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Introduction
Supporting industry is one of the most important industries for Vietnam. However Vietnamese supporting industry has been lag behind comparing to neighboring countries especially in terms of technical aspect. Now that Vietnamese supporting industry has faced harshly competitive international global market, it is an urgent task for Vietnamese supporting industry to raise technical competitiveness. The purpose of this research is to find a possible collaborative area in a supporting industry enhancement policy field between Vietnam and Japan
1. Overview of the Vietnamese economic development stages
2.1 Overview of economic development status in neighboring Asian countries
2.1.1. Overview of Economic Development Stages of Asian Countries
(1)Flying Geese Pattern of Economic Development
Asian countries, has achieved sequential economic development since the 1960s. Each country's economy, has been evolved on the basis of the interdependence of the Asian countries in the region. Its form is referred to as the flying geese pattern of economic development. Asian countries can be divided into a plurality of groups as shown in the following table.
Table 2.1 Outline of Grope Countries in Asian region
|Group Category |Outline |
|Japan |Since the 1980s, Japan was allowed to full-scale direct investment in Asian countries. Japan|
| |kept its position as the head of the flying geese pattern economic development. |
|China |China has achieved rapid economic development, since the reform and open-door policy in the |
| |early 1990s. Since 2000, China has been the “World Factory" in such manufacturing sector as |
| |electric industry and automobile. |
|Asian NIEs (Korea, Taiwan, Hong |NIEs, which is in response to Japan's direct investment in the 1980s, has been rapidly |
|Kong, Singapore) |developing. Thereafter, NIEs has grown as a country to lead the Asian economy. NIEs are |
| |growing as a global center for high-tech industry. |
|ASEAN Forerunners (Thailand, |Since the 1980s, ASEAN Forerunners developed rapidly in response to the direct investment |
|Malaysia, Indonesia, Philippines)|from Japan and the Asian NIEs. In addition, ASEAN Forerunners have grown as major bases of |
| |Asia in the field of automotive, electrical/electronics, food processing and |
| |textiles/garment. |
|ASEAN Developing countries |Vietnam has been becoming catching up the advanced ASEAN countries. However, Vietnam is now |
|(Vietnam) |facing the challenge of supporting industries promotion. |
|ASEAN Developing |This group has a comparative advantage still in labor-intensive industries. This group is |
|countries(Myanmar, Cambodia, Lao |expected to have future capital accumulation. |
|PDR) | |
Source: Author’s compilation based on variety of materials
Japanese industrialization of the 1950s became the starting point of the Asian economic development. Since 1980s of the Plaza Accord, direct investment from Japan made significant progress. Through it, technology is propagated to the Asian countries, and international industrial competitiveness has been promoted. Economic development path of the Asian countries, in general, takes the following steps. That is: 1) Closed Autarky Economy (agricultural industry), 2) Import substitution industrialization, 3) Export-oriented industrialization, and 4) Export substitution industrialization. In response to this, comparative advantage structure of each country has been developing from labor-intensive industries to capital-intensive industries, technology-intensive industry, and knowledge-intensive industries.
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Figure 2.1 Typical Pattern of Economic Growth
Source: Author’s compilation based on variety of materials
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Figure 2.2 Flying Geese Pattern of Economic Development
Source: Author’s compilation based on variety of materials
(2) Common industry challenges that Asian countries have been facing
Asian countries, which received a technology transfer from relatively advanced countries’ FDI in terms of economic development. As a result, Asian countries have been following the path of industrial upgrading. In the early stages, it was difficult for local companies to supply parts for the FDI companies. The reason is that relatively low-level technology and products quality. Major measures, which were taken by the FDI companies at that time, were the import of parts and intermediate goods. The final products produced by the FDI companies went out into the international market, and export was extended. On the other hand, along with the expansion of import of parts, trade deficit was also seriously increased. In addition, there was also concern that too much foreign capital dependence of economic development may lead to inhibited development of the national local capital. Through the transfer of technology from foreign capital, also upsurge of momentum to achieve the independence of the national capital of the local, was seen at the Asian countries.
As the background of the above, the local supporting industries development to enable the supply parts to the FDI companies was an issue of urgent in Asian countries. Asian countries have been formulated industrial policy at the national level. And the development of supporting industries, and SMEs development have become common industry challenges for the Asian countries. Also in the Vietnam, starting with the Doi Moi policy in 1987, the industrial policy towards the market economy have been taken. In Vietnam, SMEs development and supporting industries development has been underway since 2000.
2.1.2. Supporting Industry Development Policy in Asian Countries
(1)Terminology of Supporting Industry
Supporting Industry can be defined as follows
“Supporting industries can mainly refer to the machinery production industry and mechanical parts industry, which provides raw materials, parts and service for the final goods production industries.”
Supporting Industry can be categorized into the following 5 industries. And SMEs shoulders all categories except raw material production industry.
➢ Raw material production industry (Steel, non-ferrous metal, chemical products)
➢ Capital goods manufacturing industry (Industrial machinery, mold)
➢ Parts manufacturing industry（Home appliances, semiconductors, electronic parts, metal parts)
➢ Manufacturing process (Hot-rolled, cold surface treatment, assembling)
➢ Sub-materials (Packing material)
Looking at the perspective of the Japanese trading relationship, supporting industries companies are SMEs, and it is synonymous with the subcontractors. This relationship is referred to as a “KEIRETSU (trading series)". In the “KEIRETSU”, the parent company will pose a severe QCD request to the subcontractors. On the other hand, for Japan's SMEs, long-term trading relationship in the “KEIRETSU" relationship is guaranteed. Such a Japan-type supporting industries system has been called a "Japanese-style supplier system" in 1960s-1980s. Under this Japanese-style system, technical capabilities of supporting industries has been successfully accumulated.
Supporting industries under such Japan-type supplier system are SMEs group companies that perform only the parts supplier to a particular parent company. This is definitely closed corporate group. Therefore, linkage effect in the industry and intra-industry ripple effect of element technology is likely to be limited.
Supporting industries is, originally, to accumulate a variety of elemental technologies, and to support the key industries by supplying parts to them. Supporting industries should be a group of companies providing plural parts to plural assemblers. For instance, supporting industries which support the automotive industry should be the one that can support the electronic and electrical industry at the same time. Namely, supporting industries should be the industry group which are responsible for the intermediary function in building a mutual linkage among industries.
(2) Significance of supporting industries promotion
The significance of supporting industries promotion can be summarized as follows;
➢ To contribute to the improvement of the trade balance of the parts imported. Since the middle of 1980s, ASEAN intra-regional FDI from the appreciated yen aspects triggered by the Plaza Accord was rapidly increased. However, direct investment was a transfer from the comparative disadvantage industry in the transfer source country to the transfer destination country of which comparative advantage industry is a labor-intensive industry. Direct investment in technology level and capital accumulation of the transfer destination is immature. After all, dependent on import of parts and intermediate goods became significant. This gave birth to the huge trade deficit. That phenomena became prominent in all the Asian countries with the exception of South Korea and Taiwan. Hence supporting industries development can contribute to change of the import dependence of intermediate goods and parts.
➢ To contribute to strengthening the industrial base in a country as a whole. Development of supporting industries is to contribute to the ripple effect to a wide range of manufacturing stages. That is so-called as the “Forward Linkage Effect”. Mutual linkage among multiple manufacturing sector is strengthened by this process. Also economic growth is expected to ride on the track of Hirshman’s specific un-balanced economic growth. In addition, export processing zones and the Free Trade Zone, which were established in the early stages of export-oriented industrialization strategy in almost all the Asian countries, contributed to eliminating the adverse effects of foreign investment: “Enclave economy”. In this way, linkage between FDI and the domestic industry can be achieved. In addition, the route of technology transfer can be enlarged.
➢ To contribute to increasing business opportunities of local companies. Generally speaking, the manufacturing process of the supporting industries can be sub-divided. Therefore, the amount of the capital equipment required for companies which are responsible for supporting industries may be small. Therefore, it is easy to entry and withdrawal to/from the industry. In Taiwan, plenty of venture companies which freely entered in fragmented division of labor process has been inspiring the "Taiwan Dream". Such cases have been reported in the past.
➢ To contribute to participating in the ASEAN global production network. Supporting industry companies can access to the global production network conforming to international quality standards.
(3) Case of supporting industries promotion policies and measures
Some cases of supporting industry promotion policy in the Asian countries are examined. Here, the following cases are taken up.
➢ Case in Malaysia (Vendor Development Program: VDP,1988, The second industrialization master plan: MP2,1996 – 2005, Industry Linkage Program, 1998)
➢ Case in Thailand (Supporting industry development in auto mobile sector)
1) Overview of the Malaysia’s Efforts
a. VDP: Vendor Development Program, 1988 -
VDP was promoted by the PROTON domestic automobile company, which consists of Malaysia heavy industry enterprises, Mitsubishi motor vehicle Corporation and Mitsubishi Corporation. VDP began from the automotive industry. Then, in 1992, it was expanded in the following industries. That is, the electronic and electrical industry, wood processing, construction, service, communication, and so forth. PROTON was founded in May 1983. Proton has a mission for manufacturing domestic cars (Saga) . PROTON also had a mission for being responsible for the import substitution industrialization in the 1980s. In addition, PROTON was responsible for 1) developing automobile parts manufacturing industry, 2) the Malaysia participation promotion in the manufacturing sector.
VDP was initially under the jurisdiction the Ministry of International Trade and Industry (MITI) . Since 1995, the jurisdiction was transferred to the Ministry of Entrepreneur and cooperatives Development (MED) for the purpose of development of Bumiputera entrepreneurs. Predecessor of the VDP was the Proton Component Scheme (PCS) in 1988. In the beginning, PROTON has been heavily dependent on imports or local foreign supplier for the majority of the parts. PCS was put into practice for the purposes of improvement of this situation. PCS summary of are as follows:
➢ PROTON became an anchor company, and recruited vendors as training objectives.
➢ PROTON made a technical guidance in the form of cyclic visit to the vendors. At that time, QCD (Quality, Cost, Delivery) activity, 2S&3M exercise (organized, tidy, non-uniformity, unreasonable, waste), 4M activities (Manpower, Material, Machine, Method), and TCA (Target Cost Achievement) was thoroughly trained. Mitsubishi Motor Company staffs joined.
➢ For the purpose of the vendor's technical support, business matching with subcontractors of Mitsubishi Motors has been carried out.
➢ One vehicle parts of the Proton Saga are provided by the only one vendor, so-called as “Single-sourcing Approach”, was adopted.
➢ Proton Cooperative was established. Through this operation, raise the level of technical capabilities of the vendor, and the strengthening of the lateral connection of the vendor industry has been enhanced.
VDP was initially under the jurisdiction the Ministry of International Trade and Industry (MITI). Since 1995, the jurisdiction was transferred to the Ministry of Entrepreneur and cooperatives Development (MED). Target industries has also been expanded from the automobile industry to the electronic and electrical field and the like.
In the VDP, such 4 main players as 1) the anchor companies, 2) central government (MITI, MED), 3) financial institutions and 4) vendors were in cooperation with each other. However, vendors that were able to participate in the VDP has been limited to “Bumiputera” companies. Therefore, for the non-Bumiputera-based companies, including ethnic Chinese vendors, benefits did not reach.
b. The Second National Industrialization Master Plan (IMP2), 1996 - 2005
IMP2, which was announced in November 1996, was based on the upper level plan of the "Vision 2020". Among these, Prime Minister Mahathir Mohamad has emphasized the importance of the development of SMEs in the automobile industry and the electronic and electrical industry. Central ideas of the IMP2 are “Cluster Development“, and "Manufacturing ++". These two conceptual ideas are under the influence of "Competitive Advantage of Nations” by Michael E. Porter.
Cluster has the following elements. That is, a core industry and key suppliers surrounding it, and infrastructure and institutional support infrastructure to support these. Elements necessary for the economic base to bring the growth of the industry are the following five. That is, 1) human resources, 2) technology, 3) financial incentives, 4) support services, 5) a physical infrastructure and equipment. In Manufacturing ++, the importance of the shift to such high value-added fields are highlighted that research and development, design, distribution, and marketing field. This shift has been shown to be carried along the value chain.
c. Industrial Linkage Program (ILP), 1998 -
ILP was positioned as a center of supporting industrial development policy in the cluster development in IMP2. SMEs Development Corporation (SMIDEC) has jurisdiction over ILP. SMIDEC was established in 1996 as a one-stop agency for SMEs support. As a vendor that can participate, there were no constraints of Bumiputra. SMEs, which has the Malaysian capital of 60% or more, were able to participate. Even the ethnic Chinese companies could participate. The vendors who participated in the ILP, pioneer status as intermediate goods producer was given. This status, tax exemption of five years, or was 60% of the incentives for capital investment reduction and exemption. 128 vendors participated in the end of 2000, and 953 vendors in the end of 2002.
