The solutions to enhance the use of management accounting in small and medium enterprises in thai nguyen province

THE SOLUTIONS TO ENHANCE THE USE OF MANAGEMENT ACCOUNTING IN SMALL AND MEDIUM ENTERPRISES IN THAI NGUYEN PROVINCE A DISSERTATION Presented to the Faculty of the Graduate Program of t

THE SOLUTIONS TO ENHANCE THE USE OF MANAGEMENT ACCOUNTING IN SMALL AND MEDIUM ENTERPRISES

IN THAI NGUYEN PROVINCE

A DISSERTATION

Presented to the Faculty of the Graduate Program

of the College of Business and Accountancy Central Philippine University, Philippines

In Collaboration with Thai Nguyen University, Vietnam

MARCH 2017

ACKNOWLEDGEMENTS

This dissertation has been conducted in the Doctoral Program in Business Management within the framework of academic cooperation between Central Philippine University and University of Economics and Business Administration, Thai Nguyen University During the period of writing my dissertation, I have gained precious knowledge for my job as well as my scientific research work

First and foremost I would like to express my sincere thanks and appreciation to my official supervisor, Assoc Prof Dr Do Anh Tai and his co-supervisor, Dr Roldan Pila Pescos for their ideas, guidance, encouragement, support and a lot of prayers all throughout the process

I would like to express my gratitude to the officials who freely gave me their time for the interviews The interviews that were granted to me at the enterprises with the managers have provided their perspective for the purpose of this study

I would like to express my deep gratitude to the leaders of the Business Registration Division of Thai Nguyen Provincial Department of Planning and Investment, Thai Nguyen Provincial Department of Industry and Trade, Thai Nguyen Provincial Bureau of Statistics and the leaders of the Small and Medium Enterprises (SMEs) in Thai Nguyen Province who have made favorable conditions and helped me in collecting the secondary data and information during my survey and investigation in their enterprises

My thanks also go to all of my professors of the Doctor Program in Business Administration and the managers and staffs of the International Cooperation Centre for Training and Study Abroad of Thai Nguyen University of Economics and Business Administration (TUEBA) for their enthusiastic help in my research and dissertation

I also would like to thank my interview partners who conducted the survey with me

My thanks also extend to all of my colleagues who have encouraged me to do the dissertation

Last but not least, I specially would like to give my innermost thanks to my family who have always encouraged and helped me during the time of doing my dissertation

TABLE OF CONTENTS

ACKNOWLEDGEMENTS i

LIST OF TABLES ii

LIST OF CHART AND FIGURES iii

LIST OF ABBREVIATIONS AND ACRONYMS iv

ABSTRACT v

CHAPTER 1 INTRODUCTION 1

1.1 Background and Rationale of the Study 1

1.2 Objectives 3

1.3 Theoretical Framework 3

1.3.1 Some economic theories and their application for management accounting 3

1.3.2 Some foundation theories relating to the research contents of the dissertation 8

1.4 Conceptual Framework 10

1.5 Research Hypotheses 13

1.6 The Operational Definitions 13

1.7 Scope and Limitation 15

CHAPTER 2 REVIEW OF RELATED LITERATURE AND STUDIES 17

2.1 Overview of small and medium enterprises 17

2.1.1 Concept 17

2.1.2 Characteristics of small and medium-sized enterprises 20

2.1.3 The role of small and medium-sized enterprises 20

2.1.4 Opportunities, challenges, of the SMEs in Vietnam in the process of economic development and global integration 23

2.2 Corporate governance 27

2.2.1 Definition 27

2.2.2 The role of corporate governance 28

2.2.3 The content of corporate governance 29

2.2.4 The functions of corporate governance 29

2.3 Roles and functions of Management Accounting 32

2.4 Contents of Management Accounting 32

2.5 Management Accounting of Enterprise 33

2.5.1 Conception 33

2.5.2 Essence of Management Accounting 34

2.5.3 Methods of Management Accounting 34

2.3.3 Information of management accounting and function of enterprise management 37

2.3.4 Organizations of management accounting in enterprises 39

2.3.5 Organizing machine model of management accounting in enterprise 41

2.4 Review of previous studies 43

2.4.1 International studies 43

2.4.2 Domestic studies 45

2.5 Research gap and the author‟s research orientation 49

CHAPTER 3 METHODOLOGY 51

3.1 Research process 51

3.2 Research method 52

3.2.1 Data collection method 52

3.2.2 Quantitative research 53

3.2.3 Analysis method, data processing method 54

3.3 Research design 55

3.3.1 Research samples 55

3.3.2 Investigation method 57

3.3.3 Design measurement scale 57

3.3.4 Design questionnaire 59

3.4 Research model and hypothese 60

3.5 Data processing method 60

CHAPTER 4 DATA PRESENTATION, ANALYSIS AND INTERPRETATION 64

4.1 Small and medium-sized enterprises in Thai Nguyen province and current situation of management accounting 64

4.2 Descriptive statistics of respondents 65

4.3 Research Sample Description and Reliability Analysis of Scale 68

4.3.1 Survey Variable Description, Statistics and Analysis 68

4.3.2 Reliability Analysis of Scale 72

4.4 Exploratory Factor Analysis 74

4.5 Linear regression analysis and hypodissertation test 78

4.5.1 Correlation Analysis 78

4.5.2 Regression Analysis 79

4.5 Test of the difference 84

4.5.1 Independent Sample Test 84

4.5.2 One Way Anova test 84

4.6 Research and discussion result 85

CHAPTER 5 SUMMARY, CONCLUSION AND POLICY RECOMMENDATIONS 90

5.1 Summary 90

5.2 Conclusion 104

5.3 Recommend solutions 105

5.3.1 Management support solution implication 105

5.3.2 Strategic link solution implication 106

5.3.3 Quality standard application solution implication 107

5.3.4 Labor and inventory solution implication 108

5.3.5 Strategic vision solution implication 110

5.4 Limitations of the research 113

REFERENCES 114

APPENDIX 117

LIST OF TABLES

Table 2.1: Classification criteria of small and medium-sized enterprise in some countries 17

Table 2.2: Classification of SMEs in Korea 18

Table 2.3: Classification of SMEs in Vietnam according to Decree No 56/2009/ND-CP 19

Table 3.1: Offical measurement scale 58

Table 4.1: Personal information of the enterprises owner, the chief accountant, accounting manager or representative for enterprises in Thai Nguyen province 66

Table 4.2: Observable Variable Description and Statistics 69

Table 4.3: Test reliability of the scale 73

Table 4.4: Results of reliability calculation of scale 74

Table 4.5: Exploratory Factor Analysis (EFA) of independent variables 75

Table 4.6: Exploratory Factor Analysis (EFA) of dependent variables 76

Table 4.7: Results of Exploratory Factor Analysis 77

Table 4.8: Correlation analysis of factors affecting the use of management accounting of SMEs in Thai Nguyen 78

Table 4.9: Determination coefficient 79

Table 4.10: ANOVA variance analysis 79

Table 4.11: Multicollinearity test 80

Table 4.12: Coefficients of the regression model 82

Table 4.13: Testing result of the hypodissertation pair 83

Table 4.14: Independent Sample Test 84

Table 4.15: One Way Anova test 85

LIST OF CHART AND FIGURES

Chart 1.1: Functions of administration 31

Diagram 2.1: The relationship between information of management accounting information and function of enterprise management 38

