SME National Week 2008: Cooperation for Joint Development

Addressing at the opening ceremony, Mr Pham Gia Tuc, Vice Chairman cum General Secretary of VCCI and Chief of the Steering Committee for SME National Week 2008, said: The organisation of the SME National Week is a significant and remarkable event with many supporting activities like exhibitions, seminars, talks and trainings in order to promote the development of SMEs, improve networking amongst participants and improving human resources through exchanges and training programmes. The forum will also aim to provide up-to-date trade information. This is also a business forum for SMEs to exchange experience and seek answers to their investment and commercial concerns; thus, sending proposals to complete the legal framework.

 

Mr Pham Viet Muon, Vice Chairman of the Office of the Government of Vietnam and Chairman of the National Steering Committee for Enterprise Reform and Development, said: The Government has continuously completed SME assistance policies, especially their awareness of the importance of private sector. To date, Vietnam has some 350,000 enterprises with a total registered capital of VND1,415 trillion (US$86 billion), in which nearly 260,000 operating enterprises are tax-payers. SMEs account for some 96.5 per cent of total business in Vietnam and employ a half of 50 per cent of workforce and 29 per cent of total capital. This fastest-growing sector contributed more than 40 per cent to GDP and created jobs for more than 50 per cent company jobs. Especially, SMEs have increased strongly in both quality and quantity. In 2008, more than 50,000 enterprises registered for operation, accounting for more than 27 per cent in quantity and over 28 per cent in capital. On average, 180 enterprises were set up a day.

 

However, the global financial crisis and the domestic economic difficulty are causing negative impacts on operations of businesses in Vietnam. SMEs are experiencing enormous difficulty amid the economic slowdown. Thus, Vietnam needs to create favourable conditions and apply better supporting policies to support this sector as SMEs in Vietnam are playing a very important role in the Vietnamese business system.

 

Mr Truong Van Doan, Deputy Minister of Planning and Investment, said policies on development of SMEs still have a lot of shortcomings. Under the deeper international economic integration, especially the global financial crisis, SMEs are encountering more difficulties and challenges mainly due to their limited source of capital, narrow accessibility to capital source, low technological level, backward equipment and out-of-date administration; therefore, the quality of their products and services is low and uncompetitive. 

 

Besides, the legal system and the business environment remained unfavourable for SMEs to develop.

Thus, according to Mr Doan, it is necessary to restructure all polices concerning SMEs. “It is necessary to get rid of unsuitable policies and continue completing practical and effective policies,” Doan said.

 

According to Mr Doan, under the current context, policies to support enterprises need to supplement to match international practices and Vietnam’s commitments to international organisations. Accordingly, Vietnam needs to improve the legal business environment, especially those related to administrative procedure and market entry, concretise the definition of SME on the criteria of annual average number of staff and operating capital scale, classify their business scopes to facilitate statistic and classification activities.

 

State organs mainly focus on carrying out State governing tasks and giving indirect support by building programmes and projects for SME development.

In the field of financial support and competitiveness enhancement, according to Mr Doan, the Government needs to consider transferring several technical support projects to commercial banks to help strengthen the capacity of SMEs in preparing investment projects and improving the project appraisal capacity for bank staff. It also adopts successful experience in several nations like Japan, South Korea, China and other regional nations to consider the formation of SME Development Fund. Besides, it needs to supplement supporting policies for improving technological capacity and technical level for SMEs, including support for technological renovation, information provision, consultancy for technology transfer, and support for intellectual property protection among others.

 

Dr. Vu Tien Loc, President of VCCI, said: The seven groups of solutions launched by the Government are approaching the target. The most encouraging result is seen in the Group 1 concerning the simplification of regulations to facilitate the business registration, market entry and activities of enterprises.

