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MINISTRY OF EDUCATION AND TRAINING FOREIGN TRADE UNIVERSITY SUMMARY OF PHD THESIS THE IMPACT OF EXPORT ON THE GROWTH OF SMALL AND MEDIUM SIZED MANUFACTURING ENTERPRISES IN VIETNAM Major International[.]

FOREIGN TRADE UNIVERSITY

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SUMMARY OF PHD THESIS

THE IMPACT OF EXPORT

ON THE GROWTH OF SMALL AND MEDIUM SIZED MANUFACTURING ENTERPRISES IN VIETNAM

Major: International Economics

Code number: 9310106

LE THI THANH NGAN

Hanoi – 2023

Science Instructor: 1 Assoc.Prof.Dr Nguyen Thi Thu Ha

2 Dr Nguyen Thi Hoang Anh

Reviewer 1:

Reviewer 2:

Reviewer 3:

The research will be protected in front of the council meeting at

Foreign Trade University

The thesis can be founded at National Library and Library of Foreign

Trade University

INTRODUCTION

1 Rationale of the study

Small and medium-sized enterprises (SMEs) play an important role in the economy of every country around the world, including highly developed countries The development of SMEs is seen as a way to accelerate the achievement of socio-economic goals of countries (Cook and Nixson, 2000) However, with the limitation of scale, human resources, capital, technology this type of enterprise has to face many challenges to survive and develop Growth is always the top goal of SMEs towards sustainable development because without growth, the existance ability of SMEs is significantly reduced (Freeman, et al., 1983) The topic about SME growth is of particular interest to scientists In the process of doing business, many SMEs have turned to export and consider this as one of the solutions to help them grow Studies on the impact of exports on SME growth have attracted the attention of many researchers worldwide However, these studies do not reach consensus, even many studies have conflicting results within the same country There are still many debates about the effects of exports on firm growth Several studies have confirmed the positive effect of export on growth such as Kraay (2002), Blalock and Gertler (2004), Lu and Beamish (2006) Meanwhile, many studies have found no evidence on the impact of export on firm growth (Liu

et al., 1999; Aw et al., 2000; Hahn, 2005; Di Cintio et al (2017) or think that the benefits from exporting depend on many factors such as the industry, the type of firm (Park, 2011) and the degree of internationalization of the firm (Kafouros et al., 2008)

In Vietnam, research on the impact of export on the growth of SMEs has also attracted the attention of some researchers such as the studies of Vu Huong et al (2014), Pham Dinh Long and Nguyen Chi Tam (2018), Nguyen Thu Hang et al (2018), Pham Thi Huyen Trang and Vu Hoang Nam (2020)… Although certain results were achieved, most of these studies were based on a small number of exporters or only use export as a control variable or only exploit export from the perspective of whether the firms export or not without paying attention

to the different export status of the firm In addition, these studies only measure firm growth on individual aspects such as revenue, labor,

profit, etc., but do not combine different measures to research the topic from many different angles On the other hand, the studies dedicated

to manufacturing firms are very limited in number, although in Vietnam, the manufacturing industry plays a particularly important role as the driving force for economic growth (GSO, 2021) Stemming from the inconsistency in empirical research results in the world and

in Vietnam and the practicality of the study, in order to provide empirical evidence on the influence of export on the growth of SMEs

in various aspects, the author has chosen the topic "The impact of export on the growth of small and medium-sized manufacturing enterprises in Vietnam" as the research topic of the thesis

2 Research objectives

Research objectives

The overall objective of the thesis is to study the impact of export on the growth of manufacturing SMEs, thereby proposing solutions to promote export activities, in order to improve the growth rate of these enterprises in Vietnam in the near future

Research tasks

Firstly, the thesis systematizes the theoretical basis on export,

firm growth, and the impact of export on SME growth

Secondly, the thesis analyzes and evaluates the current growth

rate of manufacturing SMEs in Vietnam

Thirdly, on the basis of data collection and research model

building, the thesis explores and analyzes the impacts of export on the growth of manufacturing SMEs through the following aspects: participation in export and export status

Fourthly, based on the analysis results, the thesis proposes some

recommendations to promote export activities, thereby improving the growth rate of manufacturing SMEs in Vietnam

(3) How does export, with two factors: involved in export or not and what is the status of export, has an impact on the growth of manufacturing SMEs in Vietnam?