Diagram 2.2: Organizational machine of management accounting in enterprises 42

Figure 1.1: Analysis framework of the dissertation 12

Figure 3.1: Research process 51

Figure 3.2: Research model 60

Figure 4.1: Scatterplot graph 81

Figure 4.2: Histogram of the standardized residuals 81

LIST OF ABBREVIATIONS AND ACRONYMS

1 E: Enterprise

2 BA: Business Activity

3 SMEs: Small and Medium Enterprises

4 FS: Financial Statements

5 WTO: World Trade Organization

6 GRDP: Gross Regional Domestic Products

7 PC: People‟s Committee

8 MA: Management Accounting

9 TPP: Trans-Pacific Partnership Agreement

ABSTRACT

There have been a lot of studies and scientific researches on management accounting with many different topics and scopes However, all of them have focused on state-owned enterprises and big and strong economic corporations of Vietnam only, none on the SMEs The SMEs in Vietnam have its own characteristics, so effective management requires proper management accounting information This study has assessed the actual use of management accounting of the SMEs in Thai Nguyen Province, identified and analyzed the factors affecting the tendency to use management accounting in the SMEs in Thai Nguyen Province in order to propose the solutions to enhance management accounting of the SMEs in Thai Nguyen Province

The author has collected 200 survey questionnaires (corresponding to 200 samples) from the SMEs in Thai Nguyen Province, among which limited liability companies account for about 45%, join-stock companies about 33%, private enterprises about 13% and the others account for the rest

Surveying 200 SMEs in Thai Nguyen Province has shown that the use of management accounting in the SMEs is directly affected by five factors in the assumed model, which are Management Support (TN), Strategic Vision (TC), Strategic Link (LK), Inventory Labor (LT), Quality Standards Application (CL) and Dependent Variable of Management Accounting Use

of the SMEs in Thai Nguyen Province (SD) From these findings, the dissertation has made effective measures to enhance management accounting in the SMEs of Thai Nguyen Province This will be a scientific contribution of the author in applying theories to the SMEs in Thai Nguyen Province

CHAPTER 1 INTRODUCTION

1.1 Background and Rationale of the Study

In Vietnam, over the years, SMEs have developed throughout the country and they are considered the „backbone‟ of the economy Currently, along with the process of economic reform, Vietnam has been actively promoting international economic integration; especially, Vietnam has joined the World Trade Organization (WTO), a global trade organization The process of integration has a strong impact on the economy in general and businesses as well as SMEs in particular, which has set up a more favorable business environment, helping SMEs have more opportunities to develop

When starting the international integration, enterprises in Vietnam in general and the small and medium-sized enterprises (SMEs) in particular face new opportunities and challenges With small production scale, difficulties in access to funding and low-level employees etc , especially SMEs are not used to applying management accounting to operation, so they are at a disadvantage when competing with large corporations and foreign corporations Under the general terms when joining the WTO and other trade organizations such as ASEAN or the signing of free trade agreement between Vietnam and the Eurasian Economic Union on May 29, 2015, Vietnam has to gradually dismantle tariff barriers so that trade becomes easier But it also means that the level of competition will become more acute (The Working Committee on the Accession to WTO of Vietnam, 2006) However, a worrying problem herein is that Vietnam‟s economy has slow reform from its inside due to the characteristics of transform from subsidized economy into socialist-oriented market economy Therefore, SMEs not only take advantage of many opportunities but also face many difficulties created by integration process

Once the business environment changes according to the trend of global integration, Vietnam‟s managers must cope with a major challenge which is that they have to use new management tools in order to respond and increase competitive advantage of their businesses Therefore, more than ever SMEs have to rapidly use management accounting

to help managers get the timely, appropriate and effective information to support the decision-making process However, because the market economy has been formed later than other countries in the world, teaching of management accounting in Vietnam only started in the early 1990s of the 20th century; therefore, today most of the accounting departments in SMEs in Vietnam are still unfamiliar with the use of management accounting Through the author‟s preliminary survey as well as previous researches, so far the application of management accounting to management operations in SMEs are still

limited; consequently, the application rate of management accounting in SMEs in general

is still low, applied technical tools of management accounting are mostly traditional technical tools and the effectiveness contributed to management affairs is not high However, in fact the application of management accounting is influenced by many factors inside and outside the enterprise, and these factors may increase the feasibility of applying management accounting in SMEs in Vietnam or and vice versa

Although 2015 was a difficult year for the national economy in general and economy

of Thai Nguyen Province in particular, with the efforts, creativity and determination of both political system and business community, the province has successfully completed its task: Its Gross Regional Domestic Products (GRDP) in 2015 was estimated to increase by 25.2% compared to them in 2014, in which the agriculture, fishery and forestry increased

by 4.8%, contributing 0.84 percentage points to the overall growth rate; industry and construction went up by 45.5%, contributing 21.4 percentage points; the service sector increased by 8.4%, contributing 3 percentage points to the overall growth rate (according

to Report No 235/BC-UBND dated 13/11/2015 of Thai Nguyen Provincial People‟s Committee on reporting results of implementing socio-economic development tasks in 2015) To achieve these important results, Thai Nguyen has always recognized the efforts

of enterprises in production and business activities, and their efforts to overcome difficulties and preserve their sustainable value, maintain life and stable jobs for their employees, and have effective contributions to the local budget At the same time, the enterprises always take good social responsibility, pioneer in poverty reduction, actively participate in humanitarian activities, charitable activities, social welfare activities, etc… However, in the situation of international economic integration and multilateral cooperation at present, the SMEs in Vietnam in general and those in Thai Nguyen Province

in particular are not only under the competitive pressure with domestic companies but also compete more severely with multinational corporations which are much more powerful in terms of capital, trademark and management skills Thus, to be competitive, Vietnamese SMEs have to find themselves a reasonable path for their own survival and development One of the necessary solutions is to save production costs and improve management efficiency, etc… in which accounting information plays an important role as basic information Therefore, if SMEs want to have sustainable development, they must have good and efficient accounting system However, few SMEs can accomplish that goal because most of them are the newly established enterprises with limited capital Having a good accounting system requires enterprises to invest heavily, so few companies are able

or dare to do this Therefore, the commonly current solution is hiring professional

accountants to work overtime or hiring low level ones with affordable costs Consequently, businesses will have an inefficient accounting system, not providing timely information for decision making Thus, it is urgent to raise the awareness of role of accounting system in general and management accounting in particular for SMEs to overcome difficulties, enhance the efficiency of managers‟ decision-making for sustainable development of enterprises From

the above-mentioned reasons, the author has chosen the dissertation: The solutions to enhance the use of management accounting in small and medium enterprises in Thai Nguyen Province as her doctoral dissertation so as to contribute theoretical and practical basis

to management accounting activities of SMEs

1.2 Objectives

• Overall objective

Along with systematizing theoretical and practical basis of management accounting

in SMEs, the dissertation will analyze and assess the situation of the role of corporate management accounting system It will identify and analyze the factors affecting the tendency to use management accounting in the SMEs in Thai Nguyen Province to propose solutions to contribute to enhancement of management accounting use in the SMEs of Thai Nguyen Province

• Specific objectives

- Systematizing the theory for SMEs and corporate management accounting

- Assessing the situation and role of corporate management accounting system

- Identifying and analyzing the factors affecting the tendency to use management accounting in the SMEs in Thai Nguyen Province

- Specifying the nature of limitation and inadequacy of management accounting to provide the solutions that enhance the efficiency of use of management accounting in the SMEs in Thai Nguyen Province

1.3 Theoretical Framework

1.3.1 Some economic theories and their application for management accounting

Management accounting is a set of techniques to support management functions with the goal of enhancing the value of organization (Chenhall, 2007; Răc and Williamson, 2007) Management accounting is motivated by the needs of managers but not by the stakeholder Through the use of techniques, management accounting is affected by different organizations, behavioral factors, and socio-economic factors Therefore the theories: Prevention theory, agency theory, sociological theory and psychological theory are applied frequently in the management accounting research Applying different theories of management accounting research allow researchers to understand management accounting from different perspectives,

to evaluate the effectiveness of various techniques of management accounting (Maleen & Michael, 2009)

