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Quang, T. & Dung, H. K. (1998). Human Resource Development in State-Owned Enterprises in Vietnam, Research and Practice in Human Resource Management, 6(1), 85-103.
Human Resource Development in State-Owned Enterprises in Vietnam
Despite the government’s renovation policy initiated in 1986 offering more credit to private sector, state owned enterprises (SOEs) still play a dominating role in Vietnam’s economic development and absorb a large proportion of the country’s resources. In spite of this, a majority of Vietnam’s SOEs continues to incur losses. The reasons for these losses are many; however, two in particular stand out, namely poor management and bad utilization of their work force. It is unquestionable that these two factors are key to success or failure of any business operation.
SOEs management mechanism, admittedly influenced by the subsidy system, does not encourage business managers to be more responsible and open minded as actually practiced in a market economy. There is practically no perception from the management to develop the work force in order to improve the enterprise’s overall performance, as managers are not strictly evaluated by organizational results. On their turn, employees are unmotivated to perform their work well and always have ready excuses for their negligence.
This study, therefore, tries to shed light on the different problems in human resources development (HRD) of SOEs in Ho Chi Minh City, considered as Vietnam’s economic and cultural center, and to suggest guidelines that would help formulate sound HRD practices.
In 1986, as a response to the drastic geo-political challenges of the time, the government of Vietnam (GVN) decided to launch an all-out renovation campaign, called doi moi with a view to transforming the centrally-planned economy into a market economy. The doi moi’s most important aims were to revive the private sector and to restructure the state-owned enterprises (SOEs). For the first time, these business units were allowed to make their own business decisions and at the same time compete in the market place with reduced subsidies.
As a result of this reform, thousands of small SOEs had to cope with the conditions of a free market or to close down —literally shutting their doors close, in the absence of a bankruptcy law in Vietnam— making the state sector more effective and efficient than it was. However, the remaining 6,250 SOEs still absorb a disproportionate level of the country’s meager resources, holding approximately 75% of the country’s assets, employing 30% of the labor force and utilizing 85% of available bank credit. Yet, they generate only 42% of the country’s GDP as compared to 50-56% in China (Nguyen Tien Hung, 1995:3; Vietnam News, 10-2-1998).
According to one report, nearly one-fifth of the country’s existing SOEs are operating at a loss (Nhan Dan, 7-3-1997); other source stated that only one-third of them are profitable (Vietnam Investment Review, 6-5-1996). A recent analysis based on official statistics reveals the detail that the number of SOEs operating at a loss increased from 22% in 1996 to more than 30% in 1997 and perhaps as many as 50% judging by the costs of operation (Kim Diep, 1998:6). A sizable number of SOEs are facing bankruptcy; many are unable to pay their accumulated domestic and external debts as much as two and a half times their capital assets (Vietnam News, 10-2-1998). Their inefficiency is largely a result of poor utilization of resources, lack of capital for operation and development, political interference and improper administrative control, poor management, lack of incentives, and so forth.
The privatization process started in 1992 with the announcement of the sale of SOEs to the public. It was an attempt to transform loss-making SOEs into private companies which would be more aggressive, faster moving, and infused with a more entrepreneurial spirit. However, there have been relatively few success stories considering this new and complex issue. The process has also been delayed because Vietnam has not found satisfactory solutions for the social consequences caused by the mass privatization with which some Eastern European counterparts have experimented. Although this program was started in 1992, so far there have been only 14 enterprises fully undergone the process out of a list of 150 candidates targeted for 1997-1998 (Minh Nhung, 1998:4). It is expected that, under the government intended policy of developing a ‘market economy with socialist characters’, SOEs will continue to play a very important role in the country’s economic development, at least in the near future.
What makes an enterprise effective is not only capital or technology where SOEs in Vietnam can manage to have but also intangible assets such as human resources which is the most critical. It is widely believed that people are the key to success in any business operation. Heavy investment in HRD through education and training have enabled many countries in East and Southeast Asia to achieve significant economic growth. Indeed, sufficient evidence has shown that the rate of economic development is positively correlated with an investment in HRD (Yanagi, 1993).