2) Consideration of Malaysia's efforts
As for efforts to automobile supporting industries development in Malaysia, it is discussed in the following manner. PCS is a predecessor of the VDP, and PROTON proceeded the leadership. PCS is said that there has been a positive effect in improvement of technical capabilities of the vendor. Its success factors are considered as follows:
➢ Government's commitment for the automobile supporting industries development was significantly clear.
➢ PCS was a vendor development policy which was directly connected to the Bumiputra policy. Such a national policy aspects has resulted in a serious commitment to the PROTON. The company's seriousness was enhanced.
➢ Mitsubishi Motors, which was a joint venture, was asked the same seriousness in order to contribute to the efforts of PROTON. Urgent consciousness of Mitsubishi Motors has become one of the driving force of a series of initiatives.
➢ Anchor companies, government, and financial institutions have promoted the technical assistance of the vendor in cooperation getting together. As a result, robustness of the PCS system was enhanced.
On the other hand, looking at the anchor companies which participated in the VDP, the number of “Bumiputra” vendors which the anchor companies fostered was extremely small (only one to five vendor companies). Also, some anchor companies were still dependent on imports for procuring 80% of the parts component. In addition, to the end of 1996, there were 27 anchor companies that did not foster even one vendor companies. For anchor companies, fostering vendors is undoubtedly a serious burden. Particularly, there was a limitation for anchor companies to foster Bumiputera vendors that are inferior to other vendors like Chinese capital in terms of product manufacturing technology and management skills.
Anchor companies and vendors in the VDP kept their trading relationship in the form of Japanese “KEIRETSU” relationship. Therefore, the anchor company alone had to carry out management capacity building support to multiple vendors,. This was not easy task for anchor companies. Therefore, the anchor companies inevitably narrowed down the number of vendors that can be nurturing. And, if the improved technical capabilities of the vendor does not reach the target, also trading relationship must turn off the deadline.
Some issues were also pointed out even for the vendor side. Namely, the vendors had been too much dependent on the anchor companies, in terms of product purchase and technical guidance. In addition, degree of urgency and seriousness was missing to the vendor side. Therefore, during the VDP implementation period, some vendors have failed to exhibit a predetermined performance.
In order to raise the seriousness and urgency of the vendor, mutual competition among vendors should be properly promoted. However, the number of vendors should be increased only to meet the competitive conditions for that. Then, it is necessary to expand the scale of supporting industries for that.
In principle, activity of the supporting industry companies should not be carried out in a closed relationship like the Japanese type “KEIRETSU” system, which depends on the particular anchor companies. Supporting industry companies should be a company that is responsible for promotion of inter-industry linkages. Therefore, technical assistance should not be dependent on only anchor companies alone, there is a need to be addressed by the entire industry.
As for ILP, number of participating companies was small. And seriousness and sense of urgency of participating companies also did not reach the level in VDP. Overall, tangible results did not appear. One of the reasons is the lack of nationalistic policy element, which has been associated with the VDP.
3) Overview of the Thailand’s Efforts
Major feature of the Thailand automotive and automotive parts industry is that the thick accumulation of the parts industry has been formed out of a short period of time since the 1980s. They have been supporting the production activities of automobile manufacturers. The number of auto parts manufacturers had up to 1,000 companies as of 2000. Furthermore other SMEs which support the above manufacturers had risen to more than 5,000 companies. Some Japanese manufacturers were included in the major suppliers as of March 2002. Namely, Denso (engine parts, air conditioning), Toyoda Machine Works (power steering parts), Aisin Seiki (body parts, brake parts), and Toyota Boshoku (oil filter).
As the background of this, existence of the automotive industry policy of the Thailand Government, ODA based technical assistance of the Japanese government, and the initiatives of Bangkok Japanese Chamber of Commerce to work for responsibility arrangement of relevant agencies and Japanese companies.
a. Automobile industry protection policy of Thailand (1960 – 1980)
■ Automobile assembling industry protection policy
The Thailand government took the policy based on the stage of development of the automotive industry. Firstly, in the 1960s, CBU cars were imported and sold. Then it reached the stage of the assembly of imported parts (CKD production). At this stage, Thailand Board of Investment (Board of Investment: BOI) has played a crucial role.
"New Industry Investment Promotion Act" was promulgated in 1960. Among them, the automotive industry has been specified as the investment promotion industry. Import substitution industrialization by private initiative has been promoted. In 1962, "New Industrial Investment Promotion Act" was amended. The amendment stipulated that the import duty on CKD parts is a half of the CBU, and tariffs of import of machinery and equipment has become duty-free.
■ Local Contents Regulation
In the late 1960s, imports of CKD parts was increased, and trade deficit was enlarged. At that moment, the center of the automobile industry development policy was transferred from the BOI to the Ministry of Industry. The Thailand Government has established the “Automobile Industry Development Committee" in August 1969. Local contents regulation aimed at local production of auto parts has been introduced. Ministry of Industry announced the automobile industry protection policy in 1971, with the cooperation of Thailand Automobile Manufacturers Association (TAIA), saying that the domestic parts usage rate must be higher than 25 percent from 1975.
In 1975, 14 Japanese assembly companies had been operating in Thailand. Corresponding to the local contents regulation, they asked Japanese parts manufacturers to come to Thailand. At this time, the Bangkok Japanese Chamber of Commerce accepted Japanese automobile parts manufacturers. Car Subcommittee of Bangkok Japanese Chamber of Commerce promoted mutual information sharing among assembly manufacturers and parts manufacturers. Industry in the lubrication oil functions of the automobile Group has proved effective. As a result, in June 1975, 25% of the four-wheel vehicle local contents rate, and 50% of the motor-bike has been achieved.
■ Strengthening Local Contents Regulation
In the mid of1970s, the Thailand Gov. took the export-oriented industrialization strategy. In January 1978, the Department of Commerce took the import ban policy for passenger cars with less than 2,300cc. Ministry of Industry decided 65% of the local contents regulation for passenger cars by 1988, and 60% for commercial vehicles by 1988.
In response to this, Japanese parts manufacturers have invested in Thailand. In particular, in the 1980s with the tailwind of the yen appreciation due to the Plaza Accord, of Japanese parts makers’ investment in Thailand made significant progress.
b. Strengthening of Export-oriented Industrialization Policy (1981 – 1989)
■ Japanese Government support policy
In the 1980s, in the Thailand automotive industry, parts manufacturing industry with the international competitiveness has evolved, and their exports have been promoted. In 1982, ODA budget was injected into JETRO, and "Developing Countries Trade and Industry Promotion Cooperation Center project (AC project)" was carried out in ASEAN countries as a target region. Through this project, technical guidance by dispatching experts was carried out in the field of metal processing, machining, rubber processing, and plastic mold.
In 1986, the “New Asia Industrialization Comprehensive Cooperation Plan (New Aid Plan)", has been introduced in Thailand and Malaysia by Japan's Ministry of International Trade and Industry (METI). The feature of this scheme is that the intimate information sharing and exchange of opinions has been made between the Japanese side and the local government officials from the stage of research and suggestions.
In 1987 and 1990, as part of the New Aid Plan, "Thailand Industrial Development Survey" has been carried out on the basis of JICA fund. Thailand Ministry of Industry and industrial Promotion Bureau (Department of Industrial Promotion: DIP) also participated in the survey project. And, cooperation between Japan and in the field of mold, plastic processing has been achieved.
c. Strengthening of Competitiveness of Automotive Industry (1990 – 1999)
■ Partial liberalization policy
Since the late 1980s, demand for automobiles has increased drastically in the tide of economic boom. For this reason, the production and supply system has no longer been kept up to the demand. In response to the expansion of these domestic automobile market, the Thailand Government has embarked on a liberalization policy in the automotive market. In 1993, such specific policy measures has been done that release of the import ban of passenger cars, abolition of the restriction policy of the model number and type of vehicle, release of prohibition of opening new assembly plant, and so forth. In this way, almost all the automotive industry regulations have been disappeared.
At the same time, BOI made a decision to give tax incentives to such companies that establish the new factory for automotive assembling and parts manufacturing. However, it was subject to the export of CBU vehicles. In response to this, Japanese assembly manufacturers such as Toyota and Honda established new factories one after another. At this stage, the situation in which parts manufacturing companies can enjoy the scale merit of the economy have been created.
■ Supporting Industry Enhancement Policy
Toward the 1993 to 1995, as a follow-up project of "New Aid Plan" of Japan, “Supporting Industries Development Plan Survey" was carried out. Among them, 1) SMEs promotion system, 2) expanding and strengthening of “Metal-Machining Center (MIDI)", 3) financial support to SMEs have been proposed. From 1994, the Ministry of Industry, which is the heart for the supporting industries development, started "National Supplier Development Program: NSDP".
Toward the 1993 to 1994, the Thailand Government has given such a series of incentives as exemption of import duties, reduction of corporate tax, and relaxation of restriction of foreign investment ratio, to the “Specific Important Industries" of supporting industries. Items and industries that have been the subject of tax incentives in Thailand were the following 14 industries. That is: injection molding, jig, forging, casting, tool, cutting, polishing, sintering, heat treatment, surface treatment, machining centers, electronic connector, nickel-cadmium rechargeable battery, and engineering plastic parts.
The companies engaged in any of these 14 industries, the following privileges were given. That is, a) eight-year corporate income tax exemption, b) half or full exemption of equipment import tax, and c) exemption of restriction of foreign investment capital ratio by the end of 1996.
■ Asian Currency Crisis
When the Asian currency crisis of 1997, the Bangkok Japanese Chamber of Commerce and Industry functioned properly. Namely, 1) the Laws and Authentication Liaison Committee supported change of the specification for export of the products, 2) the Vendor Liaison Committee focused on financial support for the vendors. Such efforts, which Bangkok Japanese Chamber of Commerce has taken, contributed to avoidance of the withdrawal of the local Japanese automotive assembling companies as well as parts manufacturers that were exposed to the currency crisis, and they managed to survive.
Since then, Japanese automobile manufacturers have focused more and more on the export-oriented automobile industry in Thailand. The Thailand Government also basically agreed with this direction.
■ Efforts to strengthen the competitiveness of Thai automotive industry
In January 1998, under the Japanese Government’s financial support, the Ministry of Industry has formulated the “Industrial Structure Adjustment Master Plan". Under this plan, "Thailand Automotive Institute (TAI)" has become the core of the project implementation.
TAI had six functions. One is "Automotive Technology Build-up Program (ATBP)". As its sub-program, there was a "Supporting Industry Development Program (SIDP)" supported by Japanese experts. This program has significantly contributed to raising the technical level of Thailand parts manufacturing industry’s QCDEM (Quality, Cost, Delivery, Engineering and Management).
d. Liberalization Policy for Automotive Industry (2000 - )
■ Automotive Industry Master Plan and Human Resource Development
After 2000s, the Asian situation surrounding Thailand has been changed drastically. Liberalization of Asian intra-regional trade due to the entry into force of the free trade agreement (FTA) has been progress. As a result, Thailand has come to be asked an important role as an automotive export production base in Asia.
In 2001, the Ministry of Industry has formulated the "Thailand Automobile Master Plan". Among them, as a vision in 2011, the goal of the production volume of automobile was determined to be 100 million units. TAI has been appointed as its implementing agency. TAI positioned Thailand as the "Detroit of the East". TAI has established a research and development facility, and formulated the human resources development project.
■ Automotive Human Resource Development Project
As a major pillar of the Japan - Thai economic cooperation, "Thai and Automotive Human Resource Development Project: TAHRDP" was launched. Among the TAHRDP, following two were included. That is;
1) By 2010, hundreds of people scale Thai trainer are to be trained by skilled professionals.
2) Skills qualification system to be established.
4) Discussion of the Efforts in Thailand
Efforts of the automobile supporting industries development in Thailand are discussed as follows; For Thailand, it can be said that the local content regulation pulled the trigger of supporting industries promotion. In other words, domestic procurement of parts has become inevitable. From this, the assembler as import substitution means of parts and intermediate goods, was switched to the procurement from local vendors. However, assembler did not necessarily have selected a local vendor to suppliers from the initial. Japanese assembler, was asked to expand into Thailand first against the Japanese vendor. And, it was parts procurement In Thailand from Japanese vendors that have been advanced. As background Japanese vendor has advanced to Bangkok, there was a strong yen in the 1980s. By this situation, direct investment cost from Japan to Thailand could be reduced. By this thing, Japanese vendors were prompted to Thailand advance. Together, Thailand domestic automobile market had been activated at this time. Therefore, domestic demand is expanded. As a result, the advance motivation of the Japanese vendor is assumed to have been enhanced.
