The effect of social capital on innovation of SMEs in vietnam

UNIVERSITY OF ECONOMICS
HO CHI MINH CITY
VIETNAM

ERASMUS UNVERSITY ROTTERDAM
INSTITUTE OF SOCIAL STUDIES
THE NETHERLANDS

VIETNAM – THE NETHERLANDS
PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

THE EFFECT OF SOCIAL CAPITAL ON INNOVATION OF
SMALL AND MEDIUM-SIZED ENTERPRISES IN
VIETNAM

BY

HOANG DUY KHOA

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

HO CHI MINH CITY, NOVEMBER 2016


UNIVERSITY OF ECONOMIC

INSTITUTE OF SOCIAL STUDIES

HO CHI MINH CITY

THE HAGUE

VIET NAM

THE NETHERLANDS

VIETNAM – NETHERLANDS
PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

THE EFFECT OF SOCIAL CAPITAL ON INNOVATION
OF SMALL AND MEDIUM-SIZED ENTERPRISES IN
VIETNAM
A thesis submitted in partial fulfillment of the requirements for the degree of
MASTER OF ARTS IN DEVELOPMENT ECONOMICS

By

HOANG DUY KHOA

Academic Supervisor:

Dr. LE VAN CHON

HO CHI MINH CITY, NOVEMBER 2016


Table of contents
DECLARATION ........................................................................................................... 1
ACKNOWLEDGEMENT ............................................................................................. 2
ABSTRACT ................................................................................................................... 3
ABBREVIATIONS ........................................................................................................ 4

LIST OF FIGURES ....................................................................................................... 5
LIST OF TABLES ......................................................................................................... 6
CHAPTER 1: INTRODUCTION ................................................................................. 7
1.1.

Problem statement ................................................................................................. 7

1.2.

Research objectives ............................................................................................... 8

1.3.

Research questions................................................................................................. 8

1.4.

Scope of the study.................................................................................................. 9

1.5.

structure of the study ............................................................................................. 9

CHAPTER 2: LITERATURE REVIEW ................................................................... 11
2.1.

Innovation............................................................................................................ 11

2.1.1.

Definition of Innovation ................................................................................ 11

2.1.2.

Product innovation. ....................................................................................... 11

2.1.3.

Importance of innovation in entrepreneurship ............................................... 13

2.1.4.

Determinants of Innovation. .......................................................................... 15

2.1.5.

SMEs and their contribution to economic growth ......................................... 18

2.2.

Social capital ....................................................................................................... 21

2.3.

Relationship between social capital and innovation ............................................. 23

CHAPTER 3: METHODOLOGY AND DATA ......................................................... 27
3.1

Multinominal logit model .................................................................................... 27

3.2

Data and variables ............................................................................................... 29

3.2.1.

Data analysis ................................................................................................. 29

3.2.2.

Variables ....................................................................................................... 34

CHAPTER 4: EMPIRICAL RESULTS ..................................................................... 37
4.1

Descriptive statistics ............................................................................................ 37

4.2

Regression Results ............................................................................................... 39


4.3

Marginal effects ................................................................................................... 42

CHAPTER 5: CONCLUSION AND RECOMMENDATIONS ................................ 45
5.1

Main finding ........................................................................................................ 45

5.2

Recommendations ............................................................................................... 46

REFERENCES ............................................................................................................ 48
APPENDIX .................................................................................................................. 53


DECLARATION
This declaration is to certify that this thesis entitled “The effect of social capital on
innovation of small and medium-sized enterprises in Vietnam” which is conducted and
submitted by me in partial fulfilment of the requirements for the degree of the Vietnam –
The Netherlands Programme.
The thesis constitutes only my original works and due supervision and
acknowledgement have been made in the text to all materials used.”
Hoang Duy Khoa

1


ACKNOWLEDGEMENT
It is my pleasure to convey my heartfelt appreciation to those who greatly contributed
to this thesis through supervision, support and encouragement.
I would like to express my utmost gratitude to my supervisor, Dr. Le Van Chon, for
his excellent guidance, advocate, caring, tolerance and patience. It is my luck and honor to
work under his supervision. His wisdom, knowledge, skill and wholehearted devotion to
this paper have always touched, inspired and motivated me. Without his encouragement
and persistent help, I would not have been able to complete this thesis.

