SMEs contribute greatly to GDP and job creation in Vietnam. Studies of what factors are important to the development of SMEs in Vietnam are, however, scarce. Particularly, there has been little rigorous research focusing on the roles of human and social capital of the owners. This study reveals that education, knowledge, and social networks of the owners are essential for innovations in management and performance of the SMEs in Vietnam.
RESEARCHES & DISCUSSIONS SMEs contribute greatly to GDP and job creation in Vietnam Studies of what factors are important to the development of SMEs in Vietnam are, however, scarce Particularly, there has been little rigorous research focusing on the roles of human and social capital of the owners This study reveals that education, knowledge, and social networks of the owners are essential for innovations in management and performance of the SMEs in Vietnam Keywords: SMEs, human capital, social capital, firm performance, determinants Introduction In line with the country’s economic reform and growth, the past 25 years from “đổi mới” (Renewal) have seen a dramatic development of SMEs in Vietnam As an important part of the country’s development policy, SMEs have the vital roles to play in terms of GDP contribution, job creation, and poverty reduction The Decree 56/2009/Nñ-CP categorizes SMEs as very small, small, and medium enterprises according to their employment and capital size In fact, the promulgation of the 1999 Companies Law created a breakthrough in development of the pri- vate sector Since then, there has been an enormous increase in the number of the enterprises in all sectors, and SMEs accounted for 97% of the total number of enterprises of all types in 2008 (Table 1) According to this table, the trading and service sector attracts the best part of SMEs in Vietnam, followed by the manufacturing and construction sector During the past 10 years, SMEs have been contributing significantly to the Vietnam economy They accounted for 40% of the GDP (Vietnam Business News, 2010); 56% of the total investment and and 35% of export value (GSO, 2009) SMEs Table 1: SME development in Vietnam 2000 Number of SMEs 2004 2008 39,897 88,222 201,580 Having less than employees 10,169 17,977 44,474 Having to employees 10,900 26,459 70,454 Having 10 to 49 employees 12,071 32,443 69,712 Having 50 to 299 employees 6,757 11,343 16,940 91.9 94.8 97.1 26.09 28.06 23.27 8.32 2.52 4.26 Manufacturing and construction 33.69 37.04 33.06 Trading and services 57.99 60.44 62.67 Number of SMEs / total number of enterprises (%) Average number of employees per enterprise Distribution of SMEs by sectors (%) Agriculture, forestry, and aquatic products Source: SME Development Bureau, MPI, December 2009 * Foreign Trade University Economic Development Review - June 2011 39 RESEARCHES & DISCUSSIONS created jobs for 67% of the total labor force and the number of workers in SMEs rose by 4.5 times during the period 2000 – 2008, therefore, they play a key role in poverty reduction in Vietnam A question arises as to what determines the development of SMEs The rest of the paper attempts to find an answer to this question and comprises: (i) Section that presents a review of literature on determinants of SME development and empirical results of the analysis of SMEs in Vietnam; and (ii) Section that offers a conclusion Determinants of SME development: human capital and social capital a The roles of human and social capital in the development of SMEs: There are a range of determinants of SMEs development To the extent of this study, the focus will be on human and social capital Human capital, of which the level of formal education or the number of schooling years are often proxies, is widely accepted as the key factor that determines firm performance Many researchers emphasize that formal education is the most important component of human capital (Becker, 1962; Foster, 1987; and Schultz, 1993) However, others such as Arrow (1962), Howell and Wolff (1991), Young (1992), Madison et al (2003), and Hackler et al (2008) argue that human capital should be divided into formal education (general or basic knowledge) and specific education such as “learning-by-doing” and on-the-job training The latter understanding of human capital is often more appropriate for analysis of SMEs, especially in developing countries Despite differences in understanding human capital, all of the previous studies find a strong relationship between human capital and firm performance Welch (1970) argues that increased education may enhance a manager’s ability to acquire and decode information about costs Similarly, Fluitman and Ondin (1991) find that the entrepreneurs