Introduction
Background and Problems
In 1986, Vietnam initiated the Doi Moi economic reform program, marking a significant transition from a centrally planned economy to a market-oriented one This transformation led to the establishment of a multi-sector market economy that includes domestic public, private, and foreign-invested sectors As a result, Vietnam has experienced robust economic growth and substantial poverty reduction, with an impressive average annual GDP growth rate of 6.8% from 1986 to 2009.
Vietnam has demonstrated remarkable resilience, emerging from both the Asian financial crisis of the late 1990s and the recent global financial crisis with significantly higher GDP growth rates compared to its regional counterparts One of the key successes of Vietnam's reform process is the substantial reduction in poverty, with the poverty rate plummeting from 58.1 percent in 1993 to just 12.3 percent in 2009, as reported by the World Bank This rapid and sustained economic growth has greatly improved the living standards of many Vietnamese citizens.
Since the Doi Moi (Renovation) reforms in 1986, Vietnam has seen remarkable economic growth, particularly benefiting small and medium-sized enterprises (SMEs) since the introduction of the Enterprise Law in 2000 Between 2010 and 2015, SMEs played a crucial role in Vietnam’s economic landscape, contributing approximately 45% to the country's GDP and 31% to overall budget revenue They also accounted for about 31% of total investment capital within the business sector and were responsible for generating 51% of total employment in Vietnam.
The government plays a crucial role in investing in essential infrastructure, including electricity, water supplies, roads, ports, industrial zones, telecommunications, and the internet, which are vital for the growth and development of small and medium-sized enterprises (SMEs) SMEs often face challenges related to limited access to finance and information asymmetry, necessitating targeted government intervention (Guiso and Minetti, 2010) Recent policy reforms may have contributed to the significant growth in both the number and scale of SMEs, as evidenced by the rapid increase in registered enterprises.
The Vietnamese Government, along with various Ministries and Agencies, recognizes the crucial role of SMEs and has implemented numerous policies to enhance their development These initiatives focus on improving access to capital and production facilities, fostering innovation, and building technological capabilities Additionally, the policies aim to expand market reach, facilitate participation in procurement plans, provide public services, and support human resource development Consequently, with government backing, SMEs can optimize resource use, leading to increased research and development and improved productivity (Wu, 2017).
Debates persist regarding the effectiveness of government support schemes for small and medium-sized enterprises (SMEs), with evidence suggesting minimal incremental benefits (Riding et al., 2007) Concerns arise about whether the advantages of these programs outweigh their substantial costs (Craig et al., 2009), particularly in developing countries where corruption is prevalent Additionally, subsidies may be inequitably distributed, favoring firms with political connections over those contributing meaningfully to society (Vu et al., 2018; Tsai et al., 2019) Consequently, government assistance often fails to enhance productivity and innovation among firms Many enterprises report difficulties accessing government policies, with only a few reaping the benefits of support Critics argue that SME development largely relies on the firms' own efforts, with government backing perceived as superficial Despite the Vietnamese government's promotional initiatives, SMEs have not received adequate policy support or resources, and there has been a lack of macroeconomic reforms to establish essential infrastructure and regulatory frameworks for growth Furthermore, many SMEs remain unaware of existing policies, highlighting the need for better insights into the actual impact of these policies on SME development for both policymakers and the government.
This article explores the necessity of examining the support policies for the development of small and medium-sized enterprises (SMEs) in Vietnam, a sector with significant growth potential It offers insights into the effectiveness of the Vietnamese Government's initiatives aimed at promoting SME development The analysis focuses on the adequacy of the policy framework and evaluates the effectiveness of support in areas such as infrastructure, finance, and administrative procedures, highlighting the challenges faced in the market development process within Vietnam's socialist market economy model.
This study distinguishes itself from prior research by focusing on the socialist market economy model of Vietnam, whereas most existing studies primarily analyze developed or capitalist countries.
Various forms of government assistance can significantly influence companies' financial performance Our research extends beyond existing literature by examining the specific impacts of different types of government support on firm performance.
Purpose of research
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This study presents key evidence on how government support affects the productivity of small and medium-sized enterprises (SMEs) in a transitional economy Additionally, it explores the effects of different policy groups, offering a comprehensive understanding of the government's influence on SME productivity.
The Vietnamese Government has implemented financial policies aimed at supporting small and medium-sized enterprises (SMEs) by reducing and exempting taxes, particularly for new and high-tech businesses, to promote job creation Efforts to address inefficiencies include allowing SMEs to defer value-added tax payments, simplifying tax administration, and offering preferential tax rates Despite these advancements, challenges in tax policy persist Additionally, fiscal aid and loan support programs are available to help SMEs navigate initial challenges and overcome operational difficulties.
