Building management capacity to support the development and internationalization of vietnamese small and mediumsized enterprises(smes)

Nội dung text: Building management capacity to support the development and internationalization of vietnamese small and mediumsized enterprises(smes)

1. BUILDING MANAGEMENT CAPACITY TO SUPPORT THE DEVELOPMENT AND INTERNATIONALIZATION OF VIETNAMESE SMALL AND MEDIUM- SIZED ENTERPRISES(SMES) Dr. Le Tien Dat Vietnam University of Commerce Abstract In developing countries such as Vietnam, the role of SMEs is increasing critical due to their potential contribution to the improvement of income distribution, employment creation, poverty reduction, and exports growth. The development and internationalization of SMEs should be particularly considered an important item on the policy agenda of economies, especially when Vietnam is joining the ASEAN Economic Community (AEC) and other free trade agreements such as Trans-Pacific Partnership (TPP), and Regional Comprehensive Partnership Agreement (RCEF). The paper first provides definitions of SMEs and describes the development and internationalization of Vietnamese SMEs. The issues with regard to the competitiveness and management capacity of Vietnamese SMEs in the integration economy are further discussed. Finally, the paper proposes some implications for government associations in improving management capacity to support Vietnamese SMEs in development and internationalization. Key words: Vietnamese SMEs, internationalization, management capacity 1. SMES DEFINITIONS AND VIETNAMESE SMES DEVELOPMENT AND INTERNATIONALIZATION 1.1. SMEs definitions There are various ‘SME’ definitions, with differences that occur from country to country. Generally, each country’s definition is created based on either the number of employees, sales or assets(Pandya 2012). According to the report of Dalberg (2011), in Egypt, SMEs are described as having more than 5 and fewer than 50 employees. The World Bank considers SMEs to have a maximum of 300 employees, USD$15 million in annual revenue, and USD$15 million in assets. The Inter-American Development Bank defines SMEs as having a maximum of 100 employees and less than USD$3 million in revenue. SMEs are identified as employing fewer than 500 in the US, and fewer than 250 employees in Europe (Natarajan & Wyrick 2011). According to Government Decree 56/2009/ND-CP, dated 30 June 2009, on supporting the development of SMEs, Vietnamese SMEs are generally classified as: “Small and medium businesses that have business registration in accordance with law, is divided into three levels: micro, small and medium scale according to total capital (total capital equivalent to total assets is determined in the balance sheet of enterprises) or number 495
2. of employees per year (total funding is the priority criteria).” (See Table 1 below for further detail on this). Table 1:Definition for small and medium-sized enterprises in Vietnam Economic sector Micro Small-sized enterprises Medium-sized enterprises enterprises Number of Total capital Number of Total capital Number of laborers laborers laborers I. Agriculture, 10 persons or VND 20 Between over Between over Between forestry and fishery fewer billion or less 10 persons and VND 20 billion over 200 200 persons and VND 100 persons and billion 300 persons II. Industry and 10 persons or VND 20 Between over Between over Between construction fewer billion or less 10 persons and VND 20 billion over 200 200 persons and VND 100 persons and billion 300 persons III. Services 10 persons or VND 10 Between over Between over Between fewer billion or less 10 persons and VND 10 billion over 50 50 persons and VND 50 persons and billion 100 persons Source: Government of Vietnam (2009) 1.2. Vietnamese SMEs development and internationalization Table 2 below presents the number of Vietnamese enterprises by legal form and labour size as of 1 January 2012. As can be seen in this table, the majority of active enterprises in Vietnam were SMEs. Divided by labour size, within among 324,691 active enterprises, there were 216,732 micro enterprises, 93,356 small enterprises, 6,853 medium enterprises, and 7,750 large enterprises. These labour sizes accounted for 66.75%, 28.75%, 2.11% and 2.39% in total active enterprises respectively. Overall, SMEs made up a majority 97.61% of all active Vietnamese enterprises (General Statistic Office 2013a). 496
3. Table 2:Number of active enterprises by legal form and labour size, as of 01/01/2012 By labour size Micro Small Medium Large Total enterprises enterprises enterprises enterprise s Total 324,691 216,732 93,356 6,853 7,750 State enterprises 3,265 141 1,309 510 1,305 Central 1,797 66 601 259 871 Local 1,468 75 708 251 434 Non-state 312,416 214,433 87,772 5,572 4,639 enterprises Private 48,913 37,496 10,963 321 133 Partnership 179 133 42 4 Limited company 193,281 136,433 51,996 2,823 2,029 Joint stock company 1,751 82 840 275 554 with state capital Joint stock company 68,292 40,289 23,931 2,149 1,923 without state capital Foreign investment 9,010 2,158 4,275 771 1,806 enterprises 100% foreign 7,516 1,759 3,629 601 1,527 capital Joint venture 1,494 399 646 170 279 Source:General Statistic Office (2013a) When divided by the capital size, the number of SMEs in 2011 was 309,322, which accounted for 95.27%. Breaking this down further, the percentage of small, medium and large enterprises was 83.13%, 12.14% and 4.73% respectively. Similar to sorting by labour size, sorting by capital size also revealed small enterprises to have the largest share of 81.32% on average during 2008-20012. However, the proportion of medium enterprises was (14.14% on average) higher than large enterprises (4.55% on average) when sorted by capital size (General Statistic Office 2013a) (see Table 3 below). 497
