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THAI NGUYEN UNIVERSITY SOUTHERN LUZON STATE UNIVERSITY Socialist Republic of Vietnam Republic of the Philippines BUSINESS EMVIRONMENT OF OUSEHOLDS IN THE RURAL AREAS OF VINH PHUC AND BAC NINH PROVINCE Name of Student : PHAM NGOC YEN English Name : NANCY Date of Birth : 09/07/1976 Course : SLSU-DBA1 ACKNOWLEDGMENT I would like to express my gratitude to the teachers of Post-Graduate Department of Southern Luzon State University - Philippines Thai Nguyen University and the teachers of International Traning Centern – College of Agriculture and Forestry - Thai Nguyên University, especially Dr.Nelly Mendoza, my dissertation advisor, for their generous encouragement and support to finish this work I am grateful to Statistic Department of Vinh Phuc province and Bac Ninh province for their enthusiastic support on collecting and processing the statistics I am also indebted to 500 business households in those two provinces for their participation and informative response they provided My finishing the dissertation would not have been possible without the emotional support and encouragement from my management and colleagues at the University of Labour and Social Affairs and General Statistics Office, as well as the unconditional love and support from my family and my great friends Thank you all so much! Author Nancy - Phạm Ngọc Yến i ABSTRACT There have been a lot of studies on business environment However, they concentrate only on business environment of enterprises and companies of large scale, having their business registration, or on business environment of a locality in general The most noticeable one among them is the research to build a Provincial Competitiveness Index (PCI) of Vietnam Chamber of Commerce and Industry (VCCI) in combination with Vietnam Competitiveness Improvement Project sponsored by the United States Agency for International Development PCI has become an important tool to measure and assess business environment of private sector in 63 cities and provinces in Vietnam The index gets strongly active effect on improvement of business environment of the provinces It also helps local authorities find out obstacles for business of enterprises, especially institution environment More importantly, PCI helps provincial authorities to aware importance of business environment improvement for their local enterprises, it is considered an index reflecting capacity and efficiency of the local authorities However, the index has some certain limits on methodology Firstly, the data were collected from registered enterprises which are large-scaled and have experience and good relations with local authorities, and normally operated in urban areas, but not including business households (which play an important role in creating jobs and are vulnerable and impacted by changes of the business environment) Therefore, difficulties they met may differ from that of small-sized enterprises and business households In details, the nine factors impacting on business environment of the survey provinces in the PCI include: Market entry cost; land access; transparency; time cost; informal chrges; activeness of the State authorities; enterprise support service; human resource training; legal policies Some of these factors getting large impacts on business environment of enterprises, such as time cost; legal policies … provide nearly insignificant impacts on performance of business households, and vice versa, factors having large impacts on performance of the households play no role in PCI (such as: capital) Secondly, the data were collected from an indirect survey where a questionnaire was sent to individual enterprises to get them filling into assessments and sending back This may cause a low accuracy of collected information (non-sample error) On the other hand, in conformity to Vietnamese Law on Enterprises, a business household has its corporate capacity as an enterprise Therefore, the study method of PCI with ii changes for some factors to get them suitable with a study of business environment of households has scientific basis It is known that Vĩnh Phúc and Bắc Ninh, the two provinces adjacent to Hanoi (Vĩnh Phúc is bounded by the North of Hà Nội, Bắc Ninh is bounded by the East of Hanoi), have made significant contribution to economic development of the capital city for the last years In conformity to the National Plan by 2020, the two provinces shall be important supports for Hanoi to get a sustainable economic development Vĩnh Phúc City and Bắc Ninh City (2 central cities of the two provinces) shall be satellite cities to help Hanoi settle issues of environment, materials and human resources … Therefore, socio-economic development of the two provinces gets much attention from the Government Being a province of longstanding culture with development of numerous traditional villages specializing in bronzing, carpentry, ceramics …, Bắc Ninh has opportunities and challenges completely different from that of Vĩnh Phúc, a province having a lot of villages and communes with small trade of agricultural, forestry and aquatic products (rice, bean, peanut, vegetable ) in addition to its agricultural economy Therefore, economic development of the province can not be separated from development of household business It is necessary to get a favorable