Ninety percent of enterprises in Vietnam are small to medium businesses, which are seen as a pillar of economic stability in the country.
Ninety percent of enterprises in Vietnam are small to medium businesses, which are seen as a pillar of economic stability in the country.
HO CHI MINH CITY - An Viet Long is a company that makes remote-control helicopters. But when founder Loc Le used to send them to a third party for coating, they would come back in the wrong color. Or they would get dipped too long in chemicals. Or the other company would lose the toys altogether.
Loc said such an unreliable supply chain is a key problem for small and medium businesses like his in Vietnam.
“If you do business in China or Thailand, you have industrial support,” Loc told VOA. “They have the materials available. But for us, it’s very limited.”
Looking to tackle common issues faced by small and medium enterprises (SMEs), Loc and other entrepreneurs met Tuesday at a workshop run by the U.S.-Asean Business Council, which promotes commerce between the United States and the Association of Southeast Asian Nations. Despite their size, these smaller businesses are seen as essential to Vietnam’s economic stability and therefore its future overall. But as Loc’s experience with chemical coating showed, local capacity is still lacking.
“SMEs are in an inferior position because they’re caught between state-owned enterprises and foreign direct invested companies,” Vu Tu Thanh, the Business Council’s Vietnam representative, said at the workshop. “They don’t have the proportional support or resources of these two sectors.”
Small business owners rarely exercise the lobbying power of state-owned conglomerates and multi-national companies. Even those who do form trade associations sometimes use them for services and information, rather than to pool forces and voice their interests to the government.
While their contribution to GDP is dwarfed by that of state and foreign firms, SMEs make up roughly 90 percent of the businesses in Vietnam, according to Jeff McLean, general manager of UPS Vietnam, which co-sponsored the workshop. Analysts say SME’s can provide some job stability in the face of economic recessions, when the collapse of large companies has more impact on unemployment rates.
At the workshop, businesses zeroed in on a few areas where improvements would boost their local capacity: human resources, technology, and capital.
Vietnam faces a credit crunch because years of loose lending allowed many borrowers to rack up debts they couldn’t afford to repay. The country now has the highest rate of bad debt in Southeast Asia. Most of those non-performing loans went to state-backed firms, so when lending tightened up, it was smaller companies that paid the price in the form of less access to capital.
“A lot of SMEs around the world, not just in Vietnam, complain that banks are too strict, they don’t lend them money,” said Raymond Lim, a senior vice president at Citibank in Singapore.
He conceded that SMEs have an “inherent disadvantage” compared with big companies when applying for loans. But to help improve their chances, Lim told business owners that banks evaluate applicants based on such factors as reputation, record keeping, financial reports, and cash flow to make sure they can always pay bills on time. “For SMEs, if you want to grow, cash flow is everything, it is all about cash flow,” he said.
Panelists also urged entrepreneurs to take advantage of technologies that could streamline their operations. A Visa representative called Vietnam a “very, very high cash-driven society” where credit and debit cards have an extremely low penetration. Yet internet use here is the second highest in Southeast Asia, right behind Thailand’s rate, according to a Google analyst.
“What that tells us is, there is potential for growth” in e-commerce, said Prashant Aggarwal, a regional director for Visa. He also said that in terms of credit card fraud, Asia is more secure than most continents.
That was part of the reason some at the workshop recommended Vietnamese businesses focus on Asia first for their growth strategies.
Shiumei Lin, Vice Chair of the US-Asean Business Council's Vietnam Committee, said SMEs should make use of the advanced transit links across Asean, as well as Vietnam’s 20 or so free trade deals, such as with Japan or China. She said SMEs should not let their size intimidate them from exporting to these larger economies.
“Actually, small businesses have a huge advantage,” Lin said. “The fact that you are small means you are able to be much more nimble, much more active, able to respond to market needs.”