In addition, the partnerships among the government of Japan side, the Thailand government side, public institutions, and the private sector has been effectively built. Efforts at the national level towards the promotion of the supporting industry of Thailand has been deployed on a large scale. As a result, the transfer of technology from the Japanese side has been activated. And the environment in which local vendor is autonomously possible operation has been successfully established.
Thus, accumulation of supporting industries has advanced to more than a certain level. As a result, the economies of scale has begun to work. Economic formation that an integration calls more integration has been made.
Path of technology transfer from the Japanese assembler to Thailand local vendors were carried out in the direct business relationship with Japanese assembler. However, from the Japanese assembler, it has not been ordered directly to the local vendor. Technology transfer to the local vendor was made through, in advance, the Japanese vendor. In other words, it is thought that from the Japanese vendor, which was the 1st tier, to the local vendors, which were located at 2nd tier or 3rd tier, technology transfer have been made.
5) Implications for Vietnam's Supporting Industries Promotion
Vietnam still relies on imports for many parts of industrial products. In order to change its import dependency structure of parts procurement, it is necessary to strengthen the development of supporting industries in order to increase the domestic procurement rate. Local content regulations that Thailand has taken in the 1970s, is likely to be a WTO agreement violation. In addition, under the recent intra-ASEAN liberalization trend, it is unlikely that protection policy is internationally accepted.
One of the measures that can be taken for the purpose of supporting industry promotion in an environment of regional liberalization of recent years of economic, are as follows. Particularly, more aggressively attracting to the foreign capital will be effective. By that, transfer of technology to local vendors can be facilitated. It should be noted that attraction of foreign investment of SMEs should be emphasized as well. For local vendors of Vietnam, the flow to receive the QCD strengthening support from the assembler through the trading relationship between the small and medium-sized suppliers will be envisaged.
In addition, foreign capital of SMEs are different from the assembler companies in terms of financial, mobility, and information-gathering capabilities,. Therefore, in order to create an environment for their advance to Vietnam, it is necessary to provide support from the Vietnamese side as well. For example, a variety of information provision, incentives such as tax reduction and exemption, and the like.
In addition, as another technology transfer route to a local vendor, it is a free technology transfer support from public institutions, namely LPTC (Local Public Technology Center) is one of them.
2.2 Overview of Vietnamese economic development status
The “Doi Moi” policy in 1986 encouraged the diversification of the structural management and the transition to the market economy in three sectors: agriculture, industry and commerce. The entry into the international community was advocated in Doi Moi.
Related laws and regulations based on the liberalization of the market, the diversification of the structural management and the objectives of the open-door policy can be listed as follows:
1) January 1987: “Foreign Investment Law”
2) April 1991: “Enterprise Law”, “Private Enterprise Law”
3) Jan 1st, 2001: New “Enterprise law” (“Enterprise Law” and “Private Enterprise Law” were integrated).
4) 2006: “Common Investment Law”, “Unified Enterprise Law” (“Foreign Investment Law”, “Domestic Investment Development Law and “Enterprise Law” were revised)
Features of the business mechanism of local enterprises
There were two types of state-run enterprise in Vietnam. One was managed by the local government and the other was managed by the central government. Large-scale state-run enterprises carried on the former core industries of Vietnam (such as petroleum, iron and steel, shipbuilding, textile, food, etc.), whereas the local state-run enterprises were comprised of many small enterprises. Production method of state-run enterprises was that they received direction on production items and capacity from the government (National Planning Committee). All raw materials and financial investments were depend on the government, and production activities were also carried out following the direction. When deficit occurred, the government would provide the compensation system, which called the “Bao Cap” "system.
Both the producer price that state-run manufacturing enterprise sell to the national circulation enterprises and the consumer price that national circulation enterprise sell to the final consumers were decided by the National Planning Committee. Moreover, the input materials procurement was carried out by the national enterprises regardless of the market price fluctuation. As state-run enterprises were responsible for achieving the goals set by the National Planning Committee, in order to reduce the risk of underachievement, the goals were set as low as possible. In addition, in order to ensure a large amount of input materials, excessive capital stock and excessive personnel were a permanent situation. The government systematically paid state-run enterprise employees based on the number of employees, not on their actual production achievements. The workers and even the leaders of state-run enterprises seriously lacked incentive in to improve productivity and quality.
Before Doi Moi, state-run enterprises operated in a self-contained and integrated production system, in which all operations including the manufacturing of products and intermediate goods, assemble and finalizing were performed within the enterprise in a closed system. Production activities of state-run enterprises were constrained by directions from the National Planning Committee and the local authorities, including production items, production capacity, and delivery period. As delivery price of products was decided by the government, there wasn’t any direct business dealing between enterprises through a route that was different from the governmental direction. In such as socialist planned economy, the legal environment wasn’t well established for the trading rule to be established. As a result, social division of labor couldn’t be observed.
At local provinces, similar industrial manufacturing products, in particular machines, intermediate goods, were manufactured at each province in a closed industrial production style of self-sufficient style. Vietnam’s manufacturing industry was formed by multiple domestic independent economic units. Before Doi Moi, in Vietnam, suppliers specialized in manufacturing part were non-existent, and the inter-enterprise trading form didn’t exist. Therefore, it can be said that social division of industrial production wasn’t available. In Vietnam, the business relationship between parent enterprises and group enterprises among series of enterprise could only be observed after the revised state-run enterprise law in 2003. However, the history was less than 14 years.
Distribution was limited strictly. It was forbidden to distribute the manufactured products to entities other than the national commercial corporation and Logistics Cooperatives. Therefore, in order to enforce illegal trading, many checking points were set up on main roads.
2.3 Challenges of Vietnamese economic development status
Vietnamese economic performance has been drastically progressed since commencement of Doi Moi, which started in 1986, and recent Vietnamese economic situation has been significantly changed since 2007when Vietnam joined in WTO.
Economic growth continues to recover. GDP grew by 6.68%, significantly higher than target (6.2%). This figure exceeds the average growth for 2011-2015 (5.91%/year) and for 2007-2015 (6.05%/year). Still, economic growth in 2015 is below the pace in 1990-2006 (averaging 7.6%/year).
|Unit: % |
|[pic] |[pic] |
Figure 2.3 GDP growth rate
Source: General Statistics Office (GSO).
Industry and construction were the main drivers of economic growth in 2015. Value-added of this sector rose by 9.6% in 2015, much faster than that of agriculture-forestry and fishery, and the service sector. The industry sector enjoyed 9.4% growth, of which the manufacturing sector grew by 10.6%, higher than that in 2013-2014[?]. Value-added of the mining and quarrying sector rose by 6.5%. The construction sector experienced YoY growth in value-added of 10.8%, the highest level since 2010.[?]
Unit: %
[pic]
Figure 2.4 GDP growth by sector
Source: GSO.
The Index of Industrial Production (IIP) rose by 9.8% in 2015[?], much higher than the growth of recent years. In December alone, IIP already grew by 9% on YoY basis. Improvement took place in all the 4 sub-sectors in 2015, including: (i) production and distribution of electricity; (ii) manufacturing; (iii) mining and quarrying; and (iv) water supply, waste management and treatment. However, Q4/2015 saw positive growth of manufacturing sub-sector, meanwhile the mining and quarrying sub-sector fell sharply.
[pic]
Figure 2.5 Index of Industrial Production, 2013-2015
Source: GSO.
Accelerated growth of industrial production was attributed to some factors. First, investment and consumption demand was buoyant in the context of economic recovery and Vietnam’s preparations ahead of important FTAs.[?] In particular, the more rapid disbursement of public investment and credit in Q4/2015 had significant impacts on the industrial sector.[?] Second, the prices of materials and inputs went down.[?]
International integration process continues to deepen. Vietnam signed and implemented important FTAs with Korea and Eurasian Economic Union in 2015. The AEC was established in late 2015. The Vietnam-Korean Free Trade Agreement (VKFTA) came into effect on 20 December 2015. Vietnam applied lower tariffs for certain goods imported from Korea in Q1, especially fuel products. The preferential tariffs for gasoline and diesel oil under VKFTA were 10% and 5%, respectively, lower than the previous corresponding rates of 20% and 10% (Table 2.2). Those tariffs were also lower than preferential rates under ASEAN Trade in Goods Agreement (ATIGA).
Table 2.2 Tariffs of selected fuel products
|Items |Preferential tariffs (MFN) |Special preferential tariffs |
| | |ATIGA |VKFTA |ACFTA |
|Petrol |20% |20% |10% |20% |
|Diesel |10% |0% |5% |8% |
|Mazout |10% |0% |0% |5% |
|Kerosene |13% |0% |5% |10% |
|Aviation fuel |10% |0% |5% |15% |
Source: Authors’ compilation.
Vietnam officially signed the TPP in Q1 in 2016. Textile and garment, one of the key sectors under TPP, had already begun preparation via improving its closed production line including fiber-weaving-dyeing and finishing as well as enhancing the manufacturing machines and human resources. Vietnam National Textiles and Garment Group (VINATEX) has entered a number of joint ventures with foreign enterprises to develop the material regions so as to meet the rules of origin (RoO) requirements under TPP. Nevertheless, a large number of enterprises lacked full awareness of TPP, including its RoO and procedures. This may constrain the adjustment of business strategy prior to and post TPP.
In general, for FTAs, economic liberalization and international integration will not only help enhance access to foreign markets and resources. Instead, deeper commitments to liberalize trade and investment – even behind the borders – toward uniform, high-quality, consistent and business-friendly rules of the game would induce fundamental market-oriented reforms in Vietnam. These commitments are accompanied with various challenges and uncertainties; yet the benefits from prompt reforms and meeting requirements of major markets (such as the EU, the USA and Japan) are vast. For instance, in term of FDI flows, Vietnam has gained many benefits and also faced some challenges from foreign investors. Investment structure by partners continues to shift, though more attention is required. Korea topped the list of the biggest investors in Vietnam in Q1 in 2016, with total newly registered and supplemented capital of USD 888.6 million (of which newly registered capital was USD 513.5 million), accounting for 22% of total registered capital. Increasing investment from Korea was partly induced by Vietnam-Korea FTA – which took effect on 20 December 2015. Singapore ranked 2nd with USD 554 million, or 13.7% of total registered capital. Taiwan followed with USD 465.6 million, or 11.5% of total registered capital.
Table 2.3 List of three largest FDI partners
|2011 |2012 |2013 |2014 |2015 |Q1/2016 |
|Japan |Korea |Singapore |Hong Kong |Malaysia |Singapore |
|Singapore |Hong Kong |China |Singapore |Samoa |Taiwan |
Source: GSO.
However, FDI attraction still faced some challenges. Firstly, foreign investors showed their concerns on the prospects of emerging market as well as severe competition from some countries in the region (such as Myanmar and Indonesia), which induced the slow-down of FDI in Vietnam. Secondly, the profitability in Vietnam somehow deteriorated compared to previous years. The survey by JETRO (2016) showed that 58.8% of Japanese enterprises operating in Vietnam expected a profit in the fiscal year of 2015, decreasing by 3.5 percentage points compared to 2014. Increase of labor cost caused profits to decrease in 44.7% of Japanese enterprises in Vietnam. Similarly, EU enterprises showed concerns on the adjustment of social insurance contribution which may increase labor costs.[?]
To sum up, the opportunities from integration are significant, and domestic economic reforms but require efforts to materialize. The business community and the citizens may believe in Vietnam’s potential during the integration process; yet this potential will only become prospects, and will only be realized, in an appropriate policy environment. More specifically, the policy framework must undergo clear and relevant changes that are consistent with international commitments and the development aspirations of Vietnam. At the same time, such a policy framework must embody friendliness, encouragement and promotion of innovation, creativity and development of the business community.
2. Current status and historical background of SMEs and SMEs policy in Vietnam
3.1 Overview of Vietnamese SMEs
3.1.1 Background of the rise of private enterprises
After Doi Moi, the economic activity of the private sector was approved by the Ministerial Conference decision No. 27 / HDBT in March 9, 1988, and the Party Political Bureau decision No. 16 (No.16 / NQTW) in July 7, 1988 on “reform of the mechanism management and policy for the non-national economic sectors". The “Enterprise Law" and “Private Enterprise Law" in April 1991 as well as the new constitution in April 1992 that incorporated the spirit of these laws and regulations, the new “Enterprise Law” (the “Enterprise Law" and "Individual Enterprise Law“ integrated) became the basis laws for Vietnam’s private enterprises .