business environment for development of household business In urban areas, with development of enterprises of various types, business environment of the households also has significant improvement However, in rural areas, business environment of the households does get much attention From the fact, the writer chooses the theme: “Study on business environment of households in rural areas of Vĩnh Phúc Province and Bắc Ninh Province” The theme aims to study factors of the business environment impacting on establishment and development of business households in rural areas of Vĩnh Phúc Province and Bắc Ninh Province To study business environment of business households in rural areas of Vĩnh Phúc Province and Bắc Ninh Province, the writer made a survey on 500 business households Sampling is made by the hierarchical random method, with layers of districts, communes and households In each province, 250 business households are sampled Sampling is made in steps: - Selection of districts: Five districts in a province were selected with proportional-topopulation-size (PPS) method on basis that the more business households the district had, the higher the possibility to be sampled it had iii - Vĩnh Phúc Province including: Lập Thạch, Yên Lạc, Vĩnh Tường, Tam Dương, and Bình Xuyên Districts - Bắc Ninh Province indluding: Tiên Du, Từ Sơn, Quế Võ, Thuận Thành and Yên Phong Districts - Selection of communes: PPS method was also applied to choose five communes in each district - Selection of households: In a commune, ten business households were selected on basis that the rate of households having business registration/the ones having no registration was 6/4 The survey was completed in weeks in each province Data were input and cleaned by a specialized software The data then were dumped to a data processing software, Stata, to make the analysis During the study, the formality index (FI) was built to assess business environment of the households The index was made on method of Building a Provincial Competitiveness Index - PCI The FI can be considered the weight mean value of component indexes reflecting the local business environment The two important issues in building the FI is to determine component indexes and to estimate the weight of component indexes Although the FI method is similar to the PCI method, the study made some adjustments to some factors during building the component indexes In details: factors “time cost; legal institution; activeness of local authorities” in PCI were changed into the factors: “access to capital; business registration; support from State authorities” to get them suitable to the business environment of the households In this theme, the weight of FI component indexes was estimated by a factor analysis and regression Study results: Analysis of business environment of households through survey data and Formality Index (FI) It is shown in the study that, in general, Vĩnh Phúc trends to get higher grade of component indexes in comparison to Bắc Ninh In addition, there is no significant difference between communes of the two provinces for each component index It is assessed by the business households in the two provinces that their access to land gets less trouble than other factors like capital, human resources and output market Among factors of macro business environment, market entry is accessed to be easy with insignificant informal charges iv However, awareness and accessibility to legal policies on the households’ business is assessed to be weak in the two provinces This study chooses indexes reflecting business development level, including profit, turnover growth, and assessment of the households on their business performance Estimation of the indexes for the two provinces and districts under the survey shows that profit, turnover growth rate and rate of the households having positive assessment on their business in Bắc Ninh Province is higher than those in Vĩnh Phúc Province There is a huge difference among the three indexes in the districts In general, in the districts having a rapid economic growth rate, the business households have higher profit and turnover growth rate, and they get better assessment on business development In Vĩnh Phúc Province, Lập Thạch and Yên Lạc are two districts of the highest profits and business growth rate among the ones under the survey In Bắc Ninh Province, Từ Sơn district has the highest average profit, and Thuận Thành district has the highest growth rate among districts under the survey They are districts adjacent to Hanoi, with their developed infrastructure system It is shown from the analysis that the factors of micro business environment including accessibility to capital, input and output market of the households play the most important role in the Household Formality Index Accessibility to land also plays an important role for business of the households Support from State authorities for development of the business households is considered an important factor for their development Factors of laws and informal charges have a small weight, showing their insignificant contribution to competitiveness of the households Table 4.27: Weight of component indexes Component indexes Weight (w) Access to land 0.0895 Access to capital 0.2282 Access to human resources and inputs of production/trade 0.1423 Access to output market (Client) 0.1460 Access to infrastructure 0.0474 Market entry indexes 0.0484 Informal costs 0.0474 Transparency of information 0.0604 Support from State authorities 0.1915 Source: Estimation on basis of survey data v The results show that value of the Household Formality Index ranges in 5,8 - 6,4 Vĩnh Phúc has a slightly higher index in comparison to Bắc Ninh, (the FI is in score range of 10) Table 4.28: Formality Index (FI) of provinces and districts Vĩnh Phúc In general Value Standard error 6.182 0.070 Districts Bắc Ninh In general Value Standard error 6.101 0.058 Districts Lập Thạch 6.278 0.110 Yên Phong 5.882 0.107 Tam Dương 5.908 0.149 Quế Võ 6.087 0.141 Bình Xuyên 5.985 0.082 Tiên Du 6.118 0.116 Yên Lạc 6.184 0.112 Từ Sơn 6.403 0.115 Vĩnh Tường 6.234 0.149 Thuận Thành 6.075 0.110 Source: Estimation on basis of survey data Assessment on impacts of business environment on business households’ performance * Factors impacting on business households’ performance In order to assess impacts of business environment on business households’ performance, econometric models are used with dependent variables of (1) Average monthly profit of the business households in 2012; (2) Average monthly turnover of the business households in 2012 Both of them directly reflect business performance of the households through the most essential indicators of turnover and profit Model (1): Yi = β + ∑ j β i j X i j + δ i DFI i Where: Yi is average monthly profit of the households in 2012 (A) Model (2): Yi = β + ∑ j β i j X i j + ∑ k θ i k I i k + ε i Where: Yi is average monthly turnover of the households in 2012 (B) As for independent variables: Xj is a vector reflecting internal forces of the business households, including demographic characteristics of the households’ managers (qualifications, age, experience), business characteristics of the households (number of operation years, business registration, business lines), scope of capital, human resource and business space area We can find that profit and turnover of the households are in direct proportion with labor and capital In general, business households of higher scope of laborers and capital trend to get higher profit and turnover Business households in trade sector trend to get higher vi profit than the households in industry or construction Experience of the managers is directly proportional to profit and turnover Business households with female managers trend to get lower profits Households with business registration trend to get higher turnover in comparison to those having no business registration Similarly, business households in Bắc Ninh trend to get higher turnover than that in Vĩnh Phúc with no clear impact on their profit On the other hand, impacts of DFI in the models are clear and have their statistic meanings It is shown in the results that, on average, if the districts get their DFI increased with 1%, then the households shall get an increase of 3,3% for their profit and increase of 8,4% for their turnover * Factors impacting on conversion into enterprise business It is shown in the study that only 13,3% of business households with business registration intends to converse into enterprise business 56% of them are not aware of benefits of the conversion To get a more thorough study on impacts on their decision to converse into enterprise business, we use the same econometric model as mentioned above: Where, is a binary variable, with a value of if the households have intention to converse into enterprise business and a value of if not The model provides some facts that younger the younger the managers are, the higher the intension of conversion is Female managers get higher intention of conversion than male managers Business households in trade and service have lower intention of conversion than that in industry/construction Meanwhile, capital scope has a significant impact on the trend of conversion into enterprise business: the higher capital scale is, the higher the trend of conversion is The households using loans have higher trend of conversion The results are proper, because in general, the households using loans are the ones having higher capital scope or having their plans for business development On the other hand, scope of business space and human resource has no clear relation to the intention of conversion DFI gets an active impact on the decision to converse into enterprise business However, it is shown in the analysis of component indexes that a better market accessibility and a low index of market entry have an active impact on the decision of conversion We can see in the results that opportunities in the output market have a significant impact on the business households When the output market is potential and accessible, the households trend to vii decide to converse into enterprise business to take full advantage of the market opportunities Among factors of macro economic environment, only the index of “Assistance from State authorities” has its statistic meanings “Assistance from State authorities” is actually the households’ viewpoint on activeness of local authorities In localities where the business households have a positive view on the role of State authorities in their business performance, the households are more possible to converse into enterprise business than in other places * Factors impacting