Nâng cao hiệu quả sử dụng vốn lưu động của các doanh nghiệp ngành thép việt nam tt tiếng anh

MINISTRY OF EDUCATION
AND TRAINING

MINISTRY OF FINANCE

ACADEMY OF FINANCE
----------œ----------

TA DINH HOA

A STUDY ON IMPROVING WORKING
CAPITAL MANAGEMENT EFFICIENCY OF
STEEL COMPANIES IN VIETNAM
Major

: Finance - Banking

Code

: 9.34.02.01

DOCTORAL THESIS SUMMARY

Hanoi, 2020


This thesis was completed
at the Academy of Finance

Academic supervisor: Assoc. Prof., Dr. Bui Van Van

Reviewer 1:

..................................................................
..................................................................

Reviewer 2:

..................................................................
..................................................................

Reviewer 3:

..................................................................
..................................................................

Thesis defense is held in front of the Academy-level examination committee
at the Academy of Finance
At ......................................................... 2020

Information regarding the thesis could be found at the National Library
And the Academy of Finance Library


INTRODUCTION
1. Research significance
Steel is an industry of economics and technology that has direct impact on
various sectors and operations in the economy, from manufacturing engineering,
civil and industrial construction, automobile and ship building industries, etc. to
defense and aerospace industries of a nation. It could be affirmed that: the
development of steel industry in general, and of steel companies in particular,

always associates with and has great influence on economic growth of all
countries.
As a typical characteristic of the steel industry, working capital (WC) of
these companies often accounts for a large proportion in the total business capital.
Therefore, the efficiency of working capital management (WCM) has significant
influence on the efficiency of business capital management and the performance
of steel enterprises. In Vietnam, steel is one of the key economic sectors, the total
production the steel industry in 2016 accounted for approximately 5% of the
country's GDP. However, in the past few years, the efficiency of WCM of steel
enterprises in Vietnam is both low and unstable: the return on WC has decreased
for three consecutive years, while the cash conversion cycle has an increasing
trend and is always higher than the average of Vietnamese enterprises. This has
a negative impact on the efficiency of capital management and the performance
of enterprises in the steel industry in Vietnam. The above situation requires a
comprehensive and systematic study on the WCM efficiency of steel enterprises
in recent years, thereby, specifying the shortcomings and causes to the efficiency
of WCM, and proposing solutions to improve the WCM efficiency of steel
enterprises in the coming time. That is why I choose the topic "A study on
improving working capital management efficiency of steel companies in
Vietnam" for my Doctoral Thesis.

1


2. Research Objective
The research is conducted in order to propose solutions to improve WCM
efficiency of steel companies in Vietnam.
3. Scale and Scope of the study
- The study focuses on: WCM efficiency of steel companies.
- Sample of the study includes: 26 companies in Vietnam which operate

in manufacturing and trading steel.
- The study period is from: 2009 to 2018.
4. Literature review
There have been researches on working capital, working capital
management, and efficiency of WCM in the world and Vietnam. Accordingly,
international scholars study WC on two main aspects: (1) Research on the
relationship between the efficiency of WCM and the profitability of companies.
(2) Research on determinants of WCM efficiency of firms.
In Vietnam, researchers also follow two trends, in which the first is similar
to studies in the world, that is to find out the relationship between the efficiency
of WCM and the profitability of Vietnamese firms. And the second trend is to
study solutions to enhance the WCM ability in enterprises of some industries or
in a specific company.
5. Research gap
First, most of the studies focus on the relationship between the efficiency of
WCM and the profitability of enterprises through Cash Conversion Cycle, Days
Inventory Outstanding, Days Sales Outstanding, Days Payable Outstanding, but
the research results or comments do not completely match, even contradict each
other.

