A study on small and medium enterprises in vietnam

The common trend of the world is the economic renovation .with the development of multi-section economy.. Establishing the foundation for the market economy: Through the challenges of th

HCMC UNIVERSITY OF FOREIGN LANGUAGES & INFORMATION

Advisor : Dr - Ing D~ng Minh Trang.

Student : Vii 'fbi B~ch Phticjng

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TV DQ i HQc Huflit

1111111111111111111111111111 101000426

HCMC, July, 2000

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HCMC UNIVERSITY OF FOREIGN LANGUAGES &INFORMATION

ADVISOR'S ASSESSMENT

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EVALUATOR'S ASSESSMENT

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~ .

Here, I would like to express my deep appreciation to all the

professors at the HCMC University of Foreign Language and

Information Technology who have been teaching me high

valued knowledge during the last four years; especially to

professor D~ng Minh Trang, who has heartedly guided me

during the training period until I complete this graduation

paper.

In respect of the origin of the case study used in this

composition, a thankful note should be given to the Board of

Directors of lIl>ng Phuc enterprise for giving me favorable

opportunities to collect all live documents to clarify the

theoretical points in my paper.

I also would like to send appreciation to my family and friends

for encouraging me during my years of study at the University

and at last giving me confidence to complete this graduation

The common trend of the world is the economic renovation with the development of multi-section economy In Vietnam, the government has been paying much attention to developing 8ME At present, 8ME has taken

a big proportion in the total number of entrepreneurs in the country and played a key role in the socio-economical development .

Along with the agrlculture.and.urban economy, 8ME.are the ones in many factors that insure the economic growth They create jobs, increase income

of the labors and effectively make most all the potentialities of capital, skill, and of many latent sources still hidden in the inhabitants They contribute the industrial distribution to different areas, taking the subsidiary role for the big industry, and balancing many socio-economical and environmental problems.

In addition, 8ME also playa certain role in reserving traditional occupations

and expressing the National character.

In practice, due to the characteristic of lacking capital, limited managerial ability and under-qualified technical conditions, 8ME are facing many difficulties in upgrading their production and business effectiveness, their domestic and international competitiveness.

In so saying, many measures are proposed in this pape]' to help 8ME to have better business conditions; to bring into play its potentiality and advantages

to contribute to the development of the National economy; at last to be appropriate with the policy of Industrialization and Modernization of the Party.

A STUDY on SMALL and MEDIUM

ENTERPRISES (SMEt) IN VIETNAM

1/ Why do we have to develop SME ? ••••••••• l•••••••••••••••••••••••••••••••• 2

1.1 SME providing job -.:. -:.: - 4

1.2 SME increasing output and exports -.:. - 5

1.3 SME establishing the foundation for the market - -6 1.4 SME contributing to the growth and the development

of the economy - - - : - 7

21Developing SME is a common trend of the market •••••••••••••••••••••9

2.1 The developing of SME can be traced from the

pTlVatlzatlonprocess - 2.2 The developing of SMEcan be traced from the reformation

-~ of the economy - 11 3/ DerIDing type of SME ••-••••••••-•• -••••••••••••••••••~.-•••-••••••••••15

3.1 Defining SME according to the capital and labor size - - 16

3.2 Characteristics of SME - 19

STATE ofSME in VIETNAM

1/ The development of SME in Vietnam •••••••••••••••••.••••••••••••••••••••21

21 The role of SME in the Vietnamese economy ••••••••••••;.•••••••••••••• 233/ The real state of SME in Vietnam ••••••••••.•••••••••.:••.:.••••••••••••••••••• 28

3.1.Advantages -. - 293.1.1 Small setting-up capital -~ - 293.1.2 Taking advantages of cheap labor - - 29

3.1.3 Flexible and adaptable to changes - 30

3.1.4 Taking advantages of cheap and local available materials - 30

3.2 Disadvantages -' - 31

3.2.1 Lack of capital -: -,. -.; - 31

3.2.2 Limited competitive ability -,. -.; - 31

3.2.3 High rate of facing daily risks -: -.; - 33

3.3 Problems extractedjrom SME - 37

Chapter m: SOME SUGGESTED MEASURES to HELPVffiTNAMESE SME to OVERCOME DIFFICULTffiS The natural distribution and SME in the society - 39