I am very grateful to all the lectures of Vietnam – The Netherlands Programme (VNP),
who not only delivered valuable knowledge to help me carry on this paper but also gave
me inspirations to do research. I would like to send my special thanks to Prof. Nguyen
Trong Hoai, Dr. Pham Khanh Nam and Dr. Truong Dang Thuy who have always
accompanied us during the two – year master programme. I am very thankful to Dr. Pham
Khanh Nam and Dr. Truong Dang Thuy who gave me encouragements and comments on
my Concept Note and Thesis Research Design. I would also like to thank all VNP staff for
their conscientious assistance.
I am thankful to my friends from VNP who have shared bittersweet experiences of
studying with me and always sent helps and encouragements whenever I need. Besides,
my sincere thankfulness also goes to my company’s managers and colleague who kindly
and understandingly facilitated my master studying.
Finally, I am most grateful to Dad, Mom, Aunt, Sister and Brother for their
unconditional love, endless support and limitless tolerance to me throughout my journeys.

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ABSTRACT
The contribution of SMEs in the economic growth is undeniable but difficult to
measure, especially in Vietnam. SMEs take a large percentage in the total number
enterprises in Vietnam, thereby offering remarkable employment opportunities. Moreover,
they also play essential role in enhancing the stabilization and dynamic of the economy.
One of the most important element in improving the activities of the SMEs is innovation,
which has long been mentioned as a consequential component for creating and keeping up
the competition and development of cooperation in SMEs. SMEs’ innovation activities are
currently influenced by many components, but the SMEs usually faces the problem of lack
of resources and capital. In this context, social capital is used as a significant resources in
most of SMEs activities in general and innovation process in particular. The relationship
between social capital and innovation has been examined by many authors in many

countries. However, there has been very little research about this issue in Vietnam. This
paper aims to ascertain the consequentiality effect of social capital on the innovation by
utilizing the multinomial logit model while measuring innovation of Vietnamese SMEs.
According to the theories and empirical researches of many authors in all around the world,
we expect the positive relations between the social networks of enterprises and the
innovation activities. Besides, we have also expected to figure out more related factors that
effected on innovations activities, thus we might be able to recommend the policy makers
ways to enhance the economics. About the methodology, this paper use the multinomial
logit model to test its hypothesis. We measuring innovation of Vietnamese SMEs by “new
products”, “improvement of existing products” “export”. The positive relations between
the social networks of enterprises and the innovation activities which is evidenced by
previous literature again presented in this study. In addition, we also find some factors
which affect innovation, since the policy makers will be able to motivate the economy
development by implementing the innovation support's policies.
Keywords: product innovation, social capital, SMEs, Vietnam, multinomial logit
model.
3


ABBREVIATIONS
GDP

Gross domestic product

SME

Small and medium-sized enterprises

CIEM

Central Institute for Economic Management

MPI

Ministry of Planning and Investment of Vietnam

ILSSA

Institute of Labor Science and Social Affairs

MoLISA

Ministry of Labor, Invalids and Social Affairs of Vietnam

BSPS

Business Sector Programme Support

R&D

Research and development

PPF

Production–possibility frontier

OECD

Organization for Economic Cooperation and Development

OLS

Ordinary least squares

MNL

Multinomial logit model

SOEs

State-owned enterprises

MIT

Ministry of Industry and Trade

FDI

Foreign Direct Investment

4


LIST OF FIGURES
Figure 1: The movement of PPF curve to the right when have technological
innovations ......................................................................................................... 15
Figure 2: SMEs’ contribution to GDP and employment ...................................... 19
Figure 3: Conceptual Framework ........................................................................ 26
Figure 4: The 2013 SMEs’ survey sample by location ........................................ 32
Figure 5: The 2013 SMEs’ survey sample by sector ............................................ 33

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LIST OF TABLES
Table 1: The innovativeness indicators for SMEs in different dimensions ..................... 17
Table 2: Cataloged SMEs by financial assets. ................................................................ 18
Table 3: SMEs’ Shares of Manufactured Exports in Developing and OECD Economies 19
Table 4: Firm ownership structure ................................................................................. 30
Table 5: Firm size .......................................................................................................... 31
Table 6: Different between Large enterprises and SMEs................................................ 33
Table 7: Number of observations with improve existing product and new process. ........ 37
Table 8: Interaction between improve existing product and new process. ...................... 37
Table 9: Descriptive statistics ........................................................................................ 37
Table 10: The dummy variable descriptive statistics ...................................................... 38
Table 11: Multinomial logistic result ............................................................................. 39
Table 12: Marginal effect results ................................................................................... 43