2


Second, studies are conducted on either determinants of WCM of enterprises
in different countries and industries or solutions to enhance WCM efficiency
enterprises in a specific industry, or group of industries, over a specific period.
Third, most previous studies are usually based on a sample of all enterprises
in a country or research on solutions to improve the efficiency WCM of
enterprises in other industries in Vietnam. Up to now, there have been no in-depth
studies on the determinants of WCM efficiency, as well as solutions to improve

the WCM efficiency of steel enterprises in Vietnam. Therefore, the topic chosen
ensures the independence, does not overlap with any of other thesis topics, or any
researches that have been conducted and published that I know.
6. Main findings and contribution
First, systematize theoretical fundamentals of WC and efficiency of WCM.
In which, WCM efficiency is approached in two aspects: (1) Combined efficiency
of WCM; and (2) Efficiency of WCM in each stage.
Second, compile the experience of improving WCM efficiency of
enterprises around the world, from various perspectives: the government, the US,
South Korea, and from international financial consulting firms. This helps
summarize important lessons for Vietnamese enterprises.
Third, assess the current status of WCM efficiency of Vietnam's steel
enterprises over a 10-year period from 2009 to 2018, thereby pointing out the
basic limitations including: (1) Apart from the group of Large-scale firms, WCM
efficiency in the remaining groups of enterprises in Vietnam's steel industry has
shown signals of deterioration; (2) The efficiency of inventory management of
Stainless steel firms and Galvanized steel - Steel pipes firms has not been
improved; (3) The efficiency of receivables management has shown notable
concerns; (4) The efficiency of cash management has been negative in most
groups of firms in the steel industry in Vietnam.

3


Fourth, by using panel data regression method, the thesis has identified
determinants of WCM efficiency of Vietnam’s steel enterprises, namely:
economic growth, firm size, profitability, proportion of tangible fixed assets, and
industry characteristics.
Fifth, propose two specific groups of solutions to improve the efficiency
of WCM of Vietnam's steel enterprises in the socio-economic context of 2020 2025, vision to 2035.

7. Methodology
7.1. Qualitative methods: The thesis uses a combination of interpretation,
induction, analysis, combination and comparison methods to describe statistical
data on the efficiency of WCM of firms in the steel industry in Vietnam.
7.2. Quantitative method: The thesis uses a panel data regression model to
evaluate the determinants of the WCM efficiency of Vietnam's steel enterprises
over the period 2009 - 2018.
8. Thesis structure
Besides the introduction, conclusion, and appendix, the thesis consists of 3
chapters as follows:
- Chapter 1: Theory about working capital and the working capital
management efficiency of companies.
- Chapter 2: Current situation of working capital management efficiency
of steel companies in Vietnam.
- Chapter 3: Solutions to improve working capital management
efficiency of steel companies in Vietnam.

4


CHAPTER 1: THEORY OF WORKING CAPITAL AND
WORKING CAPITAL MANAGEMENT EFFICIENCY OF
COMPANIES
1.1. OVERVIEW OF WORKING CAPITAL OF COMPANIES
1.1.1. Working capital and roles of working capital in companies
1.1.1.1. Working capital concepts and characteristics
Working capital (WC) of a business is the amount of advance capital to
form working assets, ensuring the process of production and operation in the
company on a regular and continuous basis.
The main characteristics of WC are as follows:

(1) WC participates in a business cycle, and always change the
manifestation form through the stages in the business and production process,
from the initial monetary capital form to materials, inventory reserve, to become
unfinished products, semi-finished products, finished products and finally returns
to monetary capital form;
(2) At the end of each business cycle, the value of WC is transferred wholly
and once to the value of produced goods and services and compensated when the
enterprise receives money from selling goods and services.
(3) The WC rotation is associated with the end of a business cycle. The
above process takes place regularly, continuously, and is repeated after each
business cycle, forming a WC cycle.
1.1.1.2. Roles of working capital in the business
Firstly, WC is the prerequisite material condition of the production and
business process.

