Determinants of business householdsperformance in rural areas of vinh phuc and bac ninh provinces

It aimed to study the factors of the business environment creating an impact on establishment and development of business households in rural areas of these two provinces.. Objectives of

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A DISSERTATION Presented to the Faculty of the Graduate School Southern Luzon State University, Lucban, Quezon, Philippines

in Collaboration with Thai Nguyen University, Socialist Republic of Vietnam

Submitted in Partial Fulfilment of the Requirements for the Degree

DOCTOR OF BUSINESS ADMINISTRATION

A program offered by Southern Luzon State University,

Republic of the Philippines in collaboration with

Thai Nguyen University, Socialist Republic of Vietnam

has been approved by Oral Examination Committee

CECILIA N GASCON, PhD

Chairman

Accepted in Partial Fulfilment of the Requirements for the Degree

Doctor of Business Administration

Date Vice President for Academic Affairs

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This is to certify that the research work / dissertation entitled

“DETERMINANTS OF BUSINESS HOUSEHOLDS’ PERFORMANCE IN

RURAL AREAS OF VINH PHUC AND BAC NINH PROVINCES” orally

defended/ presented under the DBA Program jointly offered by Southern

Luzon State University of the Republic of the Philippines and Thai Nguyen

University of the Socialist Republic of Vietnam, embodies the result of original

and scholarly work carried out by the undersigned

This dissertation does not contain words or ideas taken from

published sources or written works by other persons which have been

accepted as basis for the award of any degree from other higher education

institutions, except where proper referencing and acknowledgment were

made

PHAM NGOC YEN

Researcher/Candidate Date Orally Defended:

encouragement and support to finish this work;

Statistics Department of Vinh Phuc province and Bac Ninh province, for their enthusiastic support on collecting and processing the data;

Business households in these two provinces, for their participation

and informative responses they have provided;

Management and colleagues at the University of Labour and Social Affairs and General Statistics Office, for their emotional support and

encouragement; and

Family and Friends, for the unconditional love and support

Pham Ngoc Yen

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TITLE PAGE ……… i

APPROVAL SHEET ……… ii

CERTIFICATE OF ORIGINALITY ……… iii

ACKNOWLEDGMENT ……… iv

TABLE OF CONTENTS ……… v

LIST OF TABLES ……… vii

LIST OF FIGURES ……… ix

ABBREVIATIONS ……… x

LIST OF APPENDICES ……… xi

ABSTRACT ……… xii

CHAPTER I INTRODUCTION ……… 1

Background of the Study ……… 3

Statement of the Problem ……… 4

Objectives of the Study ……… 5

Significance of the Study ……… 6

Scope and Limitation of the Study ……… ……… 6

Definition of Terms ……… 7

II REVIEW OF LITERATURE ……… 10

Conceptual Framework ……….… 39

Research Paradigm ……… 40

III METHODOLOGY ……… 42

Locale of the Study ……… 42

Research Design ……… 42

Data Gathering Procedure ……… 43

Sample and Sampling Technique … ……… 43

Research Instrument ……… 44

Statistical Treatment ……… …….…… 45

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IV RESULTS AND DISCUSSIONS ……… 50

Analysis of Situation of Business Activities and Business Environment of the Business Households in Rural Area of Vinh Phuc and Bac Ninh ……… 50

Determination of Formality Indexes ……… 86

Factors Influence to Decisions in the Expansion, Development of the Business’ Households and Influence to Business Performance of Business Households ……… 97

V SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS Summary ……….……… 117

Findings ……… 119

Conclusions ……… 121

Recommendations ……… 122

REFERENCES ……… ……… 126

APPENDICES ……… 128

CURRICULUM VITAE ……… 160

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4.1 Gender, Qualification, Experience of the Managers ……… 51

4.2 Number of Laborers in Sectors/ Provinces ……… 52

4.3 Business Capital, Working Capital in Sectors/ Provinces … 53 4.4 Revenue, Profit in Sectors/Provinces ……… 54

4.5 Rate of Households with Intention of Business Expansion 55 4.6 Quality, Recruitment and Training of Laborers ……… 57

4.7 Quality and Accessibility of Inputs ……… 58

4.8 Accessibility to Bank Loans ……… 61

4.9 Value of Loans and Rate of Loan Sources ……… 62

4.10 General Assessment on Bank Loans ……… 63

4.11 Land Area and Rate of the Households in Form of Land Use ……… 64

4.12 Capacity of Business Space Enlargement ……… 65

4.13 Land Use Right Certificate ……… 66

4.14 Main Reasons for Obstruction of Business Space Development ……… 67

4.15 Market Access and Competition ……… 68

4.16 Importance of Infrastructure ……… 69

4.17 Assessment on the Quality of Infrastructure Services …… 71

4.18 Rate of Households Accessing and Using Other Services 73

4.19 Taxes and Tax Inspection ……… 77

4.20 Assessment of the Households on State Officers and Authorities ……… 80

4.21 Accessibility to Information, Documents ……… 82

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4.22 Role of Local Authorities in Product Sale ……… 84