11Differences between SME in developed countries 1lIl(l irt "i~t~ • • • ~()

1.1 Differences of equipment and in the technical problems - 41

1.2 Differences in the ability of collecting and managing the capital - 41

1.3.Differences in managerial ability - 43

1.4 Differences in opportunities to contact with the world market - 44

21 Some suggested measures to help Vietnamese SME to overcome difficwties - - ~ - - •.• 45

2.1 The horizontal linkage system - 46

2.1.1 Linking between SME with concerned production - 47

2.1.2 Linking at the production stage - 47

2.1.3 Linking in the production consuming stage - 48

2.2 The vertical linkage system - 49

2.2.1 The financial supports - 49

2.2.2 Developing the linkage of economic classes - 52

2.2.3 Other supports from the government - 54

2.3 Some official organizations supporting SME in Vietnam - 56

PART 2: CASE STUDY - - - - - 60

Chapter IV: HONG PHUC DYEING and FINISHING FACTORY 11Establishing and developing process ••••••••••••••••••••••••••••••••••••••• 61 21 Management structure and working staff of HOng Phuc (lIP) factory • • • •.•.• • 63

2.1 Infrastructure and equipment - , - 63

2.1.1 Floor space - 63.

2.1.2 Equipment in the dyeing factory -.: 64

2.1.3 Fixed assets -.: - 65

2.2 Working staff and management -.;. - 67

2.2.1 C>rga~tiondiagram -.: - , -~ 67

2.2.2 The analysis of the organization diagram - 68

31 The state of labor and productivity •••••••••••••••••••••••••••••••••••••••• 72 3.1 The total number of workers of the factory - 72

3.2 The regulations concerning the labor of the dyeing factory -.;. - 73

3.3 The state of production - 73

3.4 lAbor efficiency - 74

41 The regulations concerning wages ••••••••••••••••••••• ••••••••••••••••••• 75

4.1 ~~rs -75

4.2 l?mployees -.;. - 75

51 Production process • • • • • •• • 77

5.1 Duties of color testing department - 77

5.1.1 Some concepts about dyestuffs and chemical additives -~ - 77

5.1.2 Color combination and color testing machine - 78

5.2 Duties of production department - , - 79

5.2.1 The processing line of fabric from starting phase to the finished one -.;. - 79

5.2.2 The dyeing process - , -.79

5.3 The difficulties in the production -~ - 83

5.3.1 Mistakes of color testing room -.;. - 83

5.3.2 Mistakes of production department - 84

6/ The business effectiveness • 86

6.1 Marketing activities - 86

6.1.1 Marketing group - , - 86

6.1.2 Contacting with the clients -~ - 86

6.1.3 Widening the market -~ -.,. 87

6.2 The potential of competition -.,. - 88

6.3 The economic effectiveness - 89

6.3.1 Beginning capital - 89

6.3.2 The collecting capital period -: - 89

7/ The real state of HP •••••••••••••••••••••~••••••••••••••-.- •••••••••••-•••••••• 90 7.1 Some advantages -' - 90

7.2 Some Disadvantages -.; - 91

7.2.1 Objective difficulties - 91

7.2.2 Subjective difficulties - 93

81 The future business strategy of HP and some suggested measures to overcome difficulties ••••••••••••••••••••••••••••••••••••••••••••• 95 8.1 Aim in thefuture -.;-' -' - 95

8.2 Some achiev~nts - 96

8.2 Some suggested measuresfor HP to reach itsfuture strategies - 97

8.2.1 More effective management -: 97

8.2.l.1 Raw materials and fuels ' - 97

8.2.1.2 Human resource -' -' - 98

8.2.2 Applying some links in the suggested vertical and horizontal systems -99

8.2.2.1 Linking in term of fmishing products and producing satellite 99

8.2.2.2 Actively getting admitted to SME ' organizations and Associations to become a member -' -100

8.2.2.3 Being active in having contact with the bank to borrow money-100 * Some proposals of HP toward the government ••••••••••••101 l.Offering low land cost in the Industrial Processing Zone -.,. -101