Infrastructure policies play a crucial role in supporting the development of small and medium enterprises in Vietnam, yet significant challenges remain unresolved Investors should be aware of critical issues such as the urgent need to upgrade railway systems, the impending capacity limits of ports due to rising trade volumes, and the fact that only 20% of national roads are paved While Vietnam's current infrastructure is typical for its developmental stage, rapid advancement is essential for maintaining competitiveness Therefore, it is vital to prioritize key factors that will drive infrastructure development forward, as highlighted in the World Economic Forum Global Competitiveness Report 2016.
2017, Vietnam ranks 79th out of 138 in terms of overall quality of infrastructure, 89th in quality of roads and 77th in quality of port infrastructure. download by : skknchat@gmail.com
Starting a business in Vietnam involves navigating regulations that dictate the necessary procedures, timeframes, costs, and minimum paid-in capital requirements for small to medium-sized limited liability companies Understanding these regulations is essential for ensuring a smooth and compliant business operation within the Vietnamese economy.
The national legal system is crucial for safeguarding the right to freedom of business and enterprise establishment, with its clarity, efficiency, and comprehensiveness directly influencing economic development Recent shortcomings in business establishment practices highlight the need for a thorough examination of legal provisions to enhance both business formation and economic law overall.
Recognizing the significance and growth potential of the SME sector, Vietnam has implemented various supportive policies in recent years To regulate SME operations effectively, the Government introduced a Decree in 2001 aimed at enhancing the framework for small and medium-sized enterprises in the country.
The Vietnamese government has implemented various policies to support small and medium-sized enterprises (SMEs) through No 90/2001/ND-CP, dated November 23, 2001, which provides assistance for SME development at both central and local levels Additionally, on October 23, 2006, the Prime Minister approved Decision No 236/2006/QD-TTg, establishing a five-year development plan (2006-2010) aimed at enhancing the investment environment, fostering business growth, and improving the competitiveness of SMEs.
On June 30, 2009, the Government introduced Decree No 56/2009/ND-CP to enhance support for small and medium-sized enterprises (SMEs), replacing the earlier Decree No 90/2001/ND-CP This decree outlines eight key assistance categories for SME development Following the implementation of Decree No 56/2009/ND-CP, various ministries, sectors, and local authorities have initiated programs aimed at fostering SME growth and support.
Next, in Decision No 1231 / QD-TTg dated September 7, 2012 of the Prime Minister, solutions and programs to support SME focus are outlined including: (i) download by : skknchat@gmail.com
Completing the legal framework on join, operate and withdraw from the market of enterprises; (ii) Support access to finance, credit and improve efficiency of capital use;
(iii) Support for technological innovation and application of new technologies; (iv) Human resource development for SMEs, focusing on improving governance capacity;
To foster economic growth, it is essential to promote the establishment of linkage and industrial clusters while enhancing land accessibility Additionally, providing vital information to support small and medium-sized enterprises (SMEs) will facilitate market expansion Building a robust system of development assistance organizations is crucial, as is the effective management of development plan implementation.
Despite some successes, SME support policies are inadequate in meeting the needs of businesses amid deepening international integration Recent implementations reveal that the level of support for SMEs remains low, with only a modest proportion benefiting from state programs Furthermore, support activities lack focus and fail to foster development within industry clusters Additionally, resources for SME development are scattered, and the processes for SMEs to access state support policies are fraught with challenges and inefficiencies.
This paper examines the varying impacts of government policies on the development of small and medium-sized enterprises (SMEs), providing insights that could benefit both central and local governments in Vietnam, as well as policymakers in other transitioning economies.
Research method
This study leverages two primary data sources: surveys on the development of SMEs in Vietnam from the United Nations University and data from the World Bank, which evaluates the impact of infrastructure quality, financial policies, and regulations on starting a business in Vietnam We employ an econometric model to analyze the relationship between these factors and the development of SMEs.
Our analysis reveals that various forms of government support impact firm productivity in distinct ways The primary influence stems from government assistance enhancing firm profitability and fostering innovative activities, rather than affecting firms' export activities or their formal status.
Research structure
This paper is organized into several key sections: the literature review in the next chapter analyzes existing models and theoretical frameworks relevant to the research area, detailing the estimation strategy and data sources The third section interprets and discusses the empirical results, while the final section offers a comprehensive discussion and conclusion This structure is essential for achieving the research aims and objectives, with in-depth discussions addressing each individual research objective.
