The general psychology of most people during the period of the global financial crisis and directly the slow growth of the national economy, it is understandable that worrying about a not-so-bright future of the economy leads to tighter financial management of everyone. When inflation increases, money loses value, people do not want to keep cash or deposit money in banks because the nominal interest rate of deposits is lower than the inflation rate. They switch to holding gold, real estate, strong foreign currencies, causing a significant amount of idle capital of society to lie idle in the form of non-profitable assets. Lack of investment capital, unable to accumulate to expand production, the growth of SMEs in particular and the economy in general will slow down.
Although the form of joint venture capital contribution is suitable for SMEs because of its small scale, simple production management, capital management and profit sharing mechanism. However, the limitation of this form is the difficulty in mobilizing capital, mainly due to the limited number of contributing members.
Foreign capital sources include two main channels: private investment and official development assistance from governments and international organizations. However, it is also very difficult for Vietnamese SMEs to mobilize this capital because this capital is provided according to projects, with constraints on implementation conditions, privileges and other incentives.
3.2. Impact of increased input costs
3.2.1. Increase in input material prices
One of the effects of the global financial crisis is the increase in international prices leading to an increase in prices in the domestic market, especially for raw materials used in the production process. SMEs are also the ones most heavily affected by this price increase. As we know, the financial capacity of SMEs is very limited, and on the other hand, the working capital ratio of these enterprises has not yet reached the necessary level to maintain production and business activities, so a
When input material prices increase sharply, it is often very difficult for SMEs to manage to compensate for the increased costs.
Table 2: Price fluctuations of CT3 coil steel in 2008
(unit: * 1000 VND/kg)
Day
25/1 | 6/2 | 7/3 | 19/3 | 1/7 | 11/7 | 4/9 | 16/9 | 1/10 | 10/28 | 1/11 | 12/31 | |
Price | 12.5 | 13.05 | 14.01 | 14.6 | 16.05 | 17.33 | 16.18 | 15.35 | 13.96 | 11.25 | 10.3 | 11.6 |
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(Source: Vietnam Steel Corporation, 2008)
From Table 3 above, we can see that from the beginning of 2008 to July 2008, the price of CT3 rolled steel (one of the main products in the Vietnamese steel market) has increased nearly 1.5 times. That has caused many difficulties for small and medium enterprises, especially those operating in the industrial and construction sectors.
In addition, a series of commodities have increased in price simultaneously, such as gasoline, cement and a series of other commodities, causing businesses to struggle. The increase in input costs inevitably leads to one of two options: one is that businesses accept losses to maintain prices or two is that businesses must increase the prices of their output products. No matter which solution is chosen, the disadvantage is on the side of the businesses. Due to limited financial capacity, businesses cannot continue to compensate for losses because at some point they will no longer be able to maintain their business operations. In the current inflationary period, most legitimate businesses want to reduce product costs, but they have to face the situation of continuously increasing input prices. Increasing prices is easy, but selling is a problem, because everyone's financial capacity is decreasing. An obvious sign is that many businesses, production and business activities have become stagnant, even having to stop operating . Many companies have been fully invested, modern technology, ready labor, and available markets, but only because of the high price of raw materials, on the other hand
They cannot find capital, so they have to stop production or sell part or all of the business. Or the products they make cannot be consumed in the market like in the previous period.
To understand the actual situation, we can mention the difficulties of small and medium enterprises in some industries that depend heavily on raw materials such as textiles, seafood and milk. For the textile industry, because domestic raw materials, designs and quality are very poor and do not meet demand, businesses have to import raw materials for production, and the price of imported raw materials for the textile industry has increased significantly in the past year. This has caused prices to increase compared to current competitors, Chinese goods (the Chinese textile industry has a very large raw materials center that gathers all kinds of fabrics from all over the world).
Although the Vietnamese textile industry has also built material centers to serve textile enterprises, they have not yet attracted customers. Experts in the textile industry believe that in order to compete with Chinese and Thai goods, the first problem the domestic garment industry must solve is design and price, but with the current situation of both insufficient and weak raw material sources, this is indeed a difficult problem.
Reducing product costs to compete with products from other countries is also a top priority for seafood businesses. Currently, due to raw materials, input costs and some other production factors (many aquaculture households are reducing their scale or even stopping farming), the price of domestic seafood raw materials is increasing. Meanwhile, in the context of the global economic recession, countries with seafood exports are all looking for ways to reduce selling prices, so competition is fierce not only in quality but also in price.
There are times when the price of imported raw materials is much cheaper than buying raw materials domestically. Therefore, many times, in many places, aquaculture farmers have had to abandon their ponds and fields because they cannot sell their products. But when the price of imported raw materials increases, businesses want to return to domestic raw materials but there are none because farmers have reduced production. This problem is like a vicious circle that does not only repeat itself in the aquaculture industry.
According to the conclusion of the Ministry of Industry and Trade, although it has increased 1.5 times compared to the planning, the dairy industry still has to import up to 80% of the total demand for raw materials. That is the recent conclusion of the Ministry of Industry and Trade after inspecting the planning of the dairy industry. Depending largely on input materials from outside, it is easy to understand why the domestic dairy market can be immediately and directly affected whenever the world's dairy materials fluctuate in price or quality (like the melamine case). The low demand for domestic raw materials is due to both subjective and objective reasons. The most obvious is because the level and scale of dairy farming in our country is still low. Farming on a very small scale according to farmer households, so productivity and quality are not up to standard.
