See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/264822060

The impact of government policies on the development of small- and medium-

sized enterprises: the case of Vietnam

Article  in  J for International Business and Entrepreneurship Development · January 2012

DOI: 10.1504/JIBED.2012.048567

CITATIONS READS

3 224

2 authors, including:

Winai Wongsurawat
Mahidol University
48 PUBLICATIONS   243 CITATIONS   

SEE PROFILE

All content following this page was uploaded by Winai Wongsurawat on 11 May 2018.

The user has requested enhancement of the downloaded file.

J. International Business and Entrepreneurship Development, Vol. X, No. Y, xxxx 1

The impact of government policies on the

development of small- and medium-sized enterprises:
the case of Vietnam

Nguyen Thanh Nguyen*

People’s Committee of Long An Province,
61 Nguyen Hue Street,
Tan An City,Long An Province, Vietnam
E-mail: thanhnguyenla57@yahoo.com
E-mail: thanhnguyen@longan.gov.vn
*Corresponding author

Winai Wongsurawat
School of Management,
Asian Institute of Technology,
P.O. Box 4, Klong Luang,
Pathumthani 12120, Thailand
E-mail: winai@ait.ac.th
E-mail: winaiait@gmail.com

Abstract: This paper studies the impact of the Vietnamese Government’s

support policies on the development of small- and medium-sized enterprises
(SMEs) by surveying enterprise leaders. It investigates the effectiveness of the
policies and measures the relationship between the policies and the
performance of SMEs. Statisticians distributed and collected more than
500 questionnaires along with feedbacks from enterprise leaders. SPSS was
used to test hypotheses about the impact and relationship between the policies
and the performance of the surveyed enterprises. Among the 13 support
policies, seven (roads, electricity, telecommunications, Internet, tax
reduction/deduction, loans, and property rights) had a positive impact on the
performance of SMEs. All proposed policies had moderate to weak relationship
with the enterprises’ performance. The research results provide objective
insight for policy makers and the central and local government about their
policies’ effectiveness.

Keywords: small- and medium-sized enterprises; SMEs; government policies;

SMEs; relationship; impact; Vietnam.

Reference to this paper should be made as follows: Nguyen, N.T. and

Wongsurawat, W. (xxxx) ‘The impact of government policies on the
development of small- and medium-sized enterprises: the case of Vietnam’,
J. International Business and Entrepreneurship Development, Vol. X, No. Y,
pp.000–000.

Biographical notes: Nguyen Thanh Nguyen is Economist and Vice-chairman

of People’s Committee of Long An Province, Vietnam. He is also Civil
Engineer and Policy Advisor to Long An Province. He was a member of the
Vietnam National Assembly in 1992 to 2002, and a member of the Science,

Copyright © 200x Inderscience Enterprises Ltd.

2 N.T. Nguyen and W. Wongsurawat

Technology and Environment Committee of the Vietnam National Assembly in

1997 to 2002. He was a founder of La Vie Mineral Water Company of Vietnam
(Nestle Group) and a member of the Board of Directors of the company in 1992
to 2002. He was a Director of Long An Construction Department in 1995 to
2000. He is Doctor of Business Administration (DBA) candidate at the School
of Management, Asian Institute of Technology, Thailand.

Winai Wongsurawat is an Assistant Professor at the School of Management,

and coordinator of the DBA programme at the Asian Institute of Technology
(AIT), Thailand, and an expert in Strategic Management. Prior to joining AIT,
he was a Consultant in the finance and mass torts group at NERA Economic
Consulting, New York, USA.