Literature review
Overview of SME
The term "SME" (Small and Medium Enterprises) varies in definition across different organizations and countries, with criteria typically focusing on employee count, sales figures, or asset value The Inter-American Development Bank, for example, offers specific guidelines for classifying SMEs, highlighting the importance of these definitions in understanding and supporting the diverse landscape of small and medium-sized businesses.
The definition of Small and Medium Enterprises (SMEs) varies across organizations; the Development Bank classifies SMEs as businesses with up to 100 employees and annual revenues below $3 million, while the World Bank expands this definition to include firms with up to 300 employees and $15 million in annual revenue and assets In contrast, Egypt's definition of an SME is much narrower, encompassing businesses with five or fewer employees.
The European Union defines SMEs as micro, small, and medium enterprises that employ fewer than a specified number of employees, with a broader and more inclusive approach to turnover compared to other definitions.
250 people and having annual sales of no more than € 50 million.
Table 2.1.1.1: Definition of micro-, small- and medium-sized enterprises in EU
Source: Sato (2007) download by : skknchat@gmail.com
Among ASEAN countries, all members use the number of employees per enterprise as a common criterion However, the limit lines differ from country to country.
Table 2.1.1.2: A comparison of official definitions of SMEs
All countries, except Brunei and Cambodia, utilize various criteria such as assets, capital, and sales to categorize SMEs Additionally, certain nations do not establish specific thresholds to differentiate microenterprises from SMEs This inclusion of microenterprises within the SME classification can greatly influence the overall size structure, associated challenges, and relevant policy implications.
In Vietnam, the definition of a Small and Medium-sized Enterprise (SME) from 2001 to 2009 included independent businesses with registered capital not exceeding 10 billion VND or an average annual workforce of no more than 300 permanent employees, as outlined in Article 3 of Decree 90/2001/ND-CP Since August 2009, this classification has been updated to reflect new regulatory provisions.
According to Decree No 56/2009/ND-CP, small and medium-sized enterprises (SMEs) are defined as registered businesses under the Enterprise Law, categorized into three levels: very small, small, and medium These classifications are based on capital size, measured by total assets on the balance sheet, or labor size, determined by the average number of employees, with a priority given to total capital size.
Table 2.1.1.3: SMES scale criterion in accordance with the Decree No 56/2009/ND-CP
Source: Compilation from Decree No 56/2009/ND-CP
In the newly born SME Support Law (No 04/2017 / QH14) effective from
As of January 1, 2018, an enterprise is classified as a Small and Medium-sized Enterprise (SME) if it meets either of the following criteria: total capital does not exceed 100 billion Vietnam Dong, or total revenue from the previous year is not more than 300 billion VND It's important to highlight that microenterprises, SMEs, and larger enterprises are categorized differently across various sectors, including agriculture, forestry, fishery, industry, construction, trade, and services.
In this report, we follow the Vietnam capital scale criterion in accordance with the Decree No 56/2009/ND-CP.
Small and medium-sized enterprises (SMEs) play a crucial role in driving national and regional development across numerous countries Extensive research highlights their significance in boosting the economy, leading many nations to adopt various support programs and policies aimed at fostering SME growth Recent changes to the definition of SMEs within the European Union reflect this commitment, with numerous initiatives launched to enhance innovation and entrepreneurship among these vital businesses.
The SME sector plays a crucial role globally, significantly contributing to socio-economic goals such as employment growth, output enhancement, export promotion, and entrepreneurship development Recent studies indicate that SMEs account for over 55% of GDP and 65% of total employment in high-income nations, while in low-income countries, they represent over 60% of GDP and 70% of employment In middle-income countries, SMEs contribute over 95% of total employment and around 70% of GDP In the European Union, approximately 25 million small businesses make up 99% of all enterprises, employing nearly 95 million people and providing 55% of private sector jobs SMEs also play a vital role in exports and productivity growth, adapting to the evolving landscape of competition and innovation driven by globalization, and are recognized as key players in innovation systems, enhancing the competitive and innovative capacity of regions and countries.
Between 2010 and 2017, the enterprise sector in Vietnam contributed an average of 12.4% to the state budget annually Small and medium-sized enterprises (SMEs), which represent 98.1% of all operating businesses, played a significant role by contributing approximately 45% of the country's GDP and 31% of total state budget revenue, while also providing jobs for over 5 million workers From 2012 to 2017, the number of SMEs grew at an average rate of 8.8%, outpacing the 5.4% growth rate of larger enterprises.
Small and medium business locations are even more important This is most evident in recent years Specifically: download by : skknchat@gmail.com
• Small and medium enterprises make up a large proportion of the total number of enterprises.
