Môi trường kinh doanh của các hộ kinh doanh cá thể khu vực nông thôn vĩnh phúc và bắc ninh

khóa luận, luận văn, thạc sĩ, tiến sĩ, cao học, đề tài

THAI NGUYEN UNIVERSITY

Socialist Republic of Vietnam

SOUTHERN LUZON STATE UNIVERSITY

Republic of the Philippines

BUSINESS EMVIRONMENT OF OUSEHOLDS

IN THE RURAL AREAS OF VINH PHUC AND

BAC NINH PROVINCE

Name of Student : PHAM NGOC YEN

English Name : NANCY

Date of Birth : 09/07/1976

Course : SLSU-DBA1

ACKNOWLEDGMENT

I would like to express my gratitude to the teachers of Post-Graduate Department of Southern Luzon State University - Philippines Thai Nguyen University and the teachers of International Traning Centern – College of Agriculture and Forestry - Thai Nguyên University, especially Dr.Nelly Mendoza, my dissertation advisor, for their generous encouragement and support to finish this work

I am grateful to Statistic Department of Vinh Phuc province and Bac Ninh province for their enthusiastic support on collecting and processing the statistics I am also indebted to

500 business households in those two provinces for their participation and informative response they provided

My finishing the dissertation would not have been possible without the emotional support and encouragement from my management and colleagues at the University of Labour and Social Affairs and General Statistics Office, as well as the unconditional love and support from my family and my great friends

Thank you all so much!

Author

Nancy - Phạm Ngọc Yến

ABSTRACT

There have been a lot of studies on business environment However, they concentrate only

on business environment of enterprises and companies of large scale, having their business registration, or on business environment of a locality in general The most noticeable one among them is the research to build a Provincial Competitiveness Index (PCI) of Vietnam Chamber of Commerce and Industry (VCCI) in combination with Vietnam Competitiveness Improvement Project sponsored by the United States Agency for International Development PCI has become an important tool to measure and assess business environment of private sector in 63 cities and provinces in Vietnam The index gets strongly active effect on improvement of business environment of the provinces It also helps local authorities find out obstacles for business of enterprises, especially institution environment More importantly, PCI helps provincial authorities to aware importance of business environment improvement for their local enterprises, it is considered an index reflecting capacity and efficiency of the local authorities

However, the index has some certain limits on methodology Firstly, the data were collected from registered enterprises which are large-scaled and have experience and good relations with local authorities, and normally operated in urban areas, but not including business households (which play an important role in creating jobs and are vulnerable and impacted by changes of the business environment) Therefore, difficulties they met may differ from that of small-sized enterprises and business households

In details, the nine factors impacting on business environment of the survey provinces in the PCI include: Market entry cost; land access; transparency; time cost; informal chrges; activeness of the State authorities; enterprise support service; human resource training; legal policies Some of these factors getting large impacts on business environment of enterprises, such as time cost; legal policies … provide nearly insignificant impacts on performance of business households, and vice versa, factors having large impacts on performance of the households play no role in PCI (such as: capital)

Secondly, the data were collected from an indirect survey where a questionnaire was sent

to individual enterprises to get them filling into assessments and sending back This may cause a low accuracy of collected information (non-sample error)

On the other hand, in conformity to Vietnamese Law on Enterprises, a business household has its corporate capacity as an enterprise Therefore, the study method of PCI with

changes for some factors to get them suitable with a study of business environment of households has scientific basis

It is known that Vĩnh Phúc and Bắc Ninh, the two provinces adjacent to Hanoi (Vĩnh Phúc

is bounded by the North of Hà Nội, Bắc 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 be important supports 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 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 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 )

long-in addition to its agricultural economy Therefore, economic development of the provlong-ince can not 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 does get much attention

From the fact, the writer chooses the theme: “Study on business environment of

households in rural areas of Vĩnh Phúc Province and Bắc Ninh Province”

The theme aims to study factors of the business environment impacting on establishment and development of business households in rural areas of Vĩnh Phúc Province and Bắc Ninh Province

To study business environment of business households in rural areas of Vĩnh Phúc Province and Bắc Ninh Province, the writer made a survey on 500 business households Sampling is made by the hierarchical random method, with layers of districts, communes and households In each province, 250 business households are sampled Sampling is made

in 3 steps:

- Selection of districts: Five districts in a province were selected with

proportional-to-population-size (PPS) method on basis that the more business households the district had, the higher the possibility to be sampled it had

