Small and Medium Enterprises (SMEs) of Vietnam play an important role in the countrys industrialization and modernization. There is a plenty of reasons why small and medium business should go international, for example bigger markets leading to bigger profits, cheaper supplies leading to more effective production process. The purpose of this study is to point out obstacles faced by SMEs in international activities and recommend strategy changes to answer the question: “How can SMEs in Vietnam achieve effectiveness when engaging in internationalization?”
ĐẠI HỌC QUỐC GIA HÀ NỘI KHOA QUẢN TRỊ VÀ KINH DOANH - ĐINH NGUYỄN BÍCH LÊ CHALLENGES IN INTERNATIONALISATION FOR VIETNAM SME NHỮNG THÁCH THỨC TRONG QUÁ TRÌNH QUỐC TẾ HÓA ĐỐI VỚI CÁC DOANH NGHIỆP VỪA VÀ NHỎ Ở VIỆT NAM LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH HÀ NỘI - 2020 ĐẠI HỌC QUỐC GIA HÀ NỘI KHOA QUẢN TRỊ VÀ KINH DOANH - ĐINH NGUYỄN BÍCH LÊ CHALLENGES IN INTERNATIONALISATION FOR VIETNAM SME NHỮNG THÁCH THỨC TRONG Q TRÌNH QUỐC TẾ HĨA ĐỐI VỚI CÁC DOANH NGHIỆP VỪA VÀ NHỎ Ở VIỆT NAM Chuyên ngành: Quản trị kinh doanh Mã số: 8340101.01 LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH NGƯỜI HƯỚNG DẪN KHOA HỌC: PGS.TS HỒNG ĐÌNH PHI HÀ NỘI - 2020 DECLARATION The author confirms that the research outcome in the thesis is the result of author‟s independent work during study and research period and it is not yet published in other‟s research and article The other‟s research result and documentation (extraction, table, figure, formula, and other document) used in the thesis are cited properly and the permission (if required) is given The author is responsible in front of the Thesis Assessment Committee, Hanoi School of Business and Management, and the laws for above-mentioned declaration Date………………………… i ACKNOWLEDGEMENT This research is dedicated to all people who are directly or indirectly supporting me to successfully complete this work I would like to take this opportunity to extend my sincere thanks to Vietnam National University, Hanoi/Hanoi school of business and management (“HSB”) for their perfect and successful organization of this post graduate course My great thank also convey to the professors and all administrative staff of HSB for their valuable lectures and generous support during the course I am grateful to Assoc Prof - PhD Hoang Dinh Phi for his valuable guidance from the beginning to the end of this work Finally, I am especially thankful for the love, encouragement, support and patience of my partner throughout the research and writing process Hanoi, Date………………………… ii TABLE OF CONTENT DECLARATION i ACKNOWLEDGEMENT ii ABBREVIATIONS AND ACRONYMS v LIST OF TABLES vi LIST OF FIGURE viii CHAPTER 1: INTRODUCTION 1 Background and Problem Statement Objectives of the Study Scope of the Study .2 Thesis Structure CHAPTER 2: LITERATURE REVIEW Conceptual Definitions of Internationalization Internationalization and Competitiveness Internationalization and Resource-based View to Create Competitiveness The Role of Government in the Internationalization of SMEs Government – Business Relations Models 10 5.1 Basic models of government-business relationship 11 5.2 Partnership Model of Organizing the Relationship between the Government and Business 12 Summary 14 CHAPTER 3: RESEARCH METHODOLOGY .15 Research Approach 15 1.1 Induction or Deduction .15 1.2 Qualitative and quantitative method 15 Research Strategy 16 Literature Research 17 Data Gathering 17 4.1 Primary data of the research .17 4.2 Secondary sources of data 18 iii CHAPTER 4: FINDINGS AND DISCUSSION 19 Data Collection Description 19 Sample Description 20 Internationalization Process 21 3.1 Export activities 22 3.2 Export and Import organization 24 3.3 Partnerships 25 3.4 Partnership content 28 Export Information and Assistance 29 4.1 Utility provision 32 4.2 Transportation facilities .33 4.3 Export promotion network support 34 Policy and Institutional Environment 36 5.1 Inspection visits received by firms 38 Key Factors in Internationalization 39 6.1 Impact of Ownership (SOEs and Private SMEs on all other factors) 39 6.2 Impact of Industry on all other factors .42 6.3 Factors impact on export shares 45 6.4 Factors impact on International competitiveness .48 6.5 Impact of key factors on effectiveness after international cooperation 50 Summary 52 CHAPTER 4: CONCLUSION AND RECOMMENDATIONS 54 Reforming the credit system and developing the capital market 54 Reforming the trade policies to assist export activities by SMEs .56 Reforming further the customs procedures 58 Recommendations on technology policies 60 Recommendations on the operation of the organizations supporting SMEs .60 6./ LIMITATIONS 62 Appendix I 63 Appendix II 66 iv ABBREVIATIONS AND ACRONYMS CIEM Central Institute for Economic Management MPDF Mekong Project Development Facility ASEAN Association of Southeast Asian Nations AFTA Asian Free Trade Association WTO World Trade Organization ADB Asian Development Bank UNDP United Nation Development Programme VCCI Vietnam Chamber of Commerce and Industry UNCTAD United Nation Conference on Trade and Development LESAFO Leather and Footwear Association VITAS Vietnam Textile and Apparel Association VASEP Vietnam Association of Seafood Exporters and Producers VIETTRADE/MOT Ministry of Trade EU European Union VINAFRUIT Vietnam Fruit Association FDI Foreign Direct Investment