Small and medium-sized enterprises (SMEs) play a crucial role in Vietnam's socio-economic landscape, representing over 93% of all businesses, including state-owned, private, joint stock, and foreign-invested enterprises The predominance of non-state enterprises in the country highlights the significant impact and widespread presence of SMEs across various sectors.
• Small and medium-sized enterprises are the primary job creation site in
In recent years, small and medium enterprises (SMEs), particularly in the non-state sector, have emerged as the primary drivers of job creation across various industries in Vietnam According to data from the General Statistics Office, SMEs employ nearly 1 million people, representing 49% of the national workforce Notably, the central coastal provinces boast the highest employment rates in SMEs, accounting for 67% of the workforce, while the Southeast region has the lowest at 44% This highlights the crucial role that SMEs play in fulfilling employment needs, generating income, and enhancing living standards for the population in Vietnam.
• Form and develop a team of dynamic businessmen.
The success and development of businesses are heavily influenced by their creators Given the vast number of small and medium enterprises, these businesses must continually adapt to their environment and respond to challenges posed by market changes and the trend towards centralized manufacturing.
Mergers, dissolutions, and the emergence of small and medium enterprises (SMEs) occur at all stages of business development, placing significant pressure on managers and founders to exhibit flexibility and a willingness to take risks The effectiveness of these leaders, characterized by their skills, market awareness, and ability to capitalize on opportunities, profoundly influences the operations of SMEs They drive innovation and adapt their missions to align with the evolving business landscape Ultimately, the economic growth of a country heavily relies on this dynamic team, which fosters a flexible economic structure that meets market demands.
• Exploit and make good use of local resources.
From the characteristics of production and business activities of small and medium enterprises has created for enterprises the advantage of location for production and business activities.
Small and medium enterprises (SMEs) are prevalent across various regions and localities, enabling businesses to effectively utilize and leverage local resources.
Government Policy
The definition of government policy varies across different research papers The
A classic example of government policymaking is the issuance of a White Paper, which outlines the government's approach to various societal issues, such as the economy, health services, or crime These policy statements provide an analysis of specific issues and articulate the government's philosophy regarding them While they often include specific proposals to address the identified issues, this is not always the case.
Thomas Dye delivered a succinct explanation, identifying government policy as
“anything a government chooses to do or not” (Dye, 1972:2) This definition, albeit too simple for analytical purposes, proves to be worthy to certain extent.
Dye emphasizes that the responsibility for formulating government policies rests solely with the government itself While private businesses, charitable organizations, and interest groups may influence decisions, they do not constitute government policies Ultimately, the government's unique authority to make binding decisions underscores its critical role in the development of public policy.
Dye highlights that it is within the government's authority to make decisions that can either maintain the status quo or implement changes, suggesting that inaction is equivalent to altering the existing state of affairs His definition underscores that public policy is a deliberate choice made by the government, which can lead to unintended consequences For instance, efforts to reduce tobacco consumption may inadvertently drive the market underground, resulting in illegal sales and a thriving black market.
William Jenkins (1978) offers a nuanced definition of public policy, describing it as a set of interrelated decisions made by political actors regarding the selection of goals and means to achieve them within a specific context This definition emphasizes the importance of both goal selection and the methods employed, enhancing the understanding of policy content Additionally, Jenkins addresses implicit factors in Dye's explanation, which may limit the interpretation to a singular policy choice and outcome By highlighting the government's capacity to implement decisions as a fundamental aspect of public policy, Jenkins broadens the scope for considering various actions available to governments.
Government policy choices are influenced by limited financial, personnel, and informational resources, as well as international treaty obligations and domestic resistance, which shape what actions are deemed effective, feasible, and appropriate (May, 2005; Majone, 1975; Meltsner, 1972; Hutt, 1968) For instance, understanding health policy across different countries necessitates recognizing the strong opposition from the medical industry against government efforts to control healthcare expenditures, which may threaten the profession's income (Alford, 1972) Additionally, a comprehensive analysis of domestic government actions requires an awareness of the constraints and opportunities presented by international agreements, treaties, and conventions (Milner and Keohane, 1996; Doern et al., 1996a).
Relationship between Government Policy and SME Firm performance
Support policies for SMEs differ significantly between developed and developing countries due to variations in business environments, cultural contexts, and levels of industrialization Government regulations and bureaucratic procedures can both facilitate and obstruct the establishment of new businesses While effective policies can promote innovation and the adoption of new technologies, restrictive regulations may limit the operational freedom of SMEs, ultimately impacting their performance.