1 Introduction

Small- and medium-sized enterprises (SMEs), whether in developed or developing

countries, have an important role in the economy of most countries in the world.
According to the annual report about small- and medium enterprises in Vietnam
published by the Ministry of Planning and Investment (MPI, 2008), SMEs in Vietnam
account for 95% of registered enterprises and create approximately 80% of new jobs
annually nationwide and 60% of total industrial output value. Vietnam is a developing
country with a rather impressive recent growth record. Its SMEs are playing an
increasingly crucial role in stimulating economic growth, increasing employment,
expanding exports, and promoting innovations in science and technology. In recent years,
Vietnamese Government reports have shown that the number of SMEs grew quickly from
2002 to 2010 at a rate of more than 20% per year, especially in provinces and cities in the
country’s important economic zones, where the registered enterprises developed faster
and their performance improved.
In addition to internal ability, external factors affect the development of SMEs in
Vietnam. These factors include economic restructuring, policies aimed at transforming
the agricultural economy into industry and service economies, membership in many
international organisations, and governmental support policies. In this research, the
authors concentrate on five governmental support policy groups, mainly inspired by the
economic policy of mainland China, that have received many comments about their
effectiveness.
• Financial policies: The Vietnamese Government has created policies to reduce and
exempt taxes for SMEs that aim to help new enterprises, high-tech enterprises and
promote employment. There are also fiscal fund aid and loan support programmes
for their activities. These policies are intended to reduce the difficulties encountered
by enterprises at start up or when they experience troubles. Many studies have
demonstrated the helpfulness of financial supports, but there are those that are wary
about the results of these policies. According to a 2007 survey of the Central
Institution of Economic Management of Vietnam and the Danish International
Development Agency (DANIDA) across ten provinces and cities, approximately
32% of the SMEs surveyed said that they encountered difficulties in accessing
finance and credit resources (MPI, 2008). The MPI report from a joint survey of the
Agency for SMEs Development (ASMED) and the United Nations Industrial
 The impact of government policies 3

Development Organisation (UNIDO) of 200 SMEs (2007) identified some reasons

why enterprises are not able to obtain loans from commercial banks. Among the
factors were a shortage of collateral to pledge as loan security, high interest rates for
short-term loans, and complicated procedures.
• Infrastructure policies: One of the obstacles to establishing and operating enterprises
is the poor condition of the infrastructure. To solve this problem, Vietnamese central
and local governments have concentrated on building basic infrastructure, such as
roads, ports, electricity, water supplies, telecommunications, information technology,
and industrial parks. These investments are crucial for enterprises to establish and
operate their businesses. Although there has been a great deal of government effort
put towards basic infrastructure, it has not yet caught up with the development of
investment flows and SMEs. These difficulties have created a tendency for SMEs to
become concentrated in big cities and industrial areas, hindering SME development
in weak infrastructure regions (USAID-VCCI, 2009, 2008).
• Vietnamese land policies: The government has put in place many laws and
regulations to reform land procedures for SMEs, but the laws still present obstacles
to land access. In Vietnam, the constitution dictates that land belongs to the
government, so there is no official land market. When enterprises need land to
construct facilities, they must rent (short-term or long-term) or obtain land-use rights
from the government. Enterprises must pay fees to the government and compensate
previous landowners. Such practices mean that enterprises must pay twice for a piece
of land. The procedures for land-use rights are also rather complicated. MPI (2008)
reported that it takes a significant amount of time and fees to certify land-use rights,
which can then be used as mortgage collateral or for construction. However, many
provincial authorities require that enterprises build their factories in industrial parks
with high land rental prices.
• Environmental protection policies: These policies create anxiety for both the
government and the enterprises. To prevent pollution, the government has issued
laws and regulations on environmental protection that enterprises must uphold
(Environment Protection Law, 2005). There are also environmental support plans to
encourage enterprises to reduce pollution. They aim to maintain sustainable
development, but they sometimes exist on paper only.
• Property rights: Vietnam is a communist country. In the past, Vietnamese authorities
nationalised the property of private enterprises (1954, 1975), which created investor
suspicion. To reassure entrepreneurs, the Vietnamese Government has issued many
laws and regulations to create a legal environment for enterprises, especially in the
private sector (Enterprises Law, 1999, 2005). In addition, the commitment of
Vietnam when it became a member of international organisations (e.g., WTO) is
another assurance for investors. Many people dispute the idea that the development
of SMEs is mainly due to the reformed property rights policies of the government.
Furthermore, Vietnamese laws often change, and this inconsistency causes
difficulties for enterprise development.
It is possible that recent policy reforms have helped stimulate the expansion of SMEs
both in number and in scale. The number of registered enterprises has increased rapidly.
However, there is also a dispute about the effectiveness of these policies. Enterprises
4 N.T. Nguyen and W. Wongsurawat

