The strategic importance of small and medium enterprises to the national economy and vietnamese smes encountrered difficulties facts and solutions,graduation thesis

Graduation thesis Banking Academy ACKOWLEDGEMENT My deepest appreciation stays with my supervisor and lecturer, M.A Nguyen Hong Mai, who has taken valuable time enthusiastically assisting me and supervising this thesis despite being extremely busy in her capacity as Dean of Foreign Language Department Heartfelt thanks to Banking Academy of Vietnam, an unforgettable school where most gorgeous dreams start and best memories of my life are cherished for eternity; along with profound gratitude to the contingent of Foreign Language Department‟s lecturers for everything they have done during the past four years to help me in my path of obtaining the first Bachelor Degree in my higher education I would like to deliver special gratefulness to M.A Tran Thi Thanh Giang of Foreign Language Department for teaching me not to lose passion, dedication and enthusiasm in any circumstances, regardless of however hard they are; and that people should always devote themselves with one hundred and twenty percent of energy to make life more worthwhile It will be very ungrateful of me if I not list out the names of my senior Ms Nikki Nguyen of IPCOMS and colleagues in companies where I spent my internship Without their assistance, my graduation paper could not be accomplished I am obliged to their very first real life lesson: never stop learning and working harder to achieve excellence but not merely success in professional work, which I would keep in my mind all the times in the following career path Further, I dedicate this paper to my family with infinite love My parents and young brother have always been at my nearest and supported every step of my life by faithful love and long-lasting devotion Last but never be the least; let me be grateful to all my best friends, who are charming gardeners that make my soul blossoms and give me total freedom to be myself Le Thuy Lan – ATCA/K12 Page i Graduation thesis Banking Academy EXECUTIVE SUMMARY All over the world, there is growing evidence that small and medium enterprises (SMEs) play an important role in the national economic development of any country SMEs are becoming more and more a subject of high attention in not only developing countries, countries in transition but also in the countries with developed economies In market economies, SMEs are the engine of economic development Thanks to their private ownership, entrepreneurial spirit, their flexibility and adaptability as well as their potential to react to challenges and changing environments, SMEs contribute to sustainable growth and employment generation in a significant manner They provide various goods and services, creating job opportunities, developing regional economies and communities, helping competition in the market and offering innovation for the society Since the State‟s recognition of private sector, Vietnam‟s SMEs have experienced phenomenal growth and attributed to the formation of a opener, more dynamic, adaptable base for increased national competitiveness Notwithstanding these impressive achievements, domestic SMEs have regrettably low survival rate after three years and remain weak in terms of internal and external networking, human resources and readiness to globalization Apart from SMEs‟ low starting points, these shortcoming and difficulties have been principally due to policy and regulations weaknesses and the prolonged discrimination against private sector, access to capital or credit and land, lack of proprivate business environment and poor quality of human resources In order to enhance SMEs networks, competitiveness and innovativeness, Vietnam should acknowledge the significance of this economic sector to a long-term sustainable national economy There is a pressing need to level the playing field, create solid supporting industries, improve human resources quality, and upgrade infrastructure Le Thuy Lan – ATCA/K12 Page ii Graduation thesis Banking Academy LISTS OF ABBREVIATIONS ANZ Australia and New Zealand Banking Group Limited FDI Foreign Direct Investment GDP Gross Domestic Product ODA Official Development Assistance R&D Research and Development SEGs State-funded economic group(s) SOEs State-owned enterprise(s) SMEs Small and medium enterprise(s) SOCBs State-owned commercial bank(s) UNIDO United Nations Industrial Development Organization VCCI Vietnam‟s Chamber of Commerce and Industry VINACOMIN Vietnam National Coal-Mineral Industries Group VINASHIN Vietnam Shipbuilding Industry Group Le Thuy Lan – ATCA/K12 Page iii Graduation thesis Banking