Summary of Economic Doctoral dissertation: Relationship network, business model innovation and start-up performance of start-up firms in Vietnam

The dissertation examines the relationship between the relationship network, BMI and the start-up performance of start-up firms. From the achieved findings and results, the dissertation provides the implications for management to enhance the development of relationship networks, promote the implementation of BMI, and contribute to the improvement of start-up performance of start-up firms in Vietnam.

MINISTRY OF EDUCATION AND TRAINING

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

TRAN NHA GHI

RELATIONSHIP NETWORK, BUSINESS MODEL INNOVATION AND START-UP PERFORMANCE OF

START-UP FIRMS IN VIETNAM

Major : Business Administration Code : 9340101

SUMMARY OF ECONOMIC DOCTORAL

DISSERTATION Scientific instructors :

1 Assoc Prof Dr Nguyen Quang Thu

2 Dr Ngo Quang Huan

Ho Chi Minh City - 2019

Scientific instructor 1 : Assoc Prof Dr Nguyen Quang Thu

Reviewer 1:

Reviewer 2:

Reviewer 3:

The dissertation will be defended in front of the Dissertation Evaluation Council at The University of Economics Ho Chi Minh City at ……….……

The dissertation can also be found at:

THE DISSERTATION

Articles published on the Science Journals:

1 Nguyen Quang Thu, Ngo Quang Huan, & Tran Nha Ghi (2018) The relationship between firm resources, dynamic capabilities and firm performance of start-up

firms in Ba Ria - Vung Tau province Journal of Asian Business and Economic

Studies (JABES), 28 (12), 05–21

2 Nguyen Quang Thu, Ngo Quang Huan, & Tran Nha Ghi (2018) Effect of relationship quality on of business model innovation of start-up firms in Ba Ria - Vung Tau

province Journal of Economics and Development (JED), 253(7), 59-69

3 Nguyen Quang Thu, Ngo Quang Huan, & Tran Nha Ghi (2018) Effect of relationship quality on start-up performance of start-up firms in Ba Ria - Vung Tau province.

Journal of Science Ho Chi Minh City Open University, 61(4), 67 – 79

Articles published in the Scientific Conference:

4 Nguyen Quang Thu, Ngo Quang Huan, & Tran Nha Ghi (2016) The relationship between firm resources, dynamic capabilities and business performance of

Vietnam: Opportunities and challenges in the period of integration, Tran Anh Thanh Son (editor), University of Economics HCM City, 179-189

5 Ngo Quang Huan, Bui Anh Tuan, & Tran Nha Ghi (2016) Research on the relationship between the start-up environment and capability to the business

conference of Entrepreneurship in Vietnam: Opportunities and challenges in the period of integration, Tran Anh Thanh Son (editor), University of Economics HCM City, 13-30

6 Ngo Quang Huan, & Tran Nha Ghi (2018) Improving start-up performance through business model innovation Workshop of start-up science and small and medium- sized enterprise management in Vietnam in the context of the 4.0 revolution University Publishing House Ho Chi Minh City.

CHAPTER 1: INTRODUCTION

1.1 The necessity of research problems

Derived from practical needs

In Vietnam, the private economic sector plays an important role in the economic development of the country Statistics show that about 97% of small and medium enterprises (SMEs) contribute 40% of the state budget and create employment opportunities for 50% of the labor (Nguyen Trong Hoai, 2016) Start-up creates new businesses and firms (Gartner, 1985) Therefore, start-up firms are the first step for the formation, development and becoming mature firms and enterprises in later stages According to GEM (2017), the rate of maintaining business after starting up within the first 3.5 years accounted for 20.8% Although this has been improved when compared to 12.7% in 2016, the successful start-up rate is still very low

The causes of the failure for start-up firms in the starting phase are very diverse such as: inappropriate business strategy, lack of legal knowledge, "calling for capital" problems and administrative procedure barriers (Y Nhi, 2017) Although start-up firms receive many priorities from the Government's development support policies, the interest of society and the support of related parties In fact, many start-up firms still have to face many difficulties in accessing information and resources Meanwhile, the information provided by state agencies only partially meets the demand; there are many start-up firms without the initiative and sufficient information According to a survey by the Vietnam Chamber of Commerce and Industry (VCCI), the personal relationships between firms and state agencies play an important role in the access to important information and official documents in business activities.1