4.23 Average Value in Score Range of 9 Component Indexes 87

4.24 Contribution of Component Indexes for Variance of the Four Factors ……… 88

4.25 Average Value of Variables Reflecting the Households’ Business Performance ……… 89

4.26 Regression Analysis ……… 90

4.27 Weight of Component Indexes ……… 91

4.28 Formality Index (FI) of Provinces and Districts ……… 92

4.29 Average Statistic Value of Variables Used in the Econometric Models ……… 99

4.30 Impacts of Business Environment on Profit and Revenue 100 4.31 Conversion into Enterprise Business of the Business Households ……… 104

4.32 Factors Affecting the Households’ Decision to Converse into Enterprise Business ……… 106

4.33 Business Registration of Sole Business Households …… 110

4.34 Awareness of Benefits from Business Registration and Reasons Provided by the Households Without Business Registration ……… 112

4.35 Factors Affecting Households’ Decision to Get Business Registration ……… 114

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1.1 Number of Non-Agricultural Business Household and

Employees in Non-Agricultural Business Household in

2.1 Emulation and Analysis of Business Environment of

2.2 Determinants of Business Households’ Performance in

Rural Areas of Vinh Phuc and Bac Ninh Provinces ………… 40 2.3 Nine Factors which creates Business Results of the

4.1 Business Situation in 2012 Compared to 2011 ……… 55 4.2 Capital Source Structure of the Business Households …… 60 4.3 Informal Costs for State Employees in Total Income of

4.8 The Business Results of the Households and Formality

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GDP : Gross Domestic Product

FI : Formality Index

DFI : District Formality Index

PFI : Provincial Formality Index

PCI : Provincial Competitiveness Index

VCCI : Vietnam of Chamber of Commerce and Industry

VNCI : Vietnam Competitiveness Initiative

GSO : General Statistics Office

IPSARD : Institute of Policy and Strategy for Agriculture and Rural Development

MOLISA : Ministry of Labour, Invalids and Social

IRC : Indochina Research and Consulting Company

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Title of Research : DETERMINANTS OF BUSINESS

HOUSEHOLDS’ PERFORMANCE IN RURAL AREAS OF VINH PHUC AND BAC NINH PROVINCES

Degree Conferred : DOCTOR OF BUSINESS ADMINISTRATION

Name and Address

of Institution

: Southern Luzon State University, Lucban, Quezon, Philippines and Thai Nguyen University, Socialist Republic of Vietnam

Adviser : Dr Nelly I Mendoza

Year Written : 2013

There have been lots of studies on business environment However, they concentrated only on business environment of enterprises and companies of large scale, those with business registration, or on business environment of a locality in general These studies focus less on the business household environment particularly in the rural areas However, in socio-economic development, household economies have always played an important role Vinh Phuc and Bac Ninh, the two provinces adjacent to Hanoi, had been observed to be contributing to the economic and social development of Hanoi

The study focused on determining the factors that influence business households’ performance in the rural areas of Vinh Phuc and Bac Ninh provinces in Vietnam It aimed to study the factors of the business environment creating an impact on establishment and development of business households in rural areas of these two provinces A Formality Index (FI) was used to evaluate the business environment of business households The index was patterned with the Provincial Competitiveness Index (PCI)

xiii

range of 1% of 100% but FIs are quantitative indicators that receive value on

a scale of 1 to 10 The significant differences between the FIs were assessed according to their values The higher value reflects a more business friendly environment to the households and vice versa

In the study, 500 business households were surveyed in the two (2) provinces Sampling was made through the hierarchical random method, with layers of districts, communes and households In each province, 250 business households were sampled The study calculated the FI of the sample districts and estimated FI of the two provinces The two important concern in building the FI is to determine component indices and to estimate the weight of component indexes Although the FI method is similar to the PCI method, the study made some adjustments to some factors during the formulation of the component indices Time cost, legal institution, and activeness of local authorities” in PCI were transformed into access to capital, business registration, and support from State authorities to make them suitable to the target type of business environment