2 Tax-exempt for the first three years in the Industrial Processing Zone ; -102

3 Providing information for the entrepreneurs -103

4 Strict and effective control by the government lin 105

on smugg g activities -

-.,. -* GENERAL CONCLUSION -106

* ~~JlENCES -.; -109

CHAPTER I

TheDEVELOPMENTofSMALLandMED~

ENTERPRISES (SME)

11 Why do we have to develop SME type?

The development of the market economy at the beginning of the 20th Century has

strongly changed the world economy Many developing models have been

successfully applied in which the SME type has played a key and relevant role

The development of SME is a mean to push the development of the private enterprise

area SME are parts of the overall economy developing strategy in the developing

countries especially in the transitional period SME are commonly known as means to

create jobs and to effectively use the natural resources

Student: VO Tb/ B!lch Phdf/ng

-2-Philippine Thalland Malaysia Singapore Taiwan KoreaTarget

The role of SME in some Asian countries (%)

8MB are very rich in species including different economic sections such as stateowned, collective ownership, public, private companies in which private ones are themost common 8MB have the ability to meet the multi-requirements of the marketproducts, to adjust themselves flexibly and dynamically to the market changes, tooperate effectively in the vigorous competitive environment Their survival depends onthe effective managing methods Despite their independent existence, 8MB still takethe advantages of cooperating with big entrepreneurs to create benefits 8ME thenbecome the high efficient branches of big entrepreneurs

In Vietnam, during the last few years, mostly after the open door policy of economicsand politics of the government, there have been mass bankrupts of big state-ownedcompanies Consequently, 5MB took an important role in the Vietnamese economy andbecame a basic force for the development

Student: VOTb/ B{lcb Pbd{lng 3

-1.1 8MB providing jobs:

In slow developing countries (Africa) the working force in the state owned area isabout 10% In America this percentage is around 20% and it is much lesser with 3% inother developing countries (in Asia) This shows that the labor force in the non-state~owned area day by day has taken higher rate in most of countries

Vietnam has an advantage of cheap labor and rich natural resources Because of theoperating area, 8MB uses lots of workers and do not acquire for skillful and high-specialized ones This has solved the unemployment of the emigrates from the suburb

to the urban and the surplus working forces from the industrialization andmodernization By completely and basically changing production and trading, service,economic and social activities from manual work to modem and high quality methodswhich depend on the development of industry and on the improvement of science,8MB has created a high labor productivity for the society

Total Total Total labor value e rts

The production of SME of four new industrial countries in Asia (%)

Student: Vii Th/ B{lch Phu{lng 5

-• In Vietnam:

According to the estimation of the Planning and Investment Department, the wholeSME area of state owned and non-state owned sections took approximately 31% of thetotal out-put value of the industry; 78% of the total retail-selling rate; 64% of the total goods transportation SME also produced 100% products in some areas such as:wooden things, sedge mat, rattans, weave, shoes making, fine handicrafts article

1.3 Establishing the foundation for the market economy:

Through the challenges of the global science and technology revolution and the racingbetween 2 economic systems: socialism and capitalism, the impact of the non- Stateowned enterprises, mostly the ones in the SME area, on the economy in general and onthe market in special becomes clearer and stronger day by day

The development of all kinds of the SME has developed the advantages of the marketeconomy:

Meeting the payable requirements.ofthe society

Collecting maximally the potential of the society

Mutual-competition between enterprises to achieve a high effect

Quick reaction of SME to the changes of the social needs and to the national andinternational economic conditions

Besides developing some advantages, SME also create disadvantages to the society:

-Because of the profit entrepreneurs easily break the law, commercialize moralvalues and the spiritual life.

