Overview of Viet Nam enterprise development in the period 2011-2017

The article accesses the development status and the role of different sectors in Vietnam for the period 2011-2017. The results show that enterprises operating in Vietnam have had strong development steps in this period. The article also identifies the limitations of the business sector, especially for private firms, in terms of quantity, size and ownership, and identifies key shortcomings and constraints from the enterprise itself and the inadequacies in the state management to the enterprise sector.

OVERVIEW OF VIET NAM ENTERPRISE DEVELOPMENT IN THE PERIOD 2011 - 2017 Assoc Prof To Trung Thanh thanhtt@neu.edu.vn National Economics University PhD Candidate, Nguyen Thi Hong Nham nhamnt.apd@gmail.com Academy of Policy and Development Abstract The article accesses the development status and the role of different sectors in Vietnam for the period 2011-2017 The results show that enterprises operating in Vietnam have had strong development steps in this period The article also identifies the limitations of the business sector, especially for private firms, in terms of quantity, size and ownership, and identifies key shortcomings and constraints from the enterprise itself and the inadequacies in the state management to the enterprise sector Keywords: ROA, ROE, SMEs, PEs, Vietnam enterprises Introduction Enterprise is seen as particularly important in the economic development, and it represents the major contribution to gross domestic product (GDP) In recent years, the activities of enterprises have made remarkable progress, contributing to the development of production capacity, mobilizing and promoting internal resources for socio-economic development, contributing to economic growth and recovery, increasing export turnover, budget revenue and effectively solving social problems such as job creations, hunger eradication and poverty reduction In 2017, economic growth reaches 6.81% After the difficulties of bottoming out in 2012, it is showing quite the economy continues stable growth, always above the average growth rate in the period 2011 - 2017 The enterprise sector contributes about 60% economic growth Therefore, it is very important to help enterprises and policy makers understand enterprises development so that enterprises can get process orientation and get access to investment opportunities It also serves as a basis for the government to make policies to treat all business sectors equally, especially the private sector and small and medium sized enterprises (SMEs) Therefore, the study focuses current state of enterprises in the period 2011-2016, and shows the role of each business sector in the economy as well as finds the limitations and causes of these restrictions in the corporate sector The study approaches to combining the annual survey data of the GSO with the latest survey data in 2017 In addition to the introduction and reference, the structure of the study included three different categories Section presents the research methodology Section evaluates research results Section is the main conclusion 855 Method The research will use basic qualitative methods such as statistics, description, synthesis and comparison The assessment of the development of Vietnamese enterprises is shown by the characteristics of the enterprise (the number of enterprises currently, the structure of enterprises by size and ownership, the business results of the enterprise business; at the same time, assess the role of different business sectors in the economy) This shows the limitations of the business sector and the causes of these limitations Results 3.1 The development process of Vietnamese enterprises Characteristics of enterprises The number of enterprises Figure 1: Number of enterprises between 2011 and 2017 Unit: number of enterprises 600,000 500,000 400,000 325,000 347,000 2011 2012 373,000 402,000 546,000 561,064 2016 2017 442,000 300,000 200,000 100,000 2013 2014 2015 Source: General Statistics Office of Vietnam (GSO) Since the Enterprise Law 2015 took full effects with more flexible terms regarding to business registration, the number of enterprises has increased steadily According to GSO, there were more than 325,000 enterprises operating in 2012, but in 2017 this number nearly doubled to more than 546,000 and up 11.1 % compared to 2016 The number of enterprises in the period from 2011 to 2016 grew by an average of 9.73% of the total per year Figure 2: Number of newly registered enterprises and enterprises that stop operation Unit: number of enterprises 150,000 100,000 50,000 2011 2012 2013 New - born 2014 2015 2016 Break - down Source: General Statistics Office of Vietnam (GSO) 856 2017 In 2017, the number of newly established enterprises nationwide reached the highest record ever with 126,859 enterprises, which increased 1.6 times compared to 2011 On average, 90,106 new enterprises were established each year during the period 2011 2017 However, in 2017 the number of enterprises suspended from operation was 60,553, a decrease of 20% compared to 2016 Figure 1.2 shows the gap between the number of newly established enterprises compared to the number of enterprises that have to stop operating has increased since 2014 This result shows that the difficulties faced by enterprises are growing, especially for start-ups Table 1: Allocation of enterprises by labour size and ownership form in 2016 Ownership form PEs FIEs 1,028 495,259 1,482 497,769 0.21 99.5 0.3 96.77 Percentage by column(%) 28.16 97.75 36.1 Quantity (E) 2,623 11,387 2,623 16,633 Percentage by line (%) 15.77 68.46 15.77 3.23 Percentage by column (%) 71.84 2.25 63.9 Quantity (E) 3,651 