who have attended school longer tend to produce better performance Focusing on technological innovation, Nelson et al (1966) point out that the more educated a manager is, the quicker he/she will be to introduce new techniques of production and the earlier he/she will be to adopt productive innovations because of his/her better ability to understand and evaluate the in- 40 Economic Development Review - June 2011 formation about new products and processes There have been, however, few rigorous studies about the role of human capital, especially of the owners, in development of SMEs in Vietnam We, therefore, advance the following hypotheses: Hypothesis h1a: Human capital of the owners has positive impacts on multifaceted innovations of the SMEs Hypothesis h1b: Human capital of the owners contributes positively to the performance of SMEs Apart from human capital, social capital is also recognized as an important factor Talking about social capital, it is far from judicious when not mentioning the two most well known theorists, namely James Coleman and Robert D Putnam, who have created a breakthrough in social capital theory Coleman (1988) argues that social capital comes through changes in the relations among persons that facilitate productive activity Social capital is similar to but less tangible than physical and human capital Meanwhile, Putnam (1995) indicates that the central premise of social capital is that social networks have value Social capital refers to the collective value of all "social networks" and the inclinations that arise from these networks to things for each other He also distinguishes between informal and formal social networks Formal networks include ties to voluntary associations such as trade associations and the like, while informal networks include ties held between family members, friends and neighbors Indeed, many studies have attempted to examine the effects of social capital on firm performance Lechner et al (2005) find the important role of relationships with direct competitors on firm development in years after foundation Johnson et al (2003) in their investigation of enterprises in Columbia, stress that social capital, as measured by the number of relationships that a firm maintains, which strongly depends on its owner’s networks, contributes positively and significantly to its economic performance, as measured by revenue per worker Besides, a number of other studies on social capital such as Akoten et al (2006), Nadvi (1999), Vu et al (2010) agree on the importance of social capital to enterprise performance Therefore, we would like to advance the following hypotheses: Hypothesis h2a: Social capital has a positive relationship with innovations of the SMEs RESEARCHES & DISCUSSIONS Hypothesis h2b: Social capital is a positive factor that determines performance of the SMEs b The case of SMEs in Vietnam: In this study, we use the panel data extracted from the surveys of SMEs in Vietnam in 2004, 2006, and 2008 The surveys were carried out by Institute of Labour Studies and Social Affairs (ILSSA) under the Ministry of Labour, War Invalids and Social Affairs in collaboration with Department of Economics, University of Copenhagen with funding from DANIDA Characteristics of the enterprises and their owners are shown in Tables and According to Table 2, the average number of employees in SMEs is smaller than that in Table Although the number of employees slightly decreased, added value and profit of the SMEs increased remarkably in 2008 In addition, the percentage of enterprises that have new products or new production process has been significantly reduced, suggesting that such innovations are becoming more difficult for the enterprises Table presents characteristics of the enterprise owners In this table, it is worth noting that over time more owners complete higher education, i.e college and university study, suggesting that education becomes increasingly important There is not much change other than the said ones in characteristics of the owners In order to test the hypotheses advanced in the previous section, we estimated the determinants of innovations and performance of the enterprises We expect to empirically show that human capital and social capital contribute to multifaceted innovations and such innovations determine perform- ance of the enterprises Such estimation strategy requires instruments because innovations are endogenous in the performance functions Also, variables indicating social capital including “number of people the owners often have contact with” and “whether the owner is a member of any association” are endogenous Therefore, the availability of instruments is the key