Vietnam’s private enterprises consist of the private enterprises which started in the early 1990s and the equitized state-run enterprises from before Doi Moi. State-run enterprise equitization since the early 1900s, development of private enterprise activities can investment from foreign capital can be classified into 3 development stages as follows:
1) The experimental equitization period of state-run enterprise (1992-1996)
2) The expansion period of state-run enterprise equitization and rise of private enterprise activities (1996 to 2002)
3) The full-scale equitization period of state-run enterprise (since 2002)
Note) Since early 1990s, Vietnam’s reorganized national enterprises were not promoted on the privatization but the equitization. In other words, that was transition from the national enterprise that 100 percent of the capital was managed and owned by government, to the stock enterprise that more than 51 percent of shares owned by government.
(1) The experimental equitization period of state-owned enterprise (1992-1996)
The target for the pilot period of state-owned enterprises equitization was small-scale state-owned enterprises that are kept making deficit. The purpose was to reduce the country’s financial burden by cutting off these enterprises from the state-owned enterprises group. In the 1992 Prime Minister decision No. 202 (NO.202 / 1992 / QD-TTg), the pilot program for equitization was issued. In the Prime Minister decision No. 203, 7 specific state-owned enterprises (5 state-owned enterprises under the jurisdiction of the central government, and 2 under the provincial governments) were listed as pilot enterprises. However, all of those enterprises were small enterprises with capital of less than 3 billion Vietnam Dongs. Under the “State-owned Enterprise Law” in 1995, state-owned enterprises were still under strong constraints from the state, thus they lacked autonomy, independence, and mobility as a enterprise. For example, constraints such as corporate executives (president, vice president, financial officers) must be civil servants were still existing. The reform of state-owned enterprises only effectively progressed after the “Revised State-owned Enterprise Law” in 2003.
For the purpose of expanding the scale and organization, and to strengthen the functions of state operating enterprises, the restructuring and strengthening of General Corporation as an existing state operating corporate group was clarified in the government Protocol No. 90 and No. 91 (No. 90 / 1994 / ND-CP, and No. 91 / 1994 / ND-CP). General Corporations established by the No. 90 Protocol is referred to as horizontal group of enterprises, established by the voluntary will of the enterprise side, with a characteristic as the group of enterprises in the same industry. On the other hand, the General Corporations established by the No. 91 Protocol are referred to as vertical business groups that were reorganized in 18 industries, identified as particularly important industries (see Note) for the national economy. The establishment of such General Corporations under the No. 91 Protocol is a decision matter of the Prime Minister. In 1996, there were 91 General Corporations (74 under Government Protocol No. 90, and 17 under the No. 91 Protocol), consisting of 70.5% of the total capital of state-owned enterprises (No. 90 enterprises consisted of 16.1%, and No. 91 enterprises 54.5%).
Note)Especially important industry sectors that were positioned as sectors to run the price management policy to concentrate the national capital such as power, petroleum, coal, cement, postal services and communications, shipping, shipbuilding, textile, paper manufacture, food, etc. The restructuring of General Corporation was modeled on the Korean chaebol.
(2) Expansion period of state-owned enterprise equitization the rise of private business activities (1996-2002)
In the 3rd Central Committee meeting in August 2001, the following have been clarified about the form of state-owned enterprises:
1) Enterprises that need the continuation of the monopoly state-owned enterprises form
2) Equitized enterprises that are either wholly-owned by the state or the majority (51% or more) of the shares are owned by the state
3) Enterprises that the state do not need to own the majority (51% or more) of the shares
The formation of the parent - group relationship type corporate group was designated as the reform policy aimed at improving the effect of General Corporation activity until year 2005. The “Revised Enterprise Law” which defines the entrepreneurial activity of the private sector was enacted in May 1999, and came into effect after 2000. According to this “Revised Enterprise Law”, regarding enterprises, in addition to the transition to the registration system from the country approval system, changes such as the elimination of capital lower limit, expansion of possible investment target industries, investor rights protection, and simplification of administrative procedures were included which resulted in a significant effect on the promotion of Vietnam private sector activities. Thanks to the enforcement of the “Revised Enterprise Law”, many new private enterprises has been established. During 2000 - 2002, an annual average of 18,000 enterprises, during 2003 - 2004, 27,500 enterprises have been newly established in the private sector.
In May 2000 the “Revised Foreign Investment Law” was enforced with various amendments on regarding foreign capital that include: 1) foreign capital can participate in a joint venture with all of Vietnam domestic corporations, 2) exemption of the value-added tax; relaxation of foreign currency procurement regulations, 3) foreign investment follows the same registration system as domestic enterprises. As a result, from 2003 foreign investment has become very active.
(3) Full-scale period of state-owned enterprises equitization (since 2002)
In the “Revised State-owned Enterprise Law”, which was formulated in 2003, and came into effect on July 2004, explicitly states 3 classification forms of state-owned enterprises, in line with the Central Committee of the General Assembly decision 3rd 2001 described above. They are:
1) an state-owned enterprise that the state owns 100% of the shares.
2) an enterprise that the stock is owned 100% by the state, and is operated in the form of a stock enterprise or a limited enterprise, and
3) an mixed enterprise from a state-owned enterprise and a private enterprise, whose business activities is defined in the Enterprise Act.
In these state-owned enterprises, the government owns 51% or more of the shares. Government enterprises that fall below the 50% shareholding rate are not referred to the state-owned enterprises. In the “Revised State-owned Enterprise Law”, regarding General Corporation, in addition to the No. 91 General Corporation that the country has an decision-making authority on its establishment, and the No. 91 General Corporation which is voluntary corporate group, there is also the “State Capital Investment Corporation: SCIC”, which is investment management entity of the state capital. The establishment of SCIC was determined in 2005, and positioned as the acting entity for turning state-owned enterprises except for the General Corporation into stock enterprises, limited enterprises.
SCIC is referred to as “Revised State-owned Enterprise Law” in the national special economic organization. It is decided that SCIC receives the national capital of state-owned enterprises on behalf of the state, exercise the rights of ownership as representative of the state capital. Also included in the “Revised State-owned Enterprise Law” is the General Corporation formed when state-owned enterprises organize under its umbrella a number of limited enterprises in the form of formulating an affiliate group. Thus, including the capital of the non-state sector in state-owned enterprise groups has been accepted. The Enterprise Law in 2005 guarantees equal treatment regardless of capital ownership (domestic or foreign enterprises), therefore is was called the “Unified Enterprise Law”.
3.1.2 Trends of enterprises by number
It can be said that the business activities of private enterprises and foreign capital in Vietnam have been in full swing only since 2000. This paper presents an overview of the specific Vietnamese enterprises statistics such as number of enterprises by scale, or by ownership (state-owned, private, Foreign-Direct-Investment) since 2000, the year that saw the rise of private enterprises. The statistics on number of enterprise here are based on statistics published by Vietnam Bureau of Statistics (Statistical Year Book 2005, 2009, 2014 edition), and the SME White Paper on by the Ministry of Planning and Investment (2008, 2011, 2014 edition).
Therefore, this enterprise situation described here is based on statistics of business registrars. For unregistered businesses that aren’t included in the statistics, it should be noted that they aren’t subject to supplementary. In particular, for small and micro enterprises, informal enterprises that make up quite a few number, are presumed to be engaged in business activities without registering. It can be said that these enterprises’ situation is out of the range that can be supplemented with statistics.
(1) Number of enterprises by type
The total number of enterprises in 2000 was 42,288, of which, there were 5,759 state-owned enterprises (13.6%), 35,004 private enterprises (82.8%), and 1,525 foreign enterprises (3.6%).
[pic]
Figure 3.1 Trends of number of enterprises by type
Source: Vietnam Statistics Bureau, Statistical Yearbook 2005,2009,2014
In 2013, the total number of enterprises was 373,213 (8.8 times compared to year 2000), of which, there were 3,199 state-owned enterprises (0.9%), 359,794 private enterprises (96.4%), and 10,220 foreign enterprises (2.7%).
(2) Number of employees by enterprise type
The total number of employees was 3,536,998 people in 2000, of which, state-owned enterprises employed 2,088,531 people (59.0%), private enterprises 1,040,902 people (29.4%), and foreign-invested enterprises 407,565 people (11.5%). In 2013, the workforce was 11,565,900 people (3.3 times compared with 2000), of which, state-owned enterprises employed 1, 660,200 people (14.4%), private enterprises 6,854,800 people (59.3%), and foreign-invested enterprises 3,050,900 people (26.4%).
[pic]
Figure 3.2 Trends of number of employees by enterprise type
Source: Vietnam Statistics Bureau, Statistical Yearbook 2005,2009,2014
(3) Sales by enterprise type
The percentage of total sales by ownership in 2000 was as follows: state-owned enterprises 54.9%, private sector 25.1%, and foreign invested enterprises 20.0%. The share of state-owned enterprises in term of sales was overwhelming. In 2013, that sales composition changed as follows: state-owned enterprises 24.1%, private sector 50.8%, and foreign invested enterprises 25.0%. It can be seen that the private sector share has grown significantly. In addition, sales of foreign enterprises rose up to one quarter of the total sales.
[pic]
Figure 3.3 Trends of sales amount by enterprise type
Source: Vietnam Statistics Bureau, Statistical Yearbook 2005,2009,2014
(4) Average revenue by enterprise type
Whereas average sales per one enterprise of state-owned enterprises were up 12 times to 9,202 [billion VND] in 2013 from the 772 [billion VND] in 2000, that number in the private sector went from 58 [billion VND] in 2013 to 172 [billion VND] in 2013, or a growth rate of only about 3 times.
Sales of private enterprises contributed to 50.8% of the total sales, but in reality, average sales of one enterprise is very small, reflecting the insignificant contribution of small and micro enterprises.
[pic]
Figure 3.4 Trends of average revenue by enterprise type
Source: Vietnam Statistics Bureau, Statistical Yearbook 2005,2009,2014
(5) Employee scale by number of enterprises
Enterprises can be divided into 4 categories of employee numbers. The percentage of each category in 2000 was as follows: 22,638 enterprises with less than 10 employees (53.5%), 14,396 enterprises with more than 10 but less than 200 employees (34.0%), 1,849 enterprises with more than 200 but less than 300 employees (4.4%), and 3,405 enterprises with more than 300 employees (8.1%). In 2013, the percentage was as follows: 225,037 enterprises with less than 10 employees (67.6%), 93,036 enterprises with more than 10 but less than 200 employees (28.0%), 6,735 enterprises with more than 200 but less than 300 employees (2.0%), and 7,864 enterprises with more than 300 employees (2.4%).
[pic]
Figure 3.5 Trends of number of enterprises by employee scale
Source: Vietnam Statistics Bureau, Statistical Yearbook 2005,2009,2014
(6) Number of enterprises by industry sector
Among the 6 industries: agriculture, forestry and fisheries, mining, manufacturing, construction, electricity gas water supply, services including wholesale and retail; services, manufacturing and construction industry account for 90% the total number of enterprises. In 2000, there were 23,973 enterprises in services (56.7%), 10,399 enterprises in manufacturing (9.5%), 3,999 enterprises in construction (9.5%); and in 2013, 255,049 enterprises in service (68.3%), 58,688 enterprises in manufacturing (15.7 %), and 52,147 enterprises in construction (14.0%).
[pic]
Figure 3.6 Trends of number of enterprises by industrial sector
Source: Vietnam Statistics Bureau, Statistical Yearbook 2005,2009,2014
(7) Number of enterprises by employee scale in the manufacturing sector (2013)
Looking at the trend of the number of enterprises by the employee scale in the manufacturing industry, the industries with high share of number of enterprises in 2013 were food and beverage, 7,893 enterprises (13.5%), and metal processing, 10,413 enterprises (17.7%). By employee scale, in all of those industries, the ratio of enterprises of less than 10 people is high. If enterprises of up to less than 200 people are included, they account for 90% to 99% of the number of enterprises in any of those industries.
[pic]
Figure 3.7 Trends of number of enterprises by employee scale
in the manufacturing sector
Source: Vietnam Statistics Bureau, Statistical Yearbook 2005,2009,2014
(8) Number of enterprises by employee scale in service sector (2013)
The industries with an overwhelmingly large number of enterprises are wholesale, retail and repair business, with 148,481 enterprises in 2013, or up to 58.5% of the entire service sector. Besides, the number of enterprises with less than 10 employees in wholesale, retail and repair industries are 114,994, or a ratio of 77.5%.
[pic]
Figure 3.8 Trends of number of enterprises by employee scale in service sector
Source: Vietnam Statistics Bureau, Statistical Yearbook 2005,2009,2014
(9) Summary
Against the background of a market economy due to the introduction of Doi Moi, Vietnam has seen a sharp rise of the private sector since 2000. As a result, the presence of the private sector in terms of total employment and economic activity rose sharply after year 2000. However, it is clear that the majority of the business activities of private enterprises are within the service sector, including wholesale, retail and repair business, and are small enterprises with less than 10 employees.
