Large-scale industrial production, which was previously protected, now faces fierce competition from international markets, while SMEs have better opportunities to exploit newly emerging niche markets. In addition, trade liberalization creates conditions for businesses to access foreign currency sources and imported goods more easily.
Social attitudes towards entrepreneurs and businesses are also an important factor in determining the development of the SME sector. The readiness of potential entrepreneurs for profit opportunities depends partly on the attitude of society towards entrepreneurs and businesses or the political risks that may arise when doing business. In some localities, due to barriers in cultural customs, women are not widely involved in business activities outside of society, while in other localities, especially in urban areas, female entrepreneurs always play a very important role in the business community and especially in the SME community. Before the renovation, in the centrally planned economy, our State overemphasized the role of large-scale state-owned enterprises, while private enterprises were often outlawed, so these small businesses had to always find ways to avoid and operate in the informal sectors of the economy. The social attitude factor towards entrepreneurs and enterprises is often reflected in the criterion of entrepreneurial quality. The entrepreneurial quality of the economy, also known as the entrepreneurial spirit, determines the growth response of the supply of goods when new business opportunities appear in an economy when the business environment is favorable. Therefore, the analysis of "entrepreneurial quality" is an important content in the process of designing strategies to promote SMEs.
2.2.2.2. Administrative-legal environment, policy mechanisms and institutions
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The legal and institutional framework sets the “rules of the game” for society and governs how government, business, and society interact. These rules influence investment decisions, opportunities, and rewards available to economic actors. In general, governments enact laws and policies to (i) raise revenue for investment in public goods; (ii) achieve national defense objectives and maintain law and order; (iii) ensure public health;
health and safety for consumers; (iv) environmental protection... However, full compliance with the law is often associated with businesses having to increase production and business costs. The legal framework and policy mechanisms have a direct and widespread impact on the existence and development of each business. The regulations and policies that businesses must comply with are extremely diverse, ranging from regulations on public health protection, labor protection policies or regulations on environmental protection...
In general, small businesses incur higher compliance costs relative to their total profits than larger businesses. In contrast, micro businesses tend to avoid compliance with these regulations because there are many regulations that large businesses cannot avoid. Many surveys show that large businesses are more concerned about legal regulations and government policies than small businesses. However, small businesses will have to spend more on informal payments and often face the risk of being closed down when discovered.
2.2.2.3. Market conditions
The markets that affect the operation and development of SMEs include the market for input factors, the market for business output products, and the market for business development services (BDS).
Vietnamese SMEs face many difficulties in accessing markets for input factors such as capital markets, labor markets, raw material markets, etc. Although, in principle, the market mechanism allows enterprises of any size to be equal in accessing resources for production and business. However, in our country, when markets for production input factors such as capital markets, labor markets, foreign exchange markets, etc. are still managed and controlled, the negatively affected subjects are always small enterprises.
Regarding the market for the output products of the enterprise, it can be the domestic market or the world market, but usually small-scale enterprises only limit their activities within the local area where they understand best each customer using their goods/services. The market economy of our country is not really developed, SMEs often have to face the market control of
State-owned enterprises are monopolies, competition is never truly equal and the losing side is always for SMEs.
Regarding the business development services market, most SMEs are constrained by non-financial factors such as lack of training, low technical capacity, poor marketing, lack of information and unreliable infrastructure... The services provided to SMEs to address the above issues are called "Business Development Services". In developed countries, the business development services market provides a variety of quality services that ensure that SME owners can focus all their efforts on core business activities, other issues such as accounting, legal advice, market information... Business owners often outsource business development services without having to organize a separate department to perform all the above tasks. This allows SMEs to save significantly on costs while still maintaining strong competitiveness in the market. This is a trend that can solve the long-term weaknesses of SMEs. It can be said that liberalization and development of all types of markets from input factor markets, business goods and services markets or business development service markets are always the best way to support the development of SMEs.
2.3. THE ROLE OF THE STATE IN DEVELOPING SMALL AND MEDIUM ENTERPRISES: ACHIEVEMENTS
Through the analysis of the basic factors affecting the formation, operation and development of the SME community as above, it can be seen that to support the development of SME, the State can intervene in the market in the direction of (i) building policies to improve exogenous factors (business environment); (ii) designing and implementing specific support programs to help SME overcome their internal difficulties and (iii) organizing a system of agencies to implement policies and programs to support the development of SME. The content of this section will focus on analyzing the role that our State has played in developing SME according to the above groups of issues.
