Report on SME Situation in Vietnam

Danny

Title and Content

SME Cluster in Vietnam

SME Cluster and Export Consortium

SME situation in Vietnam

SME in GMS and its importance

- SMEs contribute to economic development in varies ways by creating employment for rural and urban growing labor force, providing desirable sustainability and innovation in the economy

- The development of SME is seen as the way to triumph over poverty and inequality

- SMEs have a propensity to employ more labor-intensive production processes than large enterprises

SME in GMS and its importance

- SMEs in Mekong Region tend to be a lot smaller than SMEs in developed countries.- The first issues concern the lack of technical capacity- Government agencies is also lack of ability to provide expert assistance - The bank tend to have little interest in assisting such small scale business- The markets being served tend to be fairly rudimentary- The power in the relationship remains with principal supplier- The options for local production are very limited

SME in GMS and its importance

-> Lack of technical ability, plant and investment capital mean it is very difficult for SME entrepreneurs to replicate or replace imports and provide alternatives slanted towards the local market.

- Government Decree 90/2001/ND-CP (Decree 90), promulgated in November 2001, provided for the first time an official definition of an SME as “a business establishment with registered capital of no more than VND 10 billion or with an annual average workforce of no more than 300 employees”

- The Comprehensive Poverty Reduction and Growth Strategy (CPRGS) finalized in May 2002 took it one step further by defining the role of SMEs as “contributing to the growth of the national economy, job creation, poverty alleviation and hunger eradication”

SME situation in Vietnam

SME situation in Vietnam

ProspectiveVietnam Association of Small and Medium Enterprises (VINASME) has gathered 20,000 members and is one of the largest association in the term of member in the country

In the upcoming time, VINSASME will aim at specific targets as follows:

• Increasing the consent and actively contributing opinions

• Proposals to policies on the socio-economic development

• Supporting further member enterprises to get access to the market information

• Credit sources

• Trade promotion and training of human forces

Challenge• Shortages of capital

• Limited access to international markets due to technical standards

• Production technology utilized by Vietnamese SMEs is backward and obsolete

• Land regulation and planning is not transparent

• Training and management skills in SMEs are very low

Policies for SME Development and Promotion

Decree 90/2001• Encouraging investment

• Setting up the Credit Guarantee Fund for SMEs Credit sources

• Creating favorable conditions for SMEs to have proper production ground

• Expanding markets for and raising competitiveness of SMEs

• Encouraging SMEs to boost export and create conditions for them to cooperate with foreign partners, expand goods and service export markets

• Providing information, consultancy, and human resource training

Decision 143/2004• Training and enhancing human

resources

• Enhancing quality of business support service providers

Policies for SME Development and Promotion

Decree 108/2006• Technology transfer

• Training support fund

• Development investment and investment services

Decision 236/2006• Approve the Five-Year SME development

plan (2006-2010)

• Emphasized on the State’s role in the creation of “a sound policy”, legal, and institutional environment that ensures fair competition for SME

• Stressed the importance of raising awareness for all-level authorities on the SME role

• The support from government is planned to be shifted from direct support to indirect support in the future

Group Institution Name FunctionOperation’s

scaleI SME promotion Council Advisor to the Prime Minister, public-private representation National

I Agency for SME Development (ASMED)

SME policy review, formulation, monitoring, provision of information on business regulations for SMEs, and similar responsibilities in business registration, and domestic investment encouragement, government agency for coordination, facilitation, does not get involved in direct service provision, expect in regulatory information

National

I Provincial department of Planning and Investment

SME policy at local levels, support programs at local levels and monitoring of SME state and needs at localities, local level policy coordination, does not get involved in business development service (BDS) and financial service provision

Provincial

II Sector-focused government agencies

Provincial Industrial Promotion Agencies Provincial Investment Promotion Agencies Agriculture Encouragement Center of Ministry of

Agriculture and Rural Development Trade Promotion Agency under Ministry of Trade Technical Assistance Centers (in Hanoi and Ho Chi