Before the year 2000 when private enterprises began to be established, state-owned enterprises that operated in a self-contained production manner under the planned management system under the government were the major economic entity. Therefore, contract-based transactions between enterprises and the division of labor by manufacturing enterprises specializing in parts manufacturing have only become mainstream since 2000. The history of business activities in Vietnam is very shallow. Private enterprises of Vietnam are immature both in terms of management and manufacture technical level.
However, in terms of the number of enterprises, sales total, total employment, the SMEs contribution to Vietnam industry at the national level is very high. Therefore, it is important to take appropriate policy to development of SMEs and strengthen our management foundation. In addition, among Vietnam SMEs, in particular enterprises dedicated to manufacturing parts or intermediate goods production is very important for the Vietnamese supporting industries, and extremely important in terms of strengthening the industry’s international competitiveness.
3.2 Overview of Vietnamese SMEs policy
1. Overview of the general background
(1)General
Decree No. 56/2009/ND-CP dated 30 June 2009 by the Government on supporting SMEs has created a legal framework of support policies for SMEs. The policies elaborate support to SMEs in terms of finance, manufacturing space, technology transfer and capacity building, market access, assets purchases, public service offer, information and consultancy, human resource development and business incubator for young businesses. These policies have also specified the roles and responsibilities of different Government agencies in implementation.
Moreover, the Decree regulates the establishment of a development fund for SMEs, a fund which aims at improving capacity for SMEs, focus on products renovation, participation of SME in public procurement, creation of an enabling business environment and higher competitiveness; investment in technology innovation, equipment; development of supporting industry; improvement of business management capacity.
Nearly one year later, on 05 May 2010, the Government issued Resolution No.22/NQ-CP which call for stronger implementation of the Decree No. 56/2009/ND-CP dated 30 June 2009. The Resolution requests for the formulation of plans and supportive programme, improving business access to credit fund and mobilizing funds for SMEs; solving difficulty in manufacturing space; support for competitive advantage improvement; promoting administrative procedure reform in favor of SMEs benefit; constructing and reinforcing SMEs development supportive system.
Following the two above legal documents, the Prime Minister issued a SME Development Plan for the Period of 2011 – 2015 (Decision No 1231/QĐ-TTg dated 9/12/2012. The development plan has provided a strong policy statement on SME development in the coming decade with a number of solutions for SME development as follows: (i) to improve the framework on enterprise development; (ii) to offer incentives and assistances for SME; and (iii) to carry out SME assistance programs, and to set up SME Assistance Fund. Recently, the SME Assistance Fund has been established by a Decision No. 601/QD-TTg dated 17 April 2013. The objectives of this Fund are to support SMEs to strengthen their competitiveness; to promote innovation resulting in more competitive products; to develop supporting industries; and to strengthen enterprise management capacity. The following diagram presents the institutions involving in formulating and implementing SME development assistance policies.
[pic]
Figure 3.9 Key actors supporting SMEs
Source: MPI’s website .
Besides the national policy framework of supporting SMEs, other legal document such as Law on Economic and Efficient Use of Energy, Decree on industrial promotion, Decree on agricultural extension, also have provisions of supporting enterprises in general, including SMEs in particularly. Especially, policies on supporting industries (SI) also encourage the development of SMEs. On 03 November 2015, the Government issued Decree No.111/2015/ND-CP on developing supporting industries and replaced Decision 12/2011/QD-TTg dated on 24 February 2011 on policies on the development of supporting industries.
Under Decree 111/2015/ND-CP, organizations and individual operating in SI that are subject to the list of prioritized sectors under the Decree may be supported with financial funding as well as incentive policies from the State for their activities, i.e. research and development, application and transfer, human resources, international cooperation, market development. On order to boost SI, the Decree stipulates general incentive policies for enterprises operating in SI, including incentives on import-export tax, VAT, favorable interest rates for investment credits capital of the State. In additions, SMEs producing supporting industrial shall be exempted or reduced land or water surface from rentals.
Based on overview of policies on SME support, there are a number of current programs to support SMEs as follows:
(2)Institutional support programme
According to the Decree No 56, the Agency for Enterprise Development (AED- former name: ASMED), under MPI, is designated as a central government agency responsible for coordinating policy formulation and implementation for development of SMEs in Vietnam. In addition to AED, SME support institutions include the SME Development Council, SME assistance centers, and Municipal People’s Committees, and related organizations and associations.
The SME Development Council advises the Prime Minister on SME development and is chaired by the Minister of the Ministry of Planning and Investment. Members of the Council are the leaders of relevant ministries and organizations. The SME Development Promotion Council also includes representatives of the People's Committees of Hanoi, Ho Chi Minh City, Hai Phong and Danang, the most dynamic economic cities in Vietnam. Business associations such as the Viet Nam Chamber of Commerce and Industry, the Central Council of the Union of Vietnamese Cooperatives and a number of enterprise associations also have representatives in this Council.
There are some technical assistance centres for SMEs such as the Hanoi Technical Assistance Centre for SMEs, the Northern Technical Assistance Centre, and the Southern Technical Assistance Centre for SMEs (SMESTAC), the Assistance Centre for SMEs in the central region (under AED), and the SME Technical Assistance Centre under the Viet Nam Chamber of Commerce and Industry (VCCI)[?]. They act as one-stop shop business development centres for SMEs. In addition, agencies for supporting SME development under the provincial people’s committees or the department of planning and investment have been launched in some provinces. These centres and agencies play an important role in organizing and implementing support policies and programs for SMEs.
In addition to SME centres under state agency, other business associations also provide support activities for SMEs such as SME association (VINASME), VCCI, etc. VINASME is a social and industrial organization, has function as a representative of SME-related different associations. It protects legal rights of its association members and SMEs; gives advice to competent agencies to solve SME-related issues. It plays as a bridge between its member associations, SMEs and competent agencies. It supports its members to expand their business operations/ activities, conducting trade and investment promotion, international cooperation, etc.
(3) Financial support programme
1) VDB Fund
The Viet Nam Development Bank (VDB), established in 2006 from Foundation for Development under the Decision No. 108/2006/QD-TTg, has branches in 54 provinces and cities. Beside common banking business, the VDB is responsible in providing loan guarantees for SMEs toward commercial banks (Decision 03/2011/ QD-TTg). These loan guarantees to commercial banks are provided to SMEs in the field of processing, manufacturing, gas, hot water, steam and air-conditioners. The loan guarantees are provided to SMEs with own investment capitals of at least 15%. VDB provides loan guarantees to loans with the maximum amount of 85% of the total investment. The fee for a loan guarantee is 0.5% per year of the total guaranteed loan and interest[?].
2) SME Development Fund
The Fund for SME Development was established to support SMEs to conduct feasible business plan or project in priority sectors (Decision 601/QD-TTg). The main tasks of the fund are[?]:
■ To receive, manage, and use financial resources and entrusted capital sources at home and overseas as prescribed by Vietnam’s law to create a capital sources supporting the development of medium and small enterprises.
■ To provide financial support for medium and small enterprises.
■ To formulate annual operation plans, development strategies, long-term operation plans, and criteria for selecting prioritized subjects of the Fund, then submit them to the Ministry of Planning and Investment for decision.
(4) Technology support programme
1) NAFOSTED
The National Fund of Science and Technology Development (NAFOSTED) was set up under the MOSTE by Decree No.122/2003/ND-CP. NAFOSTED also provides financial support (interest-free or low interest loans) to organizations of science and technology, businesses and individuals to execute projects that apply research achievements, new and emerging technologies, which serve the improvement of quality, production efficiency, and social and economic growth. The maximum loan is 70% of the total investment and not exceeding 10 billion VND per project (to be applied no more than 36 months).
2) NATIF
The National Technology Innovation Fund (NATIF) was established under decision 1342/QD-TTg (2011). Its operation regulation was approved in 2013 by the Decision 1051/QD-TTg[?]. The NATIF was just launched on 8 January 2015. In 2015, the NATIF will focus mainly on grants to research, differently from other funding mechanisms. NATIF provides financial support for R&D, technology transfer, incubation of science and technology enterprises, applied technology in agriculture and training. Subjects of the NATIF are mainly to support enterprises, organizations and individuals whose conduct activities to innovative technology applications, commercializing the results of scientific research and technological development to bring to the market new products and services that have high technological content and high added value.
Vietnam has made efforts to establish some financial channels for technological innovation in the form of funds such as NAFOSTED, NATIF…One of the contents of National Program on Technology Innovation towards 2020 (approved by the Prime Minister in Decision No. 677/QD-TTg dated May 10th 2011) is to support SMEs to innovate their technologies. They are, as follows: Supporting enterprises in the application of information technology, building information systems on enterprise resources and product advertising management; Setting up database for new technology, advanced technology and technological experts to create favorable conditions for SMEs in exploiting for technology innovation activities; Supporting enterprise in research, pilot production and application of advanced technology, training, hiring design experts, manufacturing new products and changing production processes; Supporting the formation of business incubators in science and technology fields in conducting researches, applying and manufacturing new products.
3) ARID
Agency for regional industry development (ARID) under MOIT was established by Decree 45/2012/ND-CP (May 2012, being effective on 5 July 2012) is replacement of Decree 134/2004/ND-CP (9 June 2004) on industrial promotion[?]. The industrial promotion initiative of MOIT aims to help industrial development in rural area since 2004 and is being updated with industrial application in cleaner production, regardless its location. Budget for implementation of cleaner production/industrial promotion is available for both national and provincial level activities[?]. To implement ARID’s functions and tasks, Centers for Industrial Promotion and Industry Development Consultancy are established at provincial level and they are units under the provincial Department of Industry and Trade. The main functions of the centers are: to serve the Nation management of the Department of Industry and Trade (DOIT) about the industrial promotion; to provide national services in the field of industrial promotion and consulting developing industry following the industry law of Vietnam.
4) NAEC
Besides the industrial promotion system, the government also sets up the agricultural extension system from central level to commune level. The National Agriculture Extension Center (NAEC) is an organization under MARD and the local unit belongs to DARD. Current extension functions are focused on conducting demonstration sites and field days, training, organizing science-technology forums in the fields of crops, livestock, veterinary care, forestry, water resource management, agro-forestry processing and engineering. Technologies for transfer come from research institutions, universities and abroad. In addition, the extension system also provides farmers as well as enterprises information related to new policies, and market prices.
Under the Decree No 111, MOIT establishes Supporting Industry Development Center to perform one of the following tasks: (i) to carry out technology application and transfer to support the experimental manufacture of supporting industry products on the list of products of supporting industries prioritized for development; (ii) to support enterprises in building manufacturing administration systems up to international standard; (iii) to train technical managers for the manufacture of supporting industry products; (iv) To promote trade; to organize exhibitions and fairs; and (v) to promote domestic and foreign investment in supporting industries.
(5) Tax incentive
Under the Decree 111 (2015), SMEs can gain benefits from the support program for SI development:
1) Cooperate income tax
To enjoy tax incentives in accordance with Law No. 71/2014/QH13 of November 26, 2014 Amending and Supplementing a Number of Articles of the Law on Taxes. Accordingly, enterprises can enjoy tax exemption for the first 4 years and 50% tax reduction in the next 9 years.
2) Income tax
To be exempted from income tax for imports to create fixed assets in accordance with the Law on Import Duty and Export Duty and guiding documents.
3) Value-added tax
Turnover of supporting industry products on the list of products of supporting industries prioritized for development may be declared for value-added tax on a monthly, yearly or temporary basis. Moreover, investors can apply for VAT rate at 10% in the period of 15 years if they satisfy some conditions.
As for the supporting measures for Vietnamese SMEs, there are several different types of series. Those series can be classified into the following two as main streams. Namely, they are 1) SMEs technology and information provision support, and 2) financial support. Further, the series of technology and information provision support can be classified in terms of governmental entities which are in charge as follows. That is, a) a series of Ministry of Planning and Investment (MPI), and b) a series of Ministry of Industry and Trade (MOIT). Also, the financial support series can be classified into a) a MPI series, b) a Ministry of Finance (MOF) and the Central Bank series, and c) a local authority series.
2. Agencies in charge and relevant policy for SMEs technology and information provision support
(1) Agencies in charge and policy in a MPI series
As discussed in the previous chapter, the highest ranked SMEs support policies positioned in the MPI series are the Decree No.90/2001/CP-ND, and its amendment, i.e., Decree No.56/2009/ND-CP[?]). On the basis of those Decrees, establishment of the following new agencies was stipulated, such as SME Development Encouragement Council (SMEDEC), Agency for SME Development (ASMED), and SME The Assistance Center (TAC). Among those agencies, ASMED was reorganized as the Agency of Enterprise Development Agency (AED) on April 10th in 2009, of which duty was not limited to the SMEs development.