 

The Group 2 concerning the creation of conditions for SMEs to have ground areas for their production has been strongly carried out, especially at local levels, by setting up a number of industrial complexes. As of July 1, 2007, Vietnam has 577 industrial zones/complexes, in which 348 zones/complexes, accounting for 60 per cent, are operational and 137 zones/complexes, or 23.7 per cent, are under construction. Among operational zones/complexes, 168 units are industrial parks, export processing zones and hi-tech parks. However, many SMEs cannot enter industrial zones/complexes as the land plots are too large for them. Without entering industrial zones/complexes, they have to seek their own locations on the secondary market. In addition to high costs, they have to spend much time on seeking land and building factories. Urban planning in many cities has not paid attention to the construction of wholesales markets and commercial units suitable for SMEs.

 

The Group 3 concerning the creation of conditions for SMEs to have ground areas for their production facilitates SMEs to approach capital and priorities for export-oriented enterprises. The State has actively supported business associations to carry out trade promotion programmes, in which VCCI is an active player. However, the percentage of SMEs joining State-funded trade promotion programmes remains low. There are not many export supporting programmes dedicated to SMEs.

 

Especially, in the first 10 months of 2008, exporting activities were seriously affected from the big change in business environment. Badly, most said they were negatively affected. Up to 49.18 per cent of exporting enterprises said their exporting activities were adversely affected by the change in business environment. 57.5 per cent of SMEs suffered negative impacts from export while the ratio of big enterprises is 40.4 per cent. The hardest exporting difficulty for SMES is the price hike of input materials. The galloping inflation led to higher prices of production costs of enterprises while the rise in exporting price fails to pare the increase in input prices amidst global economic slowdown. In addition, exporting enterprises also encountered foreign exchange risks. The shrinking purchasing power resulted from the world economic slowdown also triggered difficulties for enterprises.

 

The Group 4 concerning the formulation of programs on assistance for raising the capacity and improving the competitiveness of SMEs has been implemented with the support from international organisations, business development promotion associations, and big groups in Vietnam and foreign nations. According to the report from the State Bank of Vietnam (SBV), as of July 31, 2008, 163,673 enterprises, accounting for over 50 per cent of SMEs, had credit relations with banks. They kept a combined working capital of VND482,092 billion, in which the owner’s equity accounted for 36.25 per cent, bank loans 45.31 per cent and other sources 18.44 per cent. From business results and credit relations with banks, 23 per cent of enterprises are effectively operating, 73.2 per cent of SMEs are averagely operating and 3.8 per cent fall into difficulty (with 1.42 per cent facing capital loss).

 

However, banks’ credit activities for SMEs still have certain shortcomings. Most enterprises are relying on bank loans; thus, the business operation efficiency is not high. Unaudited financial reports impediment valuation and lending from banks. For SMEs, banks remain the main fundraising channel while limited resource and security asset are not always in good conditions.

 

A competitive advantage of SMEs is to become subcontractors for big companies and FDI enterprises. However, the weak governance, backward technology, cost burden, high lending interest rate and low productivity led to high product price. Besides, SMEs do not understand the importance of quality guarantee and delivery schedule in dealing with big enterprises. Thus, only a few SMEs are subcontractors for big companies.

 

The Group 5 concerning the development of human resources to satisfy the requirements of development of SMEs in the 2006-2010 period has been strongly executed through the SME Training Programme. However, the human resource weakness is still the existing difficulty for SMEs, especially under the current competition for good business elements. Executives and employees of SMEs usually do not have rich experience and usually change their employers. According to a survey conducted by VCCI in 2007, only 56 per cent of enterprises were satisfied with training service and nearly 50 per cent are pleased with recruitment brokerage service. These proportions are low in relative with overall corporate satisfaction of popular education at 73 per cent. 

 

The Group 6 concerning the creation of a socio-psychological environment favourable for the sector of SMEs has nurtured the dream to get riches for students. The establishment of nearly 4 million business households is a clear evidence for this.

 

The Group 7 concerning the management of implementation of the plan on development of SMEs in the 2006-2010 period has brought in clear efficiency in completing SME supporting apparatus, especially at local government level. By forming the Provincial Competitiveness Index (PCI) by VCCI since 2005, local governments have oriented the development of SMEs. A number of SME supporting centres, industrial encouragement centres, trade and investment promotion centres and SMEs associations have been set up to support the development of SMEs.