5


Second, analyzing and evaluating the movement of WC through stages
helps business administrators to control the entire business activities of
companies.
1.1.2. Working capital classification
According to the manifestation form, WC can be divided into: cash,
receivables, and inventory.
According to the role of WC in the production and business process, WC
is divided into the following main categories: WC in production reserve, WC in
production, WC in circulation.
1.1.3. Working capital structure and factors affecting working capital
structure of enterprises
1.1.3.1. Working capital structure

Working capital structure is the proportion of each component of the WC
in the total amount of WC in the enterprise. Working capital structure varies from
companies to companies.
Working capital structure also varies among companies in the same sector.
Even one company could have different working capital structure in different
periods of development.
1.1.3.2. Factors affecting working capital structure of the business
- Factors in terms of material supply:
- Factors in terms of production:
- Factors in terms of circulation:
1.1.4. Working capital requirement of the business
In order that production and business activities to operate regularly and
continuously, companies always need a certain amount of WC. This amount of
WC is called the working capital requirement (WCR) of the firm. Based on the
6


nature (or time of arising), it is possible to divide the WCR of the business into 2
categories: regular WCR and irregular WCR (short demand term, temporary
needs). In the scope of the thesis, the author focuses on the necessary regular
WCR of enterprises, so the term WCR is understood as the necessary regular
WCR of enterprises.
1.1.5. Sources of working capital
WC of a business is the amount of advance capital to form working assets,
ensuring the process of production and operation in the company on a regular and
continuous basis. Companies need to exploit WC from different sources in order
to have enough WC for production and business activities. Each types of business
at different times would have different sources of WC. It is possible to classify
sources of WC according to many methods, but mainly according to the time of
mobilizing and using capital. Specifically: WC is taken from two sources: the

permanent WC source and the temporary WC.
1.2. WORKING CAPITAL MANAGEMENT EFFICIENCY
1.2.1. Concept of working capital management efficiency
Efficiency of WCM is an economic category reflecting the ability to
optimize the amount of WC used in production and business activities to create
the maximum amount of profits. Efficiency of WCM has a great influence on the
entire efficiency of business capital management of an enterprise, and especially,
it has a decisive effect on the ability to pay off due debts of the enterprise.
1.2.2. Working capital management and working capital management
efficiency
1.2.2.1. Inventory and efficiency of inventory management
* Inventory and inventory management
In manufacturing enterprises, inventory (also known as capital in terms of
materials - goods, or capital in terms of inventory) is the value of raw materials,
7


fuels, tools (collectively referred to as manufacturing reserve), value of work in
progress and semi-finished products (collectively referred to as work in progress)
and value of goods and finished products in stock. In manufacturing enterprises,
inventory often accounts for the largest proportion in the amount of WC.
Therefore, the management and use of inventory in general, the efficiency of
inventory management in particular has a great impact on the efficiency WCM
of enterprises.
* Efficiency of inventory management
Efficiency of inventory management could be assessed by two ratios:
Inventory Turnover and Days Inventory Outstanding.
(1)InventoryTurnover =

Costofgoodssold

AverageInventory

(2)DaysInventoryOutstanding =

360
InventoryTurnover

1.2.2.2. Receivables and receivables management efficiency
* Receivables and receivables management
Receivables, also known as accounts receivable, are the corporate capital
that is used by organizations and individuals inside or outside the enterprise in
the form of appropriation or being provided with commercial credit that the
company is responsible for collecting. Receivables include: Value of goods and
services provided by the enterprise but the customer has not yet paid;
Prepayments to sellers for supply of goods or services; deductible taxes; advances
for officers, employees and employees in enterprises; other receivables such as
damages of individuals or collectives that the company has not yet collected, etc.
In which, receivables from customers often account for the largest proportion. At
the same time, in most businesses, receivables accounts for a relatively large
proportion of the total WC.
* Receivables management efficiency
8


Receivables management efficiency is one of the WCM efficiency
indicators of enterprises. This is evaluated through two ratios:
(1)ReceivablesTurnover =
(2)DaysSalesOutstading =