complain that they cannot approach the government policies and that few enterprises
benefit from governmental support. Many people claim that the development of SMEs
mainly depends on their own efforts and that the support of the government is only
superficial. Therefore, insight regarding the real effect of these policies in the
development of SMEs would be helpful to both policy makers and the government.
In this paper, the authors investigate the economic environment of Vietnam to
determine the effect of various government policies on the development of SMEs. The
results may be helpful for the central and local Vietnamese Governments as well as
policy makers in other transition economies. Based on governmental reports and the
management experiences of many provincial departments, the authors hypothesise that
such governmental policies have positive or negative impacts on the performance of
SMEs.
This research focuses on analysing enterprise leaders’ evaluations of the impact of
governmental policies on their enterprise performance. A similar survey method has also
been used annually by the Vietnam Chamber of Commerce and Industry and the United
States Agency of International Development (USAID-VCCI, 2009). It asked
approximately 10,000 Vietnamese enterprises to measure economic governance for
private sector development from 2006 to 2009. The results have been widely cited. SPSS
11.5 was used as a reliable means to analyse the data. Due to contact issues, the survey
was only administered in five provinces of southern Vietnam, where one of the authors
has a relationship with provincial officials.

2 Governmental support policies for SMEs: a literature review

There are many schools of thought regarding the role of government intervention in the
economy. Adam Smith, in his 1776 An Inquiry into the Nature and Causes of the Wealth
of Nations, put forth the theory of an ‘invisible hand’ that arranges the market. Others
argue for the role of government in solving the shortcomings of a market economy
(Mankiw, 2003). In developing countries, especially ones in transition from central
planning to a more market-oriented economy, the role of the government becomes more
important because government policies can encourage or discourage economic growth
(Griffin, 1999). Many countries have chosen effective methods with good policies that
successfully encourage the development of enterprises in a market economy. The
experience of success in some countries demonstrates the importance of governmental
policies (Griffin, 1999; Chen, 2006; Minzhu and Garg, 2005). For example, the
Singaporean Government has implemented many assistance policies, especially those for
SMEs, the economic growth and these policies have strongly affected the performance
and the result of SMEs (Chew and Chew, 2008). With government support, Chinese
SMEs are developing quickly and greatly contribute to the national economy through
governmental policies and initiatives (Chen, 2006; Minzhu and Garg, 2005). Hungary, a
country that changed from a planned to a market-oriented economy, has been very
successful in becoming a country of SMEs in less than a decade (1990s) with government
assistance (Sandor-Kriszt, 2000).
In developed countries, such as the UK, Germany, and Japan, governments have also
implemented policies to help maintain a healthy and competitive SME sector within a
free market economy, and those policies have helped to increase the competitiveness of
SMEs (Lauder et al., 1994; SMEA-Japan, 2010).
 The impact of government policies 5

To support the establishment and performance of SMEs, many countries have

implemented financial policies to encourage their development. These policies aim to
stimulate employment and economic activities. The financial policies consist of taxation
reduction and exemption, fiscal fund aid, and access to loans. These policies
strongly impact the expansion, establishment and performance of SMEs (Chen, 2006;
SMEA-Japan, 2010; Calcopietro and Massawe, 1999; Chew and Chew, 2008). This
support effectively solves the weakness in the capitalisation of SMEs (Spurge and
Roberts, 2005; Chen, 2006). However, there have been successes and failures in applying
them. According to Tambunan (2007) and Griffin (1999), the failures and limits of
governmental financial support policies are mainly due to poor implementation.
The role of the government is crucial in investing in fundamental infrastructure, such
as electricity, water supplies, roads, ports, industrial zones, telecommunications, and the
internet. Such infrastructure is important for the start up and development of SMEs.
According to Lloyd-Reason et al. (2002), the Czech Government has established many
industrial parks to help SMEs develop quickly and to reduce 60% of the construction
costs for enterprises. Sandor-Kriszt (2000) discovered that infrastructure weakness is the
greatest obstacle to the rapid development of SMEs. In China, Minzhu and Garg (2005)
considered basic infrastructure, such as transportation, communication facilities,
electricity, water supplies, fuel supplies, and public services, to have a crucial impact on
the start up and performance of SMEs. The difficulty with Vietnamese infrastructure has
created a tendency for SMEs to become concentrated in urban regions (USAID-VCCI,
2008).
Griffin (1999), in his research on social policy in Kazakhstan during the 1990s, found
that the government’s land policy affected the social economy and that an appropriate
solution is ‘land commercialisation’, which creates an open environment for enterprises
to obtain land for facility construction. Land is a sensitive issue in Vietnam. With the
Vietnamese renovation policies, the land laws provide that use rights for the landowner,
and the government can only be limited if they alter the land use purpose. Land laws
(1986, 1993, 2003) have created a better environment for SMEs because now
entrepreneurs can buy rights to land use, rent, obtain mortgages and change land
procedures.
Calcopietro and Massawe (1999) showed that developing countries face a
contradiction between development and environmental protection. SMEs must spend
more money to clean up the environment, and this causes costs to increase, which
constrains capital. SMEs need government support related to environmental policies.
Regulatory policies (laws and regulations) are closely evaluated, especially in
countries in transition. Investors need legal assurance regarding ownership
and the business environment. Chen (2006) showed that, in China, the government
implemented several laws and regulations to assure and encourage the development of
private enterprises and secure the entrepreneurship that is helpful for the development of
SMEs.
6 N.T. Nguyen and W. Wongsurawat