- Vĩnh Phúc Province including: Lập Thạch, Yên Lạc, Vĩnh Tường, Tam Dương, and Bình Xuyên Districts

- Bắc Ninh Province indluding: Tiên Du, Từ Sơn, Quế Võ, Thuận Thành and Yên Phong Districts

- Selection of communes: PPS method was also applied to choose five communes in each

district

- Selection of households: In a commune, ten business households were selected on basis

that the rate of households having business registration/the ones having no registration was

6/4

The survey was completed in 2 weeks in each province Data were input and cleaned by a

specialized software The data then were dumped to a data processing software, Stata, to

make the analysis

During the study, the formality index (FI) was built to assess business environment of the

households The index was made on method of Building a Provincial Competitiveness

Index - PCI The FI can be considered the weight mean value of component indexes

reflecting the local business environment The two important issues in building the FI is to determine component indexes 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 building the component indexes In details: 3 factors “time cost; legal

institution; activeness of local authorities” in PCI were changed into the 3 factors:

“access to capital; business registration; support from State authorities” to get them

suitable to the business environment of the households

In this theme, the weight of FI component indexes was estimated by a factor analysis and regression

However, awareness and accessibility to legal policies on the households’ business is assessed to be weak in the two provinces

This study chooses indexes reflecting business development level, including profit, turnover growth, and assessment of the households on their business performance Estimation of the indexes for the two provinces and districts under the survey shows that profit, turnover growth rate and rate of the households having positive assessment on their business in Bắc Ninh Province is higher than those in Vĩnh Phúc Province

There is a huge difference among the three indexes in the districts In general, in the districts having a rapid economic growth rate, the business households have higher profit and turnover growth rate, and they get better assessment on business development In Vĩnh Phúc Province, Lập Thạch and Yên Lạc are two districts of the highest profits and business growth rate among the ones under the survey In Bắc Ninh Province, Từ Sơn district has the highest average profit, and Thuận Thành district has the highest growth rate among 5 districts under the survey They are districts adjacent to Hanoi, with their developed infrastructure system

It is shown from the analysis that the factors of micro business environment including accessibility to capital, input and output market of the households play the most important role in the Household Formality Index Accessibility to land also plays an important role for business of the households Support from State authorities for development of the business households is considered an important factor for their development Factors of laws and informal charges have a small weight, showing their insignificant contribution to competitiveness of the households

Table 4.27: Weight of component indexes

Access to human resources and inputs of production/trade 0.1423

Source: Estimation on basis of survey data

The results show that value of the Household Formality Index ranges in 5,8 - 6,4 Vĩnh Phúc has a slightly higher index in comparison to Bắc Ninh, (the FI is in score range of 10)

Table 4.28: Formality Index (FI) of provinces and districts

Source: Estimation on basis of survey data

2 Assessment on impacts of business environment on business households’ performance

* Factors impacting on business households’ performance

In order to assess impacts of business environment on business households’ performance, econometric models are used with dependent variables of (1) Average monthly profit of the business households in 2012; (2) Average monthly turnover of the business households

in 2012 Both of them directly reflect business performance of the households through the most essential indicators of turnover and profit

Model (1): Y i =β0 +∑ jβ j X j +δi DFI i

Where: Yi is average monthly profit of the households in 2012 (A)

Model (2): Y i =β0 +∑ jβ j X j +∑kθi k I i k +εi

Where: Yi is average monthly turnover of the households in 2012 (B)

As for independent variables: X j is a vector reflecting internal forces of the business

households, including demographic characteristics of the households’ managers (qualifications, age, experience), business characteristics of the households (number of operation years, business registration, business lines), scope of capital, human resource and business space area

We can find that profit and turnover of the households are in direct proportion with labor and capital In general, business households of higher scope of laborers and capital trend to get higher profit and turnover Business households in trade sector trend to get higher

profit than the households in industry or construction Experience of the managers is directly proportional to profit and turnover Business households with female managers trend to get lower profits Households with business registration trend to get higher turnover in comparison to those having no business registration Similarly, business households in Bắc Ninh trend to get higher turnover than that in Vĩnh Phúc with no clear impact on their profit On the other hand, impacts of DFI in the models are clear and have their statistic meanings It is shown in the results that, on average, if the districts get their DFI increased with 1%, then the households shall get an increase of 3,3% for their profit and increase of 8,4% for their turnover

* Factors impacting on conversion into enterprise business

It is shown in the study that only 13,3% of business households with business registration intends to converse into enterprise business 56% of them are not aware of benefits of the conversion To get a more thorough study on impacts on their decision to converse into enterprise business, we use the same econometric model as mentioned above:

Where, is a binary variable, with a value of 1 if the households have intention to converse into enterprise business and a value of 0 if not

The model provides some facts that younger the younger the managers are, the higher the intension of conversion is Female managers get higher intention of conversion than male managers Business households in trade and service have lower intention of conversion than that in industry/construction Meanwhile, capital scope has a significant impact on the trend of conversion into enterprise business: the higher capital scale is, the higher the trend

of conversion is The households using loans have higher trend of conversion The results are proper, because in general, the households using loans are the ones having higher capital scope or having their plans for business development On the other hand, scope of business space and human resource has no clear relation to the intention of conversion DFI gets an active impact on the decision to converse into enterprise business However, it

is shown in the analysis of component indexes that a better market accessibility and a low index of market entry have an active impact on the decision of conversion We can see in the results that opportunities in the output market have a significant impact on the business households When the output market is potential and accessible, the households trend to

decide to converse into enterprise business to take full advantage of the market opportunities

Among factors of macro economic environment, only the index of “Assistance from State authorities” has its statistic meanings “Assistance from State authorities” is actually the households’ viewpoint on activeness of local authorities In localities where the business households have a positive view on the role of State authorities in their business performance, the households are more possible to converse into enterprise business than in other places

* Factors impacting on decision to get business registration

Among the survey samples, there are 270 households having business registration and 230 households having no business registration Among the households without business registration, only 21% of them have intention to get their business registration To study factors impacting to decision to get business registration of the households without business registration certificates, an econometric model is applied, with the dependent

variable of value 1 if the household has intention to get business registration and of value

0 if the household has no intention to get business registration

The results show that scale of capital has a significant impact on the households’ decision

to get business registration It means that business households of higher capital trend to get more intention to register their business in comparison to that of lower capital Business households with no loan have more trends to formalize their business than the ones with loans Furthermore, land impact has a reverse relation, that is, business households with small business space have higher trend to get business registration than the ones with larger business space A reason for this lies in the fact that the formalization shall help the households get loans and hire/purchase land more easily, solving their existing difficulties for capital and land Households having managers with high school education or higher trend to get business registration more than the ones having managers with lower education Business households in service have higher trend to get business registration in comparison to the others

Therefore, in localities having favorable environment for the households to enlarge their business space and easily employ high quality laborers, the households have higher trend

to get their business registration On the other hand, the households having difficulties in accessing to the output have higher trend to get business registration The reason lies may

be that in localities having difficulties in accessing to the output market, and formalization

of the business shall help the households get better voice, and get more trust from customers, and get easier in transacting with customers and finding their markets

Summary of Findings

1 On basis of collected information from the survey on business environment in Vĩnh Phúc and Bắc Ninh provinces, the thesis gets an analysis on business environment of the households in the two provinces through analyzing components of the business environment It is shown that the business households are facing with difficulties: limited borrowing capacity, narrow business space and low quality human resource Moreover, market price fluctuation and limited infrastructure, especially electricity and road system, provide numerous difficulties for the business households Although informal charges of the households are insignificant, the assistance from State authorities is also insignificant

2 The main method applied by the writer to define the formality index is based on the provincial competitiveness index (PCI) on business environment for private economic sector annually built by VCCI The main point here is how to select components of business environment so as to be suitable with business households From qualitative studies in the survey area and quantitative studies, the writer believes that the research selected the most exact components of business environment of the households in rural areas of the two provinces

3 The most important result of the research is that the writer, on basis of the collected information, could define a set of indexes to evaluate competitiveness of business environment in Vĩnh Phúc and Bắc Ninh A remarkable point in this research is that the indexes can be defined at district level Basically, the results are similar to the provincial competitiveness index built by VCCI

4 According to the analysis, factors of input access and output access of the business households play the most important role in the competitiveness index of the households The factors get direct impacts on business performance of the households, and they are main factors to promote competitiveness of the households The next important ones playing an important role for business performance of the households are capital and land However, legal stipulations and informal charges get a small weight in the general competitiveness index, proving an insignificant contribution to competitiveness of the households In order to improve competitiveness of the households, the State should provide convenience for access to output market, inputs, capital and land of the households