on decision to get business registration Among the survey samples, there are 270 households having business registration and 230 households having no business registration Among the households without business registration, only 21% of them have intention to get their business registration To study factors impacting to decision to get business registration of the households without business registration certificates, an econometric model is applied, with the dependent variable of value if the household has intention to get business registration and of value if the household has no intention to get business registration The results show that scale of capital has a significant impact on the households’ decision to get business registration It means that business households of higher capital trend to get more intention to register their business in comparison to that of lower capital Business households with no loan have more trends to formalize their business than the ones with loans Furthermore, land impact has a reverse relation, that is, business households with small business space have higher trend to get business registration than the ones with larger business space A reason for this lies in the fact that the formalization shall help the households get loans and hire/purchase land more easily, solving their existing difficulties for capital and land Households having managers with high school education or higher trend to get business registration more than the ones having managers with lower education Business households in service have higher trend to get business registration in comparison to the others Therefore, in localities having favorable environment for the households to enlarge their business space and easily employ high quality laborers, the households have higher trend to get their business registration On the other hand, the households having difficulties in accessing to the output have higher trend to get business registration The reason lies may be that in localities having difficulties in accessing to the output market, and formalization viii of the business shall help the households get better voice, and get more trust from customers, and get easier in transacting with customers and finding their markets Summary of Findings On basis of collected information from the survey on business environment in Vĩnh Phúc and Bắc Ninh provinces, the thesis gets an analysis on business environment of the households in the two provinces through analyzing components of the business environment It is shown that the business households are facing with difficulties: limited borrowing capacity, narrow business space and low quality human resource Moreover, market price fluctuation and limited infrastructure, especially electricity and road system, provide numerous difficulties for the business households Although informal charges of the households are insignificant, the assistance from State authorities is also insignificant The main method applied by the writer to define the formality index is based on the provincial competitiveness index (PCI) on business environment for private economic sector annually built by VCCI The main point here is how to select components of business environment so as to be suitable with business households From qualitative studies in the survey area and quantitative studies, the writer believes that the research selected the most exact components of business environment of the households in rural areas of the two provinces The most important result of the research is that the writer, on basis of the collected information, could define a set of indexes to evaluate competitiveness of business environment in Vĩnh Phúc and Bắc Ninh A remarkable point in this research is that the indexes can be defined at district level Basically, the results are similar to the provincial competitiveness index built by VCCI According to the analysis, factors of input access and output access of the business households play the most important role in the competitiveness index of the households The factors get direct impacts on business performance of the households, and they are main factors to promote competitiveness of the households The next important ones playing an important role for business performance of the households are capital and land However, legal stipulations and informal charges get a small weight in the general competitiveness index, proving an insignificant contribution to competitiveness of the households In order to improve competitiveness of the households, the State should provide convenience for access to output market, inputs, capital and land of the households ix Goods Other (specify)…………………………………………………………… 11 Quality of input: (Check for your selection) Inputs Good (1) Average (2) Poor (3) Machinery and equipments Production materials Goods Others 12 Input source: (Check for your selection) Inputs Commune District Province Outside (1) (2) (3) province (4) Machinery and equipments Production materials Goods Others 13 Do you have difficulty buying production input? (Check Inputs for your selection) No difficulty Not much Great (1) (2) difficulty (3) Machinery and equipments Production materials Goods Others 14 Within the last months, does price of inputs (materials, goods,…) change? Yes No ( Ỉskip to Section G) 15 How the price changes affect