According to prevention theory, management accounting is considered as part of organizational structure Researching management accounting through prevention theory is process of adjusting suitability between detailed management accounting and contextual variables in an organization Variables such as the external environment, technology, organizational structure and scale (Otley 1980; Waterhouse and Tiessen 1978) has been studied by researchers of management accounting for over 25 years In last two decades of the

20th century, the researchers of management accounting changes variables as culture (Harrison and McKinnon 1999) and strategy (Langfield- Smith 2006) Besides, technology is variable affecting vary greatly to management accounting research Changes in technology used by organizations often lead to changes in requirements of institutions on management accounting For example, organizations use technology of mass production in manufacturing, process of manufacturing requires budgeting system supporting management of daily activities (Chenhall 2007) On the contrary, organizations applying complex production technology and requiring the control and flexible control should encourage staffs to react quickly with different situations (Woodward 1965) With the introduction of modern management initiatives such as Just-in time (JIT) and total quality management (TQM), organizations need effective means to measure the results of strategic initiatives of the administrators Managing control system of strategic alliance and operating as Balanced Scorecard to be suitable with the demands of administrators

In the mid of 1960s, prevention theory was developed and used by researchers of management accounting between 1970s and 1980s Prevention theory has significant importance in researching management accounting because it dominates behavior accounting since 1975 Moreover, prevention theory is widely used in research of management accounting

of Otley (1980)

Prevention theory researches enterprise management accounting in interactive relationship with the operating environment of enterprises In other words, a management accounting system to be suitable with enterprise depends on features of enterprise and environment It shows that it is impossible to build a pattern model of management accounting

to apply for all Vietnam enterprises, that applying management accounting on enterprise must depend on the particular characteristics of each sector, each production sector, at the same time

to be suitable with the organizational structure, enterprise scale, production technology level and organizational strategy in each stage It means that building a management accounting system must be adapted to each enterprise, the internal and external environment

1.3.1.2 Agency theory

The second type of theory is agency theory According to Jensen and Mec-Kling (1976) determine the representative relationship (or fiduciary relationship) as the contractual relationship under which the shareholders (the principals), appoint, assign others, the company manager (the agents), to carry out their management which including the granting authority to decide asset disposition of the company Agency theory said that if both sides in this relationship (shareholders and company manager) want to maximize benefits, there is basic to believe that the company manager will not always act because of the best interests of the owners, i.e the shareholders Representative relationship is also expressed in the relationship between senior managers with junior managers in a decentralization system, between managers with the person directly using resources of organization

Agency theory said that conflict will arise when having incomplete and asymmetric information between the subject and the representative of the company Both parties have different interests and this issue is minimized by using appropriate mechanisms to limit the interest divergence between shareholders and managers of the company, through the establishment of the appropriate compensation scheme for managers, and the establishment of effective monitoring mechanisms to limit the abnormal behaviors, self-interest of the company managers

According to Healy and Palepu (2001) optimal contract between manager with investor, remuneration agreement and bonus of administrator, solution on benefit harmonization between business administrator (and business owners) with benefit of external investors These contracts usually require business to use information provided by the management accounting system, such as budget system, cost control information, allocation of resources, etc in order for investor to assess compliance with commitments in contract and assess business administrators having resource management of company associated with benefits of external investor

Agency theory explains reason to apply the responsibility accounting system in business and what joint-stock companies, companies listing management accounting system need provide to assure benefit for investors and shareholders Especially, in condition of Vietnam, when there is no stock market completely developed, the information of business management accounting provided accurately and fully is really meaningful for investors

Agency theory is also basis to build the internal reports in business, the reports assessing responsibilities to be appropriate with the decentralized system in Vietnam enterprises

1.3.1.3 Sociological theory

Sociological theory focuses on how to establish organization through interaction between people, organizations and society Covaleski and his partners (1996) said that the existence of an organization requires the suit with social on acceptable behaviour to achieve a high level of production efficiency

The sociological theorists consider management accounting system in terms of social practice than just in terms of technique to make internal decision and organizational effectiveness Reality of management accounting reflects the political power and society For example, Wildavsky and Caiden (2003) argued that the budget system can be used for other purposes apart from control issues as using the budget to establish and maintain current power relationships, the political nature of budget is often observed in complex social life Views on labor process in works of Carl Marx emphasized the class division in society, conflicts between labor, wage and the capitalists From standpoint of the capitalist,

it is necessary to minimize labor and maximize surplus value, unlike other factors of production Therefore, the investors must control labor as well as labor process Through some works of Hopper and Armstrong (1991), Collinson (1987), Oakes and Covaleski (1994), the authors argue that the management accounting and cost information are tools to exploit production effectively

Foucault (1926-1984) used approach to research management accounting in a wider political and social context A kind of sociological theory is often used as agency theory It explains the process of institutionalization by which standards or habits become guidelines for social behaviour (Scott 2004) As Covaleski et al (1996) indicated that conformity with the social norms of acceptable behaviour and a high level of efficiency production are relatively important for the survival of an organization

Sociological theory suggests management accounting system in business is not only the internal issues in business but also affected in a general social context, it relates to current regimes and policies, and addresses the relationship with workers in business

Therefore, the targets set out by business must lie in the common targets accepted by society It is consistent with the trend of sustainable development and benefits of business must be associated with the common benefits of society For example, the cost standards must be built on the basis of common norms of sector, or making plan on wage costs must

be based on the minimum wage prescribed by the State, information of management accounting cost provided will be also affected by the provisions of policies on tax and finance of the State

1.3.1.4 Psychological theory

Psychological theory has been used to research management accounting (MA) for over 50 years, Argyris (1952, 1953) has been based on the relationship between the human and group dynamics to investigate the social context of budget

This theory emphasized the role of human in organizations, this group supposed that the labor productivity was not only decided by physical factors, but also due to the psychological and social needs of the human “Organizational issue is human issue”, and they pointed out that, in classical school, there were number of limitations for ignoring the human factor in the course of working

The author of the theory about human relationships in organization was Mary Parker Pollet (1868 - 1933) He said that, in the course of working, employees had relationships with each other and with managers And the author also emphasized that the effectiveness of management depended on the resolution of these relationships The authors of human behavior believed that human activities heavily depended on the psychosocial factors It is these factors that create the good relationships in the course of working, thereby achieving high performance in the working process

Human is one of the most important components of organizations, plays an important role in the activities of organizations When individual behaviors are consistent with an organization‟s goals, this organization will prosper To understand the impact of individual behaviors to an organization, psychological theory will be applied in MA research to study the relationship between individual behaviors and MA (Birnberg et al 2007) in the process of budgeting, controlling and making decisions

Stedry (1960) used motivation theory to investigate the impact of budget targets to individual performance Hopwood (1972) used this concept from the psychological theory for the research in which the superior used accounting information to assess subordinate and the influence of subordinate with other employees

In the 1970s, MA used psychological theory for the research of how individuals handle information for planning, controlling and making decisions Et al Mock (1972)

investigated the interaction feedback of MA with individual awareness and style to affect executive decisions Psychological theory could be used to explain both causes and impacts of MA to individual behaviors

Psychological theory pointed out that the establishment and operation of MA system in enterprise must be considered the impact to the human relationship within the enterprise (relationship between superior with subordinate, relationship among departments in enterprise with each other) This relates to the process planning budget, controlling, assessing and making decisions that must create motivation and aim at the performance enhancement of the departments For example, if the establishment of cost targets and assessment criteria are only interested in cutting costs without paying attention to improve performance and solve the harmony of interests among the departments in enterprise, it may not encourage people in the enterprise strive to reduce costs and increase profits