5 It is shown by the analysis that the formality index at district level and commune level is

in the range of 5.9 to 6.6 Vĩnh Phúc has the index of 6,18 which is higher than that of Bắc Ninh (6.15) show that the business environment of the business households in rural area in Vinh Phuc is better than business environment of the business households in Bac Ninh The result is similar to the Provincial Competitiveness Index (PCI) of year 2010 built by VCCI In details, PCI of Vĩnh Phúc and Bắc Ninh is 66.7% and 65.7% respectively (in a score range of 100%, and FI in a score range 1 of 10)

6 The researcher used modeling method to determine factors impacting on business performance of the households in the two provinces Another important objective of the research to clarify the households’ decision to get business registration or not and to convert into a enterprise business or not was also made by the modeling method in combination with the normal statistical analysis methods It is shown that the households’ decision to convert into enterprise business or not and to get business registration or not is significantly impacted by business environment factors: labor access, market access and land access Meanwhile, the role of macro environment factors is limited

7 The writer believes that the research results are meaningful and satisfactory in evaluating business environment of the households in the two provinces However, the research was conducted in a small scale, in the two provinces of similar socio-economic features, so the picture of the households’ business environment cannot be generalized in a national scale

LIST OF ABBREVIATIONS

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

LIST OF TABLE

Table 4.1: Gender, qualification, experience of the managers 41 

Table 4.2: Number of laborers in sectors/ provinces 42 

Table 4.3: Fixed capital, working capital in sectors/ provinces 43 

Table 4.4: Turnover, profit in sectors/provinces 43 

Table 4.5: Rate of households with intention of business expansion 45 

Table 4.6: Quality, recruitment and training of laborers 46 

Table 4.7: Quality and accessibility of inputs 46 

Table 4.8: Accessibility to bank loans 49 

Table 4.9: Value of loans and rate of loan sources 49 

Table 4.10: General assessment on bank loans 50 

Table 4.11: Land area and rate of the households in form of land use 51 

Table 4.12: Capacity of business space enlargement 51 

Table 4.13: Land Use Right Certificate 52 

Table 4.14: Main reasons for obstruction of business space enlargement 52 

Table 4.15: Market Access and competition 53 

Table 4.16: Importance of infrastructure 54 

Table 4.17: Assessment on quality of infrastructure services 56 

Table 4.18: Rate of households accessing and using other services 57 

Table 4.19: Taxes and tax inspection 60 

Table 4.20: Assessment of the households on State officers and authorities 62 

Table 4.21: Accessibility to information, documents 64 

Table 4.22: Role of local authorities in product sale 65 

Table 4.23: Average value in score range of 9 component indexes 68 

Table 4.24: Contribution of component indexes for variance of the 4 factors 69 

Table 4.25: Average value of variables reflecting the households’ business performance.70  Table 4.26: Regression analysis 71 

Table 4.27: Weight of component indexes 71 

Table 4.28: Formality Index (FI) of provinces and districts 72 

Table 4.29: Average statistic value of variables used in the econometric models 78 

Table 4.30: Impacts of business environment on profit and turnover 79 

Table 4.31: Conversion into enterprise business of the business households 82 

Table 4.32: Factors impacting on the households’ decision to converse into enterprise business 84 

Table 4.33: Business registration of sole business households 87 

Table 4.34: Awareness of benefits from business registration and reasons provided by the households without business registration for their lack 88 

Table 4.35: Factors impacting on the households’ decision to get business registration 90 

Table 1 Appendix 1: The weight of component indexes with different methods 103 

Table 2 of Appendix 1: Formality Index (FI) with with different methods 104 

LIST OF FIGURES

Figure 1.1: Number of agricultural business household and employees in non-agricultural business household in 2004-2012 period (Unit: thousand household, thousand

employee) 2 

Figure 1.2 A diagram showing the conceptual framework of the study 0 

Figure 1.3 The figure shows that business environment of the households including 9 factors that has been changed to impact business results of the household 6 

Figure 4.1: Business situation in 2012 compared to 2011 44 

Figure 4.2: The capital source structure of the business households 48 

Figure 4.3: Informal costs for state employees in total income of business households 62 

Figure 4.4: Assessment on attitude of the authorities to operation of business households 65  Figure 4.5: Assessments of the households on local authorities 66 

Figure 4.6: The trust of business households in the court system 67 

Figure 4.7: Provincial Formality Index (PFI) and District Formality Index (DFI) 73 

Figure 4.8: The business results of the households and formality indexes 76 

Figure 1 Appendix 1: The weight of component indexes with different methods 103 

Figure 2 of Appendix 1: Formality Index (FI) with different methods 105 

LIST OF BOXES

Box 1: Questionnair structure for the private business household survey in 2012 33 Box 2: Payable taxes of business households 61 Box 3: Why don’t some business households want to converse into enterprise business? 83 Box 4: Why don’t some households get their business registration? 89  Chart 2.1 Emulation and analysis of business environment of business households 17 