Governments must actively engage in competitive economic policies to create a favorable environment for small and medium enterprises (SMEs) to thrive (Dandago & Usman, 2011) Key proposals include measures to combat price manipulation, smuggling, and the influx of cheap foreign products, alongside efforts to reduce corruption and promote social equity Additionally, enhancing market supply, improving infrastructure, providing training for SMEs, and encouraging personal investment are crucial The government's involvement significantly influences various market components, and multiple complex factors determine the performance of SMEs, which are subject to rapid changes.
Theoretical and empirical studies Eniola and Ektebang (2014) and J O Okpara
Government policies in Nigeria regarding small and medium enterprises (SMEs) have been inconsistent, leading to significant challenges for business representation and compliance Onwukwe and Ifeanacho (2011) highlight the high costs associated with regulatory compliance, while Oji (2006) notes the lack of a clear policy framework for the SME sector The establishment of the Small and Medium Enterprise Development Agency (SMEDAN) in 2003 aimed to support SME growth, yet poor policy implementation has caused confusion and eroded trust in government initiatives (Omoruyi & Okonofua, 2005) Furthermore, Akinbogun (2008) found that inadequate infrastructure and unfavorable government policies have hindered the development of small-scale industries, particularly in the ceramic sector Overall, inconsistent fiscal policies and ineffective enforcement have severely undermined the growth of SMEs in Nigeria.
The Nigerian people's physical and cultural environment supports business development; however, inadequate infrastructure and government policies pose significant challenges These issues have serious implications for the business landscape in Nigeria.
In developed countries, government policies play a crucial role in the growth of small and medium-sized enterprises (SMEs), as they significantly impact organizational performance (Nguyen et al., 2009) The effectiveness of these policies is vital for the survival and development of SMEs; according to the OECD (2004a), a supportive culture among government, education, regulators, banks, and larger businesses is essential for fostering a thriving SME sector A conducive environment for stakeholders is necessary to create a level playing field, which in turn establishes a strong corporate culture and promotes entrepreneurship.
Very few contributions relate to the effect of government support on SME operations in developing countries and these still lead to different conclusions
Fajnzylber et al (2009) analyze the impact of different types of government support on business performance in Mexico, revealing that substantial disparities in firm productivity within developing economies stem from market failures and the limited capacity of government assistance, particularly affecting microenterprises.
Wei and Liu (2015) investigate the effects of government assistance on the innovation performance of firms in China, categorizing support into "vertical" and "horizontal" types Their empirical research reveals that vertical support, particularly through direct R&D subsidies, alongside horizontal support and regional innovation policies, significantly enhances firm performance.
Harvie (2002) highlights China's TVE case as a crucial lesson for transitioning economies To bolster the private sector, China has implemented reforms in its financial and tax systems, enhanced its technical innovation framework, improved legal property rights protection, and developed educational and training programs, while also expanding opportunities for private and competitive investment.
The Malaysian government has actively supported small and medium enterprises (SMEs) through various initiatives, including financial assistance, credit support, and business development programs Efforts to enhance business management and human resource practices have been prioritized, along with the facilitation of private services Additionally, the government focuses on the development and marketing of vocational and technical programs, the provision of essential infrastructure and strategic locations, and the offering of financial incentives to foster SME growth.
The Thai government has launched a financial incentive package and a technology development program that includes evaluation standards for technology, marketing, management, and administration This initiative enables SMEs to effectively integrate into various industry value chains and participate in support networks involving academic institutions and government agencies As a result, a new flow of information and knowledge has emerged, benefiting SMEs and enhancing their capabilities within related industries.
China, Malaysia, and Thailand are reaping the rewards of recent policy reforms, enhanced networking relationships, and improved infrastructure Lessons from Indonesia indicate that a lack of market connectivity for clusters is a significant factor contributing to the failure of small and medium-sized enterprises (SMEs) Therefore, achieving economic benefits hinges on the establishment of both internal and external development networks within these clusters (Tambunan 2005).
Relationship between Government Policy and SME Firm performance in the
4.1 Growth of SMES in Vietnam
Small and medium-sized enterprises (SMEs) engage approximately 70% of the workforce in the enterprise sector, contributing 50% of total capital and generating around 60% of industrial revenue between 2006 and 2015 When microenterprises are factored in, these contributions rise significantly to 90% of the workforce, 80% of total capital, and 85% of industrial revenue.
Figure 2.4.1.1: Contributions of SMEs to business sector in Vietnam, 2006-2015 (%)
Between 2006 and 2015, Vietnam's SME sector experienced remarkable growth, with the number of enterprises rising from approximately 45,000 to over 120,000, marking a 2.6-fold increase This period saw an average growth rate of around 14%, highlighting the dynamic expansion of small and medium-sized enterprises in the country.
