Efficient Management of State-Owned Enterprises: Challenges and Opportunities | Asian Development Bank

At the forefront of growth and development in Asia and the Pacific

Efficient Management of State-Owned Enterprises: Challenges and Opportunities

Publication | December 2017
Efficient Management of State-Owned Enterprises: Challenges and Opportunities

State-owned Enterprises (SOEs) remain a critical source of employment, public service provision, and socioeconomic development in most developing Asian countries.

However, SOEs’ efficiency has been severely undermined by overlaps in their ownership and management structures in most developing countries. Moreover, the lack of a centralized and credible database on SOEs in some countries has made monitoring and evaluating their performance even harder. Therefore, to improve SOE performance, developing countries in Asia must ensure separation between the ownership and management functions of SOEs. Second, they must chart clear and quantifiable short- and long term goals, and appoint autonomous and competent management to strategize how to achieve these goals. Third, SOE management must institute transparent and independent monitoring and evaluation mechanisms to share regular performance reports of SOEs with all of their key shareholders and suggest improvements whenever needed. Finally, SOEs must attract qualified and talented people to join their ranks with competitive salary packages. These employees should be rewarded for better performance and penalized for chronic underperformance to establish a professionally competitive work culture to improve SOEs’ efficiency and profitability.

Key points

  • State-owned enterprises (SOEs) often make up the country’s megainfrastructure projects and remain a critical source of employment and economic growth in developing Asian countries.
  • SOEs’ performance has declined vis-à-vis private companies, largely because of corruption, mismanagement, and technical incompetence of their staff.
  • To improve SOEs’ performance efficiency, developing countries must appoint competent and autonomous management bodies to oversee SOEs’ day-to-day operations.
  • SOE management bodies should set clearly delineated, realistic, and time-bound goals.
  • Unlike private enterprises, SOEs’ performance evaluations must entail their profitability as well as social benefits.
  • SOE management must encourage a competitive work culture by hiring and retaining talented individuals through competitive compensation packages and performance-based bonuses.
Policy Brief No: 2017-4