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Before 1990, most of Vietnamese enterprises is state owned with special orgnization structures. After 20 years of developtment, what is big change on model of Vietnamese enterprises ? This research will give a brief history of Vietnamese enterprice with some typical change in its organizational structures and some its positive outcome.
Organization Structure Of State Owned Enterprises
More than 30 years ago, if a westerner businessman visited a Vietnamese enterprise, he would see a lot of differences between Vietnamese enterprises and his country experience. In American or Europe, the CEO have the most powerful person to controls a firm really. But in Vietnam back in those days, the CEO couldn't decide everything. Everything from manufacturing to fulfilling a plan was decided by a group of four people called the "foursome" or "Bo Tu" in vietnamese language. Why there were 4 people to decide a problem?
The researchers of the organizational theory would think that because in this period, Vietnamese enterprises may apply flat organization stype or the Japanese organization model. In 1992, when I read a Japanese annual report by Kline Shipping Company, I noticed that there were 23 vice presidents. That was a strange thing to me. Later on, I knew that many Japanese company applied Bloasted structure with increasing numbers of manager at each level as shown by the picture below (1).
In above structure, there might be a lot of managers in different level but only a few had a specific role. The remains were seniors, who've worked at the company for a long time, did contribute but just kept a part as an advisor only.
Back to the story about the company leaders in Vietnam 30 years ago, this wasn't about the flat structure, but this is the story about possession and leadership of Communism party in each enterprise. As we aware, a company structure depends on the owner and the company target. In Vietnam at that time, state own enterprises (SOE) belongs to Vietnamese government. The SOEs had established to perform the specific business or public activities in order to achieve socio-economic by the State. In order to accomplish their target, in that period of time, the Vietnamese Communism completely led. That means all the northern Vietnam SOEs had a communits party organization insight. The most important person in the company organization was very powerful. Every director's decisions must comply with the resolutions of the Party committee, must be brought into discussion in the quarterfinals
Party Committee Secretary In An Vietnamese Enterprise
A Secretary of Party Committee was the most important person in a state owned enterprise. This position could be compared to the board chairman nowadays. In an SOE, party organizations were formed into a system from top management to bottom in the enterprise's workshop. In the unit of production such as workshops, function divisions as plan division, salary division, administration division etc had party cells. These cells' manager was the party committee in the company. Members of these committees are often a director, vice director, chairman of union, secretary of the youth league and a few other members. The top of this party committee was communist party secretary. Most of the directors must be members of committees. In 1990, rarely did they have a communist party secretary hold the position of director.
The power of the party secretaries are formed from 7 sources in a similar way division of Jones (2010) as Authority, Control over resources; Control over information; Nonsubstituability; Centrality; Control over uncertainty; Unobtrusive power (2). The authority of a secretary was based on the Party's regulation prescribed that Party completely led everything, including production, business and social activities in enterprice. Secondly but more importantly, Secretary of Party Committee also controls over other resources. Although the Secretary does not form direct management of resources such as money, labor, raw materials, fuel, engine, tools, but essentially, the head manager are party members, so Secretary he can hold these resources.
In short, because the Secretary has millipede's legs system into all enterprise's units and has power tool as "party resolution" in hand, so his power is very high. If directors want to deploy a big deal that without the consent of the Party Committee, he may be considered as breaking party's discipline.
Director of An Old Vietnamese Enterprise
In paper form, a director has highest positions and he is top leader in an SOEs. However, the actual role of director in the past and nowadays is clearly different. In the 80s and 90s, sentences like "store keepers larger than director" or " driver over the head" are widespread in Vietnam. Why? There were many reasons but they all brought together in the weakness of the director's powerful. He did not have the right to fire the workers who were lazy and violations. Most of the workers in that time applied to "payroll" a form of lifetime employment contract, and it is very hard to be irrevocable. In the discipline, Director could not apply the form "Hot stove rule" with warning system, immediate burn (enforced immediately) as the current. In order to gain a business leader, the directors have several methods as installing the plug their personnel into the units, accrediting personnel from their factions. This situation is similar to what Parkinson discovered as from 1914 to 1928 the number of builded ships reduced 68%, but the number of shipyards, ship repair rose 40% and the number of officers, bosses was up to 79 %. Mr. Parkinson argued on two causes of this situation as the directors wanted to split and divide the units of the department to weed out the opponent "an officer wants to multiply, subordinates, not rivals". They wanted to make the more units, division to create a stately, power etc. Of course, the directors of SOE could not & did not have a chance reading capitalism books and knew Parkinson. But the leadership required them to create their own power in the ways which Parkinson discovered. This was why the bureaucracy state in SOEs was very high.
