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Analysis of small and medium sized enterprises

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Small and Medium Size Enterprises (SMEs) account for the major proportion of Vietnam’s total business population. According to the White Book on Vietnam’s SMEs published by Ministry of Plans and Investment (MPI) in 2014, 97.6 percent of enterprises in Vietnam are SMEs by the labor scale. Moreover, this private sector occupies a crucial position in the economic development of the country. As remarkable examples, economies such as Poland, Chile, Taiwan and Ghana have shown that SMEs can be the engine of economic growth in emerging markets. Thus, it is imperative that Vietnam facilitate and create a friendly, enabling environment for the development of SMEs. 

Overall Picture of Vietnamese SMEs 

Origins as Household Business: According to PCI 2015 survey, 77 percent of micro-size enterprises and 69 percent of small-size rms were formerly household businesses. 

Qualified Managers: The qualifications of SME owners remained high and diversified. Nearly 60 percent of SME owners are college graduates. Some used to be leaders of state agencies (three to five percent); some used to be managers of State Owned Enterprises (SOEs) (8-11 percent), and some used to work for SOEs (about 14-15 percent). 

Reliance on Domestic Sales: The customer base of SMEs is mostly domestic. Only three percent of micro-size, four percent of small-size, and nine percent of medium-size rms have customers that are foreign individuals or enterprises. Even the big domestic enterprises have a very modest share (24 percent) of their primary customers in foreign markets. This result helps to explain why FIEs contributed 70.7 percent of Vietnam’s total export value in 2015. Vietnam’s domestic enterprises are recommended to get better prepared to take advantage of upcoming new trade agreements (Euro-Vietnam Free Trade Agreement (EVFTA) and the Trans-Pacific Partnership (TPP). 

Difficulties That SMEs Face When Seeking to Increase Their Scale 

Poor Market Opportunities: SMEs’ anticipation of market, profit, and enterprise-specific support services from local authorities have not been reached in reality. 20 percent of micro-size, 14 percent of small and medium-size enterprises remarked that the market opportunities are worse than initial expectations, while the figure for large enterprises is only 6 percent. 

Relatively Poor Performance: The performance of SMEs in 2014 was much worse than that of large ones. The number of firms operating with business losses was relatively high: 32 percent of micro-size, 17 percent of small, and 16 percent of medium-size enterprises reported losses while only 10 percent of large enterprises did. 

More Pessimistic: Only 43 percent of micro-size and 54 percent of small-size enterprises intend to increase the size of operations within two years, indicating a low level of optimism compared with 66 percent of large-size enterprises. 

Worse Assessments of Governance: Assessing the provincial business environment in 2015, SMEs’ perceptions are more negative than those of large enterprises in several areas such as land access, transparency, policy bias, and business support services: 

For example, 87 percent of small and micro-size enterprises have land or business premises, but only half of them own Land Use Right Certi cates (LURCs). Only 22 percent of micro-size, 24 percent of small-size and 29 percent of medium-size enterprises reported that the security of their business premises is high or very high, compared with 31 percent of large firms.

Business Obstacles for SMEs
Inspections: Up to 74 percent of rms received visits from inspection delegations in the past year. A worrying issue is visible: the bigger the rm is, the bigger the burden of inspection. SMEs receive one or two inspections per year. For large rms, the number is up to three. Furthermore, 25 percent of micro and small and 30 percent of medium enterprises were subject to duplicative inspections from agencies studying the same issues.
Administrative Burden Increase in Accordance with Firm Size. While 54 percent of micro rms and 49 percent of small rms agree that “paperwork is simple,” there are some elds in which administrative procedures are regarded as more troublesome as rm size increases. These include: social insurance, land, tax, customs, re safety, labor, environment protection, and payment clearance through state treasuries. 

Source: PCI report 2015

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