The Role of Human Resource Development
Human Resources Development Functions
Human resources development (HRD) is being viewed as an important strategic approach to improve productivity, efficiency and profitability (Gluey & Eland, 1989.xl). It is a planned and continuous effort by management to improve employee competency levels and organizational performance through training and development programs. Development refers to the acquisition of knowledge and skills, and behaviors that improve employees ability to meet changes in job requirement and in client and customer demands. ‘Raining usually focuses on employees’ current jobs, whilst development helps prepare them for a variety of jobs in the company and increases their ability to move into jobs that may not exist (Pace, Smit and Mills, 1991; Piqgerald, 1992). The general HRD process that helps facilitate change involves the following steps: (1) determine HRD needs; (2) establish specific objectives; (3) select HRD methods; (4) select HRD media; (5) implement HRD programs; and (6) evaluate HRD programs (Mondy and Noe., 19%).
Training and Development
Figure 1 depicts the input and output of the training and development (T&D) process. Employee training and development is an attempt to improve current or future employee performance by developing their attitudes or enhancing their skills and knowledge.
One major purpose of T&D is to remove performance deficiency, both current and anticipated. Conducting training to improve performance is particularly important to organizations with stagnant or declining rates of productivity, and changing mode of operation. Training is also essential to organizations that are incorporating new technologies which may consequently increase the likelihood of employee obsolescence.
The Training and Development Process
Another purpose of T&D, especially relevant to organizations that are introducing new technologies, is to make the current work force more flexible and adaptable. An organization that is able to increase its adaptability capacity can enhance its chances of survival and sustainable profitability.
T&D can also increase the level of commitment of employees to the organization and will also accentuate the perception that the organization is a good place to work. Obviously, greater commitment can result in a low turnover rate and less absenteeism, thus increasing productivity. T&D is also important because it is generally recognized that society at large will be the indirect beneficiary when individuals become more productive and contributing members of organizations. The correlation between T&D and organizational performance will be proven in the case under study, where the need for better management is most urgent.
State-Owned Enterprises in Vietnam
During the period of centrally-planned economy, all SOEs budgets were subsidized by the government The government also played the role of the sole supplier and the biggest customer of SOEs. Production targets were assigned by the government and all the products had to be delivered back to the government for distribution. Under this system, SOEs did not have to pay attention to customer satisfaction and would only have little concern for business development. Management development during this period did not provide the business managers the knowledge and skills required in a competitive environment. The managers of SOEs apparently discharged their duties by merely complying to what the centrally-planned economy system allowed and requested them to do. SOE managers were not well equipped and not suitable, or in many cases, not motivated to perform their tasks. The following was observed as the general situation across the enterprises under study:
- They were not the real owners or founders of the business. The enterprises were set up by the government’s budget and the managers were appointed by the government agency involved.
- The criteria for recruitment and promotion of managers did not reflect concrete requirements for different fields and branches of business and production.
- Business management was not considered as a profession or a career. Business managers could be transferred to other functions very frequently without evaluating their capabilities and expertise.
- The centrally-planned economy does not provide concrete criteria for appraising the real operation results and contributions of a particular enterprise. Therefore, it was very difficult to appraise and identify talented and outstanding managers for possible promotions.
- The organizational structure of SOEs changes very frequently and in many cases without considering the internal needs of the organization but initiated by the upper level management and the party’s committee. Under these conditions, the management of the enterprises has the capacity to change more than required. On the contrary, based on the experiences of the developed countries, the foundation and development of management in business organizations should be a continuing process.
Reforms of SOEs
According to a report issued by the World Bank in October 1995, several reforms were introduced in the late 1980s aiming at restructuring the state sector. In effect, they have gradually improved the regulatory and incentive framework and introduced a more flexible management control system that allowed the SOEs to make profits and to achieve their goals. These reforms are discussed below.