Sales

Averagereceivables

360
ReceivablesTurnover

1.2.2.3. Cash and cash management efficiency
* Cash and cash management
Cash is the most important and most liquid part of the working assets in a
business, directly impacting the solvency of the business and contributing to the
regular and continuous business operations. Cash exists directly in the form of
cash in hand, deposits at the bank and cash-in-transit.
* Cash management efficiency
To evaluate the efficiency of cash management, it is necessary to consider
the ratio of Cash Conversion Cycle (CCC):
CashConversionCycle
= DaysInventoryOutstanding + DaysSalesOutstading
− DaysPayablesOutstanding
In which, Days Inventory Outstanding and Days Sales Outstanding have
been presented in sections 1.2.2.1 and 1.2.2.2, Days Payables Outstanding ratio
is calculated as follows:
DaysPayablesOutstanding =
PayablesTurnover =

360
PayablesTurnover

Totalsupplypurchases
Averagepayables

9

1.2.2.4. Combined efficiency of WCM
According the concept of WCM efficiency presented in section 1.2.1, ratio
Return on Working capital (ROW) is proxy for WCM efficiency.
ReturnonWorkingcapital =

Profitaftertax

Averageworkingcapital

The ratio of ROW reflects how much profit after tax earned compared with
the average working capital paid in the period. The higher this ratio is, the higher
efficiency of WCM the company has and vice versa. The goal of each enterprise
in the long term is to maximize profits, so the ROW could comprehensively
evaluate the WCM efficiency of the enterprise, also known as Combined
efficiency of WCM.
Moreover, efficiency of WCM could be assessed through a number of
effectiveness ratios which show the rate of WC rotation. The faster WC rotates,
the higher the effectiveness is and vice versa. The rate of WC rotation could be
reflected through the ratios of Working Capital Turnover and Days Working
Capital.
WorkingCapitalTurnover =
DaysWorkingCapital =

NetSales
AverageWorkingcapital

360
WorkingCapitalTurnover

1.2.3. Determinants of WCM efficiency
1.2.3.1. Objective determinants
Objective determinants are external factors that directly or indirectly affect
business operations in general and WCM efficiency in particular, including:
economic growth, inflation, industry characteristics. There are also some other
objective determinants such as exchange rate, macro policies, credit policies of
competitors, credit of suppliers, and assessment of investors, etc.

10


1.2.3.2. Subjective determinants
In addition to the above objective determinants, there are many subjective
determinants created by the enterprises themselves that affect the efficiency of
capital use, including: firm size, proportion of tangible fixed assets, financial
leverage, profitability, sales growth, age of the business, corporate governance
and leadership characteristics. Moreover, many other subjective determinants are
also considered factors affecting the efficiency of WCM such as: Financial
management regulations of the company, vision and strategy of the company,
relationship between the company and its customers and suppliers, qualifications
of officials and employees in enterprises, expenditure capital, etc.
1.3. INTERNATIONAL EXPERIENCE IN WCM EFFICIENCY AND
LESSONS FOR COMPANIES IN VIETNAM
With experience from many different perspectives, from state management
to specific enterprises of countries in the world, businesses in Vietnam can learn
many lessons, as follows:
First, CFO takes the main responsibility for the management of WCM.
Second, improving the efficiency of WCM should be in the long-term
strategy of businesses.

Third, businesses need to focus on minimizing the cash conversion cycle.
Fourth, technology should be modernized to improve the efficiency of
WCM.
Fifth, the government's state capital management committee should
develop a manual on WCM for state-owned enterprises.

11


CHAPTER 2: CURRENT SITUATION OF WORKING CAPITAL
MANAGEMENT EFFICIENCY OF STEEL COMPANIES IN VIETNAM
2.1. OVERVIEW OF STEEL COMPANIES IN VIETNAM
2.1.1. Development process and industry characteristics of steel companies
in Vietnam
Vietnam's steel industry started in the early 1960s with the appearance of
Thai Nguyen Iron and Steel Complex, considered as the first industrial park in
Vietnam to have a closed integrated production line from iron ore mining. Despite
a history of nearly 60 years, Vietnam’s steel companies have really thrived in the
past 20 years. Although there were times of negative impacts from the financial
crisis and economic recession, enterprises in the steel industry still maintained an
average growth rate in the 2010-2015 period at 7-8% / year. Even the compound
growth rate of the industry in the period 2015 - 2018 reached 20% - relatively
impressive.
Characteristics of production and business activities of steel companies in
Vietnam are as follows:
First, the production scale of steel enterprises in Vietnam is quite small,
with low technology level.
Second, businesses mainly participate in outsourcing and processing, so
the added value created is not much.
Third, there is an imbalance between product groups of steel companies

and domestic consumption demand.
Fourth, Vietnam's steel companies depend heavily on external factors.
Fifth, the manufacturing cost of steel products in Vietnam is relatively
high.

