Restructuring Your Vietnam Company to Survive, Stabilize, and Succeed

Posted by Written by Dezan Shira & Associates Reading Time: 7 minutes
  • As businesses learn to cope with the pandemic, investors can look to restructure their Vietnam operations to adapt and go beyond the health crisis.
  • Businesses can take a number of actions to such as modifying their debt exposure, liabilities, and operations to limit financial harm and improve business viability.
  • Vietnam Briefing explores some of these options in the Vietnam context and how businesses and implement some measures to remain competitive.

In the context of Vietnam’s continued growth story despite COVID-19, we look at how businesses invested in the region can strategize to survive and succeed.

The purpose of restructuring in Vietnam should go beyond survival from this health crisis. Enterprises in all sectors and industries in Vietnam must plan for the next phase when choosing to restructure their business – to adapt to a more competitive market, to be a stronger player in a niche sector, to enter a promising sector more speedily, to reshape the market strategy of the group company, to be in better control of the business, and to keep the corporate structure more nimble and flexible to be more resilient in case of any future setbacks.

The last year and a half have been challenging for businesses around the world. With the COVID-19 pandemic recorded early in 2020, and still ongoing as several countries including Vietnam confront new waves of the outbreak, companies around the world are having to make difficult decisions.

An unpredictable global business environment, supply chain disruptions, cash flow concerns, and matters relating to staff management – collectively put pressure on companies who are likely planning for their survival during what is now an extended crisis period.

While some businesses have given up and filed for bankruptcy, many others are exploring strategies to address their sustainability, such as through restructuring their company and operations.

What is meant by company restructuring?

Restructuring can be simply understood as a combination of corporate actions taken to modify the company’s debt exposure and liabilities, operations, and/or the entity structure – to limit financial harm and improve the business’ viability. Restructuring can help companies in many aspects, such as reducing and consolidating their debt, ensuring talent retention, adoption of new technologies, focus on key products or accounts, and establishing strategies to cut costs, etc.

Following a restructuring, the company should be left with a more streamlined and economically sound business operation, which is risk resilient and competitive in the market. This is not only important for businesses to get through the immediate challenges posed by financial and operational pressures, but also so that they can take advantage of new opportunities that emerge during crises, particularly relevant in the context of Vietnam.

In the next sections, we will discuss how Vietnam’s economy has rebounded from the disruption caused by the initial outbreak of the disease and witnessed the resurgence of economic activity, and has presented one of the few centers of growth in a bleak world economy. That has made it even more important for businesses invested in the region to strategize to survive and succeed.

The Vietnam context

As Vietnam battles a resurgent fourth wave, it continues to implement COVID-19 control measures including resuming operations at industrial parks and pausing operations temporarily when required. All these measures have proved Vietnam to be a reliable investment destination.

As per official data, total inflows of foreign direct investment capital reached US$15.27 billion in the first six months of the year, though it was down 2.6 percent compared to the same period last year.

The data includes nearly US$9.55 billion in newly-registered capital poured into 804 licensed projects, down 43.3 percent in the number of projects and up 13.2 percent in capital volume, according to the Ministry of Planning and Investment (MPI). Meanwhile, the disbursed FDI volume rose by 6.8 percent to US$9.24 billion during the same period.

FDI capital went to 18 sectors, in which manufacturing and processing accounted for the highest proportion with US$6.98 billion, making up 45.7 percent of the total investment capital, followed by electricity production and distribution.

Singapore was the biggest foreign investor with registered capital of US$5.64 billion, accounting for nearly 36.9 percent of the total investment capital, followed by Japan at US$2.44 billion and South Korea at US$2.05 billion.

Despite the pandemic, Vietnam’s GDP grew 6.61 percent on the year in the April to June period, while the economy expanded 5.64 percent in the first half making a jump from 1.82 percent in the same period a year ago as per the General Statistics Office (GSO).

Exports to the US in the first half of 2021 increased 42.6 percent to US$44.9 billion. Overall exports expanded 28.4 percent to $157.63 billion. Exports were helped by smartphones, while exports of garments and shoes also increased to Europe thanks to Vietnam’s free trade agreements.

While production at industrial parks in Bac Giang and Bac Ninh, which are key to global supply chains, were hampered due to the fourth wave, Vietnam has managed production while implementing business continuity measures. While the outbreak has definitely put a spanner on Vietnam’s growth, it has managed to keep factories running, contributing to strong exports.

Last year, Vietnam’s COVID spread was overwhelmingly brought into control by the end of April, around three months after the virus was first detected in the country. Despite new clusters emerging across the country from time to time, Vietnam has shown its capability in the rapid containment and control of the infectious outbreak. Most remarkably, it has been able to implement massive test and contact tracing operations wherever the clusters happen, to expose any asymptomatic cases and expel chances of a wider spread of the virus. Such effectiveness in controlling the spread of the virus provides security and confidence to the people living in Vietnam, as well as businesses and foreign investors.

Cut to 2021 – and the Asian Development Bank (ADB) projects that Vietnam’s economic growth will surge by 6.7 percent in 2021 from 2.9 percent in 2020, before stabilizing at around 7.0 percent in 2022. This growth will be powered by strong exports and gradual recovery in consumption; nevertheless, market watchers warn a slow vaccine rollout, supply chain disruptions, and declines in consumption activity could easily temper rebound trends.

With period waves of the pandemic hitting several countries, and new variants of COVID-19, like the latest Delta variant, introducing more severe threats, the proven capability of Vietnam’s central and provincial governments to manage repercussions from unforeseen events and adapt to fast-changing scenarios is appealing to foreign investors.