1) Early SOE Reforms: 1985-1990
Initial reforms were introduced in the mid-1980s, immediately after the demise of COMECON which led to a sharp reduction of trade and financial flows to Vietnam. As a direct result of this, several SOEs which formed the backbone of the national economy but heavily dependent on state subsidy were forced to stop their production and other activities. In a rescue attempt, the subsequent adoption of doi moi aimed not only to partially recognize private ownership, but also to implement a number of necessary measures with a view to increase the autonomy and efficiency of the SOEs. Most importantly, the introduction of a profit-based accounting system allowed SOE managers more flexibility in making decisions on production and budgeting which also assured a reduced central financial support. By 1990, the impact of these changes — combined with the adverse external environment — had resulted in serious economic difficulties for many SOEs. Consequently, policy makers came under increasing pressure to help those regions and sectors that were badly affected by increasing unemployment and to halt declines in output of “strategic” enterprises.
A range of policy measures, including the provision of substantially increased levels of subsidized credit, were adopted to address these concerns which contributed to the resurgence of inflation in 1990-91. The unpracticality of these measures was quickly recognized; credit policies were tightened, and SOEs were required to borrow at market rates of interest. In addition, guidelines were issued to limit subsidies to strategic enterprises and to liquidate non-viable and non-strategic enterprises while protecting the interests of the workers.
2) Consolidation of the SOEs: 1991-1993
The early reforms resulted in increased autonomy and imposed a hard budget constraint on SOEs. Subsequently, new measures were introduced to rationalize the sector. Some basic objectives of these measures were to restrict the creation of new SOEs, and to consolidate the SOEs through mergers and acquisitions. In order to continue operating legally, all SOEs were required to re-register by submitting a detailed application to the State Planning Committee (SPC) through their supervisory institution (the Ministry or People’s Committee).
Although the process of re-registratlon was not yet completed, as of end-1994 the government estimated there were about 7,000 SOEs in operation — 5000 enterprises therefore disappeared in the previous four years; about 2000 had been liquidated, while the other 3000 had been merged with other enterprises. Most of the liquidated enterprises were very small scale; their assets accounted for only 4% of total state enterprise assets and were generally sold to the highest bidders from either the private or the state sector. Most of the funds raised from the liquidation of an enterprise were used to pay their outstanding debts.
3) Pilot Equitization
As an experiment in SOEs reform, the government introduced a pilot program of equitization (co phan hoa) — the officially preferred term for privatization. Progress in equitization has been slow. Originally, a total of 19 SOEs were selected for the pilot equitization program, but a number of them have since withdrawn during the process. By mid-1995, only three enterprises had completed the process of equitization, namely the Transport Union Company in July 1993, the Refrigeration Engineering Company in December 1993, and the Hiep An Shoe Enterprise in 1994. A handful of other enterprises have also completed most of the equitization procedures but are still awaiting final approval to begin issuing shares. The other five enterprises are in the process of approval of valuation, and are expected to be equitized in the near future.
The government views the experience with equitization as slower than anticipated but nonetheless is pleased with the initial results. A recent study on the performance of 14 ‘equitized’ enterprises shows that they have in fact improved their output, exports, and wages while employment has been maintained or slightly increased (Minh Nhung, 1998:4). On the average, their operation capitals have been increased by 45%, share values by 4-5 times, profit by 56.9%, and employee incomes by 30-50%. They have also provided 1,000 more jobs (Minh Nhung, 1998:4).
While this record is encouraging, so far the overall impact of the equitization program on the SOE reform has nevertheless been very limited. Several factors have contributed to the disappointing progress in the implementation of the pilot equitization process. They include a lack of experience by the responsible agencies, incomplete and unclear guidelines on the process of approval and implementation, extremely complex assets valuation problems posed by inadequate accounting and confusing regulations especially with regard to land use rights. Other contributing factors concern the absence of a uniform agreement within the government on the goals of the equitization program; the reluctance of ministries and local authorities to divest themselves of important revenue sources; the indifference of managers toward more transparency and accountability; their fear that the enterprise would lose privileges associated with being a state enterprise; and the concerns of employees about job security and the level of benefits following equitization. Not less important, there seems to be no safety net planned or to be put in place to absorb the social impacts that will bring about as a result of mass equitization yet to come.