2.3.1. Creating a favorable business environment for enterprises
The first content of SME development policies is that the government needs to intervene in the market to help SMEs have a more equal and favorable business environment for production and business activities. This statement comes from the fact that there are always policy differences according to scale that are disadvantageous to SMEs. Such inequalities are manifested in all areas: legal framework, bureaucratic issues, corruption, access to capital and property rights. The existence of such biases is a manifestation of market or government failure and is closely related to the capacity of the parties involved. The business environment is an environment "outside the enterprise", so each enterprise cannot change the business environment, but this requires the role and intervention of the state more than anything. A favorable business environment for the establishment and development of enterprises, including SMEs, includes the following factors: (i) a stable and growing macroeconomic environment; (ii) a favorable business legal framework; (iii) a service-oriented administrative environment for enterprises; (iv) a developed market institution; (v) business culture; and a positive social attitude towards enterprises and entrepreneurs.
2.3.1.1. Perform well the macro function, create sustainable stability for the economy
The formation and rapid development of the SME sector since the early 1990s has been influenced by many factors, but one of the main reasons is that our country's economy has continuously grown at a high rate, combined with macroeconomic stability, which has created many business opportunities for people and the business community. Economic growth has led to increased accumulation and led to growth in domestic consumption. Domestic consumption demand has increased sharply and become more diverse, which means the continuous expansion of the scale and structure of the domestic market, creating favorable conditions for businesses to expand production scale, invest in technological innovation and purchase equipment. It can be said that our State has performed quite well the macro function of creating dynamism while maintaining basic stability for the economy in recent years. According to the research results of the Project on Improving Vietnam's Competitiveness
(VNCI) has demonstrated that economic governance (as measured by the PCI) is closely related to private sector performance. “If we use regression analysis controlling for initial conditions – infrastructure, human resources, and distance to major markets – regression analysis shows that a 1-point increase in the unweighted PCI is expected to lead to: (i) 8 more enterprises; (ii) a 2.5% increase in new investment per capita in 2006; (iii) an increase in profits per enterprise of VND 4.2 million (equivalent to US$ 253); and (iv) a 1% increase in GDP per capita [34. p.19].” Although VNCI's research focuses on the economic management capacity of provincial governments, the above research results show that the good performance of the State's macroeconomic management function has a very clear impact on the performance and development of the SME sector.
2.3.1.2. Building favorable business laws for enterprises
In the previous highly centralized political system, most SMEs considered access to new sources of power to be crucial to their business operations. In recent years, our State has strongly transformed to an open and stable political system. This has contributed to promoting the healthy development of the SME community.
Since the early 1990s, a new legal framework in most areas of economic life has been built, is being completed and gradually completely replaces the legal framework of the previous centrally planned economy. The law has become the main economic management tool of the state. The rule of law principle has been increasingly affirmed and effectively promoted in practice. This is a main reason for the success of economic reform in our country in recent years. The content of laws and economic policies has been more suitable to the market mechanism, meeting many requirements of economic reform. The work of drafting, appraising and promulgating documents has become systematic, following a unified process according to the law. In recent years, the National Assembly has passed a series of important laws, most of which are related to international economic integration requirements and directly affect the production and business activities of enterprises such as the Civil Code, Investment Law, Enterprise Law,
Competition Law, Commercial Law, Customs Law,... These laws have created a necessary business legal framework, of great significance for the development of the economy as well as the Vietnamese business community, including SMEs.
This business legal framework system can be considered basically complete up to now, including the following main areas: (i) Law on organization, operation and management of enterprises; (ii) Law on legal status, rights and obligations of organizations and individuals in business relations; (iii) Law on capital markets;
(iv) Labor law; (v) Contract law; (vi) Intellectual property law; (vii) Competition law; (viii) Securities and securities market law; (ix) Commercial law; (x) Land law; (xi) Law on business dispute resolution; (xii) Law on bankruptcy and enterprise dissolution.