4. Table 3:Number of enterprises by capital size in 2008-2012, as of 01/01/2013 By capital size Year Total Small Medium Large enterprises enterprises enterprises 2008 205,732 177,813 20,355 7,564 2009 248,842 204,690 34,114 10,038 2010 279,360 219,934 45,553 13,873 2011 324,691 269,901 39,421 15,369 2012 332,672 252,960 61,987 17,725 Note:Micro enterprises are not included, as in the definition of Vietnamese SMEs, micro enterprises are not identified by capital size (see Table 1) Source:General Statistic Office (2013a) In 2012, the number of SMEs with import and export activities was 11,387 enterprises, of which non-state enterprises accounted for the highest proportion (64.89%). Non-state enterprises were followed by foreign investment enterprises, which made up 32.76%. State enterprises constituted only 2.35% of SMEs with import and export activities (see Table 4 below). Table 4:Investment situation of SMEs in 2012 (by labour size) SMEs with import and export activities Total Micro Small Medium enterprises enterprises enterprises Total 11,387 1,893 7,691 1,803 State enterprises 268 4 161 103 Non-state enterprises 7,389 1,447 4,771 1,171 Foreign investment 3,730 442 2,759 529 enterprises Source:General Statistic Office (2012) 498
5. 3. VIETNAMESE SMES’ MANAGEMENT CAPACITY FOR THE DEVELOPMENT AND INTERNATIONALIZATION 3.1. Vietnamese SMEs’ management capacity and the need to enhance the management capacity of Vietnamese SMEs for the development and internationalization While the outcomes of Vietnam’s reform programs are undeniable and have significantly contributed to the development of the economy, the country’s socialist tradition is seen as a factor that inhibits the development of non-state SME managers. That is, in the process of transitioning from a controlled economy to a market-oriented economy, many Vietnamese SME managers still lack vital skills to compete successfully in international markets (Steer 2001, cited in Neupert, Baughn and Dao 2005; Agency for Enterprise Development 2012). In the current country development context,SMEs are seen as essential contributors to economic growth, contributing about 40% to GDP and generating employment for roughly 50% of the nationwide labor force. The SME sector has created new jobs for more than 1 million laborers. However, most SMEs employees still belong to the unskilled labor group. In addition, the average wage level that SMEs pay is relatively low, which in turn leads to difficulties in attracting highly-qualified or skilled laborers and management. Consequently, in a business competition context, SMEs often lose out. Thus, improving the HR capacity of SMEs is urgently needed (Agency for Enterprise Development 2012). Limited management capacity is considered a serious problem among Vietnamese SMEs in development and internationalization. Even though numerous efforts have been made by Vietnam Government to enhance the skills of SME managers, the number of SMEs with qualified, experienced and skilled leaders remains insignificant. This is partly because most SME managers are not well-trained in business administration; in turn, this lack of training can also result in a limited business vision by these managers, particularly in expanding business overseas. Consequently, a number of difficulties concerning management in various fields such as finance and HR may arise and negatively impact on the performance of SMEs, especially their long-term strategies (Agency for Enterprise Development 2012; Thai & Chong 2013).Thus, issues concerning capacity building for SME management need to be taken into account because of an important role of trained SME managers in the country’s economic development and integration goals (Steer 2001, cited in Neupert, Baughn & Dao 2005). In Vietnam’s 2001-2020 Social Economic Development Strategy, investment in HR is considered a key target (Agency for Enterprise Development 2012). Some issues with regard to the management capacity of Vietnamese SMEs in development and internationalization were investigated in the study by Thai and Chong (2013). This study emphazised the critical role of SME managers in Vietnamese SMEs’ internationalization. It argued that the major factor preventing many Vietnamese SME managers from internationalizing their business is their fear of uncertainty and failure, which may damage their reputation, economic remuneration and financial security. This issue becomes more serious in SOEs where managers are generally motivated by job security. 499