4) Enterprise Groupings
On March 7th, 1994, the Vietnamese government took another step toward SOEs reform by issuing the Decision on ‘Pilot work to establish enterprise groups’ with a view to restructure the existing SOEs. The characteristics of enterprise groupings, usually referred to as ‘general corporations’ (tong cong ty), have been further clarified in the subsequently approved ‘Law on State Enterprises’. The stated objectives of enterprise groupings include (1) to rationalize SOE supervision; (2) to facilitate the termination of line ministry and local authority control over SOEs; and (3) to realize economies of scale by consolidating enterprise management. The decision highlighted the need to ensure that grouped enterprises do not lead to the development of monopolies. It is worth noting that in spite of the concern of the government that competition in the respective sectors should not be suppressed, there is no anti-trust type of legislation in existence.
As of mid-1995, eleven ‘general corporations’ had been established in the power sector, coal, oil and gas, steel, cement, textiles, machinery, posts and telecommunications, paper, maritime and air transport. Additional groupings were in the process of being created. The merger of several SOEs in the same industry into consolidated corporations will certainly aggravate the need for training and development as their business scope and complexity will be multiplied.
The Need for Training and Development
The on-going transition process toward a market economy requires a critical mass of skilled employees and competent business managers. A majority of them not only lack the basic knowledge in market economy but also managerial skills to lead enterprises into making profits and expanding growth. The need of a skilled and dynamic workforce, and a generation of competent managers who can meet the requirements of economic development of the country is becoming an urgent matter.
According to Than Ngoc Thong, the Head of the Government’s Administration and Personnel Commission, only 25-40% of the country’s 168,000 high-ranking public servants, many of them working in SOEs, meet some “standard requirements” (Murray, FEER, June 23, 1994). Pointing to the fact that the average age of these managers is 48 years old in 1996, and they will be retired by the year 2,000 the need for a proper management development plan becomes even more acute and urgent (Nguyen The Vien, 1996:34).
According to the same research, the managers who are needed to be re-trained can be divided into three groups:
- The first group consists of people who had been trained in command economics;
- The second group makes up of managers who have had some practical experience, but who do not have much knowledge in management;
- The third group is people who do not have any professional training whatsoever, but who have picked up some managerial abilities on-the-job.
Going on the assumption that at least three managers needed to be trained for each enterprise, then the potential for management training in the state-owned sector alone is estimated at approximately 2,550 in Ho Chi Minh City and 19,000 in the country (Ngo Dinh Dung, 1996:47). They in turn, after the re-training, will facilitate changes in the enterprises and set the course for the employees’ training programs.
Collection of Primary Data
The research studied the human resources development practices of SOEs with over 500 employees operating in Ho Chi Minh City, Ba Ria-Vung Tau, Dong Nai and Song Be provinces. Data were collected from 162 SOEs over a two-month period. More than 200 questionnaires were sent out, and 47 were returned (a yield of 24%). Included in the thirty-two-item questionnaire were variables on human resources development such as orientation, training and development, management development, employee performance appraisal, career planning and development, as well as respondents’ general opinions about working motivation.
The discussion is also based on findings from in-depth interviews conducted with managers and employees of eight SOEs in Ho Chi Mirth City. The interviews provide insight into the human resources development practices in those SOEs and reveal many significant aspects.
Training and Development
Interestingly, 96% of the respondents claim to provide training for incumbent employees, while training for new employees was found less significant (provided by only 62%). Most enterprises realize the importance of having a well-trained work force. On the other hand, some employers view training as an expense which will effect their profit levels. They think they should give more focus on production and sales which are revenue-generating activities that guarantee the enterprise in business. They also share the opinion that employees who are ‘overtrained’ will either ask for more pay or eventually join the private sector where their newly-acquired skills are in high demand. This may be a reason for the fact that only 66% of the respondents have a budget for training.