to the perfect estimation scheme Unfortunately, we were not able to find good instruments in the data set We, thus, decided to use another method as the second best choice First of all, we conducted first stage regression to estimate the determinants of innovations and performance of the enterprises We also estimated the determinants of social capital using the same set of explanatory variables, which include human capital If we find that those regressions are structurally similar, we may conclude that human capital and social capital contribute to innovations and performance of the enterprises We may also infer that innovations are important to good performance of the enterprises Secondly, we tried to estimate the structural equations using Fixed Effects models Even though these models cannot solve the endogeneity problem, they help to reduce the inefficiency in the OLS models when we include social capital and innovations in the performance estimation functions In summary, in the first stage, we estimated the determinants of: (1) performance of the enterprises measured by added value, gross profit, and labor productivity ; (2) innovation in production of the enterprises measured by the application of Table 2: Performance of SMEs in Vietnam 2004 Average number of employees per enterprise 2006 2008 14.8 14.4 11.9 Average value added (VND million) 348.9 443.7 700.5 Average gross profit (VND million) 200.0 239.4 435.1 Using power machines (%) 86 87 89 Developing new products (%) 40 New production process (%) 29 15 14 Using advertisement (%) 11 11 Having registered (%) 35 71 66 2,691 2,621 2,500 Business strategy dummies Number of enterprises Source: Authors’ calculation from the data set Economic Development Review - June 2011 41 RESEARCHES & DISCUSSIONS Table 3: Basic characteristics of the owners of SMEs 2004 2006 2008 General education (%) Not finished primary Finished primary 2.7 3.5 3.1 7.4 8.1 9.3 Finished junior secondary 32.0 31.5 28.5 Finished senior secondary 57.7 55.9 58.3 Elementary worker 33.3 30.1 5.2 Technical worker without certificate 11.1 15.3 29.3 Technical worker with certificate 18.6 18.2 15.3 College/university/post-graduate 2.1 1.3 19.8 Companies Law 2.3 2.1 2.2 Labor Code 2.3 2.1 2.1 Customs Law 1.6 1.4 1.4 Insurance Law 1.7 1.5 1.5 Tax Law 2.5 2.4 2.3 Environmental Law 2.0 1.7 1.7 Land Law 2.1 1.8 1.9 Investment Law 1.7 1.5 1.6 Contacts with enterprises in the same industry** 2.5 1.7 1.9 Contacts with enterprises in other industries*** 2.3 2.7 2.7 Member of an association (%) 10 10 10 Professional education (%) Knowledge about laws * Social capital Note: (*): Owners were asked to self mark their knowledge about laws, scoring from 0=no knowledge to 4= very good (**): Contacts with other firms that produce the same product (same ISIC code) at least once every months, which the owner finds useful for his/her business operations (***): Contacts with other firms that produce different products (different ISIC code) Source: Authors’ calculation from the data set power machines, introduction of new products, and introduction of new production process; (3) innovation in marketing measured by the use of advertisement and the registration of the enterprises; and (4) the social capital of the enterprises measured by the size of the networks in which the enterprises are operating Furthermore, we regressed performance of the enterprises on the social capital and innovations using Fixed Effects models The first-step regression function of the estimations mentioned above is as follows: PERINSOit = b0 + b1GEDUCi + b2PEDUCi + 42 Economic Development Review - June 2011 b0POCCUi + b0KNOWi + b0Xit + b0PROVi + b0t + eit in which: i means observation i, and t means time period, which is 2004, 2006, or 2008; PERINSOit is can be either enterprise performance, enterprises innovation, or social capital of the enterprises; GEDUCi is a set of dummy variables for the highest general education that the enterprise owners have acquired, which takes values of if the owner completed either senior secondary school, junior secondary school, or primary school; or has RESEARCHES & DISCUSSIONS not completed primary school but spent at least several years of schooling and takes values of in case of having not attended any school yet; PEDUCi is a set of dummy variables for the highest professional education that the enterprise owners have acquired, which takes values of if the owner has obtained either elementary worker, technical worker without certificate, technical worker with certificate, or college/university/postgraduate degree and take values of if none of these mentioned above is obtained; POCCUi is a set of dummy variables for