Trimi & Berbegal-Mirabent (2012) have studied the business model innovation (BMI) in the start-up businesses; this new topic attracts increasing attention in scientific theory development Each firm in an industry has a different business model, built based on their available resources Competitors can hardly imitate

or copy other business models to apply in their organizations (from resource point of view)

In summary, in the first phase, when start-up firms lack resources, implementing BMI to adapt to market

changes and improve operating performance requires external supporting resources In this period, start-up firms also need to receive the attention and support of the Government Therefore, the question is how to access the information and resources from individuals/organizations to supporting start-up activities? To answer the above question, it is essential that the research issue on start-up firms' building relationship network with government agencies and individuals/organizations to access information and resources, implement business model innovation, improving performance is implemented in the current context

Derived from the theory gap

Foss & Saebi (2016) synthesized BMI studies in the period of 2000 - 2015 and proposed 4 future research lines for BMI: (1) Building BMI concept and components of BMI; (2) Identify factors that are causes and results of BMI; (3) Determine moderator variables between causes and results of BMI; (4): The marginal impact of factors leading to BMI implementation and BMI results However, until now, there has not been any study to measure and verify the intermediary role of BMI between the network relationship and the start-up performance of start-up firms

1 The impact of BMI on start-up performance:

Studies on the effect of BMI on business performance of start-up firms are still limited In addition, the research results on this issue are different For example, Zott & Amit (2008), Heij et al (2014) and Anwar (2018) found that BMI positively affected business performance Meanwhile, Patzelt et al (2008) proposed there is no relationship between BMI and business performance Halecker et al (2014) found a negative relationship between BMI and business performance Therefore, this dissertation is conducted to test the relationship between BMI and start-up performance of start-up firms in the transition economy At the same time, the dissertation will reaffirm the direction of impact of BMI on business performance

2 The impact of relationship network on BMI:

There are few published studies about the influence of relationship network on BMI Guo et al (2013) considered the impact of human capital and social capital on BMI, and Anwar & Shah (2018) assessed the impact of financial relations, politics and business partnership networks on BMI So far, there is no study on the effect of relationship network on BMI for start-up firms published in Vietnam

3 BMI concept approaches

BMI is approached by researchers in many different points of view The approach of BMI from Zott & Amit (2007) is most used by researchers for their studies Some studies for this approach are of Guo et al (2013), Guo et al (2015), Anwar & Shah (2018), etc On the other hand, the study of Clauss (2017) applied the BMI approach as a type II scale of Jarvis (2003), in which BMI is a model of result-cause scale There are few researchers applying this approach of BMI Therefore, this dissertation will approach BMI according to Clauss (2017)

To explain the formation of external resources for firms, previous studies such as Guo et al (2013) and Anwar & Shah (2018) used social network theory, social capital theory and innovation diffusion theory However, institutional theory has not been applied much in these studies The institutional theory shows how firms and businesses can increase the "acceptance" level of society The higher the acceptance level of society

is, the more opportunities the firms will gain to access resources by their strategy

In the initial phase, start-up firms enjoy preferential policies form the Government, support and concern from relatives, friends and colleagues So the research question is how do start-up firms access essential information and resources? To answer this question, the dissertation uses institutional theory combined with

the theory of social networks to explain the formation of external resources This is a new explanation that previous studies have not used In this approach, the owners/senior managers play important roles in building

a network to help their firms access information and resources to implement BMI and improve business performance

In addition, according to the evaluation of GEM (2017) about Vietnam's business conditions, "the environmental dynamism of domestic market" is ranked highest in the start-up ecosystem Thus, it is very necessary that the effect of the environmental dynamism on the relationship between BMI and the business performance of firms in Vietnam to be verified

Therefore, in order to examine the role of relationship network in conducting the current business model innovation, contributing to improving the start-up performance of start-up firms, the research topic