Purposes of Training and Development
When the respondents were asked to indicate the reasons for conducting training and development, the most important reason cited was to improve employee performance, which will therefore improve the performance of the enterprise (96%) (Figure 2).
Purposes of Training and Development
Through training, employees will get a chance to upgrade their technical skills and to eventually apply the newly acquired skills for the benefit of the enterprise. In addition, training and development were perceived by the respondents as an opportunity to achieve promotion and follow a chosen career path, thus leading to job satisfaction (55%), and to allow employees to acquire professional and further education qualifications through long-term training (49%). Some enterprises also undertook training to provide skilled labour for SOEs in the same field of activity, or retrain their workforce so that they will be redeployed to other functions or can find employment elsewhere.
It is also important to note that for 32% of the respondents, training and development are considered a means to provide the employees with some kind of compensation, especially when such training is conducted abroad. In such cases, the trainees tend to consider training as an opportunity to travel and to generate some savings upon their return. Given the low level of salaries and poor benefits in most of SOEs, this phenomenon is common as everybody tries to improve his/her financial condition using any possible means. While people with high positions try to get the most out of their authority and privileges, those in the lower ranks have to find their own ways to earn some extra money. Although it is not officially condoned, people usually do not consider these practices unethical or illegal. To reverse the trend, the compensation scheme of SOEs should be radically revised to provide employees with a decent living condition.
According to the survey, about 36% of the respondents have had some kind of training abroad. The type of training was rather frequent in large SOEs operating in key industries such as transportation service, water and electricity, posts and telecommunications, petroleum exploration and production, etc., where substantial resources and close relationships with foreign partners allow for various training opportunities. Yet, not many talented and potential employees are able to benefit from these programs since the selection criteria are rather arbitrary and at the sole discretion of some top executives.
Methods of training
On-the-job training is the type of training provided at the work site and is widely used in the SOEs under survey (77%) (Figure 3). There are several forms of on-the-job training in use. Sometimes, employees are unsupervised and allowed to learn by trial-and-error. However, this alone can hardly qualify as a training at all. Besides, the experience may be discouraging and there exists a high level of time and materials waste. Some errors could lead to a fatal result. On-the-job training may also involve learning through the assistance and supervision of an experienced employee who will help the trainee to learn some useful knowledge and skills. By knowing and following the procedures, rules, and techniques, the ‘trainee’ is able to master the job more quickly. This approach depends heavily on the teaching ability and willingness of the experienced worker or what is commonly called ‘buddy system’.
Self-study is another method preferred by many interviewees because it permits employees’ flexibility to learn on their own pace. However, the disadvantage of this approach is that books and materials are inadequate and not readily available, especially in the case of technical materials in the local language.
Another method that is implemented by as much as 28% of the enterprises surveyed is job rotation. Yet in a majority of cases, the usefulness of this method is very doubtful. Given employees’ fear of loosing their jobs or important positions in the enterprise, they are generally reluctant to disclose to trainees all the ‘secrets’ of their work.
Vestibule training or simulation is less used (only 2%) because this method is considered expensive.
Methods of Training Used
Resources Used in Training
Although every human resource department may coordinate training activities, actual training is usually conducted by the respective line managers, especially for on-the-job training. One respondent even has its own training school. In most occasion, training is often done by other organizations, universities or external consultants, because such expertise may not be available within the enterprise (Figure 4). Many SOEs encourage their employees to follow short courses relevant to their personal ambition as well as the enterprise’s needs. Those courses are usually organized by the universities or vocational institutions during evenings. Upon the completion of the course, the employees will have to present the course certificate with satisfactory results so that they can be refunded by the enterprise. As a solution, the respondents proposed that enterprise refunds should only cover up to a half or one-third of the tuition fees, in order to get more involvement from the employees in the study.