the previous occupation of the enterprise owners, which takes values of if the owner used to be a manager, highly educated professional worker, medium educated professional worker, office and customer service worker, service/sales/security worker, agricultural worker, production worker, operator/installation worker, or military worker and takes values of otherwise; KNOWi is a set of dummy variables for the knowledge about different laws that the enterprises owners have mastered, which takes values of if the owner has knowledge about either Companies Law, Labor Code, Customs Law, Insurance Law, Tax Law, Environmental Law, Land Law, or Investment Law and takes values of otherwise; Xit is a set of variables of other characteristics of the enterprises and the owners including owner’s age, owner’s gender, owner’s ethnicity; three dummy variables concerning the owner’s socical background (war veteran or cadre), number of adults in owner’s household, enterprise’s operation years; a dummy variable for enterprise’s business sector, which takes value of if manufacturing and otherwise; and two dummy variables for the infrastructure of the enterprise’s location, which take values of if the enterprise has good access to either road or port and otherwise; PROVi is a set of dummy variables that takes values of if the enterprises are located in either Hà Nội, Phú Thọ, Hà Tây, Hải Phòng, Nghệ An, Quảng Nam, Khánh Hòa, Lâm đồng, HCMC and takes values of if in Long An Tables to present the first stage regressions The same set of explanatory variables consists of five groups: (1) variables indicating human capital possessed by enterprise owners including dummies for general education of the owners, dummies for professional education of the owners, dummies for previous occupation of the owners, owner’s knowledge about different laws; (2) variables indicating other characteristics of the owners and their households such as age, gender, ethnicity, number of adults in the households; (3) variables indicating characteristics of the enterprises including operation years and business sector; (4) dummy variables indicating infrastructure conditions including access to road and port; and (5) nine dummy variables for provinces where the enterprises are located and two year dummy variables We use OLS estimations in Tables and and Logit estimations in Tables and Table shows that general education of the owner is important to his innovation in production management, especially for the development of new products The positive and significant coefficients of professional education variables in this table suggest that professional education of the owners contributes greatly to innovations in management including application of power machines, development of new products, and application of new production process In addition, knowledge about different types of laws in this table also has positive and significant effects on innovations in the SMEs These findings support our Hypothesis h1a about the role of human capital in innovations in the SMEs in Vietnam Moreover, the coefficients of the infrastructure variables are generally positive and highly significant in Table 4, suggesting that good infrastructure facilitates innovations of the SMEs in Vietnam It is interesting that the variables we are interested in generally have the same signs and significance in other regressions in Tables 5, 6, and The structural similarity of the regressions in Tables to may suggest that human capital and social capital are important determinants of the enterprise innovations and performance We, however, would like to directly estimate the effects of social capital and innovations by including two groups of endogenous variables, which are social capital and various kinds of innovations, and applying Fixed Effects models in the regressions of enterprise performance Table shows that the owners who completed university or post-graduate study and those who have knowledge of Companies Law perform better than others In addition, social capital measured by the number of contacts Economic Development Review - June 2011 43 RESEARCHES & DISCUSSIONS with people in the same industry and with people in other industries contributes to greater operation size measured by both value added and gross profit of the enterprises Being a member of an association is, however, not important to performance of the enterprises as the coefficients of the association dummy are positive but not statistically significant in all three regressions in this table It is reasonable and consistent with other studies about the inefficiency of the associations in Vietnam These findings about the role of human and