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Overview and Assessment of the current SME Development Policy and Supporting Industry Promotion Policy in Vietnam

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The paper discusses the general background of rise of the Vietnamese small and medium-sized enterprises (SMEs), and the contemporary significance of the Vietnamese supporting industry promotion policy through reviewing existing research papers and published statistics. Firstly, in the chapter 1, the rise of the private sector with advanced deployment since the Doi Moi 1) (Nguyen Thi Tue Anh, 2014) is overviewed in a brief. The following chapter 2 discusses a trend of the Vietnamese SMEs enhancement policy, which includes supporting industry development policy for SMEs. The third chapter summarizes actual situation and some challenges regarding the Vietnamese SMEs supporting policy as well as some policy implication for improvement of the current Vietnamese SME policy implementation.
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Overview and Assessment of the current SME Development Policy and
Supporting Industry Promotion Policy in Vietnam
Yoichi SAKURADA, Ph.D.
Fukuoka Jo Gakuin University
Nguyen Thi Tue Anh, Ph.D.
Central Institute for Economic Management (CIEM ), Vietnam
Abstract
The paper discusses the general background of rise of the Vietnamese small and medium-
sized enterprises (SMEs), and the contemporary significance of the Vietnamese supporting
industry promotion policy through reviewing existing research papers and published statistics.
Firstly, in the chapter 1, the rise of the private sector with advanced deployment since the Doi
Moi
(Nguyen Thi Tue Anh, 2014) is overviewed in a brief. The following chapter 2 discusses
a trend of the Vietnamese SMEs enhancement policy, which includes supporting industry
development policy for SMEs. The third chapter summarizes actual situation and some
challenges regarding the Vietnamese SMEs supporting policy as well as some policy implication
for improvement of the current Vietnamese SME policy implementation.
I Confirmation of the rising trend of the private sector after the Doi Moi
Equitization of the Vietnamese state-run-enterprises (Hattori, 2007) and full-scale formation
of the private enterprises have been started after 2000(EBashi, 1997),(Kotani, 2002).Thus a
number of private enterprises have rapidly soared in Vietnam since 2000. Simultaneously, a large
number of SMEs including of individual enterprises have also been emerged. In here, in order
for the above-mentioned trend to be quantitatively confirmed, the characteristics of the number
of the enterprises by each type of ownership, which are state-owned, private and foreign capital,
are extracted with reference to the specific Vietnamese enterprises statistics since 2000. As for
private enterprises which have been entrepreneurs since 2000, the number and its share are
significantly large comparing to those of state-owned enterprises through 2000 to 2013.Total
number of enterprises in 2000 is 42,288. Among them, the number of state-owned enterprises is
5,759 (13.6%), the private enterprises are 35,004 (82.8%), and foreign-invested enterprises are
1,525 (3.6%). On the other hand, in 2013, total number of enterprises is 373,213 (8.8 times
compared to the number in 2000). Among these, 3,199 are state-owned enterprises (0.9%), the
private enterprises are 359,794 (96.4%), and foreign-invested enterprises are 10,220 (2.7%). As
for the increasing rate of the number within 13 years, state-owned enterprises show 44.5%
decline, the private enterprises show 10.3 times increase, and 6.7 times increase for the foreign-
invested enterprises. Thus, private enterprises show significant increasing trend seen as above.
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
FDI
Private
State-owned
Figure-1
Trend of the number of enterp rises by each type of the ownership
Source: Vietnam Statistics Bureau, Statistical Yearbook 2005,2009,2014
Looking at the number of enterprises by number of employees, in 2000, enterprises with less
than 10 employees are 22,638 (53.5%), the ones with more than 10 and less than 200 employees
are 14,396 (34.0%), and the ones with more than 300 employees are 3,405 (8.1%) . In 2013, the
number of the enterprises with less than 10 employees is 225,037 (67.6%), the ones with less
than 200 and more than 10 employees are 93,036 (28.0%), and the ones with more than 300
employees are 7,864 (2.4%). As for the growth rate from 2000 to 2013, it is about 10 times
increase for the enterprises with less than 10 employees, while the one of the enterprises with
more than 300 employees is 2.3 times. Thus it can be said that number of SMEs especially the
one with less than 10 employees accounted for the overwhelming majority, and they show the
significant growth.