Chairman of labor union
In the past, the unions of Vietnamese SOEs have completely different nature from the one in Europe, America. They have no negotiation function, bargain function or sign a collective labor agreement etc, althought 100% of SOEs employees must participate in the union, pay union fees, social insurance and getting pension after retirement. Union of the SOE is led by a executive committee with union chairman on the top. Usually, the union chairman is also a member of the Party Committee. Therefore, the union chair is one of the highest four members of the business. Every year, the SOEs have a large meeting called the Congress workers and employees. Comparing with quality and size, there is not much differences from the annual shareholder meeting nowadays.
Secretary of Communist youth union
The fourth member of the foursome of SOEs is a Secretary of Communist youth union. Similar to the union, all SOE establish youth leagues so that the entire young employees can participate in activities. The role of the secretary of the youth union is less than union because he doesn't hold any part of seven resources listed above. However, in many SOE, the secretary of this union is the nearby candidate to take the higher position. Generally, in private companies, chief marketing, chief financial is usually able to be candidates for higher office director. But as the right arm of the Party, the secretary of the youth union in the SOE has better conditions than the other manager in order to become director or party committee secretary
e. The Organizational Model Of SOE In 20 Years Ago
As mentioned above, the foursome decided is the decision maker for the important issues of an enterprise. The Party secretaries have an own system from the top management to the important unit. The directors have a separate system as well with some vice directors, lower levels including managers and then foreman and supervisors. Trade unions and youth union have their chiefs, executive committee and many members in each division, units. These four structures have composed a bureaucracy model, which was described by Max Weber (1864-1920) that "a form of organizational structure in which people can be held accountable for their actions because they are required to act in accordance with rules and standard operating procedures (Jones, 2010, p.156)" (3)
This model has some advantages in accordance with certain sectors. But if it exists in the business enterprise, it will create bureaucracy which cost very high and large structure with many levels. This will be became a weakness, inefficient decentralization structure.
The following diagram describing a structure typical of the majority of most SOEs in previous periods
The first changing of SOEs in period of 1990
The Government Resolution no 217 (4)
The state-owned enterprises in this period still remained under the government centralized planning. SOEs state enterprises could not be active input and output prices because the price system still had faults as well as the Government's accommodating in granting credit and price subsidies, loss...which led to lax financial management in state.
With these unreasonable points in organizing, the bureaucratic structure in subsidizing time, which the SOE isn't active, is self-control in production and business. The company had no marketing department as well as wishes to promote their product launches. All goods were made into the general distribution of the State. The selling price was also fixed uniformly throughout the country. This situation lasted for years, and was a reason for poor economic development of Vietnam.
In the 80s, facing the urgent matters of agricultural production, the Communist Party had made important reforms in its "Khoan 10" in agriculture. Immediately, the situation improved. The Vietnam from a country constantly hungry had turned into a country with enough food then became a leading rice exporter in the world. After the success in agriculture, the industrial sector was considered innovative.
In 1986, with 217/HDBT decision which was issued by the Government on 14/11/1987, every business enterprise had created a big change, thanks to the important policy. The new policy had given the autonomy in production and business for SOEs. According to this Decision, SOEs must made economic accounting, with revenues covering expenditures; the State did not cover losses such as previous levels. To give the initiative to the enterprises, the State had reduced the ordinance targets, until 1989, most SOEs had made only a single target ordinances as Tax payable and profit's contribution. With this decision, the SOEs had been untied.
New roles of director
To implement this policy, the role of directors improved significantly. A new term which is frequently used by the press in those days was "the sole chief". The most powerful man in business was the director now, not party committee secretaries anymore. This policy had created significant changes in business.
The director as the business leaders could make decisions as long as it was not contrary to law. Everything might not need to be approved by the Secretary again. Directors may decide any matters of business, production, sale and valuation products. In this change, the director can take authority, can control over important resources and allocate internal resources as financian, cash, workforce, materials, machinery etc.
But it did encounter opponents. Some extremists even said that "217 push the party out". Although many rights had been expanded, the power of the director was still limited in some position. For example, the Chief Accountant had superior management, issues related to the director which had not been decided. Chief Accountant had the right to refuse to spend money as the director's request. However, a new role of director had been a dramatic change.Â
Current Organization Structure Of Enterprises
Laws on Enterprices in 1999 and 2005
In the late 80th and early 90th, the SOEs assumed the role of the dominant economy with 12 thousand enterprises and hold key positions in non-agricultural sectors. In Mar 1989, the Communist Party had an important change which was still considered state played a key role, but "not necessarily constitute a large proportion in all industries". The "open door" policy, which named as "doi moi", had brought positive outcome. One research of Adam Fforde was remarked that:
"This was clear in 1990s, when GDP data showed a rising share produced by the state sector, accompanied by rapid growth and macro-economic stability - an outcome almost unthinkable in other developing countries through visible historically elsewhere, such as France after the Second World war" (6)
The next breakthrough after decision 217, the Vietnamese government had conducted a series of measures to organize the restructuring of SOEs as pilot equalizations program in 1993, enacted legislation on State Enterprises in April 1995; decision nos 20-1998/CT-TTg directives on promoting, restructuring, reform of SOEs.