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CHAPTER 1: INTRODUCTION
1.1. PROBLEM STATEMENT
Vietnam had official economic renovation (Doi moi) in 1986, but this process had a
slow advance until 2000, especially after the Asian financial crisis. Up to now, along with
international economic integration, the economic reform began strongly happens emphasis
on private sector. Vietnam had accomplished stunning accomplishments such as steadiness
economic growth, the rapid development of foreign trade/investment or the reduction of
destitution. Among that accomplishment, the importance of the small-and-medium-sized
enterprises (SMEs) in undeniable. According to the General Statistic Office, the number of

formal SMEs in 2012 was 286.468 firms which took account of 98.34% total firms. It
contributed approximately 40% of GDP and provided 51% labor force in Vietnam each
year and created sustainable economic development.
However, the Vietnamese SMEs also have to struggle many obstacles. The total
number of newly established firms had decreased sharply from 83.600 to 77.500 between
2010 and 2012. Moreover, the exiting the market of current firms is an upward trend. For
example, the number of disbanded and discontinued operating firms was increased by
11.9% in 2012 which accounted for 60.700 companies. Understanding this urgent situation,
many developing countries’ legislature are implementing a lot of policy in order to fortify
the development of its SMEs. However, the big question is how they could motivate the
development of SMEs by enhancing its performance. Many researchers found out that the
increasing productivity could be conducted by innovation. Innovation will create the
competitive advantages and be the essential source of the increasing in productivity.
There are a lot of theoretical and empirical studies such as Brüderl (1998), Maskell, P.
(2000), Molina‐Morales (2010), Stam et al (2014) emphasized the consequentiality of the
technical for economic and determinants of innovation while the social capital has only
been noticed over the past few years. The most famous case study is the Putnam Nanni
7


Lanzetti (1993). As per this paper, the social capital is characterize as the essential resource
for firm and which cooperate among individuals. Because of this possibility, the individual
social capital could influence firm’s innovation by using different indicators to measure
the social capital. Moreover, through social capital, some capabilities allow firms to
integrate their resources, engendering and sharing knowledge to make their improvement.
There is a network connection which connect people and solve the matter together.
In this studies, the social capital of owner/manager of enterprises will be mentioned as
well. However, there are a few of the scientific research approve that the social capital have
the influence on innovation, especially SMEs in Vietnam. This research also illustrate
delineate a few key components having sway on SMEs innovation. The data collected from

the surveys of Vietnam SMEs conducted in 2013 will be acclimated to accentuate the
impacts of social capital on the innovation. The qualitative results will be used to introduce
the different aspects of potential factors influencing the innovation and some suggestions
about the development of SMEs in Vietnam will also be mentioned. The enterprises will
refer to this research when promoting innovation for their product.

1.2. RESEARCH OBJECTIVES
This paper aims to claim the need of social capital for the product innovation activities
and determine which elements exhibit the significant impact on product innovation
activities of Vietnamese SMEs. Throughout the understanding of which elements impact
the product innovation, the enterprise’s owner/manager can adjust the firm’s strategy to
gain the competitive advantages not only in residential market but also in worldwide
market. Besides, the policy makers might be able to control the influential elements of each
industry in order to make suitable decision to assist the innovation of specific sector.

1.3. RESEARCH QUESTIONS
For how to increase the productivity of SMEs in Vietnam, we will deal with these
following questions:
-

Does social capital affect innovation of SMEs in the case of Vietnam?
8


-

How does social capital affect innovation?

-

What should policy makers do to promote the probabilities of innovation?

1.4. SCOPE OF THE STUDY
The SMEs Survey in Vietnam, which is financed by the Royal Embassy of Denmark
in Vietnam (hereafter Danida) under the Business Sector Programme Support (BSPS) has
been conducted six times, the latest is the period 2007-2013. There are three department
that organized this survey together such as the Central Institute for Economic Management
(CIEM) of the Ministry of Planning and Investment of Vietnam (MPI); the Institute of
Labor Science and Social Affairs (ILSSA) of the Ministry of Labor, Invalids and Social
Affairs of Vietnam (MoLISA); and the Development Economics Research Group (DERG)
of the University of Copenhagen.