TABLE OF CONTENTS

ACKNOWLEDGMENT i 

ABSTRACT ii 

LIST OF ABBREVIATIONS xi 

LIST OF TABLE xii 

LIST OF FIGURES xiii 

LIST OF BOXES xiv 

TABLE OF CONTENTS xv 

CHAPTER I : THE PROBLEM AND ITS SETTING 1 

1.1 Introduction 1 

1.2 Background of the study 2 

1.3 Objectives of the study 3 

1.4 Statement of problem 4 

1.5 Conceptual Framework 5 

1.6 Research Framework 6 

1.7 Significance of the study 7 

1.8 Scope and limitation of the study .7 

1.9 Definition of terms 7 

1.10 Outline of the Study 9 

CHAPTER II : REVIEW OF RELATED LITERATURE AND STUDIES 10 

2.1 Sole proprietorship 10 

2.1.1 History of sole proprietorship in Vietnam 10 

2.1.2 Definitions and legal properties of the Business household 11 

2.1.3 Current situation of sole business households in Vietnam .13 

2.2 Business environment 14 

2.2.1 Definition on business environment of sole business households 15 

2.2.2 Factors of business environment of sole business household 19 

2.2.3 Factors impacting to business environment of business households 22 

2.3 Some researches on business environment of business households 25 

2.3.1 Some researches on business environment of business households in Vietnam 25 

2.3.2 Some researches on business environment of business households in other

regions 27 

CHAPTER III : RESEARCH METHODOLOGY 31 

3.1 Figures and research methodology 31 

3.1.1 Qualitative research 31 

3.1.2 Quantitative research 31 

3.2 Methodology to measure Formality Index (FI) 33 

3.3 Research Hypotheses 39 

CHAPTER IV : PRESENTATION, ANALYSIS AND NTERPRETATION OF DATA 41 

A ANALYSIS OF BUSINESS ENVIRONMENT OF BUSINESS HOUSEHOLDS THROUGH SURVEY DATA AND FORMALITY INDEX 41 

4A.1 Business scale and performance of business households 41 

4A.2 Economic environment of rural business households 45 

4A.3 Policies and regulations for rural business households 57 

4A.4 Determination of Formality Indexes 67 

4A.5 Analysis of Formality Index results 72 

B ASSESSMENT ON IMPACTS OF BUSINESS ENVIRONMENT ON HOUSEHOLD’BUSINESS PERFORMANCE 77 

4B.1 Factors impacting on business households’ performance 77 

4B.2 Factors impacting on conversion into business enterprise 81 

4B.3 Factors impacting on decision to get business registration 86 

CHAPTER V : CONCLUSIONS AND RECOMMENDATIONS 94 

5.1 Summary of Findings 94 

5.2 Implications of the Findings 96 

5.3 Recommendations 97 

5.4 Future Research 98 

REFERENCE 99 

APPENDICES 101 

Appendix 1 Method to define the weight on basis of direct regression 101 

Appendix 2: Documents relevant to household business 106 

Appendix 3 : QUESTIONNAIRE 108 

CHAPTER I THE PROBLEM AND ITS SETTING 1.1 Introduction

Being a developing country, Vietnam has gained remarkable economic achievement in 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 household1 make a great contribution to the economic growth Business households not only help create jobs, increase income and increase state budget revenues but also build biggest networks reaching to distant areas, thus develop distribution network, balance trading activities and develop local economy

In long term, 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 Business households help reduce 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 household sector Nguyen (2010) indicates that a number of labors who get low-paid in company have turned to household sector Agricultural household can 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 Statistic Office in 2004, there were 2.9 million of non-agricultural business establishment nation-wide, 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

1 Author use the term « business household » according to Decree 43/2010/ND-CP of the Government Business household is the non-agricultural business households or non-agricultural business establishments In this thesis, the author use both the phrase " business household" and "businesses establishment" with similar meaning.