“Relationship network, business model innovation and start-up performance of start-up firms in Vietnam” is necessary to be implemented in the current context

1.2 The general research framework of the dissertation

The implementation of BMI through relationship network will contribute to improving the start-up performance of start-up firms, which is presented in the general research framework Relationship network directly affects start-up performance and indirectly affects start-up performance with BMI as an intermediate variable The environmental dynamism of the domestic market is considered to be the moderator of the relationship between BMI and start-up performance of start-up firms

Based on the general research framework, the dissertation concludes new research points that previous studies have not mentioned as follows:

New point 1: The relationship between the relationship network, BMI and up performance of

start-up firms has not been verified in the transition economic market Also, according to the latest review of the author, this relationship has not been explored in the developed economic market

New point 2: The combined approach of institutional theory and social network theory to explain the

formation of external resources to implement BMI of start-up firms has not been applied in previous studies

New point 3: The approach of BMI scale according to Clauss (2017), which is a scale with the form of

hierarchical component models (HCMs) has not been widely tested

1.3 Research objectives

General objective: The dissertation examines the relationship between the relationship network, BMI and the

start-up performance of start-up firms From the achieved findings and results, the dissertation provides the implications for management to enhance the development of relationship networks, promote the

implementation of BMI, and contribute to the improvement of start-up performance of start-up firms in Vietnam

Detailed objectives: In order to achieve the general objective, the dissertation needs to fulfill the following specific objectives:

1 Building a model of relationship between relationship network, BMI and start-up performance of start-up firms;

2 Verifying the relationship between relationship network, BMI and start-up performance of start-up firms;

3 Verifying the regulation of the environmental dynamism of the domestic market on the relationship between BMI and start-up performance of start-up firms;

4 Suggesting managerial implications to improve start-up performance through the relationship network and BMI implementation.

1.4 Research Methodology

1.4.1 Qualitative research methods

Interview method is used in qualitative research The dissertation collected ideas and opinions of experts who are experienced in the field of start-up activities Qualitative research methods are implemented to standardize theoretical models, explore research and adjust the scale Implementation techniques are direct individual interview with experts based on designed outline Interview results will be aggregated in order to

form a draft scale to serve pilot study in quantitative research and formal quantitative research

1.4.2 Quantitative research methods

Pilot study: After data entry, research data is tested for the reliability of scales with Cronbach’s Alpha

reliability coefficient Next, exploratory factor analysis (EFA) is applied to check the convergence value and distinctive value of observed variables in the scale The purpose of this method is to preliminary assess the scale of research concepts in theoretical models before conducting formal research

Formal quantitative research: The scales will be tested with Cronbach’s Alpha coefficient and EFA

analysis again Next, the scale will be evaluated by measurement model analysis and linear structure model through PLS-SEM software

1.5 Research objects and scope

Research objects: Research concepts such as relationship networks, BMI, start-up performance of start-up firms and their relationships

Subjects of the survey: The owners, the board of directors, the capital contributors, the founders and representatives of start-up firms with operating time less than 5 years (according to Decision No 844/QD- TTg)

Research scope: the research is conducted with start-up firms in the area of Ho Chi Minh city, Ba Ria - Vung Tau, Dong Nai, Binh Duong and some other provinces

1.6 The significance of the research

1.6.1 Practical significances

For start-up firms: start-up firms recognize the importance of building a relationship network to

supplement information and resources in the early stages of operation Start-up firms use various resources to support BMI, increase start-up performance and minimize failure risks At the same time, start-up firms realize the importance of implementing BMI in order to adapt to the changing environment

For policy makers: the research results suggest ideas to help policy makers issue effective and detailed

policies and solutions to support start-up firms A number of official documents (Decisions, Decrees, Plans, Laws, etc.) have been issued without specifically mentioning the practical detailed content to support business model innovation Therefore, the later documents need to supplement the content to support business model innovation for start-up firms

