Developing small and medium enterprises in traditional handicraft villages in Bac Ninh province

DEVELOPING SMALL AND MEDIUM ENTERPRISES IN TRADITIONAL HANDICRAFT VILLAGES IN BAC NINH PROVINCE A Doctor Thesis Presented to The Faculty of Graduate School Southern Luzon State Univer

DEVELOPING SMALL AND MEDIUM ENTERPRISES IN TRADITIONAL

HANDICRAFT VILLAGES IN BAC NINH PROVINCE

A Doctor Thesis Presented to

The Faculty of Graduate School

Southern Luzon State University, Lucban, Quezon, Philippines

in Collaboration with

Thai Nguyen University, Socialist Republic of Vietnam

In Partial Fulfillment of the

Requirement for the Degree

Doctor of Business Administration

Vuong Quoc Tuan

(Strongman)

December 2014

TABLE OF CONTENTS

CHAPTER 1: INTRODUCTION 1

1.1 Background of the study 1

1.2 Objectives of the study 4

1.3 Hypotheses 5

1.4 Scope and Delimitation 5

1.5 Significances of the study 6

1.6 Definition of terms 7

CHAPTER 2: REVIEW OF RELATED LITERATURES AND STUDIES 9

2.1 Related Literatures 9

2.1.1 Concepts 9

2.1.2 An Overview of Small and Medium Enterprises 13

2.1.3 Small and Medium Enterprise Development and Business Development in Traditional handicraft villages in Bac Ninh Province 31

2.1.4 Factors Affecting the Development of Small and Medium Enterprises 46

2.2 Related Empirical Studies 50

2.3 Conceptual Framework 56

CHAPTER 3: RESEARCH METHODOLOGY 57

3.1 Research Design 57

3.2 Population, Sample Size and Sampling Technique 57

3.3 Description of Respondents 58

3.4 Research Instrument 58

3.5 Data Gathering Procedures 59

3.6 Statistical Treatment of Data 59

CHAPTER 4: FINDINGS AND SOLUTIONS ABOUT CURRENT SITUATION ON DEVELOPMENT OF SMALL AND MEDIUM ENTERPRISES IN TRADITIONAL HANDICRAFT VILLAGES OF BAC NINH PROVINCE 61

4.1 Overview of traditional handicraft villages and small and medium enterprises in traditional handicraft villages in Bac Ninh province 61

4.1.1 Traditional handicraft villages 61

4.1.2 Small and medium enterprises in traditional handicraft villages in Bac Ninh province 63

4.1.3 Employment and income in small and medium-sized businesses in handicraft villages, traditional handicraft villages in Bac Ninh province 65

4.2 Features of the elements in external environment affect the development of small and medium enterprises in handicraft villages, traditional handicraft villages in Bac Ninh

province 66

4.2.1 Group of policy factors 66

4.2.2 Group of administrative procedure factors 71

4.2.3 Group of geography, infrastructure factors 80

4.2.4 Group of financial and economic factors 85

4.2.5 Group of labor factors 88

4.3 Assessing the internal problems of small and medium enterprises in handicraft villages, traditional handicraft villages in Bac Ninh province today 94

4.3.1 Group of business owner factors 94

4.3.2 Group of labor factors 99

4.3.3 Group of organizational structure factors 102

4.3.4 Group of raw material factors 106

4.3.5 Group of technological level factors 110

4.3.6 Group of financial capacity factors 115

4.3.7 Group of product and market factors 119

4.3.8 Group of production and business result factors 126

4.4 Analysis of factors affecting the development of small and medium enterprises in traditional handicraft villages in Bac Ninh province 130

4.4.1 Factors affecting the growth in the number of small and medium-sized enterprises 131

4.4.2 Factors affecting the gross revenus of small and medium-sized enterprises in traditional handicraft villages of Bac Ninh province 133

4.5 Assessing the strengths, weaknesses, opportunities and challenges for the development of small and medium enterprises in traditional handicraft villages in Bac Ninh province 134

4.6 Limitations and challenges of the SME sector 136

4.7 Orientation and solutions for SMEs development in traditional handicraft villages of Bac Ninh province in the near future 138

4.7.1 Orientation 139

4.7.2 Development Goals 139

4.7.3 Solutions for the development of SMEs in traditional handicraft villages in Bac Ninh province 140

CHAPTER 5 148

CONCLUSION AND RECOMMENDATION 150

5.1 Summary 150

5.2 Conclusions 151

5.3 Recommendations 153

BIBLIOGRAPHY 155

APPENDICES 161

CHAPTER I

INTRODUCTION

Due to the important role of small and medium-sized enterprises, many countries have focused on encouraging this type of enterprise development Institutional support nature to encourage include: Support to create

a favorable business environment (development and promulgation of the law on small and medium enterprises, to facilitate licensing, supply information , etc.), the business support capacity building (training resources management, technology support , etc.), and the support of credit (bank established professional for small and medium enterprise loans, credit guarantees for enterprises, the establishment of venture capital companies , etc.), and other support (such as business premises)

According to the Vietnam Association of Small and Medium Enterprises (VINASME), up to 96% of registered enterprises in Vietnam are SMEs This unit generated 40% of gross domestic product, generating more than 1 million new jobs each year, mainly beneficial especially for untrained labor For many years, the volume of SMEs is still the engine that runs the economy of Vietnam But have to admit the fact, this volume is also thrive in areas with modest margin, low technology so there is no advantage

in size (financial resources, area of operation, market share, etc.) that often focus on issues such as selection of business objectives consistent with the ability, stability and consolidation of market share or develop gradually and selectively market stage, the sudden most favorable break SMEs still have the motor and the link to business cooperation that lack of clarity of the role of state policy

1.1 Background of the study

Small Business Development Plan and medium period 2011 - 2015 has been approved by the Prime Minister, in which the goal of bringing the number of newly established small and medium-sized enterprises in 2011-2015 is expected to 350,000 enterprises Target set by the time on 31.12.2015, there were 600,000 active enterprises (http://baodientu.chinhphu.vn/Home/Ke-hoach-phat-trien-doanh-nghiep-nho-va

vua/20129/148542.vgp)

Small and medium-sized enterprises play an important role in socio-economic development and active support for the development of big business, but they have certain restrictions on capital, production technology, production ground So, requiring solutions, long-term policies to support enterprises to overcome difficulties and improve competitiveness towards the goal of sustainable development

According to a survey of the Department of Business Development (Ministry of Planning and Investment), officially recognized in 2001, by the end of June / 2012, the country has 658,645 SMEs registered establishment, of which 468,023 enterprises activity (about 71.1%) The number of SMEs in terms of the labor force each year by an average of 22.11% / year (if in 2000 more than 38,000 companies, 2010 was over 283,000)

In 2010, Bac Ninh Province have been granted business registration certificates for

797 enterprises, including: 748 enterprises granted business registration certificates of the Company Law, 100% new business was established in 2010 small and medium-sized enterprises; 49 FDI investment certificates associated with the establishment of enterprises, branches, representative offices under the Investment Law; as the end of 2010, Bac Ninh province has a total of 4.293 enterprises, in including 5 state enterprises and private business 4013, 275 FDI enterprises

