industries and draw lessons for the Vinachem

3. Describe the current situation of the Group in two periods with two models

respectively TCT 91 and CTM-CTC (the economic corporation). Analyze and prove

the assumption that the Vinachem does not have economic scale, low growth rate,

organization and management do not keep up with the scale of growth.

4. Research and clarify international and domestic contexts, as well as the

advantages and disadvantages, opportunities and challenges to the development of the

Group in immediate future.

5. Provide solutions to improve growth rate quality, which focuses on the

relevance of the Group. Give conditions on the State and the industry to implement

solutions to the development of the Vinachem.

With limited time to study, the thesis should not avoid shortcomings, errors, I am

looking forward to receiving valuable ideas of experts and researchers so that the thesis

give conditions to meet practical development needs of the group in immediate future.