Academy LISTS OF FIGURES Location Figure Description (Page) Figure SME definition by European Commission Figure Number of new SMEs in Vietnam from 2000 to 2010 14 Figure Private Sector Contribution to Vietnam's GDP in comparison 22 with Public Sector and FDI Figure The number of dissolved enterprises in 2012 23 Figure Business Cessation Data in some major cities 24 Figure Figure 6: SMEs‟ difficulties in credit access in 2005 and 2012 26 Figure Inflation rate in Vietnam from 2011 – 2013 30 Le Thuy Lan – ATCA/K12 Page iv Graduation thesis Banking Academy LISTS OF TABLES Location Figure Description (Page) Table Vietnamese SME definition Table SME classification criteria in some countries Table Comparisons between small and large enterprises 10 Table SME GDP Contribution in Canada (2005) 13 Table Share of SMEs in some countries (%) (2004) 16 Table Share of SMEs in global economy 17 Table The number of dissolved enterprises in 2013 24 Table Annual interest rates in some countries 27 Le Thuy Lan – ATCA/K12 –7 Page v Graduation thesis Banking Academy TABLE OF CONTENTS EXECUTIVE SUMMARY ii LISTS OF ABBREVIATIONS iii LISTS OF FIGURES iv LISTS OF TABLES v INTRODUCTION 1 Rationale of the thesis Research objectives and questions Scope of study Research methodology CHAPTER I: THEORETICAL FRAMEWORK ON SMALL AND MEDIUMSCALE ENTERPRISES What is an SME? Definition and classification criteria What makes competitive advantages of SMEs? 2.1 Small in size, big in power 2.2 Efficiency maximization and waste reduction General theories on limitations and restrictions of SMEs compared to larger counterparts SMEs throughout the world 10 4.1 Taiwan: Kingdom of SMEs 11 4.2 American entrepreneurship and small business 11 CHAPTER II: THE ROLE OF SMES IN NATIONAL ECONOMY 13 As one of the accelerators of economic wheel 13 1.1 A contributor to national economic growth 13 1.2 An initiator of economic dynamism and effectiveness 14 As a socio-economic stabilizer 16 2.1 Labor absorption, poverty alleviation and revenue generation 16 2.2 Promotes stability and development of regional economies 18 Le Thuy Lan – ATCA/K12 Page vi Graduation thesis Banking Academy As the beginning of any big companies 19 CHAPTER III: DIFFICULTIES ENCOUNTERED BY VIETNAM’S SMES 21 A snapshot of SMEs in Vietnam: three decades of Vietnam’s private sector 21 Fact findings: the situation of Vietnam’s SMEs 22 2.1 Business establishment, cessation, and dissolution 22 2.2 SME shrinkage 24 Explanations to the status quo: constrains, obstacles, and difficulties 25 3.1 Access to credit 25 3.2.1 Land and land-use rights 27 3.2.2 State preference over SOEs 28 The influences of macroeconomic instabilities 30 Low domestic competitiveness and limited access to international markets 31 CHAPTER IV: RECOMMENDATIONS TO SUPPORT VIETNAM’S SMES 33 Policy implications 33 1.1 Legal framework and resource reallocation 33 1.2 Easier access to capital and land-use rights improvement 34 1.3 Internal and external SMEs‟ network development 35 Suggestions for SMEs 36 2.1 Training and managerial skills development 36 2.2 Partnership enhancement 36 2.3 Strong corporate culture establishment 37 CONSLUSION 38 REFERENCES 39 Le Thuy Lan – ATCA/K12 Page vii Graduation thesis Banking Academy INTRODUCTION Rationale of the thesis The influence of entrepreneurship on economic development has been explained in numerous studies of domestic and international authors Vietnam is a notable case with both opportunities and challenges, having a transitional economy and human resources of low level As such, it is essential to better understand and analyze the contribution of SMEs to national economy over the last few decades and the main constraints hindering new business start-ups in Vietnam For eliminating these hindrances and promote small businesses it would be necessary to figure out sound policy measures to support the development of entrepreneurship in the country Research objectives and questions The thesis aims to give a broad overview on SMEs, assess the SME influence to the economic development through employment generation, creation of added value, national growth rate contribution and to ultimately discover practical solutions to save them from existing situation and policy implications for their long-term development It seeks to clarify the three main following points around SMEs:  How significant small and medium-scale businesses mean to a country‟s national economy and explain why Vietnam should put due attention to this economic sector?  