consumption of the product or service of the business establishments? Better No impact Worse G Access to output market Main customers consume products produced by your business? (There may be multiple choice, Check ) Individual consumers Other business establishments 116 Governmental agencies Domestic enterprises Foreign-investment enterprises Foreign customers Where are the main customers (There may be multiple choice, Check ) Inside the commune Inside the district Inside the province Other provinces (Specify):… The output market (sale) of the product is: Very convenient Fairly convenient Difficult Very difficult How the income of local people affects the operation of your business? Increasing income have positive influence on the operation Increasing income have negative influence on the operation Income change does not have any influence on the operation Does your business face competition from other business establishments/ enterprises operating in the same business? Yes No (Ỉskip to No 11) Competition level? Very stiff Stiff Average Not significant Competitors of your business is of which kind of business? (There may be multiple selection) Business establishments of the same size or smaller size Business establishments of bigger size Private enterprises State-owned enterprises Foreign-investment enterprises Unknown Major competition strategies of your rivals? (multiple selection) Price Quality Design and packaging Promotion Other Specify:…………………………………………… In the commune, there are how many competitors competing with your business? 117 Less than 5-10 10-20 Over 20 Do not know 10 In the district, there are how many competitors competing with your business? Less than 5-10 10-20 Over 20 Do not know 11 Have business establishments operating in the same industry as yours formed associations or any kind of cooperative model to support the production and consumption of products? Yes Do not know No 12 In your opinion, is it necessary to establish associations or cooperatives of business establishments in the same industries? Yes No 13 Does your business get any support from the authority or associations in selling your products? Yes No 14 In last one year, was there any product promotion fair held in your district? Yes No (Ỉ skip to No 19) Association of business establishments 15 The fair was organized by: District authority Professional trade fair organizer Other, specify ………………… 16 Did the business establishments in the district take part in the trade fair? Yes No 17 Did your business establishment take part in trade fairs in the district, province/city? Yes No (Ỉ skip to no 19) 18 Did the participation in the trade fairs in the district, province/city help your business to approach more customers? Yes No 19 Do communal/district authorities often provide information on output market of your business? Yes No (Ỉ skip to No 21) 20 Is the provided information helpful to your business? 118 Yes No 21 Does your business establishment get any other kind of support in introducing and selling products? Yes No H Business registration Interviewer re-check No.2, Section B, • If the establishment has business registration certificate: No to No 23 • If the establishment does not have business registration certificate: No.24 to the end of Section H The questions for registered business establishments Did you apply for the registration certificate before operating or after operating for a period of time? Before After a period of time How long did it take to get the certificate from the date of application? days Is your business establishment a business with conditions? Yes No In order to acquire the business registration certificate, what type of documents is required? (multiple choice) Business registration application form, justified by the communal People Committee Notified photocopied ID card Notified photocopied household registration Notified photocopied land use permit Business tax Certificate of compliance with security regulation Certificate of Guarantee of fire prevention and fighting Work permit Certificate of qualification for business operation by the communal department of culture and information 10 Other documents (specify): 11 Do not remember 12 Have someone done the documents 119 Can the documents be replaced by other type of document to complete the protocol in case of lacking? Yes No Did you need to bribe the involved officers to get the required documents? Yes No Actual cost to complete the registration procedure? ……………… thousand dong Expected cost calculated based on governmental regulation for business registration? ……………… thousand dong (put “KB” for “do not know”) Why did you apply for the business registration certificate? (multiple choice) Complete the legalization process of the business establishment To make bank loans More convenience when dealing with customers Others Specify:……………………………………………… None So there will be no fine and penalty 10 Do you think that the registration process is troublesome? Yes No 11 When doing the registration, did you get enthusiastic guide from the officers? Yes No 12 Did you come back to complete the documents? Yes No 13 How often you have to re-apply for a business registration certificate? …Per year 14 In the last time you apply for the certificate, how much was the cost? ……………… thousand dong 15 Have you ever admended/supplemented the