The study calculated the FI for the sample districts and estimated FI for the two provinces The results showed that FI of Vinh Phuc, 6.18, was higher than of Bac Ninh (6.15) These data showed that the current business environment of business households in the rural areas of Vinh Phuc and Bac Ninh provinces is not so good

There were more fluctuations in the FI on the districts, from 5.9 to 6.6 The districts with the most favorable business environment for business households in Vinh Phuc were Lap Thach, Yen Lac and Vinh Tuong; and in

Analysis results showed that capital, land; human resources have a

great influence on the expansion and development of the business households On the other hand, the output market factors have also a great influence on the decisions of business registration and business transformation into enterprises Facilitation from authority was also found significant than other factors, but not clearly

Chapter I INTRODUCTION

Being a developing country, Vietnam has gained remarkable economic achievement for nearly 30 years, both in economic growth and poverty reduction GDP per capita growth rate reached 7% during the last decade Poverty rate reduced from 58% in 1993 to 37% in 1998 and 14% in 2008 Businesses’ household makes a great contribution to the economic growth It does not only help create jobs, increase income and increase state budget revenues but also build biggest networks reaching to distant areas Thus, it developed distribution network, balance trading activities and local economy

The economy will witness a transition from unofficial sector to official sector The number of agricultural household and non-agricultural production business will decrease However, in the context of an economic transition facing a lot of difficulties, business households still play an important role They help reduce the negative impact of economic shocks on household Trade globalization brings about both opportunities and risks for the economy (Easterly and Kraay, 2000; Winters and associates, 2004) When losing jobs

in business sector, employees can work in the household sector Nguyen (2010) indicates that a number of labors who get low-paid in company have turned to household sector Agricultural household can be also changed to non-agricultural business activities in case of natural disasters and/or business difficulties

According to the total survey on non-agricultural production and business establishment of General Statistics Office in 2004, there were 2.9

million of non-agricultural business establishment nationwide, providing jobs for nearly 5 million labors (Figure 1.1) The number of business establishment and employees in this sector has increased gradually In 2012, there were 4.6 million business establishment, providing jobs for 7.8 million labor in the nation

Figure 1.1 Number of Non-Agricultural Business Household and Employees

in Non-Agricultural Business Household in 2004-2012 Period

Unit: thousand household, thousand employee

Source: Statistical Yearbook

However, compared to business sector, the development of household

is limited Capital and human resources of business household is small and hardly change over years On average, each household consists of 2 labors (Figure 1.1) The proportion of household with business registration is small, about 27.5% in 2007 There has not been a favorable business environment for business households (Phuoc Ha, 2006; IRC and IPSARD, 2011) Local authorities pay much attention to business households as this is the sector

2914

4988

3053 5584

3300

5766

3748 6594

3869 6700

3986 7065

4125

7436

4629 7797

which generates the most state budget revenues (from tax) for the provinces (IRC and IPSARD, 2011)

Background of the Study

There have been a large number of researches on business environment; however, these researches often focus on general business environment of the localities or the enterprises (eg Freeman and associates, 2005; CAP, 2007) The number of researches focusing on household business, especially in rural areas is limited Amongst previous researches on business environment, a notable research is on building Provincial Competitiveness Index (PCI) by VCCI collaborating with Vietnam Competitiveness Initiative (VNCI) funded by USAID Since its debut in 2005, PCI has become an important tool to measure and evaluate business environment of private sector in 63 provinces and cities in Vietnam It also helps local authorities point out restriction factors to business households, especially environment and institution However, PCI is designed for business sector, not business household

Vinh Phuc and Bac Ninh, the two provinces adjacent to Hanoi (Vinh Phuc is bounded by the North of Hà Nội, Bac Ninh is bounded by the East of Hanoi), have made significant contribution to economic development of the capital city for the last years In conformity to the National Plan by 2020, the two provinces shall provide support for Hanoi to get a sustainable economic development Vĩnh Phúc City and Bắc Ninh City (2 central cities of the two provinces) shall be satellite cities to help Hanoi to settle issues of environment, materials and human resources Therefore, socio-economic

development of the two provinces gets much attention from the Government Being a province of long-standing culture with development of numerous traditional villages specializing in bronzing, carpentry, ceramics, Bắc Ninh has opportunities and challenges completely different from that of Vĩnh Phúc, a province having a lot of villages and communes with small trade of agricultural, forestry and aquatic products (rice, bean, peanut, vegetable ) in addition to its agricultural economy Therefore, economic development of the province cannot be separated from development of household business It is necessary to get a favorable business environment for development of household business In urban areas, with development of enterprises of various types, business environment of the households also has significant improvement However, in rural areas, business environment of the households doesn’t get much attention