social capital support our Hypotheses h1a, h1b, h2a, and h2b Moreover, the variables indicating innovations in the enterprises are generally positive and significant This finding suggests that innovations in the enterprises are important to their better performance Table 4: Determinants of production management of SMEs in Vietnam Using power machines (=1 if yes; =0 if no) New product (=1 if yes; =0 if no) New production process (=1 if yes; =0 if no) General education (Yes=1; No education=0) Not finished primary 0.55 (1.32) 13.87*** (20.92) 0.04 (0.10) Finished primary 0.53 (1.35) 13.60*** (24.07) 0.25 (0.62) Finished junior secondary 0.53 (1.39) 13.55*** (22.57) 0.18 (0.45) Finished senior secondary 0.75* (1.92) 13.48*** (22.04) 0.23 (0.56) 0.42*** (4.06) 0.27*** (2.69) 0.43*** (5.85) 0.36 (1.39) 0.48** (2.01) 0.30** (1.99) Technical worker with certificate 0.30** (2.00) 0.25* (1.80) 0.12 (1.21) College/university/post-graduate 0.11 (0.90) 0.27* (1.90) 0.19** (2.17) 0.05 (0.30) 0.02 (0.15) 0.23** (1.90) Highly educated professional worker -0.09 (-0.46) 0.18 (1.03) 0.31** (2.45) Medium educated professional worker -0.20 (-1.04) -0.12 (-0.60) 0.05 (0.33) -0.32* (-1.88) -0.16 (-0.82) -0.06 (-0.52) Professional education (Yes=1; Unskilled=0) Elementary worker Technical worker without certificate Previous occupation (Yes=1; Unskilled worker =0) Manager Office and customer service worker Service, sales, and security worker 0.07 (0.28) -0.22 (-1.02) 0.47*** (2.83) Agricultural worker -0.70*** (-4.45) -0.40** (-2.02) -0.35*** (-2.70) Production worker -0.11 (-0.92) 0.04 (0.30) 0.20** (2.38) Operator and installation worker -0.13 (-0.73) -0.04 (-0.24) 0.08 (0.72) Military worker -0.30 (-1.53) -0.19 (-0.47) 0.01 (-0.04) Companies Law 0.03 (0.50) 0.19*** (3.09) 0.20*** (4.68) Labor Code 0.05 (0.77) -0.03 (-0.44) 0.01 (0.26) -0.27*** (-3.27) 0.04 (0.67) 0.07 (1.30) Insurance Law 0.18** (2.10) -0.08 (-1.22) 0.05 (0.93) Tax Law 0.16** (2.52) 0.19*** (3.00) 0.13*** (2.88) 0.10 (1.32) -0.06 (-0.96) -0.02 (-0.33) -0.10 (-1.49) 0.02 (0.35) -0.04 (-0.94) 0.06 (0.76) 0.11* (1.84) 0.01 (0.14) 0.01 (-1.14) -0.02*** (-4.07) -0.02*** (-6.25) 0.33*** (4.04) 0.35*** (4.01) 0.19*** (3.03) Knowledge about laws (Yes=1; No=0) Customs Law Environmental Law Land Law Investment Law Age of the owner Gender of the owner 44 Economic Development Review - June 2011 RESEARCHES & DISCUSSIONS Owner is a war veteran (Yes=1; No=0) Owner used to be a cadre (Y=1;N=0) -0.19 (-1.39) 0.14 (0.92) 0.20* (1.84) -0.31** (-1.97) 0.18 (1.11) 0.09 (0.70) -0.26 (-1.48) 0.11 (0.67) 0.22* (1.84) Owner ethnicity (Kinh=1; Others=0) No of adults (15-60) in owner's household Operation years of enterprise 0.01 (0.45) -0.04* (-1.69) -0.01 (-0.07) -0.01*** (-3.53) 0.01 (0.07) -0.01 (-4.08) -0.10 (-0.96) 0.44*** (2.82) 0.88*** (12.26) 0.47*** (5.08) 0.35*** (3.35) 0.47*** (6.64) (0.50) 0.31*** (3.12) 0.32*** (4.72) Enterprise sector (Manufacturing=1; Others=0) Infrastructure (Yes=1; No=0) Main road leading to enterprise Easy access to port 0.05 Nine province dummies Yes Yes Yes Two year dummies Yes Yes Yes Constant 0.89* (1.80) -14.38 (-2.08) -1.45*** (0.25) 0.13 R-squared 0.07 0.29 No of observations 7183 7183 (-3.08) 7183 Numbers in parentheses are t-statistics based on heteroskedasticity-robust standard errors *, **, and *** indicate the significance level at 10%, 5%, and 1%, respectively Table 5: Determinants of advertisement and formality of SMEs in Vietnam Registration Advertisement General education (Yes=1; No education=0) Not finished primary -0.42 (-1.07) -1.00 (-0.97) Finished primary -0.43 (-1.15) -0.15 (-0.17) Finished junior secondary -0.43 (-1.19) 0.02 (0.02) Finished senior secondary -0.10 (-0.25) 0.45 (0.52) Professional education (Yes=1; Unskilled=0) Elementary worker -0.09 (-0.97) 0.46*** (2.74) Technical worker without certificate 1.06*** (4.40) 1.27** (5.90) Technical worker with certificate 0.70*** (5.21) 0.88*** (5.25) College/university/post-graduate 1.07*** (4.40) 0.72*** (4.35) 0.41** (2.40) 0.04 (0.21) 0.60*** (3.03) -0.08 (-0.49) Medium educated professional worker -0.21 (-1.23) -0.21 (-1.10) Office and customer service worker 0.055 (0.72) -0.06 (-0.34) Service, sales, and security worker 0.02 (0.11) -0.80** (-2.08) Agricultural worker -0.21 (-0.96) -0.42 (-1.22) Production worker 0.15 (1.41) -0.32** (-1.98) -0.04 (-0.25) -0.18 (-0.85) 0.04 (0.20) 0.18 (0.62) 0.66*** (11.32) 0.41*** (5.44) Previous occupation (Yes=1; Unskilled worker=0) Manager Highly educated professional worker Operator and installation worker Military worker Knowledge about laws (Yes=1; No=0) Companies Law Economic Development Review - June 2011 45 RESEARCHES & DISCUSSIONS Labor Code 0.01 (0.08) 0.19** (2.33) Customs Law -0.09 (-1.22) 0.14** (2.17) Insurance Law 0.09 (1.22) 0.15** (2.18) 0.42*** (7.04) 0.01 (0.03) Tax Law Environmental Law Land Law Investment Law 0.09 (1.40) -0.08 (-1.20) -0.38*** (-6.35) -0.08 (-1.10) 0.20*** (2.91) 0.01 (0.23) 0.01 (0.73) 0.01 (0.51) -0.13 (-1.61) 0.02 (0.20) Age of the owner Gender of the owner Owner is a war veteran (Yes=1; No=0) 0.06 (0.39) -0.08 (-0.41) -0.32** (-2.01) -0.20 (-0.93) -0.24 (-1.42) -0.10 (-0.50) 0.06** (2.36) -0.01 (-0.29) -0.01*** (-3.11) -0.01*** (-2.17) 0.35*** (3.92) -0.04 (-0.29) 1.22*** (14.72) 0.67*** (5.43) Easy access to port 0.1 (1.20) 0.28** (2.11) Nine province dummies Yes Yes Two year dummies Yes Yes Owner used to be a cadre (Y=1;N=0) Owner ethnicity (Kinh=1; Others=0) No of adults (15-60) in owner's household Operation years of enterprise Enterprise sector (Manufacturing=1; Others=0) Infrastructure (Yes=1; No=0) Main road leading to enterprise Constant -3.75 (-8.03) -3.75 R-squared 0.45 0.22 No of observations 7183 7183 (-4.03) Numbers in parentheses are t-statistics based on heteroskedasticity-robust standard errors *, **, and *** indicate the significance level at 10%, 5%, and 1%, respectively Table 6: Determinants of social capital Contacts with the same business Contacts with other businesses Member of association General education (Yes=1; No education=0) Not finished primary Finished primary 0.04 (0.29) 0.23 (1.15) -0.04 (-0.92) -0.06 (-0.42) 0.23 (1.20) -0.04 (-1.02) Finished junior secondary 0.07 (0.54) 0.25 (1.32) -0.04 (-0.88) Finished senior secondary 0.13 (0.97) 0.28 (1.51) -0.03 (-0.72) 0.08** (2.31) -0.01 (-0.32) 0.01 (0.98) 0.15** (2.28) 0.17** (2.35) 0.04* (1.72) Technical worker with certificate 0.09** (2.02) 0.06 (1.29) 0.04*** (2.89) College/university/post-graduate 0.06 (1.56) 0.10** (2.47) 0.04*** (3.26) (-0.12) 0.18*** (3.30) 0.01 (0.07) Professional education (Yes=1; Unskilled=0) Elementary worker cate Technical worker without certifi- Previous occupation (Yes=1; Unskilled worker=0) Manager 46 -0.01 Economic Development Review - June 2011 RESEARCHES & DISCUSSIONS Highly educated professional 0.03 (0.47) 0.03 (0.48) 0.01 (-0.02) -0.13** (-2.34) -0.09 (-1.41) 0.01 (0.10) -0.03 (-0.54) -0.06 (-1.05) -0.03* (-1.81) -0.10 (-1.26) 0.19** (2.31) -0.01 (-0.62) Agricultural worker -0.20*** (-3.40) 0.31*** (4.87) -0.03** (-2.12) Production worker -0.08** (-2.03) 0.02 (0.44) 0.01 (0.88) -0.09 (-1.60) -0.13** (-2.20) -0.03*** (-2.59) 0.02 (0.30) -0.22*** (-2.67) 0.02 (0.75) Companies Law 0.04** (2.18) 0.02 (0.88) 0.02*** (2.87) Labor Code 0.05** (2.15) 0.01 (0.40) 0.03*** (4.01) 0.04 (1.56) -0.08*** (-3.16) 0.01 (1.31) 0.06*** (2.61) 0.01 (-0.05) 0.03*** (3.91) Tax Law -0.03 (-1.37) 0.05** (2.13) 0.01 (-0.7) Environmental Law -0.01 (-0.55) -0.02 (-1.09) 0.01 (0.51) 0.02 (0.84) -0.08*** (-3.77) -0.01* (-1.68) -0.01 (-0.21) 0.13*** (5.52) 0.02*** (3.04) Age of the owner 0.01 (-0.86) 0.01 (0.18) 0.01*** (3.97) Gender of the owner 0.04 (1.55) 0.01 (0.04) -0.01 (-1.03) -0.02 (-0.50) -0.10* (-1.93) 0.02 (1.48) Owner used to be a cadre (Y=1;N=0) 0.01 (0.09) -0.05 (-0.87) 0.06*** (3.11) Owner ethnicity (Kinh=1; Others=0) 0.01 (0.21) -0.14** (-2.48) 0.01 (-0.06) 0.02** (2.03) 0.02* (1.90) 0.01 (0.92) Operation years of enterprise 0.01*** (4.00) -0.01*** (-3.69) 0.01*** (3.47) Enterprise sector (Manufacturing=1; Others=0) 0.03 (0.95) -0.21*** (-6.08) 0.03*** (3.00) 0.19 (6.60) 0.24*** (6.94) 0.03*** (2.95) Easy access to port -0.05 (-1.48) 0.14*** (4.31) -0.01 (-0.30) Nine province dummies Yes Yes Yes Two year dummies Yes Yes Yes Constant 2.20 R-squared 0.22 0.18 0.12 No of observations 7183 7183 7183 worker worker worker worker Medium educated professional Office and customer service Service, sales, and security Operator and installation worker Military worker Knowledge about laws (Yes=1; No=0) Customs Law Insurance Law Land Law Investment Law Owner is a war veteran (Yes=1; No=0) No of adults (15-60) in owner's household Infrastructure (Yes=1; No=0) Main road leading to enterprise (12.95) 2.31*** (10.51) -0.22*** (-4.29) Numbers in parentheses are t-statistics based on heteroskedasticity-robust standard errors *, **, and *** indicate the significance level at 10%, 5%, and 1%, respectively Economic Development Review - June 2011 47 RESEARCHES & DISCUSSIONS Table 7: Determinants of performance of SMEs in Vietnam log(value added) log(gross profit) log(VA per employee) General education (Yes=1; No education=0) Not finished primary 0.01 (0.08) 0.05 (0.34) -0.05 (-0.47) Finished primary 0.15 (0.92) 0.21 (1.41) 0.06 (0.58) Finished junior secondary 0.19 (1.12) 0.23 (1.56) 0.11 (1.06) Finished senior secondary 0.46*** (2.77) 0.48*** (3.23) 