What are chief obstacles that Vietnam‟s SMEs are faced with since their first emergence and especially the present situation on the context of downward economic trend nationwide? Le Thuy Lan – ATCA/K12 Page Graduation thesis Banking Academy  Which should be done to tackle existing inadequacies and shortcomings in order to restore the well-being of private sector and put SMEs in the right track of development as lessons from advanced economies worldwide? Scope of study The paper studies briefly about the history of Vietnam‟s SMEs through their formation contexts starting from the official promulgation of Law on Enterprise in 2005 and on SMEs era in some countries at their early stages of development in the first chapter The rest predominantly focus on the period from 2010 to present and the overlook to the next five years Research methodology This paper uses mainly secondary data source with some primary ones They were collected via prevalent information channels such as the Internet, domestic and foreign newspapers, public researches, journals, statistical reports, annual reports, financial reports, internal documents as well as conclusions drawn from observation, participation in regular operation in several typical small enterprises The analysis of obstacles threatening the endurance and discouraging the growth of SMEs is based on empirical evidence obtained from face-to-face surveys with small business owners undertaken during internship All data were carefully selected, synthesized and classified into appropriate section of the thesis The main policy implications are drawn about the support needs of SMEs with the aim of achieving the growth of new firm formation rates, the reduction of dissolution rate and turbulence, solutions to increase their contribution to regional economic development of the country Thesis structure Chapter 1: This chapter deals with the theoretical framework to provide basic understandings on the nature of small and medium enterprises, the difference in classification criteria of countries in the world, leading competitive advantages compared Le Thuy Lan – ATCA/K12 Page Graduation thesis Banking Academy to other economic sectors and a generalization of weaknesses that deter the normal business operation and the enlargement of business scale Chapter 2: This section highlights the strategic importance of SMEs in terms of socioeconomic contributions as one of accelerator of the economy and stabilizer of the society Chapter 3: Difficulties faced by SMEs and explanations from different perspectives provide a comprehensive background on the necessity of forming pragmatic solutions to change the present situation for the better Chapter 4: Some recommendations on state policies and SMEs including policy implications and advice for private entrepreneurs will be introduced in this section Based on the results of analysis, the thesis will conclude with a short conclusion of contents that have been clearly presented previously Le Thuy Lan – ATCA/K12 Page Graduation thesis Banking Academy indispensable role of small businesses to national economies when its interest rates were not exceeding 2% during the 2008 – 2011 periods The two new tiger economies Singapore and Hong Kong China have long been famous for its favorable business environment with interest rates being well-kept at unchanged levels of 5.4% in the formal and 5% in the latter during surveyed years Meanwhile, another ASEAN country Malaysia and the world‟s largest economy the United States successfully lowered the rates to 4.9 in 2011 from 6.1 in 2008 and 3.3 in 2011 from 5.1 in 2008, respectively On the contrary, Vietnam‟s official rates were practically seven times higher than Japan‟s and roughly three times higher than those of other countries in the list In the first half of 2012, General Statistics Office says, 78.5 per cent companies had to pay the rate of above 16%, more than a half borrowed at 18 per cent Country name 2008 2009 2010 2011 Hong Kong SAR, China 5.0 5.0 5.0 5.0 Japan 1.9 1.7 1.6 1.5 Malaysia 6.1 5.1 5.0 4.9 Netherlands 4.6 2.0 1.8 2.0 Singapore 5.4 5.4 5.4 5.4 Thailand 7.0 6.0 5.9 6.9 The UK 4.6 0.6 0.5 0.5 United States 5.1 3.3 3.3 3.3 Vietnam 15.8 10.1 13.1 17.0 China 5.3 5.3 5.8 6.6 Table 8: Annual interest rates in some countries Source: World Bank 3.2.1 Land and land-use rights Most SMEs in Vietnam not have their own land or premises and have to lease facilities that state-owned enterprises no longer need Obtaining land use allocations or land lease for offices and factories is fraught with many difficulties and in many cases is impossible because means of acquiring and exercising land use rights are unclear and often not recognized for SMEs (Nguyen, 2006) The procedure is painstaking and extremely timeLe Thuy Lan – ATCA/K12 Page 27 Graduation thesis Banking Academy consuming Generally, in Hanoi, only