In general, businesses in the province to develop good business in accordance with law, to be effective, has potential exploit local strengths such as capital, labor, skill, level workers, especially is in the local traditional handicraft villages Private sector was contributing to production development, create jobs, increase budget revenues, improve people's lives; contribute to poverty reduction, economic restructuring towards industrialization of modernization and contribute significantly to the socio-economic development of the province Enterprises have increasingly conscious mouse than in the observance of safety, occupational health and insurance

Results of implementation plan for SME development in the province of Bac Ninh 2006-2010 Bac Ninh Province to encourage and create favorable conditions and support people to establish enterprises; province has planned and established industrial parks, small and medium-sized industrial clusters, industrial villages, to help people set up businesses have leased premises conditions for investment in the business

The province has implemented mechanisms, effective new policies to improve the business environment PCI index increasingly improved rankings year after more than year ago: rated 22 (2006), No 16 (2008); 2009, provincial competitiveness index of the North increased security 6 Level No 10 compared to nationally and internationally as one of three leading provinces PCI index of the northern provinces; 2010, the provincial competitiveness index of Bac Ninh increased to 4 Level stand 6 compared with nationally and internationally as one of the top leading PCI of the northern provinces

On the business side: The majority of SMEs have small capital, so the investment

in modern technology and equipment (mostly imported from abroad) is very difficult,

while to the competitive foreign companies to continuously improve equipment, reduce input costs State policies to support credit loans but access to capital is impeded by the small value mortgage, can not afford credit guarantee; SMEs often lack and difficulties with most kinds of business are not given priority in terms of production, often using their own homes, and hiring of private land lease prices high, there is still discrimination

Low level of technology and quality of labor is limited, derived from small-scale features which should virtually restricted business investment in modern technology and equipment

Management level and low-skilled, the number of SMEs through training percentage is very low and virtually untrained professional; while workers mostly manual labor, only trained short-term job or the labor shift from agriculture to up the skill is still limited Therefore, the application of modern advanced technology is also difficult

SMEs lack information and remain flat side of the relationship (the state, the market, banking, science centers and training centers, etc.) Internet access and applications

in business for SMEs constrained by insufficient qualifications as well as the cost is quite high compared to the size of the small business

SME Development Goals 2011-2015: accelerate business growth and enhance the competitiveness of SMEs, business investment environment and convenient, equitable, transparent to the SME contribution increasing economic development and improve national competitiveness

Target SME Development 2011-2015: number of newly established enterprises increased by 25% / year; each year about 500 new established enterprises and 20,000 employees supported technical training, and technical management in SMEs; meet the basic business of the production business

The story of a representative enterprise producing bamboo handicrafts in Y Yen District, Nam Dinh said: Although the village is famous for its line of bamboo lacquer products, but the products must through intermediate systems, inaccessible to direct customers There is time for the people of this village to busy racing competition, including not healthy, so it's time for poor quality products When the product is on the market, customers see poor quality so next time do not buy anymore

Notably, there are many large business companies do not get the goods of this village that takes the product of another village, while other villages choose to buy products that actually get the product from this village for sale rather than production This

situation led SMEs in this village that the deadlock, even feel the "injustice" in the marketplace However, according to Pham Chi Lan, this is something quite common in villages in Vietnam

Being aware of mentioned issues and with the support from small and medium enterprises in traditional handicraft villages in Bac Ninh province and consultant from supervisor, with the purpose of enhancing quality and quantity of not only products of

SMEs but also SMEs themselves, the researcher studied this thesis entitled “Developing small and medium enterprises in traditional handicraft villages in Bac Ninh province”

1.2 Objectives of the study

The general objective of the study is to know about the current situation of small and medium enterprises development and then to propose feasible solutions for the development of traditional handicraft villages in Bac Ninh province The specific objectives of the study are as follows:

1 To determine the profile of small and medium enterprises in traditional handicraft villages in Bac Ninh province in terms of:

3 To assess the strengths, weaknesses, opportunities and challenges for the development of small and medium enterprises in traditional handicraft villages in Bac Ninh province based on SWOT analysis

4 To determine the significant difference between problems identified by both groups of small and medium enterprises inside and outside traditional handicraft villages in Bac Ninh province

5 To propose feasible solutions for 5-year development plan of small and medium enterprises in traditional handicraft villages in Bac Ninh province

1.3 Hypotheses

There is no significant difference among the perception of the respondents about conditions for the development of small and medium enterprises in traditional handicraft villages in Bac Ninh province in terms of:

- Product and market;

- Production and business result

1.4 Scope and Delimitation

The main goal of this study is to find out solutions for the development of small and medium enterprises in traditional handicraft villages in Bac Ninh province The researcher completes this study with belief that its result will help SMEs in traditional handicraft villages can develop stronger

Due to the author’s limitation of time, the research only studied some contents related to factors of external environment (Policy; Administrative procedure; Geography, infrastructure; Economics and Finance; Labor) and factors of internal environment (Business owner; Labor; Organizational structure; Raw material; Technological level; Financial capacity; Product and market; Production and business result) that affect the development of SMEs in traditional handicraft villages in Bac Ninh province

Describing methodology and with survey questionnaires as a main tool to collect the data and information will be utilized in this study

1.5 Significances of the study

This study will be beneficial to the following:

For managers of research units:

The study shows out the limitations as well as find out conditions needed for the development of small and medium enterprises in traditional handicraft villages in Bac Ninh province, so it helps managers of research units to identify solutions and build strategies to remove the difficulties and support SMEs in the province in some different ways and improve investment environment to attract resources from outside of province such as investment capital, science technology, scientific management, also exploit and promote the province's comparative advantage in productions and business, trade and services, infrastructure and available labor resources of the province to enhance the development for SMEs in traditional handicraft villages

For research unit:

By realizing appropriate conditions for the development and from which by offered proper solutions, the study helps research units receive better policies to perform well their businesses and develop more strongly

For the researcher:

This study helps to complete the PhD thesis, besides it also enhances studying ability, accumulate knowledge for the author

For future researchers:

This study will serve as a reference for future studies and researchers on research methods, analysis and evaluation of conditions for the development of small and medium enterprises in traditional handicraft villages, from which researchers’ future studies will determine the issues for related further studies

1.6 Definition of terms

Capitalization: is the sum of a corporation's long-term debt, stock and retained

earnings

Small and Medium Enterprise: is an independence manufacture base, business

registered pursuant to current law, has registered capital not higher than VND 10 billion or the yearly average labors numbers are not over 300 people

Traditional handicraft villages: are villages appear long ago in history and still

exist today, as the village has existed for hundreds of years, even thousands of years, is closely related to factors traditional and popular experience has been accumulated over many generations back

Policy: Refers to the set of basic principles and associated guidelines, formulated

and enforced by the governing body of an organization, to direct and limit its actions in pursuit of long-term goals to create favorable conditions for enterprises

Administrative procedure: A fixed, step-by-step sequence of activities or course

of action (with definite start and end points) that must be followed in the same order to correctly perform a task