The disordered competition leads to the unbalanced macro economy, the inflationand the periodical unemployment

Long-term benefits and the general welfare of the society are not taken care of.The natural resources and the environment have been destroyed due to the desire

to get super profit of the enterprises

1.4 Contributing to the growth and the development of the economy:

The contribution of the enterprises in non-state owned section day by day takes a bigproportion It means that the growth of the state owned section is low A closer look atthe SME in some developed countries such as U.K and Singapore will offer us clearerideas about the role of SME

• In the U.K

Over the last twenty years there has been a marked increase in the number of smallbusinesses in the UK's economy The figures vary slightly according to source and the.timescales used, but from 1980 to 1993 the numbers of small firms grew by around800,000, providing the U.K with three million firms The vast majority of registeredbusinesses are small Some 96 percent of fJrms have fewer than 20 employees Firmswith fewer than 100 employees account for 50 per cent of employment Moreover,

Student: VO Tb/ B{lch Phu'{fng 7

-small ftrms are credited with being net creators of jobs A snapshot taken between

1989 to 1991 puts the ftgure at 350,000 Small business start-ups are also in the

increase with an estimation of 405,000 in 1993 rising to 446,000 in 1994.

The following statistics will help to complete the picture of the numbers and spread of

small flrIDSin the economy Approximately:

54% of small flrIDSare VAT registered

23% of small flrID are less than two years old

57% of small flrIDSare over ftve years old

21 % of small flrIDScome into the category of professional services

23% of small flrIDS are in the construction sector

- 11 % of small flrIDS are in manufacturing

57% of small flrIDSare in the agricultural sector

38% of small flrIDScan be regarded as other 'services'

micro-flrIDS of one or two people account for 73 % of all small flrIDS

• In Singapore:

Over the past 25 years, Singapore has emerged from a developing country to be one of

the Newly Industrializing Countries (NICs) The small and medium enterprises in

Singapore have provided a supportive and important role in the economic development

process, not only in terms of meeting domestic demand, but also in supporting

Student: VO Th/ B{lcb Pbli'(tng

~8-multinational corporations (MNCs) in Singapore The government has recognized thesignificant role played by the small businesses in the past, and the important of smallbusinesses as a source of economic vitality and engine for growth in the future,especially as a source of innovation and business entrepreneurship On the other hand,the multinational corporations in Singapore have generated a strong demand formaterials, parts, and components, and for a wide range of services supplied by 5MB.They also bring along with them advanced technology and a global market, thuscreating new opportunities for local frrms to benefit from technology transfer andbusiness collaboration.

The government has also identify that in the next phase of the economic development

of Singapore, 5MB will playa greater role not only in providing a strong supportingbase for the MNCs, but also in new business opportunities creation and technologicalinnovation Hence the government has set itself two functions in SME development:

To Provide development assistance and incentives to 5MB, and

To improve the business environment and infrastructure

21 Developing SME is a common trend of the world:

2.1 Developing the 5MB can be traced from the privatization process

The privatization is traced from those reasons:

Student: VO' Thf B,ch Phu'f/Dg 9

-The weak competitive effect of the State owned enterprises in comparison with the

private ones' goals

The waste of the production capital because the high management effect of the

enterprises is not required by the State

The weaknesses in capital sources make the State hardly take care of its

shareholder role~ On the other hand, the amount of money received from the selling of

State's property is used to reduce the debts

Being unsuccessful in industrial projects makes the State fmd the way to go out of

those industrial field inspite of being stuck in there

Today, the privatization of public properties is developing in some market economies

and in the whole modem economy system in orderto give the private agents the major

control of the State's property

Some main privatization methods: bringing the state owned enterprises' capital to the

stock market, advertising for open selling, the staff of the company will buy the

company himself

Every country chooses an appropriate privatization method to its characteristics

However, the privatization is not always a dose to cure difficulties that the enterprises

meet The changing from state owned to non-state owned style succeeds or not, it still

1

Student: VII Tb/ B,ch Phli't/Jlg

-10-depends on the flexibility and the effectiveness of the controlling system, which was

applied when these enterprises were in the State's control

2.2 Developing the SME can be traced from the reformation of the economy:

Reformation is a changing process of micro-macro polici~s, instiwtions, and economic

organizations in order to change the economy from this eponomical system to another,

to change the economic and instiwtional strucwre, to change the action and habits of

the subjects who joint in the economical activities All these changes are made to be

appropriate with the new economy

The world economy includes many sections, areas and different economic systems

The sections are Socialism, State-Capitalism, and Private-Capitalism The three great

areas are the economies of the developed capital countries, of the developing countries

and of the two economic systems of the world: Socialism and Capitalism In general, in

the beginning of the 80' s the world economy got into difficulties, which had never been

seen since the World War II Firstly, this was showed by the slow down in the

economic development day by day

1

I

-The annual increasing

Up to now, the economic reformation has been taking place on all over the world andhas been greatly effecting the socio-economic life of many people However, everycountry has its own way to reform depending on the area, the economic section, and intheir owned economic situation