506,646 4,105 Ratio (%) 0.71 98.49 0.8 Number (E) Size SMEs Percentage by line (%) LEs Total SOEs Total 514,402 Source: Data processing from the GSO enterprises survey in 2016 Table shows that 99% of private enterprises are SMEs, but only 2.25% are large private firms This is a noteworthy point for policymakers to support private enterprises as well as SMEs, which have not received proper attention in the past SOEs account for only 0.71% of the total number of enterprises but large enterprises contribute 71.84% and SMEs account for 28.16%, while the percentage of FDI enterprises is 0.80% with 63.90% large enterprises Figure 3: Total capital in the period 2011-2016 30.00 25.00 25.00 20.00 20.00 15.00 15.00 10.00 10.00 5.00 5.00 0.00 0.00 2011 2012 2013 Capital (left axis - million VND) 2014 2015 2016 Capital growth (right axis - %) Source: Data processing from the GSO annual enterprises survey 857 Total capital of enterprises in the economy in this period increased 1.78 times, from 14.86 trillion in 2011 to 26.43 trillion in 2016, with the average growth rate of about 13.75% / year (Figure 3) According to the GSO, the total registered capital of new businesses is estimated at VND 1300 billion in 2017, an increase of 45.4% compared to 2016 In the period 2011 - 2017, the capital growth rate is always higher than the growth rate in the number of enterprises, which shows that the growth in capital size of enterprises has been increasing The average capital of enterprises has increased 1.5 times, from VND37.4 billion in 2011 to VND45 billion in 2016, corresponding to the size of the enterprise by capital criteria The increase in capital scale takes place in all three types of enterprises; in which SOE sector take the lead SOEs have the highest average capital scale, which is times higher than the average capital scale of FDI enterprises and 87 times higher than the average capital scale of private enterprises FDI enterprises and private enterprises have the same average growth rate of capital, increasing 1.5 times in 2011-2016 As such, the increase in scale of capital has helped small and medium enterprises transition from small capital to medium capital scale, while SOEs and FDI enterprises still have large capital scale However, it also shows that private firms in Vietnam now have a small capital scale Figure 4: Average capital size of enterprises in the period 2011-2016 Unit : VND billion 3,000 2,500 2,000 1,500 1,000 500 2011 2012 2013 SOEs PEs 2014 FDI Es 2015 2016 Source: Data processing from the GSO annual enterprises survey Business performance of enterprises Loss-making enterprises in the period 2011 - 2016 Apart from the remarkable achievements in the number of enterprises or the capital scale, the enterprises production and business results have not been improved at a sufficient level The rate of business making losses in the peerprises (SMEs) fluctuated significantly The ROE of the sector was 14.25% in 2012, then went down to 9.89% in 2013 and ended with the upward of 15.21% in 2016 It is evident that in spite of high losses, ROE and ROE of FDI enterprises still achieved the highest level over the period of 2011-2016, partly due to the "transfer pricing" Although the number of private enterprises is the majority, most of them are small-size in comparison with SOEs and FDI enterprises in terms of both labor and capital At the same time, the production and business activities of this sector, which give always the poorest performance, encounter disadvantages Obviously, much as government has supported to improve the business environment especially for the private sector in recent years, enterprises generally and private companies particularly are facing big challenges and obstacles for their survival, operation and development 3.2 Enterprise Sector Role Regarding contribution to domestic products, during the implementation of The Multi-sectoral Development Programme, our country‘s economic structure according to sector has been changing with the trend of the decreasing proportion of the public sector; the increasing proportion of the non-public sector and the foreign-invested economic 861 sector Currently, the private sector has made the largest contribution to GDP with the proportion of 43.52% in 2016, in comparison with 28.81% of the public sector and 18.59% of the FDI Regarding contribution to investment, the execution of the Enterprise Law and the new Investment Law in efforts to improve the business environment has had dramatic impacts on the funds mobilization of the private sector In 2016, the private sector contributed about 39% of total investment, while the figures of the public sector and FDI were 37.60% and 23.40%, respectively It has also shown that the investment capital of private sector into society has accounted for the largest part Regarding contribution to employment offer, in the process of economic renewal, the rapid growth of the private sector and foreign invested sector has provided labourers with many career opportunities With all of the competition in local-wide investment and the ability to attract more workers, the private sector has been the main source of employment and drawing attention of the main labour force Generally, the business and production companies in the private sector, which employed more than 70% of the labour force of the economy in 2016, have introduced over million jobs per year at the average Table 2: Contribution of types of enterprises to the economy in 2016 Unit: % Enterprise Scale Enterprise ownership forms Contribution of enterprise sector SMEs Les SOEs FDIEs PEs GDP 49.67 49.13 28.81 18.59 43.52 Investment 49.24 50.76 37.60 23.40 39 Budget 