In addition to establishing a legal framework to further liberalize people's business rights, the 2005 Enterprise Law, which completely replaced the Foreign Investment Law and the State-owned Enterprise Law, has completed the legal framework for a level playing field for all types of enterprises of all ownership forms, regardless of domestic or foreign ownership; state-owned or private ownership. According to VNCI's research, the continuous improvement of the legal framework and administrative environment for enterprises to enter the market has been recognized by the business community as the most obvious improvement in recent times. “It can be seen that policy makers at the central and provincial levels have made great efforts to facilitate market entry by reducing business start-up costs... Looking at the first component index, it is easy to see that the median number of days for registration (from 20 to 15 days) and additional registration (from 10 to 7 days) have decreased significantly in the PCI 2007, and are now in line with the provisions of the Enterprise Law 2005. The median number of required licenses also decreased from 4 licenses in 2006 to 2.5 licenses in 2007 [34. p.22].”
2.3.1.3. Perfecting the administrative environment favorable for businesses
Regarding the administrative environment, to meet the requirements of economic integration and promote administrative reform, the issue of reforming market entry procedures
Enterprises are receiving special attention from the Party and the State. On August 1, 2007, the Party Central Committee issued Resolution No. 17-NQ/TW on promoting administrative reform, improving the effectiveness and efficiency of state management. In this Resolution, the Party Central Committee emphasized the Party's viewpoint on administrative procedure reform: "Focus on directing the review and strong reform of administrative procedures, creating the most favorable environment for production and business of enterprises and the legitimate needs of the people, such as: establishment, dissolution, bankruptcy of enterprises; business registration and investment certification..."; "Continue to promote the effective implementation of the one-stop, one-stop mechanism at state administrative agencies...". Following that, the Government issued many Resolutions, including the content on administrative procedure reform, typically Resolution No. 59/2007/NQ-CP dated November 30, 2005 on a number of solutions to handle difficulties in construction investment and administrative procedure reform for enterprises. The above Resolution of the Government has been strongly implemented in all provinces and cities with the application of a one-stop mechanism for all administrative procedures related to business establishment. The "one-stop" mechanism is a mechanism to carry out all necessary procedures for business establishment at the same point, enterprises only need to contact a single agency for their registration without having to care about the number of procedures to be carried out.
Regarding the apparatus and mechanism for enforcing laws and economic policies, in recent times, ensuring the effectiveness of law and policy enforcement in our country has made remarkable progress. The organization of the State apparatus has been reformed in a more streamlined direction; the decentralization between elements and subsystems in the State management apparatus has also been gradually improved, creating conditions for each level and each organization in the system to enhance their authority and responsibility, while promoting dynamism and creativity in their work. State agencies are becoming closer to the people and businesses. Officials and civil servants have initially increased their responsibility to the people and businesses. One of the specific examples is the improvement in the working attitude of civil servants in the tax sector. According to the survey results of VNCI, in 2005, up to 75% of surveyed enterprises said that negotiating with tax officials was an essential part of business activities; By 2006 this figure was only 61% and in PCI 2007, only
45% of businesses said they needed to negotiate with tax officials [34. p.24].
2.3.1.4. Development of market types
In recent years, the State has taken many measures to develop factor markets, however, the formation and operation of these markets are still slow and have not kept up with the needs of businesses in the economy.
Regarding the technology market, transactions are currently poor, showing at a low level. Enterprises mainly participate in machinery trading transactions, there are no transactions with high scientific and technological content such as buying and selling patents, research and development contracts... Many opinions say that the underdevelopment of our country's technology market is consistent with the low technological level of Vietnamese enterprises.
For the capital market, many incentive policies of the State have been implemented to increase supply, stimulate demand, and encourage business in various forms of the capital market. The State's capital market development policies have achieved many positive results, however, our country's capital market is still not really a playground for businesses, especially small and medium enterprises, to mobilize capital for development needs. The Vietnamese stock market was established in July 2000, and has so far attracted more than 500 enterprises to participate in listing on the market. However, with strict regulations on listing conditions, the stock market is really a playground beyond the reach of small and medium enterprises. The form of corporate bonds in our country has not really developed, mainly issued by large state-owned corporations and groups to mobilize capital. Up to now, Vietnamese SMEs still mainly rely on their own capital, capital mobilized from acquaintances and relatives and partly borrowed capital from credit institutions to carry out their business activities.
The development of the raw material market is an important factor affecting the operation and development of SMEs. Raw materials are a basic element of the production process, the cost of raw materials is a major part of the cost of goods production. Therefore, the supply of raw materials has a great impact on the efficiency of operations and competitiveness of enterprises.