6. Often because of this fear, many Vietnamese SMEs that are able to internationalize, either through opportunities and/or domestic push factors, choose not to do so. In addition, limitations in access to quality business information are also considered a constraint for Vietnamese SMEs’ internationalization. Many Vietnamese SME managers lack confidence in making sound judgments behind any given plan of action. They often believe the information they have for making decisions in business is too minimal and not accurate enough. In addition, the underdeveloped financial system in Vietnam is also perceived as a constraint that limits SME managers from implementing foreign expanstion strategies. For example, the financial system often has a negative effect on Vietnamese SMEs’ e-commerce operations, mostly because of the difficulty of receiving credit card payments online; except where they have a bank account abroad. SME managers also do not generally trust the security of electronic transactions involving Vietnamese banks. Furthermore, as it is generally difficult to obtain investment capital from financial institutions for internationalization, personal networks to mobilize capital often play an important role. Thus, when a SME manager resigns from a firm, the company then has to rely on the personal networks of its new manager (Thai & Chong 2013). Furthermore, the perceived degree of potential internationalization in the industry in which the SME operates has considerable influence on their internationalization plans. Accordingly, because of the general difficulties in accessing quality market information, SME managers tend to be motivated to follow the way that fellow industsry SMEs have already internationalzed successfully. For example, if they observe that many SMEs have succeeded in exporting cashews, they will likely try to replicate. In addition, if they see that many SMEs are expanding into Africa, they will likely do the same. In the short term, this way can limit the perceptions of SME managers with regard to internationalization opportunities (Thai & Chong 2013). In particular, their study stressed that decision-making in Vietnamese SMEs is generally informal and spontaneous. Vietnam’s education, especially in the north, is slowly changing to address such challenges of international engagement and trade. There is a dire need to acclerate the development of SME managers via the necessary business knowledge and skills to increase exporting activities. According to the report of the Ministry of Education and Training, in its National Congress for Assessing the Quality of University Education, held on 5 January 2008, more than 50% of graduates from Vietnamese universities must be retrained because they do not possess the techinical knowledge and skills to meet the demand of potential employers (Thai & Chong 2013). 3.2. Vietnamese SMEs’ management capacity in current economic integration More recently, as Vietnam is joining the ASEAN Economic Community (AEC) and other free trade agreements such as Trans-Pacific Partnership (TPP), and Regional Comprehensive Partnership Agreement (RCEF), the opportunities as well as challenges for Vietnamese SMEs are also increasing. To make the best use of advantages from those agreements, Vietnamese SMEs are required to continuously enhance their competitiveness. 500
7. According to Mr Hoang Quang Phong, Vice President of Vietnam Chamber of Commerce and Industry (VCCI), thanks to trade liberalization and international integration, Vietnam has become an attractive destination of investment. The formation of trade agreements has offered Vietnamese SMEs golden opportunities to join regional and global supply-demand chains, expanding export markets, attracting investment and modern – technology transfer. He spoke at the workshop organized in Hanoi, on September 17th 2015, titled “Improving access to regional and global markets for SMEs”: “With the globalization trend and economic integration widely and deeply, SME are considered as potential resources to contribute for the globalization and development, economic cooperation through participating more and more in regional and global supply chains” Taking the similar view, Vice Minister of Planning and Investment Dang Huy Dong shared that to ASEAN countries, SMEs are considered as a critical instrument in generating employment, improving income, increasing living conditions and serving as the backbone of the economy. In the international economic integration, SMEs, including Vietnamese SMEs have significant potential to contribute to the globalization and supply-demand chains. Nonetheless, from the both view of the Vice President and the Minister, in addition to opportunities, Vietnamese SMEs are also facing numerous challenges due to their low competitiveness and strategic version, untrained human resources, and poor management skills. In particular, the formation of AEC, with a market of 600 million consumers and big business community, has put Vietnamese SMEs under stronger pressure. As can be seen in the Report on Asian Development Prospect by Asian Development Bank (ADB), compared to 30% in Thailand and 46% in Malaysia, only 21% of Vietnamese SMEs participated in supply-demand chains, and most of them are at the lowest level in assembly and