12


2.1.2. Business results and financial situation of steel companies in Vietnam
In order to evaluate the current situation of the efficiency of WCM of
companies in the steel industry, I choose a sample of 26 companies and classify
into groups of enterprises according to two criteria: Business field - Key product,
and firm size. In general, the business performance and financial situation of most
enterprises in the steel industry are quite low and unstable in the period 2009 2018.
2.2. CURRENT SITUATION OF WMC EFFICIENCY OF STEEL
COMPANIES IN VIETNAM
Evaluating the current situation of the WCM efficiency of steel companies
in Vietnam, I carry out in-depth analysis of the efficiency of inventory,
receivables, cash management and the combined efficiency of WCM. Steel
companies in Vietnam achieve some important achievements but still have
shortcomings, especially with the groups of companies of Galvanized steel - Steel
Pipes, Steel Trading, Stainless Steel, Small-Scale companies.
2.3. EMPIRICAL RESEARCH ON DETERMINANTS OF WCM
EFFICIENCY OF STEEL COMPANIES IN VIETNAM
The research was conducted on 26 Vietnamese steel enterprises in the
period from 2009 to 2018. Based on the analysis of panel data regression results,
it is pointed out that:
- Determinants that have a positive impact on the efficiency WCM of
Vietnam's steel enterprises are: Economic growth, firm size, and profitability.
- Determinants that have a negative impact on the efficiency of WCM of

Vietnamese steel enterprises are: The proportion of tangible fixed assets over
total assets of enterprises.
- Industry characteristic has an impact on the efficiency WCM of
Vietnamese steel enterprises.
13


- Factors that do not have a statistically significant relationship with the
WCM efficiency of Vietnamese steel enterprises are: inflation, financial leverage,
sales growth, and enterprise age.
These results are consistent with some previous studies, but there are also
conflicting results. The reason is the difference in the number of samples,
enterprises, time and space to conduct the research. However, these results also
give the author important suggestions in proposing solutions to improve the
WCM efficiency of steel companies in Vietnam.
2.4. GENERAL ASSESSMENT OF WCM EFFICIENCY OF STEEL
COMPANIES IN VIETNAM
2.4.1. Achievements
First, in the period 2012 - 2018, the recovery of the economy and the real
estate market helped improve the output market of enterprises in the industry,
thereby contributing to increasing profits and ROW. The ROE rate has improved
from 7.27% (in 2012) to 15.72% (in 2018). In terms of the combined efficiency
of WCM, the ROW rate increased from 4.3% (in 2012) to 11.75% (in 2018),
which is quite high. In particular, the group of Construction Steel and LargeScale companies always have relatively stable labor turnover and highest
ROW in the research sample, showing that the WCM efficiency of this group
is quite good.
Second, in terms of the inventory management efficiency, in general, the
rate of inventory rotation is stable, inventory growth meets revenue growth. In
the period of 2014 - 2018, Inventory Turnover tended to improve, from 4.03 times
in 2014 to 4.4 times in 2018, reflecting a better trend of inventory rotation. In

which, the group of construction steel enterprises, steel trading enterprises, when
classified by business areas and key products, and the group of medium-sized
enterprises effectively use inventory and tend to improve.