45.21 54.79 28.77 26 45.23 Employment 60.12 39.88 7.60 29.68 70.32 Source: Data processing from the GSO enterprises survey in 2016 Regarding contribution to state budget revenue, private enterprise sector also has a great contribution According to the data of GSO of Vietnam in 2016, the non-state sector contributed to the state budget 434.7 trillion dong, accounting for over 45% of total revenue, followed by SOEs with the amount of 277.3 trillion dong, equally to 29% and the FDI sector with the lowest level of 250.9 trillion dong, equivalent to 26% Although the private enterprises play an important role in contributing to the state budget, there is "a paradox" related to the number of private enterprises and their contribution rates Despite being the largest sector in economy, the private enterprises have witness the highest rate of losses However, this sector also solves almost jobs, contributes greatly to investment, state budget as well as gross domestic product It can be seen that in spite of many current difficulties, the private enterprises has contributed enormously to the development of the economy Thus, it is no doubt that the private sector is ―an important driving force of the economy‖ 862 3.3 Limitations of the enterprises sector Over the past years, the activities of enterprises increasingly developed It was the result of improvement in the business environment and especially economic policies of the government in support of development of private sector and creating a business investment environment conductive to business growth as a driving force of the company However, the enterprises sector has also had certain limitations In terms of quantity, it can be seen that enterprises in Vietnam have had strong development steps in the period of 2011 to 2017 Although the number of newly established enterprises is still higher than that of stopped or dissolved enterprises, this gap is gradually narrowing This, on the one hand, shows the difficulty that enterprises have to face; it is also an opportunity for enterprises to restructure and for weak enterprises to be eliminated in the economy, toward a higher developing speed of economy on the other In terms of scale, more than 97% of Vietnamese enterprises is SMEs, of which nearly 60% are very small with backward technical conditions Therefore, the business performance is not high, and this affects profit SMEs account for more than 97% in quantity, SMEs account for less than 40% of total assets while large enterprises, accounting for less than 3%, of total number, hold 60% of the total assets of the whole enterprises area Moreover, 99% of SMEs is private enterprises, which in turn increases the difficulty for enterprises to maintain and develop In addition, these two sectors also reveal the following limitations as spontaneous survival and development, lack of economic and technical conection; weak management and financial ability, small market and low competitiveness Especially, because of the "small and medium size", these enterprises are also affected by unhealthy competition causing awakardness to access to national resources as well as land, labor, technology, training, market compared to SOEs In terms of ownership, the growth rate of the private sector has tended to decrease in recent years The scale of the private sector, which still expands slowly, mainly includes individual business households with small and micro scale, of which more than 90% have total capital of less than one billion dong Not only private sector but also enterprises sector has low technology and slow innovation; low even family-oriented management Especially, many enterprises not want to "grow" or have no conditions to grow up Another "weakness" of this area is the limited level of technology and labor; low labor productivity, poor product and service quality without the satisfaction of the market requirements, especially the market of developed countries Moreover, it is impossible for the private sector to participate in the production connection network, value chain or only simple stages with low added value In addition, the competitiveness of the private sector is restricted because of the shortage of prestigious and branded enterprises to compete with the major competitors in the international market; its unreasonable business structure, failure to cooperate with each other and with other economic sectors; the restrained ability to intergrate international economy, the failure of the satisfactory of requirements of regional and global production value chains‘requirements Many private enterprises have stopped operating, dissolved and went bankrupt 863 3.4 Causes of limitations Enterprises sector especially private sector play an growing important role in the country development, meanwhile, its function has not been given full play due to the exsiting obstacles and problems caused by the enterprises itself, by the unsound Government management of the area As regard to businesses, internal efforts is a key factor to ensure powerful, effective and subtainable development However, weak internal efforts of enterprises especially private enterprises has been one of the difficulties and barriers for the development Despite the overwhelming quantity and proportion in the national enterprises system, most of the private enterprises, being small and medium scaled, especially "micro‖, have limitations in financial resources, management capacity, technology equipment and inovation or renewal Drawbacks of resources are closely related to that of technology equipment and technology innovation The inevitable consequence of this situation is that the business performance and competitiveness