“Vietnam: Key linkages and mutual benefit of foreign investment on the local SME-sector”

Initial position:
Public- and State-owned enterprises (SOE) still represent predominantly the Vietnamese economy, especially in strategic branches such as telecommunication, heavy-industries, etc. But the liberalisation of the private economic sector also lays an emphasis on the development of commerce, small trade, and informal businesses. A substantial partof these businesses consists of the agricultural sector as well as the light industry (small plastics industry, electric and machinery industry), craftsmanship (smiths and plumbers, carpenters, tailors, maintenance), and service related enterprises (small restaurants, tourism). On an overall scale these micro-, small- and medium-sized enterprises (SME) perform a very important task as a mediator between the producers (mostly SOE’s, but also foreign invested firms), the retailers, and the consumers and thus, for the future diversification of the Vietnamese economy. This is of special importance since SME’s account for roughly 90% of the Vietnamese labour employment. But besides the above mentioned achievements, the private sector in Vietnam still reveals substantial weaknesses and constraints. In short, the private sector in Vietnam has developed at a high growth rate but not in a sustainable manner and less internationally competitive. Specifically the SME-sector is, to a large extent, not yet able to face direct competition. This
enforced competition has again increased after Vietnam joined the WTO in late 2006.

Research Objective:
The objective of this project has been to examine in depth and with an interdisciplinary approach recent Business supporting policies, such as legal reforms, administrative reforms, tax policies, credit access policies, and land reforms. Besides a structural analysis of previous achievements it aimed at assessing the effectiveness and also the shortcomings of these measures which have been initiated by the Vietnamese government. The field-research conducted also tried to identify the leverage of foreign investment and its impact on the promotion of local Vietnamese SME’s? How sustainable is this cooperation, and is there a “Best-practise-approach” identifiable? In other words, what are the key-linkages between foreign investments and the local Vietnamese SME-sector.

Project Partner:
The research-project has been primarily carried out with major “on-site” support by the Central Institute for Economic Management, which is an economic “think tank” attached to the Vietnamese Ministry of Planning and Investment (Hanoi). Additional information and inside-views have been provided by the European Chamber of Commerce (Hanoi/Ho-Chi-Minh-City), the German Delegation of Industry and Commerce (HCMC) as well as foreign business associations originated in HCMC.

For further information you may contact:
Mr. Schmidt, B.Sc., M.Sc.
Centre for Asian Studies
Graduate Institute of International and Development studies (IUHEID)
University of Geneva/Switzerland
Email : Mc_Schmidt@gmx.de

Dr. Tran Kim Hao
Central Institute for Economic Management (CIEM)
Ministry of Planning and Investment, Hanoi/Vietnam
Email: thao@ciem.org.vn