14


Third, in terms of receivables management efficiency, most of receivables
come from short-term receivables from customers, stable turnover speed, tends
to increase gradually, especially the group of Galvanized steel - Steel Pipes
enterprises and Large-scale enterprises. The average collection period of the
Galvanized steel - Steel Pipes group decreased from 39 days (2010) to 34 days
(2018), lower than the sample average. Similarly, the group of Large-scale
enterprises saw a decrease in average collection period from 45 days (2010) to 35
days (in 2018).
Fourth, in terms of cash management efficiency, cash reserves and
solvency of Construction steel enterprises and Large-scale enterprises are
always higher than the whole sample and remain stable. Cash conversion cycle
(CCC), despite a tendency to increase slightly, still remain stable during the
research period and lower than the sample average, showing that the
conversion rate to money of these two groups is quite good. By maintaining a
stable level of rotation cycles in the context of a decade witnessing great
fluctuations in the world economy, it shows that steel companies have tried
very hard to maintain efficiency of WCM.
2.4.2. Shortcomings
Besides the achievements, steel companies in Vietnam over the period
2009 - 2018 still have potential shortcoming as follow:
First, the efficiency of WCM in some groups of steel enterprises shows
signals of deterioration.
Except for the groups of Construction steel enterprises and Large-scale

enterprises, the other groups of enterprises all have greatly fluctuating and low
ROW with declining trend. Typically, the group of Galvanized steel - steel pipes
enterprises, with ROW in 2018 was only 1.12%; The group of Stainless steel
enterprises even have negative ROW in 2015, and by 2018 it is only 4.47%, lower

15


than the sample average of 11.75% (2018). The speed of WC rotation of the
Stainless steel enterprises group also decreases negatively during the study
period. Small and Medium-sized businesses also had a very low ROW and
fluctuate continuously. This trend is expected to continue in the coming years
when the difficult economic cycle returns, strong impact from the US - China
trade war and the COVID-19 pandemic. This raises the need to propose solutions
to improve ROW for Vietnamese steel enterprises.
Second, the efficiency of inventory management of Stainless Steel and
Galvanized Steel - Steel pipes enterprises has not been improved.
Although the Inventory Turnover is stable on an overall scale, going into
each specific group of enterprises, we see that the efficiency of inventory
management of the Stainless steel enterprises needs improving. The Inventory
Turnover of this group decreases from 4.46 times (2010) to 3.64 times (in 2018).
In addition, the group of Galvanized Steel - Steel pipes continuously has high
inventories of finished goods, showing difficulties in consuming products in the
group. In addition, the proportion of inventory over the total WC is always the
largest, so it is necessary to pay special attention to improving the efficiency of
inventory management to help maintain the efficiency of WCM.
Third, the efficiency of receivables management shows notable concerns.
Although the receivables turnover is relatively stable and tends to increase,
some of groups of enterprises appear to have remarkable problems. The Stainless
Steel group has the lowest receivables turnover rate in the group of enterprises

classified by business field - key product, with a tendency to slow down. The
group’s receivables turnover decreases from 6.57 times (2014) down to 4.02
times (in 2018). Steel Trading enterprises also suffer declining receivables
turnover, from 10.16 times (2010) to 9.53 times (in 2018). In addition, SmallScale enterprises also have lower efficiency of receivables management when
receivables turnover decreases sharply from 14.82 times (2010) to 9.92 times
16


(2018), corresponding to the increase in days sales outstanding, from 24 days
(2010) to 36.29 days (in 2018).
Fourth, the efficiency of cash management has been negative in most
groups of steel enterprises.
The reserve of cash and cash equivalents is low compared to the size of
short-term debt, taking place in the groups of Galvanized Steel - Steel pipes, Steel
Trading, Stainless Steel companies, groups of Medium and Small-Scale
companies, leading to low ability to pay instant debts, and potential risks related
to short-term debt payment. Cash conversion cycle (CCC) in the above groups
has shown signs of increase in recent years, making the cash flow slow down.
Particularly, the CCC of the Stainless Steel enterprises is currently very high
compared to other groups in the industry, up to 145 days (in 2018), twofold the
average of the sample, requiring attention to improve cash efficiency
management.