of private enterprises are worse than those of SOEs and FDI enterprises Furthermore, the shortage of business capital is the common situation among enterprises while it is difficult for the enterprises to access to credit capital resources of commercial banks Particularly, in the background of comprehensively international integration of Vietnam, weak competitiveness of the private sector is considered as the biggest challenge for the private enterprises Another hindrance for the enterprises is the low management capacity The number of enterprises, which is managed in a scientific manner, such as forcusing on making business strategies as a basis for long-term investment activities, building and branding to establish a position in the domestic and international market, has not been popular yet Many enterprises, mainly small-sized private enterprises, limited liability companies and joint-stock companies, usually deal with their business by temporary means in short-term business, even snapshots to seek profits by any tricks (tax evasion, tax fraud, fakes, counterfeited goods ) Apart from the types of enterprises and households under private sector, there is also another kind, that carries out production and business activities without registeration with state management agencies and is out of the control of the local state management agencies This is often referred to as the informal economic area In addition to the positive impacts (creating jobs and income for a part of the labor force, providing a convenient way for some small products and services for consumers), the informal economic activities have many negative effects both economically and socially The main harmful impacts are: the effect on state budget revenues due to failure to register and pay taxes; the failure to reflect the real scale of the economy because of lacking statistics ; the cause of unhealthy and unfair competition for registration enterprises; the insufficient benefits of employees provided for by law, Meanwhile, the scale of the informal economy in Vietnam is quite large and has both positive and negative impacts on the economy and society 864 As regard to state management, institutional issues and policies for enterprises have made great efforts in improving the business environment to attract domestic and foreign resources for development investment, However, the incentive mechanisms for businesses are still inadequate That causes many difficulties and challenges for enterprises, especially newly established enterprises According to a survey by the Vietnam Private Sector Forum (VPSF), 44% of enterprise reported that they had missed out on business opportunities because of legal barriers and market restriction regulations When the State has set up properly a legal framework and a policy system to promote the development of the enterprises, the role of enforcement agencies is particularly important to actualization these policies This is clearly illustrated in the difference in the pace of enterprise development between provinces In the same country, with the same legal framework and common policies, the different quality of public authorities can make a significant distinction in the enterprises‘ ability and cost for captial access Discussion and Conclusion The study has assessed the development status and the role of different enterprise sectors in Vietnam in the period of 2011-2016 The study shows that enterprises operating in Vietnam have experienced a strong growth in the period from 2011 to 2017 In the period 2011-2016: The number of enterprises operating in the country on average increased 9.73%/year, the number of newly established enterprises is higher than that of dissolution and bankrupt enterprises yearly and the gap has narrowed gradually The percentage of enterprises suffering losses in the economy in this period increased about 40.1% per year Of three enterprise sectors, private enterprises and FDI enterprises suffered more losses than state-owned enterprise, in 2016 to 49.2% (PEs) and 16.37% (SOEs) bearing losses, which clearly reflected the great difficulties the private sector faced The study also clarified the limitations of the enterprise sector in terms of quantity, scale and ownership, as well as identified the shortcomings and constraints of the business itself and its inadequacies of state management to the business sector However, the study has not evaluated the situation of enterprises in other aspects such as indicators reflecting the enterprise's ability in labor, profitability, changing trend of enterprises in the period References Vietnam Annual Enterprise Report 2016/2017.Vietnam Chamber of Commerce and Industry (VCCI) Characteristics of the Vietnamese business environment: Survey results of SME in 2015.Central Institute for Economic Management, 2016 Họp báo công bố tiêu chủ yếu Ďánh giá mức Ďộ phát triển doanh nghiệp tỉnh, thành phố trực thuộc Trung ương năm 2017 giai Ďoạn 2010-2016 (2018 February 6th) Retrieved from http://www.gso.gov.vn/default.aspx?tabid=382&idmid=2&ItemID=18738 865 ... role of different enterprise sectors in Vietnam in the period of 2011-2016 The study shows that enterprises operating in Vietnam have experienced a strong growth in the period from 2011 to 2017 In. .. role of different business sectors in the economy) This shows the limitations of the business sector and the causes of these limitations Results 3.1 The development process of Vietnamese enterprises... characteristics of the enterprise (the number of enterprises currently, the structure of enterprises by size and ownership, the business results of the enterprise business; at the same time, assess the role