registration certificate? Yes No (Ỉ skip to No 20) 16 How long did it take to admend/supplement? days 17 Was the admendment/supplement protocol troublesome? Yes No 18 How much did you have to pay to the admendment/supplement? ……………… thousand dong 19 The admendment/supplement was: Necessary, based on the establishment’s demand 120 Due to new regulation, the establishment find it reasonable and voluntary admend/supplement the certificate Due to new regulation, the establishment was forced to adjust accordingly 20 Do you plan to switch to enterprise in the near future? Yes No 21 In your opinion, what are the advantages of enterprise business form compared with business household? (multiple choice) Easier to make bank loans Easier to expand business site, rent land Easier to purchase machinary and hire labour Get better support from associations and the government More convenient in dealing with customers Other advantages Specify:…………………………………………………… No advantage 22 In your opinion, what are disadvantages in switching from business household form to enterprise form? (multiple choice) Complicated administrative process High cost to switch forms Higher land tax Bigger equity More complicated and difficult management Others Specify:………………………………… ………………… 23 What are the benefits that your business will enjoy in case of remaining the current household business form? (multiple choice) Lower operational cost Not much capital Avoid administrative protocols Less tax Easier management Others Specify The questions for business without business registration 24 What level of authorities you usually have to work with? Communal District Provincial 25 Did you have to run through the authorities’ administrative protocols before operating? Yes No (Ỉskip to No 29) 26 What type of protocols? (multiple choice) Registration with communal/ward Committee of People Registration with communial/ward police 121 Business tax payment Others (specify) 27 How long did it take you to complete all the procedures? days 28 Total cost to prepare all protocols to get operation permit? thousand dong 29 Do you intend to get a business registration certificate? Yes No 30 In your opinion, what are the benefits of having a business registration certificate? (multiple choice) More support from the authorities Easier to make bank loans More credit from customers/suppliers Easier to get business site Less troubles with the authorities Others Specify:……………………………………………… 31 Why haven’t you got the business registration certificate? Complicated converting procedures High cost More tax No better conditions Others Specify:……………………………………………… I Formal cost and informal cost Governmental budget contributions Annual business tax: ……………………………….thousand dong Unit: thousand dong months/2011 Payable Paid Estimated payable amount in last months/2011 Total tax amount: a VAT (tax on sales) b Special consumption tax, export tax c Other tax (specify) d Other state budget contribution items (specify) In your opinion, your tax amount payable is: High Low Reasonable In your opinion, your tax payable, compared to other establishments of the same size, is: 122 Higher Lower Equal Do the local authorities put you into troubles when dealing with administrative procedures in selling products (eg Permit certificate; quality check, etc…) Yes No How many times did you get inspected within last year? ………… times (If there was no inspection, put down “0” and skip to No.14) In those inspections, you have to make payment to the officers? Yes No (Ỉskip to No 12) Why did you pay the officers? (multiple choice) Pay the fine to the state budget due to regulation violation Bribe the officers to avoid being fined Bribe the officers to avoid troubles Other (specify):…………………………………………………… 8.1 In your opinion, the amount you are fined is: Based on the law correctly Not according to the law Do not know 8.2 Did you get the receipt with the right amount you were fined? Yes No Why did your business establishments violate the regulations? Do not know about the regulation Know about the regulation but cannot implement Do not see the importance of implementing Others (Specify): …………………………………………………… 10 Total amount you have to pay for the inspection officers in last one year? ………………………… thousand dong 11 Did the inspection officers write receipts after receiving money from your business establishments? Yes No 12 From the list bellowed, pick most regular of the inspection agencies within the last recent year: Market management agencies Police (fire inspection, security market) Economic police (anti-smuggling, counterfeiting, ) 123 Department of tax Department of health (hygiene reassurance, etc) Department of animal health/ plant protection Department of standard and quality measurement Department of Culture and Information Others (specify)……………………………………………………… 13 How many times did your business get inspected by the Tax department in the last one year? (estimated numbers) times 14 In the recent year, how many times you have to see the governmental entities to settle the administrative protocols? …….……times 15 Average meeting time to settle administrative protocols: …… .minutes 16 In your opinion, how many percentage of your total income has to be spent on unofficial payment to the governmental officers? 0% Less than 2% 2% -
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