Đặc điểm môi trường kinh doanh ở Việt Nam

s there they are less likely to be constrained due to lack of collateral, and (2) credit rationing is less severe in more remote areas, confirming that the Vietnamese government has tried to use State Owned Commercial Banks (SOCBs) to alleviate inequalities. Table 9.2 show the average number of business contacts by the six largest sectors. Only rubber manufacturing firms have more contacts than the overall average across all sectors. Wood producers have the least number of contacts. They have half as many business contacts in different sectors compared to Food and beverages and Rubber producing firms. characrteristics of the vietnamese business environment - 221 - table 9.2 average number of contacts by sector ISIC(4-digit) Buss. contacts in same sector Buss. contacts in different sector Bank officials Politicians and civil servants Others Total 15 Food and beverages 5.18 25.22 0.70 0.92 3.04 35.06 20 Wood products 5.01 11.53 0.80 0.79 1.78 19.91 25 Rubber products 8.11 24.87 1.53 1.48 5.68 41.67 26 Non-metallic mineral products 6.37 19.65 1.78 1.70 3.81 33.30 28 Fabricated products 7.00 18.81 0.97 1.31 5.20 33.29 36 Furniture 5.34 16.08 1.15 1.19 2.74 26.50 All sectors (average) 7.04 22.83 1.10 1.23 3.86 36.07 Table 9.3 documents the development in firm’s perception about the most important group of business contacts. Results are reported by firm size, gender and location. In both 2009 and 2011, business contacts in different sectors are perceived to be the most important. Noticeably, the share has increased by 20 percentage points from 65 percent in 2009 to 85 percent in 2011. The increase is mainly driven by a decline in the share of firms that think business contracts in the same sector are the most important group of contacts. Not surprisingly, medium sized firms find contacts to bank officials to be more important compared to their smaller counterparts. table 9.3 most important group of business contacts Buss. contacts in same sector Buss. contacts in different sector Bank officials Politicians and civil servants Others 2009 2011 2009 2011 2009 2011 2009 2011 2009 2011 Total 25.52 11.53 64.51 84.45 4.41 2.47 0.46 0.35 5.11 1.19 504 261 1,274 1,911 87 56 9 8 101 27 Micro 24.33 11.68 65.87 84.88 2.84 2.08 0.37 0.39 6.59 0.97 Small 27.73 11.84 62.5 82.33 7.03 3.6 0.59 0.34 2.15 1.89 Medium 29.13 8.63 58.27 88.49 10.24 2.16 0.79 0,0 1.57 0.72 Female 24.42 11.36 66.57 84.69 4.65 2.27 0,0 0.24 4.36 1.44 Male 26.11 11.63 63.4 84.3 4.27 2.59 0.7 0.42 5.52 1.05 Rural 23.88 10.82 64.41 85.36 3.88 2.86 0.44 0.56 7.4 0.4 Urban 27.74 12.43 64.64 83.3 5.12 1.99 0.48 0.1 2.02 2.19 Note: Percentage. Number of observations reported in bold. Missing variables in both years. characrteristics of the vietnamese business environment - 222 - Table 9.4 reports the share of total contacts categorized as suppliers, customers, debtors, creditors and women. If in fact, entrepreneurs rely on their networks to reduce information asymmetries by facilitating flows of information about previous conduct, current circumstances and future interventions of their trading partners, debtors and creditors, the share of contacts in each category may give an indication of their importance or scarcity. Approximately 30 percent of the firms do not have regular contact with people categorized as debtors or creditors. This is likely to be explained by the observations that trade credit is less important in Vietnam compared to many African countries where trade credit is crucial for firm’s ability to mitigate unforeseen shocks. Around 53 percent of the firms report that more than 50 percent of the total number of contacts is customers. Women constitute around 28 percent of the total number of contacts on average. The lower fraction of female contacts relative to males is likely to be due to the fact that women are still underrepresented in the business environment in Vietnam. table 9.4 share of contacts by Group Average No contacts Less than 10% Between 10 and 24% Between 25 and 49% More than 50% Suppliers 22.59 0.33 19.71 43.95 27.70 8.31 2,357 10 473 1,032 653 189 Customers 49.89 4.59 1.26 9.98 31.66 52.51 2,357 114 30 232 745 1,236 Debtors 12.37 29.50 29.48 24.14 12.82 4.07 2,357 707 685 568 301 96 Creditors 12.37 29.50 29.48 24.14 12.82 4.07 2,357 707 685 568 301 96 Women 28.32 7.76 10.55 34.28 29.14 18.26 2,357 172 258 797 699 431 Note: Percentage. Number of observations in bold. 70 missing observations. One of the reasons that firms form relationships with others is to economize on transactions costs, by lowering search and screening costs associated with finding new suppliers (Kranton, 1996), especially in environments where formal market regulating institutions are absent (McMillan and Woodruff, 1999). Table 9.3 shows that the vast majority of SMEs can freely select new suppliers in the market, and that 39 percent on characrteristics of the vietnamese business environment - 223 - average identify suppliers through personal contacts. This compares to 50.5 percent of the enterprises that identify new suppliers based on own search process. Urban located and smaller firms rely more on personal contacts to identify suppliers. Male and female owned enterprises are equally dependent on personal contacts in their identification of new suppliers. While personal contacts are important in the identification process, personal knowledge of the supplier is relatively unimportant. Thus, less than 2 percent report that the main criteria for selecting suppliers are that the entrepreneur knows the supplier personally. Rather, the main criteria for selecting suppliers are competitive prices and quality standards with 51 and 34 percent, respectively. table 9.5 selection of suppliers All Micro Small Medium Female Male Rural Urban Freely selection of new suppliers 97.86 98.09 97.71 95.74 97.77 97.91 96.98 99.04 2,375 1,674 612 141 895 1,532 1,389 1,038 How does enterprises identify suppliers - Personal contact 39.17 41.65 34.51 29.63 39.24 39.12 37.70 41.09 - Marketing efforts by suppliers 9.53 9.09 9.88 13.33 10.98 8.68 10.63 8.08 - Own search processes 50.46 48.72 54.10 55.56 48.28 51.74 51.08 49.66 Main criteria for selecting suppliers - Competitive price 50.80 50.95 51.17 47.41 50.40 51.04 46.64 56.23 - Quality standards 33.78 33.58 34.11 34.81 34.02 33.65 35.82 31.13 - Secure supply 10.01 10.15 9.70 9.63 10.54 9.70 11.42 8.17 - Know supplier personally 1.60 1.77 1.34 1.48 1.03 1.94 1.87 1.26 Note: Percentage. Number of observations in bold. 3 observations missing on how suppliers are identified, and 7 observations missing on the main criteria for selection. 