Infrastructure: Refers to basic physical and organizational structures needed for

the operation of enterprises (in this study, they are SMEs in traditional handicraft villages

in Bac Ninh province), and facilities necessary for them to function

Economics and Finance: Focused on the elements of money, risk, opportunity

cost and other variables related to financial decisions This field of study concentrates on how financial moves are made under uncertain conditions

Labor: The aggregate of all human physical and mental effort used in creation of goods and services Labor is a primary factor of production

Business owner: Individual or entity who owns a business entity in an attempt to

profit from the successful operations of the company Generally has decision making abilities and first right to profit

Organizational structure: The typically hierarchical arrangement of lines of

authority, communications, rights and duties of an organization Organizational structure determines how the roles, power and responsibilities are assigned, controlled, and coordinated, and how information flows between the different levels of management

Raw material: Basic substance in its natural, modified, or semi-processed state,

used as an input to a production process for subsequent modification or transformation into

a finished good

Technology level: The purposeful application of information in the design,

production, and utilization of goods and services, and in the organization of human activities

Financial capacity: Refers to ability of enterprises in terms of money, capital and

equity

Product: Is anything that can be offered to a market that might satisfy a want or

need In the study, products are types of subjects made by traditional handicraft villages in Bac Ninh province

Market: A medium that allows buyers and sellers of a specific good or service to

interact in order to facilitate an exchange

Production and business result: Refers to output in the process of manufacture

and business operation of the enterprises

CHAPTER 2

REVIEW OF RELATED LITERATURES AND STUDIES

This chapter will present concepts and theories that have significant effect on the conduct of the study Review of related literatures and study will present what had been written about the subject Finally a Conceptual framework that will aid the conduct of this research work will be established

Whether this state is achieved in the short or long term, change has several implications for society Disruption may occur in the established patterns of living within the society as it moves towards good change, and thus reflect a contradiction to its intended meaning, and generate a discourse on what constitutes this “good change” (Thomas, 2000)

As a result, the term development in both academic and non-academic fields has enjoyed

an ambiguous position of being alluded to a diversity of meanings defining or evaluating what “good change” is, and who this good change belongs to

In general terms, “development” means an “event constituting a new stage in a changing situation” If not qualified, “development” is implicitly intended as something positive or desirable When referring to a society or to a socioeconomic system,

“development” usually means improvement, either in the general situation of the system,

or in some of its constituent elements Development may occur due to some deliberate action carried out by single agents or by some authority preordered to achieve improvement, to favorable circumstances in both Development policies and private investment, in all their forms, are examples of such actions

Given this broad definition, “development” is a multi-dimensional concept in its nature, because any improvement of complex systems, as indeed actual socio-economic systems are, can occur in different parts or ways, at different speeds and driven by different forces Additionally, the development of one part of the system may be detrimental to the development of other parts, giving rise to conflicting objectives (trade-offs) and conflicts

Consequently, measuring development, i.e determining whether and to what extent a system is developing, is an intrinsically multidimensional exercise

2.1.1.2 Small and Medium Enterprises

Small and medium enterprises are the enterprises with small scale in terms of capital, labor or revenue Small and medium enterprises can be divided into three categories based on size includes micro enterprises, small enterprises and medium enterprises

Statistical definition of SMEs varies by country and is usually based on the number

of employees, and value of sales and/or value of assets According to the criteria of the World Bank Group, micro enterprises are enterprises with the number of workers fewer than 10 people, small businesses are the number of employees from 10 to 50 people, while medium enterprises have from 50 to 300 labors

To date, a single, universally accepted definition of the term small and medium sized enterprise (SME) still remains elusive among countries and blocs across the world Each country defines SME based on its economy’s characteristics and states of technological development in order to devise programs to support these targeted firms Since there are “significant differences in aggregate income and its distribution, in production structures and capabilities, and in industrial and technological characteristics among economies” (Asasen and Asasen, 2003), it is not unexpected that the definition of SME will vary greatly from one country to another Some countries distinguish between small and medium-sized firms, while others put them all into one category Some use the capital investment criterion, while others do not That is also the case with assets and annual sales criteria

Furthermore, the level of labor and capital intensity required by firms differs noticeably among countries and across different sectors within a country This is because different countries give preference to different areas A country with a focus on labor-intensive industries such as the textile industry will not put as high a capital investment benchmark to categorize a firm as an SME as does a country with a focus on capital-intensive industries such as the automobile industry

Because this research limits its scope to Vietnamese SMEs only, the official definition by the Vietnamese government (Government Decree 90/2001/ND-CP dated November 23, 2001) was adopted The definition is stated as follows:

“SMEs are independent production and business establishments which make business registration according to the current law provisions, each with registered capital not exceeding VND 10 billion (equivalent to US$ 621,774.547) or annual labor not

exceeding 300 people On the basis of the concrete socio-economic situation of each branch or locality, in the course of implementing the support measures and programs, both

or either of the above-mentioned criteria on capital and labor may be applied in a flexible manner.”

Moreover, according to Decree No 56/2009/ND-CP dated 30 June 2009, SMEs comprise the businesses registered in accordance with the Enterprise Law, cooperatives and individual business households, of either micro, small, or medium size There are two criteria for defining the type of SME, namely scale of total assets (as the prior criterion), and annual average number of employees In particular, a micro-sized enterprise is defined

as one having 10 or fewer employees

Table 2.1 Classification of SMEs

Source: Decree No 56/2009/ND-CP

Up to May, 2010, over 55% are micro-sized enterprises with the number of permanent laborers being fewer than 10

Table 2.2 Classification of SMEs by Scale of Labor Dimension

Source: White book on SMEs in Vietnam 2009

Note: Unit in %

According to the White Book on SMEs in 2009, from 2000, the average registered capital of enterprises increased by 9 times over the 2000 - 2008 period The increases were 0.962 billion, 3.14 billion, 8.1 billion and 8.7 billion VND in 2000, 2006, 2007 and 2008 respectively

2.1.1.3 Traditional handicraft villages

The village is a cluster of residents in a village (the village) has one or several lines are removed from production agriculture to independent business, is the village nonagricultural sectors dominate the household, number of employees, and the income from farming

Traditional handicraft villages are villages appear long ago in history and still exist today, as the village has existed for hundreds of years, even thousands of years, is closely related to factors traditional and popular experience has been accumulated over many generations back There are many traditional handicraft villages in Vietnam such as the paper Phong Khe commune, Dong Ho folk paintings, Luy Lau pottery, wood carvings at Dong Giao, Dong Ky

In the past, after harvest time, Vietnamese people made handicraft works to meet their own needs Their products are very skillful and sophisticated, even though they are farmers and do not specialize in handicrafts The techniques were kept secret, but taught to relatives or fellow villagers

The village, therefore, became a very important institution in the handicraft industry The village's name became the trademark of handicraft products made by its villagers “Đình làng”- the village's temple became the place of worship and “tổ nghề” the man who first taught the villagers to do these handicraft works