Resources Used in Training
Some SOEs even allow employees to pursue full time or long-term training to acquire professional and further education qualifications. In general, only young people with good potential and commit to serve the enterprise for a longer term, are considered for such programs. Again, the respondents suggested that the selection and service criteria should be made clearer and transparent and open the opportunities to everybody. The effectiveness of such programs should also be justified using tools such as cost/benefit analysis. The fact is that after securing a new degree, many employees would choose to leave their enterprises for the private sector where their capabilities are believed to be better utilized and where compensation is commensurate with their contribution. In general, while it is agreed that there is nothing wrong with individuals upgrading themselves to optimize their potentials, this should not be done at the expense of SOEs.
Special part-time training systems called ‘dao tao tai chuc’ (in-service training) and ‘dao tao tap trung’ (formal training) were introduced several years ago to provide training for SOEs managers and employees. The system helps SOEs managers and employees further their study in order to attain the minimum level of education required for their positions — a high school education, for example. Although coordinated and implemented by the country’s leading universities, the system reveals serious deficiencies, e.g., adequate control is not ensured, learning quality is neglected. Since the certification, not the learning, is the main objective, programs are modified and shortened to reduce learning time as much as possible. Teachers are virtually powerless under the authority and influence of the student-managers, and the examination mechanism is arbitrary and not standardized. The system needs an overall reform to justify their existence and to become more relevant.
Recently, seminars and conferences have become a preferred method of training and are used in 57% of the SOEs surveyed (Figure 4). Enterprises may organize seminars for their own employees, and experts (sometimes foreign visitors) are invited to talk about their experience and competence. Engineers and specialists may be sent abroad to attend international conferences on specific subjects. More often, managers and supervisors travel overseas on business tour to visit foreign enterprises and learn from their operation. One respondent agreed that this form of training combines learning with traveling and is widely sought by employees.
Consultants are the resources used the least for training by SOEs (15%) because this type of business is rather new and very costly. At present, the number of foreign consulting firms in Ho Chi Minh City is rapidly increasing. Foreign consulting firms are more experienced and professional than their local counterparts. As they are well known internationally, most of their customers are foreign enterprises. They would be a valuable source of assistance to SOEs in providing advanced knowledge in market economy and management practices.
In all the SOEs interviewed, evaluation of training programs is practically neglected by the human resources department. The reason is that training evaluation is not considered a task of the department. The employee’s manager or direct supervisor is assumed to be in a better position to evaluate any improvement in the performance of his/her staff and to recommend further training if necessary. Evaluation, if existing, is done rather informally by the manager and does not follow any prescribed procedure or standard.
A majority of the respondents has had some form of management development program (72%). However, management development is a process reserved for a selected few. Individuals with potential for promotion are nominated by their supervisors to attend courses as part of their preparation for career advancement. The nomination process may not follow any standard but is done arbitrarily by the supervisor, whose fairness is sometimes questionable.
Training and retraining for existing managers are very important in a fast changing environment like in Vietnam today. Moreover, to change from a centrally-planned economy to a market-oriented one requires competent managers mastering a wide range of skills that must be upgraded continuously. This is a heavy task considering that managers of SOEs are mostly coming from the old generation deep-rooted in the subsidy system.
Under the old system, a business manager was not considered a profession. Most of the SOEs managers therefore were not properly trained in business administration — a novel field of study in a socialist education curriculum, but a prequisite for a market economy. More often, people were appointed to key functions according to their contributions to the revolution; most of them were proven soldiers rather than competent managers. As everything was subsidized, their roles were more to safeguard the state’s assets and ensure jobs and steady income for the workers. They themselves were secured by an ‘old boy’ networks that helped them manage the business smoothly, although not always profitable. The current accounting and audit system also makes it difficult to appreciate the real financial situation of the SOEs (Nguyen Tien Hung, 1993: 25-27).
Understandably such business environment does not motivate SOE managers to generate profits for their enterprises. There is virtually no need for them to upgrade themselves in order to catch up with the changing business environment. It is also not necessary for them to acquire, train and develop a new generation of competent staff to improve the enterprise’s management. In many cases, SOE managers often appoint their family members and relatives to major positions in the enterprise. Human resources development effort, if any, rarely comes from the internal and urgent needs of SOEs to compete and survive.
