Challenges in internationalisation for vietnam sme

Small and Medium Enterprises (SMEs) of Vietnam play an important role in the countrys industrialization and modernization. There is a plenty of reasons why small and medium business should go international, for example bigger markets leading to bigger profits, cheaper supplies leading to more effective production process. The purpose of this study is to point out obstacles faced by SMEs in international activities and recommend strategy changes to answer the question: “How can SMEs in Vietnam achieve effectiveness when engaging in internationalization?”

ĐẠI HỌC QUỐC GIA HÀ NỘI KHOA QUẢN TRỊ VÀ KINH DOANH

-

ĐINH NGUYỄN BÍCH LÊ

CHALLENGES IN INTERNATIONALISATION

FOR VIETNAM SME

NHỮNG THÁCH THỨC TRONG QUÁ TRÌNH QUỐC TẾ HÓA ĐỐI VỚI CÁC DOANH NGHIỆP VỪA VÀ NHỎ Ở

VIỆT NAM

LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH

HÀ NỘI - 2020

ĐẠI HỌC QUỐC GIA HÀ NỘI KHOA QUẢN TRỊ VÀ KINH DOANH

-

ĐINH NGUYỄN BÍCH LÊ

CHALLENGES IN INTERNATIONALISATION

FOR VIETNAM SME

NHỮNG THÁCH THỨC TRONG QUÁ TRÌNH QUỐC TẾ HÓA ĐỐI VỚI CÁC DOANH NGHIỆP VỪA VÀ NHỎ Ở

VIỆT NAM

Chuyên ngành: Quản trị kinh doanh

Mã số: 8340101.01

LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH

NGƯỜI HƯỚNG DẪN KHOA HỌC: PGS.TS HOÀNG ĐÌNH PHI

HÀ NỘI - 2020

DECLARATION

The author confirms that the research outcome in the thesis is the result of author‟s independent work during study and research period and it is not yet published in other‟s research and article

The other‟s research result and documentation (extraction, table, figure, formula, and other document) used in the thesis are cited properly and the permission (if required) is given

The author is responsible in front of the Thesis Assessment Committee, Hanoi School of Business and Management, and the laws for above-mentioned declaration

Date………

I am grateful to Assoc Prof - PhD Hoang Dinh Phi for his valuable guidance from the beginning to the end of this work

Finally, I am especially thankful for the love, encouragement, support and patience of my partner throughout the research and writing process

Hanoi, Date………

TABLE OF CONTENT

DECLARATION i

ACKNOWLEDGEMENT ii

ABBREVIATIONS AND ACRONYMS v

LIST OF TABLES vi

LIST OF FIGURE viii

CHAPTER 1: INTRODUCTION 1

1 Background and Problem Statement 1

2 Objectives of the Study 2

3 Scope of the Study 2

4 Thesis Structure 3

CHAPTER 2: LITERATURE REVIEW 4

1 Conceptual Definitions of Internationalization 4

2 Internationalization and Competitiveness 4

3 Internationalization and Resource-based View to Create Competitiveness 6

4 The Role of Government in the Internationalization of SMEs 9

5 Government – Business Relations Models 10

5.1 Basic models of government-business relationship 11

5.2 Partnership Model of Organizing the Relationship between the Government and Business 12

6 Summary 14

CHAPTER 3 : RESEARCH METHODOLOGY 15

1 Research Approach 15

1.1 Induction or Deduction 15

1.2 Qualitative and quantitative method 15

2 Research Strategy 16

3 Literature Research 17

4 Data Gathering 17

4.1 Primary data of the research 17

4.2 Secondary sources of data 18

CHAPTER 4 : FINDINGS AND DISCUSSION 19

1 Data Collection Description 19

2 Sample Description 20

3 Internationalization Process 21

3.1 Export activities 22

3.2 Export and Import organization 24

3.3 Partnerships 25

3.4 Partnership content 28

4 Export Information and Assistance 29

4.1 Utility provision 32

4.2 Transportation facilities 33

4.3 Export promotion network support 34

5 Policy and Institutional Environment 36

5.1 Inspection visits received by firms 38

6 Key Factors in Internationalization 39

6.1 Impact of Ownership (SOEs and Private SMEs on all other factors) 39

6.2 Impact of Industry on all other factors 42

6.3 Factors impact on export shares 45

6.4 Factors impact on International competitiveness 48

6.5 Impact of key factors on effectiveness after international cooperation 50

7 Summary 52

CHAPTER 4 : CONCLUSION AND RECOMMENDATIONS 54

1 Reforming the credit system and developing the capital market 54

2 Reforming the trade policies to assist export activities by SMEs 56

3 Reforming further the customs procedures 58

4 Recommendations on technology policies 60

5 Recommendations on the operation of the organizations supporting SMEs 60

6./ LIMITATIONS 62

Appendix I 63

Appendix II 66

ABBREVIATIONS AND ACRONYMS

CIEM Central Institute for Economic Management MPDF Mekong Project Development Facility