The research of theories has practical meaning in building the MA model and application contents in each type of enterprise and in different economies The theories used in MA research are the foundation and the go-off to determine MA contents for each enterprise and apply effectively At the same time, the theories also point out that MA system of enterprise is truly effective only when it is built and developed in accordance with the actual conditions of each type of enterprise and in different economies That also means no MA model can be applied to all enterprises in Vietnam, the application of MA in enterprise also depends on characteristics of business lines or sectors, organization structure of management apparatus, enterprise size, technological level and current business environment And with the rapid changes of production technology and global business environment, MA system in enterprise also needs to change and adjust flexibly to achieve efficiency and meet the requirements of managers

1.3.2 Some foundation theories relating to the research contents of the dissertation

The research and analysis of the factors affecting the tendency of management accounting use in Small and Medium-sized Enterprises (SMEs) in Thai Nguyen province

to provide solutions to enhance the role of management accounting in SMEs in Thai Nguyen should be based on several foundation theories in order to ensure the logic, science and the solutions are feasible and beneficial for enterprise and objects using information as well as for the whole society The content of some theories is used as the foundation theory for the research including:

1.3.2.1 Signaling theory

Basic content of signaling theory:

This theory was firstly introduced by Spence in 1973, in the imperfect market and asymmetry of information This theory was applied widely in many sectors, especially in

management theory This theory described behaviors of two different sides accessed to information, the provider must select to communicate and convey which information and how, and how the receiver must understand the information In the field of accounting in general and management accounting in particular, the level of imperfection and asymmetry

on information is usually very high Because, in the enterprise standpoint, accounting staff

in enterprise must play the role of information “producer”, as internal objects who are accessed to internal information more clearly, earlier and know exactly about information quality provided by them while the users usually face difficulties in accessing, determining and assessing the quality of accounting information published by the enterprise

The relationship between signaling theory with research content of the dissertation: Through the basic content of the signaling theory introduced above, it indicated that this theory has placed a basic issue when studying and analyzing the factors affecting the tendency of management accounting us in SMEs in Thai Nguyen province in order to propose solutions to enhance the role of management accounting in the SMEs in Thai Nguyen province, thereby the regulators should promulgate clearly and uniform regulations on methods of handling, information disclosure requirements and the enterprises should strictly apply and comply with the regulations to reach useful information of management accounting, responding the requirements of the users

1.3.2.2 Decision-usefulness theory

Basic content of the theory:

The determination of use level of financial information of the users is based on theoretical foundation on the usefulness to decision making (Staubus, 1961, 1977; according to Dang Duc Son et al, 2006) This theory was firstly acknowledged widely in 1973 with target view to consider financial report (FR) as provision of information to be basis of decision making In the 1980s, the decision-usefulness theory was regarded as the foundation to build international accounting standards, as the basis to assess the effectiveness of using information to decision making of the users of accounting information The development period of this theory was in the second haft of the 20th century when FR were criticized for providing too little information for the users

in decision making (Edwards, 1989), leading to the wrong decision

The relationship between this theory with research content of the dissertation: According to the decision-usefulness theory, accounting is considered as a process

of appropriate information provision to the users Therefore, the information usefulness is assessed through its support level to the users in making decision This is foundation of the information disclosure, theoretical and practical basis of the decision-usefulness theory that

plays an important role in the history of financial accounting and promulgation process of accounting standards in developed countries Applying the research and analysis of factors affecting the tendency of management accounting us in SMEs in Thai Nguyen province in order to enhance the role of management accounting in the SMEs in Thai Nguyen province, is not an exception When promulgating legal regulations on management accounting to these enterprises, it must be based on the decision-usefulness theory, whereby the issued regulations should take into account of the appropriateness, effectiveness and feasibility to reach the final target to provide the most appropriate and helpful to the users

1.3.2.3 Stakeholder theory

Basic content of the theory:

Stakeholder theory of Freeman was introduced in 1984 According to this theory, enterprise should pay attention to the relationship with relevant objects such as creditors, employees, suppliers, customers, State management authorities, etc., in addition to traditional relationships as manager – owner, because these stakeholders directly affect the survival and development of enterprise Accordingly, the activities of enterprise should be carried out based

on the needs, interests and perspectives of different parties

The relationship between this theory with research content of the dissertation:

In the field of management accounting, this theory is applied as the basis for useful information disclosure in order to meet the requirements of the different users in the economy for the types of enterprise in general and for the SMEs in general In addition, the regulators should pay attention to the basis of this theory when promulgating regulations related to the handling, presentation and disclosure of accounting information

to ensure the harmony of interests of the parties, between the enterprise providing information and the information users as well as among information users with each other This content is also thoroughly applied in research and analysis the factors affecting the tendency to use management accounting in the SMEs in Thai Nguyen province in order to provide solutions to enhance the management accounting use in the SMEs in Thai Nguyen province

1.4 Conceptual Framework

The concepts of MA

Most revolutions on the change of MA concept can develop based on three main schools; those are the development from the concepts of Institute of Management Accounting, the US (IMA), Charter Institute of Management Accounting (CIMA) and International Federation of Accountant (IFAC)

In 1981, IMA introduced its first concept of MA based on the reflection on the changing needs of enterprise for accounting information; however, most recently in 2008, IMA launched the concept of the work of MA was: “… a professional work relates to the participation in the process of decision making, planning and implementation system, and provides professional financial reports, helps managers to control the establishment and performance of the organization‟s strategy” (Anthony A Atkinson et al., 2012) The change in MA concept of IMA reflected the trend of changing the role of MA that increasingly expresses a role as a factor of business strategy to help enterprise managing its performance, planning and making estimate, managing risks, controlling internally, preparing financial report in the time of great changes, and expressing its professional role

in the cost management methods (IMA, 2008)

According to CIMA (CIMA, 1986, 10), MA means to provide information to managers aiming the purposes: creating policies, planning and controlling enterprise‟s activities, making decisions based on different choices, preparing financial reports for external groups such as shareholders, creditors, tax authorities, etc Later, in the process of

MA terms adjustment (CIMA, 2005, 18), the role of MA has many advances and shown a broader role It was redefined as the application of accounting principles and financial management in order to create, protect, maintain for long-term and increase value of shareholders and stakeholders in for-profit and nonprofit enterprises, in individual or public areas Accordingly, CIMA has redefined MA in a more detailed way, expressed that

MA was an important part of management process in which including the identification, creation, presentation, interpretation of appropriate information The change in MA concept of CIMA shows that MA has approached closely the concern of senior executives

on focusing on the effectiveness, strategic planning, and value creation So far, according

to the trend of 2015, CIMA has introduced the concept of MA that simply implies accounting, finance and management with the leading management tools (CIMA, 2015)

Similarly, in the first definition of IFAC in 1989, MA “ was a process of identity, measurement, syndissertation, analysis, preparation, interpretation, and communication of information (in both finance and operation) used by managers for the purpose of planning, measuring and controlling an organization, and to ensure that the resources of such organization are used appropriately and responsibly.” This concept was similar to the initially traditional concept of other organizations like IMA After 9 years, however, in

1998, IFAC adjusted and expanded significantly the role of MA in its concept Accordingly, MA was considered as activities engaged and interlaced with all management operations of organization In other words, MA was towards administrative role in order to

Overview

of research and

theoretical basis platform

Qualitative Research Method and Quantitative Reseach

focus on creating value to the organization by using efficiently resources with dynamic people in competitive situations And later, under the new concept in MA of IFAC (2002),

“… MA is towards the handling and technical process, focuses on the effective and efficient use of an organization‟s resources, supports managers to fulfill add value tasks for customers and shareholders (Langfield-Smith & ctg., 2009, 6)

