SME and entrepreneurship policy in Viet Nam

Foreword
Acknowledgements
Acronyms and Abbreviations
Basic Statistics of Viet Nam
Executive Summary
	Key findings
		Viet Nam’s (formal) SMEs contribute less to national employment and GDP than in the OECD area
		Viet Nam’s business environment has constantly improved, but there are still areas in need of policy reforms
		Viet Nam’s SME and entrepreneurship policies are relatively new
		Viet Nam has a relatively small number of targeted programmes for SMEs, some of which have experienced low take-up
		Building stronger business linkages between MNEs and SMEs calls for an integrated policy approach
		The government is promoting business development services (BDS) through direct provision and by enabling a private market
	Selected recommendations
1 Assessment and recommendations
	SME and entrepreneurship characteristics and performance in Viet Nam
		Large industrial firms are the core of the Vietnamese economy
		A large informal sector entails that official statistics underestimate the real contribution of SMEs to the economy
		Viet Nam’s labour productivity has converged rapidly towards the OECD average over the last 10 years
		Vietnamese SMEs appear to be quite innovative, based on survey results
		SMEs are adequately involved in national exports, but most of them are foreign-owned
		Mid-sized manufacturing firms show strong managerial skills
		Entrepreneurial activity and business ownership are very common
	The business environment for SMEs and entrepreneurship
		Viet Nam has grown rapidly over the last 20 years
		Export promotion and FDI attraction have been major drivers of Viet Nam’s rapid economic growth
		Business regulations have been simplified, but state-owned enterprises still play a large role in the economy
		Viet Nam has reduced considerably its corporate income tax rate and is considering a preferential tax regime for SMEs
		State-owned banks are an important source of SME financing in Viet Nam
		Viet Nam’s basic education is of good quality, but there are signs of skills mismatches in the labour market
		Viet Nam’s national innovation system is still at an early stage of development
	The governance of SME and entrepreneurship policy in Viet Nam
		SMEs have received increasing attention in national legislation
		Inter-ministerial co-ordination needs to be strengthened
		There is adequate policy monitoring but little policy evaluation
	SME and entrepreneurship support programmes in Viet Nam
		The SME Development Fund and the Credit Guarantee Fund are useful policy initiatives but experience low demand
		Equity finance for SMEs is growing fast, but requires a stronger regulatory framework
		Innovation support is overly focused on R&D and IPR, thus excluding the majority of SMEs
		Trade facilitation and promotion mechanisms should be complemented with export-readiness and e-commerce support
		The potential of public procurement for SME growth should be harnessed
		The government could more pro-actively support workplace-based training in SMEs
		Entrepreneurship education is in early stages, especially in primary and secondary education
		Programme support for women’s entrepreneurship has recently gained traction
	Business linkages in Viet Nam
		Viet Nam is highly integrated into global value chains (GVCs), but mostly in low value added and assembly activities
		Different firm-level and contextual factors explain limited business linkages between MNEs and local SMEs
		The current “Supporting Industry” (SI) policy is well-intended but has some limitations
		A more integrated approach to building vertically-integrated supply chains is needed
	Business development services in Viet Nam
		The role of the Assistance Centres for SMEs (TAC Centres) should be strengthened
		The AED should also aim to stimulate the rise of a private market for BDS
		Business representative organisations are involved in the offer of BDS, but outreach is often an issue
		Some provinces could benefit from central government assistance to develop SME support programmes
		Implementing a co-ordination mechanism would promote a more integrated approach to BDS delivery
2 SME and entrepreneurship characteristics and performance in Viet Nam
	Introduction
		Firm-size and sector classification
		An estimate of the informal economy
	The structure of the business sector
		Viet Nam is a major global manufacturing hub
		SMEs play a relatively small role in the (formal) economy
	Labour productivity: levels and recent trends
		Viet Nam’s GDP per capita is about one-fifth of the OECD average
		Viet Nam has experienced a rapid process of convergence in labour productivity in the last 15 years
		Viet Nam’s labour productivity levels do not differ significantly by sector and between mid-sized and large companies
	SME performance
		Innovation performance
			Vietnamese SMEs are highly involved in product and process innovation, but R&D spending is limited
			Marketing innovation is more common than organisational innovation among Vietnamese SMEs
		Export performance
			SMEs are adequately represented in export activity, but this is mostly due to foreign-owned suppliers
			Industry is the driving force of Vietnamese exports
		Managerial skills
			Managerial skills in Viet Nam’s mid-sized (manufacturing) firms are strong by international standards