(4) What are the recommendations to promote export activities that contribute to the growth of manufacturing SMEs

3 Research concepts and Scope

Research subjects

The object of the thesis is the impact of export on the growth of

manufacturing SMEs Research scope:

Content scope: In this study, the thesis approaches the problem

of firm growth based on the growth rate of firm To measure the growth rate of the firm, the thesis uses a combination of all three measures of the growth rate of the firm: revenue growth rate, asset growth rate and labor growth rate In order to analyze the influence of export on firm growth, the thesis explores the issues of export in terms of whether firm participates in export or not and the export status of the firm In which, the export status includes: start to export, continue to export and stop exporting

Geographical scope

The spatial scope of the thesis is manufacturing SMEs in Vietnam because of their different characteristics in production, business and investment activities from other kind of firms

Time scope

The time scope of the thesis is the period 2014-2019 The thesis does not include the period after 2019 when the market has a lot of instability due to the influence of the Covid 19 pandemic, resulting in high data volatility and the lack of a number of important indicators

4 Research Methodology

Data collection methods:

The data source for the thesis research is mainly secondary data source, which is used to:

(i) Review of research works and systematize theory on related issues of the thesis The author uses data from domestic and foreign sources of books, newspapers, magazines, dissertations and specialized seminars

(ii) Analyze the growth situation of manufacturing SMEs in Vietnam and assess the impact of export on the growth of

manufacturing SMEs in Vietnam Secondary data is collected by the

author from the results of the Annual Enterprise Survey of the General

Statistics Office, in which the research sample is enterprise operating

in the manufacturing industry (manufacturing firms) from 2014-2019

Data processing method:

The thesis uses quantitative method To evaluate the effect of

export on firm growth, the author uses Pooled Ordinary Least Square

(OLS) and two-step GMM estimation method

5 New contributions of the Thesis

Theoretical contributions

Firstly, the thesis has systematized theoretical issues about

export, firm growth and the influence of export on firm growth from

researches in the world and Vietnam

Second, in order to measure firm growth, the thesis uses a

combination of all three measures: revenue growth, labor growth and

total asset growth The use of all three measures of firm growth will

make the research on firm growth more profound, the research results

more reliable

Thirdly, the thesis explores export in terms of whether the firm

participates in export or not and the export status of the firm while

previous studies only consider export as a control variable In addition,

the thesis limits the scope of research to manufacturing SMEs because

of the unique characteristics of this kind of enterprise and their

importance to the economy of any country

Practical contributions:

Firstly, the thesis has described the growth and export situation

of manufacturing SMEs in Vietnam

Second, the thesis provides empirical evidence on the influence

of export on the growth of manufacturing SMEs in Vietnam on two

aspects, whether the firm export or not and the export status of the

firm Research results are the basis for proposing solutions to promote

and maintain stable export activities, thereby promoting firm growth

CHAPTER 1: RESEARCH OVERVIEW

1.1 Overview of researches on growth of SMEs

The growth of SMEs has always been a research topic of interest

to many scholars worldwide These studies focus on finding out the factors affecting the growth rate of SMEs These studies focus on finding out the factors affecting the growth rate of SME In which, the research mainly follows two main branches The first branch studies the dependence of the growth rate on the size of the firm and the number of years of operation of the firm The second branch of research argues that the growth rate of the firm depends not only on the size and number of years of operation, but also on the characteristics of the firm and the firm’s owner For the first branch of research, the studies mainly test the validity of the Gibrat theory for SMEs in different countries However, the results of studies did not reach consensus Regarding the size of enterprises, the studies supporting the Gibrat theory that firm growth is independent of its size are mostly studies on large and long-standing enterprises Meanwhile, many other studies provide evidences that firm size has an impact on firm growth, especially in the manufacturing sector (Fiala and Hedija, 2019) Regarding the number of years of operation of enterprises, some studies support the view that young enterprises will have more advantages than old enterprises in adapting to changes in the market (Geroski and Gugler 2004; Nguyen Thu Hang et al., 2018; Evans, 1987) For the second research branch, the empirical evidence then continues to confirm that the growth rate of enterprises depends not only on traditional factors such as size and number of years of operation, but also on other unique characterisics of enterprises and business owners The unique characteristics of enterprises include access to capital, ownership forms, human resources, and business strategies The characteristics of the business owner include education, gender, age, etc

1.2 Review of studies related to the impact of exports on growth of small and medium enterprises

Studies on the impact of exports on growth of SMEs: Research

results on the impact of exports on growth of SMEs are quite scattered Many studies in the same country have opposite results There are still

many debates about the benefits that exports bring to exporters (Wagner, 2012) Studies that support the view that exports promote business growth suggest that exports help firms gain economies of scale By exporting, enterprises can increase the number of goods sold, allocate fixed costs on a large number of products, and reduce product costs In addition, exporting enterprises have the opportunity to learn from export activities and thereby create innovations in enterprises, promoting business growth (Robson and Bennett, 2000; Castellani, 2002; Baldwin and Gu, 2003; Wagner, 2002; Lu and Beamish, 2006; Golovko and Valentini, 2011; Yang and Tsou, 2020; Esaku, 2021) Meanwhile, studies refusing the impact of exports on firm growth tend

to negate the mechanism of learning from exports and favor the mechanism of self-selection An enterprise that wants to participate in the export market needs to be prepared in terms of capital and size of the enterprise to compete with competitors from the importing country and other goods of the same type in the importing market The advantage of scale will help businesses reduce the cost of export products, over time, businesses will have a foothold in the market An enterprise must become a firm that performs better than other firm in the same industry to be able to participate in export markets Therefore, these studies suggest that the difference in growth of exporting and non-exporting enterprises is due to the fact that exporting enterprises have been prepared in advance (Bernard and Jensen, 1995; Liu et al., 1999; Delgado et al et al, 2002; Hahn, 2005; Di Cintio et al., 2017; Paul et al., 2017)

Studies on the impact of export status on SME growth: The

export process leads to important changes in firm behavior and performance, and these changes can more pronounced in SMEs (Acs

et al., 1997; Peiris et al 2012) Entering and leaving international markets are times of significant change for any firm (Bernard and Jensen, 1999; Greenaway and Kneller, 2007) The number of studies analyzing the specific impact of different status in the export process

on the growth rate of firm is still quite limited and do not reach

consensus in the results (Lafuente et al., 2018) Some studies have

found evidence that enterprises move from a state of non- export to export, business performance will increase, while switching from being an exporter to selling only in the domestic market led to poor

performance However, many studies do not find a difference in growth between firms that start to export and stable-exporting firms (Lafuente et al (2018) or suggest that the extent of the effect of export status to firm growth is different across industries (Ngo Quang Thanh and Nguyen Thi Canh, 2020)

1.3 Research gap

First, about measuring firm growth: studies on firm growth

mainly use a single growth indicator Therefore, the use of a combination of three measures of firm growth (revenue growth, labor growth and total asset growth) confirming the stability of the research

results Second, about the measurement of the export variable:

Literature review shows that, in Vietnam, previous studies only studied the impact of export or not export on firm growth In this thesis, the author researches and puts into the model both aspects of export: whether the firm export or not and the export status of the firm (including start to export, continue to export and stop exporting)