Recognizing the need for T&D, in those industries which have experienced high growth such as oil exploitation, posts and telecommunications, airline and banking, it is believed, although it is difficult to get the exact figures, that a large sum of money have been reserved in their budgets for this purpose. For instance, Vietcombank, the healthiest commercial bank with 2,000 employees has spent around VND 4 billion (US$ 364,000) every year for managerial and professional skills training (Ngo Dinh Dung, 1996: 48). Their efforts in T&D has paid back by shown improvement in managerial competence, service quality level and enterprise performance.
Traditionally, promotion in SOEs had been decided by criteria such as relationship, position, seniority, loyalty or connections other than personal contributions to the enterprise. This has resulted in a complacent attitude of the employees and the premature loss of motivation among new entrants. However, in recent years, with the influence of advanced human resources practices, promotions are considered to be based mostly on individual performance and merits (89%) (Figure 5). Seniority still ranks second as a parameter for promotion (47%) and relations is considered the least important (21%). In addition, many respondents mentioned individual merits as important criterion for promotion. Technical capabilities evidenced by the diploma(s) that one has acquired also play an important role in the promotion decision.
Interesting enough, performance appraisal is claimed to be practiced in 94% of the enterprises surveyed. Appraisals are done periodically, usually on a yearly basis, between the employee and his/her manager or supervisor and combined with self-appraisal. In some SOEs, appraisals are carried out on a monthly basis.
Reason for Promotion
When the respondents were asked to indicate the purpose of conducting performance appraisal, the most important reasons cited were: to serve as a basis for making compensation adjustments (79%); to improve performance by identifying the cause of underperformance (72%); to detect job design error (49%); and lastly to make placement decisions, including promotion and demotion (47%) (Figure 6).
Purposes of Performance Appraisal
Twenty-six percent of the respondents mentioned performance appraisal as one method to identify employees’ training needs and admitted that this is a very important purpose that employees expect from the appraisal process. Employees are usually willing to be trained and retrained. Only by becoming more skilled, self-confident and having a wide range of job perspectives, employees can gain personal development and assure to contribute to the success of the enterprise.
There were several problems associated with the appraisal system which interviewees regularly complained. These problems include prejudice, favoritism, insufficient knowledge of the employees’ performance, ignored outcomes, time-consuming, deteriorating relationships among workers (in case benefits are closely related to appraisal outcomes). It was revealed that although many enterprises have appraisal systems, in most cases, it is simply a lip-service exercise in which both managers and employees collude to produce a satisfactory result.
Career Planning and Development
Although 70% of the respondents claimed to have career planning and development programs, it is generally considered the employees’ responsibility. In practice, career planning and development are hardly discussed during the performance appraisal process. Individual employees must evaluate their personal strengths and weaknesses, preferences, values, interests, and motivation and be responsible for seeking out and taking advantage of opportunities afforded by an organization’s career development programs. They must be ready and able to undertake career planning activities. Management by objectives (MBO) method is unknown to most managers interviewed. No formal procedure for replacement or career path is made by either the managers or the human resource department.
In general, turnover is considered low in SOEs (Figure 7). Fifty-seven percent of respondents even consider their enterprise’s turnover rate almost nil. This finding seems somewhat controversial given the generally low performance and inferior compensation of SOEs. One explanation for this might be that people are not totally loyal to their work but more concerned about job security, leisure time and a fixed source of income (Nguyen van Phu, 1998: 34). Job security is particularly highly considered in a saturated labour market like the one Vietnam has now where most people working in SOEs are usually not qualified for more demanding jobs elsewhere. The neighboring Laos shows the same pattern where the turnover rate in the same sector is less than 0.5%, according to one survey, also for the same reasons as mentioned (Chit, 1998: 58).
Turnover in SOEs
Thus, despite being reputed for low compensation, jobs in SOEs are considered stable and less demanding than those in the private sector. As a general practice, working time is flexible in SOEs and there is no threat of being fired due to poor performance. In some families, the wife chooses to work for SOEs in order to have time to care for the children, while the husband works in the private sector and is responsible for earning real income. In other cases, SOEs employees may have an extra job outside their work. This ‘second’ job absorbs most of their time and effort, sometimes at the expense of their own enterprise’s resources and customers as well.