According to Accounting Law in Vietnam, MA is defined as “… the collection, processing, analysis and provision of economic and financial information at the management request and economic, financial decision in an internal accounting unit” (Accounting law, clause 3, article 4)

Summary of analysis framework of the dissertation is as follows:

Figure 1.1: Analysis framework of the disseration

Analysis of the evaluation, review of the businesses surveyed on the use of management accounting in SMEs Thai Nguyen province

Factors affecting the use of management accounting in SMEs Thai Nguyen Dissertation targets

1.5 Research Hypotheses

Objectives of this research can be expressed in the following hypotheses:

Hypodissertation H1 - With enterprises have the management support, the influence level to the use of management accounting depends on the factors of management support

Hypodissertation H2 - When applying standards of MA system, the standards will affect the use of MA

Hypodissertation H3 - With enterprises have strategic vision, the application of MA will be likely to get higher success

Hypodissertation H4 - With enterprises pay attention to labor – inventory targets, the use of MA will be more effectively

Hypodissertation H5 - With enterprises simplify strategic links, the application of

MA will be likely to get higher success

1.6 The Operational Definitions

The factors are selected as independent variables: Manager’s support, Labor – inventory; Applying management standards of management accounting system; Strategic vision; Simplification of strategic links Independent variables are the tendency of using management accounting of the SMEs in Thai Nguyen province

Independent variables include:

Manager’s support includes: Change management process, Apply Lean

production system, Strategic training for new products, Facilitate to support staffs to finish the plan

Labor - Inventory includes 3 factors: Managing inventory is important

accounting function, Cost and product, Labor and inventory cost

Apply standards of management accounting:

Company reduces inventory, Reduce time to set up business activities, Conduct standardization in production, Apply Kanban system, Apply 5S model

Strategic vision: Commitment of manage for training quality, All staffs are

encouraged to work together to solve company‟s problem, Available trained source, Staffs have right to monitor, Staffs‟ participant in quality management

Simply strategic connection: Our accounting system has applied for three years ,

Our closing book process is arranged reasonably, Our management accounting system supports our strategic idea, Our management accounting information system facilitates to make strategic decision

Independent variables are the tendency of using management accounting of the

SMEs in Thai Nguyen province

The importance of the research

In terms of science: The dissertation completed has had scientific contributions as

follows:

Systematizing the general theoretical issues on management accounting in the SMEs in typical countries in the world and in Vietnam; identifying and analyzing the factors affecting the management accounting use of the SMEs in Thai Nguyen province, and proposing solutions to enhance the use of management accounting use in the SMEs in Thai Nguyen province

In practical term

For managers in SMEs: Clarifying the actual situation of the management accounting in the SMEs in Thai Nguyen, analyzing the factors affecting the use of management accounting in the SMEs; thereby helping the SMEs aware that to survive and develop in the market economy, the enterprises must renovate their awareness on the management accounting role Creating awareness of managers in the SMEs on the importance of management accounting is a mean to improve performance and maintain competitiveness in the market

For accounting in SMEs: The research shows that the organization of accounting apparatus, work division of financial accounting and management accounting in reasonable manner, work assignment in accordance with qualifications, professional ability will help management accounting perform its role of management information provision to enterprise‟s managers

For education facilities: This research contributes to provide meaningful suggestions to improve and unify program, content and training methods of management accounting in Education facilities with deeply economic major

In the current reality in Vietnam and in the world, SMEs are developing both in quantity and quality, dominating in the economy, thus it is time the organization of management accounting work in the SMEs must put into learning curriculum of the relevant subjects in schools In addition to knowledge and capacity of professional handling, professional ethics of accountant should be paid attention more in the training process to help applying effectively management accounting into operative practice in the SMEs

The completed dissertation will be stored in the library of Learning Documents Center, Thai Nguyen University and students, especially student trained in accounting major may read and apply this dissertation in studying

The new findings of the dissertation

Reviewing and comparing with the researches done by internal scientists in the past, the dissertation has had number of new findings as follows:

- Firstly, exploring more factors affecting the use of MA in the SMEs in Thai Nguyen province

- Secondly, measuring the influence level of the factors affecting the use of MA in the SMEs in Thai Nguyen province by using qualitative and quantitative methods

- Thirdly, from those findings, the author proposed solutions and recommendations

to improve the use of MA in the SMEs in Thai Nguyen province

Limitations of the dissertation and suggestion for further research direction

In addition to the results achieved, the dissertation cannot avoid a number of certain limitations The research sample cannot represent the opinion of all SMEs in Thai Nguyen province The selected method of sampling was non-probability with 200 existing enterprises in various sectors with accounting report, financial report, and tax report at least 3 years as of December 31st, 2015 Due to the limitations of cost, time, and access ability, so the size of survey sample was not large as expected In addition, the cultural characteristics of Vietnamese people and the sense of personal responsibility in answering the questions was not high, therefore the obtained survey results may meet the statistic requirements but the author has not really satisfied

The dissertation has researched the factors affecting the use of management accounting in the SMEs in Thai Nguyen province The research results provided an adjustment model with 5 affecting factors, however, these factors may not represent the affecting factors So, there will be other factors and observed variables affecting the use of management accounting in SMEs that have not been researched thoroughly in the current research model due to limitations of surveyed enterprises scope

The following research direction

Continuing to research and propose further factors affecting the use of management accounting in the SMEs in Thai Nguyen province and expanding the research with the SMEs in Vietnam

1.7 Scope and Limitation

Scope of content: The content of management accounting in enterprise was studied under various levels that may be an overall research or separate research for each type of

enterprise In this dissertation, the author focused on studying the solution to enhance the role of management accounting in the SMEs in Thai Nguyen province

Scope of space: Survey object, sizes, and research model were investigated for the SMEs within Thai Nguyen province

Scope of time: The research time was in 2014- 2015, survey time was in February 2016

CHAPTER 2 REVIEW OF RELATED LITERATURE AND STUDIES

2.1 Overview of small and medium enterprises

2.1.1 Concept

So far, there is not a general concept of SME form Depending on characteristics of each country and each economic development period, the countries have provisions on SMEs When defining of SMEs, the countries are usually based on the capital size of an enterprise, number of regular employees, total revenue, total asset of enterprise, etc Generally, each country uses criteria or combines different criteria to make their own definition of SMEs

In the world, not only the standards to classify enterprises are different, but also the method to classify enterprises is different Some countries classify enterprises into 4 types such as: small enterprise; medium enterprise; large enterprise and extremely large enterprise Some countries classify enterprises into: extremely small enterprise (usually as household economy); small enterprise; medium enterprise; large enterprise and extremely large enterprise In some countries (like the US), only an independent SME is a SME, but some countries take into account the SMEs as a member of large company

Generally, two criteria used commonly to classify enterprises are the number of employees and the amount of capital In those criteria, many countries consider the criterion of number of employees is important; the differences in criteria used by the countries are due to the classification of SMEs depending on number of factors such as:

- Economic development characteristics and level of a country;

- Characteristics of each production and business sector;

- Classification purpose and economic policies of each country, etc

Table 2.1: Classification criteria of small and medium-sized enterprise in some

countries

Country Medium enterprise Small enterprise Medium enterprise Small enterprise The US < 3.5 million USD

Philippines 15 - 60 million Peso < 15 million Peso 15 - 60 million Peso < 15 million Peso

Taiwan 1.6 million USD

4 -10 labors

1.6 million USD

4 - 10 labors

(Source: Do Duc Dinh - Experiences and Handbook for development of small and medium

enterprises in some countries)

In the US, a small enterprise is defined as follows: “a small enterprise is an enterprise which has independent ownership, independent operation and is not a key component of the industry” Specific criteria of a small enterprise in the US depend on the operation sector For example:

In manufacturing sector, an enterprise has the number of labors from 250 people and less, it will be a small enterprise, and a medium enterprise has from 250 – 1000 labors

In other sectors, based on several criteria such as: a small enterprise means an enterprise has revenue not exceeding 5% of the total business revenue for less competitive sectors; the annual revenue does not exceed 5 million USD for wholesale enterprises; the annual revenue does not exceed 1 million USD for retail enterprises

- In Korea, the classification of SMEs is based on the number of labors working for such company and depends on business sectors, as follows:

Table 2.2: Classification of SMEs in Korea Business sector Small enterprise Medium enterprise

Manufacturing, mining,

transportation From 20 labors and less From 21-300 labors

Construction From 20 labors and less From 21-300 labors

Trade, service From 5 labors and less From 6-20 labors

In short, in each country in the world, there are different concepts and criteria to classify the SMEs Generally, however, the criteria are usually used by the countries as the basis to classify SMEs compared to large enterprises are criteria of capital, labors or revenue Depending on conditions of each country, the criteria used to classify SMEs may

be one or two criteria in those three criteria from time to time

- Besides, the globalization process and the harmony requirements on accounting and auditing are forced the regulators of international accounting standards to issue a

“standard” concept of SMEs as a basis for the country members to use

Developing a quantitative concept of SMEs will help the application of principles and standards more easily, but this is impossible, because each country has different socio-economic conditions, and each sector has different operation characteristics Therefore, an enterprise may be medium and small in this country or this sector but will be large for other country or other sector So, international accounting organizations usually develop qualitative concepts of SMEs

International Auditing and Assurance Standards Board (IAASB) of International Federation of Accountants (IFAC) supposes that SMEs have the following characteristics: + The owners of the SMEs are usually one or several individuals

+ Operation scope of the enterprise is narrow and sales of one or several certain goods, therefore, it cannot dominate the whole goods market

+ The accounting organization is simple, accounting apparatus has only several employees (many enterprises have only one accountant)

+ Has not paid attention or paid less attention to the internal control system in the enterprise

be applied flexibly both capital and labor criteria or one of two those criteria

- Decree No 56/2009/ND-CP on the development support for small and sized enterprises had provided the concept of SMEs as follows: “Small and medium-sized enterprises are business facilities that have registered business under the provisions of law, divided into 3 levels: extremely small, small and medium under the size of total capital (total capital is equivalent to total assets determined in the accounting balance of the enterprises) or the annually average number of labors (total capital is the priority criterion)”, etc., as follows:

medium-Table 2.3: Classification of SMEs in Vietnam according to Decree No 56/2009/ND-CP Size

Sector

Extremely enterprise Small enterprise Medium enterprise Number of

labors

Total capital

Number of labors Total capital

Number of labors

I Agriculture,

forestry, fishery

10 labors and less

20 billion dong and less

from over

10 - 200 labors

from over 20

- 100 billion dong

from over 200-300 labors

II Industry and

construction

10 labors and less

20 billion dong and less

from over

10 - 200 labors

from over 20

- 100 billion dong

from over 200-300 labors III Trade and

service

10 labors and less

10 billion dong and less

From over

10 - 50 labors

From over 10

- 50 billion dong

From over

50 - 100 labors

2.1.2 Characteristics of small and medium-sized enterprises

Researching the models of small and medium enterprises in the world, we found the following characteristics:

- Diversity of ownership forms

The small and medium-sized enterprises exist and develop in many different forms such as foreign investment enterprises, state-owned enterprises, private enterprises, limited liability companies, joint stock companies, and cooperatives

- Limitations of product, service and financial capacity

The small and medium enterprises have limited product and service volume, mainly based on manual labors; the small and medium enterprises usually do business with several products and services in line with qualification and experience of enterprise owner as well

as financial capacity of enterprise

- Most of small and medium enterprises have limited financial source

The business capital of small and medium enterprises is mainly equity of the enterprise‟s owner, or the loans from relatives, friends, and ability to approach the capital

of credit institutions is low

- High dynamism and flexibility

The small and medium enterprises have high dynamics and flexibility: They have initially low investment, use less labors and take advantages of in-place resources Therefore, small and medium enterprises can easily convert production plan, business premises and enterprise form and even easily dissolve enterprise

- Management level is not high

The management apparatus is usually compact, the organization qualification is not high: The small and medium enterprises are established and operate mainly based on capacity and experience of enterprise owner so the organization apparatus is compact and the decisions in management is quickly performed

- Low level labors and using old technology

Labors in small and medium enterprises have low level and the enterprises usually use old and outdated technology for production and business process, so the product quality is not high

2.1.3 The role of small and medium-sized enterprises

In a number of countries in the world, especially developing countries, SMEs are a foundation of the economy, usually account for 90% of the number of enterprises, creating jobs for 50-70% of workforce, contributing 25-33% of GDP annually In Asia – Pacific region, these enterprises account for 98% of total number of enterprises, creating 60% of

jobs in the private sector, 50% of revenue or added value, contributing 30% of direct export value Japan has about nearly 5 million SMEs, accounting for 99.7% of the total number of enterprise in the whole country After war, Japanese Government has considered these enterprises as an effective tool to reconstruct the economy In China, total number of SMEs is 39.8 million, accounting for 99% of business enterprises and 48.5% of total business capital It can say, the role of SMEs in the economy is undeniable and expressed in the following aspects:

- Creating multiple jobs with low cost and national incomes

+ Due to their nature of scattered property, the SMEs usually disperse, so they can ensure job opportunities for many geographical regions and labor objects, especially in remote regions, undeveloped regions, with labors with low skill level Therefore, they both resolve unemployment and contribute to reduce the number of people moving to cities for jobs

+ Because the SMEs can develop anywhere in the country, so they partly meet the necessity of the market and the gap of market is shorten, creating the balance development among regions The rich and poor gap is insignificant and each person can be a boss, each family can be an enterprise Per capita income in Vietnam is quite low due to the underdeveloped economy Developing SMEs in the cities and rural areas is the major method to increase income, diversify incomes of people classes in the regions

+ The SMEs sector attracts about 16% non-agricultural workforce in the whole country, on the other hand, the SMEs area the most advantages place to receive redundant labors from state-owned enterprises through equitization, transfer, lease, bankruptcy

+ The development of SMEs is a proper guidance of our Party and country, attached to the multi-component development guideline of the Party with the socialist-oriented market economy to stabilize and develop the economy

- Meeting the needs of the goods in the country and for export

+ The SMEs attract a large amount of labors and social resources to produce the goods To have more direct competitiveness with large companies and groups, their products should generally be diverse in qualify and types, creating more opportunities to choose for consumers Besides, they also enter small markets where the large companies ignore due to small revenue

+ In the trend of integration and economic globalization, the SMEs are more likely

to produce and supply export products, especially handicraft products using a lot of labors

+ Our country has many favorable conditions to produce export products in agricultural, forestry and fishery sectors In addition, our country also has many traditional

handicraft sectors with abundant and diverse goods that create huge potentials to SMEs to participate in production, processing and mining agent for export

- The small and medium enterprises have an important role in economic development and to help the economy more dynamically and effectively

+ The large enterprises and groups do not have the dynamism of smaller economic units with a simple reason that their size is too big According to physical rules, the bigger the thing‟s volume is, the bigger its inertia Also, the bigger the economic units are, the less dynamic they are, and they will be lack of ability to quick response, in other words, and they will have more pressure An economy which places a large proportion of labor resource and natural resources into large-scale enterprises will be slow and not catch up the changes in the market In contrary, an economy with an appropriate rate of SMEs will become more “quickly”, and respond more timely The effectiveness of the economy will

be enhanced

+ Making good the guidance of SMEs development will help the localities exploit the potentials and strengths in labors, natural resources, and land to serve the local economic development