The change of the world economic status has put a strong impact on the choices of theeconomic reforming strategies of the countries During the last decade we have

Iwitnessed a quick change This structural change, which happened in developingeconomies in all over the world, has led to some agreements in the way of directing themarket It is accepted that the competitive market and the contracting activities havecreated conditions for the more effective distribution of natural resources This is aresult of the effect of the market mechanism, of the pre~eminence of the private area

or of the external pressure used by international organizations

Student: VO TbJBflCh Phdf/ng 12

-The eastern European countries and the Soviet Union did not have any reformation

except a quick one of monetary and fmancial price This was because a change of

government did not allow a step by step reformation.

Another example is Hungary This country chose the step-by-step reformation The

economic reformation was in the frrst priority and then followed with the appropriate

political one China, another example, used a special reforming model The reforming

process took place in a special way: "from the country to the city; from the coastal area.

to the mainland; from the non-state owned to the state owned section; from the small to

the big enterprises; from the economical to the scientific field; from the educational to

the political field" That's the choice between the market-oriented and the step economic reformation.

Poland(89-90) The society had to Yugoslavia(89-90) pay a big price

Rumania(1991) without endinll.

+reducing price Argentina, Chile Having result South Asia Having result

3 Free in trading Chile(1977-1979) Having result EC (1950-1960) Having result+Abrogating the Mexico(1985-1989) Having result Israel(196O) Having result

Korea(l980) Having result+Reducing tax Eastern Europe, Citical result China(1980) Havingresultbut

Student: Vii Thi BIlCh Phdf/Dg 13

-4 Agricultural Korea, Taiwan(1950) Having result Philippine No result

renovation China (78-80) Paying a price in a Colombia Partial result

Vietnam(88-9Q) Havin!! result

5 Renovation of Vietnam Having critical China(1979) Having a critical

+ Give freedom in Eastern Europe, Paying a big social

+ Give freedom

essential !!oods

6 Financial Indonesia(70-80), Partial result but Japan, Taiwan Having result

renovation Philippine, Eastern not completed yet Korea, Critical result but

in bankin!!

renovation

+ Small private China, Vietnam, Having result China(84) Some critical

+ Privatization of big Russia Some results

8 Set up institution

+ Laws frame Vietnam, Eastern Having result but Many countries Having critical

+Social insurance Europe, Russia not completed yet & result and

+No centralization of China Having result but China(83) continuing the

During the 80's in Vietnam the State had been beginning to apply a policy for the

economic change with a main plan of renewing the market to integrate to the world

economy Vietnam had quickly dermed the model for the economic reformation The

model was: " Changing Vietnamese economy from the ineffective centralized planning

economy to the multi-section commodity one which operlites according to the market

mechanism under the control of the State in the oriehtation of socialism This

l

~14-economic model will implement the target of makihg the people rich, the country

wealthy, the society fair and civilized" These main views were the basis for the

reformation:

The multi-section economy with variable possessions and trading ways that are

appropriate to the characters and standards of the producing force

Developing the multi-section economy, which is operated with the market

mechanism in the management of the State and in the direction of Socialism

Forming and moving the economic structure in the direction of the industrialization

and the modernization

Continuing to diminish the centralized and planned mechanism, which is

bureaucratic, to form the market mechanism with the management of the State and in

the direction of Socialism

Building the " opened "economic system both inside and outside

From above points of view and due to the economic characters of Vietnam, the State

has pointed out priority policies to develop SME

3/ Defining types of SME:

At present, the defmition of a SME is still not unique However, whenever we mention

about the SME we have to talk about some special characteristics and criteria to

distinguish them from the big enterprises These criteria are the size of capital and

l

-labor, the operating scope and the turnover But they vary from country to country.