When urbanization came to Vietnam, many people came to towns/cities and professionalized in the handicraft works they had done in their old village They did not compete with one another but gathered in “phường/hội”, the new form of handicraft village,

to help others to improve The Vietnamese government has recognized about 1.500 handicraft villages, of which about 300 are traditional handicraft villages These villages maintain the country's handicraft heritage

Bac Ninh is a beautiful and famous province in the northern midlands Just 30km from Hanoi city, north close to Bac Giang province, Hai Duong province on the east and southeast, Hanoi on the west, Hung Yen on the south The province has large rivers follow through, so the transportation system of roads, railways and waterways are favorable;

locate on the adjacent of Hanoi capital that creates many advantages in economic and cultural development

Bac Ninh used to be a famous ancient town and today is still well-known for its richness in tangible as well as intangible heritages Bac Ninh have now many famous traditional handicraft villages such as Dong Ky Wood, Dong Ho folk painting village, Dai Bai Cooper casting and Phu Lang Pottery… that create favourable conditions not only for economic development but also for tourism development

Northern Bac Ninh Province, homeland of Quan Ho art, has 62 traditional trade villages The most colorful village is Dong Ho The village of Dong Ho (Đông Hồ) in the province of Bắc Ninh is known as a center of production of traditional Vietnamese woodblock prints (tranh Đông Hồ), which are sold all throughout Vietnam in time for the Lunar New Year (Tết) celebrations All of the free space in the village is used

to dry the papers, making the village look like a colorful painting

2.1.2 An Overview of Small and Medium Enterprises

2.1.2.1 The Role of Small and Medium Enterprises in Vietnam

Vietnam introduced officially the economic renovation (Doi moi) in 1986, but it was only in 1989 that it actually adopted a comprehensive and radical reform package aimed at stabilizing and opening the economy, as well as enhancing freedom of choice for economic units and competition Nevertheless, during 1997-2000, the reforms were to a certain extent retarded, especially after the Asian financial crisis Since 2000 to date, a new wave of economic reforms has been stirred up with emphasis on private sector development, further trade and investment liberalization with deeper international economic integration The accession to the World Trade Organization (WTO) at the end of

2006 marked a new milestone in the country’s economic reform and development

Through the market-oriented reforms and WTO–driven adjustments, Vietnam has achieved remarkable achievements in the country’s economic growth and stability, foreign trade expansion, attraction to foreign investment, poverty reduction, and human development improvement

It is worth noting that the socioeconomic successes have been significantly attributed from the country’s small- and medium-sized enterprises (SMEs) In Vietnam, according to a Spring 2011 report the number of SMEs is nearing 400,000 enterprises The SMEs occupy an overwhelming proportion in total number of country’s enterprises accounting for 97 percent and 87 percent by regular workforce and registered capital criteria in 2005, respectively They have contributed 39 percent of gross domestic product

(GDP), 32 percent of total investment outlays in 2006 (Ho Sy Hung 2007), and about 85 percent of total corporate workforce in 2004 (Le Xuan Ba et al 2006) Apart from being a relatively dynamic sector in the economy, SMEs have also played an important role in creating jobs, maintaining high mobility of the labor market, and narrowing development gaps among localities of the country

Further, SMEs are the engine of growth in Vietnam just as small business plays the same role in developed markets like the U.S In Vietnam, SMEs on average, have seen their profits grow approximately 20% each year for the immediate past (Runckel, 2011, Business in Asia)

The WTO accession is expected to bring about new opportunities for SMEs development like the creation of a level playing field, easier access to production factors and cheaper imported inputs in the domestic market, expansion of export markets, and facilitation of the national economy to engage more in-depth in regional and global production networks SMEs have played an important role in the national economy The sector has long been a major source of employment generation accounting for about 85 percent of the total corporate workforce in 2004 (Le Xuan Ba et al 2006) SMEs are a main vehicle for poverty alleviation particularly in rural areas and narrowing development

328 gaps among provinces, urban, and rural areas In addition, SMEs help maintain the high flexibility of the labor market It also contributed significantly to absorb the “shocks” associated with the transition from a centrally planned economy to a market-oriented one especially the collapse of the socialist bloc in Eastern Europe (Le Xuan Sang 2007) The contribution of the SMEs to economic growth is also important They occupied a proportion of 39 percent of GDP in 2006 (Ho Sy Hung 2007) The “precise” trend of the SMEs proportion in overall GDP over the recent years, nevertheless, is hardly identified due to the lack of systematic and reliable statistical data In comparison with the SOE sector, the SMEs have likely played a minor role as they account for only 32 percent of the total investment outlays while the former do more than 50 percent In addition, the SMEs have very limited export and technological capability

Moreover, Vietnamese SMEs have been playing an important role in the development of the country Not only in generation of non-agricultural jobs, SMEs have made sizable contributions to the State budget (15 percent in 2003), formed the majority of the distribution (retail trade) network throughout the country (making up 80 percent of the network in 2003) and export activities (comprising 39 percent and 41 percent of the seafood and cashew-nut export revenue in 2004 respectively) Besides, SMEs have been

active and effective actors in the preservation and development of traditional craft villages and supply of services for bigger businesses

2.1.2.2 Characteristics of Small and Medium Enterprises in Vietnam

a SME Distribution and Development

Vietnam’s SMEs account for an overwhelming proportion in the total corporate sector by both regular workforce and registered capital criteria That sector represents for

95 percent, 97 percent by regular workforce criterion and 86 percent, 87 percent by registered capital criterion in 2002, 2005 respectively (Table 3) Majority of the large enterprises are SOEs and foreign-invested enterprises (FIEs) Notably, the increase of SMEs’ share in the context of substantial growth in the number of registered firms implies that the newcomers are mostly SMEs

By size of SMEs labor force, it should be noted that almost all of SMEs are micro- and small sized firms accounting for about 52 percent and about 35 percent on average in

2002, 2005, respectively Medium- and large sized firms are very few having on average only 11 percent and 2 percent of the total number in the same period, accordingly (see Table 3)

However, that structure is only true for non-state SMEs since they occupied as much as 91-95 percent in 2002, 2005 Indeed, a majority of state-owned SMEs (about 73 percent) and most of FIEs (about 54 percent) are medium- and large-sized (Table 3)

The declining proportion of medium-sized firms and the increasing proportion of micro- and small-sized ones imply that the increased number of SMEs is mostly contributed by the latter from non-state sector Another feature is that mostly SMEs are concentrated in the forms of limited liability and sole proprietary companies, accounting for 47 percent and 32 percent in 2005 by workforce criterion respectively

By the size of registered capital, 90 percent of the firms have a registered capital less than VND 5 billion (about USD 330,000) Most types of SMEs fall well into the range

of VND 1-5 billion

By the averaged size of regular labor force, SMEs are small in size, too In 2005, the labor force averaged to 32 laborers per enterprise This is a very slight increase because

in 2000, it was only 30 laborers per enterprise During the same period, the average capital

of SMEs increased from VND 3 billion to 7 billion

Table 2.3: SMEs distribution by size of employees and by type of enterprise

(2002, 2005)