after around 325 days could applications be processed and the average time for getting land-use right in Ho Chi Minh City, Da Nang, Binh Duong, Hue are 418, 309, 64, 82 days, respectively All the expenses including costs of changing land-use purpose and compensation are too great a burden for SMEs to shoulder and such impediments retard their operation and investment plans The non-state-owned SMEs have very limited access to land-use rights The case in which SMEs are allowed to use state allocated land is rarely seen Normally, (1) the director‟s house also serves as the office or production site; (2) office leased from an individual; (3) office leased from an SOE; and (4) office leased from provincial People‟s Committee On the other hand, SOEs‟ land-use rights are either directly allocated or leased by the Government under long-term leasing contracts There are three types of taxes on land-use rights: land-use fees, land-use tax and land-lease fees The taxes applied on allocated land from state are of lowest levels as they are usually based on fixed rate while taxes paid by SMEs to SOEs or individuals for land leasing are significantly higher because payments are based on prevailing market prices From June 6, 2013, Decree 34/2013/ND-CP on land-use rights is to be put into effect To experts‟ estimation, selling price of state-owned land will be 3-4 times higher and landleasing costs are expected to soar Along with that, recently, high prices of utilities and other fundamental commodities having driving up SME‟s input costs, making things even worse 3.2.2 State preference over SOEs National power is based on domestic enterprises However, one of the most important pillars has been dying As previously shown in III.1, there have been hundreds of thousands of Vietnamese SMEs being dissolved or ceasing to operate, two thirds of which could not become larger but instead, shrank in business scale Only a third of small and mid-sized companies are able to grow as expected; the average headcount fell to 34 employees per enterprise in 2002 from 74 employees per enterprise in 2011 Meanwhile, Le Thuy Lan – ATCA/K12 Page 28 Graduation thesis Banking Academy in state sector, the number was on upward curve from 421 in 2002 to 490 in 2011 According to economist Pham Chi Lan, former vice president of Vietnam‟s Chamber of Commerce and Industry, all resources had been put into state-owned enterprises and economic groups while SMEs failed to access capital and other subsidization from the government Consequently, they are being driven into corners and shrinking to death The development of SOEs and SEGs is based on natural resources exploitation (Petro Vietnam, VINACOMIN), or monopoly status (EVN Telecom, Vietnam Railways…); FDI sector which is famous for its contribution to national exports have little relation to domestic market Two most preferential state policies help nurture and strongly support SMEs are land and credit First, after excluding depreciation costs, leasing unused land with high price to SMEs creates a huge source of revenues for state-funded enterprises, making up for losses and covering expenses for other activities Second, SOEs‟ capital comes not only from bank credit but also from state budget and Official Development Assistance (ODA) borrowings, whose interest rates are lower than market rates Moreover, they can easily fulfill commercial banks‟ lending requirements owing to real estates and other assets as collateral In addition to the two reasons that help reducing capital costs, SOEs have the backup from the state to save them from difficult situations There emerges a serious problem of resource misallocation: very few SMEs are accessible to government‟s bailout packages, they are virtually counting on nothing but themselves; conversely, state-funded economic groups and enterprises receives preferential treatment from the state One of the most observable examples support Ms Pham Chi Lan‟s remark comes from the fact that (tapchikinhdoanh.com.vn) loss-making SEGs have put burdens on state‟s shoulder when VINASHIN (Vietnam Shipbuilding Industry Group) is to issue USD 623 million 12 years-of-term state-backed bonds with interest of 1% per year and bondholders are not to receive annual interest payments; instead, principal and accumulated interest payments will be settled once in maturity In other words, if VINASHIN fails to pay their own creditors after twelve years, the Government will have to carry the debt of USD 697.76 Le Thuy Lan – ATCA/K12 Page 29 Graduation thesis Banking Academy million in total Besides, there have been overheated debates on whether the government should pour state budget of around VND 30,000 billion