Figure 1.1: Number of agricultural business household and employees in

non-agricultural business household in 2004-2012 period (Unit: thousand household, thousand

number of business establishments number of labors

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. 2 There has not been a favorable business environment for businessc households Phuoc Ha, 2006; IRC and IPSARD, 2011) Local authorities pay much attention to business households as this is the sector which generates the most state budget revenues (from tax) for the provinces (IRC and IPSARD, 2011)

1.2 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 be an important 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 settling 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 can not 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

1.3 Objectives of the study

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

Specifically, the specific objectives of this research are:

- Analysing business Environment of business households in rural areas of 2 provinces

through survey data;

- Calcutating formality index (FI) of of business households and use FI to assessment

business Environment of business households in rural areas of 2 provinces;

- Considering role of the factors (9 factors) in the expansion and development of business’ households;

- Comparing the business Environment of the business households in rural areas of 2 provinces

- Providing recommendations to improve the business Environment of the business households in rural areas of 2 provinces

1.4 Statement of problem

Currently, there are two types of household business operating on these locals:

Unregistered business household and Registered business household Unregistered businessc

households do transactions with sub-district level authorities Registered business households

do transactions with both sub-district and district level authorities Important questions on policies include:

- How is the present business environment for business household in rural area of Vinh Phuc and Bac Ninh? What factors of the environment are crucial to the establishment and development of business households?

- What factors influence decisions to register and/or change business model of business households in these provinces (from business household to company)?

From the practical requirements above, the author conducted a study: “Business Environment

of households in rural areas of Vinh Phuc and Bac Ninh provinces” Subjec proposes to

use an index to evaluate business environment of business household: Formality Index (FI)

This index helps identify the interrelationship between informal sector and formal sector, between business households and local government, and difference among the locals Based

on FI, these localities can supervise the business environment and make encouraging initiatives for the development of business household

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

1 What method to measure FI?

2 How to estimate FI for the chosen provinces and districts?

3 What is FI for provinces and districts?

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

Besides, this research will analyze the situation of business activities and business environment of the business households in the survey

1.5 Conceptual Framework

Currently, the Provincial Competitiveness Index (PCI) has been developed based on the assessment of the business environment of business registered enterprises PCI has been done by the Vietnam of Chamber of Commerce and Industry (VCCI) and PCI has received the attention of the whole society

According to VCCI (2010), the business environment of the provinces consists of 9 factors: the cost of accessing to market; access to land; Transparency and access to information; time costs to implement the provisions of the state; Informal cost; The dynamics and pioneering of provincial leadership; business support services; labor training; legal institutions

The theory of factors affecting business environment of enterprises as below:

Figure 1.2 A diagram showing the conceptual framework of the study

BUSINESS ENVIRONMENT

The cost of accessing to

market Access to land

Transparency and access

to information

Time costs to implement

the provisions of the state

Informal cost

The dynamics and

pioneering of provincial

leadership Business support services

1.6 Research Framework

We can see 9 factors above have a major influence on the development of the enterprises they also help local governments to see the factors that interfere with the business of the enterprise, particularly in the institutional environment And the PCI that is calculated based on these nine factorshas helped the provincial governments themselves aware of the importance of improving the business environment for enterprises in their localities

However, the business of enterprises and households have huge differences Factors that impact on the business environment of these sectors although in the same area but is not the same There are very strong factors affecting the company's business environment as economic management capacity of the government, the province's GDP but they almost do not affect the business environment of the household

The study emanates from the framework that the business environment of the enterprise consists of 9 factors above To match the characteristics of the business households needed to change some factors of the business environment that can truly affect the business operations

of the household

Figure 1.3 The figure shows that business environment of the households including 9 factors

that has been changed to impact business results of the household

Business Registration

BUSINESS ENVIRONMENT

Access to market (customers)

Access to capital Access to land

Labor and other

Infrastructure and

Business support services

Facilitation from authority

BUSINESS RESULTS

expand business

Decision to get business registration

Decision to

conversion into

enterprise

1.7 Significance of the study

The findings of the study are expected to benefit:

- Researchers may consider calculating the FI and use FI as a measure to assess the business environment of the households with other indicators

- The research’s results will 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

- Suggest calculated and used in the FI nationwide as a major indicator for assessing business environment of households like PCI indicator used to assess the business environment of business

- Policy makers can reference topics to devise appropriate decisions in order to create a favorable business environment to help business development of households

1.8 Scope and limitation of the study

To measure FI, the author has conducted a survey on the business environment of 500 household in 10 districts of Bac Ninh province and Vinh Phuc province in 2012 as a basis for this research (the research collect data on household businesses which have the number of members less than 10 employees)

Districts of Vĩnh Phúc: Tam Dương, Bình Xuyên, Yên Lạc, Vĩnh Tương, Lập Thạch

Districts of Bắc Ninh: Yên Phong, Thuận Thành, Quế Võ, Tiên Du, Từ Sơn

These households were selected (registered business/unregistered business) ratio of 6/4