Statement of the Problem

Currently, there are two types of household business operating on these localities: unregistered business households and registered business households Unregistered business households do transactions with sub-district level authorities while registered business households do transactions with both sub-district and district level authorities From the practical requirements above, the author conducted a study: “Determinants of Businesses households’ performance in the rural areas of Vinh Phuc and Bac Ninh provinces in Vietnam”

The main purpose of the research is to compute the FI measurement and estimate FI for the chosen province and district by using small-scale estimation method The research sought to answer the following questions:

1 What are the situations of business activities and business environment of the business households in rural area of Vinh Phuc and Bac Ninh through survey data?

2 What is the method that could measure and estimate FI? What is the FI for provinces and districts?

3 What factors influence the decisions for expansion and development that influence the business performance of the business’ households?

4 What are some policy recommendations to improve business environment for private business households?

Objectives of the Study

Generally, this study aimed to study factors of business environment affecting formation and development of business households in the rural areas of Vinh Phuc and Bac Ninh province

Specifically, the specific objectives of this research are to:

1 Analyze and compare the business environment of business

households in rural areas of 2 provinces through survey data;

2 Calculate the formality index (FI) of business households and use

FI to assess business environment of business households in the rural areas of the 2 provinces;

3 Determine the role of the factors (9 factors) in the expansion, development and business performance of the business’ households;

4 Provide recommendations to improve the business environment of the business households in the rural areas of the 2 provinces

Significance of the Study

The findings of the study are expected to benefit the following:

Researchers Researchers may consider calculating the FI and use FI

as a measure to assess the business environment of the households with other indicators

Policy Makers The research’s results can be used to propose to the

leaders of the two provinces, to review and make appropriate decisions to create a favorable business environment for households Policy makers can use the result of the study to devise appropriate decisions in order to create a favorable business environment to help households develop their businesses

Scope and Limitation of the Study

To measure FI, the author conducted a survey on the business environment of 500 households in 10 districts of Bac Ninh province and Vinh Phuc province in 2012, as the respondents of this research (the research collect data on household businesses which have the number of members of less than 10 employees) This included Tam Dương, Bình Xuyên, Yên Lạc, Vĩnh Tương, Lập Thạch in the districts of Vĩnh Phúc, while Yên Phong, Thuận Thành, Quế Võ, Tiên Du, Từ Sơn represented Bắc Ninh

These households were selected (registered business/unregistered

business) with a ratio of 6/4

The study did not focus on business households which have more than 10 employees Households in the urban area of the two provinces were not considered in the sample

Definition of Terms

In this research, the following terms were defined:

Business Activities are activities conducted by individual or organization in

order to generate profit via Management, Marketing, Finance, Accounting, and Production

Business Environment includes all factors influencing all activities of a business

entity It consists of two types: internal environment (household culture, functions and objectives of the business entity) and external environment (laws, politics, clients, competitors, partner)

Business Household is owned by a Vietnamese or a group of people or a

household, permitted to get only a registered address, and to use less than ten employees, gets no stamp and takes its responsibilities by its entire assets for its business activities

Business Premises is the location of the business

Business Registration is the activity in which business households request

business registration entities to recognize the agreements in business registration documents on basic issues including: Name of business household, business entity; information on head office; Business activities; Charter capital, invested capital and capital contribution ratio within household; Information on company owner; Founding members and founding shareholders and Information on legal representative

Business Support Services are services used by business owners to

support them in maintaining and effectively developing their businesses

in the post-establishment period (from the time of business registration issuance to the next 5 years), including: Business information service,

Law consulting service, Recruitment service, and business partner matching service

Capital is the total assets of a unit including receivables, payables, and most

importantly, entity capital

Externally Employed Laborer (Outsourced labor) is hired when a business

household demand employers to implement one or all of the operations

of their business, but due to insufficient family labor, business household hires more employees outside

Laborers are people within working age prescribed by the law of Vietnam,

which is a common definition in many cases They are committed to work for an employer and receive salary and be under employer’s management during the working period Their outputs are goods or services which are used by others and are sold in the market

Lobby Cost is the unofficial cost to facilitate business units to do business Market is a place where buying and selling of a certain type of

product/activities takes place Another definition is “a certain place where selling and buying products and services activities take place”

In economics, market is defined as a place where selling and buying products and services transactions between numerous sellers and buyers

of competition relationship take place

PCI (Provincial Competitiveness Index) is the index that assess the rank of

provincial governments of Vietnam on the quality of economic governance and build a favorable business environment for the development of private enterprises