9.2 Membership in Business Associations While the main functioning of business association is to provide non-financial services and represent its member’s common interests, by lobbying the government to provide the public good, one may also argue that associations may help firms shape professional and personal networks because associations offer exposure to new social contacts, and thus business opportunities. characrteristics of the vietnamese business environment - 224 - table 9.6 membership in formal business associations 2009 2011 Member of a business associations All 9.83 7.58 245 184 Micro 3.83 2.93 Small 19.36 14.71 Medium 33.33 31.91 Rural 9.72 7.34 Urban 9.97 7.90 Average number of memberships All 1.30 1.36 239 184 Pay membership fees All 88.16 93.44 216 171 Note: Percentage. Number of observations in bold. Table 9.6 shows that the share of enterprises participating in business associations has decreased from almost 10 percent in 2009 to 7.6 percent in 2011. This decline is independent of firm size, however small and medium sized firms are significantly more likely to be members with 15 and 32 percent in 2011, respectively. Surprisingly, urban and rural located enterprises are equally likely to participate in business associations. It is not common to join more than one business association, and thus only 39 firms reports more than one membership. For the most important associations, some 93 percent paid membership fees in 2011 compared to 88 percent in 2009. While difficult to ascertain with the available data, the observed increase may help explain the observed decline in association membership. Turning to the question of which manufacturing enterprises that joins a formal business association, Table 9.7 list the results from a pooled and a random effects probit model for 2009 and 2011. The usual determinants along with measures of network activity are included in both estimations. Network variables for the number of contacts in the same and different sector are constructed based on the following categorization: (1) less than 5 network partners, (2) more than 4 and less than 10 network partners, (3) more than 9 and less than 20 network partners, and (4) more than 20 network partners. Similar, the number of contacts with bank officials, politicians and civil servants are based on the following categorization: (1) no relations, (2) 1 business relation, (3) characrteristics of the vietnamese business environment - 225 - 2 business relations, and (4) at least 3 relations.18 Contact diversity is defined as the number of categories, presented in Table 9.1, within which the firm have at least one contact. table 9.7 determinants of membership in business associations Pooled probit RE probit Coefficient t-stat Coefficient t-stat Networks Buss. in same sector -0.001 (-0.34) -0.008 (-0.16) Buss. in different sector -0.004 (-1.16) -0.033 (-0.73) Bank officials 0.005 (1.42) 0.092* (1.80) Politicians and civil servants 0.011*** (2.78) 0.129** (2.41) Contact diversity -0.002 (-0.40) -0.023 (-0.35) Firm charact. Firm size (log) 0.038*** (9.10) 0.538*** (8.16) Firm age 0.001*** (3.97) 0.015*** (2.76) Household -0.048*** (-3.82) -0.637*** (-4.05) Urban -0.036*** (-4.87) -0.528*** (-3.89) Owner’s charact. Owners educational level 0.018** (2.14) 0.257* (1.93) Owners experience -0.009 (-1.29) -0.110 (-1.02) Gender 0.005 (0.70) 0.048 (0.43) Sector dummies Yes Yes Year dummy Yes Yes Observations 3,720 3,740 Pseudo R-squared 0.227 Likelihood-ratio test 77.44*** Note: Column 1: Pooled probit regression using data from 2009 and 2011 only. Column 2: Random effects profit using data from 2009 and 2011. Dependent variable is membership of business association. Robust standard errors reported in parenthesis. *, ** and *** indicates significance at a 10%, 5% and 1% level, respectively. Base: Food processing (ISIC 15). Summarizing the results we find that only one of the five measures for social network capital is statistically significant in the pooled probit. Firms with regular contact to politicians and civil servants have a higher probability of being member of a business association. This effect remains and become larger when we correct for unobserved factors affecting membership probability. In addition, contacts with bank official become significant on a 10 percent level in the random effects probit model. The positive coefficient estimate indicates that regular interaction with bank officials 18 It should be noted that the different dimensions of network activity are correlate, but only imperfectly so. This should enable us to ascertain whether certain dimensions are more important than others. characrteristics of the vietnamese business environment - 226 - increase the probability of membership. This may be driven by the fact that larger and more mature enterprises are less likely to be credit constrained. The weak evidence might suggest that firms do not join business associations to shape professional and personal networks, and thus members do not have a larger number of contacts compared with non-members. Second, according to estimates from column (2), larger enterprises have more than 50 percent higher probability of being a member than their smaller counterparts. Third, older firms are more likely to be member of a business association. Fourth, urban located enterprises and households are less likely to participate in business associations compared to firms with different ownership structures located in rural areas. Finally, owners/managers with at least upper secondary education are significantly more likely to join a formal business association. 