If the above assumption is true, the prospects for SOEs are not encouraging as they consist mainly of people who seek secured tenure and who are not motivated to perform well in their work. Jobs in SOEs are merely considered a shelter to maintain their social status that is justified by the discretion and perks attached to the position and not as a means to contribute to the development of the society and to earn their living. The low compensation of SOEs workers also serves as an excuse for their negligence and slackness, leading to the enterprise’s mediocre performance. This makes the performance appraisal not so meaningful in practice.
Conclusion and Recommendations
The discussion of the major findings mostly focuses on managerial issues that are generally seen deficient in most SOEs and to propose solutions for their improvement. This, by no means, suggests that management in SOEs has not experienced any progress over the past few years. On the contrary, with the open-door policy and lessons learned from other countries, Vietnam’s state sector has undergone significant restructuring aimed at accelerating the country’s transition toward a market economy, albeit with slow progress.
To be sure, work at some SOEs is no longer considered as ‘ngoi choi, xoi nuoc’ —meaning “sitting around and enjoying tea”. Some SOEs have become genuine business organizations able to compete in the new challenging environment and started to exhibit some success stories. A new breed of SOE managers has emerged, with a dynamic business spirit inspired by a variety of threats and opportunities coming out as a result of the open-door policy. Compensation for workers in those SOEs has also been significantly improved, sometimes even better than their counterparts in the private or foreign-owned sectors, e.g., in the textiles, cement, footwear, and plastics industry, to name but a few. The success of those SOEs has contributed to the prosperity of the state as well as the welfare of the individuals working for them.
However, many SOEs are still in an ‘ownerless’ (vo chu) situation or ‘vested interest’ are defended by a minority of people for fear of losing their authority and perks. State resources including labor are being used for the benefit of a group of people which are still common. (Minh Nhurig, 1998: 4). Certainly, for those SOEs, much more effort should be done if they are to justify their existence.
As far as human resources development is concerned, the following recommendations can be drawn, including changes suggested for the improvement of SOE performance:
- There is a true need for any SOE of considerable size to set up a separate and full-fledged Human Resource Department with a clear mission and defined policy which are developed along the line of the common goals and objectives of the enterprise. The strategic role of the HR Department should be recognized by the management in providing appropriate resources and responsibility to the department.
- An integrated human resource strategy should be developed with focus on recruitment, selection, training, career development, incentive system, and so forth to build a competent and motivated workforce.
- Training programs (in-house or off-house) should aim at improving the efficiency and productivity of the workers in particular, and of the enterprise in general. Such programs can be organized and coordinated at the corporation level.
- Enterprises in the same industry or geography should jointly organize (on-the-job) training courses for their employees to reduce the costs.
- In joint ventures, make full use of expatriates’ knowledge, skills and experience in management and technology by organizing internal training courses, ‘buddy/mentor’ system, job rotation, and job development under the expatriates’ supervision and coaching.
- Allocate special budgets for employee training, voluntary education, and management development program; encourage employees to attend update, short-term or outside working hour courses such as (Executive) MBA or certificate programs organized by local or foreign educational institutions.
- Establish linkage with educational institutions, especially higher education, to link needs with supply. At the same time, realize efficient and effective technology transfer from the former research centers in the production of the enterprises.
- Develop a replacement plan to develop local potential managers to take over the responsibilities of the expatriates in the joint ventures.
- Incentive system should be based on performance. Appraisal should be regularized and should be freed from prejudices and discriminations.
- While recognizing that policy guidelines are still considered important as SOEs are regarded the State’s instrument to ensure their leading role in the national economy it should be given lesser weight and only next to other relevant criteria for promotion and appointment. The appointment of key managerial functions should be based on the merit of the candidates’ qualifications instead of political performance.
Details on the questionnaire and findings of the survey can be obtained upon request by E-mail: email@example.com
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