ASEAN Association of Southeast Asian Nations

VCCI Vietnam Chamber of Commerce and Industry UNCTAD United Nation Conference on Trade and

Development

LESAFO Leather and Footwear Association

VITAS Vietnam Textile and Apparel Association VASEP Vietnam Association of Seafood Exporters and Producers

VIETTRADE/MOT Ministry of Trade

VINAFRUIT Vietnam Fruit Association

PSME Private Small and Medium Enterprise

BOT Building, Operating and Transferring

LIST OF TABLES

Table 2.1: Roles and Models of Government in an Economy 11

Table 3.1: Relevant situations for different research strategies 16

Table 4.1: Register capital and economic sector 20

Table 4.2: Distribution on industry 21

Table 4.3: Export motives of the SMEs 22

Table 4.4: Export share 23

Table 4.5 25

Table 4.6: Export channel 27

Table 4.7: Support from partners 28

Table 4.8: 28

Table 4.9: 29

Table 4.12: 30

Table 4.13: Reasons for not using E-Commerce 31

Table 4.14 32

Table 4.15: Difficulties in transportation 33

Table 4.16 34

Table 4.17 35

Table 4.18 36

Table 4.19 37

Table 4.20 38

Table 4.21 39

Table 4.22 42

Table 4.23 42

Table 4.24 44

Table 4.25 45

Table 4.26: Correlation between export shares and other key factors (regression) 45 Table 4.27: Correlation between International competitiveness and other key factors

Table 4.28: Correlation between effectiveness after international cooperation and other key factors (Regression) 50 Table 4.29 52 Table 4.30 53

LIST OF FIGURE

Figure 2.1 7

Figure 4.1 24

Figure 4.2 26

Figure 4.3: Application of E-Commerce 29

CHAPTER 1: INTRODUCTION

1 Background and Problem Statement

Small and Medium Enterprises (SMEs) of Vietnam play an important role in the country's industrialization and modernization The process of economic reform in Vietnam, during the last few years, has directly impacted and resulted in the growth of SMEs which has promoted the development and diversification of trade, organization form and business areas through internationalization There is a plenty of reasons why small and medium business should go international (VCCI, 2017), for example bigger markets leading to bigger profits, cheaper supplies leading to more effective production process Most of them are market related, but one key factor is not being, the type and quality of management Managers of exporting enterprises show a higher degree of education and foreign language fluency than those of non-exporting enterprises and are more dynamic when the enterprises take the first step to the international market (MPDF, 2017)

In Vietnam, the development of SMEs towards internationalization, however, is still limited (VCCI, 2017) due to market constraints and the SMEs' competences There are barriers such as capital shortage, old and slowly renewed equipment, outdated technology, poor diversification of product sample and lack of good skills and management experience More importantly, the lack of specific policies from the support institutions and Government in promoting the internationalization of SMEs, enhancing competitive advantages for SMEs apparently restricts their international integration (VCCI, 2017)

Given this fact, there is an increasing body of studies and research conducted by various international and local organizations, among whom MPDF, UNDP, CIEM, VCCI and the World Bank are main actors However,

while most of the studies on SMEs have put emphasis on general policy recommendations, very few researches have focused on typical issues faced

by SMEs such as government support in export promotion Therefore, the purpose of this study is to point out obstacles faced by SMEs in international

activities and recommend strategy changes to answer the question: “How can

SMEs in Vietnam achieve effectiveness when engaging in internationalization?”