3 Methodology

3.1 Hypotheses
Based on governmental reports, comments of enterprises and the authors’ previous
contacts with SMEs in Vietnam, 13 hypotheses in five groups are proposed as outlined in
Table 1. The first group, labelled ‘Finance’, covers fiscal policies, including tax benefits
and government loans to businesses. The second group, ‘infrastructure’, investigates the
consequences of the government’s policies involving the development of roads,
electricity, telecommunications, and the internet. Policies falling under the ‘land’ group
include legal reforms involving required procedures for businesses to acquire land for
commercial use. The fourth group, ‘environment’, investigates the effect of the
increasingly important environmental protection policies. Finally, ‘regulatory supports’
or ‘property rights’ examines the effects of the government’s attempts to build a more
secure foundation for a market economy.
Whereas finance, infrastructure, and property rights policies are hypothesised to
positively impact SME performance (+), the historically cumbersome and ineffective
land and environmental policies are hypothesised to hinder business development (−). All
these support policies are hypothesised to have moderate relationship with SME
performance.
Table 1 Summary of hypotheses

Hypothesised Hypothesised
Group Hypotheses Policy effect on SME relationship with
performance SME performance
Finance H1.1 Tax + Moderate
(H1) deduction/reduction
H1.2 Tax exemption + Moderate
H1.3 Loans + Moderate
H1.4 Fiscal aid + Moderate
Infrastructure H2.1 Roads + Moderate
(H2) H2.2 Electricity + Moderate
H2.3 Telecommunications + Moderate
H2.4 Internet + Moderate
Land H3.1 Land buying/renting  Moderate
(H3) H3.2 Land procedures  Moderate
Environment H4.1 Env. regulations  Moderate
(H4) H4.2 Env. protection  Moderate
assistance.
Regulatory H5 Property rights + Moderate
supports (H5) (laws)
 The impact of government policies 7

3.2 Research design

The study used questionnaires to survey directly the evaluations of enterprise
leaders (owners, CEOs, directors, or chief accountants) on government policies
(finance, infrastructure, land, environmental protection, and property rights) that affect
the performance and development of their enterprises. The questionnaires also asked how
they would self-evaluate the performance of their enterprises. The questions applied a
five-point Likert scale with the following indicator points: Very poor, poor, neutral, good,
and very good (1 to 5 points) to evaluate whether the policies have a positive, ambiguous
or negative effect and how the policies perform. The study has one dependent variable
(performance of the SMEs) and thirteen independent variables (support policies,
see Table 2).
The questionnaires also asked for information on EBT, ROA, ROE, total equity
capital, and the number of employees from establishment through the previous three
years. This information was used to evaluate the performance and development of the
enterprises.
Table 2 Summary of the variables and whether they were considered important to the
establishment and growth of the enterprise

Policies No Yes
Elements (variables)
Groups Frequency Percent Frequency Percent
X0 Performance
Finance X1 Tax deduction/reduction 128 25.1 382 74.9
(H1) X2 Tax exemption 238 46.7 272 53.3
X3 Loans 158 31. 352 69
X4 Fiscal aid 404 79.2 106 20.8
Infrastructure X5 Roads 83 16.3 427 83.7
(H2) X6 Electricity 107 21 403 79
X7 Telecommunications 75 14.7 435 85.3
X8 Internet 154 30.2 356 69.8
Land X9 Land buying/renting 299 58.6 211 41.4
(H3) X10 Land procedures 284 55.7 226 44.3
Environment X11 Env. regulations 213 41.8 297 58.2
(H4) X12 Env. protection assist. 279 54.7 231 45.3
Regulatory X13 Property rights (laws) 135 26.5 375 63.5
policies (H5)