contract work, supplying spare parts, and not yet manufacturing main products. In such context, the joint efforts of Vietnamese SMEs and the government are strongly needed. For the SMEs, they should be aware of barriers as well as opportunities of trade agreements such as TPP to enhance their performance in both regional and global economy, as well as to compete with stronger rivals in domestic market. To do so, they are required to continuously adapt new technology, enhance product quality, develop human resources, especially improve management capacity, in order to increase their competitiveness. For the government, the support laws and incentives should be highly considered and provided to assist SMEs in tapping opportunities and overcome difficulties. Particularly, the programs and assistance to develop managerial skills for Vietnamese SME manager should be put on the top priority. 501
8. 3.4. Government supports to improve the management capacity of Vietnamese SMEsfor the development and internationalization To support the development and internationalization of SMEs, Government Decree No. 90/2001/ND-CP, dated 23 November 2001, was issued. In this decree, the support policies concern activities such as investment promotion, establishment of credit guarantee funds for SMEs, production premises, markets and competitiveness improvement, and in particular export promotions, and information, consultancy and human resources (HR) training. The subsequent establishment of SME promotion organizations such as the SME Development Council, technical assistance centres for SMEs, and SME promotions in localities were also focused on in the decree (Government of Vietnam 2001). Following this, Government Decree No. 56/2009/ND-CP, dated 30 June 2009, on supporting the development of SMEswas issued. The support policies stated in this decree relate to numerous activities such as financial assistance, production premises, innovation and technology capacity building, market expansion promotion, and HR development (Government of Vietnam 2009). To provide further comprehensive assistance for Vietnamese SMEs, the Prime Ministerial Decision No. 236/2006/QD-TTg, dated 23 October 2006, on the approval of the SME Development Plan 2006-2010 was issued (Government of Vietnam 2006). Subsequently, the Prime Ministerial Decision No 1231/QD-TTg, on the approval of the SME Development Plan 2011-2015, was issued on 7 September 2012. The overall objectives of this plan can be stated as: “Increase the development speed and competitiveness of medium and small enterprises, create favourable and healthy environment for investment and business for medium and small enterprises to contribute ore in the economic development, enhance the national competitiveness and international economic integration” (Goverment of Vietnam 2012, p.2). Seven primary objectives were addressed in the development plan to support the development of SMEs: • Finalize the legal framework, improving administrative procedures to offer an equitable, transparent and clear environment for SME investment and business. • Support access to finance and credit, and improve the efficiency of using capital for SMEs. • Support technological innovation and new technology applications in SMEs. • Develop HR for SMEs, focusing on capacity building for SMEs in corporate governance. • Promote the formation of industrial clusters, creating favourable conditions with reasonable pricing for SMEs to access land. • Provide support information to SMEs and promote market expansion for SMEs. • Build a system of SME development agencies.(Goverment of Vietnam 2012) Annually, the government allocates funding to support training in the necessary business knowledge for SME owners and managers who wish to expand their enterprises. In 502
9. 2012, the total central budget for training activities was around VND 44.5 billion– a four-fold increase from 2011. In 2012, 928 training courses were organized, with 35,974 trainees participating – also five times higher than 2011 result (Agency for Enterprise Development 2014a). In 2013 the local government budget for training was over VND 15.3 billion, with 603 courses for more than 40,000 participants (Agency for Enterprise Development 2014b). According to a report from the Agency for Enterprise Development (2014b) entitled ‘Overview of the Enterprise and SME Development Support in 2014’, the Ministry of Planning and Investment (MPI), and the Ministry of Finance have recently issued Joint Circular No. 04/2014/TTLT-BKHDT-BTC, dated 13 August 2014, which guides support for HR training and development for SMEs. Accordingly, the Joint Circular has emphasized that SME training needs to focus on improving their management capacity, particularly for those in prioritized sectors based on the development strategy of the country. In addition, training formats also need to be diversified (e.g. online training) to increase SME access to training. The training content also needs to be more specific, such as a three-day training course on starting up an SME business, and a five-day training course on SME management governance (Agency for Enterprise Development 2014b). In 2014, the country’s national