In addition, as for Foreign Investment Agency (FIA) and its subordinate organization, i.e., the Investment Promotion Center (IPC), their duty and responsibility are stipulated in the Decree No.61/2003/ND-CP, which is basically stipulating the jurisdiction of MPI. FIA has developed the Vietnamese 500 SMEs database, and now the database is opened to the public on the FIA web-site. In addition, FIA is supporting the implementation promotion of business matching between local SMEs and foreign-invested enterprises.
In addition to the above-mentioned central level policy implementation entities, other local level policy implementation bodies are in operation such as SME Support Center. This entity carries out the technical assistance for local SMEs in the municipalities and provinces, on the basis of the jurisdiction of the Department of Planning and Investment (DPI). The jurisdiction and duty of the above-mentioned agencies are described as follows.
1) SMEDEC: SME Development Encouragement Council
SMEDEC is the highest ranked SME policy dialogue council, of which major duty is to advise to Prime Minister in the field of SMEs supporting policy formulation. Configuration of SMEDEC is stipulated in Decree No. 90, and No. 56 and Prime Minister Decision No.1918/2010/QD-TTg. According to them, the council is chaired by the Minister of MPI, and Deputy Minister of MPI is designated as the standing committee member, and AED representative is responsible for management of the Standing Secretariat. In addition, each of the central government ministries and agencies is nominated as the part-time member of the council, which includes the state bank, five municipalities like Ha Noi, Ho Chi Minh City, Da Nang, Hai Phong and Can Tho, and the Vietnam Chamber of Commerce and Industry (VCCI), as well as each of the representatives of major industry associations. As for major functions and duties of SMEDEC, the Prime Minister Decision No.1918/2010/QD-TTg is stipulating that policy advisory function as to promotion of SMEs enhancement policy for the prime minister, and further advisory function of SMEs policy promotion mechanism is defined as the SMEDEC function. In the Decision No.975/QD-BKHDT formulated by MPI Minister and SMEDEC chairman, the operating rules of SMEDEC have been promulgated. The decision regulated that regular meeting of SMEDEC once in six months or one year should be held.
2) ASMED: Agency for SME Development, and AED: Agency of Enterprise Development
Duties of ASMED were stipulated in the MPI Minister Decision No.504/QD-BKH. Namely, a) formulation of legislative measures which are necessary for the support for SMEs, b) support of MPI Minister on SME promotion policy, c) business registration, d) act as a permanent secretariat of SMEDEC. Furthermore, SMEDEC is obliged to report to the prime minister regarding the actual situation of the SMEs support policy implementation every six months.
Duties of AED, which was reorganized from ASMED on April 10th in 2009 and its duties are not limited to SMEs management, are stipulated in MPI Minister Decision No.463/QD-BKH and in the MPI Minister Decision No.1908/QD-BKH as an amendment of Decision No.463. In addition, MPI Minister Decision No.219/QD-PTDN stipulated specific duties corresponding to the lists of specific divisions of the AED. According to it, the jurisdictions of the AED are as follows. Namely, a) In the SME Development Division, implementation of SMEs promotion measures for technical guidance through the TAC, b) in the SOE Reform Division, taking initiative in the state-owned enterprise reform, c) in General Issues & Policy Division, adjustment of the overall business development of the private sector, d) in investment & Corporate governance division, window function for the investment and strengthening governance, e) International cooperation related activity in International cooperation division, f) in business Information Support Center, management and publishing corporate information.
3) TAC: The Assistance Center
TAC has been established in the three focal regions, on the basis of the Government Decree No.90/2001/ND-CP and the offices are located in such three municipalities as Hanoi, Da Nang, and Ho Chi Minh City. Duties, authority and organizational structure of TACs have been stipulated in the MPI Minister Decision No.1551/2009/QD-BKH for TAC Hanoi, Decision No. 1536/2009/QD-BKH for TAC Ho Chi Minh. .
TAC is responsible for organizing the implementation of policies and support programs for SMEs,. The main policy implementation areas of the TAC are as follows. Namely, a) technical advice to SMEs, b) organising training causes to enhance the business administration capability of SMEs, c) building the technology partnerships among SMEs, large enterprises, and universities, d) sharing and publishing the enterprise information, e) establishing technology database, f) enhancement of new technology research and development.
4) FIA: Foreign Investment Agency
FIA is a subordinate agency of the MPI, and one of its major function is investment promotion in the nationwide Vietnam. The initial duties of FIA are drafting strategies, master plans, plans/programs and list of projects/fields calling for foreign direct investment. FIA is now developing such activities as supporting industry development policy, on the basis of the Vietnamese Government policy for promotion of foreign direct investment which is attractive to local supporting industries.
Also, FIA has jurisdiction over the following policy. Namely, improvement of investment environment for domestic enterprises, formulation of legislative measures which are necessary for the various measures for the foreign direct investment promotion, monitoring policy implementation, coordination among other ministries and agencies, management of the statistical information regarding enterprise investment, management of local SMEs database), and drafting the national investment promotion program.
5) IPC: Investment Promotion Center
IPC, which is a subordinate agency of FIA, has jurisdiction over the investment promotion business for each of the provinces. IPC branches are located in northern, central, and southern region. These are namely, IPCN (jurisdiction over the Hanoi suburbs), IPCC (jurisdiction over the Da Nang City suburbs), and IPCS (jurisdiction over the Ho Chi Minh City suburbs).
IPC has been building the investment project list at domestic area as well as abroad in cooperation with the relevant Ministries. In addition, IPC has been offering abundant services to the locally based enterprises as well as Vietnamese public agencies which are in charge of SMEs support policy planning and implementation. Particular ones are review and evaluation of the enterprise investment plan, investment advice, holding workshops for the exchange of views among investors, formulation of the national investment promotion program, monitoring of the program implementation, Vietnamese market research, investment research, policy consulting, business strategy consulting, and support for documentation of the project planning. Besides, all provinces have established their own provincial IPC to promote and attract both, foreign and domestic investment.
6) SMEs support agencies in within a jurisdiction of local authority
In each of the provinces and municipalities, SME support center is in operation under the jurisdiction of the Department of Planning and Investment (DPI). The name, function and duties of the center are different by each of the provinces and cities, which have been determined under the discretion of each local authority. For instance, the function and duties of the SMEs support center in Hanoi are stipulated by the Ha Noi City presidential Decision No.54/2005/QD-UBND. The major duties are as follows. Particularly, a) enterprise start-up support (support for the investment license application procedures, support for laws and regulations interpretation, guidance of the tax system), b) utilization support of intellectual property rights (trademarks, patents, utility models, protection guidance), c) government policy guidance, d) market research support, e) enterprises’ capacity development support (training, workshops, seminars), f) support for holding exhibition and/or fair of the enterprise products, and g) advertising support.
As for another case, the function and duties of the SMEs support center of Dong Nai province are stipulated by the provincial Decree No.124/2011/QD-UBND. The major duties include a) the entrepreneurial support (start-up advice regarding relevant laws and procedure of raise of the capital), b) business management advice (procedure for dealing with the bankruptcy, settlement, and business registration), c) relevant information provision (market information, the provincial government information in accordance with the business strategy), and d) support for building up partnerships among enterprises, provincial authority and industry associations. These are general public information provision and advisory support on a variety of procedures as a whole, which may be necessary at the time of start-up and management of SMEs business implementation. However, the duties of SMEs support center of the provinces and municipalities are reflecting the regional characteristics. Therefore such regional characteristics is thought to be reflected in the name of the SMEs support center, which differs from each of the provinces and municipalities)。
Above-mentioned structural relationship can be shown in the form of a tree diagram as follows:
[pic]
Source: Author’s compilation based on variety of materials
(2) Agencies in charge and policy in a MOIT series
The highest ranked laws and regulations for SMEs support policies in a MOIT series are Decree No.134/2004/ND-CP, and Decree No.45/2012/ND-CP, which is an amendment of Decree No.134. These laws and regulations are stipulating the policy related to the industrial development in rural areas. Firstly, the Agency for Regional Industry Development (ARID) is positioned as the highest ranked SMEs support agency in a MOIT series. At local level, apart from the ARID-managed Industrial Promotion Center Region 1 (IPC1), such a locally managed Industrial Promotion Center (local IPC) was established in each of the provinces and municipalities under the jurisdiction of DOIT.
Other institution that provides support to manufacturing SMEs is the Supporting Industry Enterprise Development Center (SIDEC), of which operation is managed by the Institute for Industry Policy and Strategy (IPSI) belonging to the MOIT. SIDEC has been supporting SMEs through enterprise database development and business matching support.
Finally, there exists the Vietnam Trade Promotion Agency (VieTrade) that assists SMEs in product marketing in overseas, and SMEs business matching support.
1) ARID: Agency for Regional Industry Development
ARID was established on the basis of the Ministry of Industry (the predecessor of the current MOIT) Minister Decision No.115/2003/QD-BCN. Duties and functions of ARID are stipulated in the following laws and regulations. Particularly, Decree No.134/2004/ND-CP, amendment Decree No.45/2012/ND-CP, MOIT Minister Decision No.799/QD-BCT, and MOIT Minister Decision No.999/QD-BCT as an amendment of Decree No.799.
The above-mentioned laws and regulations are stipulating ARID to perform the following duties. Namely, drafting policy documents and laws and regulations relevant to the SMEs support policy in rural areas, assistance for MOIT Minister, development of planning and support mechanisms, monitoring and evaluation of local SMEs support policy, information provision, support for holding SMEs product exhibition/fair, and adjustment among relevant ministries and agencies for local industrial promotion policy execution.
2) IPC1: Industrial Promotion Center Region 1
IPC1 is an industry promotion advisory center in rural areas, which covers the northern region and three provinces in the North Central Coast including Thanh Hoa, Nghe An and Ha Tinh. IPC1 was established on the basis of MOIT Minster Decision No.6368/QD-BCT. According to the decision No.6368, the duties of IPC1 are as follows. Namely, SMEs human resource development, monitoring and evaluation of SMEs industrial development policy in the northern region, providing such information as the relevant laws, regulations, technology and market, advice for business operations and way of securing quality, and offering the business incubation services such as lending equipment and office space for SMEs which are scheduled to be entrepreneurs.
3) Local IPC: Industrial Promotion Center in each of the provinces and municipalities
Major duties of the provincial IPC are similar to IPC1. Their main contents include advice on various procedures at the time of entrepreneurship and business management, human resource development, and relevant information provision. However, depending on the situation peculiar to the province and municipality, some additional functions and duties can be observed, which are thought to be reflected the regional characteristics. It seems that such regional characteristics are also reflected in the name of the industrial promotion centers in each of the provinces and municipalities[?]).
4) SIDEC: Supporting Industry Enterprise Development Center
SIDEC was established in 2009 by IPSI which is a policy-making research institutes belonging to MOIT. Activities of SIDEC are as follows. Particularly, Vietnam's SMEs support, drafting policy documents regarding SMEs industrial development support, development of the SMEs databases, SMEs information provision, SMEs training, and business matching support.
5) VieTrade: Vietnam Trade Promotion Agency
VieTrade was established on the basis of the Prime Minister Decision No.78/2000/QD-TTg. Its functions and duties are stipulated in the MOIT Minister Regulation N.963/2013/QD-BCT, which is the latest regulation. VieTrade is an agency specialized in the trade promotion mainly in the overseas markets, and its duties contain holding commercial events in cooperation with other government agencies and the private sector, mediation of holding overseas products exhibitions/fairs as well as domestic exhibitions/fairs, SMEs development support. Besides, VieTrade also offers investment consulting advisory services.
Above-mentioned structural relationship can be shown in the form of a tree diagram as follows:
[pic]
Source: Author’s compilation based on variety of materials
(3) Agencies in charge and relevant policy for SMEs financial support
There exist the following 3 types of agencies as SMEs corporate finance support institutions in Vietnam. That is, the MPI-led SME Development Fund (SMEDF), Vietnam Development Bank (VDB) and the Credit Guarantee Fund (CGF) in local level.
1) SMEDF: SME Development Fund
SMEDF was founded by the Prime Minister Decision No.601/QD-TTg, which was based on the proposal of the Minister of MPI. SMEDF is composed of management board of which chairman is a Vice-Minister of MPI and five board members consisting of director of SMEDF and representatives of the following ministries and agencies such as Ministry of Finance, the state bank, AED, and SME Association. SMEDF is a financial institution for SMEs. SMEDF makes loans to SMEs up to 70% of the total investment cost within a range that does not exceed 30 billion VND. Repayment period is seven years as the longest term[?]）and borrowing interest rate is determined by the Ministry of Finance for each project.