to rescue the real estate market However, while many economic areas contribute substantially to economic growth ranging from manufacturing, export industries are still underfunded and under-supported, real estate sector accounts for only 0.1% in GDP during the years from 2008 to 2012 Therefore, it would be unfair and unjust to those economic areas if the state does not spend time to mull over all sides of each policy before making final decision The influences of macroeconomic instabilities Rampant inflationary pressure, tighten monetary policy as a double-edged solution, sharply higher interest rates, bad debts and weakening banking system… all things taken into account that batter SMEs during the previous stage Figure 7: Inflation rate in Vietnam from 2011 – 2013 Source: tradingeconomics.com Spiraling inflation rate results in numerous hierarchical consequences The government tightens monetary policy and raise interest rates to curb the inflation Cheap labor is now no longer SMEs‟ competitive advantages because business owners have no other choice but increase basic salary levels to satisfy the demand of the workforce Subsequently, the surging up of food costs, transport, and national retail sales is added up to increase input Le Thuy Lan – ATCA/K12 Page 30 Graduation thesis Banking Academy costs, which unavoidably leads to the fact that most SMEs now are making huge losses and highly likely to go bankrupt Worse still, the banking system is threatened by an unacceptably high amount of bad debts and unpaid borrowings from banks as well as inventories make SMEs get stuck in a vicious circle with little hope for the future Nevertheless, the most serious problem jeopardizing small businesses in this stage is production stagnancy due to low market demand When high inflation rate is somewhat controlled as a result of tighten monetary policy during 2011 – 2012 phase, it is deflation that affected to the economy From the beginning of 2013, interest rates have been reduced by – 4% to the level of – 10% However, credit does not grow because the aggregate demand of the economy is sluggish: inventories are huge but purchasing power diminishes, customers refuse to buy and entrepreneurs refuse to expand their businesses Mr Mai Huu Tin, President of Vietnam Young Entrepreneurs Association admits that difficulties faced by private enterprises are insurmountable and that a large number of SMEs has already died, everything they can at the moment is just waiting to be buried (Nguyen, 2013) Low domestic competitiveness and limited access to international markets Competitiveness of SMEs remains at a very low level Access to both domestic and international markets is difficult Even with home advantage, domestically-produced goods lose to a large inflow of smuggled imported goods with cheaper prices, especially from China, let alone in global market  No company brand and high production costs relative to regional countries Most exported products (garments, footwear, food processing, automotive industry…) are dependent on foreign imported input materials and they often account for 60% of finished products When the international prices go up, enterprises could only either increase the prices or accept losses  Out-of-date technology: the technological level (manufacturing assemblies, machines and equipment) used in Vietnam‟s enterprises is relatively low with 10% Le Thuy Lan – ATCA/K12 Page 31 Graduation thesis Banking Academy updated, 38% average, 52% out-of-date and obsolete Merely 2% of Vietnamese enterprises using high-tech applications while the rates are 31% in Thailand, 51% in Malaysia and 73% in Singapore Moreover, investment value of SOEs in R&D is merely 0.2 – 0.3% of their revenue, much less than developed countries (5-10 per cent); private sector has virtually no investments in R&D Commercialization of technology products has been very limited owing to the poor linkage among research institutions, universities and enterprises Additionally, majority of the labor force (70-75%) is unskilled causing the low absorptive capability of the domestic firms Shortage in labor along with poor vocational training has significantly hindered every state of technology development  Weak corporate management skills due to lack of training and modern management Many SMEs still not have long-term specific business plans but their activities based on learning-from-reality method Distribution networks are limited; trade promotion activities are simple, impractical and ineffective (Budget spent for trade promotion is below 1% of revenue while foreign-invested firms spend 10-20% revenue for that) Information about international market and experience of