Some countries use one criteria but others use some This use depends on the situation,

the historical conditions, the society and the economy of each country In the mean

time, it is also clearly effected by particular policies of developing SME of each

country as well as the ability to support by the State in some particular periods

3.1 Defining the SME according to the capital and labor size:

The targets to derme 5MB according to their capital and labor size were pointed out

depending on the conditions of the country:

Canada < 500 for both industry

.Japan <l00 in trading < 30 million Yen

< 50 in retail selling <10 million Yen

< 300 in others <100 million Yen

-Singapore <100 < 499 million saD I

Targets to define SME in some countries (Sources: the trading and industrial branch)

In some countries the targets are not applied for all fields According to the State's

regulation, there would be different targets depending on the types of product.

• In Japan, the SME' scope is defined in " the basic regulation of SME"

Manufacture, <= 300 workers <=300 workers <=20 workers

transportation, <=50 million Yen <=100 million Yen

construction, mine

Retail commerce and <=30 workers <=50 workers <=20 workers

services <=10 million Yen . <=10 million Yen

l

Some targets to define types of SME in Japan

Student: Vii Thf B{lcb Pbtlf/ng 17

Annual income: 3.5 million USD

Annual income:9.5 million USD

In some countries, applied targets to define the SME of social SME developing and

supporting organizations are not always unique with the State's ones.

The circular of the

Labor-.

War Invalid-Society <100 Legal capital:<l billion VNf)

Department

The VIE 1US 195 1004

The Supporting SME

Fund of the VN-EU 10-500 < 3.9 billion VNf)

-The way that organizations apply different targets in a country depends on their aims,their objective and their policy Enterprises are usually defined and sorted under thesize of its labor:

small enterprises: <20 workers

Medium enterprises: from 20- 499 workers

Big enterprises: > 500 workers

On 20/06/1999, the government of The Socialist Republic of Vietnam defmed thecontemporary target for the 5MB According to this regulation, the enterprisesconsidered to be 5MB are the ones who have the annual average labor under 200 andhave the regulation capital under 5 billion (equal to usn 300,000) This target wasonly the administrative convention to establish the policy to support the 5MB

3.2 Characteristics of SME:

5MB are active in most of production and service fields at different levels It is easily recognized that this type of enterprises operates in small markets and in the fieldwhere the modem technology is still a difficult problem

In order to meet the diversified needs of the market and to fmd the position in thefurious competition of domestic and international markets, many of 5MB has launched

to the market original products and showed off independent management to expresstheir diversification and independence Despite itsindependent activities, SME have a

Student: ViI Th/ B{lcb Pbu'f/ng 19

-combination and a tight relationship and link with big enterprises to develop the

country economy 8ME are the high effective branches of the big enterprises

Together, they make the market stable and help each other to solve the common

difficulties

However, the setting capital of 5MB is low and collected from one or a few persons

Because of that reason, the managers of the SME are usually the owners and they have

the right to give any orders Also because the narrow size of activities, the owner is the

investor and even the manager This leads to the freedom in action of the owner

Sometimes, the action is not logic or narrowed sighted This is a disadvantage of the

5MB type, which is a big risk

It is believed that in the beginning period most of 5MB usually have the problems of

lacking capital They have limited credit because they can not contact with the banks

Moreover, the fmancial organizations dare not to support them because they do not

have properties for mortgaging, because of their new trading process or they can not

.prove their ability to pay the debts

The other characteristic of 5MB is its domestic activities To almost 5MB the scope of

activity is local However, this does not mean that the whole SME only serve for the

domestic market They also contribute a great part into the total exporting value of the

nation and in the development of the economy

l

in.VIETNAM

11The development of SME in Vietnam:

Before 1986, the non-state owned SME in general and the private enterprises in specialwere not taken care of or supported much by a governmental policy, Because of thatreason they had to do their business under many different forms as: co-op teams,households, collectives, joint state-private enterprises The reformation began in 1986

in Vietnam with the policy of developing the multi~section economy, accepting the.existence of different ownership, encouraging economic sections to develop theirtrading has made people feel more confident to invest in their enterprises As a result,SME have been gradually setting up,re-establishing and developing

