VietNamNet Bridge – Vietnam lacks the medium size businesses which can act as the bridge connecting enterprises and join the global supply chain.

 
The recently released report of the Central Institute for Economic Management (CIEM) showed that in 2009-2011, only 31 small and tiny enterprises grew up into medium scaled enterprises, while 133 small and medium enterprises turned into small and tiny ones.

The conclusion has been made after the institute conducted a survey on 1999 small businesses.

The Vietnam Chamber of Commerce and Industry (VCCI) has released the 2012 annual business report which shows that over the last 10 years, a lot of new businesses were set up, but then died prematurely. About 700,000 businesses have been set up, but only 300,000 had been found operational by early 2013.

Economists, while noting the increasingly high number of tiny businesses in recent years, have warned that Vietnam lacks the medium sized enterprises which play a very important role in the development of all economies.

Regarding the number of workers at enterprises, the average figure decreased from 74 workers in 2002 to 34 in 2011, fitting small scaled businesses. Especially, the non-state owned enterprises have seen their workforce narrowing from 31 workers in 2002 to 22 in 2011.

The report of VCCI pointed out that in 2002, there were 4,600 tiny enterprises, and 2/3 of them still had been operating at the same scale by 2011. Of the remaining 1/3, only 30 percent could develop into small enterprises, and only 2 percent could turn into “medium” and “big.”

The analysts have noted the downward tendency in the number of medium enterprises. Approximately 39 percent of small businesses turned small in 2011, while 5.12 percent turned into tiny.

In 2010-2011, up to 40 percent of small enterprises reportedly cut down the labor force. 99 percent of tiny businesses are non-state owned.

The number of unprofitable businesses has increased significantly. The percentage of unprofitable businesses was high at 30.2 percent in 2006, then decreased slightly in the next years, but later soared to 42 percent in 2011. Especially, the figures for non-state owned enterprises jumped from less than 30 percent in 2002-2010 to 42 percent in 2011.

The surveyors, while noting that the capital growth rate has always been higher than the growth rate of the labor force, said that businesses have been developing on the basis of the capital increase, not on the labor force increase. Meanwhile, Vietnam believes that it has the great advantage in the labor force.

Vietnamese businesses abandoned by the State?

A lot of small and medium enterprises said they don’t intend to scale up the business, because they cannot expect any support from the State.

The owner of an electric cable company in Hanoi said he once intended to expand the production after hearing that the workshop premises rent decreased sharply. This prompted him to plan to rent 50,000 square meters of land. However, the plan was canceled because it sounded unfeasible.

The businessman estimated that he would need to borrow VND2 billion from banks to implement the plan. However, he could not afford the sky high interest rate of 14 percent per annum.

Especially, some businessmen said they don’t want to become the “big fish,” and that small ones can get adapted to the new circumstances more easily than the big ones with cumbersome apparatuses.

Tran Thuy