Profit equals Revenue – Cost

Revenue is the money received from selling the products or providing

services, and other activities of a production unit In economics, revenue is defined as the price multiplied by the quantity produced

Chapter II REVIEW OF LITERATURE

This chapter provides theories related to the study The writer clarifies definitions and issues relevant to sole proprietorship, business environment, constituent elements of business environment, factors impacting to business environment

2.1 Sole proprietorship

2.1.1 History of sole proprietorship in Vietnam

The first people participating in the market included the ones who desired to get profits through trade and exchange of goods or services In pursuance to the Civil Code, these people take full responsibilities, for their own properties, to their liabilities, or in other words, they take full responsibilities for their trade activities This type of people is called a sole trader or sole proprietorship or a natural person, making it different from any company by what is called a legal entity In Vietnam, the history of sole proprietorship has some differences

Before the French invasion, the agricultural society, embargo, and influence of Confucianism, as well as the great family regime did not develop the trade Therefore, the forms of business got no attention In trade relations, the type of household trade prevailed

In the centrally planned economy, with bureaucracy and subsidization, and nationalization of production means, traders started to arise and soon disappeared Only money earners for their daily life, sole proprietorship, in some consumption sectors or components of socialism improvement remained

After the South liberation, the improvement of industry and commerce

to build a centrally planned economy with bureaucracy and subsidization caused a lot of difficulties for the economy People are faced with poverty and hunger In this situation, the Party analyzed the causes to build a policy for recovery Resolution of the 6th Congress provided encouraging family economy using the active capacity of small good producers, while gathering and organizing individual employees to participate collectively for the improvement of production and business efficiency; arranging small dealers, and assisting people who were not needed in circulation to move to production and service Focus was also in developing individual capital economy in some sectors and industries, improving this type of economy sector with forms of State-owned capital, eliminating individual capital trade, and developing association among economic sectors on the basis of mutual benefits and equalitarian to the laws

In the economic improvement with the active effort of the State, traders are revived, including individual traders and natural persons Under the policy provided by the 7th Congress of the Party, individual traders and private entities are considered self-managed economic bodies who have their own production means and other capital, and make their decisions for all issues relevant to their business and production, and take their own responsibilities for any income or loss These bodies were organized under the following forms: (1) Individual business household; (2) household of small industry; and (3) enterprise These forms gradually become business household, individual business household and companies in Vietnam A household, in conformity to the Regulation, meets the following conditions: (i) It has production means and

other capital under ownership of the person registered in the License; (ii) the person registered in the License is a direct employee; (iii) other employees shall be his/her father, mother, wife/husband, children or other relatives who get their names in the Family Register of the person registered in the License; (iv) after-tax income is under ownership of the householder (Clause 1)

It is an individual trader or a legal dealer making business for his own Therefore, in general, Vietnamese traders are mainly founded from the State’s active effort, with some difference from traders founded in a natural way in other countries of market economy

2.1.2 Definitions and Legal Properties of the Business Household

Business Household is defined in Decree No 109/2004/NĐ-CP that:

An individual business household is owned by an individual or a household, is permitted to get only a registered address, and to use less than ten employees, gets no stamp (seals) and takes its responsibilities by its entire assets for its business (Clause 24, Item 1)

Also, It is defined in 88/2006 NĐ-CP that: A business household is

owned by a Vietnamese person or a group of people or a household, is permitted to get only a registered address, and to use less than ten employees, gets no stamp (seals) and takes its responsibilities by its entire assets for its business activities (Clause 36, Item 1)

Another is, It is defined in Clause 49 Chapter 6 Decree 43/2010/NĐ-CP

of the Government on business registration that:1 A business household is

owned by a Vietnamese person or a group of people or a household, permitted to get only a registered address, and to use less than ten employees, gets no stamp (seals) and takes its responsibilities by its entire

assets for its business activities; 2 Households of agricultural, forestry and fishery production, or salt production, and street-traders, nosh traders, far traders, mobile traders, service persons of low income are not required for registration, except for business of conditioned sectors and industries People’s Committees of Central cities and provinces stipulate the low income level for local application; and 3 Any household with regular use of more than ten employees shall converse to the forms of enterprise

It is stipulated by this Decree that Vietnamese people in the age of 18

or more with sufficient legal capacity and legal competence and households are entitled to establish business households and are required to get business registration, except for cases mentioned in item 2 The Decree stipulates procedures for business registration of the business households The application shall be submitted to the Registrar of district level where the head office of business is placed, and 5 days later, the business household shall get a Business Registration Certificate (in case of eligible application) Other stipulations for business households provided in this Decree are similar to that for enterprises

