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 management strategy 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.