19 table 9.8: advocacy support from business associations 2009 2011 Received advocacy support Yes No Yes No 56.73 37.14 62.84 37.16 139 91 115 68 Quality of advocacy support - Good 48.92 41.74 - Average 43.88 50.43 - Insufficient 4.32 6.96 - Not able to access 2.16 0.87 Note: Percentage. Number of observations in bold. The main function of business association is to provide non-financial services and represent the common interest of their members. Table 9.8 reports the number of firms that have received advocacy support from business associations provided they hold a membership. In 2011, some 115 firms corresponding to 63 percent of the members received advocacy support. This compares to 57 percent in 2009. Table 9.6 also lists the quality of the advocacy support. Some 42 percent of the firms in 2011 reported that the quality of the support was good, 50 percent that it was average and only 7 percent thought the advocacy support provided by the business association was insufficient. 19 Owners/managers educational level is included as a dummy variable taking the value one if the owner has a least finished upper secondary school level. characrteristics of the vietnamese business environment - 227 - The quality of the advocacy support by fi rm size and gender are shown in Figure 9.1 below. In general, female owned enterprises seems to be more satisfi ed with the support provided compared to their male counterparts where the vast majority rate the quality as average. Larger fi rms are generally more satisfi ed with the quality of the advocacy support received compared to micro enterprises. More than 60 percent of the micro enterprises reports that the quality is average and only a small fraction are not able to access the support. figure 9.1 Quality of advocacy support Table 9.9 documents the distribution of the fi rm’s perceived and actual benefi ts from membership. The majority of fi rms (25 percent) report that the most important reason for joining were due to association’s provision of services concerning communication of new policies and laws to fi rms. From column (2) on actual benefi ts received from being a member, some 42 percent state that they have received information on new policies and laws relevant to the fi rm. Around 19 percent of the membership fi rms report that private sector services such as trade fairs, and other reasons were the most important reason for joining a formal business association. Membership fi rms were also asked about the most needed advocacy service. According to column (3) in Table 9.9, 24 percent state that the most important advocacy services needed is private sector services, whereas 20 percent report that they need provision of preferential loans. The later may indicate that fi rms joining business associations are more disadvantaged compared to non-members. Unfortunately, we are Good Average Insuffi cient Not able to asess characrteristics of the vietnamese business environment - 228 - not able to test this hypothesis using the present data, and these results should therefore be interpreted with caution. Table 9.9 Perceived and actual benefits from membership Reasons for joining Actual benefits received Most needed advocacy service Access to Land 1.64 2.61 7.27 Costs and time to start a business 8.20 6.09 3.03 Labor training 8.20 10.43 10.91 Time and costs of complying with regulations 5.46 2.61 2.42 Authorities’ solving of problems facing businesses 4.37 2.61 3.64 Private sector services (trade fairs etc.) 19.13 12.17 24.24 Communication of new policies and laws to firms 24.59 41.74 10.30 Provision of preferential loans 5.46 7.83 20.00 Tax relief 3.28 2.61 8.48 Economic arbitration 0.55 2.61 1.21 Other 19.13 8.70 8.48 Observations 183 115 165 9.3 The role of relationships on firm performance and growth Understanding the role of social networks in market exchange is crucial for policy, particularly for the design of institutions that support markets. To understand which functions these institutions must provide, it is useful to examine the role that relationships play in actual markets and the different channels through which they assists market exchange. To this effect, we now investigate whether well connected manufacturing SMEs in Vietnam perform better compared to less well-connected firms. Table 9.10 present pooled OLS regression estimates of network activity on firm performance correcting for firm and owner characteristics, location, legal ownership structure and sector. Firm performance is measured as the logarithm to real value added. Value added is a measure of the value of the production less the indirect costs and value of raw materials. In column 1, network activity is measured as the total number of contacts, contract diversity and association membership. In column 2, the total number of contacts is divided into four categories: business contacts in the same sector, different sector, bank officials and politicians and civil servants. Association membership are characrteristics of the vietnamese business environment - 229 - included as formal associations may be an effective place to establish working relations to new suppliers and clients, particularly given the reluctance of owners to change such relations, once established. Table 9.10 Network activity on firm performance Coefficient t-stat Coefficient t-stat Networks Total number of contacts (log) 0.029 (1.61) Buss. in same sector 0.011 (0.90) Buss. in different sector 0.008 (0.81) Bank officials 0.048*** (4.17) Politicians and civil servants 0.007 (0.59) Contact diversity 0.024** (2.23) 0.000 (0.00) Membership in association 0.059 (1.39) 0.052 (1.23) Firm charact. Firm size (log) 1.060*** (73.00) 1.053*** (72.21) Firm age -0.005*** (-4.39) -0.005*** (-4.44) Urban 0.372*** (15.08) 0.392*** (15.37) Owner’s charact. Owners educational level 0.065*** (2.68) 0.061** (2.50) Owners experience -0.001 (-0.02) 0.000 (0.02) Ownership Private/sole proprietorship 0.236*** (5.32) 0.237*** (5.36) Partnership/Collective/ Coop. -0.070 (-0.97) -0.071 (-0.99) Limited liability company -0.070 (7.97) 0.304*** (7.86) Joint stock company 0.310*** (2.11) 0.118* (1.91) Sector dummies Yes Yes Year dummy Yes Yes Observations 3,630 3,630 Pseudo R-squared 0.826 0.827 Note: Pooled OLS estimates on balanced panel. Dependent variable: Log to value added. *, ** and *** indicates significance at a 10%, 5% and 1% level, respectively. Base: Households, Food processing (ISIC 15). Constant included in all regressions. Summarizing the results we find the following. First, the total number of contacts is not found to be statistically significant, meaning that higher network activity does not increase firm performance. This result is in contrast to the results found by Fafchamps and Minten (2002), examining traders in Madagascar.20 However, performance is found 20 This is also in contrast with the empirical results found by Barr (2000). She examines social capital in terms of characrteristics of the vietnamese business environment - 230 - to be positively associated with the number of different contacts a firm have (e.g. higher network diversity). This is in line with Burt (1992) that emphasizes the importance of entrepreneurs to be better informed than their competitors through interaction with different contacts. The empirical results in column 2 show that contacts with bank officials are positively related to firm performance. Second, firm size defined as the number of full-time employees is statistically significant and positively related to performance, while firm age is negatively associated with performance, indicating that performance increases as firms grow. Third, in terms of ownership characteristics (e.g. human capital), owners/managers with at least upper secondary education are likely to experience higher firm performance compared to owners/mangers with a lower educational level.21 This seems intuitive given that better educated owners/managers are better equipped to maneuver through the difficult administrative procedures in for example the credit system and thereby in a better position to boost the economical outcome and growth of the firm. Fourth, Private/sole proprietorship, limited liability companies and joint stock companies experience higher firm performance compared to household enterprises. Finally, firms located in urban areas generally experience higher performance in terms of value added compared to the other rural located enterprises. Table 9.11 presents OLS estimates of network activity on firm growth correcting for firm and owner characteristics, location, legal ownership structure and sector. Firm growth is measured in terms of full-time employees and annual real revenue. Enterprise network activity is tried captured through the inclusion of the total number contacts the firm has regular contact with, contact diversity, and membership of a business association. entrepreneurial networks to determine Ghanaian manufacturing enterprise performance. 21 Owners/managers educational level is included as a dummy variable taking the value one if the owner has a least finished upper secondary school level. characrteristics of the vietnamese business environment - 231 - Table 9.11 Network relations effect on firm growth Firm growth (size) Revenue growth Coefficient t-stat Coefficient t-stat Networks Total number of contacts (log) -0.034 (-0.92) -0.041* (-1.81) Contact diversity 0.063*** (3.31) -0.017 (-1.08) Membership in association 0.152* (1.80) 0.039 (0.81) Firm charact. Firm size (log) -0.319*** (-7.31) -0.092*** (-4.39) Firm age -0.002 (-1.39) 0.000 (0.07) Household -0.469*** (-4.23) -0.102** (-2.01) Urban 0.147** (2.24) 0.056 (1.62) Owner’s charact. Owners educational level 0.050 (1.21) -0.015 (-0.47) Owners experience 0.033 (0.65) 0.033 (1.07) Gender 0.053 (0.96) -0.036 (-1.13) Sector dummies included Yes Yes Observations 1,910 1,818 Pseudo R-squared 0.075 0.025 Note: OLS estimates on balanced panel. *, ** and *** indicates significance at a 10%, 5% and 1% level, respectively. Base: Food processing (ISIC 15). Constant included in all regressions. Independent variables from 2009. Summarizing the results we find the following. First, with regard to firm’s network activity, there is a statistically significant and negative relationship between the total number of contacts and revenue growth, indicating that higher network activity depresses enterprise growth. As for firm performance, contact diversification increase firm growth measured as the number of full-time employees. Membership of a formal business association is positively related to firm’s total sales, but only statistically significant on a 10 percent level. The positive association between membership and firm growth may indicate that the advocacy support provided by business associations is beneficial to SMEs in terms of increase growth. Second, firm size defined as the number of full-time employees is statistically significant and negatively related to firm growth, and thus smaller firms tend to experience larger growth. Third, household firms are less likely to experience high growth rates compared to their (often) larger counterparts. Finally, in terms of employment growth, urban located firm growth more rapidly compared to rural located firms. characrteristics of the vietnamese business environment - 232 - table 9.12 firm growth by type of network relations Firm growth (size) Revenue growth Coefficient t-stat Coefficient t-stat Networks Buss. in same sector 0.006 (0.28) -0.011 (-0.72) Buss. in different sector -0.025 (-1.30) -0.037*** (-2.60) Bank officials -0.022 (-1.03) 0.005 (0.35) Politicians and civil servants -0.013 (-0.49) 0.003 (0.18) Contact diversity 0.080*** (2.84) -0.024 (-1.21) Membership in association 0.157* (1.88) 0.038 (0.79) Firm charact. Firm size (log) -0.318*** (-7.50) -0.094*** (-4.46) Establishment year -0.003 (-1.50) -0.000 (-0.07) Household -0.472*** (-4.19) -0.100** (-1.97) Urban 0.137** (2.06) 0.055 (1.54) Owner’s charact. Owners educational level 0.051 (1.23) -0.015 (-0.47) Owners experience 0.029 (0.59) 0.030 (0.95) Gender 0.050 (0.89) -0.038 (-1.19) Sector dummies included Yes Yes Observations 1,910 1,818 Pseudo R-squared 0.076 0.025 Note: OLS estimates on balanced panel. *, ** and *** indicates significance at a 10%, 5% and 1% level, respectively. Base: Food processing (ISIC 15). Constant included in all regressions. Independent variables from 2009. Looking into the different types of network activity that affect the growth of the firm, Table 9.12 decomposes network activity into the number of contacts the firm have with people in the same sector, with people in different sectors, bank officials and politicians and civil servants. Summarizing the results, the new empirical evidence suggests that the observed network effect on revenue growth found in Table 9.10 is mainly driven by the number of contacts with business people in different sectors. In terms of the firm growth regression, the coefficient estimates on contact diversity and association members remains statistically significant, and likewise does the estimates related to firm characteristics.22 22 Generally speaking, whether these results can be trusted depends on the possibility of endogeneity bias. We try to minimize this bias by including dependent variables from 2009. Test of endogeneity using panel data or IV es- timation is beyond the scope of this rapport. However, the empirical results presented here can be taken as strong preliminary indications for the importance of social network in markets characterized by high transaction costs and poor market institutions. characrteristics of the vietnamese business environment - 233 - 9.4 Diffusion of Information and Innovative Practices Having established that firms social networks affects performance; we now investigate one of the channels through which the effect is likely to operate, namely diffusion of information and innovative practices. In line with the theory, the common underlying assumption in the literature on within country diffusion is that actors learn from each other about new technology and innovations (Fafchamps and Söderbom, 2011). One way to obtain information on new technologies, design and modes of production are through direct product and production requirements from customers and suppliers. Table 9.13 shows that 7.6 and 4.4 percent of the enterprises receive specific requirements on modes of production or product specification from customers and suppliers, respectively. The likelihood of receiving direct product requirements increases in firm size. Out of the enterprises that receive product requirements, more than 20 percent on average report that these requirements resulted in technology transfers. Hence, interaction with customers and suppliers may facilitate information flows in the form of technology transfers, potentially enhancing firm innovativeness and growth. table 9.13 requirements from customers and suppliers All Micro Small Medium Requirements from customers 7.58 5.59 10.82 17.14 183 93 66 24 Has requirements resulted in technology transfers? 20.77 18.28 24.24 20.83 38 17 16 5 Requirements from suppliers 4.39 3.48 5.25 11.43 106 58 32 16 Has requirements resulted in technology transfers? 22.64 20.69 21.88 31.25 24 12 7 5 Note: Percentage. Number of observations in bold. 9 missing observations. Unfortunately, information on the channels through which entrepreneurs acquire information on new technologies and innovation practices are very limited in the data. However, it can be argued that potential diffusion increase in the firms networking activity. The underlying idea is that business owners receive advice on technology upgrading and institutional innovations from their network partners, and thus a larger and more diverse network increase the probability that firm’s learn the effective routines and competencies shared by other businesses, stimulating prosperity and growth. characrteristics of the vietnamese business environment - 234 - Table 9.14 presents ordered probit regression estimates of networking activity on firm’s innovativeness correcting for the usual firm and owner characteristics, including location, legal ownership structure and sector. The dependent variable for firm’s innovative level is based on answers to the three questions: (1) Have the firm introduced a new product? (2) Have the firm improved existing products? and (3) Have the firm introduced a new technology? Depending on the number of categories within which an enterprise has innovated, a count variable between 0 and 3 is constructed and used as the dependent variable. Column (1) includes the total number of contacts, a proxy for contact diversity and a membership dummy, whereas column (2) decompose the total number of contacts into the aforementioned network categories (excluding the category ‘others’). table 9.14 firm “innovativeness” (1) (2) Coefficient t-stat Coefficient t-stat Networks Total number of contacts (log) 0.188*** (4.99) Buss. in same sector 0.010 (0.33) Buss. in different sector 0.020 (0.73) Bank officials 0.046 (1.46) Politicians and civil servants 0.087*** (2.70) Contact diversity 0.087*** (3.08) 0.045 (1.15) Business associations 0.077 (0.75) 0.070 (0.67) Firm charact. Firm size (log) 0.256*** (7.70) 0.253*** (7.44) Firm age -0.000 (-0.02) -0.001 (-0.14) Owner’s charact. Owners educational level 0.222*** (3.77) 0.216*** (3.66) Owners experience 0.046 (1.00) 0.058 (1.09) Location dummies Yes Yes Ownership dummies Yes Yes Sector dummies included Yes Yes Observations 2,416 2,416 Pseudo R-squared 0.107 0.105 Note: Ordered probit. Dependent variable is ****. Robust standard errors reported in parenthesis. *, ** and *** indicates significance at a 10%, 5% and 1% level, respectively. Base: HCMC, Household firm, food processing (ISIC 15). Summarizing the results we find the following. First, as expected, network activity is positively associated with firm innovativeness. The total number of contacts and contact diversity has a positive