[International Business]Group 7 PDF

Preview

Summary

FOREIGN TRADE UNIVERSITYHO CHI MINH CITY CAMPUSMID-TERM REPORTTHE IMPACT OF GOVERNMENTREGULATION ON SMES IN VIETNAMLecturer : MAê Thị Thanh Ngân MA. Trần Thanh Tâm Class : K57CLC Student : Lê Phương Thảo 1801015809 Quách Minh Tân 1801015776 Bùi Thanh Tầm 1801015773 Nguyễn Chánh Thắng 1801015778 Hồ M...

Description

1

FOREIGN TRADE UNIVERSITY HO CHI MINH CITY CAMPUS

MID-TERM REPORT THE IMPACT OF GOVERNMENT REGULATION ON SMES IN VIETNAM Lecturer: MA.Lê Thị Thanh Ngân MA. Trần Thanh Tâm Class:

K57CLC4

Student:

Lê Phương Thảo

1801015809

Quách Minh Tân

1801015776

Bùi Thanh Tầm

1801015773

Nguyễn Chánh Thắng

1801015778

Hồ Minh Tâm

1801015767

Ho Chi Minh City, October, 2020

2

Table of Contents Abstract ............................................................................................................................ 6 I. Introduction ................................................................................................................... 7 1. Background and Problems ........................................................................................ 7 2. Purpose of research ................................................................................................... 9 3. Research method .................................................................................................... 12 4. Research structure ................................................................................................... 13 II. Literature review: ...................................................................................................... 14 1. Overview of SME ................................................................................................... 14 1.1 Definition of SMES: .......................................................................................... 14 1.2. Importance of SMES ........................................................................................ 16 1.3. Characteristics of SMES .................................................................................. 19 1.4. SMES performance .......................................................................................... 21 2. Government Policy ................................................................................................. 24 3. Relationship between Government Policy and SME Firm performance................ 26 4. Relationship between Government Policy and SME Firm performance in the Vietnamese context ..................................................................................................... 30 4.1. Growth of SMES in Vietnam ........................................................................... 30

3

4.2 Distribution of SMEs in Vietnam ...................................................................... 32 4.3. The background of government support and its role in SME performance in Vietnam ................................................................................................................... 33 III. Methodology ............................................................................................................ 37 1. Data selection .......................................................................................................... 37 2. Model specification................................................................................................. 38 3. Regression Results ........................................................................................... 39 IV. Conclusion and discussion ....................................................................................... 43 References: ..................................................................................................................... 46

4

Table catalog Table 2.1.1.1: Definition of micro-, small- and medium-sized enterprises in EU ......... 13 Table 2.1.1.2: A comparision of official definitions of SMES ..................................... 15 Table 2.4.2.1: Distribution of SMEs by industry, 2006-2015 ........................................ 30 Table 2.4.2.2: Distribution of SMEs by economic region over time, 2006-2015 .......... 31 Table 3.1: overview of descriptive statistics of all variables ......................................... 35 Table 3.2: List of independent variables with their measurement, parameter expectations, and meanings ............................................................................................ 36 Table 3.3.1: Correlation between independent variables of model 1............................. 37 Table 3.3.2: Regression result of model 1...................................................................... 37 Table 3.3.3: Correlation between independent variables of model 2 ............................. 38 Table 3.3.4: Regression result of model 2...................................................................... 38

5

Figures Catalog Figure 2.1.4.1: Components of Performance Measurement ........................................... 21 Figure 2.4.1.1: Contributions of SMEs to business sector in Vietnam, 2006-2015....... 28 Figure 2.4.1.2: Number of SMES in Vietnam, 2006-2015 ............................................. 29 Figure 2.4.1.3: Total revenues of SMEs in Vietnam, 2006-2015 ................................... 29

6

Abstract Vietnam has been developing rapidly since Doi Moi (Renovation) 1986. The number of SMEs in Vietnam has been increasing each year which is shown in the motivation, entrepreneurship and the performance of SMEs in Vietnam the government has had to adapt with the rapid changes, so the regulations have been revisited every year for updating. This has a major impact on the SMEs since constant changing every year is inevitable. This study presents the impact of government regulations on the development of SMEs in Vietnam. We gathered data from many studies to show the growth rate of SMEs, the positive and negative impact of government regulations on SMEs growth, the problem and solutions to the problem. The research results provide objective insight for policy makers, the central and local government about their policies effectiveness.

7

I. Introduction 1. Background and Problems Vietnam began an economic reform program called Doi Moi in 1986. This officially heralded the shift to a market economy from a centrally planned one. As a result, the Vietnamese economy is transformed into a multi-sector market economy comprising the domestic public, private and foreign-invested sectors. Strong and sustainable economic growth and rapid poverty reduction are characteristic of economic reform in Vietnam. Annual GDP growth averaged 6.8% in the period 19862009 (General Statistics Office, 2006; General Statistics Office, 2009; General Statistics Office, 2009). Vietnam emerged from the Asian financial crisis in the late 1990s and the recent global financial crisis in a relatively healthy state with much higher GDP growth rates than other countries in the region. . Poverty reduction is another important achievement that Vietnam has achieved in the reform process. Rapid and sustained economic growth has improved the lives of many Vietnamese. Vietnam's poverty rate has declined rapidly from 58.1 percent in 1993 to 12.3 percent in 2009 (World Bank, 2005).