2 Objectives of the Study

 To explore current export barriers of SMEs in comparing with those

faced by state owned enterprises (“SOEs”);

 To examine support policies and activities such as export promotion

activities from the government and professional association for SMEs;

 To explore solutions or strategies that SMEs (in general and by group

such as PSMEs and SOEs) are using to resolve their barriers and the effectiveness of their strategies;

 To provide recommendation for both SMEs, Government and other

related stakeholders

The findings will be the basis for a possible model of business relations in Vietnam and overall strategy by the Government towards internationalization to achieve the most competitive advantages for SMEs

government-3 Scope of the Study

Content: The author focuses on the group of SME in the field of export

4 Thesis Structure

 Chapter 1: Introduction

 Chapter 2: Literature Review

 Chapter 3: Research Methodology

 Chapter 4: Data Analysis and Finding Discussion

 Chapter 5: Conclusion and Recommendations

 Appendices

CHAPTER 2 LITERATURE REVIEW

1 Conceptual Definitions of Internationalization

Internationalization can be described as the process leading to a company's increasing involvement in cross-border or international operations Internationalization is an organic process, but, at any given point in time, a company‟s degree of Internationalization may be measured Typical measurements are export quota; number of markets; foreign investment quota; number of foreign subsidiaries, and management orientation (Meyer, 2016)

Internationalization of a company refers to the increase of all border business activities These include exports but also link to foreign supplies of raw materials, components, machinery, donors, and international financial institutions

cross-Small and medium enterprises have many disadvantages compared with large enterprises even in the domestic market Management skills and technology are limited to their knowledge, and understanding about different cultures and effects of institutions is also limited Moreover, they do not have many advantages of assets, resources, co-operations with partners both domestic and foreign ones It can be seen that the competitive advantages of a firm are influenced by the interaction of the business community of the country and the industry which the firm belongs to

2 Internationalization and Competitiveness

Internationalization is an important way to gain and maintain competitiveness in an open economy The benefits that Vietnamese late followers will get are the shortcut to upgrade technology through international technology import and international linkages Cooperative partnership

resources for the local firm Upgrading through own research and development efforts will both be costly and time consuming Unless human capital and skills are upgraded, production may be limited to exploiting comparatively low cost labor Domestic savings alone cannot finance necessary investments in technology development and human capital Tapping into international resources for capital, technology and human skills

is an important option How to do that effectively and gain competitiveness is, however, not simple and require carefully framed strategies both at country and firm level (Lall, 2009; UNCTAD, 2008)

While different kind of mechanisms both at country and firm level can

be thought of to strengthen competitiveness, the linkages that are forged in a cooperative partnership between firms can transfer scarce resources and benefit all partners in the alliance While competition between firms stimulates competitiveness and upgrading it is also possible through cooperation between firms (Porter, 2008) International linkages are voluntary inter-firm agreements aimed at achieving competitive advantage for the partners (Das, 2008)

When international linkages are formed between firms across borders,

it opens the possibilities to exchange resources that are difficult to obtain in the domestic environment or to acquire internationally on commercial terms

An important element for going into cooperative arrangements for the firms is the notion that it will save transaction costs compared to other forms of exchange Internationalization through such international linkages like

strategic alliances can, however, also be seen from a resource based

perspective where the firm is essentially understood through the resources it

has at its disposal International linkages are driven by the need for resources through cooperative interaction and integration between firms (Das, 2008; Faulkner, 2012) In alliances it may however not only be a question of

obtaining but also of retaining resources This leads to considerations of the learning organization as important for the rationale and sustainability of strategic alliances (Faulkner, 2012) Furthermore, elements of strategic behavior models and game theory; social relations and network theory; and power-dependency theory add additional perspectives to understand strategic alliances and how they work

The strategies pursued in cooperative ventures may take various paths:

a Market development and expansion; b research and development partnerships; c international production sharing/sub-contracting and d counter-trade alliances (Culpan 2011) These strategies can also be combined and shaped in relation to the needs of the parties While large multinational firms may join into alliances of a horizontal nature, the vertical cooperation between a producer and its sub-supplier may often involve quite different firms with respect to size and resources and thereby power in the relationship