1.5. STRUCTURE OF THE STUDY
In more detail, Chapter 2 is used for the literature review. It is used to review theories
and to display some result of empirical studies. The meanings of innovation, social capital
and some designators effect on innovation will be introduced as well. In this chapter, we
will able to consider the need of innovating in SMEs.
Chapter 3 will be focused on explaining our methodology and data. This part will
content the Econometric model that we conducted and more details about the data that we
used in this paper.
Chapter 4 will illustrate the results that we found through in our research. The variables
description and descriptive statistic will be stated at the opening of this chapter which help
us to understand clearly about all variables and statistics. The rest of the chapter is used to
describe the regression result and marginal effects.
Chapter 5 is for the conclusion and policy implication. All of this research will be
reviewed, analyzed the advantages and disadvantages of our methodology and

9

recommendation for the future researches. This chapter will also suggest the policies for
policy makers and for enterprises when they want to increase the rate of innovating product.

10


CHAPTER 2: LITERATURE REVIEW
2.1. INNOVATION
2.1.1. Definition of Innovation
The concept of innovation has evolved radically over the last forty years and one is
known as the knowledge-based innovation. There are a lot of concepts about this types
such as knowledge-based innovation derived from science; knowledge-based innovation
derived from market needs; knowledge-based innovation derived from linkages between
actors in markets; knowledge-based innovation derived from technological networks or
knowledge-based innovation derived from social networks. According to Hyvarinen
(1990), innovation includes both internal and external activities of firms which are creating
new products, enhancing existing products, process, governance or marketing… The first
type of innovation is very familiar with any business operation, the research and
development (R&D) process. In addition, these innovation activities will be considered as
a crucial components decided the “life of SMEs” while technology is applied at a broader
sense rather than relating to products only. He also classified innovation into five types:
product, process, marketing, organizational and social innovations. As a research scale, we
just focus on product innovation.
2.1.2. Product innovation.
Product innovation is defined as the development of new products, changes in design
of established products or use new technology in the manufacture of established products.
It takes many advantages for firm such as: inventing a new product, improving a product's
quality, enhancing product's technical features or adding new parts, input and expecting
functions to an established product hence firm can growth, expansion and gaining a
competitive advantage. Especially in small enterprises the influence of individuals is

considered, the individuals or a group of them who get the ideas, make decisions of buying
the new products. Drucker (1985) is mentioned the influence of time, the entrepreneur’s
relationship to individual’s environment.
11


While substantial studies have been investigating and providing proofs of relationship
between countries’ export and their innovation activities at macro level (Greenhalgh,
1190), less effort and papers on this correlation at micro level have been presented. On the
one view, a considerable studies have showed evidence for a significant positive influence
of innovation which are represented by R&D expenditure or number of innovations on the
performance of export.
Innovation is defined as “implemented technologically new products and processes
and significant technological improvements in products and processes” (Becheikh et al.,
2006). According to their perceptions, (technical) innovation refers to either a
technologically new product/process or an existing product/process which are experienced
a substantially technological advancement.
A rough distinction can be made between product innovation (including both new
product innovation and modification of an existing product) and process innovation.
Process innovations are a way to improve productivity and reduce production costs, while
product innovation gives the innovating firms a competitive advantage. Following
Utterback and Abernathy (1975) and Cassiman and Martínez-Ros (2004) we could
hypothesize that product innovations and process innovations have a different effect on
export performance. But often, product innovation and process innovation are linked as
newly developed products or modified products often requires new production technology.
Innovation is treated as an underlying determinant of a quality, such as firm
performance or productivity. The adaptable with changing market condition needs firms
accumulate new knowledge and constantly modify their products and processes.
Innovation is also considered as a tool of entrepreneurs to exploit change as an opportunity
for a new or a different business and service (OECD, 2005).

Innovation is evaluated in various ways. On the one hand, the input-oriented
measurement of innovation uses data on R&D (research and development). But R&D
expenditure tends to overestimate innovation, because it includes aborted efforts that do
12


not necessarily lead to new products/processes or improved products/processes. On the
other hand, the output-oriented measurement applies patent data, innovation count and
firm-based surveys. However, a patent would better represent an invention rather than
innovation. The method of innovation count is deemed an object approach which relies on
innovation data from various sources, such new product/process announcements, database,
journals, etc. (Becheikh et al., 2006).
Reguia (2014) has showed some advantages of product innovation:
- Growth, expansion and gaining a competitive advantage. Enterprises can make the
difference between their product and market will be able to earn profits. The research and
find out way to making product more attractive by contrasting its unique value and
difference with other competing products. Therefore, small firms can develop their
businesses by exploit product innovation effectively, gaining a competitive advantage,
attract customer as unique or superior.
- Brand switching: the successfully product innovation will attract customers from
rival brands. The introduction of the iPhone make mobile phone users to switch from
Nokia, Motorola, Sony, etc. is the example.
Besides, product innovation not only take advantages but also many drawbacks:
- First, innovation will contain high costs and high risk of failure: When a firm
engages to innovate its product, it will spend a lot of capital, resources into innovation
process and it could take times for a business which an uncertain return.
- Second, lost connect with others partners: the firms change the way operate, and the
relationships between the business including customers, suppliers and counterpart will
break down too.
2.1.3. Importance of innovation in entrepreneurship