global trade are very limited which results in poor competitiveness and lost trade opportunities Information about enterprises as a whole and SMEs in particular is very scattered Fragmentary knowledge and understandings of foreign markets are some of the basic trade barriers This applies not only for information about management accounting, technical requirements, marketing skills, import regulations and consumer preferences, but also for assessing the suitability of imported goods Limited language skills of the entrepreneurs are also a problem Lack of these fundamental skills could be a severe problem when Vietnam further integrates into global economy in the coming years Le Thuy Lan – ATCA/K12 Page 32 Graduation thesis Banking Academy CHAPTER IV: RECOMMENDATIONS TO SUPPORT VIETNAM’S SMES Reality has shown that SME sector is a multi-purpose instrument that helps every government tackling with social and economic difficulties, eradicating acute poverty, creating an affluent middle class and steady tax revenues and promoting social stability Private entrepreneurship and enterprise reform can play a crucial role in the reform of Vietnamese economy Establishing a dynamic non-state manufacturing sector, with an emphasis on SMEs, will utilize its potentials ranging from job creation, sustainable economic development, efficient resource allocation, exports expansion, more equal income distribution, rural and development assistance Therefore, SME prioritization policy is the right direction that every country should follow Support policies for SMEs vary from country to country and from highly developed countries to less developed countries due to great differences in business contexts, culture and the level of industrialization Some specific recommendations on the case of Vietnam will be presented correspondingly with fact analysis in the previous chapter Policy implications As Vietnam‟s market economy and SMEs are still in their infant stage of development, further promoting market-oriented, implementing WTO-driven reforms and improving business environment are vital for SMEs development Most importantly, the key to competitiveness enhancement of SMEs lies in the government‟s hands, so it is essential that the state establish a comprehensive policy to support this economic sector in the years to come 1.1 Legal framework and resource reallocation It is time that the country shifted to a more balanced and dynamic economic model Le Thuy Lan – ATCA/K12 Page 33 Graduation thesis Banking Academy To handle present situation and advance the development of SMEs, it is essential to set up a rule-of-law based regulatory framework The current system of vague and frequently changing regulations and excessive bureaucracy has resulted in increased risk and cost of doing business, a drain on the resources and time of private entrepreneurs that would otherwise be available for investment or for management of the business; and has created an inhospitable business environment Ms Vu Kim Hanh, president of High-quality Vietnamese product Association shared her opinion, claiming that “first and foremost, what Vietnam‟s SMEs really need is equality; second is state support.” Theory tells us that the key to the development each of enterprise is its self-motivation: small enterprises should their utmost to strengthen their sustainable values and natural selection will eliminate entity that is unable to fight the game Nevertheless, Mr Bui Quang Tuan, Vice President of Vietnam‟s Economic Institute argues that there is no longer natural selection process in present context because facts have been exposed that while many dynamic, efficient SMEs were being forced to dissolve, quite a few inefficient loss-making SOEs have been carefully fostered by the government and become ever more prosperous It is crucial to establish a transparent and less state-interfering legal and regulatory framework to ensure a level playing field for both SOEs and the private sector Moreover, the Government should thoroughly consider the contribution of each economic sector and take more intensive care to greater contributor of the whole economy The mission of rescuing SME sector but not property market is needed to be accomplished in the first place because real estate problems requires colossal amount of money and it will take at least 3-4 years to basically get out of current serious circumstance 1.2 Easier access to capital and land-use rights improvement Financial policies have an important impact on capital mobilization and development of SMEs Private SMEs has been faced with prolonged constraint of funds shortage, especially long-term funds The strict collateral requirements