Between 2006 and 2011, small and medium enterprises (SMEs) experienced significant growth, averaging 19% per year However, this growth rate has dramatically declined to an average of just 2% in recent years, reflecting economic challenges Despite this downturn, 2015 showed some positive trends, with growth rates improving compared to the previous two years Additionally, our unreported analysis indicates that microenterprises have seen impressive growth, with average rates of 30% for microenterprises and 10% for small and medium enterprises (MSMEs) between 2006-2011 and 2011-2015.
Figure 2.4.1.2: Number of SMES in Vietnam, 2006-2015
Between 2006 and 2015, small and medium-sized enterprises (SMEs) experienced an average revenue growth rate of 25%, surpassing the 18% growth rate of total employment but falling short of the 35% growth rate of total capital Despite this, the sales growth of SMEs has proven to be more susceptible compared to the overall number of firms, with real growth declining significantly until 2012, before indicating signs of recovery in recent years.
Figure 2.4.1.3: Total revenues of SMEs in Vietnam, 2006-2015 download by : skknchat@gmail.com
4.2 Distribution of SMEs in Vietnam
The OECD and NACE classifications categorize the business sector into 11 primary sectors, including agriculture, forestry, fisheries, mining, electricity, water, manufacturing (divided into four groups), and services (divided into six groups) In 2015, over 45% of SMEs in the service sector demonstrated low knowledge levels, while manufacturing represented a modest 23.1% of the service sector and 55.8% of the total number of SMEs in the country.
Table 2.4.2.1: Distribution of SMEs by industry, 2006-2015 (%)
Vietnam's Southeast and Red River Delta regions are home to the majority of the country's SMEs, with their share rising significantly from 62% in 2006 to 85% in 2015.
Table 2.4.2.2: Distribution of SMEs by economic region over time, 2006-2015 (%)
4.3 The background of government support and its role in SME performance in Vietnam
The Government of Vietnam acknowledges the vital role of small and medium-sized enterprises (SMEs), particularly private businesses, in driving the country's economic growth To support these enterprises, various measures and decrees have been implemented, focusing on enhancing access to finance, developing human resources, providing technical assistance, and promoting trade and exports for SMEs.
Vietnam's development policy for small and medium-sized enterprises (SMEs) is primarily governed by Decree No 90/2001/ND-CP and its amendment, Decree No 56/2009/ND-CP These regulations emphasize key areas such as job security for SME management, enhancement of technical capabilities, and provision of financial and technical support The policies aim to benefit a range of business entities, including private enterprises, state-owned enterprises, and large-scale enterprises.
In recent years, the Vietnamese Government has actively enhanced the investment and business environment by refining the legal framework to foster innovation and motivate business development Key legislative advancements include the approval of the amended Law on Investment and the Law on Enterprises in 2014, along with the Law on Technology Transfer and amendments to the Law on Credit Institutions in 2017.
The implementation of the Competition Law (2018) and related legal frameworks, including the Land Law, Commercial Law, Bankruptcy Law, Intellectual Property Law, and Enterprise Income Tax Law, aims to enhance the business investment environment and positively influence the business community.
Every year, the Government issues timely resolutions to meet the requirements of SMEs, such as:
• Decision No 193/2001/QD/-TTg, issued on 20 December 2001 by the Prime Minister, on the promoting for the establishment and operation as well as credit guarantees for SMEs
• Circular No 86/2002/TT-BTC, issued on 27 September 2002 by the Ministry of Finance, on guiding the utilization of the budget in support of trade and export promotion activities.
• Resolution No 144/2005/TB-BKH, issued on 07 October 2005 by the SME Council, on the SME Development Plan 2006–2010.
• Decision No 1231/2012/QD-TTg, issued on 07 September 2012 by the Prime Minister, concerning approval of the development plan for SMEs 2011–2015.
• Resolution No 35 / NQ-CP dated May 16, 2016 and Directive No 26 / CT- TTg dated June 6, 2017 on support and development of enterprises to 2020;
• Resolution No 75 / NQ-CP dated August 9, 2017 on reducing fees and costs for businesses; download by : skknchat@gmail.com
On October 3, 2017, the Government issued Resolution No 98/NQ-CP, outlining an Action Program to execute the Party's Resolution No 10-NQ/TW from June 3, 2017, aimed at promoting private economic development Additionally, this program aligns with Resolution No 19/NQ-CP, dated May 15, 2018, which focuses on improving the business environment and enhancing national competitiveness.
