Vietnam is No. 1 for profit growth in 2010, says survey

A new study by Grant Thornton reveals the countries where companies expect to see profit growth in 2010.

Given that Vietnam was engulfed in combat with so many countries for much of the twentieth century, outside observers might expect to find an economy handicapped by the aftershocks of war and trade embargoes. They'd be wrong. In fact, according to a new report on global business optimism from consulting firm Grant Thornton International, Vietnam has become the country where the greatest percentage of companies expect to see profit growth.

The report was based on surveys of 7,400 managers of medium-to-large privately held companies in a broad range of sectors—mainly cleantech, food and beverage, construction and real estate, hospitality, transport, manufacturing, retail, financial services, health care, and technology—in 36 countries to gauge which holds the greatest upside potential for 2010. Vietnam scored highest in three forward-looking growth categories: employment, revenue, and profitability. Further categories included overall optimism (Chile ranked No. 1, with Vietnam fourth) as well as exports and research and development.

Of 150 companies surveyed by Grant Thornton in Vietnam, 95% expect higher revenues and 92% say profits will increase in 2010. The global average was 54% and 47%, respectively. A new survey by HSBC of small-to-midsized enterprises also puts Vietnam on top for business confidence in Asia.

Ken Atkinson, managing partner at Grant Thornton Vietnam in Ho Chi Minh City, says: "People are pretty optimistic about this year." Citing new roads and power plants under construction, Atkinson has noticed in recent months an increase in due diligence in mergers and acquisitions. "I expect more companies will be working at full capacity [this year] than previously."

IMF Sees 4% Global Growth in 2010

Unlike many other economies, Vietnam had a relatively strong 2009. Gross domestic product grew 5.3%, unemployment stayed below projected levels, and consumer spending was up 20% in certain places. While expansion slowed to the lowest rate in a decade, Vietnam's government—which approved an $8 billion stimulus plan to help stabilize the economy—projects economic growth to accelerate to 7% this year.

According to the latest International Monetary Fund forecast, the global economy—led by emerging markets, especially in Asia—will bounce back from shrinking in 2009 to grow 4% this year.

"Last year everything generally was turning down. This year things are generally turning up," says Alex MacBeath, Grant Thornton's global leader-markets in London. He added that after making reductions last year, many companies project that sales will increase in 2010 as finance becomes more accessible, lenders increase support, and consumption rises.

Alongside companies in Vietnam are those in India, the Philippines, Brazil, and Chile, which also project bigger profits. Many plan to invest in new buildings, plants, and machinery this year. China had the largest percentage of companies that intend to boost R&D, although less than half believe profits will rise.

In the U.S. and U.K., companies were less resilient, but outlooks improved from last year. About 50% of survey respondents in the U.S. and slightly more than half in the U.K. expect higher profits and revenue.

Gloom in Europe and Especially, Japan

"In the mature economies, the impact was greater and they are taking longer to come out of the recession," MacBeath says.

Regionally, the European Union (especially companies in Spain and Ireland) registered the greatest pessimism, with more than half of respondents expecting profits to decrease or remain the same. As a country, Japan was the gloomiest: Nearly three-fourths expect profits to decrease or remain the same, contrasting starkly with responses from Asia's growing economies. Japan and Germany ranked lowest in the survey for accessibility to finance.

Despite more difficult times ahead, most companies in the EU and Japan anticipate an upturn by 2011.

To sustain recovery, the IMF reports that advanced economies must continue repairing the financial sector, while some emerging markets will need to design policies to manage a surge of capital inflows. "Now that the more acute phase of the financial crisis is behind us, some of the liquidity and guaranty measures put in place by central banks can be phased out. And indeed, this is already well underway," said Olivier Blanchard, economic counselor and director of research at the IMF, at a press conference last month.

"While businesses are optimistic, everyone recognizes that the recovery is fragile at this point," says MacBeath. "Business needs to be cautious and be attuned to the market until there is demonstrable evidence that the economy sees an upturn."