3 Internationalization and Resource-based View to Create Competitiveness

Creating sustainable private sector development can be hypothesized to hinge significantly on the ability of Vietnamese industry to foster international linkages The importance of internationalization is emphasized

by the industrial organization literature on competitive advantage Vietnam has chosen a development strategy based on an open economic regime Free flows for international trade and capital flows will increasingly be part of the conditions under which policies are formulated and firms are operating Regionally, the integration will increase not the least in relation to ASEAN/AFTA and the huge neighboring economy of China Internationally the bilateral trade agreement with USA is in place as a likely forerunner for Vietnam membership in WTO (World Bank/ADB/UNDP, 2017) All these

represent critical challenges for these firms to participate in international

competition and achieve competitiveness

Therefore, the question is how to build up competences for Vietnamese

firm especially SMEs which account for more than 90% of all the Vietnamese

firms of all sizes (Ministry of Planning and Investment, 2017) It can be seen

that, with such small scale in size and activities scope, SMEs in Vietnam

really need the support from the government in building up overall strategies

as per industry The role of the Government is hypothesized as adhering and

categorizing all the SMEs based on their different resources and competences

so that it can create policies accordingly aiming at the highest international

competitiveness for the firms In this part, the resource-based theory and

activities of the firm along the value chain are discussed as a basis to group

the firms‟ resources

Procurement & Logistic & Production Marketing & Services

Categorizing and grouping

Value chain

Upstream internationalization Downstream internatiolization

(self-constructed) FIRM RESOURCES AND INTERNATIONAL

COMPETITIVE ADVANTAGES

Understanding sources of sustained competitive advantages for firms has become a central issue in strategic management Most of the theories suggest that firms obtain sustainable competitive advantages by implementing strategies that exploit their internal strengths through responding to environmental opportunities while neutralizing external threats and avoiding internal weaknesses (Hofer & Schendel, 1997) Recently, most of the work has tended to focus primarily on analyzing firm‟s opportunities and threats in its competitive environment As Porter‟s (2008) five forces model describes the attributes of an attractive industry and thus suggests that opportunities will

be greater and the threats less

However, Porter‟s model has been criticized for its neglect of the

competencies and other internal conditions that influence the development of firms‟ competitiveness Critics claim that externally focused orientation cannot be a secure basis for developing non-imitable resources and competitive advantage (Grant, 2015 and Barney, 2015) The problem is that the Porter diamond appears to conceive competitiveness as exogenously conditioned thereby ignoring the internal conditions (e.g firm level resources) that promote competitiveness of firms This critique is in particular voiced by the “resource-based view” of the firm (Foss, 2015)

The resource-based view has recently emerged as an alternative approach understanding industrial organizations and their competitiveness strategies The resource- based view of competitive advantage focuses more

on internal factors and examines the link between firm‟s internal characteristics and performance, that obviously can not build up only on external factors (Barney, 2015) It suggests that the rationale for international linkages is the value creation potential of firm resources that are pooled

processes, firm attributes, information, knowledge, etc controlled by a firm that enable the firm to conceive of and implement strategies that improve its efficiency and effectiveness

The resource based view of firms assumes that firms within an industry (or group) may have the same resources with respect to the strategic resources they control and these resources may not be perfectly mobile across the firms and thus they can be built up as competitiveness

4 The Role of Government in the Internationalization of SMEs

According to Porter (2016), the development of competitiveness is influenced by government policy in that facilitates the conditions within each

of the four facets of the diamond as well as their interaction The role of Government in adhering all the businesses and creating industrial competitiveness and national competitiveness is important more than ever in fewer developing countries Trade policy issued by the Government thus should not passively respond to complaints or to those industries that can muster the most political clout but must seek to open markets wherever a nation has competitive advantages Government policies and measures are particularly important in developing countries, where private sector development often is in its infancy (Esser, 2014 and Whitley, 2014) What should be done is to identify such programmes and instruments that have facilitated competitiveness enhancing linkages between local enterprises and foreign partners in developing countries For instance, as the type, strength and effects of local-TNC linkages to a large extend depend on technological, financial and other resource capabilities of local industry, it is essential to identify instruments and programmes that have succeeded in nurturing such capabilities Or, as the competitiveness of local industry in an international context largely depends on industrial clusters and chains becoming integrated internationally, it will be essential to identify those government policies and

programmes that facilitated successful collaborations Obviously, the analysis

of these specific programmes must take into account overall economic conditions and frameworks, by controlling for the effect of factors such as macro economic stability and degree of openness of trade and investment regimes

Regional experiences in Asia have shown that the balance between the role of the state and the SMEs is very crucial for expansion in an export-oriented strategy Most experiences point at the crucial role of the state However, it is also evident that this role has taken different directions in the export-oriented countries around Vietnam

5 Government – Business Relations Models

In this study, the concept of „businesses‟ or „business community‟ refers

to all commercialized and profit-making oriented entities including either private firms or stated-owned enterprises (SOEs)