This study not focus on business households that uses more than 10 employees Households

in the urban area of the two provinces were not considered for inclusion in the sample

1.9 Definition of terms

In the scope of the research, these following terms will have the respective definitions:

Business household: Business household owned by a Vietnamese individual or a

group of people or a household, registered in one location, employing no more than ten labors, having no stamp and responsible for its business activities by its whole assets

Business activities: is activities conducted by individual or organization in order to generate

Business registration: Business registration is activity in which founders of business

households request business registration entities to recognize the agreements in business registration documents on basic issues:

- 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

- Information on legal representative

Labor: Labors 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 employer to receive working requirements, salary and be under employer’s management during the committed working period Their working result is product which is used by others and exchanged in market

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

entity capital

Revenue: is total money collected via selling products, providing services, financial and

other activities of a unit In economics, revenue is defined as price multiplied by productivity

Profit = Revenue - Cost

Business premises: location of a businessg

Business supporting services: are services used by business owners to support them

in maintaining and effectively developing their businesses in post-establishment period (from the time of business registration issuance to the next 5 years), including:

Business information service

Law consulting service

Recruitment service, business partner matching service

…

Lobby cost: unofficial cost to facilitate business units to do business

Market: a place where buying and selling 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

1.10 Outline of the Study

The thesis is consisted of 5 chapters Chapter I introduces the research’s context and points out the necessity of the thesis Chapter II presents theoretical definitions related to general business environment and business households environment in particular, related researches on business environment Chapter III proposes methodology for the research The major methodology of this thesis is statistical analysis and regression analysis Descriptive statistical analysis is applied to evaluate business situation and business environment of business household within the scope of the survey Regression analysis is applied to measure fixed weight of component proportion of business household’ FI Lastly, small-scale estimation method will be applied to estimate FI for the province and district This methodology will be explained in details in Chapter III Chapter IV shows the data analysis result and solves the problems raised in Chapter I Then, Chapter V evaluates the impact of business environment on business outcome and decision to formalize business activities (registration) or change business model (from business households to enterprises) Based on this result, the thesis will derive a number of conclusions and recommendations for policies

to improve business environment for businesshouseholds

CHAPTER II REVIEW OF RELATED LITERATURE AND STUDIES

This chapter provides theories relating 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, by 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 which

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 The people 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 that: “Encouraging family economy Using the active capacity of small goods producers, while gathering and organizing individual employees to participate in collectives for improvement of production and business efficiency; arranging small dealers, assisting people who were not needed in circulation to move to production and service 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 Developing association among economic sectors on basis of mutual benefits and equalitarian to the laws”

* In the economic improvement with the active effort of the State, traders revived, firstly 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 to 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 currently A household,

in conformity to the Regulation, meets the following conditions: (i) It has production means and other capital under ownership the person registered in the License; (ii) the person register

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

It 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 and takes its responsibilities by its entire assets for its business (Clause 24, Item 1)

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 and takes its responsibilities by its entire assets for its business activities (Clause 36, Item 1)

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 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

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 of 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 for a start of 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 arisen 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

It is defined in USA Laws 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 gets a great development 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 officialize 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 officialize 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 s 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 convenience 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 to all activities of a business entity, it consists of two types: internal environment (households culture, functions and objectives of the business entity…) and external environment (laws, politics, clients, competitors, partners….)

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

2.2.1 Definition on business environment of sole business households

Business environment of the households include all factors impacting 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 impacting 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:

• Macroscopic business environment consists of current administrative procedures, land policies, credit policies, tax policies, and economic integration of regions

• Regional business environment: position of shops or of business households; infrastructure system, labor force, 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 If different criteria are based on, 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

- Geographic factor

* In conformity to impacting 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, natural conditions

* In accordance with the study scope:

- General environment

- Environment of business line

- Internal environment of the business household

Business environment can get a general overview as follows:

Chart 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 impacting level on the households

+ Firstly, internal business environment of the households (internal environment) is business potential, efficiency, and business objectives to reach that can affect othe

factors of the environment

+ 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

Potential of the household

Business

Efficiency

Objective

of the household

LEGAL

External business

environment

Business environment can be classified and accessed 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 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 Impacting levels and impacting 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 combine 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 impacting on management and business activities of a household, managers have to select and make decisions of business management Business households have to clearly understand impaction 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, 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 get impacts on its business activities Due to changes of business environment, it is necessary to get proper methods to control the changes to get high efficiency of business environment

