Lessons for Vietnamese SMEs

Hundreds of Vietnamese and Japanese enterprises attended a Vietnam-Japan round-table conference on WTO (World Trade Organisation) accession’s impacts on small and medium-sized enterprises (SMEs). The event was held in Hanoi recently by the Vietnam Chamber of Commerce and Industry (VCCI) in co-operation with the Japan External Trade Organisation (JETRO), the Japan International Co-operation Agency (JICA), the Toshiba Foundation, the Fuji Xerox Group and Yazaki Group.

How Vietnamese would be able to improve their competitiveness and what lessons they could learn from experience of Japan and China were main topics of the conference.

Hoang Van Dung, permanent vice chairman of VCCI, said that Vietnam had committed to cut tariffs and removed export subsidy for international integration. Implementing the commitments, Vietnamese enterprises will suffer more pressure from foreign rivals, so all industries would have to reorganise production activities. As a result, Vietnam’s labour and product markets may experience great losses.

Pham Chi Lan, economic expert, said Vietnam had around 200,000 registered private enterprises, of which 95 per cent were small and medium-sized. The weaknesses of the enterprises include a poor productivity, low profits, and high production and business costs, poor competitiveness and a lack of resources. In particular, the enterprises lack equality and support. As a result, they find it difficult to get access to land, credits, public administrative and business development services.

 

Apart from the obstacles, SMEs have to cope with chronic constraints, including a lack of experience in direct international economic transactions and a lack of enterprises, big enough to operate effectively in the international market. Most SMEs has a small size with less than 50 workers, let alone around three million of household businesses operating in trade and services.

Most SMEs are separate plants with their own production systems. They rarely use accessories of other enterprises. Instead, they manufacture all accessories ad spare parts, or provide a full set of services from vocational training to goods transportation. The specialisation and use of accessories made by other enterprises is just a new concept for local enterprises, even leading ones. This is an obstacle for Vietnamese enterprises to further join the global value chain or compete against high quality products of foreign rivals.

To take opportunities from WTO accession, local SMEs have the only way but to improve their competitiveness. Shinji Fukukawa, chief executive of the Intellectual Co-operation Group, said from Japan’s accession to GATT (General Agreement on Tariffs and Trade), some measures could be useful for Vietnam. These include the announcement of the implementation of liberalisation and a concrete and clear plan of action. This will help enterprises to get prepared and take suitable measures to cope with. At the same time, future visions of industries should be announced to guide enterprises on possible challenges.

 

According to Fukukawa, vertical and horizontal separation of industries and labour will emerge in East Asia, so Vietnam will have to face a challenge of understanding and developing its own advantages. The assembly industry with high added value and other support industries may be the industries which needed more support.

 

Pham Chi Lan said Vietnamese enterprises should improve their understanding of customers’ demand to meet it by creating specific features for their products and services, renewing technology for improving the quality, productivity and reduce costs. At the same time, they should develop distribution systems for products and services, exploit inputs more effectively and continue to improve their business management capability.

Only when Vietnam can take the measures, will Vietnamese SMEs be able to compete right at home, according to experts. 

 

Japanese SMEs also face fierce international competition. Therefore, Japanese corporations have developed foreign-orientated business strategies, cut costs and expand market channels. Governmental organisations and official support organisations have committed to provide support for Japanese SMEs alongside the internationalisation of information infrastructure, and advices on law, tax, labour and other management issues, when Japanese SMEs start to operate abroad.

Even though foreign-invested enterprises in electronic industries have made efforts to seek local accessories suppliers, few local enterprises can meet their requirements on quality, prices and delivery time. For SMEs to become good accessories suppliers, the State should have master plans with concrete policies to develop the support industries, and restructure State-owned enterprises operating in the industries by guiding them to a specialisation of production, thus helping improve the quality and reduce production costs.

Japan has recently issued a law on supporting the technology improvement for SMEs. The law aims at support research and development activities of SMEs. The fact shows that SMEs with modern technology will create a new momentum for improving the competitiveness of Japan.

 

Apart from improving basic technologies, which are considered as a foundation for improving the competitiveness, another important target is to develop the number of enterprises. Support measures include a support in business co-operation between SMEs and corporations, human resources development supports, including vocational training schools, the training of instructors, researchers and research and development activities.

 

At present, SMEs have limited capital while they are difficult to get access to other capital sources, such as bank loans or the mobilisation in the stock market due to a lack of experience or their non-transparent or unaudited financial reports.

Some measures to support SMEs to improve their competitiveness from a banking point of view are to develop credit policies and banking products and services suitable SMEs’ production and business activities. In particular, there should be services and products exclusively provided for SMEs, focusing providing package services, including account, deposit, salary payment and AMT.