	Entrepreneurial attitudes and entrepreneurial dynamics
		Entrepreneurial attitudes
			Attitudes towards growth-oriented entrepreneurship are still undeveloped
		Business ownership and entrepreneurial dynamics
			Viet Nam’s self-employment rate is exceptionally high
			There is significant business churning in Viet Nam
			Viet Nam has high rates of high-growth firms and gazelles, which are the result of a fast-growing economy
	Conclusions and policy recommendations
	Notes
	References
3 The business environment for SMEs and entrepreneurship in Viet Nam
	Macroeconomic conditions
		Viet Nam has grown very rapidly over the last 20 years
		Viet Nam’s monetary policy supports export promotion and FDI attraction
		Viet Nam enjoys buoyant labour market conditions
		Viet Nam has many jobs exposed to the risk of automation
		Viet Nam has also made strides in improving working conditions
	Foreign trade and foreign direct investment
		Viet Nam has become an increasingly export-oriented economy in the last thirty years
		Foreign Direct Investment (FDI) has been a major driver of Viet Nam’s growth
		FDI-SME linkages could be further strengthened
	Product market regulations
		Viet Nam’s ease of doing business has improved in the last six years
		Competition policy needs to be strengthened, including by reforming state-owned enterprises
	The tax system
		Tax structure and tax revenue
			The corporate income tax rate has been lowered significantly in the last 15 years
		Preferential SME taxation
			The introduction of a preferential tax regime for SMEs is currently being considered
			Objectives and limits of SME preferential tax regimes
			Viet Nam’s envisaged SME preferential tax regime has some good features, while others would benefit from adjustments
	Debt and equity finance conditions
		Debt finance
			Viet Nam’s SME lending volumes seem to be on par with OECD countries
			Access to finance is perceived as a main problem by domestic SMEs
			There are some signs of good cash-flow management practices in domestic SMEs.
			State-owned banks are a main source of SME finance in Viet Nam
			Financial inclusion is being promoted through a multi-pronged approach
		Equity finance
			Viet Nam’s Venture Capital market is growing, but still has weak legal foundations
	Education and skills performance
		Viet Nam performs well in primary and secondary education, but there are signs of inequality in access to higher education and skills mismatches in the labour market
		The technical and vocational education and training (TVET) system could be better used to address existing skills mismatches
	The national innovation system
		Viet Nam’s national innovation system has gained strength in recent years
		Business R&D has increased but from very low levels
		Performance in ICT offers a mixed picture
		The innovation legal framework needs to be boosted
	Conclusions and policy recommendations
	Notes
	References
4 The governance of SME and entrepreneurship policy in Viet Nam
	The SME and entrepreneurship policy framework
		SME policy has a recent history in Viet Nam
		The SME Support Law signals the commitment of the government to SME development
	Gaps in the SME and entrepreneurship policy framework
		SME digitalisation has not received enough attention
		There could be stronger co-ordination in youth entrepreneurship support
		The policy objective of household business formalisation requires new thinking
		The existing regulatory impact assessment should include an SME test
	Main institutions involved in SME and entrepreneurship policy
		The Ministry of Planning and Investment and the Agency for Enterprise Development are the leading players in SME and entrepreneurship policy
		Several other ministries and agencies are also involved in SME and entrepreneurship policy
	Implementation of SME and entrepreneurship policy
		The government monitors the implementation of the SME Support Law through annual reports
		SME policy implementation needs to be strengthened
	Co-ordination of SME and entrepreneurship policy
		Inter-ministerial co-ordination in SME and entrepreneurship policy could be more effective
		There are well-established policy co-ordination mechanisms between the national and local levels
		Stakeholder consultation is well developed
	Monitoring and evaluation of SME and entrepreneurship policy
		There is adequate monitoring capacity, but a lack of formal impact evaluations
	Conclusions and policy recommendations
	Notes
	References
5 SME and entrepreneurship support programmes in Viet Nam
	Debt finance programmes
		The SME Development Fund (SMEDF)
			The SMEDF is an important policy initiative, but has some drawbacks
			The SME Support Law might further restrict the client base of the SMEDF
			The SMEDF needs to expand its activity and collect better data
		The Credit Guarantee Fund
			The use of credit guarantee funds has been restrained by both demand and supply-side factors
			Some operational aspects of Viet Nam’s CGF could be better aligned with the international experience
			A cost-benefit analysis of the CGF could help the government better assess the real impact of this programme
		Other policy developments in SME financing
			Fintech is slowly being introduced in Viet Nam
	Equity finance initiatives
		Equity finance for SMEs is at an early stage of development but is growing rapidly