In contrast, „government‟ refers to policy and law making agencies,

government‟s facilitating and implementing institutions and the public administrative apparatus This distinction aims at excluding SOEs from the policy making and facilitating body of Vietnamese Government, which is subject to many recommendations of this research

By relationship between government and business, it means some degree of dependency or interdependency between the two actors The relationship can be looked upon from a structural point of view, i.e how is the relationship organized, or from a behavioral point of view, i.e how do the actors interact Both views are relevant but within a government-business framework, the interaction and the activities are of primary interest It is through the action and interaction that the relationship between government and business develops and a learning process is put in motion

5.1 Basic models of government-business relationship

Over the years, numerous views on the nation state and the relationship between the government and the business community have been formulated

As the world today is more colorful, the question is not central planning versus market supremacy and the concomitant role of the government The question is the merits of each of several alternative ways of managing and governing a market economy

This study has identified five different models of the role of government in relation to the business community The models are summarized in the Table 2.1

Table 2.1: Roles and Models of Government in an Economy

Type of government Public Authority

(Public Sector)

Private Autonomy (Private Sector)

Mixed Economy

Division of labor between Government and private sector based on effectiveness and efficiency

Partnership

Dialogue between Government and private sector, the dialog taking place within a network

of public and private institution

Public Policy Supremacy

The government represents unified political power and through policies, the government shapes or directs the action for the private business

Source: Sorensen (2012)

The lassez-faire model or neoclassical economics model of government

business relations has the stands that the government which governs least The public authority should be minimized and the private autonomy maximized In relation to the economy, the role of Government is assuring the proper working of the markets both the domestic and the international ones Those roles are more to

do with maintaining macroeconomic stability and supplying public goods

In the mixed economy model, a given sum of function to be preformed by

the public authorities or autonomous private entities is envisioned The main issue

is to define the borderline between the two sectors The guideline for defining the borderline is the efficiency with which each of the two sectors can perform the functions The guideline is again linked to welfare considerations In general, the role of the government embedded in the concept of the mixed economy can be found in many economies but lots of variants exist

In the central planning model, the government is the dominating

actor-activist or entrepreneur who plans and carries out the economic functions The model assumes that preferences and resources are known and that bounded rationality does not exist The private sector is minimized, if existing at all Often the government is hostile towards private sectors, seeing the capitalist threat in even micro enterprises which barely survive from their business

5.2 Partnership Model of Organizing the Relationship between the Government and Business

Basically, the partnership model represents an institutional

arrangement between the government and the business community, which is

able to handle a multiplicity of interests through interaction involving dialogue, negotiations and actions This model has following basic features:

1 The principal actors are the private firms and their associations, the

political bodies and the public agencies

2 The actors interact and through the interaction, intensive and often

personal and long-term relations are developed

3 The relationship may be formalized by establishing specific institutions

4 The actors are not seen as unified decision makers but are characterized

by a multi-center power structure

5 In its pure form, the partnership model is characterized by

interdependence, trust, cooperation, and mutuality in the relations between government and business

6 Being political/economic institutions, the activities within the

institutions aim at fulfilling ideological, strategic and practical objectives The activities comprise: Policy formulation activities; Campaigning activities; Discourse activities; Dialogue activities; and Implementation activities Some of those types of activities may be dealt with in specialized institutions, and at the same time, the same institutions may be in charge of more than one activity Those activities can be summarized as follows:

 Policy formulation The formulation and analysis of

problems and the proposal of solutions

 Campaign activities The formulation and diffusion of the world

 Discourse activities Testing the rationale of policies and world

 Dialogue/Negotiations Establish procedures/Terms of reference and

 Implementation activities Carry out, monitor, punish violators and

Basically a partnership model driven by interdependence and mutual understanding between public and private sectors is characterized by actions based on information exchange, communication, dialogue, and negotiations

within a network of personal and institutional relations The interaction is intensive, frequent and takes place between organizations or within overlapping organizations established in conjunction by the two sectors

6 Summary

Issues related to internationalization play as a basis for overall understanding of SMEs internationalization While stage theory helps studying where Vietnamese SMEs are and where they should move to in the internationalization, network theory emphasizes on importance and advantages of business linkages among SMEs in one industry, one nation and

in global network Government-Business relations apparently influence the effectiveness of internationalization of SMEs and also help to enhance the export promotion system in Vietnam in supporting SMEs

