RISK MANAGEMENT NECESSITY IN VIETNAM?

As Vietnam further integrates into the world business, more investors are eyeing Vietnam for investment. As part of investment due diligence, risk management are always well considered before foreign investors decide to do business with Vietnam partners.

In any parts of the world inluding Vietnam, risk is an inevitable factor in business operation activities; higher return is always accompanied by higher risks. Coping and managing risk is an integral part of any business in order to make profit and create value to shareholders in import export transaction, investment, or merger and acquisition activities in Vietnam.

However, in our daily consulting practice, we have seen a number of businesses whom do not manage risk effectively and furthermore not fully understand about the risks that they are facing.

Typical risks in developing countries like Vietnam are political risks, policy risks, regulations risks, credit risks, bribery and corruptions, and organized crimes.

On daily transaction in trading, according to Vietnam Ministry of Industry and Trade, there are situations a number of corporate scams between Vietnam and foreign enterprises are reported. In particular, foreign companies sell goods or provide services to partners in Vietnam and in return the Vietnam partner fail to pay.

On a larger scale in FDI through business formation or M&A origination and execution, businesses that do not improve the risk management process will have to face with a lot of different types of risks: serious financial losses, adversely affecting cash flows and the value of shares, decreasing prestige with customers, employees and investors.

Many business leaders often put heavy emphasis on the business activity, profit, and revenues instead of concentrating more on risk management especially understading business partners through corporate intelligence investigation, background studying, adverse media search through professional consultants in Vietnam whom understand languages, cultures, legal environment and busieness practices. Further searches could help foreign investors to understand the company itself, owners, shareholders, members of board of directors of partner companies whom make daily decisions of the business.

In the period that global crisis has been predicted that almost bottom out and start to show signs of recovery, although the recovery process can occur with different speed and characteristics depending on sector and location of the business, the fully preparation of business in all aspects including process and risk managementstrategy could helps business not falling into the passive and also have more possibilities to take advantage of growth opportunities after the recession.

Recently in Vietnam with the impact of high inflation rate and economic recession caused by the global financial crisis, enterprises are increasingly concern about risk management activities. Many experts believe that an effective and well organized risk management system will help businesses withstand and overcome fluctuations.

From:  Risk Management in Vietnam

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The concept of risk is not strange to businesses in particular and those who do business in general. “Doing businesses is taking the risk” became a popular saying of the business people, whether they are owners of large or small businesses.

Although business has to face with risk every day and every hour but risk management is relatively new concept, not many businesses have understanding about it. Therefore, the risk management activities of the business are often being conducted in a half-hearted way. Not many businesses, including large enterprises, have proper risk management departments in their organizational structure. Hence, the uncertainties and crises are usually occurs, causing negative effects and sometimes become disaster for the business.

There are always potential risks in any business environment, whether that environment is developed with clear and transparency rules, or that environment is primitive environment with many confusing and complicated. If the business environment is primitive with inexperienced entrepreneurs, there will be more risks. Risk can be derived from many factors in which the subjective factors may cause risk to occur more with more severe consequences, or vice versa, enterprise can stop the risk or significantly reduce its impact. This depends on the risk management capacity of organizations and businesses.

Risk management is the process of analyzing the environment (inside, outside) to identify, analyze, evaluate, classify, ranking and implementing appropriate solutions to respond to risks to eliminate or minimize the negative impacts that may have. In many cases, risk management includes identifying opportunities within the risk, in order to exploit, take advantage of them and bring benefits to compensate for the damages caused by the risk.

Risk management is different from risk control and risk handling. Risk control is the response activities for the risks that have been identified. Risk handling is dealing with risks and crisis after it has actually occurred. Risk management is the systematic activities, maintaining at every level and assigning to a specialized department.

Properly understand the nature and importance of risk management, business will definitely not hesitate in setting up a professional risk management system. An effective risk management system helps businesses to identify risks early (which are very diverse, extensive and constantly changing), evaluate the possibility to occur and the degree of harm to have effective response measures. Unfortunately, the subjectivity is still the characteristic of many businesses in the risky business environment.

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