Minh city) All agencies of this category that provide services to

SMEs

Provincial and National

III Business Association Of a general nature (VCCI, Young Entrepreneurs, Rural SME Association, Vietnam Cooperative Alliance, and so on) or sector-specific provision of BDS and advocacy functions

National and Provincial

IV Private BDS service providers and financial institutions

Training and consulting companies, independent consultants in BDS provision.State-owned and joint stock banks and leasing companies in financial service provision

Throughout the country

V Universities and research Institutions

Provision of BDS to SMEs, through some SME Offices or Center, but mostly via their members acting as freelance consultants for SMEs

Throughout the country

Organizations

- SME Cluster is a “geographical concentrations of interconnected companies, specialized suppliers, service providers, firms in related industries, and associated institutions that compete but also co-operate”

- The above definition contains three keywords which allows to operationalize the concept of clusters: 1. Geographical concentration of related firms and institutions 2. Interconnections between firms and other institutions (networks) 3. Cooperation and competition among the actors of the industrial clusters

SME Cluster

- An export consortium is a voluntary alliance of firms with the objective of promoting the export of goods and services of its members through joint actions

1. Risk Reduction2. Cost Reduction3. Access to larger markets and larger orders4. Knowledge Accumulation

Export Consortium

SME Clusters in Vietnam

GarmentsGarments firms appear to be highly concentrated in southern Vietnam, in particular, in Ho Chi Minh City and the neighboring two provinces, Dong Nai and Binh Duong. The garments industry cluster, consisting of these three neighboring provinces, is composed of large foreign invested enterprises (FIEs) as well as many SMEs.

Motor vehicle and parts54 motor vehicle enterprises are listed, of which 17 are automobile assemblers registered by the Vietnam Automobile Manufacturers’ Association (VAMA) and the remaining 37 enterprises are either motorbike makers or producers of small-scale vehicles, such as agricultural vehicles

Craft VillagesIn Vietnam, There are clusters of “local” industries in rural areas called “craft villages”. Compared to the industrial clusters mentioned above, agglomeration in these villages is more apparent, and hundreds to thousands of households in one village are engaged in the economic activities of certain industries.Products of craft villages vary from processed local foods to traditional handicrafts and housewares that contribute to the domestic market. After more than 15 years of development, some craft villages have increased their size and level of industrialization

Craft Villages in Vietnam

• Bat Trang - Ceramic

• Van Phuc - Textile

• Dong Ky – Wooden Furniture

• Duong O – Paper

• Da Hoi - Steel

Number of Craft

Villages

Number of Participati

ng Household

s

Number of Participating Labors

Red River delta

615 167,868 412,228

Northern Highlands

43 8,492 20,196

Central Coast

289 54,248 143,835

Central Highlands

7 292 474

South East 11 3,938 9,361

Mekong Delta

112 21,207 69,712

Total 1,077 256,045 655,806

Prospective SME Clusters in Vietnam

SME Cluster

Government Agencies Business AssociationUniversities / Research CentersSupporting Industries

Direct Export Local Market Export Agents Wholesale Dealer

Prospective SME Clusters in Vietnam

Phase I – Mapping of SME Clusters• Textile and garment• Footwear and leather processing• Wood processing and furniture

Phase II – Technical Support• Provide technical support to selected

clusters• Technology transfers and technical

assistance• Prepare business partnership proposals to

Italian enterprisesPhase III – Long term cooperation linkages• Agreement will be promoted

• The Italian Ministry of Foreign Affairs (MAE) - the Ministry of Planning and Investment of Vietnam (MPI), have signed a Letter of Intent with the aim of involving the Italian industrial system in the implementation of the cooperation project “SME Cluster Development”

• The project is fully funded by the Government of Italy, (€3 million, MAE/DGCS) and it is implemented by the UNIDO

Focused on a narrow set of activities without the breadth of related and supporting industries

Cheap and unskilled labor

Interactions between firms and universities and research centers are limited

Need an improvement in coordination of policies

The absence of strong and representative business associations

Challenges