Third, about the research method: the research review shows that

studies in Vietnam mainly use the traditional regression method, so the endogeneity problem due to the use of lagged variables in the models has not yet been solved To overcome this phenomenon, the thesis uses the System Generalized Method of Moments (SGMM) two-step to solve the problem of model defects Therefore, the research results are

expected to be more reliable Fourth, about the scope of the study The

number of SME-specific studies is very limited Moreover, industrialization is a major policy of the Communist Party of Vietnam The manufacturing industry is identified as the driving force for economic growth Therefore, the thesis's limitation of research scope

at manufacturing SMEs has great practical significance Fifth, about

the data: The research on SMEs in Vietnam mainly uses the dataset for SMEs surveyed by the World Institute for Development Economics in the period 2004-2015 Therefore, the thesis's use of a large dataset with updated data for the period 2014-2019 from the results of the GSO's Annual Enterprise Survey is expected to find a more suitable solution

for the problem in the current period

CHAPTER 2: THEORETICAL BASIS ON THE IMPACT OF EXPORT ON THE GROWTH OF MANUAFACTURING SMALL AND MEDIUM SIZED ENTERPRISES

2.1 Overview of Manufacturing Small and Medium Sized Enterprises

2.1.1 Small and medium sized enterprises

Definition of SME: Currently, there are significant differences

in the definition of SME around the world due to differences in economic development and socio-cultural characteristics in different countries In this thesis, for the date in the period from 2014-2017, the author uses the criteria to determine SME according to Decree No 56/2009/ND-CP dated June 30, 2009 Accordingly, SME in the manufacturing industry means a business establishment that has registered its business in accordance with the law and is divided into three levels: micro, small and medium; having a total capital of no more than VND 100 billion or an average number of employees of no more than 300 people per year (total capital is the priority criterion) With data from 2018 and later, the author uses the criteria for SME identification in the Law on SME Support 2018 and Decree No 39/2018/ND-CP Accordingly, SME includes micro-enterprises, small enterprises and medium-sized enterprises with the average number of employees participating in social insurance in the preceding year not exceeding 200 people and meeting one of the following two criteria: a) Total capital of the preceding year must not exceed 100 billion VND; b) Turnover of the preceding year is not more than 300 billion VND

2.1.2 Manufacturing enterprises

In the ISIC 4.0, the United Nations defines a manufacturing enterprise as follows: “Manufacturing enterprises are enterprises that perform physical or chemical effects on raw materials, substances, semi-finished products to transform them into products that meet market needs” (United Nations, 2008)

2.1.3 Characteristics of manufacturing SMEs

In terms of capital, SMEs are capital-intensive businesses The production process requires investment in factories, machines, equipment and complex technological production systems, so manufacturing enterprises have a high level of investment in assets Regarding human resources, the level of labor in manufacturing SMEs

is low compared to the general level of the economy and other economic sectors In terms of ownership and management structure,

most manufacturing SMEs are established and owned by startups The owner is also the initiator of the business's strategy and the operator of the business In terms of customers and markets, manufacturing SMEs often depend on a small number of customers These businesses are mainly focused on local or regional markets with few international markets

2.2 Theoretical foundations of firm growth

2.2.1 Concept of growth and firm growth

According to Oxford Dictionary, growth is the process in

people, animals or plants of growing physically, mentally or emotionally Growth is also an increase in the size, amount or degree

of something

Regarding the concept of firm growth, there are two different schools of thought that (1) growth is an increase in the size of the firm (2) growth is an internal process of change within the firm Within the scope of this thesis, for the purpose of measuring firm growth, the

author uses the concept of firm growth with the implication being an

increase in the size of the firm in a certain period of time

2.2.2 Measuring business growth

2.2.2.1 Selection of growth indicators

Firstly, the revenue growth is the indicator of top concern to any

enterprise because financial performance is an important measure for all enterprises (Barkham et al., 2012; Nguyen Thu Hang et al., 2018) This is a very commonly used indicator because revenue figures are relatively accessible Furthermore, this index applies to (almost) all types of enterprises (Dahlqvist et al., 2000)