SOE State-owned Enterprise SME Small and Medium Enterprise PSME Private Small and Medium Enterprise BOT Building, Operating and Transferring VND Vietnam Dong US$ United States of Dollars v LIST OF TABLES Table 2.1: Roles and Models of Government in an Economy 11 Table 3.1: Relevant situations for different research strategies 16 Table 4.1: Register capital and economic sector .20 Table 4.2: Distribution on industry 21 Table 4.3: Export motives of the SMEs 22 Table 4.4: Export share 23 Table 4.5 25 Table 4.6: Export channel 27 Table 4.7: Support from partners 28 Table 4.8: 28 Table 4.9: 29 Table 4.12: 30 Table 4.13: Reasons for not using E-Commerce 31 Table 4.14 32 Table 4.15: Difficulties in transportation 33 Table 4.16 34 Table 4.17 35 Table 4.18 36 Table 4.19 37 Table 4.20 38 Table 4.21 39 Table 4.22 42 Table 4.23 42 Table 4.24 44 Table 4.25 45 Table 4.26: Correlation between export shares and other key factors (regression) 45 Table 4.27: Correlation between International competitiveness and other key factors (Regression) 48 vi Table 4.28: Correlation between effectiveness after international cooperation and other key factors (Regression) 50 Table 4.29 52 Table 4.30 53 vii LIST OF FIGURE Figure 2.1 Figure 4.1 24 Figure 4.2 26 Figure 4.3: Application of E-Commerce 29 viii essential and critical step This reform process needs to focus on the following aspects: The Government should abolish the ceilings on interest rates and leave it for banks at their discretion to define in accordance to the specific conditions in markets; Banks by themselves must be responsible for their business activities Therefore, they can suggest the regulations on securing properly deposits and loans The rights of the credit institutions on the ownership or sale of the mortgaged and pledged assets; The country-wide registration system for managing the mortgage, pledge, lease of assets and other financial instruments should be established to avoid abuse and fraud behaviors in the credit transactions; The foreign banks are allowed to expand their business scope in Vietnam; and The banking supervision must be intensified with the help of a banking association so that unnecessary risks hidden in each bank are reduced as much as possible The Government needs to its best to assist SMEs to overcome the difficulties in accessing to the capital resources by establishing the financial supporting funds that can be allocated from the state budget or mobilized from other sources These funds can be used for different purposes, such as: for lending, for supporting the interest payment or for guaranteeing The revolving credit can be applied on a pilot basis, and then expanded broadly The creation of venture capitals needs to be brought into study and then applied in Vietnam to support those investors who have the new business ideas, but fell short on capital 55 Reforming the trade policies to assist export activities by SMEs Reforming the trade policies Despite the basic reforms in the trade policies, it is necessary to have the further reforms to meet the new requirements of the economic integration process in the coming years The reform measures should focus on the following points: The list of banned or conditionally tradable items should be shortened further The trade conditions used to control the tradable items should be determined clearly and specifically to prevent the discriminations in granting the export or import permits in favor of SOEs and against nonstate enterprises; As an economy dominated by the agricultural production with more than 70% rural population, Vietnam should not subsidize the export of agricultural products as the developed countries do; The food security policy needs to be reconsidered to propose the measures for liberalizing rice exports; The tariff measures should replace quotas (in case of automobiles) and the existing regime that is used “to balance some major goods” (in the case of steel, cement, etc.); The “trade intermediary” mechanism used for some goods should be eliminated to facilitate the initiatives of SMEs in the export and import activities The “trade intermediaries“, if otherwise, can be carried out through a Trade Association with the volunteer participants; and Decisive measures need to be applied to approach gradually to a complete system of export and import auction (for garments and automobiles) Reforming the foreign exchange control 56 The foreign exchange control is one of the reasons causing difficulties to enterprises in the export and import activities The regulations require enterprises to sell a large part of their foreign exchange to banks to control strictly the foreign exchange in Vietnam have put many enterprises into the difficult business conditions Thus, in the coming years, the State Bank should reform the regime of the foreign exchange control to better meet the demand on the foreign exchange of enterprises Establishing the information system to support the export activities The market information is one of the important factors that help to facilitate exports Until now, information centers have not yet been established to facilitate the export activities of enterprise Access to the information about the foreign markets and the regulatory system of the foreign country is very difficult for SMEs Trade promotion agencies of Vietnam in the foreign countries