3.3 Participants and sampling procedure

The researchers chose five provinces in southern Vietnam near Ho Chi Minh City.
Three of them were in the Mekong Delta (Long An, Tien Giang, and Ben Tre), which is
less developed in commerce and industry, and two provinces (Dong Nai and Binh
Duong) are more developed. These provinces are representative of local areas in
Vietnam.
8 N.T. Nguyen and W. Wongsurawat

The authors conducted the research with the cooperation of the statistics office in
each province and with the permission of the provincial people’s committees. Provincial
specialists of the statistics offices were the surveyors. To present the representative of
survey, the sampled enterprises were selected randomly with their sector percentage
comparable to the actual distribution of enterprises sectors of Vietnam. Statisticians
telephoned the leaders of enterprises for appointments, and then personally distribute the
questionnaires. The survey questions were carefully explained before the documents
were completed and returned. The research received cooperation from 510 enterprises
from the manufacturing (48.6%) and service fields (51.4%). These were private (66.7%),
state-owned (4.3%), joint-stock (12%), foreign-investment (14.5%), and other (2.5%)
types of enterprise. Each province had approximately one hundred enterprises surveyed
(see Table 3).
Table 3 Summary of the sampled enterprises

Enterprises Frequency Percent

Private 340 66.7
State-owned 22 4.3
Joint-stock 61 12.
Foreign-investment 74 14.5
Other 13 2.5
Total 510 100
Manufacturing 248 48.6
Service 262 51.4
Total 510 100
Long An 110 21.6
Tien Giang 100 19.6
Ben Tre 100 19.6
Dong Nai 100 19.6
Binh Duong 100 19.6
Total 510 100

3.4 Measuring instrument

The research evaluated enterprises, the effect of governmental support policies and the
relationship of these policies with the performance of SMEs.
The authors used mean analysis to examine the enterprises against each hypothesis.
The hypotheses were tested to determine whether they were rejected, accepted, or partly
accepted (if only one part was accepted). The policy’s positive mean of acceptance is
larger than 3.5. An ambiguous mean was between 2.5 and 3.5, and negative was smaller
than 2.5. The authors also used SPSS 11.5 to investigate the correlation and estimate
regressions to determine the relationship between policies and success levels.
 The impact of government policies 9

4 Analysis of findings

Based on collected data, the authors used SPSS to calculate the means of the dependent
and independent variables and compared them. Most of the respondents had a medium
judgment on the impact of governmental policies on their enterprises’ performance. The
average score for all 13 policies is 3.436 < 3.5. This means that the overall governmental
policies impact the performance of SMEs at a medium level, and they tend to positively
affect the performance/development of enterprises (see Table 4).
Table 4 Summary statistics variables

Variables Standard
Mean Rank Impact
Groups Elements deviation
Performance X0 Performance 3.5451 .6491 − −
Finance X1 Tax deduction/reduction 3.5314 .5930 6 Positive
X2 Tax exemption 3.4137 .6479 8 Ambiguous
X3 Loans 3.5471 .6489 5 Positive
X4 Fiscal aid 3.0647 .6026 13 Ambiguous
Infrastructure X5 Roads 3.6451 .6645 2 Positive
X6 Electricity 3.6039 .6484 3 Positive
X7 Telecommunications 3.7235 .5745 1 Positive
X8 Internet 3.5627 .6229 4 Positive
Land X9 Land buying/renting 3.2725 .5832 11 Ambiguous
X10 Land procedures 3.2765 .5779 10 Ambiguous
Environment X11 Env. regulations 3.3373 .6045 9 Ambiguous
X12 Env. protection assist. 3.1725 .6436 12 Ambiguous
Regulatory X13 Property rights (laws) 3.5294 .6191 7 Positive
policies