Second, the labor growth indicator: This is an indicator that

state management agencies are particularly interested in Moreover, data on employees is easy to collect, less affected by objective factors such as exchange rate, inflation

Third, the growth index of total assets: scholars agree that this

index is only appropriate when measuring the growth of intensive enterprises Therefore, the growth index of total assets should only be used for manufacturing enterprises, not for service and

capital-financial enterprises (Kimberly, 1976; Delmar, 2006)

Fourth, profit growth index: Wagner (2012) thinks that

considering firm growth in terms of profit is very important, however, data on firm profit is not easily accessible or honestly declared, therefore, only a few studies can use this index as a measure of firm growth (Vu Huong et al., 2014)

Within the scope of the thesis, the author uses three indicators

to measure enterprise growth: revenue growth, labor growth, and total asset growth Because the data on firm profit is seriously missing from the dataset, the author cannot use this metric to measure the growth of firms

2.2.2.2 Selection of calculation method

Firm growth is usually measured in two ways: absolute growth and relative growth In addition, some studies use logarithmic units for growth rates The advantage of this calculation over percentage growth

is that the econometric results are less affected by variance With the characteristics of the dataset, in which small and micro-enterprises account for the majority, if using the absolute growth measure, the growth of larger firms will strongly affect the results Therefore, the thesis uses a relative measure and uses the logarithm of the scale However, in order to increase the rigor, in the control variables, the author will still control for the firm size

2.3 Theoretical basis for export

2.3.1 Export concept

Export of goods means that goods are brought out of the territory

of Vietnam or brought into a special area located in the territory of Vietnam which is considered a separate customs area according to the provisions of law (Vietnam Commercial Law, 2005)

2.3.2 Types of export

Direct export is a form of firm selling directly to overseas buyers, without intermediaries Enterprises fully take the initiative and have to conduct the operations of export activities by themselves, from market research, selection of partners, selection of transaction methods, to the signing and performance of contracts

Indirect export is the supply of goods to foreign markets through export intermediaries Fims rely on the intermediaries to handle most of the export operations so this is the least expensive and fastest approach

to entering international markets for small companies

2.3.3 Advantages and disadvantages of exporting activities for enterprises

Benefits of exporting: Firstly, exporting is a risk, investment method of entering foreign markets Second, exporting can help businesses achieve location economies, which are the savings arising from performing value-creating activities at the optimal location for that activity at any given location, anywhere in the world Third, exporting helps firms achieve economies of scale, which is the cost advantage that comes from the large size of the enterprise, or the large scale of production Fourth, exporting is the source that helps increase the productivity of firms through the learning effect

low-Disadvantages of exporting: First, exporting from a company's domestic facility may not be suitable if the cost of production at home

is higher than the cost of production abroad Second, high logistics and transportation costs can make exporting uneconomical, especially for large sized or bulk goods Third, tariff barriers are a barrier to export activities Fourth, dependence on overseas agents can be risky

2.3.4 Export for small and medium enterprises

Export is a particularly important method of entering foreign markets, more than 80% of SMEs use this method when deciding to expand abroad because this method does not require a high level of commitment of resources and finance, is easy to withdraw, so the risk is low (Golovko and Valentini, 2011; Deresky and Christopher, 2015) However, SMEs also face many obstacles when exporting Firstly, a large proportion of SMEs do not have enough financial resources to carry out exporting due to their limited access to capital Second, SMEs lack qualified and experienced human resources for the export process (Mendy and Rahman, 2019) Third, the next obstacle in the SME's export process is access to information Fourth, SME's ability to link with other firms in the industry is limited, hindering the process of expanding business to foreign markets

2.4 Theoretical basis of the impact of exports on manufacturing SME’s growth

2.4.1 Background theories

Penrose's growth theory: According to the author, firm growth

means efficient use of resources and management capability has an