by banks and the low incentives for State-owned Commercial Banks to lend to SMEs and the unwillingness of private SMEs to deal with SOCBs generate a vicious circle that prevents many SMEs Le Thuy Lan – ATCA/K12 Page 34 Graduation thesis Banking Academy from entering formal credit sector, and force them to rely on informal credit To deal with, would government‟s basic interest rates be 3-4 % and lending interest rates applied on loans to SMEs stand at around 6%, it will be such a significant practical support to help SME overcome impediments and accordingly raise up the national economy In addition, it will be equally important to improve the situation concerning land-use rights Unclear and cumbersome procedures deter SMEs from acquire land, which poses a major obstacle as access to land rights can serve as collateral for accessing credit To address this long–lasting problem, there are several following suggestions: first, procedures for land-title allocation are to be clarified and sped up; second: heavy fees and taxes on land registration are needed to be reduced; third: the state is encouraged to provide clear, simple and fair procedures for resolving disputes; fourth the state establishes more industrial and commercial complexes that facilitate SMEs to have premises for long-term business operation 1.3 Internal and external SMEs’ network development SMEs should develop closer linkage with government‟s institutions, big companies as well as domestic FIEs Partnership enhancement with these entities can reduce the limitations and restrictions of SMEs It can ensure market for their products, better access to raw materials and assistances from big industries in the field of managerial, production, technology, capital, marketing, credit guarantee…Moreover, partnership and cooperation can tackle social and political problems caused by big gap between small and big enterprises in developing countries for several points: production cost reduction, specific transfer of technology to advance production quality, direct market transactions which can prevent supply and demand fluctuation, building business partners in research and development, interdependence in home industry For those reasons, it is suggested that the government encourage long-term subcontracting system between SMEs, SOEs, and FIEs; build up an effective framework or mechanism for business contracting; overcome the information and perception gaps between SMEs Le Thuy Lan – ATCA/K12 Page 35 Graduation thesis Banking Academy and FIEs by establishing database on supporting industries, suppliers, and business broker services, enhance interaction between government‟s institutions and private sector by creating more organizations, forum to share experiences and knowledge and promoting information network among institutions related with SMEs Suggestions for SMEs SMEs need to seize their chances to enhance competitiveness for the long-term development of businesses and the economy based on support given by the government 2.1 Training and managerial skills development Small and medium business owners usually have responsibilities as a director, decision maker, leader, manager and executor The communicator role can involve the press and the rest of the outside world, as well as the organization's management and employees; the decision-making role involves high-level decisions about policy and strategy As a leader of the company, they motivate employees, and drive change within the company As a manager, they preside over the organization's day-to-day operations Therefore, it is crucial that business owners and corporate executives (Chief Executive Officer/Managing Director and other high-ranking corporate officers) ensure the desirable standards of skills and qualifications as attend training programs to upgrade educational level as perquisite for the start-up of a business Moreover, entrepreneurs need to update new information and essential skills anytime and anywhere since business activities in a knowledge-based economy concern knowledge of all areas ranging from law & regulations, economics, culture, sociology, psychology Important skills such as competition and strategy management; negotiation, presentation and communication; especially risk management, business analysis and planning should be paid due attention to 2.2 Partnership enhancement Second, SMEs should proactively tighten the cooperation and interaction between domestic enterprises in order to enhance product quality and competitiveness in the way to global market integration Sustainable partnership should be based on win-win spirit: Le Thuy Lan – ATCA/K12 Page 36 Graduation thesis Banking Academy