By economic activities, SMEs are concentrated in trade, repair of motor vehicles and household goods (42-44 percent), manufacturing (19-21 percent), construction (12- 13 percent) during 2002-2005 Within the manufacturing sector, food and beverage sector attracts more SMEs, with the largest proportion of more than 4 percent in 2005 (Table 4) There are new shifts of SMEs “employers” in the corresponding period

Table 2.4: SME distribution by size of employees and by kind of economic activity

(2002, 2005)

SMEs’ proportions in manufacturing and construction sectors tended to decline while, trade, repair of motor vehicles, and household goods increases One possible explanation for that situation is that in the third subsector, the entry and skill requirements are less stringent

By region, SMEs are mostly located in HCMC (23-28 percent), Ha Noi (15-16 percent) during 2002-2005 Other provinces or cities, as individual accounts, have a share

of less than 4 percent (Table 5) SMEs are gradually ‘moving’ to HCMC, Ha Noi along

with the provinces of Hai Phong and Da Nang This may reflect, inter alia, the efforts of

the provincial governments in improving business environment, particularly in attracting investment inflows through many kinds of incentives, even beyond what their authority

can provide

Table 2.5: SME distribution by size of employees and by province (2002, 2005)

Nevertheless, the dynamics of SMEs in terms of employment transition is not high According to surveys conducted by Rand and Tarp (2007), majority of microsized enterprises (88 percent) have tended to stay within their size category In 2002, some 12 percent in this category remained as micro But in 2005, some graduated to the small category only A similar tendency can be observed on small- and medium-sized enterprises Vice versa, enterprises in these categories appear to have a stronger tendency

to move downward in the size distribution over 2002-2005 period (Table 6)

Similarly, this tendency is also observed during the 1995-2000 period

Table 2.6: Employment transition matrix

The last tendency can be partially interpreted by the practices that large firms generally appear to face greater scrutiny from tax and licensing officials (i.e., generating higher costs) (Hakkala and Kokko 2007) than do their smaller counterparts There is also a number of anecdotal evidence that successful entrepreneurs in Vietnam prefer to spread their capital across multiple companies rather than concentrate on individual company growth, specifically in order to avoid what has been referred to as “the tall poppy syndrome” (Taussig 2005) Moreover, a significant number of firms decline to stay small

in order to get more the tax incentives (Nguyen Xuan Trinh and Le Xuan Sang 2007)

b SMEs networks

Interfirm networks among SMEs as well as external networks between them and large enterprises through subcontracting are generally weak Incubators and clusters are still in their infant stage Presently, there are four newly established incubators in operation

Almost all of Vietnam’s clusters are concentrated in the countryside in the form of handicraft and industrial or trade villages Though there are no vigorous and comprehensive studies on interfirm cooperation in the villages, internal network among SMEs (mostly household enterprises) is not close as it can be observed in many economic

ties

Figure 2.1: Vietnamese industrial dualism

Source: Onhno (2004), Vo Tri Thanh et al (2004) and authors’ modifications

External networks between SMEs and multinational companies (MNCs) are not yet that strong The weak linkage can be observed between upstream and downstream

industries (Vo Tri Thanh et al 2004), more evidently in import-substituting and export

oriented sectors (Ohno 2004), creating industrial dualism in the national economy On the one hand, export-oriented manufacturing firms, especially the FIEs, have constituted a sector with global linkage and competitiveness On the other hand, the import substituting firms, especially the SOEs and some FIEs, have been weak and protected

These two sectors have very weak linkage between each other (Figure 1) This situation has been largely due to industrial and trade policies by which Vietnam has pursued for industrial protection for a long time

The weak network between SMEs and large MNCs can be seen in the low level of subcontracting and localization Proportion of SMEs engaged in subcontracting or

assembling has been modest, being merely 14 percent in 2003 (Le Xuan Ba et al 2006)

It is worth noting that as subcontractors and assemblers, SMEs have tended to become marginalized at the lower/lowest end of the production supply chain Despite enormous efforts of the government in promoting localization, the local content or procurement ratios for some industries are still low and far from being achieved the planned targets According to Mori (2005), the average of local parts procurement ratios in all the manufacturing sectors is around 22.6 percent in 2003 at the value base, which is significantly lower than in other ASEAN countries5 After a decade of the localization course, the local content ratio of automobile industry remains low ranging from 5 percent

to 10 percent (Ohno 2004) A similar pattern can be seen in the garment and electronic

sectors (Vo Tri Thanh et al 2004) The local procurement ratio of consumer-electronics

sector has been encouraging for TVs (20-40 percent) but disappointing for PC peripherals (5-12 percent) (Mori 2005) Success in localization is solely evident in the motorcycle industry with an average local content ratio of 75 percent in recent years The key reasons for the localization fiasco are:

1 Lack of solid supporting industries;

2 Low level of technology and absorptive capability of the SMEs; and

3 Most SMEs cannot meet the MNCs requirements for quality and standards on goods and time delivery

It is important to note that the weak linkage between foreign firms and local firms could obstruct FDI’s spillover effects on the local economy and reduce the FDI efficiency

The informal network of owners and managers can help an enterprise do business easier The social networks play a crucial role in many business aspects, such as the ease with which business licenses and permits are obtained, easier access to government contracts, easier access to preferred credit, lower tax, informal payments and so on The research by Rand and Tarp (2007) reveals interesting features of specific formal and informal network ties The share of owners - members of the Communist Party increases with enterprise size, with an average share 9 percent of all enterprises Likewise, the share

of enterprises having network ties with one or more bank officials is also increasing in enterprise size A first glance at the differences in revenue growth rates between enterprises with and without network ties, however, does not show any significant differences in economic performance (Table 5) Thus, a more vigorous analysis is required

to establish causality

Generally, SMEs do not buy services unless it is the only solution to a need When they engage in one, they go for simple products first To this end, demand-driven human resources training has been by far more popular than quality management consultancy Many providers compete in providing supply-driven training services without thinking of moving into other business areas such as developing customized solutions At present, the commonly available support services from domestic providers are training, partial consulting, marketing, and so on

Table 2.7: SMEs’ network ties

c SMEs Innovativeness

It should be noted that among the three stages of developing technology including adopting technology, mastering technology, and creating technology, to date, Vietnam is basically at the first stage Technology creation requires efficient knowledge-intensive activities such as research and development (R&D), which are very limited in Vietnam According to Dinh Van An and Vu Xuan Nguyet Hong (2004), investment value of SOEs

in R&D accounts for merely 0.25 percent of their revenues, much less than developed countries (5-10 percent); private sector has virtually no investments in R&D

The lack of technology-creating capability of Vietnamese private firms largely stemmed from the following:

1 Education and vocational training system have not been efficient with the university curricula being very theoretical The private firms still pay inadequate attention

to formal training of human resource (see, for example, Rand and Tarp (2007); and

2 Commercialization of technology products has been very limited due to the weak linkage among research institutions, universities, and enterprises Additionally, majority of the labor force (70-75 percent) is unskilled causing the low absorptive capability of the domestic firms Shortage in labor along with poor vocational training has significantly hindered every stage of technology development

