Hanoi uses model company to promote 'socialist market'
In the old days,communists used "model workers" to promote staff efficiency.
Employees in the Soviet Union, for example, were urged to replicate the
achievements of Alexei Stakhanov, a coal miner who mined several tons of coal
during a shift in 1935. Little mention was made in the Soviet propaganda blitz that
the seam had been loosened before he started.
In Vietnam today, model workers are passe. As Hanoi strives to build a
"socialist-oriented market economy", the new role model is REE, a company that
has made its name by selling air conditioners, washing machines and other
bourgeois home appliances for Vietnam's growing middle class.
Once a lethargic state enterprise, REE - or the Refrigeration Electrical Engineering
Corp as it is formally known - is today a small privatised, but growing blue chip
that dominates its core business of installing electrical wiring and air-conditioning
systems in public buildings and has developed its own popular white goods
brand.
The company, one of just five listed on Vietnam's 11-month-old stock exchange,
has also diversified into areas such as property development, and used surplus
cash to build a portfolio of shares in companies now partly in the hands of
management and employees and which are likely to list on the bourse in the
future.
REE's turnover and profits plunged during the Asian crisis, but it is slowly recov
ering. Profits, which peaked at $5.5m in 1997, sunk to $1.4m in 1999. But in 2000,
pre-tax profits rose to $2.6m on turnover of $15.7m.
This year, first-quarter turnover jumped to $5.5m, a 100 per cent increase over the
same period last year, while pre-tax profits were $688,000, up 29 per cent from
the first quarter last year.
In Hanoi, communist officials hope state enterprise managers at Vietnamese
companies will be sufficiently inspired by REE to co-operate with an acceleration
of the sluggish privatisation programme over the next few years.
But REE has also wowed its capitalist foreign investors, who see strong growth
potential under managing director Nguyen Thi Mai Thanh, the East
German-trained mechanical engineer who has led REE since 1987.
"I strongly believe that REE has the potential to be the General Electric of
Vietnam," says Peter Ryder, a Hanoi-based businessman with REE shares.
"Air-conditioning and white goods is a great business to be in and the firm is run
by a dynamic, highly intelligent and decisive manager."
REE's long march to the spotlight began in the early 1990s. The enterprise - then
a typical state company wrestling with bureaucratic interference, unmotivated
employees and intensifying foreign competition - was one of the first chosen for
Vietnam's initial experiment with privatisation.
In aprocess Hanoi has uniquely dubbed "equitisation" to avoid jarring socialist
sensibilities, REE shares were distributed in 1993 to its employees,
management and outside investors, with the state retaining only a 30 per cent
stake.
Ms Thanh says: "I wanted our people to work hard. I thought that if they have
shares, they may work better."
Today, the company workforce numbers more than 770, up from 210 when it was
privatised, and the company claims a 60 per cent share of Vietnam's commercial
air conditioner market and 20 per cent of the consumer air conditioning market.
REE's stock price, which has risen 356 per cent since it was first listed last year,
closed yesterday at 7,500 dong - up its daily limit of 7 per cent - and is now trading
on a p/e ratio of 34, making it the most highly valued stock on the tiny market.
Analysts say that REE's own stock portfolio - carefully accumulated based on Ms
Thanh's knowledge of operations at other privatised but not-yet-listed state
companies - is another key asset, likely to appreciate significantly in the future.
"REE is the closest thing that Vietnam has to a local investment fund," says
Jonathon Waugh, deputy general director of ACB Securities.
The company is also branching out in other directions. Last month it announced
plans to develop a $16m software centre, dubbed Saigon E-Town, which aims to
provide IT training.
But as REE moves ahead, it is unclear how many of the remaining state
companies will be willing or able to follow the REE example.
Many groups likely to thrive if cut loose from bureaucratic constraints have already
been equitised, while those that remain have much bleaker prospects and will
probably be reluctant to leave the state's protective embrace.
"If you live as a state-run company, it's very comfortable," says an analyst in Ho Chi
Minh City. "If you work on your own, you need a lot of courage. Not a lot of people
have that courage."
By Amy Kazmin - The Financial Times - June 13, 2001.
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