As seen in previous sections, the number of enterprises and employees of SMEs have been
built up rapidly and significantly in Vietnam since 2000 and up to today. It can be said that the
existence of the SMEs and scale of employees of SMEs in Vietnam is extremely large. Given
the above-mentioned background, formulation of appropriate and effective SMEs development
policies, and steady implementation of those policies have become a pressing issue.
ll Vietnamese SMEs development policy and supporting industry enhancement after
the Doi Moi
The basic laws and regulations for SMEs development policy in Vietnam are Decree
No.90/2001/ND-CP, and Decree No.56/2009/ND-CP as an amendment of Decree No.90. In
these laws and regulations, the following specific policy items have been raised, such as, in
particular, stabilization of SMEs management, job security, strengthening technical capability
of SMEs, SMEs financial support and technical support. In those policies, the following business
entities are the policy targets such as SMEs, which include private enterprises as well as state-
owned-enterprises, and even large-scale enterprises.
As for the supporting measures for Vietnamese SMEs, there are several different types of
series. Those series can be classified into the following two. 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.
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
300 employees -
200 - 299 employees
10 - 199 employees
- 9 employees
Figure-2
Trend of the number of enterp rises by number of employ ees
Source: Ministry of Planning and Investment, SMEs White Paper 2008, 2011, 2014
1. Agencies in charge and relevant policy for SMEs technology and information provision
support
(1) Agencies in charge and policy in a MPI series
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 establi shed 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 respons ibl e 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 Governmen t policy for p romotion of foreign direct investmen t whi ch is attractiv e
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 Promotion 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:
(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.
Prime Minister
SME Development Encouragement Council (SMEDEC)
Ministry of Planing & Investment (MPI)
Chair & report on activiti es
All other Ministries,
Provincial/Municipal
People's Committee,
State Bank, VCCI
Participate as p art-time
Members
Agency of Enterprise
Development (AED)
The Assistance
Center (TAC): Hanoi,
Danang, Ho Chi Minh
Foreing Investment
Agency (FIA)
Investment
Promotion Center
(IPC): Hanoi, Danang, Ho
Chi Minh
State-run-
Mun ic ip al le ve l
Province level
Department of Planning &
Investment (DPI)
SME Support Center
SMEs
: Specific Functional Flow
: Administrative Flow (from up per organs to lower organs)
: Flow of Technical Service Provision (from Public entity to SMEs)
-Techni cal support
-Admini strati ve support
-Information provision
-Enterprise Information provision
Central-level Organizations
Local-level Organizations
Figure-3
Agencies in charge in a MPI series
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 Centerin 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 establ ish ed on the basis of the Prime Min i ster Decision No.7 8/20 00/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 sp ecialized in the trade promotion main ly
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,
Vietrad e al s o offers inv e stm ent consul ting advis o ry s ervic es.
Above-mentioned structural relationship can be shown in the form of a tree diagram as
follows:
2. 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
Prime Minister
SME Development Encouragement Council (SMEDE C)
Advice & Report on activi ties
All other Ministries,
Provincial/Municipal
People's Committee,
State Bank, VCCI
Participate as part- time Members
Report on activities
Agency for Regional Industry
Development (ARID)
Industrial Promotion
Center Region 1
(IPC1): Northern area
Regional level
Province level
Department of Industry &
Trad e (D PI)
Industrial Promotion Center
SMEs
: Specific Functional Flow
: Administrative Flow (from u pper o rgans to lower organs)
: Flow of Technical Service Provision (from Publicentity to
-Techni cal support
-Human resource de velopment
-Information provision
Central-level Organizations
Local-level Organizations
Ministry of Planni ng &
Investment (MPI)
Chair
Supporting Industry
Enterprise Development
Center (SIDEC)
-Enterprise
Information
provision
Vietnam Trade
Promotion
Agency
-Busness
matching
support
Ministry of Industry & Trade (MOIT)
*SMEs are the s pecial target group for MOIT
Figure-4
Agencies in charge in a MOIT series
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.