are still weak in providing the information about the markets and the trade policies in these countries Supporting enterprises in the access to international markets Supporting measures are necessary for accessing to international markets by enterprises because these measures actively help enterprises to seek for and to expand the markets for their products Without the support of the Government, SMEs are very difficult to have the chance to participate in the international trade fairs and exhibitions Until now, under some projects, the Government has already financed partially in order for enterprises to participate in the international trade fairs and exhibitions However, the supporting measures need to be expanded in both the scope and the mode of support For example, if enterprises can sign the contracts for new products or markets, the Government should provide additional financial assistance by deducting a part of the income tax of enterprises proportionately to the total expenses on the international trade fairs and exhibitions 57 Supporting SMEs to access to E-commerce/BIG data E-commerce/BIG data is one of the modern trading instruments that gradually break both the spatial and timing concepts in the international trade By accessing to E-commerce/BIG data, the enterprises in the remote and mountainous areas can directly investigate the international markets If so, they can overcome partially the difficulties in studying the size and the locations of the markets for their products In the coming years, the Government needs to support enterprises and the professional associations to access to E-commerce/BIG data and to open the Web pages for advertising their products At the same time, the Government should consider the appropriate tax policies to meet this trade regime so that the fair competition environment can be created for trading enterprises Reforming further the customs procedures Despite the big efforts in the last years, the customs procedures are still remained the challenging problems that were complained most frequently by enterprises Although the customs procedures were renovated basically, they need to be improved further as follows: The procedures on customs declaration should be simplified For example, the directors or vice-directors can authorize the customs officials under their competence to sign the customs forms The responsibility for the correctness of the statements therein is not necessarily born by enterprises; The penalty clauses need to be considered properly in the cases if importers or exporters randomly miscalculate the tax payments The miscalculation may be derived from the fact that the tax regulations are not specified clearly and are changed frequently and, as a consequence, the tax codes and tax calculation are not easily applied Even the tax officials can make mistakes, so the tax miscalculation by enterprises is 58 possibly not avoidable Many enterprises have been fined because of the random miscalculation of tax payments; The process of customs declaration, verification, and tax calculation should be shortened The customs declaration and tax calculation can be left for exporters or importers to by themselves, then customs officers can check the correctness of the statements therein, verify goods, and check the tax payments By doing so, the tax calculation process is repeated, taking enterprise a lot of time It is very formalistic if exporters or importers calculate the tax payments by themselves and the customs officers only check the correctness of the statements therein It is possible for customs officers to check and determine the tax payments after the verification of goods is done; Declaration form needs to be studied to apply for various items in the same cargo; Single declaration needs to be studied to apply for the multiple shipments of the same item to facilitate enterprises to import a large amount of goods for a relatively long period; and Verification of the actual volume of exported goods should be improved by shortening the time spent on it and by integrating the boundary passages in order for enterprises to clear soon the statements Besides the problems involving directly the customs offices, it is necessary to improve the customs procedures by the following measures: Amending the system of tax codes in accordance with the internationally harmonized system to prevent the arbitrariness in using the customs codes; Modernizing step by step the equipment in the customs offices and establishing the network to connect the customs offices with the tax agencies to facilitate the reimbursement of taxes to enterprises; and 59 Liberalizing trade, implementing the programs on the tariff reduction to restrict the pressure of smuggling on the economy as a whole and on the customs offices in particular Recommendations on technology policies The Government needs to renovate the investment-oriented policies by giving the first priority to the investment projects in technical and social infrastructure structures and reducing the investment in the projects of business purposes The research projects need to be aimed to the demand in the markets It is worth taking the pilot measures to finance a partial fund to the research projects on the new products that are competitive in domestic and international markets (but only after these products are