For start-up consultancies: Start-up consultancies realizes their missions in providing training services,

information support on laws and tax policies, especially consulting in planing and building appropriate business model, in order to help start-up firms improve management skills, professional skills and select appropriate business models for their start-up businesses

1.6.2 Theoretical significances

Firstly, the dissertation has synthesized institutional theory, social network theory, innovation theory

and VARIM theory In addition, the dissertation has systematized the relationships between the theories to

build the strategy of start-up firms in the transition economy

Secondly, the proposed research model is combined from background theories and tested in Vietnam

market with the following results:

- Relationship network consists of 3 components (relations with government officials, social relations and business partnerships) that positively affect BMI and the start-up performance of start-up firms

- BMI is a concept with a high-level structure, a scale of decentralized factor model (results - causes scale), which is inherited from the study of Clauss (2017) The results of verification in the Vietnamese market show that BMI reaches the permitted value and has a positive impact on start-up performance of start-up firms

- Researchers can make a general assessment of the relationships between the theories mentioned and re-test the above relationships in other areas (space, specific occupations)

Finally, the dissertation has adjusted, supplemented and tested the research scale and developed a

particular set of observed variables for specific scales of start-up activities in Vietnam

CHAPTER 2: LITERATURE REVIEW AND RESEARCH MODEL

2.1 Institutional theory

North (1990) defined institutions as "social playing rules", which are human-made rules and restrictions that guide and regulate what an individual should and should not do in some certain cases It is a regulatory framework for human interaction Scott (1995) defined institutions including constraints and actions that belong to cognition, norms and laws to create stability and meaning of social behavior

The view of institutional theory in economics and sociology is that every business that adheres to institutional constraints will be accepted by society (legitimacy) When accepted, businesses are more likely

to "survive" "Acceptance of society" becomes the key concept in institutional theory Aldrich and Fiol (1994) pointed out two types of acceptance Acceptance in awareness: awareness of entities (businesses / industries)

or practices (systems, management policies) can be spread Socio-political acceptance: the extent to which society (stakeholders, the public, officials) considers an entity/practice to be consistent with social and legal standards

2.2 Social network theory

The relationship network of start-up firms is mentioned including: formal networks and informal networks In particular, formal networks are the network of official relations with banks, Government agencies, lawyers, etc and informal networks are those with family, friends and colleagues In the first phase of operation, start-up firms are more interested in informal relationship networks than formal networks (Peng,

2000, p 158)

2.3 Theory of Innovation

Business model innovation (BMI): Baden-Fuller & Mangematin (2013), Zott & Amit (2013) and Spieth et al (2014) have presented three components of a business model: value creation, value proposition and value capture BMI is innovating and renewing the above three components

Clauss (2017) developed the measurement of BMI concept to ensure reliability and validity The results show that the compositions of BMI include value creation innovation, value proposition innovation and value capture innovation Value creation innovation has 4 components including new capabilities, new technology/equipment, new partners, and new processes/structures In value proposition innovation, there are

4 components including new offerings, new markets, new distribution channels, new customer relationships

Value capture innovation has 2 components including new revenue model and new cost structure

2.4 VARIM theory

VARIM theory consists of 5 components

Value: The business model provides benefits that customers perceive to be valuable to them It is

measured through satisfaction and loyalty, market share, benefits provided to customers compared to competitors' offerings, reputation/image in customers' perceptions

Adaptability: Can the business model be reformatted to provide the benefits that customers find valuable

to them? It is measured through the number and variety of new benefits provided by the business, the level of improvement that customers perceive, revenue from new products, flexibility of valuable competencies

Rareness: Is business unique when it provides this benefit to customers? It is measured through the

number of competitors or businesses with alternative products, the level of benefits compared to competitors

Inimitability: Is the customer benefits difficult for competitors to imitate or replace? It is measured

through number of imitated objects, inimitable resources, inimitable scope of activities

Monetization: Does the business make money from providing benefits to customers? Measurements

include ROS, ROE, reasonable price, importance and value of additional assets

2.6 Research models and hypotheses

Relationship with Government officials, BMI and start-up performance of start-up firms:

Officials at all levels of government have considerable power in approving projects and allocating resources (Walder, 1995) Relationship with government officials is recognized as useful in emerging markets, because it provides operational performance for venture projects (Kotabe et al., 2017; Li & Zhang, 2007) Research by Du & co (2016) shows that in China, venture business projects rely on the network of political relationship to survive and develop Therefore, firms should create relationships with government officials because it affects their performance (Peng, 1997)

According to the results of some previous studies, relationship with government officials will simplify procedures for government and banking institutions (Peng & Luo, 2000; McMillan & Woodruff, 1999; Meyer

& Nguyen, 2005) Start-up firms with strong relationship with Government officials will approach many donations, aid and government support programs Firms will be supported with training to improve their capacity (knowledge/expertise, capacity to meet environmental changes, etc.), improving and developing technology Start-up firms are also introduced to business partners, investors, support funding for testing, making sample products and changing the process accordingly

In addition, relationship with Government officials helps firms and businesses access funded projects or customers (Le et al., 2006) Start-up firms will be supported in developing new products/services, intensive training on construction and product development, market testing, accessing to foreign markets, participating in available distribution channels and connecting customers

Government-Start-up firms builds relationships with Government officials to help reduce transaction costs in registration and business activities, such as access to information, land, and other operating licenses (Meyer & Nguyen, 2005) In a transitional economy, the costs for these barriers are very significant and sometimes very high for private enterprises (Tenev et al., 2003) Finally, start-up firms will be supported in commercialization

of the scientific research results, exploitation and intellectual property development in order to generate more revenue for start-up firms

Thus, start-up firms’ strong relationship with government officials will affect the business model (Gao

et al., 2017; Wu, 2011) From the above-mentioned backgrounds, the dissertation proposes hypotheses H1a, H1b, H1c and H1d are proposed as follows:

Hypothesis H1a: Strong relationship of start-up firms with government officials has a positive impact

on start-up performance of start-up firms;

Hypothesis H1b: Strong relationship of start-up firms with government officials has a positive impact

on BMI's value creation innovation;

Hypothesis H1c: Strong relationship of start-up firms with government officials has a positive impact

on BMI's value proposition innovation;

Hypothesis H1d: Strong relationship of start-up firms with government officials has a positive impact

on BMI's value capture innovation;

Social relations, BMI and start-up performance of start-up firms:

For many small firms with limited resources, business performance depends on the ability to obtain external resources (Partanen et al., 2011) Some studies have confirmed that close-kit networks can increase solid returns (Aldrich et al., 1987), enterprise development (Shaw, 2006) and sales growth (Antončič, 2002a; Tuli, 2006)

When start-up firms connect with start-up associations/clubs, they will be supported free training courses and start-up coaching courses to improve and develop new capabilities Start-up firms will get legal support, join a common work-space to experience and learn from the experts in the field (process innovation) Start-up associations/clubs supports cooperation, connecting members with each other, with start-up ecosystems and other start-up associations/clubs (new partners) Firms with strong relationships will have many opportunities

to interact and connect with the desired business partners (Wong & Ellis, 2002)

When participating in start-up associations/clubs, start-up firms will be connected with consultants, investors, entrepreneurs, start-up support organizations, and policy makers to create bridges and spreading support solutions for start-up communities (product development, distribution channels and relationships with new customers) In addition, start-up associations/clubs have links with the surrounding provinces and other provinces to expand the market of start-up products (developing new markets) Thus, through the relationship network, managers of firms recognize business opportunities (Ma et al., 2011; Tang, 2010), access to external information and resources (Peng & Luo, 2000) Firms with strong relationships will successfully persuade stakeholders to accept and promote support for new business models (Guo et al., 2013)

According to Birley (1985), in the early stages of business development, informal contacts with business associates, family members and friends will provide the sources of labor and material facilities for businesses Start-up clubs shares business opportunities, cross-selling among members of the club, and guaranteeing large orders (developing new revenue models) Start-up club builds a start-up fund contributed by members to

support capital In addition, the relationship of start-up firms with relatives, friends and colleagues will help businesses raise capital quickly, simple procedures, low costs (developing new cost structures) , the hypotheses H2a, H2b, H2c and H2d are stated as follows:

Hypothesis H2a: Strong social relations of start-up firms have a positive impact on start-up performance

Relationship with business partners, BMI and start-up performance of start-up firms:

Good business relationship with suppliers can offer quality materials, good service and timely delivery Similarly, good relationships with buyers can promote buyers' loyalty, sales volume and reliable payment Moreover, good relationships with executives from competitors can facilitate internal cooperation and implicit collusion, minimizing uncertainty (Peng & Luo, 2000) These relationships are seen as opportunities or as a lubricant to reduce transaction costs (Williamson, 2010) Firms with strong relationships with reputable partners will have access to other resources (Stinchcombe, 1965; Stuart, 2000), such as the high quality of labor, financial resources, technology and support of Government These resources are very important for the growth of start-up firms

Anwar & Shah (2018) argued that firms communicating well with business partners will get new ideas, new business opportunities, capture customer needs, new knowledge and technology Newly established businesses with good relationship with managers of mature enterprises will easily access new information, resources and new knowledge (Li & et al., 2015), which will affect the innovation of business (Breuer & Ludeke-Freund, 2017) DePropris (2002) argued that process innovation is related to cooperation with suppliers Businesses' increased customer relations will positively impact product innovation activities (Gao

et al., 2017; Wu, 2011) When connecting with other partners and businesses, start-up firms often have advantages in reducing costs

The relationship of senior managers will promote BMI activities of enterprises (Guo et al., 2013) The design of a new business model requires businesses to have a lot of information about customers, suppliers and competitors (Timmers, 1998), and must know how to develop, share and reformat resources On that basis, the hypothesis H3a, H3b, H3c and H3d are proposed:

Hypothesis H3a: Strong relationship of start-up firms with business partners has a positive impact on start-up performance of start-up firms;

Hypothesis H3b: Strong relationship of start-up firms with business partners has a positive impact on BMI's value creation innovation;

Hypothesis H3c: Strong relationship of start-up firms with business partners has a positive impact on BMI's value proposition innovation;

Hypothesis H3d: Strong relationship of start-up firms with business partners has a positive impact on BMI's value capture innovation;

The relationship between BMI and start-up performance of start-up firms

Capability innovation has a direct impact on the performance of businesses (Alam, 2013) Reichert & Zawislak (2014) argued that technology capability has a positive impact on business performance Atalay et al (2013) stated that process innovation directly impacts on business performance Corporate profits are improved from product innovation, distribution channels and new markets which have not been served The reality shows that the profits of enterprises mainly come from existing customers (Nguyen Dinh Tho & Nguyen Thi Mai Trang, 2009)

BMI allows businesses to regain position and profit in the current market (Johnson et al., 2008) The new business model has a strong impact on performance compared to the old model (Nunes & Breene, 2011)

In addition to securing profits in the current market, BMI helps businesses expand their reach by penetrating new markets The components of the new business model focus on targeted customers who are not yet served (Aspara et al., 2010) and create new markets (Zott & Amit, 2007) Exploiting new opportunities can help businesses maintain performance (Velu & Stiles, 2013)

Firms renew revenue models to create long-term revenue and independent of existing revenue In the early stages, start-up firms have incurred many costs for fixed investment and investment activities The structure of costs determines the performance of the business Extend the cost structure to determine the types

of operational costs related to the business at the lowest level Foss & Saebi (2016) stated BMI will reduce costs

BMI provides productivity, return on revenue, market value (Andreini & Bettinelli, 2016) and financial performance for businesses (Pedersen et al., 2016) BMI provides significant financial performance in a developing economy (Gerdoçi et al., 2017) Business model is an important factor to improve business performance (Dunford et al., 2010) From the above mentioned bases, the proposed H4 H5, H6 hypotheses are proposed:

Hypothesis H 4 : BMI's value creation innovation has a positive impact on up performance of

start-up firms;

Hypothesis H 5 : BMI's value proposition innovation has a positive impact on start-up performance of start-up firms;