ministries and associations scheduled 730 training courses on starting up a business and business governance (with a total budget of VND 35 billion), for more than 25,000 SME owners and managers across the country. These training courses not only focused on the knowledge and skills needed to start a business, but also aimed to enhance the SME managers’ business management skills, particularly in priority industries such as mechanical engineering, electrical engineering, telecommunications and information technology (IT), manufacturing and assembling automobiles, textiles, footwear, plastic, steel, chemicals, and electrical engineering. In addition, SMEs in remote areas with difficult socioeconomic conditions as well as female and disabled managers were also prioritized. Reflecting on the effectiveness of these training programs, participants deemed the courses as both necessary and useful. After attending training courses, many SME managers had gained confidence in operating and managing their business. More importantly, the attitude of SME managers with regard to the importance of training programs had improved. However, such training programs still need to be further developed in relation to both content and delivery methods, based on the actual training needs of SME managers (Agency for Enterprise Development 2014b). With regard to economic integration, Vietnamese SMEs have again been considered a main contributor to the development and globalization of the country via its integration into both regional and global supply chains. Both multinational corporations (MNCs) and large- scale enterprises play a vital role in accelerating the industrialization process via economic integration, whilst SMEs are also seen as important components in creating industrial linkages in the supply chain. In this way, SMEs play the role of subcontractor and/or supplier of intermediate products to MNCs and large-scale domestic companies, to create added value and increase the proportion of localized components in the total value of commodities. To assist SMEs, especially exporting SMEs, to compete and develop sustainably in the process of economic integration, incentives and supports need to be created to enhance the business expertise and capacity for SME managers (Agency for Enterprise Development 2014a). The SME support institution system in Vietnam has been formalized according to Government Decree No. 90/2001/ND-CP, dated 23 November 2001, under the leadership of the Prime Minister. The SME Development Council is responsible for advising the Prime Minister on SME development, and it is chaired by the Vietnamese Minister of Planning and Investment. The Agency for Enterprise Development (AED) is the central government agency that is responsible for coordinating policy formulation and policy implementation for the development of SMEs in Vietnam. The agency operates as the Permanent Secretariat of 503
10. the SME Development Council. At the provincial level, the Department of Planning and Investment (DPI) under the Provincial/Municipal People’s Committee is the SME policy coordination agency. In addition, there are many other government departments that also implement SME support measures, such as the Union of Scientific and Technical Associations and the SME Association for Rural Trades. To facilitate SMEs to improve their competiveness, the government agencies at the provincial and central levels collaborate closely with representative organizations of SMEs, and public and private service suppliers such as business clubs, local associations and non-government organizations(NGOs) (see Figure 1 below). Figure 1:SME support institutions in Vietnam PRIME MINISTER SME Development Council Minister, MPI Provincial Other support agencies, AED authorities institutions • VCCI Technical assistance • VCU National Business centres in Hanoi, Da • Union of Information Centre Nang and HCMC Scientific and Technical Association • SME DPI (Provincial SME Association for Support Development Rural Trades agencies of Business clubs, Coordinator) • Vietnam Young ministries and local Businesswomen central level associations, and NGOs Support agencies of agencies and departments under departments people’s committees S M Es Source:Agency For Enterprise Development (2008) In addition to government incentives, there have been support projects on enhancing Vietnamese SME managers’ business management capacity that have been funded by international bodies. Some key recent projects are as follows: • Capacity building to accelerate SME export performance for poverty alleviation and development [Department of Foreign Affairs and Trade (DFAT)]: This 2012-2014 project 504