introduced) It is necessary to improve the quality of training courses to better meet demand in labor markets Based on the pilot approach, the Government and enterprises can co-ordinate to improve training quality in the principle that training centers are responsible for theoretical background and enterprises are responsible for practical skills Fund for training purposes can be allocated from the Government budget, or contributed by enterprises and trainees The prices and the quality of the monopolized products (electricity and telecommunication) need to be controlled more strictly to facilitate cheap access to new technology and information by enterprises Recommendations on the operation of the organizations supporting SMEs To know the role of non-government organizations, the role of the Government in the economy should be defined first In the coming years, the Government should reduce its intervention to focus on the most important functions (such as education, national defense and security, etc.) The remaining functions should be left for non-government organizations to decide by themselves To so, the Government first needs to approve a legal 60 framework (for example, a Law) for establishing and maintaining the operation of non-government organizations The Government needs to encourage for enterprises and organizations to establish their associations or centers to assist each other on a volunteer principle The budget for the operation of these organizations or centers can be financed from the supporting funds for SMEs In the coming years, the Government should produce supporting measures so that these organizations or centers can provide the information about regulatory documents and policies By doing so, the Government at the same time can receive the feedbacks from enterprises, which are very important to improve the decision-making process Usually, the operation of non-government organizations is of non-profit purpose based on the principle of “expending within the contributed fund”, so the Government should allow them to enjoy the preferential treatments in tax, finance, etc The occupational villages tended to develop in the last years To keep this development tendency, the Government should promote the establishment of the occupational associations and construct some small industrial zones in these occupational villages At the same time, the Government should support research projects, provide technical and market information, and support a partial finance for the technology innovation and environment protection Effective promotion of SME activities in their internationalization process cannot be done in a piecemeal manner It requires Government support, through policy measure, tax regime and financial assistance in all relevant aspects at the same time Evidently, the aforementioned measures are somewhat interdependent, and each cannot be done in its singularity For a really thriving future of SME, a large-scale reform, which includes all 61 recommendations in this paper is needed The detail of such is out of scope of this paper and should be the focus of future SME research 6./ LIMITATIONS - Compare SMEs and SOEs (page 2), since these two groups of firms are not completely two different subjects to be able to perform comparative analysis, one SME can also be a state-owned enterprises - The article focuses on analyzing the export aspect instead of other relationships and variables 62 Appendix I SELECTED REFERENCES The Internationalizatio1 of Vietnamese SMEs, Ari Kokko & Fredrik Sjöholm (April 2004) SME Internationalization Strategies: Innovation to Conquer New Markets, Noemie Dominguez (2017) The New Asian Dragon: Internationalization of Firms in Vietnam, Henrik Schaumburg-Müller, Pham Hong Chuong (2009) SMEs in Asian Developing Countries, Tulus Tahi Hamonangan Tambunan (2009) The Process of Internationalization in Emerging SMEs and Emerging Economies, Hamid Etemad (2015) Small and medium sized enterprises in East Asia, Charles Harvie, BoonChye Lee (2008) Chính sách công nghiệp thương mại Việt Nam bối cảnh hội nhập, Kokusai Kyōryoku Jigyōdan, Trường đại học kinh tế quốc dân Hà Nội SME chiến lược thời kỳ hội nhập, Phan Đình Mạnh (3/2017) Mekong Project Development Facility (2015) Private Sector Discussions – The emerging private sector and the industrialization of Vietnam 10 Mekong Project Development Facility (2016) Private Sector Discussions – Business in Vietnam 11 Bacchatte, M.; Low, P.; Mattoo, A; Schuknecht, L; Wager, H.; & Wehrens, M (2008) Electronic commerce and the role of the WTO Geneva: World Trade Organization (Special studies 2) 12 Mallea, J (2017) Internationalization of higher education and the professions Paris: OECD 63 13 Riddle, D I (2009) Global consolidation of producer services and its relevance to service sector integration of Western And Eastern Europe CIBS Discussion Paper (Dalhousie University) 14 Business Associations and Promotion of Small and Medium Enterprises in Vietnam, SEPT Working papers No 7, 2011 Germany: University of Leipzig 15 Bentley, John “Current Problems with Transparency of Laws in Vietnam and Recommended Solutions” Government of Vietnam – UNDP Project VIE/99/001, Strengthening the Legal Capacity in Vietnam – phase II Manuscript, 22 December 2010 16 Aspect of Private Sector Development in Vietnam – Thomas Heberer and Arono Kohl, 2016 