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 is required to apply information technology to develop the most proper business environment

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);

- 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

Administrative procedure is a worry of many business households If State authorities

Output market of the business household

Input market of the

business household

Activities of production, business, service of the business

have a clear and transparent management system, providing convenience for business environment, 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 can not develop their business and make long-term investment

* Land policies

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, land lease, …shall be obstacles for start of any business household

* Credit for business households

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

* Science and technology

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

* Economic integration

When Vietnam becomes a member of WTO, there are a lot of factors impacting 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

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 some opportunities as follows:

Firstly: Rapid access to advanced technologies, improvement of productivity, improvement of product quality, protection of local market and active participation into domestic and international markets

Secondly: Access to international capital in diversified forms, and international

aids…helping business households to improve capacity of goods production and conveniently participate into commercialization

Thirdly: Division of labor in a production line or a business stage Labor is an important factor in distribution of sources in a large scale

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

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 factors of infrastructure, local labor, local policies

-Infrastructure

Factors of infrastructure, such as electricity, transport system, information and telecommunication system, water system, 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

-Local labor

Currently, business household pay attentions to local labor force Regions with abundant and trained labor force shall encourage development of business households

-Local policies

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)

•Potential of the business household: Potential on labor force, capital, business capacity

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 reduction of competition of sole business households in comparison to that

of other business forms

* Capital

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

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

* Business efficiency

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 basing on 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 reach its future objectives is required to get profits from its business

* Objectives and expectations of business households

It is necessary for a business household to get a clear objective of business, and then

to set up requirements for business environment, expectations to favorable macroscopic factors, expectations in the regional business environment that can help the household

to develop its business And it can have requirements on a better infrastructure, causing a convenient exchange of goods and services

2.2.3 Factors impacting to business environment of business households

a Economic policy

* The term policy means all standpoints, ideas, solutions and tools effected by the

State on economic subjects to solve main issues, and to execute certain objectives in the general orientation of the State

+ Economic policy creates a complicated system, including policies of commerce, tax, technology, finance and currency …

- Commercial policy: includes a system of principles, proper tools and methods applied by the State to control commercial activities in certain periods Commercial policies get direct impacts to development of business households, especially the ones of trade

- Free trade policy: means the policy stipulated by a Government that tax is not imposed on some imports and exports The policy provides opportunities for wholesale households in Vietnam However, it is a large challenge for young business households in a more and more severe competition

- Trade protection policy: is the policy applied by a Government to control imports in order to protect domestic goods The policy limits importation of goods overseas through tariff

barriers and non-tariff barriers to protect domestic production households to help them develop

in the market However, the policy can cause a “reprisal” from overseas in terms of its exports, making a reduction of exportation market

+ Finance and currency policy

Any countries have to apply finance and currency policies to attract investments and control the economy Finance and currency policy is one of the most policies to control the macro economy

- Financial policy:

It includes regulations stipulated by the State on income and spending Financial policy is

a system of viewpoints, ideas, solutions and tools applied by the State to mobilize resources, to distribute and efficiently use resources of the society

The policy is required to solve a lot of issues: which model to organize the finance? Which is the optimum rate between spending and saving? Which economic sector should be encouraged and which should be limited? How to get a balanced development between economic sectors and regions? The policy gets impacts on business environment among sectors

- Currency and credit policy:

This policy includes viewpoints, ideas, solutions and tools applied by the State to supply funds for the economy

It is one of large policies of the State, and an effective tool to control the market economy

+ Tax policy: Tax is a source of income under obligations stipulated by laws Tax exists through socioeconomic forms of the State, it is a main and stable source of income, making up 80% of the total State Budget to cover spending of the Government It is a tool to control the national income Tax is not only a source of income but also a fiscal policy to control the macro economy It is a tool to protect domestic economy and compete with international economies

+ Technological policy: Currently, with a strong development of knowledge, science economy, technology plays an important role for business households A business household that can grasp latest technologies shall get advantages in the market

- The action program encouraging development of private sector in Myazawa initiative framework (Japan) was announced and performed by the end of 2001 In the program, Japanese Government committed to sponsor Vietnam with 20 billion Japanese Yen

to support solutions encouraging private sectors, ensuring a fair treatment among economic sectors of credit, licensing, tax, and ensuring right of free trade of business households

- Some solutions of the Government were performed to mobilize domestic resources, such as: permitting sole business households to use value of land use right for borrowing of