Making technology available for domestic firms is very important for many developing countries Technological availability in Vietnam is varied In the early 2000, Le

Xuan Ba et al (2006), found out that a significant number of Vietnam’s SMEs used old or

outdated machines and equipment Over the years, in Rand and Tarp’s 2007 study, SMEs technological innovativeness revealed the availability of new machinery and equipment in which some 88 percent of these SMEs have equipment no more than 10 years old

Table 2.8: Innovation rates

However, around 10 percent of the SMEs still use hand tools and 4 percent use manually operated machines As much as 25 percent of the firms already use power driven equipment Furthermore, more than 61 percent of the technology was purchased new and around 34 percent was bought second hand During the past three years, around 41 percent

of the SMEs introduced some new products; while only 30 percent was able to introduce a new technology in the production process Larger enterprises are more innovative and able

to improve technological production processes more often (Table 8)

According to respondents, the key driving force for introducing new products are: (1) requirements by purchasing customers (62 percent); and (2) increasing competition from domestic producers (29 percent) The enterprises’ adoption of new technology has been largely due to: (1) needed upgrading in order to face competition (37 percent); (2) buyers’ requirements (32 percent); and (3) increase benefits (22 percent)

d Domestic Market

As noted earlier, there has been an increasing tendency of GDP growth rate of state sector in Vietnam (from 6.4 percent in 2001 to 8.7 percent in 2006) unless its share in overall GDP tended to decline steadily over the past six years (from 47.8 percent in 2001

non-to 45.6 percent in 2006) (CIEM 2007) According non-to General Statistics Office (GSO)’s

data, SMEs’ gross revenues have also grown at quite high rate: 28 percent annually during 2001-2005 However, non-state loss-makers in total number of enterprises increased steadily accounting for 20.4 percent in 2002 and 24.5 percent in 2004 If that trend is true for the SMEs, it can be said that their production efficiency has declined

Rand and Tarp (2007) have shown a relative high level of Vietnam’s SMEs’ capacity utilization and technical efficiency in manufacturing In the question on how much enterprises would be able to increase their production from the present level using existing equipment or machinery, only around 17 percent of the sampled SMEs said they would not be able to increase production but around two-thirds said they could increase production by no more than 25 percent The surveys also indicated that micro and small-size enterprises are closer to producing at their optimal capacity than medium- and large-sized enterprises Likewise, 7 percent of urban enterprises could expand two times or more than their existing production as compared to 1.6 percent in rural areas The results of surveys also showed the technical efficiency level of 68 percent of Vietnam’s manufacturing, which falls well within the best practice frontier for developing countries (60 percent-70 percent)

By sales structure, SMEs sell most important products largely to the domestic state firms as intermediate inputs comprising 58 percent of the total sale revenues The fact that very small proportions of products were sold to SOEs (6 percent) and FIEs (0.7 percent) re-confirms the very loose linkage networks between the SMEs and large enterprises

non-e SMEs Export Market and Readiness to Go Global

SMEs directly engaged in export activities are still limited The studies by Kokko

and Sjöholm (2004), Le Xuan Ba et al (2006), and Rand and Tarp (2007) revealed that

direct export covered 3-6 percent in 2002-2005 Notably, direct exports are basically made

on handicraft (ASMED 2006) and indirect exports are carried out through large (especially state trading) enterprises

Moreover, Rand and Tarp (2007) found out that the larger the size of the enterprise, the higher is their probability of exporting Additionally, on the average, the enterprises exported over 60 percent of sales Exporting enterprises have relatively few foreign trading partners (i.e., only five foreign customers) when engaging in direct exports Furthermore, around 72 percent of exporting enterprises are still much dependent on their foreign trading partners receiving product specifications, designs, or materials and 76 percent for technology or expertise It is commonly agreed that

Vietnam’s SMEs lack international legal knowledge and expertise, nevertheless, only one-third of them use legal advisors when entering direct export contracts Surprisingly, majority (two-thirds) of rural exporters seek legal advice before committing

to an export contract (Table 9)

Vietnam has been a WTO member for only a year SMEs’ perception and knowledge of economic integration remain vague Hence, readiness to inter- nationalization is very limited although there are already a few enterprises which are preparing A 2003 survey by Kokko and Sjoholm showed that SMEs’ perception on internationalization revealed no expectation on any notable changes Majority of the rural household enterprises (70 percent) do not know what liberalization means A 2005 survey results10 show a positive perception and knowledge on internationalization: 72 percent of the enterprises “have information on economic integration.” However, there were 15 percent managers who do not know the challenges they are facing in the future, and 31 percent of firms who do not know WTO issues

Table 2.9: Details on exporting enterprises

2.1.2.3 Constraints of Small and Medium Enterprises in Vietnam

SMEs are central to the structural transformation of the Vietnamese economy The private sector in Vietnam continues to grow and evolve, accounting for increasing shares

of economic output and employment It is therefore vital to understand the constraints facing SMEs and the potential of these enterprises

Despite significant improvements in the business environment that have fostered Vietnamese SME development, these firms still face numerous difficulties Besides the problems typical of SMEs, which have been well reported in the literature, such as lack of managerial and marketing skills, lack of financial resources, and so on (see Huang and Brown 1999 for a full list of typical constraints to SMEs),

Vietnamese SMEs are further constrained by external and internal factors grounded

in the unique institutional development of Vietnam Such constraints are listed below, but this is by no means an exhaustive list It should be noted that the order of items in this list

is arbitrary

Targeting utilization of internal resources for improving SMEs’ competitive capabilities to enter global markets, the government has, to a certain extent, greatly improved the business environment’ conduciveness to SMEs development However, despite the government‘s strong initiatives in promoting the business environments and market factors in Vietnam, there are still a numbers of inadequacies

a Poor Financial and Capital Market in Vietnam

The results of our study indicate that SMEs in Vietnam are currently facing significant difficulties in accessing formal credit and they have to rely heavily on informal credit This is consistent with the statistical data from GSO (2004) that, although credit capital is too low, more than half of the credit is reserved for SOEs The results from our study also show that while SMEs have almost no access to long-term credit, or even to short-term credit in domestic formal credit funds, they also have nearly no access to international formal credit Similarly, Pham (2002) observes that credit for SMEs from venture capital and foreign funds is very small

b Low Level of Technological Development

As stated by Le (2006), an inadequate technological market or weaknesses of technological support services are significant barriers The technological market has failed

to meet the demands for technological research development and transfer The author also reveals that there is no real technological support for SMEs, since only state-owned technological research institutions and state-owned technological support services are operating in Vietnam, and they support large SOEs This is consistent with our research findings

This observation is consistent with our research results that supporting technological development activities are too underdeveloped to assist SME growth On the

other hand, those support policies seem to pay more attention to SOEs’ technological research and development, rather than supporting and facilitating the sustainability and growth of SMEs in private sector

c Inadequate Business and Legal Environment

* Market support factors: Land, legal framework, labour

According to the vnexpress.net (as at 6 Dec 2006), the Vietnamese growth competitiveness index (GCI) has dropped to a rank of 104 in a list of 175 countries Despite the fact that Vietnam is one of the countries that have undertaken notable reforms

in public administrations, and gained some positive improvements in the business environment, these achievements are not enough to sustain economic development as well

as enhance the competitiveness of the economy From our research findings, there is clear evidence that the existence of some inadequate business factors has obstructed the development of a business environment in Vietnam Basic business environmental factors are not adequate for supporting SMEs These business factors include: A poor level of technology development, unskilled labour, insufficient capital for business activities, poor land management, and inadequate quality of business support services for technology and information