and statistically significant effect on firm’s level of innovation. Looking at column (2) contact diversity is no longer well-determined. The characrteristics of the vietnamese business environment - 235 - positive coefficient estimate in column (1) on the total number of contacts seems to be driven by contact with bank officials as well as politicians and civil servants (column 2), which have a positive and well-defined impact on firm innovativeness. Second, firms size measured as the number of full-time employees are positively associated with innovativeness, suggesting that larger firms are more likely to innovate in multiple categories simultaneously. Third, owners/managers with at least upper secondary education are more likely innovate compared to firms owned by owner with a lower educational level. In sum, the empirical analysis suggests that networks are important determinants of enterprises innovativeness and firm performance. Entrepreneurs with a larger and more diverse set of contacts are found to both perform better and grow faster. Further, the most important categories – both reported by the firms themselves and based on the empirical analysis – are social networks with business people in other sectors and bank officials. As contacts in the latter category increase in the size of the firm measured by the number of full-time employees, smaller enterprises may be constrained by their lack of contacts with bank officials. In this regard, it is likely that this type of social networks is too expensive or simply inaccessible for the smaller entrepreneurs, thereby providing unintended and unequal access to resources by micro enterprises. This is confirmed by the positive and statistically significant coefficient estimate on firm size in all the empirical analyses, except from the growth regressions. characrteristics of the vietnamese business environment - 236 - 10 conclusion We present below a summary of some of the most important findings from the data and report. • Around 60 per cent of surveyed enterprises state that the international crisis still had a negative effect on their doing business conditions in 2011 and only 17 per cent of enterprises has not (at some point in time) felt the negative effects of the 2007/08 crisis (reported in either 2009 or 2011). Overall fewer firms in 2011 believe that the negative effects of the 2007/08 international crisis will be only temporary as compared to 2009. • As in 2009, micro sized firms are less affected by the crisis than their larger counterparts. Moreover, while fewer firms felt affected by the 2007/08 international crises in the North in 2011 (57%) as compared to 2009 (65%), firms in the South sensed an increase in constraints between 2009 (64%) and 2011 (71%). The same trends are observed in the rural/urban split, with urban firms feeling more constrained by the international crisis in 2011 as compared to 2009 and rural firms feeling less constrained over the same period. • The annual survival rate between 2009 and 2011 increased to 92.2 per cent from a figure of 91.6 per cent observed between 2007 and 2009. Urban centers like Ha Noi and HCMC experienced above average exit rates. Also Lam Dong showed above average exit rates. Moreover, firms in Apparel had an above average probability of exiting, which may point to some competitiveness concerns for this particular sector. • Employment growth between 2009 and 2011 was especially pronounced in the old Ha Tay area, whereas firms in Nghe An saw decreases in average employment. Moreover, employment growth was particularly seen in leather production, whereas shrinking sectors in terms of employment were textiles and rubber. • The business environment appears to have improved, although (as in 2009) few firms are facing no constraints. Access to credit remains (according to business owners) one of the most serious problems, although improvements are observed between 2009 and 2011. However, the formal debt share remains low in Vietnamese SMEs, even though access to formal loanable funds has increased. • As in 2009, firms are increasingly moving into the formal sector. Over 20 per cent of the firms not formally registered in 2009, had obtained a business registration license (and a tax code) by 2011. Moreover, contrary to the findings in 2009, there is evidence of formalization having a positive employment growth effect. As such the government characrteristics of the vietnamese business environment - 237 - should continue to pursue its current “formalization” policies. However, looking at survival probabilities there is no significant difference between registered and informal firms. • More firms are making informal payments in 2011 than in 2009, and as in 2009 the results show that formality and increases in the probability of paying bribes go hand- in-hand. An analysis of the “purpose” of the informal payment increasingly goes to dealing with taxes and tax collectors as well as getting connected to public services/ utilities. Finally, the data highlight that firms paying bribes have a higher probability of exit, which provides the strong message to SMEs that “bribe payments will not keep you alive in the longer run”, which is opposite to the general perception. An information campaign on the highly negative features of bribe payments may be necessary to reduce the informal payments pressure both from the demand and supply side of the problem. • The average enterprise is relatively specialized and fewer firms diversified in 2011 as compared to 2009, and medium firms are more diversified than their micro counterparts. As such, product diversification does not seem to be a risk reduction tool of Vietnamese manufacturing SMEs. However, more firms developed a new product in 2011 as compared to 2009, whereas the number of firms improving existing products declined over time. Especially rural small firms are driving this decline. Results show that this latter decline could be a problem for future dynamics as innovation through the improvement of existing products is positively