CHAPTER 3 RESEARCH METHODOLOGY

1 Research Approach

The research approach consists of the inductive or deductive way of drawing conclusions, and the qualitative and/or quantitative method of investigating information I will describe the different approaches and justify the choices I have made

1.1 Induction or Deduction

Two different approaches for drawing research conclusion exist, that is, induction or deduction (Wiedersheim-Paul & Ericksson, 2009) The inductive approach means that the researcher, by observing the reality, acquires generalisable data, from which theories are formed (Ericksson & Wiedersheim-Paul, 2015) I have assumed the deductive approach in my thesis, since I have proceeded from existing theories and models regarding the export development process These theories have been tested empirically, to see if they correspond to the reality I have chosen this research approach since many theories in the area exist, although based on large enterprise‟s experiences

1.2 Qualitative and quantitative method

Depending on the kind of information that is investigated, either qualitative or quantitative method is used (Lekvall & Wahlbin, 2013) Qualitative method does not strive to generalise the problems; instead, the purpose is to give a deeper understanding of the problem Further, the method

is flexible, and thereby, the researcher can correct possible weaknesses and incorrect formulations, and also add lacking questions However, one weakness with this method is that, it can be a problem to compare information from the different objects of study (Holme & Solvang, 2015) Qualitative investigations usually take the form of case studies or surveys, with few research objects (Lasvall & Wahlbin, 2011)

The quantitative method deals with the problem in a wider perspective, usually through large questionnaires with closed-end questions (Holme & Solvang, 2005), that is questions which call for resources that are strictly limited (Chisnall, 2015) The gathered material is expressed in figures (Lekvall & Wahlbin, 2011) The primary purpose of this methodological approach is to be able to generalize the gathered information I have assumed the quantitative approach in my research, since I wanted to get a deeper understanding of different phenomena relating to SMEs and their internationalization process

2 Research Strategy

According to Yin (2012), five major research strategies exist, namely case studies, experiments, surveys, histories, and the analysis of archival information A figure, where relevant situations for different research strategies are presented, is presented below

Table 3.1: Relevant situations for different research strategies

Strategy

Form of research question

Requires control over behavioral events?

Focuses on contemporary events?

Survey

WHO, WHAT, WHERE, HOW MANY, HOW MUCH

Archival

Analysis

WHO, WHAT, WHERE, HOW MANY, HOW MUCH

I choose survey as my research strategy A questionnaire is well designed in order to obtain necessary and sufficient information Yin (2012) states that when the form of the questions is WHO, WHAT, HOW MUCH and HOW MANY, the case study strategy is most likely to be appropriate

The research problem I have investigated is “How can SMEs in Vietnam achieve effectiveness when engaging in internationalization?” which

is divided into 4 main parts with 31 research questions

3 Literature Research

Having defined the research area, I started to search for relevant literature The keywords used when searching the databases were

“international business”, “export”, “internationalization process”, “SME”,

“SMF”, “small and medium business”, “small and medium enterprises”,

“international trade”, “business in Vietnam” These words were combined in different ways, to maximize the number of hits Other sources I have used are literatures extracted from international marketing research studies

4 Data Gathering

The researcher has to decide if the investigation should be based on already gathered information, that is, secondary data, or if fieldwork has to be carried out, to gather primary data (Lekvall & Wahlbin, 2011)

4.1 Primary data of the research

Primary data is collected by the researcher for a specific purpose (Chisnall, 2009) Two main techniques for gathering primary data exist, that

is, inquires or interviews Either one, or a combination of both, can be used (Ericksson & Wieldrsheim-Paul, 2015) On these basis, the below steps will

be performed:

 A survey of the existing SMEs engaged in international strategic alliances;

 Interviews of key institutions relating to SMEs promoting activities in Vietnam; and

 In-depth interviews with some SMEs to support the collected data and add diversity and comprehensiveness

4.2 Secondary sources of data

Ericksson & Wiedersheim-Paul (2015) points out that secondary data is data, which already has been collected by someone else, for another purpose Statistics, and reports issued by governments, trade associations, and so on, are some sources of secondary data (Chisnall, 2015) The annual report and enterprise‟s homepage are other sources of secondary data (Wiedersheim-Paul

& Ericksson, 2009) Secondary data research should always be carried out before doing any field survey (Chisnall, 2009)

The following secondary data will be considered to use in my research:

 Reports, statistical and research materials at SMEs department of Ministry of Planning and Investment, Ministry of Trade, Vietnam Chamber of Commerce and Industry;