interdependency, strengthening and mutualism Accordingly, marketplace is not a fierce and merciless battle; it is a place where all stakeholders can seek mutual benefits from interrelated supply-demand contract and most of all, exercise social responsibility of wealth and employment creation It is indeed the so-called entrepreneurship, the engine of development in all advanced economies worldwide 2.3 Strong corporate culture establishment Culture includes the organization values, visions, norms, working language, systems, symbols, beliefs and habits It is also the pattern of such collective behaviors and assumptions that are taught to new organizational members as a way of perceiving, and even thinking and feeling Organizational culture affects the way people and groups interact with each other, with clients, and with stakeholders (“Organizational culture,” 2013) Culture or principles and norms determine the way employees interact at their place of work Healthy values and principles motivate employees to perform in an efficient manner for the betterment of the organization If the workers perform efficiently, the resources of the company are utilized in an optimum manner to deliver best possible results Norms and principles helps to develop healthy competition at the workplace and employees compete with each other within the organization This in turn increases the overall productivity and efficiency of the company Moreover, healthy competition motivates employees to perform better and get promotion Thus, healthy principles within an organization have a positive impact on the growth as well as profitability of the organization Le Thuy Lan – ATCA/K12 Page 37 Graduation thesis Banking Academy CONSLUSION Nowadays, the economy of globalization emphasizes the role of SME sector as promoter of a healthy business climate, economic efficiency and power for economic development, particularly in developing countries SMEs have an important role in terms of their economic share in developed and developing economies though there are different definitions of SMEs among various organizations and countries Today, instead of largescale firms, SMEs having gained importance in the developing economies thanks to their capability of quick adjudication, working with less capital but more intense labor, low management cost and thus cheaper production Although having certain weaknesses, they are vital actors of enhancing innovation, competitiveness, entrepreneurship; engines of economic growth employment generation and catalysts for the fundamental restructuring of the economy In spite of significance, Vietnam‟s SMEs are disadvantaged „vis a vis‟1 large firms by market imperfections, especially in the capital and product goods market This entrepreneurial engine seems to be underpowered, which means that SMEs‟ potential of employment creation and growth contribution are less than they could be since pervasive stagnancy is seen widely throughout the country As such, the ultimate question for policy-makers and the contingent of domestic entrepreneurs is:”Under what conditions (including those affected by policy) can SMEs make their biggest potential contribution to a healthy economy?” The answer for the quiz perhaps lies in a well-functioning market with the support of inclusive policies from the government as well as positive modifications coming from inside of every single business The improvement of legal framework, easier access to capital and land-right use, external and internal network development, training and managerial skills betterment, partnership enhancement, and the establishment of strong corporate culture are some recommendations that help narrowing the gap in performance between SMEs in Vietnam and international level, eliminating the constraints and obstacles and acquiring the status of economic innovative driver In relation to Le Thuy Lan – ATCA/K12 Page 38 Graduation thesis Banking Academy REFERENCES Ceccarelli, A (2010) Small and medium sized enterprises Bankpedia Retrieved from http://bankpedia.org/index.php/en/126-english/s/23362-small-and-medium-sizedenterprises-smes Christopher, W., R (2011) Small Medium Enterprise in Vietnam Business in Asia Retrieved from http://www.business-in-asia.com/vietnam/sme_in_vietnam.html Decree 56/2009/ND-CP 30/06/2009 (June 30, 2009) Government Web Portal Available http://vbqppl.moj.gov.vn/vbpq/en/Lists/Vn%20bn%20php%20lut/View_Detail.asp x?ItemID=1068 European Commission (2005) The new SME definition: user guide and model declaration Retrieved from http://ec.europa.eu/enterprise/policies/sme/factsfigures-analysis/sme-definition/index_en.htm Keskin, H., 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