As a large enterprise, compared to other enterprises in the industry, Vinamilk can always buy input materials at favorable prices, and in some cases the company can even renegotiate the purchase price when the market has major fluctuations. However, with the capacity of SMEs, they cannot do so and fluctuations in the raw material market are still one of the top concerns of these enterprises.
3.2.2. Increase in labor costs
Another issue that directly affects SMEs is the sharp increase in labor costs. In the context of inflation in 2008, some enterprises (mainly companies operating in the fields of trade and services or companies with few employees) increased salaries and added allowances for employees.
employees to cope with the situation of rising prices and see this as a solution to human resources work in the context of inflation.
Meanwhile, companies in the manufacturing sector, due to the large number of employees, choose to increase salaries for direct production workers, who are inherently low-paid and most affected by inflation. However, the rate of companies accepting additional salary increases for direct workers is very low. And no matter how much the salary is increased, businesses still have to face changes in employees' lives and their unstable psychology in the face of current events, which affects labor productivity. Due to the impact of human resource policies, businesses have to cut down on the number of employees, cut salaries and other benefits, which greatly affects the psychology of the remaining employees in the company. On the other hand, with good employees, businesses cannot retain them to find a place with better stability.
3.3. Market difficulties
The global financial crisis has strongly affected the economy, production and consumption of our country. As mentioned in Chapter II, trade and service activities in 2008 were much less vibrant than in 2007 due to high prices of goods and services, leading to a significant decrease in purchasing power among the people and slow consumption of manufactured products. Total retail sales of goods and consumer service revenue at actual prices in 2008 compared to 2007, if excluding the price increase factor, the increase was only 6.5%.
In addition to the objective impacts from the market (consumers of products and services), subjective problems within SMEs are also the reason why they find it more difficult to find output markets for their goods and services. With limited financial capacity, on the other hand, most businesses in this difficult time cannot control their production costs due to their dependence on the fluctuation of rapidly increasing input costs, they cannot increase prices.
output products and cannot continue to make up for losses to maintain prices. One of the inevitable consequences of these mounting difficulties is that many businesses have had to stop or cut back on production, and the layoffs have left a large number of workers unemployed. According to the latest reports from the Vietnam General Confederation of Labor, in 2008, more than 50,000 workers lost their jobs in 10 provinces and cities. And it is predicted that by 2009, the number of unemployed workers could reach 200,000 nationwide. This is truly an economic and social difficulty for our country that is not easy to overcome in the short term.
In short, the global financial crisis and its consequences are causing significant impacts on the Vietnamese economy in general and on SMEs in particular. Difficulties in accessing capital sources as well as difficulties from increasing input costs have caused a series of businesses to have headaches about maintaining production and business activities as well as finding output for products. There will be many businesses that are not strong enough to withstand the storm of inflation and will suffer serious consequences and may have to stop operating. To overcome current difficulties and move towards future development, SMEs will need practical support from the State as well as comprehensive solutions from the businesses themselves, which the thesis will specifically study in the next chapter.
CHAPTER III
SOME SOLUTIONS TO OVERCOME THE CONSEQUENCES
THE IMPACT OF THE GLOBAL FINANCIAL CRISIS ON VIETNAMESE SMALL AND MEDIUM ENTERPRISES
AND CREATE THE BASIS FOR FUTURE DEVELOPMENT
1. Viewpoints, goals and development orientation of small and medium enterprises
1.1. Viewpoint
To achieve the socio-economic development goals in the coming years, one of the strategic tasks is to develop SMEs. This is explained for the following reasons:
In terms of the international context, our country is in the process of integration with countries in the region and the world. Integration will create favorable conditions for Vietnamese enterprises to have the opportunity to access foreign markets, information, advanced science and technology, and technology development. Integration with the outside is also a way to attract foreign capital, improving the serious lack of capital of enterprises in our country today, especially of SMEs.
In the countries in the region, the SME sector is developing very well. These countries have very appropriate policies to support the development of this type of enterprise. Therefore, through integration and expansion of foreign economic relations with other countries, Vietnamese enterprises have the opportunity to approach and learn from the experience of developing SME of neighboring countries.
In terms of the domestic context, the Vietnamese economy is in a transitional phase from a centrally planned mechanism to a market mechanism under State management. During this phase, economists and investors
There has not been a qualitative change to be able to catch up with the requirements of the market economy: the majority of managers are still inexperienced, stagnant, the mentality of small producers is still not focused on long-term investment. Therefore, the development and expansion of the scale for SMEs is suitable for the mentality as well as the actual conditions in our country. At the same time, supporting the development of SMEs is also suitable for the integration process of our country with countries in the region and in the world.
Our country has great potential for labor. Developing SMEs will solve the problem of employment for workers, increase their income, and create conditions for accumulation for the next stages of development. In addition, supporting the development of SMEs also creates opportunities for investors to invest capital as well as mobilize all other resources into business for the purpose of economic growth.
In the economic strategy of our Party and State, it has been affirmed that domestic capital is decisive, but foreign capital is important. In recent years and in the coming years, the demand for investment in the world has increased while the capital source is increasingly lacking. In addition, many countries in the world are trying to come up with attractive policies to attract foreign investment capital. In addition, the global financial and monetary crisis will make the capital shortage even more serious. Therefore, to achieve the set economic goals, it is necessary to focus on mobilizing all domestic capital sources and a series of other supportive solutions. One of the strategic solutions is to develop Vietnamese SMEs through liberalizing the establishment of enterprises by all citizens and all economic sectors.
The industrialization and modernization strategy is being widely implemented nationwide, creating a basic premise for the policy of mobilizing capital from all economic sectors of society. Along with the resources held by the State, the resources