The model of business household is a preeminent choice to start a business With the model, the trader can significantly reduce costs of start due

to no establishment announcement, no stamp registration and a simple tax declaration, and no requirement on the minimum capital However, the model has some disadvantages that in despite of business registration and private name, the business household is not considered an independent subject, the leader of the business household uses his individual name in all transactions The business household is unlimitedly responsible for its entire liabilities

arising from the business In addition to the assets declared to use for business, the business household shall use its entire properties under its current or even future ownership to perform its liabilities to the creditors Tax declaration policy is simple but the performance of tax liabilities mainly depends on tax officers due to presumptive taxation Furthermore, the presumptive taxation causes fraudulence in tax calculation from illegal agreement among tax officers and business households They are large disadvantages of this model of business

When the trader has his position and desires to develop with a larger scale (more than 10 employees), he is required to converse his business of family scale to the model of enterprise The conversion shall provide some benefits, such as: the enterprise owner is responsible for only his assets registered for business The business gets convenience due to juridical personality that provide higher confidence to its clients, especially large clients Moreover, the business accounting and contribution to the State is more transparent, not depending on the subjective factor from tax officers

It is shown in the above-mentioned definition on “business household” that it is divided into 3 types of business household on basis of its owner: (1) The business household owned by an individual; (2) the business household owned by a household; and (3) the business household owned by

a group of people “Household” shall not be an individual or a legal entity, but

a special subject of Vietnamese laws Therefore, individual business household or a business household is not completely a natural trader

It is defined in British law that: a sole trader is a person doing business with his account; with a selection of proper place for business; with or without

assistance of his staff; the initial capital contributed by individual finance from savings or personal lending

In USA Laws, it was cited that: a sole proprietorship is a business operated by a person as his personal asset; and this enterprise is a purely enlargement of the individual owner A sole proprietorship or an individual enterprise, according to the definitions, is a form of business with its structure different from that of other business forms such as a partnership or a company

In pursuance to French laws, it is defined in Clause 1 of Commercial Law 1807 that a trader can be a natural person or a legal entity

2.1.3 Current Situation of Sole Business Households in Vietnam

Number of business households in Vietnam greatly developed for the last years Number of households increased from 2.6 million in 2002 to 3.9 million in 2009, where rural business households making up 57% of the total number in 2009 The business households play an important role in providing jobs and increasing income for the laborers Number of laborers working in the households gets a rapid increase, from 6.5 million in 2007 to 7.2 million in

2009 (General Statistics Office, 2009) However, most of the business households got no business registration Only 30% of the business households get business registration in 2002, with an insignificant increase (37%) in 2005 Percentage of business households with business registration gets a growth trend in industry and a reduction trend in commerce and service (General Statistics Office, 2005)

It was explained by Tenev & Fellows (2003) that the business households did not want to legalize their business activities due to

complicated administrative procedures In 2005, it took about 50 days for an enterprise to get its business registration, where the most complicated procedure was the application for commercial invoice (Freeman and Fellows 2005) CIEM (2005) agreed to the conclusion on influence of administrative procedures to the decision of business officialization They prove that any locality with more convenient procedures and better guidance of the Law on Enterprises (such as Bình Dương Province, Đồng Nai Province), the speed of business registration is higher than that of other localities (such as Ha Tay Province) VCCI (2007) showed that official business gets a higher percentage in provinces of better economic quality Therefore, decision to legalize business operation of an households seems to closely relate to economic policies of the locality

Moreover, the low percentage of business registration of business households may be caused by no binding of tax The tax contribution of households got an increase from 2002 to 2005 but only making a percentage

of less than 50% of the total households It is shown by the data of General Statistics Office in 2009 that capital, fixed assets, number of employees and income of the households are normally low, only about 80 million dongs on average, with about 1.8 employees, value of fixed assets of about 50 million, and an annual income of 230 million dongs

In addition, business households in Vietnam do business on a spontaneous basis, with no cooperation for mutual development In conformity

to Vietnam Association of Small and Medium sized Enterprises and Small and Medium Sized Enterprise Assistance Center of VCCI, the households get difficulties in capital, market access and information from State authorities,

and technologies of management, business and information The difficulties make them unable to be updated with new advance in business, but in the trend of family economy, natural development, with no trend to enlarge their scale to become companies to get more convenient conditions and more opportunities