The implementation of these resolutions streamlines business conditions, fostering a favorable, equitable, and transparent environment for all economic sectors, which supports the growth of SMEs The newly revised and issued policies enhance the rights and obligations of private economic entities concerning land, thereby creating a conducive atmosphere for businesses and investors to scale up their investments, production, and operations.
Although these policies cover all aspects of SME support, difficulties in the implementation process persist due to ambiguous and unrealistic requirements (Le,
In 2010, a government decree (56/2009 / ND-CP) outlined various forms of support available for small and medium-sized enterprises (SMEs) However, these guidelines often lack clarity and detail, making it challenging for SMEs to access the assistance they need (Anh, Mai, Nhat, & Chuc, 2011) Despite the removal of the public sector's dominant role, non-state SMEs continue to face discrimination, and issues of corruption remain widespread (Nguyen & Van Dijk, 2012; Vu, Tran, Nguyen, & Lim).
In 2010, the Central Institute for Economic Management (CIEM) highlighted that Vietnamese SMEs often resort to informal payments to obtain government support This raises questions about the true impact of such assistance on financial performance, as it's unclear if the benefits outweigh the associated costs Therefore, it is essential to evaluate the effectiveness of government aid in enhancing the financial performance of businesses.
In Vietnam, research increasingly highlights the government's role in supporting business activities, with some studies indicating that such support significantly enhances business growth and survival (Hansen et al., 2009) Conversely, other research suggests that the effect of government assistance on business performance may be minimal or insignificant (Vu et al., 2016) Despite this, there is a lack of understanding regarding the relationship between government support and the financial performance of private SMEs Current investigations often overlook the nuanced effects of various forms of government assistance on financial outcomes This study aims to address these gaps by employing a log-linear model to analyze the impact of government support on the financial performance of SMEs in Vietnam, while also evaluating the effectiveness of government policies designed to foster SME development.
Methodology
Data selection
The data is extracted from the trustworthy database such as:
• The Vietnam SMES growth rate is taken from United Nations University This dataset is part of the structural transformation and inclusive growth in the Vietnam project.
• The indicators of finance policy, infrastructure policy and other regulations are taken from World Development Indicators in the period of time from 2007 to 2015.
The study will present data in a panel format to analyze the performance of SMEs in Vietnam over a specified time period Key variables include the growth rate of Vietnamese SMEs (GROWTH), the quality of overall infrastructure (OVERALL), the condition of road infrastructure (ROADS), the quality of air transport infrastructure (AIR), fiscal aid availability (AID), lending interest rates (INTEREST), and the time required to start a business (TIME).
The table below illustrated the overview of descriptive statistics of all variables taken from the model:
LogAID 0,5146 0,3657 0,6249 download by : skknchat@gmail.com
Table 3.1.1: overview of descriptive statistics of all variables
Model specification
Our analysis employed a gravity model to evaluate the impact of various independent variables on economic outcomes Key factors included the overall quality of infrastructure, road conditions, port infrastructure, and air transport facilities Additionally, we examined the influence of fiscal aid and lending interest rates on these economic dynamics.
Time required to start a business on the dependent variable which is performance of
LogGROWTH= C+ ò1LogOVERALL + ò2LogROADS + ò3LogAIR + ò4LogAID
Coefficient Measurement Parameter Expectations ò1 Quality of overall infrastructure + ò2 Quality of roads + ò3 Quality of air transport infrastructure + ò4 Fiscal Aid + ò5 Lending interest rate - ò6 Time required to starts a business -
Table 3.2.1: List of independent variables with their measurement, parameter expectations, and meanings
Based on governmental reports and feedback from enterprises, along with the author's prior interactions with SMEs in Vietnam, six hypotheses across five categories have been proposed The first category, 'Finance,' focuses on the impact of fiscal policies The second category, 'Infrastructure,' examines the effects of government policies on the development of transportation infrastructure, including roads and air transport The third category, 'Regulation on Starting Business,' assesses the time required to establish a business.
Whereas Fiscal aid, infrastructure are hypothesised to positively impact SME performance (+), the landing interest rate and ineffective Regulation on starting business are hypothesised to hinder business development.
Regression Results
Table 3.3.1: Correlation between independent variables of model 1 download by : skknchat@gmail.com
Table 3.3.2: Regression result of model 1
After running the model, we find that the variable of INTEREST has a very high correlation with ROADS variable, which makes both statistically insignificant
Therefore, we decide to delete the INTEREST variable to get another model as follows:
LogGROWTH=C+ ò1LogOVERALL+ ò2LogROADS+ ò3LogAIR+ ò4LogAID+ ò6LogTIME
Table 3.3.3: Correlation between independent variables of model 2 download by : skknchat@gmail.com
Table 3.3.4: Regression result of model 2
Regarding the regression result of model 2, we find that deleting variable of INTEREST can make the rest of independent variables statistically significant.