Seven out of 13 policies had positive impacts on the performance of SMEs, with
scores greater than 3.5. The most effective policies were infrastructure supports
(telecommunications: 3.72, roads: 3.64, electricity: 3.60, and internet: 3.56). The next
group with a high evaluation was financial supports (loans: 3.55, tax reduction/deduction:
3.53). The final group that had a high score was support for property rights, with an
average score of 3.53. The results were supported by the percentage of surveyed
enterprises that can be provided by telecommunications (85.3%), roads (83.7%),
electricity (79%), Internet (69.8%), tax reduction/deductions (74.9%), loans (69%), and
support for property rights (63.5%) (see Table 2).
The other policies on land buying/renting, land procedures, environmental protection
regulations/assistances, fiscal fund aid, and tax exemption have scores lower than 3.5,
and they were evaluated as having an ambiguous impact on the performance of SMEs.
Among these policies, fiscal fund aid had the lowest score (a score of 3.06 and enterprise
appraisal at 20.8%).
To analyse the relationship between government policies on performance of
enterprises, the authors used regression analyses to test the hypotheses. The results
showed that all of the government policies (X1 to X13) have a weak-moderate
10 N.T. Nguyen and W. Wongsurawat

relationship with enterprise performance (X0). The test based on standardised beta
(stand. β) and adjusted R2 (adj. R2). The standardised beta ranges from 0.155 to 0.364,
with a significance level at sig. = 0.00. The adjusted R2 is rather small, ranging from
0.022 (environmental protection assistances) to 0.188 (property rights). This result shows
that most governmental support policies have a weak-moderately significant relationship
with the performance of enterprises. There are two elements with the highest relationship
level: property rights (adjusted R2= 0.118), and loans support (adjusted R2= 0.114)
(see Table 5).
Table 5 Simple regression analysis support policies with performance as dependent variable

Variables Stand. beta Sig. Adj. R2 Model sig.

Finance X1 Tax deduction/reduction 0.262 0.000 0.067 0.00
X2 Tax exemption 0.285 0.000 0.079
X3 Loans 0.340 0.000 0.114
X4 Fiscal aid 0.226 0.000 0.049
Infrastructure X5 Roads 0.276 0.000 0.075
X6 Electricity 0.276 0.000 0.074
X7 Telecommunications 0.284 0.000 0.079
X8 Internet 0.270 0.000 0.071
Land X9 Land buying/renting 0.214 0.000 0.044
X10 Land procedure 0.226 0.000 0.049
Environment X11 Env. regulations 0.207 0.000 0.041
X12 Env. protection assist. 0.155 0.000 0.022
Regulatory policies X13 Property rights 0.364 0.000 0.118

The authors also used correlation tests between the performance of enterprises and
government support policies to find out whether there is a correlation between the
performance of SMEs and government support policies. The Pearson correlation
coefficients vary from 0.306 (property rights) to 0.155 (environment protection
assistances) with a significant coefficient level (two-tailed) of 0.000 < 0.01. The most
significant support policy to correlate with the performance of enterprises is property
rights support (X13, Pearson coefficient p = 0.346), the group of financial supports
(X3-loans, p = 0.340; X1-tax reduction/deduction, p = 0.262) and the group of
infrastructure supports (X7-telecommunications, p = 0.284; X5-roads, X6 electricity,
p = 0.276; X8-Internet, p = 0.270). The less significant support policies are
environmental protection assistances (X12, p = 0.155) and environmental regulations
(X11, p = 0.207). These results show that there is slight correlation between support
policies and performance of SMEs and they support the relationship tests (see Table 6 for
details).
Table 6 Correlation between performance and each support policy (sig < 0.01, two tailed)

X1 X2 X3 X4 X5 X6 X7 X8 X9 X10 X11 X12 X13

0.262 0.285 0.340 0.226 0.276 0.276 0.284 0.270 0.214 0.226 0.207 0.155 0.346

Based on above results of the mean calculation, regression and correlation analysis, the
hypotheses were tested with the following results:
 The impact of government policies 11

Seven hypotheses were confirmed to have positive impacts and weak-moderate

relationship on SME performance: tax reduction/deduction, loans, roads, electricity,
telecommunications, Internet and property rights support. Thus, hypotheses H1.1, H1.3,
H2.1, H2.2, H2.3, H2.4, and H5 were accepted. However, tax exemption had an
ambiguous instead of a positive impact on performance, fiscal funds had an ambiguous
instead of a positive impact on performance, and land and environmental policies had an
ambiguous instead of a negative impact on performance; these policies had rather weak
relationship with the performance of SMEs; hypotheses H1.2, H1.4, H3.1, H3.2, H4.1,
H4.2 were rejected.