Targ eted SME s
All types of SMEs, Cooperatives, Individual or household
business entities, farmers, fisheries and other household
business entities.
Assets requirement for
War ra nty SM Es
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.
lll Realities and challenges of SME support policy and supporting industry policy in
Vietnam,
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 thos e operat ing in the ind ustri e s which are en g aged in GVC s such as texti le-
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.
Conclusions
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. Vie tnam has been dela yed 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
(Tran van Tho, 2010), (Maeda, 2014). 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 Vietn amese SMEs, one of supporting
tools, which can be provided by Japan, is a technical know-how of the Local Public Techn olog y
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 (Honda, 2008). 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) Tech nic a l
information dissemination , 7) Support of coordination among industry, academia and local
authority (Honda,2008), (Fukukawa, 2007), (Nisio, 2008).
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 (JICA, 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 shou ld continue to strengthen i ts pol itical eff orts to impr ove th e credi tworthines s and
technical capabilities of SMEs, taking advantages of the international cooperation relations with
neighboring countries as well as technical assistance through the ODA.
Note
Doi Moi (Đổi Mi) is the Vietnamese word for reform. Doi Moi is an economic policy slogan that has been
raised in the Vietnam Communist Party Sixth Party Congress in 1986. Where is the sense, liberalization of
prices, including the international division of labor type of industrial structure reform, some at a conversion
policy to the new market economy
Decree No.56 is stipulating the definition of SMEs in terms of type of industry, number of
employees and capital.
FIA has developed the 500 SMEs data base and opened it to the public on their own web-site in April 2015.
The data base is written in English and FIA aims at using the data base as a tool for SMEs business matching.
”SMEs promotion center” can be expressed in Vietnamese as “Trung m h tr doanh nghip nh và va”.
Some provinces or municipalities adopt different name as ”SMEs development support center”, which can be
expressed in Vi etn amese as “Trung tâm h tr phát trin doanh nghip nh va”, or “Investment promotion
& enterprise support center”, which is called in Vietnamese as “Tru ng tâm c t iến đu tư và h tr doanh
nghip”, or “Investment promotion & consulting center”, which is in Vietnamese asTrung tâm tư vn và xúc
tiến đu tư”. Their name is different depending on the local policy situation.
”Industrial promotion center” can be expressed in Vietnamese as ” Tru ng tâm khuyến công”. However some
provinces or municipalities say “Industry promotion & industry development consulting center”, which can be
said in Vietnamese as “Trungm khuyến công tư vn phát trin công nghip”, or” Industry promotion &
commercial promotion center” is “Trung tâm khuyến công xúc tiến thương mi”.
In the case of special projects that require a long period of time, it can be set loan period of up to 10 years by a
decision of the MPI Minister.
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Article
This paper explores the dynamic complementary interaction between investment in technological capability and investment in specific innovation projects based on a decision model of innovation, using Vietnamese MSME data. The empirical results show that firm size, technological capability and current specific R&D investment have a positive impact on innovation. Firm age was positive but not significant, implying that conscious technological effort may be more important for innovation than passive learning by doing. The combination of significant economies of scale and technological capability imply that government assistance for firms with low technological capability maybe important, but government assistance is shown to be either insufficient or ineffective. Results from this paper suggest that government policy aimed at facilitating increases in firm size and providing technical extension services would be more constructive than merely providing R&D subsidies to MSMEs.