related to firm performance, and increasing policy focus should be given to the improvement of the innovative capacity of SMEs. • Labor productivity has increased significantly between 2009 and 2011, and the increase is especially driven by micro and small enterprises. Urban located enterprises have a higher level of labor productivity compared to their rural counterparts. Especially the food and beverage sector has seen significant labor productivity increases between 2009 and 2011, but given that the median labor productivity growth rates are above one in all sectors highlight the significant overall improvements in labor productivity among Vietnamese SMEs. However, the variation across firms is large; 40 percent of the firms experienced negative labor productivity growth between 2009 and 2011. An increased policy focus should be given to this large pool of “bad performers”, if Vietnam is to follow a sustained and inclusive employment growth path/pattern. • The share of enterprises investing has declined since 2009, and it is especially smaller urban firms in the south that has contributed to this decline. The average amount of the characrteristics of the vietnamese business environment - 238 - investment financed by retained earnings has increased as compared to 2009, and 8.4 percent of investments are financed by informal loans. Although the investment decline is small, investment policies could be designed to address the declining investment trend coupled with an increasing shift towards the use of informal credit sources among SMEs in the urban South. • Around 39 percent of enterprises can be considered credit constrained. This number is similar to the observation in 2009. Twice as many firms obtain informal loans as compared to formal ones, and almost 90 percent of the constrained group (in formal credit markets) has access to loans from informal sources. Remembering that informal loans only finance 8 to 9 percent of total investments shows that informal loans are small but a frequent part of Vietnamese SMEs financing scheme. Household firms are less likely to obtain informal credit, which means that more formal (non-constrained) entities also rely on informal sources of financing investments. However, policies should reflect that informal credit sources cannot (and should not) assure a sustained investment led inclusive growth path for SMEs. • Since 2009, there has been an increase in the labor force share of regular workers, and a corresponding decline in the proportion of casual workers. When the economy is stable and the confidence in the future is high firms tend to hire more regular workers and less casual workers. The data therefore indicate a recovery from the global economic crisis and generally more optimism. • As in 2009, recruiting difficulties exist. Since the share of well-educated workers is relatively high, it seems that these recruiting difficulties may be due to lack of labor market information rather than an actual lack of skilled workers. This suggests that a strengthening of information systems would benefit both workers and firms and could help match worker skills and job functions. • Higher education levels of the owner and manager is positively related to firm growth. Moreover, there is an indication of average level of worker education also being positively correlated with employee growth, as well as wages. However, it should be noted that average individual wages vary considerably by occupational category, and across all occupations wages are higher for men than for women. With regard to the empowerment of workers, those employed in larger firms benefit relatively more from firm gains through a higher wage. Finally, with the exception of the provision of sick leave payments, the provision of all types of benefits has increased since 2009, on characrteristics of the vietnamese business environment - 239 - average. As such the data seem to confirm that the education and remuneration policies focusing on the empowerment of workers are starting to work, even for smaller SMEs. • Understanding the role of social networks in market exchange is crucial for policy, particularly for the design of institutions that support markets. The analysis shows that networks are important determinants of enterprises innovativeness and firm performance. Entrepreneurs with a larger and more diverse set of contacts are found to both perform better and grow faster. As important network contacts are increasing in firm size, smaller SMEs are relatively less able to reap the network related benefits. It is likely that the beneficial types of social networks are too expensive or inaccessible for the smaller entrepreneurs, thereby providing unintended and unequal access to resources by micro enterprises. Policies aimed at ensuring an equal playing field also in relation to social network access may help ensure the governments pursuit for inclusive growth. The positive relationship between business association membership and firm growth may indicate that the advocacy support provided by business associations is beneficial to SMEs and improving and promoting access of the smaller segment of SMEs may provide beneficial overall externalities. characrteristics of the vietnamese business environment - 240 - references • Amin, M. (2011), “Labor Productivity, Firm-size and Gender: The Case of Informal Firms in Argentina and Peru”, World Bank Group Enterprise Note No. 22 • Barr, A.M. (2000). “Social Capital and Technical Information Flows in the Ghanaian Manufacturing Sector”, Oxford Economic Papers, 52, 539-559. • Bernard, A. B., Jensen, J. B. & Lawrence, R. Z. (1995),”Exporters, Jobs, and Wages in U.S. Manufacturing: 1976-1987”, Brookings Papers on Economic Activity. Microeconomics, pp. 67-119 • Bigsten, A.P. et al. (2000). ”Contract Flexibility and Dispute Resolution in African Manufacturing”, Journal of Development Studies, 36(4), 1-37. • Brach, J., Newman, C., Rand, J. and Tarp, F. (2012), “Firm-Level Competitiveness and Technology in Vietnam: Evidence from a survey in 