These were the conditions for the next important step which was the formation of the Enterprise Law. In 1999, the first business law in Vietnam was approved by the National Assembly. This law had had a positive impact to remove obstacles, in order to become an important platform for the development of the private sector. According to statistics the Ministry of Planning and Investment, only five years beginning in 2000 until the end of 2005, there was about 160,752 companies registered, 3.3 times the total number of registered enterprises established for the period 1991-1999.
After more than six years of implementing the Enterprise Law in 1999, in 2005 the Law was amended to expand business one step further. Vietnamese citizens were entitled to free business, trade any sector what is not prohibited by law, contributed to liberate and develop productivity and economic growth, boosted the formation and perfection of market economy-oriented Socialism in Vietnam
New models of Vietnamese Enterprise
With the new Law on Enterprise, Vietnamese Government recognized the some types of ownership and detailed regulations on the different forms of company in Vietnam. The typical models are quote on this Law as follows:
A Limited liability companies with two or more members. In which, the number of members shall not exceed fifty and all member shall be liable for the debts and other property obligations of the enterprise within the amount of capital that it has undertaken to contribute to the enterprise.
One member limited liability companies. This kind of enterprise owned by one organization or individual. The company owner shall be liable for all debts and other property obligations of the company within the amount of the charter capital of the company. One member limited liability companies may not issue shares. Currently many SOEs are gradually moved to operate under this model.
Shareholding Companies. In this model, the charter capital shall be divided into equal portions called shares; The minimum number of shareholders shall be three and there shall be no restriction on the maximum. Shareholders shall be liable for the debts and other property obligations of the enterprise only within the amount of capital contributed to the enterprise. Shareholding companies may issue all types of securities to raise funds.
Partnerships. A partnership is an enterprise with at least two members being co-owners of the company jointly conducting business under one common name. The owners shall be liable for the obligations of the company to the extent of all of their assets; Partnerships may not issue any type of securities.
Private enterprises. Private enterprises owned by one individual who shall be liable for all activities of the enterprise to the extent of all his or her assets. Private enterprises may not issue any type of securities also.
Corporate groups. "A corporate group means a collection of companies having close relations with each other on a long term basis in terms of economic interests, technology, market and other business services". This model can include some type as : "Parent company and subsidiary companies"; "Economic group" and other forms. (5)
Organizational Structure of a Vietnamese Shareholding Company
On top of all listed types of company above, Joint Stock Company is an advanced form. Currently the number of company shares the majority. These companies are involved in the Vietnamese stock market. Transparency, the organizational structure of these companies is approaching to world standards. The organizational model of joint stock companies in Vietnam is completing. A model of joint stock companies listed on stock is shown below (6).
Annual General Meeting of Shareholders (AGM) is the highest authority of the Company. The AGM can approve the audited financial statements, the master business plan of the Company; the annual dividend, elect the Board, Auditor; amend Charter; decide to sell the assets of the Company with a value of 50% or more of total assets
Chairman. Board of Vietnamese companies usually has from 5-11 people. Leader is the Chairman. Enterprise Law is included three articles 108, 109, 110 regulations on rights, responsibilities and standards of the Board. Due to issues of ownership and operating in Vietnam are not separated as in corporate America, so Chairman in most companies have enormous power, sometimes directly operates a whole part or indirect control.
General Director. Board will appoint a its member as Chief Executive Officer (CEO) in a period of time which is usually three (3) years. Powers and duties of directors have increased dramatically compared with 30 last year. Director is on behalf of the company and signed contracts as well as commercial financing, organization and production operations on daily business of the Company under the best management practices. He also implements annual business plan, which is approved by the AGM and at Board approval. Due to issues of ownership and concentration of power that many companies in Vietnam, including listed companies choose one person to carry out two duties as chairman and CEO.
In last 20 years, organizational structure of Vietnamese enterprises has changed direction from decentralization in to centralization. The role of the individual as chairman, director or CEO becomes higher. The changing on policies affects to enterprise activities and gives a positive results with increasing revenues and profits.
The new organizational structure of a business is consistent with the world . This is confirmed to ensure companies successfully integrate Vietnam.