5 Discussion and conclusions

This study aimed to provide insight into the effectiveness of the Vietnamese
Government’s policies that encourage the development of SMEs and to determine which
policies are most effective. These policies can be good experiences for many developing
countries similar to Vietnam. Theoretically, the study determined the role of government
in a country in the process of transitioning from a planned economy to a market
economy. The findings can be summarised as follows:
In five groups comprising 13 support policies of the Vietnamese Government for the
development of enterprises, three groups had good, positive impacts and a relationship
with the performance of enterprises: infrastructure, finance, and support for property
rights.
• The best positive policies were the group of infrastructure supports in building and
servicing telecommunications, roads, electricity, and Internet systems. This finding
supports the viewpoint that good infrastructure helps enterprises reduce their costs of
production, services, and marketing and improve business opportunities. While the
Internet has only been available in Vietnam for a few years, it was evaluated as a
useful tool for encouraging the business of many enterprises. The research results
show that, wherever the infrastructure is well developed, SMEs have conditions in
which they can grow, which explains why SMEs concentrate in urban areas. The
results also show that Vietnam has chosen an appropriate way to focus on basic
infrastructure construction as a stimulus for the economy.
• The second group was financial support from the government. In this group, fiscal
fund aid received the worst evaluation, and tax exemption did not show a positive
impact. These results support criticisms about their excessively formal nature. SMEs
appeared to be unable to access them. The implementation of these two policies did
not have a positive impact on SMEs because there were only a very small number of
enterprises that could benefit from them. However, tax reduction/deduction and
loans support are well appreciated. These policies help reduce the financial
difficulties of enterprises when they start up, encounter crises or function in difficult
economic time periods. They make it easier for enterprises to contact banks about
loans, and this result shows a good, helpful resolution for their capital weaknesses.
Tax reduction and loan support are two basic policies that strongly impact the
activities of Vietnamese SMEs.
12 N.T. Nguyen and W. Wongsurawat

• The third group of property rights supports was also highly evaluated. The research
results agree with the theoretical viewpoint that new government laws and
regulations supporting property rights create a better environment for business.
Another important reform concerns laws regarding ownership by foreign and local
investors. Vietnam has eradicated the suspicions of business owners about
nationalisation of their property. New regulatory policies have consolidated the
confidence of businessmen, clarified the situation of SMEs and affirmed the support
of the government. The study results on Vietnamese property rights policies illustrate
the view that new laws and regulations are one reason for SMEs’ boom in Vietnam.
• The land policies were ranked by the authors of this study as poor because these
policies are not consistent, change quickly, and create difficulties for enterprises
needing land for their activities. However, the research results demonstrate that these
policies are not as poor as hypothesised because they have a neutral impact on the
performance of enterprises and have a tendency to be effective. The study also found
that the policies related to land procedures were ambiguous for the development of
SMEs. These results demonstrate that the government’s land policies have improved
in recent years and that SMEs have less pressing land needs for their business than
large enterprises, especially manufacturing ones.
• The environmental protection policy of the Vietnamese Government is one policy
that can have a negative impact on the performance of SMEs because environmental
regulations require enterprises to resolve pollution issues themselves, and the waste
treatment construction aid from the government is negligible. However, the
evaluation of enterprises about these policies was not so poor, even though
environmental protection assistances policy is ranked as one of the worst. Perhaps
the environmental laws and regulations were not enforced so the enterprises did not
feel the negative impact of these policies. This possibility has been demonstrated by
many severe environmental protection violations by enterprises in Vietnam.
The study shows that the policies on infrastructure, tax reduction, loans, and property
rights have a positive impact on and relationship with the performance of SMEs, with the
effects of loans and property rights supports being more evident. The other policies on
land, environmental protection, tax exemption, and fiscal fund aid have an ambiguous
impact and a slight relationship with the performance of enterprises, for which fiscal fund
aid and environmental protection assistances policies are rated the lowest.
The research results demonstrate that loans and property rights policies have the
greatest effect on the performance of SMEs. Concentrating government assistance in
infrastructure, property rights, and financial supports is a wise solution for helping
enterprises develop. The remaining policies are needed, but the government needs to
determine why they are ineffective, so it can revise, correct or reject them in a timely
manner. According to the results, the government needs to calculate the effectiveness of
tax exemptions and fiscal fund aid support because the amounts are small and difficult to
access. Environmental protection policies are also a problem in Vietnam. The enterprises’
evaluations demonstrating their neutral impact on SMEs may be a warning regarding the
non-compliance of environment regulations and their ineffectiveness. Authorities should
build waste treatment plants and apply genuine environmental support policies to SMEs.
Land access is still evaluated as rather low, and the government should innovate much
more in this field. A commercial land market, accepted land ownership, and innovative
 The impact of government policies 13