According to the statistic data, in 1986 there were no private enterprises In 1990,there were 770 ones which employed about 10 million workers Up to 8/1993 thisnumber of SME increased to 6,728 private ones, 2,570 limited companies and 91 stock

companies In the end of Dec-1994, there were 1:3,772 private enterprises, 5,120limited companies and 133 stock companies with the total capital of 66,028 billionVNE>, which was equal to 13,6% of the state-owned enterprises In June-1996 privateenterprises increased to 20,000 with the total capital of 3,400 billion VND.

The SME in Vietnam are the registered trading companies .These enterprises are indifferent economic sections Their scope of labor and capital satisfies the State'sregulations SME in Vietnam includes:

Enterprises with small and medium size registered according to the governmentregulations

Stock companies, limited companies, small and medium enterprises registered theiroperations in accords with the regulations for the company, private enterprise andfor the foreign investment companies in Vietnam

Small and medium collectives registered according to the collective regulations.Individuals, producing and trading groups which are eligible to the regulations

Presently, according to the results of the researCh, SME has taken 24-25% of GDP and24-25% of labor staff of the country (about 8 million labors) excluding the suburb area

In the industrial area, SME take about 31% of the total productivity These proportionsare still low in comparison with the ones of other countries in the world but they show

an important position of SME in Vietnam economy

Student: ViI Thf BICb Pbdf/ng -

22-The growing speed ofGDP(%)

.

.

Sources of statistic department

21 The role of SME in Vietnam economy:

To be appropriate with the general developing trend of the industrialization, the State

has pushed strongly the establishment of 5MB, which exist in many forms, many areas

and in every comer of the country This existence of 5MB has made 5MB an important

role of Vietnam economy

• 5MB take an important role in the growth of the economy:

After ten years of renovation, it shows that the change of the structure, especially the

industrial structure with multi-sections, has been improving the economic development

of Vietnam year by year The economic growth rate has been continuously increasing

In 1986-1990 the rate was 4,9% which came up to 7.7% during 1990-1995 and being

8-9% in 1997

Practically, SME offer a considerable contribution, which has been increasing day by

day This contribution occupies 98% of the one of all kinds of economic sections in the

l

Student: Vii Thi BlJcb Phdt/Dg -

23-country To the national economy, the potential and position of 8MB are veryimportant, which can be recognized through the effectiveness, the national growth rate,the competitive ability, the contribution to the Gross Domestic Product (GDP), to theGross National Product (GNP) and the provision of job.

That role of SME is illustrated in the data of 1990, after four years of the nationalinnovation and the establishment of the multi-section economy

Non state ownedMain target State owned area (%)

Refunding to the National

budget

All the above analysis shows a fact that SME always playa key role in the economicdevelopment of Vietnam

• SME provide a big amount of jobs for the inhabitants and solve many social problems:SME contribute a great part in the economic development of the country At present,the needs of job in our country rise up to 3-4 millions per year The real situation shows

24-that the state-owned area attracts only 2 millions labors In the mean time, the state owned industrial and service areas attract about 4-5 millions or more In HCMCity, the industry and cottage industries in the 8MB area attract 33,7% of the workforce The non - state owned fields such as garment, textile, chemical, rubber, woodprocessing attract a big quantity of labors in which garment industry takes the highestproportion (15,16%), and next comes the textile (14,42%), food (12,63%), chemical,rubber (12,22%).

non-According to the statistics in HCMC in 1996-1997, the non-state owned areas includingthe foreign investment ones have contributed a great part to the society, attractingabout 77% of the work force of HCMC in comparison to the level of 23% of the state-owned areas

It is believed that 8MB are more important than the big ones, especially in therecession period of the economy, To be survived, the big entrepreneurs have to reducethe labor force in order to decrease the production cost or to restrict the scope In themean time, due to the their flexibility to the changes of the market, 8MB are still intheir operation and even attract more labors