 Reports, articles from press, Internet; and

 Observation and empirical study from the other emerging countries in the region

CHAPTER 4 FINDINGS AND DISCUSSION

1 Data Collection Description

Survey was conducted to collect data by delivering 60 questionnaires to small and medium enterprises All these enterprises are ranging from different industries and capital sizes (not exceed VND10 billion and permanent workforce does not exceed 300 workers), have engaged directly to international business with at least 10% revenue earned from foreign related activities With the purpose of gaining broad insights, no restrictions were made to the type of companies to be interviewed, only that they were manufacturing companies and that they had export activities

The questionnaire was designed with four main parts mostly related to internationalization: company profile, internationalization process, export promotion and assistance and relation with government and public services (see appendix II) Those questionnaires were sent directly to managers of enterprises who were in charge of international business activities The returned questionnaires were screened for consistency and answers from 50 companies fulfilled the criteria and had a sufficient comprehensiveness in the answers provided Ten were rejected because of not being answered properly and some were not even filled in all

In addition, ten more companies were interviewed directly and with more detailed information This supports the collected data and adds diversity and comprehensiveness The questionnaire is attached herewith with open questions asking for more information about the company comments and suggestions Interviews with SMEs Supporting Center (Vietnam Chamber of Commerce and Industry) and VIETRADE (Ministry of Industry and Trade)

were conducted to get more information about their current activities, their suggestions and plans to support SMEs

2 Sample Description

The 50 companies in the survey represent both private and public ownership: 20 enterprises (40%) being partly state owned and 30 private (100%) enterprises (60%) most of which are private limited enterprises While it is important to learn about private firms involvement, the study nevertheless included SOEs in order to have a comparative aspect such as to see whether there is any bias against PSMEs relative to SOEs The percentage

of private enterprises is bigger than the SOEs‟ ones

Firm size based on capital employed is shown in Table 4.1

Table 4.1: Register capital and economic sector

Private SOE Under VND1 billion (US$66,000) 11 (100%) 11 (100%) From VND1-VND5 billion

(US$66,000-US$330,000) 14 (53.8%) 12 (46.2%) 26 (100%) From VND5-VND10 billion

(US$330,000-US$660,000) 5 (38.5%) 8 (61.5%) 13 (100%)

SOEs have larger capital size than private companies This is easy to understand since private companies are mostly newly established and are in the beginning stage of investment Small companies can be categorized as having under VND1 billion (US$66,000) registered capital and medium companies are those having more than VND1 billion (US$66,000) to VND10 million (US$660,000) As can be seen, 22% of the companies are small and 78% are medium companies No SOEs have a capital smaller than VND1

billion and no SOEs are small companies in this sample The composition of interviewed firms according to industry is shown in Table 4.2

Table 4.2: Distribution on industry

Food Processing Wooden Processing Chemistry

Others: carton packages, electronic accessories, boilers, etc

It is clear that garment, leather, agro/forest based productions dominate, while engineering, electronic and metal based production is almost absent (a few included in others) Together with data released by VCCI (previously mentioned), it is also clear that most of SMEs are involving in light industries mostly textile and food processing

3.1 Export activities

Export motives encouraging companies engaging in international markets can be divided by increased profit, government incentives, low demand in the domestic market, demand to access to new technology to increase productivity and finally the competition in the home market

Table 4.3: Export motives of the SMEs

Export moti ves vs industry

% of Total Sum Mean

% of Total Sum Mean

% of Total Sum Mean

% of Total Sum Mean

% of Total Sum Mean

% of Total Sum Mean

% of Total Sum

Industry in which f irm

operate

Textile and Garment

Footwares and Leathers

Export motiv e of the company is accessing t o

f oreign technology

Export motiv e

of the company is gov ernment incentiv es

Export motiv e

of the company is low domestic demand

Export motiv e of the company is domestic competition

All the respondents answer this question and their main export motives are highlighted in table 4.3 Most of the SMEs are motivated firstly because

of profit with a mean of 4.30 Out of the total, 63% of all the companies said increased profit increasing is the most important motive for them and among which 57% are the private companies It is likely that private companies weigh increasing profit most importantly This is also the highest rate of agreement among different industries compared with other motives All the enterprises in Food processing said that increasing profit is the most important with the highest mean of 5, followed by textile and Garment industry with

technology followed by textile and Garment and Wooden Processing industry enterprises Companies in Handicrafts industry almost do not respond to Government incentive policies or upgrading technology motives