Understanding Vietnam’s appeal: Supply chain, market size, reforms

Beyond the swift measures taken to contain the economic fallout of COVID-19, Vietnam has other advantages to back up its outstanding position in the global market and maintain investor confidence.

Supply chain

The COVID-19 pandemic has had a significant impact on global supply chains and continues to affect businesses with worldwide operations. Vietnam itself has not been spared – and while it has done well to contain the pandemic – due to global interconnectedness – its economy has been affected resulting in losses for several businesses. To cope, several plants reduced their workforce and temporarily shut down production lines. Some factories took extended time off, while some ran staggered shifts with reduced hours.

Nevertheless, businesses have put up a resilient fight and diversified supply chains, renegotiated contracts, and streamlined their operations to ensure production. For example, the textile and garment industry switched to producing facemasks and protective suits for exports, while exports of computers and electronic equipment increased due to pandemic-induced lockdowns in the US and the EU.

From the production and supply of masks, protective suits, and medical equipment in the early stage of the epidemic, to consumer electronics and furniture during later months, Vietnam’s exports have made up for overseas shortages in all kinds of product segments.

With proactive participation in global value chains, Vietnam has steadily grown into a prominent manufacturer and exporter for electronics, ranking 12th in the world and third in ASEAN as an exporter for electronics in 2019. 

Domestic market

Vietnam’s middle and upper class is expected to reach 44 million by the end of 2020 and makes up about 46 percent of the population. This segment of the population is expected to reach 95 million by 2030 with an average GDP per capita of US$7,000 by 2035. Vietnam’s middle class is also spreading to other areas apart from the traditional hubs like Hanoi and Ho Chi Minh City. In addition, the female participation rate is one of the highest even trumping more developed countries like the US and Singapore.

Free trade agreements

Vietnam is a party to 13 free trade agreements (FTAs) making it one of the most open economies. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the recently ratified European Union Vietnam Free Trade Agreement (EVFTA) are additional push factors for businesses looking to relocate their supply chains.

Vietnam’s upgrade and further opening-up

Vietnam has endeavored to attract foreign investment by further relaxing market access restrictions and by continuously introducing improvements to the business and regulatory environment.

Vietnam’s National Assembly (NA) recently passed the amended Law on Investment and Law on Enterprises, both of which will take effect on January 1, 2021.

The amended Law on Investment helps resolve overlapping investment-related laws, clarifies the principles and conditions to select investors for projects involving land use, including the auction of land use rights, bidding to select investors, and the approval of investors and investment practices. The amended Law on Enterprises addresses unnecessary administrative procedures, extends the scope of SOE, and entitles minority shareholders with more rights. These changes underline the government’s efforts to further improve Vietnam’s business environment as well as the country’s rankings in the Ease of Doing Business report by the World Bank.

For the first time, the law includes a prohibition list where foreign investors are not allowed to participate and a market entry list where investors must satisfy certain regulatory and market conditions to invest.

This also constitutes part of Vietnam’s efforts to transform into a more high-end manufacturing capacity to attract international businesses.

Restructuring your Vietnam company to take advantage of new opportunities

To summarize, Vietnam’s containment of the coronavirus outbreak within its borders enabled the quick recovery of its economy. This was helped by Vietnam’s stable political environment, free trade agreements, transport networks, competitive labor costs as well as a sizeable domestic market.

Given that COVID-19 is ongoing as the world battles new variants and waves of outbreaks as economies attempt to reopen, disease prevention is the new normal. Vietnam’s performance in navigating this new normal adds to its potential to attract continued FDI.

Despite the upsides, it must be noted that businesses on the ground still face a highly competitive market, with a much smaller window of survival due to global economic turbulence. This is evident when we scrutinize the data more closely – while Vietnam has managed to keep its COVID-19 numbers low, its growth rate is still vulnerable to global shocks and new outbreaks, such as the current one especially in Ho Chi Minh City.

External and internal restructuring

Correspondingly, businesses that want to optimize their operations and resources should consider both external restructuring, which involves more than one party, and internal restructuring.

External restructuring usually refers to the restructuring of the company’s equity, control rights, and assets to achieve relevant business purposes, such as entering a niche market without directly setting up from scratch. Typical strategies under external restructuring include equity acquisition, asset transfer, merger, split-up, divestiture, etc.

Internal restructuring, in contrast, focuses on alterations in operations, procedures, departments, supply chains, human resources, legal frameworks, locations, computer systems, and networks, etc. to enable the business to become more integrated, streamlined, and profitable.

At the operational level, it could lead to reducing or eliminating production or service lines, closing facilities, relocating businesses and employees, adjustment of the company divisions, and adoption of new rules and advanced systems, such as supply chain management system (SCM), human capital management system (HCM), back-office automation, and so on. Professional advisory services are often engaged in this process to ensure the effectiveness of the company restructuring.

Restructuring can be a challenging and painful process as the internal and external structure of a company is adjusted and human capital is affected. But a successful restructuring plan will result in smoother, more economically viable business operations. This is vitally important for businesses to survive, and to outperform in the new normal.


About Us

Vietnam Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in HanoiHo Chi Minh City, and Da Nang. Readers may write to vietnam@dezshira.com for more support on doing business in Vietnam.

We also maintain offices or have alliance partners assisting foreign investors in IndonesiaIndiaSingaporeThe PhilippinesMalaysiaThailandItalyGermany, and the United States, in addition to practices in Bangladesh and Russia.

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