0.22** (2.11) Professional education (Yes=1; Unskilled=0) Elementary worker 0.07* (1.91) 0.02 (0.64) 0.05** (2.15) Technical worker without certificate 0.54*** (6.22) 0.53*** (6.02) 0.11* (1.67) Technical worker with certificate 0.43*** (8.67) 0.39*** (7.49) 0.09*** (2.74) College/university/post-graduate 0.21*** (4.93) 0.11*** (2.72) 0.05* (1.93) Previous occupation (Yes=1; Unskilled worker=0) Manager 0.08 (1.35) 0.06 (0.90) 0.06 (1.60) Highly educated professional worker 0.07 (0.97) 0.04 (0.53) 0.02 (0.42) Medium educated professional worker -0.09 (-1.47) -0.14** (-2.16 -0.01 (-0.15) Office and customer service worker -0.04 (-0.59) -0.01 (-0.15) 0.04 (1.01) Service, sales, and security worker -0.11 (-1.25) -0.06 (-0.75) 0.07 (1.50) Agricultural worker -0.09 (-1.50) -0.03 (-0.47) 0.02 (0.39) Production worker -0.05 (-1.10) -0.04 (-0.93) 0.02 (0.87) -0.15*** (-2.68) -0.11* (-1.88) 0.01 (0.25) 0.08 (1.11) 0.11 (1.52) 0.12** (2.29) Companies Law 0.29*** (13.52) 0.25*** (11.45) 0.08*** (5.70) Labor Code 0.14*** (5.83) 0.10*** (4.24) 0.02 (1.59) Customs Law 0.13*** (4.37) 0.15*** (5.05) 0.01 (0.12) Insurance Law 0.11*** (4.07) 0.08*** (2.98) -0.01 (-0.13) Tax Law 0.08*** (3.75) 0.06*** (2.79) 0.05*** (3.26) -0.02 (-0.71) -0.02 (-0.91) -0.02 (-1.58) -0.11*** (-5.08) -0.10*** (-4.61) -0.03** (-2.03) 0.10*** (3.79 0.11*** (4.18) 0.05*** (3.04) Age of the owner -0.01** (-2.11) -0.01 (-1.22) -0.01*** (-5.27) Gender of the owner 0.10*** (2.88) 0.07** (2.22) 0.04** (2.13) Owner is a war veteran (Yes=1; No=0) -0.12** (-2.30) -0.12** (-2.33) -0.09*** (-3.10) -0.03 (-0.41) -0.05 (-0.90) -0.01 (-0.22) -0.15*** (-2.90) -0.22*** (-4.05) -0.14*** (-4.06) Operator and installation worker Military worker Knowledge about laws (Yes=1; No=0) Environmental Law Land Law Investment Law Owner used to be a cadre (Y=1;N=0) Owner ethnicity (Kinh=1; Others=0) No of adults (15-60) in owner's household 0.04*** (3.99) 0.05*** (5.32) -0.01 (-0.20) Operation years of enterprise -0.01*** (-6.96) -0.01*** (-6.35) -0.01*** (-6.78) Enterprise sector (Manufacturing=1; Others=0) 0.18*** (5.35) 0.05 (1.33) 0.05** (2.08) 0.61*** (17.36) 0.54*** (15.54) 0.19*** (8.36) Infrastructure (Yes=1; No=0) Main road leading to enterprise 48 Economic Development Review - June 2011 RESEARCHES & DISCUSSIONS Easy access to port 0.06* (1.73) 0.02 (0.58) -0.01 Nine province dummies Yes Yes Yes Two year dummies Yes Yes Yes Constant 2.72*** R-squared No of observations (13.78) 2.50*** (13.73) 2.62*** 0.54 0.47 0.34 7183 7183 7183 (-0.59) (22.15) Numbers in parentheses are t-statistics based on heteroskedasticity-robust standard errors *, **, and *** indicate the significance level at 10%, 5%, and 1%, respectively Table 8: Determinants of performance of SMEs in Vietnam (Fixed effects) ln (value added) General education (Yes=1; No education=0) Not finished primary Finished primary Finished junior secondary Finished senior secondary Professional education (Yes=1; Unskilled=0) Elementary worker Technical worker without certificate Technical worker with certificate College/university/post-graduate Previous occupation (Yes=1; Unskilled worker=0) Manager Highly educated professional worker Medium educated professional worker Office and customer service worker Service, sales, and security worker Agricultural worker Production worker Operator and installation worker Military worker Knowledge about laws (Yes=1; No=0) Companies Law Labor Code Customs Law Insurance Law Tax Law Environmental Law Land Law Investment Law Social capital Contacts with same industry Contacts with other industries Member of an association Business strategy dummies Using power machines Developing new products New production process ln (gross profit) ln (added value per worker) -0.01 0.10 0.10 0.13 (-0.10) (0.64) (0.65) (0.86) 0.02 0.20 0.18 0.22 (0.10) (1.07) (0.99) (1.20) -0.12 -0.03 -0.05 -0.03 (-0.83) (-0.22) (-0.33) (-0.22) 0.01 0.17** 0.01 -0.01 (0.37) (2.55) (0.28) (-0.38) 0.02 0.20 0.20 0.22 (0.10) (1.07) (0.99) (1.20) 0.03 0.13 0.03 0.01 (1.18) (2.07) (0.74) (1.45) 0.03 0.01 0.04 0.04 0.10 0.14*** 0.10*** 0.05 0.09 (0.67) (0.12) (0.80) (0.74) (1.44) (2.88) (2.77) (1.15) (1.36) 0.04 -0.03 -0.08 0.05 0.11 0.14** 0.11*** 0.05 0.14* (0.60) (-0.40) (-1.30) (0.90) (1.34) (2.21) (2.79) (0.93) (1.90) 0.02 -0.04 -0.03 0.04 0.11* 0.13*** 0.07** 0.01 0.12** (0.37) (-0.74) (-0.79) (1.02) (1.93) (2.64) (2.28) (0.11) (1.94) 0.07*** 0.02 0.01 0.01 -0.01 -0.01 -0.02 0.01 (3.70) (0.97) (0.56) (0.34) (0.31) (-0.78) (-0.88) (0.54) 0.07*** 0.02 0.06 -0.02 0.01 -0.02 -0.02 0.03 (2.80) (0.67) (1.63) (-0.56) (-0.02) (-0.96) (-0.80) (1.00) 0.02 0.01 0.01 0.01 0.01 -0.02 -0.03* 0.03 (1.43) (0.67) (0.80) (0.18) (0.41) (-1.07) (-1.74) (1.51) 