		Additional policy measures, such as tax incentives, would help further develop equity finance for SMEs
		A junior equity market has experienced rapid growth
	Innovation support programmes
		The National Technology Innovation Programme to 2020 is the national flagship innovation programme
		Some aspects of the programme to certify Science and Technology Enterprises could be improved
		The SME Support Law and the Supporting Industry Programme also prioritise innovation support
		There are some initial policy efforts to develop a national start-up ecosystem
		More attention is needed to building innovation capabilities at the firm level
	SME internationalisation programmes
		Trade promotion and trade facilitation initiatives
			Trade promotion for SMEs needs to be strengthened
			Significant trade facilitation efforts are underway, but SMEs need to be more closely involved
			Vietnamese SMEs would benefit from a comprehensive export-readiness programme
		E-commerce policies
			E-commerce support has recently been introduced, but requires complementary measures specifically targeting SMEs
	Public procurement policies
		Vietnamese legislation does not sufficiently involve SMEs in public procurement
		There are several policy options which Viet Nam could consider to enhance the access of domestic SMEs to government contracts
	Workforce skills upgrading programmes
		Public support for workplace-based training in SMEs is very limited
	Entrepreneurship education
		Entrepreneurship education at primary and secondary levels of education is virtually lacking
		There is a stronger offer of entrepreneurship education at the university level, but this is not yet integrated into the national curriculum
		Entrepreneurship education at the technical and vocational education and training (TVET) level needs further support
	Women’s entrepreneurship programmes
		The existing programme offering
			Viet Nam has introduced a National Strategy on Gender Equality which would benefit from stronger co-ordination
			Women’s entrepreneurship support is currently mostly the outcome of international donor initiatives
			The creation of an Expert Panel could help advance policy reform in women’s entrepreneurship development
		Main needs of women entrepreneurs in Viet Nam
			Access to financial resources
			Access to markets and business networks
			Access to information and knowledge
	Conclusions and policy recommendations
	Notes
	References
6 Business linkages in Viet Nam
	The state of business linkages
		Viet Nam is increasingly integrated into global value chains (GVCs), but mostly in low value-added functions
		Backward participation in GVC is much more common than forward participation
		The nature of GVC participation varies by industry
	Current constraints to the development of business linkages
		There are both firm-level and macro-level constraints to deeper GVC integration of Vietnamese SMEs
		Productivity spill-overs from GVC participation have been limited
	The current policy framework to support business linkages
		The Programme on the Development of Supporting Industries (SI) is the main policy to build FDI-SME linkages
		A number of improvements could be made to the SI development programme
		There could be better co-ordination between the Programme for the Development of Supporting Industries and other business linkages programmes
		Monitoring and evaluation of the SI development programme should be introduced
	The role of the business environment for business linkages
		Business linkages will benefit from the improvement of certain business environment conditions
		Better institutional and physical connectivity will support business linkages
		Domestic suppliers are often at a fiscal and financial disadvantage compared to foreign suppliers
		A stronger innovation system is instrumental to upgrading local suppliers
		Compliance with social responsibility and environmental codes of conduct are increasingly required in GVCs
	Conclusions and policy recommendations
	Notes
	References
7 Business Development Services in Viet Nam
	Business Development Services (BDS) markets
	Main BDS providers
		Central government BDS support
			The Agency for Enterprise Development (AED) is responsible for key BDS components
			The “health check diagnostic” is a strong feature of the National SME Support Portal
			The Assistance Centres for SMEs (TACs), which are the primary source of public BDS, could be strengthened
		Provincial-level BDS support
			Provincial government support for BDS could benefit from central government assistance
		Business associations and BDS
			Business associations play a key role in provision of BDS
		Private-sector BDS
			The private BDS market is relatively modest but recent SME policy measures could help stimulate the offer
	A framework for the development of BDS
		Designing a low-cost scheme reaching a wide range of SMEs
		Assuring the quality of consultants, advisors and service delivery
		Building a co-ordinated system for existing BDS providers
	Monitoring and evaluation of the BDS markets
		A monitoring survey of the BDS markets in Viet Nam would enable an assessment of supply and demand
		Evaluation of the BDS market would enable better decisions on its design and effectiveness
	Conclusions and policy recommendations
	Notes
	References