11. specialized in export and international engagement. The project targeted supporting SMEs in improving their managerial skills, enhancing their capacity building towards competitiveness, networking, innovation and export performance. In this project, training programs were transmitted through the country, utilizing focused workshops aiming to communicate training materials to government officials involved in exports promotion and SME development. • Developing entrepreneurship in Vietnam [Canadian International Development Agency (CIDA)]: This 2008-2014 project provided support for SMEs in Hanoi. It aimed to enhance entrepreneurial management skills of SME managers in both business and in government departments. The project included long- and short-term training, professional training and development, and the incorporation of practical learning materials applied via research and case studies. • Capacity building for sustainable development, trade and export promotion for members of Hanoi Women Association of SMEs [Embassy of Finland]: This 2010-2012 project provided SME businesswomen with knowledge concerning business laws, business management, leader skills, gender equality in business and families, as well as import and export opportunities to both Finland and other potential markets. Training activities in this project were implemented via soft skills training courses, a study tour to Finland, and trade fairs and business workshops/seminars in Hanoi. 4. IMPLICATIONS FOR GOVERNMENT ASSOCIATIONS TO IMPROVE VIETNAMESE SMES’ MANAGEMENT CAPACITY FOR THE DEVELOPMENT AND INTERNATIONALIZATION The paper recommends that the government associations should acknowledge the importance of HR development, particularly training activities, in enhancing the business capacity of SMEs in the economic development and integration of the country. Supports with regard to HR development stated in recent government policies including Government Decree No. 56/2009/ND-CP on supporting the development of SMEs (Government of Vietnam 2009), and the Prime Minister Decision No. 1231/QD-TTg on the approval of SME Development Plan 2011-2015 (Goverment of Vietnam 2012), need to be implemented effectively. Incentive policies, HR development strategies and training support programs should be further developed to assist SMEs in a range of business activities, especially in international business issues. In providing support, the government could provide training programs via its regional agencies or by supporting training organizations in offering training for SMEs. The government associations may cooperate with international training organizations to assist Vietnamese SMEs to enhance their capacity in exports. In addition, the government associations should continuously investigate the training needs of SME managers, or support projects on these training needs, to gain valuable data and information on their skills requirements. This information could then facilitate the government associations and training organizations to develop appropriate training programs based on the actual needs of SME 505
12. managers. Further, the government should provide financial support to SMEs in attending training programs to enhance the internationalizing of their business. In addition, the government associations should consider enhancing the effectiveness of training programs provided to SME managers. For example, they could organize training workshops to train the trainers for such training programs. They could also support the training organizations in developing training for SME managers by providing financial support or creating appropriate incentive policies for the development of such training organizations. Further, the government associations should take into account the differences of various regions and genders to develop effective and tailored supports. As mentioned above, cooperation of regional governments with the SMEs, training organizations and other support associations should be highly considered. Governments cooperating with international organizations to conduct support projects and to subsidize Vietnamese SMEs in internationalization should also be taken into account. 5. CONCLUSION The need for improving the management capacity of Vietnamese SME in development and internationalization has been on the increase due to their important role in country’ economic growth and integration. The paper has reviewed the definitions, development and internationalization, as well as the support programs and institutions in Vietnam for the capacity enhancement of SMEs in development and internationalization. The implications for government associations in assisting SMEs are also included in this paper.The paper is also expected to contribute to the body of knowledge on management capacity building in the SME sector in developing countries including Vietnam. REFERENCES Agency For Enterprise Development 2008, SME support institutions in Vietnam, viewed 2 November,2015 Agency for Enterprise Development 2012, White paper on small and medium sized enterprise in Vietnam 2011, Statistical Publishing House, Hanoi. Agency for Enterprise Development 2014a, White paper on small and medium enterprises in Vietnam 2014, Statistical Publishing House, Hanoi. Agency for Enterprise Development 2014b, Report on overview of enterprises and SME development support in 2014, Agency for Enterprise Development, Hanoi Dalberg 2011, Report on support to SMEs in developing countries through financial intermediaries, Dalberg, Geneva. General Statistic Office 2013, The development of enterprises in Vietnam during 2006-2011, Statistical Publishing House, Hanoi. 506
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