The quality of infrastructure in Vietnam, particularly in air transport and road systems, significantly boosts the performance of SMEs Specifically, a 1% improvement in overall infrastructure can lead to an average performance increase of 12.25% for SMEs, while enhancements in air transport infrastructure can yield a 15.92% increase Notably, road quality has the most substantial impact, with a 1% improvement resulting in a remarkable 23.94% increase in SME performance These findings underscore the critical role of infrastructure quality in fostering SME growth in Vietnam.
The negative correlation between the variable TIME and the performance of SMEs indicates that as the time required to start a business decreases, performance improves Specifically, a 1% reduction in startup time is associated with an average performance increase of approximately 1.1059% This aligns with our expectations, as complex administrative procedures can hinder business initiation, ultimately leading to reduced revenue for SMEs.
The positive sign of variable AID aligns with our expectations, indicating that fiscal aid significantly influences the performance of SMEs in Vietnam, with a coefficient of 15,613 Since the financial crisis and global economic recession began in 2008, the world economy has been recovering slowly, leading to numerous challenges for the domestic economy In response, the government has introduced various measures, with the fiscal aid package emerging as one of the most effective solutions.
Conclusion and discussion
Small and medium-sized enterprises (SMEs) play a crucial role in the economy, significantly influencing the growth of local and regional economic systems This study highlights the relationship between government policy and SME performance, demonstrating that government policies greatly affect the competitiveness of SMEs The findings indicate that SME performance varies based on the specific government policies adopted, including spatial relations, guidelines, plans, incentives, and regional support.
Effective infrastructure, particularly in roads and air transport, significantly reduces production, service, and marketing costs for enterprises, thereby enhancing business opportunities The research indicates that well-developed infrastructure fosters growth conditions for SMEs, explaining their concentration in urban areas Vietnam's strategic focus on fundamental infrastructure development serves as a vital economic stimulus, with the government investing approximately $20 billion annually in projects that include roads, railways, sea lanes, ports, and airports.
Government financial support plays a crucial role in enhancing the performance of SMEs by alleviating their financial challenges during startup phases, crises, or tough economic conditions However, many fiscal aid packages aimed at fostering enterprise development remain underutilized due to a lack of specificity and feasibility considerations regarding access conditions Additionally, insufficient consultation and support for businesses hinder their ability to fully benefit from these opportunities.
The study authors rated the regulations for starting a business as inadequate due to their inconsistency, rapid changes, and the challenges they pose for enterprises attempting to navigate the administrative procedures required for activity registration.
Despite improvements in business conditions and the streamlining of administrative procedures in recent documents, significant shortcomings remain in the new regulations issued this year These deficiencies pose a considerable challenge to the ongoing reform of administrative procedures being undertaken by the state.
Support activities are crucial for the sustainability and growth of small and medium-sized enterprises (SMEs) These activities, guided by legal procedures and principles, include assistance from the State as well as support from various organizations and individuals To enhance the role of SMEs and address challenges in today's competitive and integrated market, it is essential to focus on key strategic solutions.
To support the growth of SMEs in Vietnam, there is a pressing need for new infrastructure projects As the country integrates into the global economy, the demand for efficient transportation systems, especially in major cities, has surged, leading to significant traffic congestion The existing road networks are insufficient, with limited new construction and expansion However, the government has made notable efforts to enhance the national road and waterway systems by continuously upgrading infrastructure and launching new routes funded by ODA and budget capital, which plays a crucial role in the nation's economic development.
The government should prioritize the reform of administrative procedures in taxation and customs by implementing risk management regimes for enterprises undergoing tax inspections and refining tax refund regulations This includes enhancing software for automatic tax refund dossier reports, enabling online submissions for tax refunds, and developing a comprehensive database for tax refund management to keep taxpayers informed about their refund status Additionally, the government must widely adopt information technology for tax declarations, payments, and refunds, including mobile and online payment options Finally, it is essential to perfect the legal framework to ensure the effective implementation of electronic customs systems.
To enhance support for SMEs, banks should focus on identifying and accessing affordable capital from both domestic and international preferential programs This includes developing tailored loan products that cater to the unique needs of different industry sectors, offering flexible solutions that align with customer requirements Additionally, banks must streamline the lending process by requesting practical information and providing comprehensive guidance, ensuring that SMEs can easily understand and navigate the financing options available to them.
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