2010”, CIEM • Burt, R. (1992). “Structural Holes. The Social Structure of Competition”, Cambridge MA, Harvard University Press. • CIEM (2007) Characteristics of the Vietnamese Business Environment: Evidence from a SME Survey in 2005. CIEM report, Hanoi, available for downloading at http:// www.ciem.org.vn/home/en/home/index.jsp • CIEM (2009) Characteristics of the Vietnamese Business Environment: Evidence from a SME Survey in 2007. CIEM report, Hanoi, available for downloading at http:// www.ciem.org.vn/home/en/home/index.jsp • CIEM (2011) Characteristics of the Vietnamese Business Environment: Evidence from a SME Survey in 2009. CIEM report, Hanoi, available for downloading at http:// www.ciem.org.vn/home/en/home/index.jsp • Deng, Z., Hofman, P. and Newman, A. (2012), “Ownership concentration and product innovation in Chinese private SMEs”, Asia Pacific Journal of Management, forthcoming. • DNEAP (2006) Enterprise Development in Mozambique: Results Based on Manufacturing Surveys Conducted in 2002 and 2006. DNEAP discussion paper 33E- 2006, available for downloading at • Fafchamps, M. (1992). “Solidarity Networks in Preindustrial Societies: Rational Peasants with a Moral Economy”, Economic Development and Cultural Change, 41(1), 147-174. characrteristics of the vietnamese business environment - 241 - • Fafchamps, M. and Minten, B. (2001). “Returns to social network capital among traders”, Oxford Economic Papers, 54, 173-206. • Fafchamps, M. and Söderbom, M. (2011). “Network Proximity and Business Practices in African Manufacturing”, CSAE Working Paper • Fletschner, D. (2009), “Rural Women’s Access to Credit: Market Imperfections and Intrahousehold Dynamics”, World Development, 37(3), 618–631. • Granovetter, M. (1995). “Getting a Job: A Study of Contacts and Careers”, 2nd edition, Chicago and London: University of Chicago Press. • Goedhuys, M. and Sleuwaegen, L. (2000), “Entrepreneurship and growth of entrepreneurial firms in cote d’Ivoire”, Journal of Development Studies, 36(3), 123- 145. • GSO (2004) Results of Establishment Census of Vietnam 2002: Volume 2 – Business Establishments. Statistical Publishing House, Hanoi. • GSO (2007) The Real Situation of Enterprises: Through the Results of Surveys Conducted in 2004, 2005, 2006. Statistical Publishing House, Hanoi. • Hansen, H., Rand, J. and Tarp, F. (2009): “Enterprise Growth and Survival in Vietnam: Does Government Support Matter?”, Journal of Development Studies, 45(7), 1048- 1069. • Hering, L. and Poncet, S. (2010), “Market access and individual wages: evidence from China”, Review of Economics and Statistics, February 2010, 92(1), 145-159. • ILO (2010). “Global Wage Report 2010/11”. International Labour Office: Geneva. • Jones, P. (2001), “Are educated workers really more productive?”, Journal of Development Economics, Volume 64, Issue 1, pp. 57-79, • Jovanovic, B. (1982). “Selection and the Evolution of Industry”. Econometrica 50(3), 649-670. • Kranton, R. (1996). “Reciprocal Exchange: A Self-Sustaining System”, American Economic Review, 86(4), 830-851. • Laplante, B. (2006). ”Review of Implementation of Decree 67/2003 on Environmental Protection Charges for Waste Water in Viet Nam”. Draft report submitted to the United Nations Development Program on May 5, 2006. • Larsen, A.F., Rand, J. and Torm, N. (2011). “Do Recruitment Ties Affect Wages? An Analysis Using Matched Employer-Employee Data from Vietnam”, Review of Development Economics, 15(3), 541–555. characrteristics of the vietnamese business environment - 242 - • Liedholm, C. and Mead, D.C. (1999). Small Enterprise and Economic Development. The Role of Micro and Small Enterprises, Routledge Studies in Development Economics. Routledge, London and New York. • Liu, A.Y.C. (2004), “Changes in Gender Wage Gap in Vietnam,” Journal of Comparative Economics, 32, 586–596. • McMillan, J. and Woordruff, C. (1999). “Interfirm Relationships and Informal Credit in Vietnam”, Quarterly Journal of Economics, 114(4), 1258-1320 • Mengistae, T. (2006), “Competition and entrepreneurs’ human capital in small business longevity and growth”, Journal of Development Studies, 42(5), 812-836. • Nichter, S. and Goldmark, L. (2009), “Small Firm Growth in Developing Countries”, World Development, 37(9), 1453–1464. • Putman, R. (1993). “Making Democracy Work: Civic Traditions in Modern Italy”, Princeton NJ, Princeton University Press. • Rand, J. (2007) “Credit Constraints and Determinants of the Cost of Capital in Vietnamese Manufacturing”, Small Business Economics, 29, 1-13. • Rand, J. and Tarp, F. (2011), “Does Gender Influence the Provision of Fringe Benefits? Evidence From Vietnamese SMEs”, Feminist Economics, 17(1), 59-87. • Rand, J. and Tarp, F. (2012), “Firm Level Corruption in Vietnam”, Economic Development and Cultural Change, 60(3), 571-595. • Rand, J. and Torm, N. (2012a), “The Benefits of Formalization: Evidence from Vietnamese Manufacturing SMEs”, World Development, 40(5), 983–998. • Rand, J. and Torm, N. (2012b), “The Informal Sector Wage Gap Among Vietnamese Micro Firms”, Working Paper, Department of Economics, University of Copenhagen. • Segal, G., Borgia,D., and Schenfeld, J. (2009). “Founder human capital and small firm performance: an empirical study of founder-managed natural food stores”, Journal of Management Research, 4, 1-10. • Söderbom, M., Teal, F. and Wambugu, A. (2005), “Unobserved Heterogeneity and the Relation Between Earnings and Firm Size: Evidence from Two Developing Countries,” Economics Letters, 87, 153–59. • Sutton, J. (2005), “Competing in Capabilities: An informal Overview”, Based on his Clarendon lecture of 2004, London School of Economics. • Torm, N. (2011), “The Union Wage Gap Among Vietnamese SMEs”, Working Paper, Department of Economics, University of Copenhagen. characrteristics of the vietnamese business environment - 243 - • Vu, V.H. (2012), “Does export participation affect wages and employment quality? The case of Vietnamese SMEs”, Economics department, Waikato University • The World Bank (IFC) (2012), “Women, Business and the Law”, World Bank