17 The Impact of Size on Internationalization, Journal of Small Business Management, October 2017, page 60-69 18 International Marketing Management, Cincinnati: South Western College Publishing (December 2016) 19 International Trade and Investment, USA: South-Western Publishing Co., (2014) 20 The Impact of Size, Industry, and Nation of Internationalization in Small and Medium enterprises Entrepreneurship and SME research – On its way to the next milleniuk, Aldershot: Ashgate Publishing Co 21 Economic Reform in Vietnam – Achievements and Prospects, Central Institute for Economic Management, December 2016 22 International Merchandise Trade in Vietnam in 2012, General Statistic Office - 2013 23 Enterprise Reform and Restructuring in transition Economies, the World Bank, Transition Economics Division, Policy Research Department, 2015 64 24 Country Framework Report on private Participation in Internationalization, the World Bank, May 2015 25 Research Report on Improving Macroeconomic Policy and Reforming Administrative Procedures to Promote Development of Small and Medium Enterprises in Vietnam, UNIDO – MPI project, January 2016 26 Economic Growth and Public Policy, Oxford University Press, 2015 27 International Market Entry and Development, Hemel Hempstead: Harvester Wheatsheaf, 2016 65 Appendix II QUESTIONNAIRE FOR SME SURVEY ON INTERNATIONALIZATION Dear Sir/Madam In recent years, small and medium enterprises (SMEs) have made great contributions to the development of the country However, those contributions are still far behind what they can really In order to accelerate the development of SMEs, increase their international competitive advantages especially in the export activities, we are conducting a research regarding the internationalization of SMEs You, therefore, are kindly requested to fill in information for the following questions Name of firm ………………………………………………………………………… Address ……………………………… …………………………….………………… COMPANY PROFILE 1.1 Present form of ownership State own enterprises “Limited company” Joint stock company –specify 1.2 Registered capital Less than VND1 billion From to less than VND5 billion From VND5 billion to VND10 billion 1.3 Number of permanent employees Less than 10 From 11 to 50 From 51 to 100 66 100 to 300 1.4 Main business activities of the company 1.5 How the company evaluate its competitiveness compared with others in the domestic market? Very high High Low Very low 1.6 Does the company have the export department? Yes No INTERNATIONALIZATION PROCESS 2.1.When did you get your first export order (year) ; 2.2 Which countries you export to? ; 2.3 How did you get the first export order? A foreign buyer came to our factory We participated in an exhibition in Vietnam or abroad During a sales trip abroad We were introduced to a foreign company by the Ministry , the Chamber of Commerce etc Any other way (please, describe) _ 2.4 What was your primary motivation for starting exports? Most important To increase profits Not at all To get access to foreign technology Because of export promotion by Due to low demand in Vietnam Due to stiff competition in Vietnam the Government 67 2.5 Country and Export channel which the company chooses to export products? Export Channel Countries Agent Direct Foreign Importers As sub-contractors to foreign firms Abroad representative offices EXPORT PROMOTION AND ASSISTANCE 3.1 What sources of information are the most used and useful for your company? Most important 3.2 Not at all E-Commerce Export promotion agencies Foreign Clients Foreign embassies in Vietnam Which of the following organizations and institutions have you had some export assistance from: VIETRADE (Ministry of Trade) Local export promotion centers in cities or provinces Vietnam‟s Chamber of Commerce and Industry (VCCI) Non-governmental business associations Other (Specify) _ 3.3 What kind of support you frequently get from foreign suppliers: Most frequently Capital/credit Never 4 Training and Technology Market Information 68 5 3.6 What are the main barriers for export in your company (max in order of importance) and How you propose to eliminate the barriers? Strongly agree Strongly disagree Excessive tariffs in your export target country Non-tariff barriers 2 3 4 5 Unfair competition in export destination Extremely low prices in export destination High demand for product quality in export destination 3.6 Does the firm use E-Commerce to facilitate its business operation? (tick if applicable) [[If yes] On average, how much does the company have to pay for using ECommerce Less than VND50 million VND From VND50 billion to VND100 million More than VND100 million [If No] Why? (tick if applicable) tly Your productive cooperation is highly appreciated Thank you very much 69 ... existing SMEs engaged in international strategic alliances; 17 Interviews of key institutions relating to SMEs promoting activities in Vietnam; and In- depth interviews with some SMEs to support the... promotion network exists in Vietnam; it does not present the most important information provider for PSMEs All SMEs look to customers as the main source of market information Within the export promotion... leading to a company's increasing involvement in cross-border or international operations Internationalization is an organic process, but, at any given point in time, a company‟s degree of Internationalization