In line with the significant economic development of Vietnam since Doi Moi (Renovation) 1986, small and medium-sized enterprises (SMEs) in Vietnam have experienced phenomenal growth, especially since 2000 when the Enterprise Law was promulgated. From 2010-2015, SMEs are making a significant contribution to the development of Vietnam’s economy. By the end of 2014, this group of businesses contributed about 45% to GDP, 31% to the overall budget revenue, accounting for about 31% of the investment capital of the business community in general, and most significantly, is creating 51% of Vietnam's total employment.

8

The role of the government is important in investing in fundamental infrastructure, such as electricity, water supplies, roads, ports, industrial zones, telecommunications, and the internet. Such infrastructure is important for the startup and development of SMEs. In general, SMEs suffer from a scarcity of sufficient finance and thus require special attention due to their inherent informational opaqueness and limited finance sources available (Guiso and Minetti, 2010), with this imperfect ability to get finance often used to justify government intervention. It is possible that recent policy reforms have helped stimulate the expansion of SMEs both in number and in scale. The number of registered enterprises has increased rapidly. Given the aforementioned importance of SMEs, the Vietnamese Government and Ministries and Agencies have issued many policies to support and stimulate the development of these SMEs. Many policies are aiming for better accessibility to capital, production premises; innovation and capacity building technology, technical level, while others are promoting market expansion; joining the shopping plan, providing public services; information and advice and assisting in human resource development …In other words, firms use fewer resources, such as human resources and capital, to produce the exact same level of output. As a result, enterprises with government support increase R&D and thus improve their productivity (Wu, 2017). On the other hand, there are some lengthy debates regarding the impact of those schemes with poor evidence of any additional or incremental effect (Riding; Madill and Haines, 2007). Additionally, there is some question as to whether the purported benefit of these programs exceeds their often-large costs (Craig et al., 2009). This perspective suggests that government support may hinder firm productivity, especially in developing countries, a result of the fact that corruption is extremely common in such countries. Simultaneously, government support may also be distributed ineffectively when the granting of subsidies is based on political connections instead of a firm’s contribution to society (Vu, Tran, Nguyen, & Lim, 2018; Tsai, Zhang, & Zhao, 2019). As a result, government subsidies might not promote a firm’s adoption of

9

innovative activities to boost firms ‘productivity and efficiency. Enterprises complain that they cannot approach the government policies and that few enterprises benefit from governmental support. Many people claim that the development of SMEs mainly depends on their own efforts and that the support of the government is only superficial. Moreover, despite promotional efforts by the Vietnamese government, SMEs still have not received appropriate policy support and resources. The government has not introduced macroeconomic reforms to develop supporting infrastructure, built regulatory institutions and devise an appropriate legal framework for SMEs growth. Furthermore, SMEs are not aware of the policies regime in place. Therefore, insight regarding the real effect of these policies in the development of SMEs would be helpful to both policy makers and the government. In the context of the above reasons, there is a need to investigate and understand support policy behind the development of SMEs in Vietnam, since this sector has enormous growth potential. This paper provides insight into the effectiveness of the Vietnamese Government’s policies that encourage the development of SMEs. The adequacy of the policy regime and the effectiveness of the support on infrastructure, finance, administrative procedure have been discussed to identify the problems of the market development process under the socialist market economy model of Vietnam.

The current study differs considerably from previous studies in two ways. First, while most studies focus on the analysis of developed countries or capitalism countries, this study provides the research on socialist market economy model of Vietnam. Furthermore, different forms of government assistance can have different effects on companies' financial performance. In our research, we go beyond existing literature by looking at the effects of different types of government assistance on firm’s performance. 2. Purpose of research

10

This paper provides the primary evidence of the impact of government support on the productivity of small and medium-sized enterprises (SMEs) within a transitional economy. Secondly, this research will answer the impact of various groups of policies to provide a more detailed picture of the influence of government on productivity. Financial policies: The Vietnamese Government has created policies to cut back and exempt taxes for SMEs that aim to assist new enterprises, high-tech enterprises and promote employment. The Vietnamese government has made a great effort in addressing inefficiencies and alleviating the burden on SMEs, for example, by allowing SMEs to delay value-added tax payments, simplifying tax administration and reducing the burden of compliance, providing preferential tax rates, there still remains inadequacies in the tax policy. There are also fiscal fund aid and loan support programs for their activities. These policies are intended to scale back the difficulties encountered by enterprises at the beginning or when they experience troubles.