land policies are solutions to land access for enterprises. The authors of this study feel
that these results will be helpful for policy maker’s central and provincial governments.
In five policies groups, the finance and property rights are proved that they have
strongest relationship with the performance of SMEs. The finance support (loan policy) is
rather clear in many countries that they are very helpful for enterprises development; but
property rights policies have strong relationship with the performance that may appear in
communist countries or in countries which lack an effective legal system.
Although the survey was implemented in five provinces in southern Vietnam, the
results of the analysis for each province are similar. The main limitation of the current
work was a lack of data to explore the situations in the north and central provinces of the
country.

References
Calcopietro, C.M. and Massawe D. (1999) Dar es Salaam “Tanzania Small and Medium scale
enterprise policy proposals”, UNIDO, July.
Chen, J. (2006) ‘Development of Chinese small and medium – sized enterprises’, Journal of Small
Business and Enterprises Development, Vol. 13, No. 2, pp.140–147.
Chew, R. and Chew, S.B. (2008) ‘A study of SMES in Singapore’, Journal of Enterprising
Communities: People and Places in the Global Economy, Vol. 2, No. 4, pp.332–347.
Enterprises Law – Vietnam (1999, 2005) Enterprises Law 1999, Article 4, 7; Enterprises Law
2005, Article 2, 7, 8, 161,162.
Environment Protection Law – Vietnam (2005) Article 35, 36, 37, 69, 110, 111,117.
Griffin, K. (1999) ‘Social policy in Kazakhstan during the economic transition’, International
Journal of Social Economics, Vol. 26, Nos. 1/2/3, pp.134–157.
Land Law – Vietnam (1986, 1993, 2003) Land Law 1986, Article 1, 3; Land Law 1993, Article 1, 2
3; Land Law 2003, Article 34, 35, 46.
Lauder, D., Boocok, G. and Presley, J. (1994) ‘The system of support for SMES in the UK and
Germany’, European Business Review, Vol. 94, No. 1, pp.9–16.
Lloyd-Reason, L., Muller, K. and Wall, S. (2002) ‘Innovation and education policy in SMES:
a Czech perspective’, Education + Training, Vol. 44, Nos. 8–9, pp.378–387.
Mankiw, N.G. (2003) Economics, South-Western College Publishing, Ohio, USA.
Minzhu, R.C.C. and Garg, R. (2005) ‘Assessing the environment for small and medium enterprises
success in Sichuan, China’, International Journal of Commerce and Management, Vol. 15,
Nos. 3 and 4, pp.243–254.
MPI (2008) ‘Ministry of planning and investment of Vietnam’, Agency for SME Development,
Annual Report of Small and Medium Enterprises in Vietnam, Ha Noi, Vietnam.
Sandor-Kriszt, E. (2000) ‘The promotion of Hungarian small and medium-size enterprises in
accordance with guidelines for European union enlargement’, Journal of Small Business and
Enterprise Development, Vol. 7, No. 1, pp.18–26.
SMEA-Japan (2010) ‘Small and medium enterprise agency of Japan’, available at
http://www.chusho.meti.go.jp/sme_english/index.html (accessed in October 2011).
Smith, A. (1776) An Inquiry into the Nature and Causes of the Wealth of Nations, in W. Strahan
and T. Cadell (Eds.), London, UK.
Spurge, V.J. and Roberts, C. (2005) ‘Broadband technology – an appraisal of government policy
and use be small and medium – sized enterprises’, Journal of Property Investment & Finance,
Vol. 23, No. 6, pp.516–524.
Tambunan, T. (2007) ‘Entrepreneurship development: SMES in Indonesia’, Journal of
Development Entrepreneurship, Vol. 12, No. 1, pp.95–118.
USAID-VCCI (2008, 2009) ‘Report of Vietnam competitive initiative project’, (VNCI) Vietnam.

View publication stats