+ Resolution of the ninth National Party Congress has indicated “Innovate and complete legal framework, remove all obstacles on mechanisms, policies and administrative procedures to mobilize all resources, creating a new momentum for the production and business development of all economic sectors with different ownership forms… strongly develop the SMEs”

+ It can confirm that, the SMEs have a big role, therefore it should focus on creating conditions to develop this form, contributing to the economic development of the country

- The SMEs contribute an important part in attracting and using optimally the resources in the economy, increasing investment saving source to locality

+ When being newly established, the SMEs usually have a limited capital and mostly from people With a large number of SMEs of all economic classes, they have attracted majority of labors in the production sectors that do not require high labor skills The SMEs have small capital and mainly manual labors with material source is mostly mined in place Therefore, they can thoroughly save and effectively use the available resources

+ Generally, the SMEs are opened in which locality, they will have workers and enterprise owners in that locality The opening of those small and medium enterprises will help local labors have jobs and incomes

- Maintaining and promoting traditional sectors to express national identity

+ In the process of modernization and industrialization, the traditional sectors are facing the fierce competition between the manual processing with mass production lines

+ It can say that, the SMEs form is very suitable for manual production; the traditional sectors can be based on it to produce, trade and advertise their products Besides, advanced technology is gradually approaching these sectors This is a local advantage in the integration era to implement the goals of industrialization and modernization of our country

- Contributing to the capital centralization of the society, creating initial facilities, speeding up the application of new technology in production

+ Capital is a basic factor in all production and business process, has decisive role

to the production development of an enterprise in particular and the whole economy in general With small size, needing less capital, rapid capital turnover time, and meeting lots

of difficulties in borrowing credit loans, the SMEs mainly mobilize in family, friends, and other people to invest in production and business, contributing to socio-economic development

+ Although they have less capital, but the SMEs always focus on technological innovation and technical improvement This is an essential factor in the competition process with large enterprises on both production quantity and quality Therefore, the improvements and new technology development with own characteristics are essential factor for the SMEs

2.1.4 Opportunities, challenges, of the SMEs in Vietnam in the process of economic development and global integration

Since our country entered WTO, it was time the enterprises can take advantages from the opportunities and must face with unexpected challenges in the process of their name confirmation in the international arena Following are analyses on these issues, not only for the SMEs but also for the enterprises in the whole country

Opportunities

International economic integration will make the institutional environment change The economy in Vietnam will become a part of the international economy Therefore, the institutional environment of Vietnam such as business law system, tax system, goods quality standards, environmental and labor safety standards must be consistent with international practices and standards

- Market expansion for the SMEs International economic integration will create

great opportunities for the SMEs to approach with a global market with nearly 7 billion

people instead of a market with more than 80 million people The International economic integration allows the SMEs likely to quickly penetrate into international market, creating

a large market to the SMEs to develop

In an open market, if the large market is easy under large enterprises, it usually exists niche markets of small customer groups formed due to the difference of purchasing power, consumption habit, custom and culture, as well as a series of different factors attached to the demand characteristics of each individual customer These niche markets are always the searching target and destination in line with conditions of the SMEs

The International economic integration does not only expand the market size, but also increases the diversification of market structure That comes from different development levels of the economies, the diversification of culture, politics and religion This diversity will create more opportunities to the SMEs in the selection of the most suitable market segment Therefore, the International economic integration helps the SMEs likely push up the development ability due to have a larger market

- Helping the SME access to international capital sources

Capital is always an important issue for the SMEs Taking advantages from formal preferential loans, commercial loans, fund sources from foreign countries or through joint venture, associated cooperation, foreign direct investment, development support projects is an appropriate path in order to accelerate the economic development speed, enhance product capacity and participate in the process of International economic integration in more favorable manner However, to exploit the advantages from foreign capital sources, it does not only need the effort of the SMEs themselves, it also needs the active support of the Government in reforming administrative procedures, creating more favorable law framework for foreign investment, creating the equality to the economic sectors in the market

The process of International economic integration will help the SMEs in Vietnam take better advantages from international capital sources that are freely moving, offsetting the existed limitations to gradually develop

- Helping the SMEs quickly access the modern technology

Through technological transfer, they will reduce the costs in basic researches and application researches This development path will help the SMEs take advantages from the strengths of large enterprises which strongly develop in science and technology in the world, creating a big step and breakthrough to develop The process of international economic integration allows the SMEs have opportunities to associate with foreign enterprises to take advantages from their strengths of advanced science and technology

The management level, the ability to use modern technological lines are also improved The SMEs can invest in new technology by themselves, however, it will be more difficult path due to the SMEs are limited on financial capacity

On the other hand, the international economic integration, as analyzed above, also creates opportunities for the SMEs to approach foreign credit sources That will help the SMEs have more opportunities and methods to quickly approach advanced science and technology applied to their business activities, thereby improving labor productivity, improving product quality, achieving success in internal market and active participating in the international market

- Creating opportunities for the SME to deeply participate in the international labor allocation process, become satellite of big groups in the world

With the expansion of internationally commercial relationship, the movement of resource factors is also subject to the specialized nature in the international level Labor is also an important factor in the allocation of resources For developing countries, due to low production capacity and effectiveness, with the weak infrastructure system, low public welfare system, outdated production technology, they are usually towards the exploitation

of abundant natural resources, with cheap labor By using in rotation manner the large number of labors, simple skills, the poor countries partly resolve the socio-economic burdens However, the efficiency will not be high The international economic integration will create opportunities for the poor countries, the SMEs in Vietnam will have opportunities to perform the process of international labor allocation more effectively

The International economic integration creates opportunities for the SMEs in Vietnam to become satellites of the big groups in the world This is a very appropriate development direction in conditions that the SMEs in Vietnam have not developed The SMEs in Vietnam are difficult to “row against” by themselves among the “ocean” of foreign enterprises which are superior in all aspects, from the size, technology, capacity, management level to marketing and sales capacity, etc Becoming “satellite” to foreign enterprises is one of the good directions for the SMEs in Vietnam in the path to penetrate deeply into the international market Thanks to the scientific and technological development, the space gap is gradually improved, through the international telecommunication network, the development of information technology and e-commerce, the SMEs are likely to approach the remote markets with an acceptable cost The important issue is that they must organize and step by step overpass the language barrier, effectively handle the huge information volume today so that they can become the actual business opportunities

- Technological level is outdated, the competitiveness is too low Compared to the

countries in the region, SMEs in Vietnam are currently facing with the situation of old and outdated machines and equipment (technological situation of the SMEs in Vietnam is currently falling behind the SMEs in Thailand about 25-30 years) leading low labor productivity, low product quality, high price, low competitiveness Moreover, the thin potential and human resource with limited level have caused difficulties to the process of technological receipt and transfer

- Infrastructural conditions for production and business of the SMEs are inadequate, input cost is high The enterprises must use over 40% of imported input raw

materials, even in some sectors, this rate is 70-80%, that makes the supply source is depended on the international market and the added value content in export products is limited In addition, the immediate expenses such as high transportation charge, custom fee, electricity and water cost and even other implicit costs have significantly increased the input cost of the SMEs

The comparative advantage of Vietnam is mainly natural resources, labor and a market of about 80 million people, the other advantages such as technology, capital and intellectual content in product are very low that affect the participation in international market of the SMEs This requires the State to create a clear and equal institutional environment to the types of enterprises, and needs to have policies to remedy the weaknesses of SMEs On the other hand, the SMEs should put more effort to enhance their competitiveness in the process of international economic integration

