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Without a plan, cost cutting can harm business

Update: November, 22/2009 - 00:00

Business Beat


Without a plan, cost cutting can harm business

by Thuy Anh

Without a strategic vision, cost cutting to improve competitiveness can go wrong and harm a business.

"Organisations often resort to impulsive, top-down and arbitrary cost reduction and headcount targets that have unanticipated and perverse results, and sometimes these actions just shift costs rather than eliminate them altogether," John Ditty, chairman of auditing and consulting firm KPMG Viet Nam, warned participants at a seminar organised last week by Kaisa Consulting on facing the challenges of global competition.

He cited the example of his firm. It recruits 200 university graduates every year and provides them two to three years of on-the-job training. He said he could not reduce the recruitment number to just 50 to cut costs since, a few years later, the economy might boom again and customers would complain about the poor service though some money was admittedly saved initially.

Instead, businesses should take a strategic approach to costs through a combination of optimising business processes and cutting procurement and supply chain costs among others, he said.

Poor planning and forecasting were at the core of much of the duplicated and unproductive time reported in most financial functions, he said, urging businesses to get to the root of inefficiency in the forecasting processes.

Insurance recovers

The economic recovery has helped boost both the life and non-life insurance sectors. Life insurance companies have collected a total premium turnover of VND8.49 trillion (US$459 million) in the first nine months, up 12 per cent from the same period last year. New contracts accounted for more than VND2 trillion, marking a 33 per cent rise, which was way beyond the industry’s expectation since the economy was still foundering.

Eleven life insurance firms signed almost 465,000 new contracts in all, up 13 per cent. Around 54,000 contracts were renewed, for a rise of 4 per cent, with Prudential alone accounting for almost 47,000. Dai-ichi Life followed with over 3,600 revived contracts.

The number of contracts in effect at the end of September stood at nearly 4 million and the number of agents at nearly 92,000, a 28 per cent increase. The increase in the agent numbers as well as the introduction of new products are attributed to the market’s growth.

The general insurance sector reported a turnover of VND9.86 trillion in the period under review, a 23 per cent increase. The Association for Vietnamese Insurers noted that undercutting rates to unreasonable levels showed signs of lessening.

Vehicle (car and motorcycle) insurance led in terms of turnover with VND3.25 trillion, up 45 per cent.

Settlements were worth VND3.54 trillion, or around 36 per cent of the total premiums collected. US insurer AIG had the highest rate with 70 per cent while Bao Minh paid 58 per cent. The high rates were due to the devastation Tropical Storm Ketsana caused in the central region, especially to property, including boats.

Apart from an expected rise in economic growth once the global crisis abates, the country’s large agriculture sector, which remains largely untapped, is also expected to provide an opportunity for insurance companies.

1,000th session

The Ha Noi Stock Exchange (HNX), which opened on July 14, 2005, as the Ha Noi Securities Trading Centre, marked its 1,000th trading session last Friday. It has attracted almost 240 companies from around the country and 700,000 trading accounts from individual and institutional investors.

This month it has received almost 10 applications for listing and the HCM City-based Power Engineering Consulting Joint Stock Co has announced that December 1 would be its first trading session at the exchange.

One of the two most important functions of stock exchanges is to help listed companies raise funds for their business development and nearly half the firms listed on the HNX have issued new shares, according to Tran Van Dung, the bourse’s general director. Last year, 54 companies raised a total of VND6 trillion (US$335 million) by issuing shares, up from 54 firms and VND4.45 trillion in 2007.

The exchange also fulfilled the other main function with its liquidity improving consistently. While the average daily trading value in 2005 was over VND2 billion, the figure by the end of last month was almost VND789 billion.

"From the initial six listed companies with a combined listed value of VND1.5 trillion, the figure has increased to VND35.5 trillion while the market capitalisation is up to VND150 trillion, or almost 10 per cent of the country’s GDP," Dung said.

The growth of the exchange is expected to help speed up equitisation of State-owned enterprises.

Nguyen Hoang Hai, general secretary of the Viet Nam Association of Financial Investors, suggested that the exchange should improve oversight to ensure everyone complies with the law.

"We investors have a special concern about the quality of the goods (securities) and therefore we want the exchange to draw more businesses with good performance and transparency and ensure rumours do not have a bearing on investors’ decisions."

The State Securities Commission has asked the Ministry of Information and Communications to join with the two bourses – the other being the older HCM City exchange – and securities companies to curb rumours spreading. — VNS

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