Infrastructure policies: infrastructure support of development of small and enterprises in Vietnam is a task that is not solved until now. Presently, there are a number of infrastructure-related challenges that investors should be particularly aware of. These include the requirement to upgrade the railway systems, the threat that ports will reach maximum capacity in the face of increased trade volume, and also the reality that just 20% of national roads are paved. Despite these challenges, the current state of Vietnam’s national infrastructure is standard for a country at its stage of development; however, if Vietnam wants to stay competitive, it must develop quickly. In this regard, it is necessary to identify those factors that need to be developed first and foremost in the development of infrastructure. According to the World Economic Forum Global Competitiveness Report 2016-2017, Vietnam ranks 79th out of 138 in terms of overall quality of infrastructure, 89th in quality of roads and 77th in quality of port infrastructure.

11

Regulations on starting business: This group relates to the number of procedures, time, cost and paid-in minimum capital requirement for a small- to medium-sized limited liability company to start up and formally operate in the Vietnamese economy. It can be said that the national legal system plays an important role in ensuring the right to freedom of business in general and the right to freedom of enterprise establishment in particular. The clarity, efficiency and comprehensiveness of the legal system will determine the development of the economy. From the shortcomings that exist in the practice of establishing a business in our country in recent years, it can be seen that it is necessary to study more comprehensively and in depth the legal provisions to further improve the business establishment in particular and economic law in general. Realizing the role, development potentials as well as difficulties of the SME sector, Vietnam has issued many supporting policies over the past time. In order to regulate SME operations in Vietnam, since 2001, the Government has issued Decree No. 90/2001 / ND-CP dated 23/11/2001 on assistance to SME development, providing policies to support SMEs in from central to local; On October 23, 2006, the Prime Minister issued Decision No. 236/2006 / QD-TTg approving the 05-year SME development plan (2006-2010) outlining solutions to create the environment that facilitate investment and business, improve the competitiveness of SMEs.

On June 30, 2009, the Government issued Decree No. 56/2009 / ND-CP on assistance to SME development (replacing Decree No. 90/2001 / ND-CP), providing for 8 development assistance groups of SMEs. Implementing Decree No. 56/2008 / ND-CP dated June 30, 2009, ministries, branches and localities have developed and implemented programs to support SMEs.

Next, in Decision No. 1231 / QD-TTg dated September 7, 2012 of the Prime Minister, solutions and programs to support SME focus are outlined including: (i)

12

Completing the legal framework on join, operate and withdraw from the market of enterprises; (ii) Support access to finance, credit and improve efficiency of capital use; (iii) Support for technological innovation and application of new technologies; (iv) Human resource development for SMEs, focusing on improving governance capacity; (v) Promote the formation of linkage clusters, industrial clusters, increase access to land; (vi) Provide information to support SMEs and promote market expansion; (vii) Building a system of development assistance organizations; (viii) Manage implementation of development plans.

Although SME support policies have achieved certain successes, they still do not meet the requirements and needs of businesses in the context of increasingly deep international integration. The implementation of SME support policies in recent years shows that the support policies for SMEs are still low, the proportion of SMEs participating in and enjoying the State's policy support programs is still modest cost. Support activities for SMEs have not had focus, focus, and development support for clusters of industry associations. In addition, resources for SME development assistance are still dispersed, and the order and procedures for SMEs to enjoy the State's support policies still have many shortcomings and difficulties. Simultaneously, the paper discovers the different extent to which the consequences of each of these policies can possibly have on the SMEs to determine the effect of various government policies on the development of SMEs. The results may be helpful for the central and local Vietnamese Governments as well as policy makers in other transition economies. 3. Research method This study utilizes two data sources. The first is taken from the surveys of development of SMEs in Vietnam conducted by United Nations University. The second data source is provided by the World Bank Aimed at assessing the

13

infrastructure quality, finance policy and regulation on starting business of Vietnamese Government. We evaluate the relationship between these factors on development of SMES by using an econometric model. With this dataset, our results show that different types of government support for firms have differing effects on productivity. This influence derives mainly from the positive effect of government support on firm profitability and innovative activities, rather than on any effect on firms‟ export activities and formal status. 4. Research structure The remainder of this paper is structured as follows. The next chapter constitutes a literature review, and accordingly, contains analysis of models and theoretical frameworks that have been previously introduced to the research area, clarifying the estimation strategy and sources of data. The empirical results obtained are interpreted and discussed in the third section, and the final section provides a discussion and conclusion. This chapter plays a critical role in the achievement of research aims and objectives. Also, in-depth discussions have been provided in relation to each individual research objective.

14

II. Literature review: 1. Overview of SME 1.1 Definition of SMES: The term “SME” encompasses a wide range of definitions. Different organizations and countries provide separate guidelines for identifying an SME, often based on the number of employees, sales or assets. While The Inter-American Development Bank describes SMEs with up to 100 employees and revenues of less than $ 3 million, the World Bank defines SMEs as businesses with up to 300 employees, $ 15 million in annual revenue and $ 15 million in assets. Meanwhile, Egypt defines an SME as having 5 or fewer employees. Furthermore, the European Union’s definition is more encompassing, and much larger, especially with regards to turnover, than some others. It considers SMES 'Type of micro,...