- Business experience in the market mechanism of SMEs

Although the economy has opened more than 20 years, but due to a long time of performing exclusive foreign trade policy, Vietnamese traders have faced many unfamiliar

things when creating business relationships with foreign partners The main reason was the differences in practices, habits and business culture The direct negotiation capacity of the SMEs with foreign partners was not high Due to multiple reasons, the position and the role of SMEs was underrated for long time, a number of issues such as loan policies, export encouragement, economic link between large enterprises with SMEs have not been established effectively, therefore, the SMEs have faced many difficulties while they had to compete with foreign enterprises by themselves in the process of international economic integration

- Capacity of linking the SMEs into Associations in Vietnam is very weak,

therefore, the SMEs do not form an unity to compete, do not form the big exporters, instead the exporting activity of the SMEs is very fragmented and they compete with each other, creating conditions for the foreign enterprises to put pressure on price This is one of the basic weaknesses of the SMEs in Vietnam, business culture and tradition of Vietnamese enterprises in the process of international economic integration

Conclusion: Potentials of the SMEs in Vietnam are really limited in the process of

international economic integration and they have to directly face to fierce competitiveness from large-scale foreign enterprises with powerful development potentials

2.2 Corporate governance

2.2.1 Definition

Governance is the process of planning, organization, leadership and inspection of the organization members‟ activities and use of resources in order to achieve success in the goals of the business This concept helps us realize that governance is a necessary and continuous operation when people work together in an organization It is a process to create strength in the organization and promotion of these issues The objective of governance is to create surplus value, as well as to find appropriate ways to achieve the highest efficiency at the lowest cost of resources

Corporate governance is very different in different countries due to the differences

in the institutional legal origin, national identity, culture and level of development of financial market in each country, etc., which affects the rights of shareholders, creditors‟ rights, and the enforcement of property rights (Nguyen Truong Son, 2010) But there is a common definition, reconciling the differences in conception of corporate governance as

follows: Corporate governance is a system of mechanisms and regulations, thereby; a company is oriented its operation and control in order to meet the interests of investors, employees and company executives

Corporate governance and business administration has fundamental difference Business administration is the business and production operation of a business done by the Board of Directors Corporate governance is a process of monitoring and controlling to ensure the implementation of business administration in line with the interests of shareholders Corporate governance in general also aims to ensure the rights of the people involved, not only shareholders but also employees, customers, suppliers, the environment and the state authorities

Corporate governance is set on the basis of the separation between management and ownership of the business The company belongs to the owner (investors, shareholders, etc.), but its survival and development need the guidance of the Board of Directors, the executive of Board of Directors and the contribution of workers, who do not always have shared the will and interests This leads to the need of having a mechanism for investors and shareholders to be able to control the operation of companies in order to bring the highest efficiency

Corporate governance focuses on handling the problems that often arise in the authorization relationship of the company, preventing and limiting the managers abusing power and assigned tasks to use the assets and business opportunities of the company to serve the private interests of themselves or others, or lose the resources controlled by the company

In summary, the corporate governance is now the model of balance and restraint of power among the stakeholders of the company to ensure long term and sustainable development of the company

2.2.2 The role of corporate governance

Corporate governance is a continuous impact process, with organization and direction of business owners to worker collective in business, the best use of the potential and the opportunity to conduct the production and business operation of business in order

to achieve its objectives in accordance with laws and social practices

In terms of the organizational and technical aspect of administrative operation, corporate governance is the combined efforts of people in the enterprise to achieve the overall goals of the business and individual goals of each person in the most reasonable and effective way It is the process of cooperation and coordination of work between administrators and employees during and through their work to achieve the objective of the business in a fluctuated environment

Thus, the nature of corporate governance is to manage people in production and business processes Corporate governance operations are to achieve the objectives for the business interests, ensure business survival and long-term development, preserve and develop capital to meet the wishes of the owner and all the members of the enterprise

In short, corporate governance is the way to ensure higher production and business efficiency

2.2.3 The content of corporate governance

Corporate governance defines the powers and responsibilities between interest groups and various members of the company, including shareholders, Board of Director, Supervisory Board and other relevant people in company such as employees and suppliers

Corporate governance also plays the role of identifying the principles, processes and procedures for making decision in the company, thereby preventing the abuse of power and position and minimizing the risks related to or derived from transactions with related parties, the potential conflicts of interest and from the lack of clear standards or not complying with the regulations on information disclosure and non-transparency

In short, corporate governance includes: the disclosure and transparency of information; handling the conflicts of interest between the business managers, Board of Directors and other shareholders, handling the conflicts between large shareholders and minority shareholders, the role of the independent administrator, the independent auditing organization, the remuneration policy for managers, business bankruptcy procedures, private property rights, the enforcement of law and contract terms

Corporate governance has important significance in promoting healthy economic growth, creating the harmony of a series of relationships between the related parties and their benefits, makes up the orientation and the control of the company

Good corporate governance will promote and enhance the company‟s access ability

to external sources of capital, positively contributing to the enhancement of the value of the company, reducing risks, increasing investment and sustainable development for businesses and the economy

2.2.4 The functions of corporate governance

Corporate governance must perform different types of work with relative independence, including planning, implementation, assessment and decision-making

Planning functions: Planning is the process of determining the objectives of the

business and the solutions proposed to implement these objectives Planning is expressed

in plan Planning associates with the selection and conduct of the operation programs in the future of the business The plan also chooses a reasonable approach to predetermined

targets, so it can be said that planning is identifying the goals and ways to achieve goals like bridging a span from the current state of the business to the target position in future

Implementation function: Organization means the process of arrangement and

layout of the work, authorization and distribution of enterprise‟s resources so that they contribute positively and effectively to overall objective of the enterprise This is a connected function among people in the enterprise, relationship of people and the resources to implement the plan of the business with the highest efficiency This function

is planned specifically by the arrangement of the work of the members, power and responsibility of each member

During the operation, the administrator supervises daily operations and keeps the business operating continuously This is the supervision of the work of each member, resolving conflicts arising in connection of members under power and responsibility

Checking Function: Checking is the process of comparing the objectives of the plan

with the actual results achieved in each period to guarantee that the actual activities match the proposed plan or it is able to find alternative solution to adjust business operation in case that the actual operation is away from the plan

This operation ensures the enterprise to comply with objectives and this function allows the study of accounting reports, other reports and the comparison of reports on the actual operation of the plan for timely adjustments In the process of performing the checking function, managers always expose and record practical feedback and timely put it into the plan for the future

Decision-making function: This is the function selecting optimal solution and plan

Decision-making is not an independent function, it is always associated with other functions in the process of planning, organizing, operating or checking work

Chart 1.1: Functions of administration

(Source: Division of Human Resource Management and Business Strategy,

University of Economics Ho Chi Minh City (2006), Administration Studies)

Decision-making function requires managers to choose a reasonable solution among the offered alternatives With planning function, managers need to develop strategic objectives for the business and outline specific steps to implement those goals With the function of organizing and operating, managers need to decide how to use the most effectively resources of the business; with checking and evaluating function, the managers need to compare the reports on the implementation with plan data to secure divisions of the enterprise to comply with the proposed objectives and assess the situation to support decision-making functions

To implement function of corporate governance effectively, administrators need different information, including information inside the enterprise and outside the enterprise, including information of accountant on assets, capital source, revenues, expenses, etc which play particularly important roles

Management accounting provides managers the economic quantitative information

of the operation, information on the level and cost estimate, information on implementation cost, cost analysis for the decisions of businesses with the information on the past, present and future of the estimation in depth in accordance with the needs of administrators Therefore, the provided management accounting information, especially the information

on expenses are necessary and useful to administrators with all the functions of planning, decision-making, implementation and control

Planning

Making decision