Student: VO Th/ BICb Pbllf/Dg 25

-.SME partly make the economy dynamic due to its scope, its operating form, and itscombination of both specialization and diversification to be flexible with the needs ofthe market economy:

Under the effectiveness of the market economy, 8MB have the ability to changequickly the production to adapt to the market, The relationship between SME and thebig enterprises help them to create advantages to each other, SME help the big ones toadapt with the market environment and to improve the flexibility of their activities Tothe SME, the relationship with the big enterprises will help them to be able to contactwith the new technology, capital and market

.SMB have the ability to take advantage of social sources:

With advantages, SMEdo their business in an effective ways They can collect theirown capital or lend from friends, relatives in the family, use the potential of laborsources and the available material in the local area

1- State owned entrepreneurs

2- Limited and shared companies

26-There are millions of 5MB in the country and it is estimated that tens billions VNDhave been collected in the community through this economic section Whenaccepting various economic sections and allowing free trade and services, the Statehas stimulated the detnand and then widened the supply.

After the Company Laws and the Private Entrepreneur Laws are in effect, theregistered capital of private entrepreneurs (of medium size) in the last three years

27-In the suburbs, 8MB join in urbanizing the countryside, improving the income of theworkers and reducing poverty In our country, the economic mechanism in the localareas and in the suburbs is mainly agriculture, which is still in out-of-date conditionsand slowly developed This mechanism is developed in many formS: farms, state-runfarms and in manual fields Being in priority, the policy of developing 5MB hasopened more and more industrial fields in the countryside, made them become richerand in the mean time contributed in changing the mechanism of the areas.

In the last few years 8MB are sensible and flexible to the changes of the market After

a period of establishing and operating, they are all in the trend of developing by risingtheir production ability to meet the market demands All of the 8MB entrepreneursrecognize that it is time they had to increase the quantity and quality of the goods.Because of this reason, there must be a renovation of equipment, production lines; aretraining of workmanship, an employment of expertise, and even a raising up of themanagement

3ff1ie real state of SME in Vietnam:

After more than ten years of changing the national economy, the society has obtainedconsiderable achievements in the trading and productions Goods and services are veryrich and exist everywhere from urban to suburb The living standards are raising up

28-day by 28-day The economy includes critical and dynamic activities of entrepreneurs inwhich SME are standing out.

3.IAdvantages of SME:

3.1.1 Small setting up capital:

The targets to defme Vietnamese enterprises during this period are:

-Legal capital is under 5 billions VND

-The average annual labors are under 200 persons

SME begin their business with a small capital which can be their own one orcollected from their relatives, friends~ However, if they use this small capital in aneffective way, they would re-collect them in a short time~

3.1.2 Taking advantage of cheap labor:

When beginning the business, the entrepreneur usually chooses the productiontechniques, which are appropriate to the labor standards, to the job and to his capital

In SME, there is a combination between manual techniques and the public ones whilethe modem techniques are hardly used MOreover, the equipment of the factories is theold or out of dates ones Due to these above reasons, the working force in these fieldsdoes not required high skill

Student: VO TbJ BICb Pbdf/Dg -

29-8MB have provided a big amount of jobs to the societY They take part in solving theunemployment Beside, 8MB also receive from this contribution an advantage ofhaving a cheap and available labor force of the society.

3.1.3 Flexible and adaptable to changes:

With small capital and simple management, SME are very flexible and easilyadaptable to the changes of the market After an operating period, they tend to developthemselves by raising up the production ability to meet the demand of the market Thereal situation of the market economy forces them to change their business day by day.And the competitive rules ask them to rise up their production ability

3.1.4 Taking advantage of cheap and available materials:

8MB are usually established at the local place where the material exists The goodsproduced by the factories are made from the local sources That is an advantage forthe entrepreneurs since they can get material with a cheap price, in a short time withoutpaying much transportation cost For instance, it easily rrods that handicraft factoriesusually exist in the place where bamboo grows Or the husking and polishing ricefactories process rice for the local people At the same time, they buy paddy fromfarmers to make rice, broken rice, and bran to sell to private rice sellers or to the stateowned food companies to distribute to different places and to export

Those examples show us the advantages that the 8ME can obtain from the localmaterials