2.2 Business Environment

Business environment can be defined in many ways Each definition is based on a viewpoint and satisfies a certain actual requirement The following definitions can be considered:

Business environment includes all factors influencing all activities of a business entity consisting of two types: internal environment (household culture, functions and objectives of the business entity) and external environment (laws, politics, clients, competitors, partner)

In the literal sense, “environment” is used to express a limited space, surrounding a limit of certain things Due to popular use of the word, it is attached with necessary properties to describe things in different states Therefore, environment is attached with material things: water environment, climate environment and also with immaterial things: growing environment, training environment, politic environment, cultural environment

and business environment

In this sense, business environment is a context covering business operation It contains all objective and subjective factors with mutual interaction creating an impact to business operation of households The impact can provide convenience or difficulty to business operation

Elements of business environment get their own activities and also mutual

interaction, causing main external forces for alteration of business environment

Business environment elements are complicated Therefore, its study requires different approaches and methods

Sole business households create part of the general business environment Therefore, sole business households are passive to get impacts from business environment, and they provide impacts to business environment to change it

2.2.1 Definition on Business Environment of Sole Business Households

Business environment of the households include all factors creating an impact on their investment and business to a certain extent

In conformity to the Assessment of business environment of business households in Vietnam in 2010, business environment is the external environment including natural environment, factors of politics, legality, currency, commerce, culture, technology and labor market Therefore, business environment is defined differently by different individuals and organizations However, all of the definitions aim to clarify factors on business environment in order to find out methods to improve it

2.2.1.1 Elements of Business Environment of Business Households

Business environment of the households are diversified and complicated To control the environment, it is required to analyze all factors for business objectives of the households Normally, the general business environment includes internal business environment and external business environment

a External business environment involves macroscopic business environment consisting of current administrative procedures, land policies, credit policies, tax policies, and economic integration of regions On the other hand, regional business environment includes position of shops or of business households; infrastructure system, labor force, and local policies of the region where the business household is placed

b Internal business environment consists of potential of the business households (lines of business, labor, capital, premises); business efficiency, and trade culture Business environment are divided as

follows: (In conformity to properties of business environment

elements) Politic factor, Economic factor, Social and cultural

factors, Technological and technical factors, and Geographic

factor; (In conformity to impact level of the elements)Direct factors:

Clients, suppliers, local authorities, competitors, credit and finance agencies, the media, Indirect factors: Social and cultural factor, economic factor, politic factor, international environment, and natural

conditions;(In accordance with the study scope) General

environment, Environment of business line, and Internal environment of the business household

Business environment can get a general overview as follows:

Figure 2.1 Emulation and Analysis of Business Environment of Business

Households

The chart shows not only the main elements of business environment

of business households, but also their impact level on the households Firstly, internal business environment of the households (internal environment) has business potential, efficiency, and business objectives to achieve that can affect other In addition to internal business environment of the households, a lot of factors get indirect impacts on the households: clients, infrastructure system in the region Finally, business environment is surrounded by macroscopic factors and it can be classified and assessed to find out methods to develop sole business households

2.2.1.2 Impacts of Business Environment on Business Households

Success in business of a business household, if good fortune is not taken into consideration, only appear when the business household can effectively combine internal and external factors of business environment

Strategic objectives of a business household are proper if all factors of business environment are considered In any business strategies and plans, partners and impacts on business are determined, and fluctuation trend of the environment is forecasted to get proper solutions Business environment gets large impacts on activities and the internal relations and external relations of the business household Decisions of the business household are based on economic laws and regulations of the Government

A general assessment on business environment shall be a basis for each household to analyze impacts on his business, in order to exploit any advantages and prevent any potential risks A business household gets its operation in a certain region Study on business environment is very important for a business household to find out a proper business line, to get the highest efficiency

A business household usually operates in a certain business line, therefore, a general study on business environment shall help the household know the main impacts, and their impacting levels to its business activities

Results of business environment study are very important to determine business strategies, especially long-term strategies

2.2.1.3 Necessity of Business Environment Study

Business activities of a business household are attached with certain factors Impact levels and impact of properties of the factors depends on

business scope and properties of the household The factors can get sole impacts to the household’s business and also get their interaction causing impacts on the household’s business In addition, the internal and external factors, in certain conditions, can be combined to create impacts on the business household Therefore, a study on business environment is necessary for any business household in any region Not similar to other organizations, activities of a business households are not independent A business household

is a business stage, or a link in a certain production system in the society, and the limit between a business household and the business environment is flexible in an open system model A business household uses external sources (that are called inputs) to put them into production, and then distributes products to the environment to meet the social demand The process can be summarized in the following chart:

When environment factors create an impact on management and business activities of a household, managers have to select and make decisions of business management Business households have to clearly understand impact of each factor to get proper decisions

It can be said that business environment consists of all necessary factors and conditions of politics, economics, techniques, technologies, culture, society, state policies, and natural conditions of the country, and international business practices Business environment of other economic

regions in the country gets impacts on activities of business households Characteristics of business sectors and of internal conditions of a business household also have impacts on its business activities Due to changes of business environment, it is necessary to develop proper strategies to adapt

to the changes

Currently, development of technical science and technologies is applied in all economic fields Development of the media helps the business household to study business environment and also provide requirements on information technology Therefore, the business household has to know to utilize information technology to his own benefit

2.2.2 Factors of Business Environment of Sole Business Household

Study of business environment of business households is a study of all sole business households in a certain region It is possible to get the following groups of business environment elements: Macroscopic factors (administrative procedures, premises, credit, science and technologies, business registration procedures, integration to other economic forms); Regional factors (infrastructure system, local labor force, local policies); and Internal factors of the business household (potential of the business household, business efficiency, business objectives of the household)

2.2.2.1 External business environment factors

Macroscopic factors

Administrative procedure is the worry of many business households If State authorities have a clear and transparent management system, providing convenience to businesses, business households shall be

encouraged to participate on business activities On the contrary, corruption, and complicated procedures causing waste of time, instable economic policies and poor coordination among State authorities can lead

to a fact that business households can invest in business without registration, and in a certain extent, they cannot develop their business and make long-term investment

To conduct any business activities, any business household has a demand for business premises However, it is difficult to find proper premises for

a business household Any difficulties in application for land use right certificate

or land lease shall be obstacles to start any business household

Currently, credit policies are complicated and difficult To get an official credit, interest rate, transaction fee, and borrowing procedures and borrowing period are main factors under attention of business households

Conversion of Vietnamese economy into market mechanism brings out competition It becomes a decisive factor for an existence of a business household Development of science and technology makes basic changes for competition tools Therefore, information collection, and renovation of business processes is more and more important for each business household

When Vietnam becomes a member of WTO, there are a lot of factors affecting existence and development of business households all over the country in general and business households in Vĩnh Phúc Province and Bắc Ninh province in particular General impacts from international economy; technological factors, business tricks in the market economy are expected

Economic integration requires our country to open its economy to get a free commercialization, with a lot of business households participating in the

competition Therefore, international economic integration provides business households all over the country in general and the ones in Vĩnh Phúc province and Bắc Ninh province in particular to some opportunities as follows: Rapid access to advanced technologies, improvement of productivity, improvement

of product quality, protection of local market and active participation in the domestic and international markets; Access to international capital in diversified forms, and international aid helping business households to improve capacity of goods production and conveniently participate into commercialization; and Division of labor in a production line or in a business stage is an important concern in a large scale production

In addition to active impacts, competition provides business households with severe challenges It requires business households to get their own innovation

Regional Environment

Region is the place where a business household performs its business activities Therefore, natural, economic and social conditions of the region get large impacts on business environment the regional business households They include infrastructure, local labor, local policies.Factors of infrastructure, such

as electricity, transport system, information and telecommunication system, water system, and drainage system get impacts on business environment

of business households on the region The better the infrastructure is, the higher the number of business households is

Currently, business household pay attentions to local labor force Regions with abundant and trained labor force can encourage development of business households A region with open policies, and

priority for business households can help develop production and business activities, and attract investors

2.2.2.2 Internal Environment (internal conditions of business household)

Labor factor for business households includes quantity and quality of labor

in business households Currently, in business households, skill of laborers is weak, mainly manual workers, low academic standard, causing the sole business households to be less competitive in comparison to that of other business forms

Capital of a business household is the legal money and properties to perform its production and business activities In fact, capital is used to recover existing capacity and create new capacity In other words, capital is used to reproduce materials

Land and premises are assets of the business household The factor encourages production and business activities of business households in case

of convenience or discourages the activities in case of difficulty

Business efficiency is an economic category, a general criterion of quality Assessment of business efficiency is comparison of costs and achievement with the initial objectives of addressing the basic problems of the economy: What to produce? How to produce? Whom to produce for? To get an efficient business, the household needs to have a favorable business environment Therefore, each business household who wants to contribute to solve these economic problems has to gain profits from its business operations

It is necessary for a business household to get a clear objective of his business, and then to set up requirements for business environment, identify his expectations of a favorable macroscopic factors, and expectations in