0.04*** 0.01 0.03 (3.61) (1.26) (0.46) 0.05*** 0.03** -0.01 (3.97) (2.09) (-0.12) 0.01 0.01 0.01 (1.44) (0.12) (0.05) 0.11*** 0.01 0.08** (2.57) (0.36) (2.46) 0.10* -0.04 0.09** (1.92) (-0.80) (2.26) 0.05 -0.02 0.02 (1.24) (-0.65) (1.34) Economic Development Review - June 2011 49 RESEARCHES & DISCUSSIONS Using advertisement Having registered Age of the owner Gender of the owner Owner is a war veteran (Yes=1; No=0) Owner used to be a cadre (Y=1;N=0) Owner ethnicity (Kinh=1; Others=0) No of adults (15-60) in owner's household Operation years of enterprise Enterprise sector (Manufacturing=1; Others=0) Infrastructure (Yes=1; No=0) Main road leading to enterprise Easy access to port Nine province dummies Two year dummies Constant No of observations 0.11** 0.12*** 0.01 0.08* -0.08* 0.10* -0.09 0.02 0.01*** 0.02 (2.28) (3.78) (0.12) (1.79) (-1.72) (1.71) (-0.36) (0.99) (-2.64) (0.67) 0.12** 0.14*** 0.01 0.08* -0.09 0.08 -0.09 0.02 0.01*** 0.03 (2.07) (3.78) (0.21) (1.69) (-1.49) (1.13) (-0.99) (1.48) (-2.68) (0.71) 0.06* 0.06** 0.01 0.02 -0.06 0.10* -0.06 -0.01 0.01** 0.01 (1.65) (2.50) (0.25) (0.68) (-1.54) (1.77) (-0.81) (-1.24) (-2.04) (-0.21) -0.01 0.01 Yes Yes 3.99 7183 (-0.13) (0.57) -0.01 -0.02 Yes Yes 3.34 7183 (-0.15) (-0.76) 0.04 -0.04* Yes Yes 2.78 7183 (1.46) (-1.67) (19.74) (13.36) (14.67) Numbers in parentheses are t-statistics based on heteroskedasticity-robust standard errors *, **, and *** indicate the significance level at 10%, 5%, and 1%, respectively Conclusions Findings about the roles of human and social capital in innovations and performance of enterprises are, by no means new ideas However, discovering such roles in the SMEs in Vietnam are new and interesting for policy makers This study reveals that basic education, i.e below senior secondary school, may no longer be a decisive factor to develop SMEs It is technical education and college/university education that equips the owners of SMEs with the capacity to carry out multifaceted innovations and develop their enterprises Therefore, investment should focus on higher education for the owners of SMEs Also, it is interesting to note that knowledge of Companies Law is important for the development of SMEs in Vietnam, while knowledge about other laws are generally not statistically significant This finding suggests that more efforts should be made to train the owners in the Companies Law and familiarize them with other relevant laws and regulations In addition, the insignificant effects of associations on performance of the enterprises suggest that these organizations should be improved to make them more efficient Finally, the positive and statistically significant effects of infrastructure on innovations and performance of the enterprises 50 Economic Development Review - June 2011 suggests that providing basic infrastructure such as easy access to roads and ports is a good policy to help SMEs in Vietnamn References Akoten, J., Y Sawada & K Otsuka (2006), “The Determinants of Credit Access and Its Impacts on Micro and Small Enterprises: The Case of Garment Producers in Kenya”, Economic Development and Cultural Change, University of Chicago Press, vol 54(4), pp 927-44, July Arrow, K (1962), “The Economics Implications of Learning-by-Doing”, Review of Economics Studies, Vol 29 (1), pp 155-173 Aurora, T (2002), “On the Link Between Human Capital and Firm Performance: A Theoretical and Empirical 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(1992), “A Tale of Two Cities: Factor Accumulation and Technical Change in Hong-Kong and Singapore”, NBER Macroeconomics Annual 1992, Vol 7, National Bureau of Economic Research, Inc pp 13-64 ceedings of the 25th International Conference of Agricultural Economists (IAAE) Durban, South Africa 12 Nelson, R & E Phelps (1966), “Investment in Humans, Technological Diffusion, and Economic Growth”, American Economic Review, Vol LVI, no 2, pp 69-75 13 Putnam, R D (1995), “Bowling Alone: America's Declining Social Capital”, Journal of Democracy, Volume 6, Number 1, January 1995, pp 65-78 Economic Development Review - June 2011 51 ... development and empirical results of the analysis of SMEs in Vietnam; and (ii) Section that offers a conclusion Determinants of SME development: human capital and social capital a The roles of human and. .. and social capital in the development of SMEs: There are a range of determinants of SMEs development To the extent of this study, the focus will be on human and social capital Human capital, of. .. the roles of human and social capital in innovations and performance of enterprises are, by no means new ideas However, discovering such roles in the SMEs in Vietnam are new and interesting for