17


CHAPTER 3: SOLUTIONS TO IMPROVE WORKING CAPITAL
MANAGEMENT EFFICIENCY OF STEEL COMPANIES IN
VIETNAM
3.1.

SOCIO-ECONOMIC

CONTEXT

AND

DEVELOPMENT

ORIENTATION OF STEEL INDUSTRY IN THE PERIOD 2020 - 2025,
VISION 2035
3.1.1. Socio-economic context
Global socio-economic activities have been seriously affected by the
COVID-19 pandemic. In the first 6 months of 2020, international organizations
continuously lowered their forecasts for global and nations’ economic growth in
2020. In the latest report (June 2020), the International Monetary Fund (IMF)
predicted the world economy fell into a deep recession in 2020, at the growth rate
of -4.9%, and the World Bank (WB) even forecasted a -5.2% growth rate this
year. This is a much deeper recession than the global financial crisis in 2008 2009 (-1.67%, WB). Facing this situation, the world steel industry in general and
Vietnam in particular are also affected greatly by the pandemic because countries
are closed to fight the pandemic, and supply chain disruptions occur.
3.1.2. Development orientation of Vietnam's steel industry
First, increase production scale, increase the competitiveness of the
industry.
Second, make use of available raw materials, reduce costs, and apply
appropriate technology.
Third, be proactive in international economic integration.
3.2. SOME MAJOR SOLUTIONS TO IMPROVE THE EFFICIENCY OF
WCM OF STEEL INDUSTRY COMPANIES IN VIETNAM

18


3.2.1. Group of solutions to improve the combined efficiency of WCM
3.2.1.1. Develop a strategy to improve the efficiency of WCM
First, transform the current popular thinking to classify WCM into
operational management activities, short-term to long-term strategic thinking.
Second, the efficiency of WCM relates to many parts of the enterprise and
relates to each employee in the enterprise.
Third, improve the efficiency of WCM should be a daily job of all
employees in the enterprise through the collection and application of continuous
efficiency improvement initiatives.
Fourth, properly handle the effects of the change in WCM methods in the
enterprise system.
Fifth, set out a roadmap for implementation of specific tasks in each stage,
and clearly assign responsibilities in the implementation process.
3.2.1.2. Use a prudent model of WC financing
Steel industry is a high risk industry, the demand depends heavily on the
real estate industry and the growth of the economy. Vietnam's economy has great
fluctuations over time and years, its stability is low and unpredictable. In case the
real estate market goes down and the economy slows down, steel companies have
difficulty in selling and cash flow, if they use a large proportion of short-term
debt, it will lead to great pressure to pay back in short term, and threaten the
solvency of enterprises. Therefore, in order to ensure safety and sustainable
development in long term, businesses should apply the prudent model of WC
financing.

19

3.2.2. Group of solutions to improve the efficiency of WC in each stage
3.2.2.1. Improve efficiency of inventory management
As analyzed, inventory accounts for the largest proportion in the total WC
of the steel enterprises in Vietnam, inventory clearance is always an important
task for each enterprise. In particular, companies in the Galvanized Steel - Steel
pipes group have many difficulties in consuming inventory of finished goods, and
companies in the Stainless steel group also suffer decreasing efficiency in
inventory management. Therefore, it is necessary to implement comprehensive
solutions to improve the efficiency of inventory management of steel companies
in general, Galvanized Steel - Steel pipes, and Stainless Steel in particular.
a. Flexible application of approaches to manage inventory in accordance
with the development stages of the industry
First, postpone the growth rate of inventory, especially raw materials in
stock.
Second, businesses may have to negotiate with suppliers to suspend orders
as soon as sales start to decline.
Third, adjust the rewarding regime of the inventory manager to avoid
storing too much stock.
Fourth, to reduce excess inventories, companies will analyze the current
inventory levels compared with the new market demand forecast.
Fifth, make a series of operational changes in the long run.
b. Solutions related to the operational process of managing inventory
First, businesses need to well perform the process of purchasing raw
materials through careful selection of suppliers.
Second, businesses need to have close coordination on inventory
management throughout the supply chain.