The requirements for SMEs at the time of borrowing is stipulated as follows: 1) presentation of a sufficiently viable business plan, 2) full acquaintance to the civil law and other relevant legal framework, 3) holding sufficient capital for project, which is made of 20% or more of the equity of the total capital, and 4) sufficient repayment capacity.
2) VDB: Vietnam Development Bank
VDB was established in accordance with the Prime Minister Decision No.108/2006/QD-TTg, which was proposed by MOF Minister, and its functions and duties were stipulated by the Prime Minister Decision No.110/2006/QD-TTg. VDB was established in the form of reorganization of the DAF (Development Assistance Fund), and VDB took over 2,500 staffs and the 61 branches located in provinces and cities. VDB is a policy-based financial institution in charge of the development investments, which were are provided with a differentiated features with commercial banks. In addition, the Prime Minister Decision NO.14/2009/QD-TTg and Prime Minister Decision NO.03/2011/QD-TTg, which is the amendment of the Decision 14, are stipulating in detail the terms of the credit guarantee for SMEs, which is provided by VDB at the time of performing loans to SMEs from commercial banks. According to the Decision, targeted types of business of credit warranty SMEs include processing industry, manufacturing industry, gas or hot water or steam or air-conditioner related industries. Guarantee limit must not exceed 15% of the total capital of the VDB branch. In addition, the guarantee limit for a single borrower is capped at 85% of the total investment cost. Fees of the warranty SMEs is paid for VDB at 0.5% of the total amount including the guarantee amount and interest rate.
3) CGF: Credit Guarantee Fund
CGF is a SME credit guarantee fund situated in each of the provinces and municipalities. CGF is basically a financially independent institution. CGF is functioned as guarantee the credit of SME which is difficult to borrow the fund from the commercial banks due to insufficient collateral, and it aims at improvement of SMEs’ accessibility to commercial banks. Installment of the CGF was stipulated in article 7 of the Decree No.90/2001/ND-CP. Also, CGF establishment was encouraged in the article 7, clause 1 of the Decree No.56/2009/ND-ND, which is the amendment of the Decree No. 90. Prime Minister Decision NO.193/2001/QD-TTg stipulated the CGF operational details, including the terms and conditions as shown in the following table.
|Structure |Functioned as a financially independent organization. It shall have Management Council, |
| |Control Board and Executive Board. |
| |All of the above-mentioned members are to be nominated or dismissed under the discretion of |
| |the representative of provincial or municipal people’s committee. |
|Targeted SMEs |All types of SMEs, Cooperatives, Individual or household business entities, farmers, |
| |fisheries and other household business entities. |
|Assets requirement for Warranty SMEs|Assets equivalent to the mortgage of which value is more than 30% of the total borrowings. |
|Guarantee contents |Guarantee is provided to a maximum of 85% equivalent to the amount of the difference between|
| |the borrowing amount and mortgage asset value of the SMEs. |
| |However, guarantee amount shall not exceed 15% of the total assets of the Guarantee Agency. |
|Charge |50,000VND per one set of the application form, and 0.8% of the guarantee amount as an annual|
| |payment. |
Source: Prime Minister Decision No.193/2001/QD-TTg
3. Supporting industry enhancement policy in Vietnam
Prime Minister Decision No.12/2011/QD-TTG as the first law aiming at Vietnam supporting industry promotion has appeared to be entitled to the development policy of supporting industry on February 24th in 2011. In this legal document, definition of the supporting industry and types of industries being included in the supporting industries has been clearly stipulated for the first time. Namely, supporting industry is defined as “an industry that manufactures materials, spare parts, details, accessories and semi-finished products for supplying to industries that manufacture and assemble finished products for use as production materials or consumer goods.” Supporting industries are defined as the following 6 industries, i.e., 1) manufacturing mechanical engineering, 2) electronics-informatics, 3) manufacture and assembly of automobiles, 4) textile and garment, 5) leather-footwear and 6) hi-tech industry.
In Prime Minister Decision No.1483/2011/QD-TTg, supporting industries subject areas and items were stipulated in detail, in Circular No.96/2011/TT-BTC, supporting industries preferential policies were stipulated, in the MOIT Official letter No.9734/BCT-CNNg, supporting industries preferential policies applicable application procedure and accreditation bodies have been designated. In this official letter, installation of the supporting industries development project assessment committee has been stipulated. Mission of this committee is to review and evaluate the supporting industries project to be developed on a priority basis, and to build-up a system to report to the Prime Minister. This committee is stipulated that MOIT Deputy Minister is served as a chairman, and representatives of relevant ministries and agencies (MPI, MOF, MOST, Ministry of Information and Communication (MIC), Ministry of Natural Resources and Environment (MONRE), Ministry of Justice (MOJ), VDB and so forth) are served as the committee members. In addition, Prime Minister Decision No.1556/QD-TTg ratified a series of laws and regulations that stipulated SMEs promotion policy in the past, and action plan was explicitly shown in ANNEX of the Decision. In recent years, in 2015, Decree No.111/2015/NĐ-CP has promulgated a supporting industry promotion policy again. However, Decree No.111 has become only a legal document repeatedly stipulating the preferential policies which are covered by the existing laws and regulations. Therefore, Decree No.111 does not have particular new measures and incentives in it.
3.3 Challenges of Vietnamese supporting industry
As discussed in the previous chapters, SMEs supporting policies and supporting industry policy of Vietnam have been implemented by a number of central ministries and local agencies. In here, the operational realities and issues of SMEs policy and supporting industry policy in Vietnam are discussed as follows.
(1) Inappropriate coordination of relevant agencies
SME policy contents being implemented by multiple ministries and local agencies are technical assistance, financial assistance, training, information provision, SMEs business matching support and development of the SMEs data-base. These seem to be significantly similar measures and these have been carried out independently by the each department and each institution (Aoyama, 2013). In addition, even when the MPI series is solely observed, similar agencies such as TAC and the SME Support Center have been installed in duplicate in each of the municipalities as Hanoi, Da Nang City, and Ho Chi Minh City, and almost same services are provided. The same situations can be observed in Industrial promotion policy in MOIT series. Namely, the IPC1 located in the northern region and industry promotion center installed in each province in same northern region have to face with risks of providing overlapped services. Among those agencies and institutions, very little effort has been made for achievement of proper mutual adjustment. Therefore, the actual policy implementation has become inefficient in the light of funding and human resource allocation.
(2) Mismatch between SMEs technical needs and the actual services provision
The contents of the services provided by MPI series and MOIT series contain advice on procedures for acquisition of the investment license, way of writing an application form, and disclosure of relevant legal document. Thus most of the services contents are biased to the advice on administrative procedures. It can be said that technical needs of SMEs are advanced production management skill and manufacturing technology for establishment of the business relationship with foreign-invested enterprises. These are technical know-how in line with the actual manufacturing site. However, in the current situation, technical services to meet such SMEs needs may not be provided sufficiently. The major reasons why those matters can be seen are the lack of both; (i) capable engineering staff to handle technical matters and (ii) sufficient facilities and equipment for the provision of proper technical services. In reality, local SMEs are incapable to participate in the supply chain of FDI enterprises, particularly MNCs in Vietnam, even those operating in the industries which are engaged in GVCs such as textile-garment, footwear and electronics. .
(3) Low frequency of use of SME support center
Local authority is operating SMEs support center and industrial promotion center in each of the provinces and municipalities, however, the SMEs’ awareness of existence of those facilities may be very low. Therefore, the frequency of usage of the facility is also very low. One of the reasons for this can be said that public relations activities done by the management body of the facility as well as local government may be insufficient.
(4) Insufficient PDCA cycle of SMEs support activities
For SMEs support activities, which are carried out by DPI and DOIT in the provinces and cities, any monitoring and evaluation for their achievements, issues and the points to be improved, as well as feedback activities of their results could not be observed. Under the absence of so-called as PDCA (Plan-Do-Check-Act) cycle, current situation could not properly be identified. Therefore, the mismatch between user needs and current services provision could not properly be detected. Governmental agencies, in most cases, prefer to put a great deal of time, human resources and funds into the documentation of the laws and regulations as well as planning for the SMEs promotion policy. This means that significant resources have been put into the stage of “P” of the PDCA cycle. However, “D” is extremely weak, and “C” is not almost done. Therefore, “A” could not be reached at all.
(5)Duplicated SMEs financial support policies
Also in the SMEs financial support policies, plural financial facilities, such as SME development fund operated by MPI, credit guarantee service provided by VDB, and CGF operated by local agencies, have been provided in a duplicated manner. And their function sharing is not clearly defined, and it has not been efficient use of capital resources. In addition, awareness of SMEs for the presence of those facilities is low, and therefore the use of SMEs is insufficient.
(6)Some issues for reality of establishment of CGF and its operation
Installation of CGF has been encouraged in the provinces and municipalities, in accordance with the Prime Minister Decision No.115, which is the amendment of the Prime Minister Decision No.193 in 2001. Up to today, it has already elapsed 12 years. However, the number of the provinces and municipalities, which have set up CGF, remains only 10 out of the 63 provinces and municipalities in nation-wide Vietnam. One of reasons for this can be said to be very high asset condition hurdle for installation of the CGF, i.e., 30 billion VND (Hoang, 2012). Thus, currently, management of foundation of the CGF is extremely fragile. Therefore, it may be hard to hope the sound operation. In addition, any professional technical staff, which is capable of reviewing the user's eligibility, has not been properly placed. Therefore non-efficient review system with questionable validity for examination results has been laid.
(7)Low frequency of actual use of CGF
The number of CGF users has remained at a low level. As their factors, a) asset size of CGF agencies is small, therefore a sufficient guarantee amount is not be set for SMEs, b) financial institutions does not trust the assurance function of CGF, this means that CGF is not well accepted by financial institutions, 3) CGF is seeking a high level of mortgage conditions for SMEs.
Therefore, it is almost impossible for SMEs to meet guarantee conditions. Therefore very few SMEs can enjoy the CGF services provision.
3.4 Challenges from the viewpoint of economic aspect
As discussed earlier, the economic integration will bring many benefits for Vietnam, especially in enhancing selective industries like textile-garment, electronics, etc. due to tariff reduction. As a result, the total export volume has increased significantly and Vietnam has become a country of trade surplus. In general, Vietnam has competitive advantages of these industries of textile-garment, electronics and shoes. So if taking this advantages and participating in the global value chain of these products, Vietnam has a chance to develop industries. If so, Vietnam has to develop supporting industries (SI).
Table 3.1 Benefits for joining TPP
| |% of total exports |Tariff rates |After TPP |
|Footwear |7 |38% |0 |
|Garments |14 |17% |0 |
|Frozen seafood |4 |5% |0 |
| | | |After 5 years |
Source: NewZealand Gorvenment’ website.
[pic]
Figure 3.12 Exports, imports and trade balance, 2009-2016 (million USD)
Source: CIEM (2016).
Note: Exports and imports are shown in the left-hand axis and trade balance is shown on the right-hand axis. However, based on the opportunities, there are some challenges for Vietnam’s SI, namely:
Firstly, SI of Vietnam remain weak which lead to increase high imports of intermediate goods. The production cost of the products “made in Vietnam” high cost compared to other Asian countries, and there is no necessary competitiveness. Cause that is, the assembly companies, outsourcing firms do not use products manufactured in Vietnam which relies on imports from other countries. In fact, according to MOIT, SI currently have to import nearly 80 percent of raw materials, spare parts and components. The localization rate of Vietnam was 32.1% in 2015, a slight decrease compared to 2014. However, it was higher than the Philippines, but it was still lower than in other countries.
Figure 3.13 Exports, imports and trade balance, 2009-2016 (million USD)
Source: JETRO, 2016.
For other sectors, the high localization rate is motorcycle industry, accounted for 95%, following the electronics industry (20%), the automobile industry (15%) and the high technology industry (5%). If this sector remains undeveloped, large foreign-invested manufacturing and assembling companies will leave Vietnam on default of local supplies.
Table 3.2 The localization rate of some selected industries
|Sectors |% of domestic supply |
|Electronics |20% |
|Motorcycle |95% |
|Automobiles |15% |
|High technology industry |5% |
Source: MOIT (2014).
Secondly, the vertical and horizontal linkages among business are still weak due to lack of information. Vietnam has very little information about linkages of SI or databases about companies specializing in SI so it is hard to find and select partners. For foreign companies, information on Vietnam’s SI has also little, and almost all foreign companies have faced many difficulties in the process of finding customers. Vietnam has a plan to develop industry clusters for productions linking SI’s products, but the process of forming industry clusters is slow although in practice, industry clusters with products (textile-garment, footwear and electronics) are forming.