* Poor quality of support services for SMEs

It could be said that due to many defective market factors, the current unfavorable business environment does not allow SMEs to utilize their creativity and undertaken further business expansion due to a lack of information about the legal and business environment Moreover, the results of our study indicate that SMEs are neglected by consulting firms As a result, they tend to seek guidance from unofficial sources or they rely on their hired advisors for market information Hence there is a gap between SMEs’ needs and the services available for SMEs

d Poor Support Infrastructure

A study reveals that the monopoly of SOEs in several key industries has led to created unreasonable costs, such as high internet and telecommunication fees, utilities fees and transportation fees for SMEs As a result, business expenses in Vietnam are higher than in other regional countries These expenses include land rental and business premises rental fees and other business expenses According limited number of SMEs and other business firms can access such funds

e Social and Cultural Environment

* Discrimination among business sectors

The research findings describe SMEs’ vital roles are not widely acknowledged by the government and Vietnamese society This is agreed by Le (2006) and Pham (2002) On the other hand, SMEs have tended to be viewed negatively by labourers and the public as a high-risk policy that would generate insecurity in the job market As a result, it is very tough for SMEs to attract qualified labour and access adequate support such as credit, land, and other external resources Negative social perceptions towards the roles of SMEs would have a significant influence on the development of this private business sector and discourage SMEs from business development in many ways Although the current legal regimes do ensure fairness of competition between the public and private business sectors,

so called “unwritten laws” of discrimination against SMEs still exist strongly in society Operating in such unfavorable environment, together with defective supporting institutional developments, inadequate regulatory frameworks and the SMEs’ poor internal resources, it is obvious that SMEs are struggling to survive and develop

* Strong uncertainty avoidance and attitudes of mistrust

Our findings show that strong uncertainty avoidance and attitudes of mistrust exist among SMEs and other business entities Having no reliable information about business opportunities for cooperation, poor internal resources, and social discrimination against them may also deter SMEs from seeking the opportunity to establish strategic alliances, business cooperation with other firms and financial supporting institutions and to achieve better performance This finding is consistent with the findings from Nguyen, Le, and Freeman (2006) and Ha and Swierczek (2003)

f Presence of business clusters and networks

According to the results of our study, there are no strong linkages between SMEs

and other supporting agencies As stated by a respondent, “Linkages between academic

and research institutions, universities, supporting organizations, and SMEs are still questionable” SMEs and those institutions tend not to seek cooperation because of a lack

of mutual trust between them SMEs still consider that they are self-contained firms, so that they prefer not to form any clusters or to develop linkages and networks

Numerous studies, such as McMillan and Woodruff (1999), Nguyen (2005), Nguyen et al (2005), and Nguyen et al (2006), indicate that trust is an important factor for cluster and network development which may help to facilitate the development of

necessary supporting infrastructure According to the VNCI project and building

Vietnamese competitiveness (VNCI-1, 2003, p.2), “Efforts on building commercial

collaboration among cluster members were limited As a result, the foundation for trust and cooperation among cluster member were not significant enhanced The effectiveness of forming a broad partnership with key cluster champions, including association leaders, local governments, VCCI, universities and other donor is low.”

g Access to information and global networks for cooperation

Our research findings reveal that most of the information for SMEs is from informal sources This is consistent with Webster and Taussig (1999), Harvie (2001), Ho et

al (2002), Vu (2001), and Pham (2002) According to a respondent in our study, information about market, opportunity for SMEs, the importance of strategic plan and trade policies are not widely revealed to SMEs by the concerned parties SMEs have limited access to market information and information

Harvie (2001) observes that most information is obtained through the media or by personal contacts of firms, and not through formal channels Only the more dynamic SMEs tend to get in touch with formal organizations like the SMEs club, the VCCI and the various trade associations for information As a result, SMEs may face problems of missing out on business opportunities and cooperation or being deceived by their overseas partners due to the lack of reliable information

h Other constraints

A joint study by Vietnam’s Institute of Labor Sciences and Social Affairs, the Asian Regional Team for Employment Promotion of the International Labor Organization, and the Swedish International Development Authority (ILSSA-ILO-SIDA 1993) reveals that besides the lack of capital and a clear government policy, Vietnamese SMEs are faced with problems in marketing and distribution, market limitation, a lack of power supply, market competition, and a shortage of materials

Furthermore, they suffer from high input costs such as office rental, transportation, social security payments, accessing material goods, equipment, etc (Business Issues Bulletin, 2004) SMEs in the private sector suffer even more constraints due to remarkably negative public opinion toward them as a result of misinformation from the media, which

is the main source of information about the private sector in Vietnam (Galaxy Ltd Co, 1999) They are perceived to be unstable, vulnerable to bankruptcy, exploitative of their employees, dishonest, opportunistic, incompetent, and non-contributive to the nation; thus,

they are the least desirable employers as well as the least preferred applicants for funds (Galaxy Ltd Co, 1999) Meanwhile, entrepreneurs report that severe competition, unreliable employees, and the inability to obtain short-term and long-term capital are their most serious problems (Benzing et al, 2005)

2.1.3 Small and Medium Enterprise Development and Business Development in Traditional handicraft villages in Bac Ninh Province

2.1.3.1 Overview of Small and Medium Enterprises in Traditional handicraft villages in Bac Ninh Province

Bac Ninh is a province in the northern plains in the northern key economic sectors, from Bac Ninh old born and appeared with preserving the unique variety of occupations associated with the names of villages, called communes, associated native tradition, survival and development for hundreds of years Entered a period of renewal and modernization investment in development zones and industrial clusters of craft villages, rehabilitation and development of craft villages in Bac Ninh is the key to accelerating the growth of economic Assembly, in accordance with guidelines developed by the Party and economic authorities of Bac Ninh

To December, 2008, Bac Ninh province has built eight zones and industrial parks,

26 small and medium industrial clusters, industrial clusters of craft villages, of which 18 industrial zones have been put into business action Until now the province of Bac Ninh has 62 villages, 53 villages including industrial production and small industry is distributed throughout the province and most active in major economic sectors

Table 2.10: The medium and small villages in Bac Ninh province in 2008

(Source: Bac Ninh Department of Trade in 2008)

Businesses in the well-developed village 32% (20 villages) are the producers of products suitable to the market, there is increased investment in production capacity, this group includes producers of wooden handicraft products, steel, copper, paper, bamboo, woven

Businesses in the village produce moderately active, very difficult to develop: (26 villages) occupy 42% of the business including production and processing of products such

as residential wood products, processed silk, rattan, bamboo processing of agricultural products from rice and maize