Government export incentives seem not to be very attractive evidenced

by fact that all means are below 3 The only exception is Chemical industry Domestic demand for textile, foot-wares and handicrafts is likely low which

make enterprises in those industries seeking for foreign market elsewhere

Table 4.4: Export share

Deviation

a mean of 3.06 For Chemical enterprises, revenue earned from exporting appears not high ranging around 21% to 40% Private SMEs earn more from

exports compared with SOEs but on average not very much higher Out of 20% of enterprises who can earn the highest level of export revenue (81%-100%), 80% are private SMEs while only 20% are SOEs This appears that private companies get more involved in foreign trade compared with SOEs

3.2 Export and Import organization

To see how professionally all the SMEs operate in foreign trade activities, we look at whether those enterprises have their own export-import department in charge of related international business In general, 78% of all the enterprises have their own specialized import-export department, among which 72.2% of private companies do not have this department In most of the cases these kinds of activities are done by directors or vice directors It is clear that all the companies are more and more well organized but private companies still take time to develop and medium enterprises tend to have more export departments rather small enterprises

Figure 4.1

Does your firm have specialized export-import dept

Does y our fi rm have s pec i al iz ed export -i mport dept

of materials and inputs to the production from the same buyer

Countries to which the SMEs export to and their main export channels are examined to see the scope of activities Partnership content is also surveyed so that how deeply SMEs engaging in internationalization can be seen

Figure 4.2

Most important export countries?

Most import ant export countries?

EU US

Easte rn Eu ro pe Asi an

limited firms than for SOEs Asia appears to be those countries where most of

SMEs export to accounting for 50%, followed by Eastern European countries with 28% and then EU comes close with 18% USA seems still to be the new market to all SMEs with only two companies Most of the products except Textile and Garment can enter US market 100% SMEs in Leather and Footwear industries export their products to European market with 66.7% to Eastern Europe and 33.35 to EU markets while handicrafts product is in the other way around 33.3% to Eastern Europe and 66.7% to EU Eastern European countries are also the main market for Food Processing industry and Asian countries are the main markets for textile and garment products Asian, even though, are the most important export countries for SMEs but not for

such industries like Handicrafts and footwear This can be easily understood

from the reality that Handicrafts have culturally competitive advantage which

is only appreciated in Western market Results also show that SMEs are not confining themselves to a fixed market with only 10% of SMEs exporting

their product to only one market while the majority tends to diversify the destination for their products This is a positive signal showing that most of enterprises could learn from the failure of SNG and Eastern European markets after the collapse of the politic system in those countries There is not much difference between SOEs and private companies except that SOEs have relatively more partners in EU

Which export channel the enterprises chose most frequently can help us

to see to which degree those enterprises are doing international business

Table 4.6: Export channel

Main export channel is foreign importer Mean Std Deviation

Main export channel is abroad representative

do the direct export and import activities without having to go through big trading companies as in the past This also shows the more dynamic characteristic of all enterprises in finding their own clients which are direct

foreign importers

3.4 Partnership content

Table 4.7: Support from partners

Su ppo rt fro m par tner s

Support f rom supplier is

market inf ormation

Support f rom impor ter is

market inf ormation

Support f rom impor ter is

training and technology

Support f rom supplier is

training and technology

Support f rom impor ter is

The content of the relations to foreign buyers are shown in Table 4.8

Textile and Garment

Footwares and Leathers

Support f rom importer is market inf ormat ion

Support f rom importer is training and technology

Support f rom supplier is capital/credit

Support f rom supplier is market inf ormat ion

Support f rom supplier is training and technology

No Support from supplier

no yes Total

Valid

Frequency Percent Valid Percent

Cumulativ e Percent

Two thirds of companies get no support from importers and the majority (84.0%) of companies get no support at all from foreign suppliers This means that both the foreign buyers and suppliers are passive with respect

to support the local companies export marketing efforts

4 Export Information and Assistance

All the questions asked in these sectors mostly identify information about how much assistance and support all SMEs receive from infrastructure, current export promotion networks, relations with the government and public services

As globalization is the current trend with fast growing of business communication, E-Commerce is now considered as a vital tool of all business transaction in internationalization Therefore, information on E-Commerce usage by the SMEs, and how they exploit E-Commerce serving their international business activities is included in the questionnaire

Figure 4.3: Application of E-Commerce

Internet using

Internet using

yes no