Thirdly, it is the limitation of power supply. Capacity to deliver the products of SI is very low, there is not enough capacity to meet the requirements of the foreign firms when they want to build a processing plant in Vietnam products. More specifically, the number of companies operating in this industry was little support, poor product quality and very few businesses can ensure appropriate delivery time. In addition, the product components and parts can be produced is limited only the basic product, easy to manufacture. As a result, these products are competitive in Vietnam by foreign products and reduce market share[?].
However, even in such a difficult situation, Vietnam enterprises have not made the necessary efforts to improve their production methods. Most companies are currently conducting focus mode of production, from the design model to fabrication, assembly and distribution being conducted in one place. These led to the decline in the quality of human resources and thereby reduce the competitiveness of products. Private companies with flexible mode of operation than the state-owned companies, but they are not be able to expand production lines due to capital, technology. As a result, product quality is not be improved. The problem of low quality products is also a fundamental problem of Vietnamese SI.
Fourthly, there is also a drawback of participation in global value chain (GVC). As can be seen from the diagram 2, the export volume of the products like textile-garment, telecommunication equipment and parts, footwear which are products of SI, has increased significantly and they have joined global value chains. As a result, they contributed in a part of increasing the market share of Vietnam’s products in the world by 0.33% during the period of 2008 – 2013.
[pic]
Figure 3.14 Market share of Vietnam’s products in the world
Source: Vietnam 2035 report.
However, most FIEs dominate these sectors. For example, in the case of electronics industry, the number of electronic businesses in Vietnam has increased rapidly in recent years both of domestic enterprises and foreign invested firms (FIEs), but most exporting electronic enterprises in Vietnam are FIEs (table 5). For other products of SI such as automobile; mechanical engineering and high tech industry, the production scale was small and it is difficult for participating GVC in terms of cost, quality and standards.
Table 3.3 Characteristics of Electronic enterprises in Vietnam, 2010-2013
|Year |SOEs |Local private enterprises |FDI enterprises |
| |Number |Export enterprises |Number |exporting enterprises |Number |export enterprises |
|2010 |10 |20% |314 |4% |180 |79% |
|2011 |8 |88% |281 |17% |224 |86% |
|2012 |9 |56% |346 |10% |237 |85% |
|2013 |10 |30% |385 |19% |304 |80% |
Source: MOIT (2014).
There are several reasons for affecting the above situation of SI, namely:
The implementation of SME support policies is still delays, lack of closed coordination among state management agencies. For example, activities for SME credit guarantee are still limited due to many different causes, in terms of capital, operational mechanism, and capacity of the Fund. Institutionally, the operation for SMEs credit guarantee fund does not meet the needs of SMEs. Mechanisms and policies for SME credit guarantee were amended and supplemented but in reality not feasible. In recent years, although commercial banks have been proactive and willing to lend capital, but the situation of credit to SMEs are still many bottlenecks. According to the central bank report, the reason is mostly quality of SME financial information is not high. SMEs do not meet the loan conditions prescribed (MPI, 2014). Production capacity and the ability to self-financing of SMEs are limited, unstable market; guarantee assets do not meet the requirements ... Meanwhile, the banks only loan based on SMEs’ assets. Therefore, the majority of SMEs still faces many difficulties and is unable to access credit, although the banks are abundant capital loan.
Moreover, although there are many organizations involved in supporting SMEs, but these organizations seem to operate vertically, without horizontal coordination with other actors in the support of SMEs.
The state agencies’ capacity of implementing support policies and programs for SMEs remain weak. At the central level, the focal point for SME development assistance has been only focused on the formulation of mechanisms, policies and solutions to SME development, not been eligible to promote the organization of implementation of policies and programs for SME development assistance due to human resource limitation, including a number of key activities such as training and capacity building for staff working in the area of SME development assistance.
At the local level, the provinces/cities have difficulties in human resources and budget of formulation and implementation of policies and programs to support SMEs. Staff working in the field of SME development is still lacking, limited capacity and most of staff has not been trained and retrained in the field of SME development support. Over 70% of local provinces do not have specialized section of implementing support policies on SME development in the province. According to provincial reports (52/63 provinces) on the current status of agencies’ capacity of implementing support policies on SMEs development in local level, only 30% full time staff work in the field of SME and majority of staff are part time who are not only responsible for SME but also they are in charge of business establishment, investment promotion, trade and tourism…There are too few staff compared to their work required to support SMEs in the province, so the implementation of activities in support of SMEs is limited at local level.
Moreover, there is lack of technical capacity of businesses as well as stakeholders in general. For example, technological centers such as industrial promotion centers, energy efficiency centers have also limited capacity because these centers do not have their staffs who have enough capacity to check, monitor new technologies and machineries.
The order and procedures for benefiting incentive policies and programs of the State are too complex, including policies on the development of SI, so it has been difficult for SMEs to access. This is one of the main reasons leading to the proportion of SMEs benefiting from the support policies of the State is relatively low. A few support policies and programs’ content are not really clear, causing prolonged time and much effort to have the guiding, but the efficiency of these policies is not high. The result is the number of projects eligible for selection for performance is low, failing to meet the requirements and plans laid out. For example, it is difficult to implement support activities which are patent application, drafting patent registration documents, assistance in enforcing intellectual property rights, intellectual property valuation.
To sum up, Vietnam is lacking an institutional framework. Although the intention and directions of the government regarding promotion of SMEs are started in legal documents but the provision of such operational details usually lags far behind the date of announcement of the legal documents. It is illustrated by a study (ERIA and OECD, 2014)[?] which stated that Vietnam’ SME policy index was still lower than the average index of ASEAN countries.
[pic]
Figure 3.15 Vietnam SME Policy Index
Source: ERIA and OECD (2014).
3. Policy recommendation
4.1 Introduction of LPTC (Local Public Technology Center) based on Japanese advanced experiences
Based on the above-mentioned challenges in the field of supporting industry in Vietnam, the research report will recommend the policy introduction to ease the current issues in Vietnam. Namely it is the introduction of LPTC in Vietnam.
Firstly, here we discuss about historical background of Japanese supporting industry and regional industry development is as follows:
■ Mechanical/Metal and Auto-mobile industry
➢ World war II: A large number of SMEs were mobilized for the production of aircraft, warships, weapons, ammunition and the like
➢ 1950-1980: With the development of the automobile industry, SMEs have been expanded.
➢ 1990-2000: Also in northern and southern part of Japan, the automobile industry has been integrated.
(#LPTC contributed to technological advancement of supporting industry)
➢ After 2010: Domestic market has been stagnant, therefore SMEs has to decide promotion of overseas business, or proceed to develop new market in the domestic area
■ Electronics Industry
➢ World war II： Telecommunications technology has been accumulated.
➢ 1960-1970： Electronics-related SMEs have been expanded.
➢ 1980-1990： Also in northern and southern part of Japan, the human resource development related industry has been expanded.
➢ After 2000： Domestic production has been reduced. Factory expansion into Asia has been progress. However, the semiconductor industry has remained in the country.
Characteristics of Japanese industry accumulation can be seen in the following diagram. Historically, industrial integration, has been progressed around the Kanto, Tokai and Kansai region. Tohoku and Kyushu have progress in industry integration in the past 20 to 30 years.
[pic]
Figure 4.1 Characteristics of Japanese industry accumulation
Source: Author’s compilation based on variety of materials
LPTC is a facility that local government has installed. It is a R&D institution for the purpose of industrial development of the region. LPTC support subjects are mainly SMEs. In the support areas, such various fields are included as agriculture, forestry, fisheries, mining and environment. Currently, Japan has more than 600 LPTC, from among them, 130 facilities are industrial systems.
[pic]
Figure 4.2 Examples of facilities and equipment of LPTC in Japan
Source: Author’s compilation based on variety of materials
Major functions of LPTC are as follows:
➢ The main support menu is the test implementation support, and technical consultation.
➢ Test implementation support
➢ Request test (to check whether to meet the criteria of the issue. Report a test report by suppliers)
➢ Facility utilization (The advanced test environment is provided at a low price. SMEs can use the test equipment by themselves.）
➢ Technical consultation / technical guidance
➢ In case of simple things, they are conducted by telephone consultation or visiting consultation, while in case of much more complex ones, staff of LPTC will visit and try to solve the problem jointly.
➢ R&D
➢ Own research, joint research with companies and universities, contract research from individual companies
➢ Human resource development (Seminar, Workshop etc.)
➢ Information provision
➢ Support for regional collaboration among industry, government and academia
➢ Number of staffs of LPTC is about 50 to 100. (maximum number is 326 staffs in Tokyo）
Role of LPTC for supporting industry development are as follows:
➢ 1950 - 1980s, the Japanese automobile industry has rapidly grown. While large companies carried out technical guidance to SMEs, it has been brought up the supporting industries. (Japanese type supplier system)
➢ Bottom-up support by LPTC has been made as well（LPTC system）
➢ Recently, large companies are promoting the selection of the contractor in the country. Therefore, the mechanism of Japanese type supplier system is not functioning. SMEs have been faced with the need to advance the technical capabilities improved by taking advantage of the LPTC. Therefore, LPTC system has become important.
[pic]
Figure 4.3 Major role of LPTC
Source: Author’s compilation based on variety of materials
4.2 Conclusion
The main measures to improve the quality support of SMEs may be the following two actions. That is, 1) improvement of creditworthiness for credit acquisition, and 2) technical capacity building assistance for product manufacturing. At present, it can be said that no sufficient support system corresponding to above-mentioned two policies have not been properly introduced in Vietnam. And inefficient operation, which includes arrangement of the plurality of duplicated institutions, has been made. Vietnam has been delayed behind more than 40 years comparing to Asian NIEs, China and other ASEAN advanced countries, which have embarked on a competitive international market by taking the export-oriented industrialization strategy. But, it is also true for Vietnam of being located in a position to be able to take full advantage of the profit of generic.
As for technical capabilities improvement support for Vietnamese SMEs, one of supporting tools, which can be provided by Japan, is a technical know-how of the Local Public Technology Center (LPTC), of which Japanese terminology is “KOHSETSUSHI”. The history of Japanese LPTC can be traced back to the Meiji period, which is around early 1990s. LPTC is an R & D organization for SMEs. At present, more than 600 LPTCs are in operation in nationwide Japan. The main business menus of LPTC are as follows. Particularly, 1) Support the implementation of product testing, 2) Technical consultation and technical guidance, 3) Research and development support for the new technology, 4) Arrangement of joint research with companies and universities, 5) Human resource development assistance, 6) Technical information dissemination , 7) Support of coordination among industry, academia and local authority.
Technical support for planning and development of the public technology support center, of which concept is based on Japanese LPTC, has already been implemented by Japan Government in the form of technical cooperation project in Vietnam through 2006 till 2008. However the project has been suspended up to today without proceeding to the phase 2, at which several sophisticated equipment were to be introduced.
Vietnam should continue to strengthen its political efforts to improve the creditworthiness and technical capabilities of SMEs, taking advantages of the international cooperation relations with neighboring countries as well as technical assistance through the ODA.
[1] Growth figures of manufacturing industry were 7.22% and 7.41% in 2013 and 2014, respectively.
[2] The YoY figures of changes of construction sector: down by 0.26% in 2011, up by 3.66% in 2012; up by 5.84% in 2013; and up by 6.93% in 2014.
[3] YoY growth was 9.3% in Q1; Q2: 10.2%; Q3: 9.3%; and Q4: 10%.
[4] Sale of manufacturing sub-sector at the end of 2015 increased by 10.2% (YoY), some industries experienced high increase of sale, including electric products, computers and optical products (49.4%); production of motor vehicles (26.6%); production of metal (22.9%).
[5] See more analysis of the sub-Sections on Monetary movement and Investment.
[6] For example, price of transportation fell by 8.74% in December (YoY) and by 11.92% in 2015; price index of imports dropped by 9.66% in Q4/2015 (YoY). It should be noted that the reduction of tariffs under some FTAs helped lower input costs for industrial production.
[7] See more in Eurocham (2016).
[8] Currently, Vietnam has around 400 enterprise associations (officially operation) throughout the country, of which VINASME is member of VCCI, which plays very important role as representative of SMEs. It has strong advocacy to represent SMEs in formulation of SME related policies.
[9] MOIT and Danida (2015).
[10]
[11]
[12]
[13] Circular 221/2012/TTLT-BCT-BTC (24 December 2012, state budget for implementation of national strategy on cleaner production) and Circular 26/2014/TTLT/BCT-BTC (18 February 2014, local and provincial budget for industrial promotion).
[14]
[15] Study on ASEAN SME Policy Index 2014 toward Competitive and Innovative ASEAN SMEs by ERIA and OECD.
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Agri & Fishery
Industry
-construction
Services
Figure 3.10 Agencies in charge in a MPI series
Figure 3.11 Agencies in charge in a MOIT series
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Mitsubishi Research Institute Inc.
Central Institute for Economic Management
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