20

Third, businesses need to closely follow information of raw materials
prices to choose the right time to buy raw materials.
3.2.2.2. Strengthen receivables management, flexibly apply debt collection
methods
The efficiency of receivables management of Vietnam’s steel companies
is relatively stable during the research period. However, in some groups of
enterprises such as Stainless Steel, Steel Trading, and Small-Scale enterprises,
there are signs of problems in receivables management.
It is necessary for these companies to synchronously coordinate many
different measures to effectively manage receivables, focusing on three main
directions: (1) Improve the efficiency of debt collection; (2) Shorten collection
term with customers; (3) Innovate payment methods in the way to be simpler and
more convenient.
3.2.2.3. Optimize cash management
Cash reserves and cash equivalents of Vietnam’s steel companies are at a
low level compared to their short-term debt, especially in the groups of
Galvanized Steel - Steel pipes, Steel Trading, Stainless Steel, group of MediumScale and Small-Scale, leading to very low solvency of immediate debt, which
may cause potential risks of short-term debt payment.
a. Complete the general cash management model
Cash management has the ultimate goal of maximizing the owner's
assets, in addition, the regular goal is to ensure the solvency of the business
(to avoid falling into a solvency crisis). Cash flow management aims to use
cash to successfully implement a competitive strategy, thereby, achieving the
long-term goal of maximizing owner's assets. Appropriate goals and
competitive strategy are the main basis for businesses to allocate and use cash
resources effectively. To achieve that goal, from the viewpoint of Boston
21


Consulting Group, comprehensive cash management includes three basic

elements: (1) Organizational structure of cash management, (2) Maintenance
of cash availability and (3) Active cash management.
a. Improve cash flow, cash reserves and solvency
* Improve cash flow
Firstly, optimize cash flow through improving inventory management
efficiency.
Second, optimize the cash flow through improving the efficiency of
receivables and payables management.
Third, compare with industry averages to ensure that the terms of sale are
not unnecessarily extensive.
Fourth, optimize cash flow through improving payables management
efficiency.
* Improve solvency
First, increase equity resources through prioritizing re-investment returns.
Second, increase equity resources through the issuance of capital
mobilization shares.
Third, issue long-term bonds to restructure debt capital sources.
c. Build and develop cash forecast models to determine the optimal amount
of cash reserves in businesses
As analyzed in Chapter 2, cash reserves of steel companies are low,
especially with Galvanized Steel - Steel pipes, Medium-Scale enterprises and
Small-Scale enterprises. Determining an optimal cash reserve is both a scientific
work and an art in balancing risk and reward.
To calculate the necessary cash reserves, one of the simplest ways is that
businesses will base on their expected cash reserve days and one of the following
22


two basis of calculation: (1) Average sales per day, or (2) Average requirement
to spend on regular business activities per day.

3.2.3. Other solutions to improve the WCM efficiency steel companies in
Vietnam
3.2.3.1. Invest in technology modernization, improve firm size
The qualitative and quantitative analysis in Chapter 2 show that LargeScale enterprises have much better efficiency of WCM than other enterprises.
This stems from the fact that Large-Scale enterprises often invest in advanced
technology and at the same time, the management and operation process is more
professional. Therefore, one of the solutions, and also a requirement of Vietnam’s
steel enterprises, is to continuously invest in modernizing production technology,
gradually improve the size of the business. However, along with investment in
tangible fixed assets, enterprises also need to simultaneously invest in other
working assets so that the proportion of tangible fixed assets to total assets
remains stable.
3.2.3.2. Hire external consultants for WCM in particular and financial
management in general
Sometimes the internal self-assessment within the companies is also
difficult to bring high results, especially for the already complicated WCM.
Therefore, one solution for steel companies in Vietnam is to hire external
consultants.
3.3. CONDITIONS FOR SOLUTIONS IMPLEMENTATION
Firstly, complete supporting policies and orient the development of the
steel industry in a synchronous and sustainable manner.
Second, ensure macroeconomic stability, control inflation, growth rate,
create favorable conditions for companies.

23