Businesses in the village poor production, it risks losing a job tomorrow: (16 villages) 26%: is the household production, cooperatives, whose products do not adapt to the market, with fierce competition of industrial products such as ceramic products, folk and processing of forest products (rattan, bamboo )

Businesses in the village of Da Hoi iron and steel production – Chau Khe Commune, Tu Son town is a village tradition to date, the enterprise has produced more than 30 kinds of metals such as steel construction D6-D20, twisted steel, square steel Lanyards, wire mesh, nails with the output of 100,000 tons, the product generated on the output value of 700 billion / year, there are 25 companies and 731 production and business households, the average income generated 10 million VND / person / year, the commune has 1,300 people, including 600 workers employed

The enterprises in the villages and fine art furniture for domestic consumption and export include village clusters Dong Quang, Huong Mac, Khe Phu, Tu Son town, the products mainly furniture , beds, paintings and statues, their products have been on both domestic and foreign markets in Europe, Asia, every year the village enterprises in the industrial production value creation over 200 billion / year , products made for domestic purposes 35% and 65% for export, at Dong Quang ward has a population of 11,000 people including 6,000 employed workers, in addition to attracting more than 4,000 workers from outside So far in Dong Quang have 102 businesses and nearly 1,000 household and business furniture and fine art per capita income accounts for 8.4 million VND / person / year

Businesses in paper production villages Phong Khe – Bac Ninh city comes from the production of paper As early as 90 have turned to low-level paper: toilet paper, paper packaging, paper In recent years some companies have switched to production of new products such as paper Duplex printing paper Now at Phong Khe have 125 production

lines of industrial paper capacity of 300 tons / year to 2,000 tons / year Sales of small and medium enterprises in craft villages in Bac Ninh province was increased significantly year over year increase

Table 2.11: Value of production of small and medium enterprises

in the villages in Bac Ninh

(Source: Department of BacNinh Trade, 2008)

The producers are concentrated in the distribution of districts: Tu Son, Yen Phong, Tien Du, Gia Binh, Thuan Thanh are local businesses with industrial production value in the region economy of the province By May /2008 on 1000 enterprise, Co., cooperative industrial production and handicraft in the village of Bac Ninh

Table 2.12: Number of enterprises in the villages

(Source: Department of Planning and Investment in 2008)

Production and business models of enterprises in the village is rich and diverse addition to the production and business units operating under corporate law, cooperatives are mostly active in household production model individual companies, to the present time,

in the village has 15,759 households with 36,515 employees

Table 2.13: Number of households - labor small industry production in 2008

(Source: Department of Trade in 2008)

After 10 years of re-establishment of small and medium enterprises in the village of Bac Ninh province to grow, is the place known, the industrial products Bac Ninh village preferred by customers, the market consumption has been spread around as the U.S., EU, Japan, Korea, Thailand

Model management structure, operating small and medium enterprises in the village of Bac Ninh today: On the product structure and industrial structure: the diversification of production most consumer goods and exports, such as the type of paper, steel, brick, wood handicraft, wood appliances, processing forest products, embroidery, rattan, giang, weaving, pottery, textiles This demonstrates that the handicraft villages in Bac Ninh province has great ability and industry to produce many different products

On the organization of production and management organization: The Company is organized primarily in the form: Cooperative hand, business owners, Ltd., a shareholding company, the organization generally lack scientific management, the management model

in family, spontaneous, instinctive, not any depth to the affected economic efficiency

Since the Enterprise Law was born, the enterprise has been equipped and trained so many businesses have developed, removing the management model family instinct The enterprise has developed the organizational structure, management model and operating companies under the Enterprise Law

For labor of small and medium enterprises in Bac Ninh primarily the number of employees under 100 people, only 32 companies have between 100 - 200 people, 10 companies have between 200 – 300 people The workers are not trained, which is transmitted from person to person, as of May 9 / 2008 Bac Ninh has 47,236 employees

(according to 2008 DPI) Businesses wage regime is implemented in accordance with salary payment as the workload is generally income of workers is increased

The apparatus management firms typically compact, reasonable layout, operating

on the basis of the functions, powers clearly promote efficiency Director authorized to assign tasks to specific jobs deputy director of the inspection, control and adjust accordingly These enterprises are mainly small producers, economic thinking also take the form manually

Production activities of small retail businesses are often scattered, each component

of the laborers are employed, self-training by training and communication transmission lines for the other person, to imitate nature The technical workers, workers operate has been selected by the school and receive training through the training program

2.1.3.2 The Business Environment of Small and Medium Enterprises in Traditional handicraft villages of Bac Ninh Province

* Overview of Business Environment Analysis through PEST Analysis:

Before creating business plans or making decisions, it is important to 'scan' the external environment This can be achieved through a PEST analysis PEST analysis aims

to identify and summaries influences on the way an organization or industry operates The PEST analysis is a useful tool for understanding market growth or decline, and as such the position, potential and direction for a business A PEST analysis is a business measurement tool PEST is an acronym for Political, Economic, Social and Technological factors, which are used to assess the market for a business or organizational unit In the other terms, it involves identifying the political, economic, socio-cultural, technological, legal and environmental factors and conditions that impact on an organization (Anthony, 2008) This provides a way of auditing the influences that have impacted on an organization or strategy

in the past and how they might do so in the future

PEST analysis uses four perspectives, which give a logical structure, in this case organized by the PEST format that helps understanding, presentation, discussion and decision-making

PEST analysis can be used for marketing and business environment assessment and decision-making, and the PEST template encourages proactive thinking, rather than relying

on habitual or instinctive reactions (Lesley et al, 2005) PEST becomes more useful and relevant the larger and more complex the business or proposition, but even for a very small

local businesses a PEST analysis can still throw up one or two very significant issues that might otherwise be missed

Deriving from these reasoning, it is very significant and important to know how the business environment in Bac Ninh province currently is in order to support Small and Medium Enterprises in Traditional handicraft villages by appropriate approach The business environment of Small and Medium Enterprises in Traditional handicraft villages

of Bac Ninh Province could be identified, and assessed through PEST analysis as follows:

2.1.3.2.1 Environmental politics and law

The relationship between the business sector: The trade unions through the system

to understand the institutional sector, the sector policies, the State

b Political environment

Expression of political stability and business environment production, Bac Ninh province has worked out many programs and policies consistent with the characteristics of the locality, creating more opportunities for small and medium enterprises in the village development, such as Resolution 02, 04 of the Committee of Bac Ninh province on the development of village clusters

However, some policies are not specified with investors, democratic openness and transparency between the investors and contractors, the mechanism is not consistent with changes in market prices

2.1.3.2.2 Economic environment

Socio-economic structure continues to shift towards industrialization - OS, the proportion of GDP and Construction industries in 2008 is 53.7%, to 56.5% in 2010 as private industry is 53.4%, the price Industrial production value in 2008 was 16,045 billion VND, in 2010 plans to be 21,500 billion VND, of which local industry accounts for 58.3%

After more than 10 years of trying and build, in Bac Ninh province has become a comprehensive development, economic growth with a high rate, an average of 13.4% of