According Yeniyurt (2014), to determine the needs of communities which are
changing from time to time, the industry leaders always needs to make the adaptation to
maintain the economy. Both small and large business play the important role to help the
13


economy survive the changing times. In other words, it is necessary for a business to be
productive, innovative and ingenious.
Creating new products, enhancing the existing one or improving the manufacturer
process are the samples revealed the importance of innovation in entrepreneurship. For
examples, a business will have to consider to expand their current products and service to
satisfy the changing prerequisite of their clients. They always seek the opportunity to find
a way to make their product better through the innovation.
In term of small enterprise, innovation is far more important than other factors in the
success of their company. Why? Firstly, as a small enterprise, they will be able to compete
with large companies by implementing lower price strategy which mean cost-effective and
qualitative. In addition, they incentive their employees create something useful for the
company. Both of it might be achieved by innovation.
Nowadays, the global economy has been transformed to the knowledge economy. At
the beginning, the economy commences from an agricultural economy to the postindustrial/mass production economy and it is continuously developing as the knowledge
economy. Technology in general and knowledge technology in particular are the highly
important elements. It will help to create the educational and innovative products and
services which will gains more returns to business, especially in exportation. It marked by
technological innovations movement and the global competitive for innovation with new
products and processes.
The Production–possibility frontier (PPF) curve is the clearly illustration for the
importance of innovation. A production–possibility frontier (PPF) is a graphical exhibit of
conceivable combination of two components which is the constant resources and the
technology (Samuelson, 1967). In bellowed picture, the A, B, C, D are the points to
produce. It means that the increasing the amount of product X will make the decreasing the

amount of product Y. However, by adding technological progress, the PPF curve will move
to the right and the possible point will now be the E which means we can produce more.
14


The economic will be able to produce more products and services than before. Thus, the
innovation in entrepreneurship will also make the increase the productivity, then Gross
Domestic Product will increase too.
Figure 1: The movement of PPF curve to the right when have technological
innovations

Source: Samuelson (1967)
2.1.4. Determinants of Innovation.
Limited resources and capabilities, weak external contacts, underdeveloped education,
training and especially the cost are the disadvantages that all enterprises have to face. The
invocation process is require in order to solve these negative effects. For example, through
innovation, firms might find the best solution for cost reduction then they will be able to
enhance the firm’s competitiveness in the global markets. Based on literature and case
studies of innovations, the authors illustrate some factors determination innovation which
will be stated below.
First of all, knowledge-based innovation open up the ability to improve the products
or the processes of manufacturing. The bases of new process and improved products are
the research and development (R&D). The innovation process normally starts from the
15


R&D activities such as demand analysis, market survey, developing the new idea, testing
it with assessment, learning and applying new technology, designing the new product.
R&D is considered as the key factor encouraging technological change (Grunertet al.,
1997). Most of the research claim that changing in technological is a necessary for

innovation of firms (Huiban & Bouhsina, 1998). But some researchers have showed that
innovation in small firms is not primarily R&D based (Le Bars et al., 1998). This statement
seems to be true for this paper. In particular, according to Vietnam 2013 SMEs’ survey,
there are a large amount of missing data because R&D cost cannot separate clearly from
Commented [KH1]: 1.R&D
2.Phần này có nên bổ sung từ 4.1 lên hay không?

other costs.
Secondly, the characteristics of the entrepreneur such as background and skills and are
believed to have a significant impact on innovation. These characteristics are considered
to be more important in small firms than large firms which are complex and difficult to
making decisions. These factors related to enterprise's characters such as: firm size, firm
age, training cost, amount of labor, firm asset, firm profit, export activity…Empirical
findings show that young owner/manager are more likely to innovate than the older
owner/manager (Mascitelli, 2000; Avermaete, Viaene, & Morgan, 2002). Moreover, many
studies have emphasized the importance of owner/manager’s educational background for
innovation. They suggested that owner/manager with post-school qualification are more
likely to innovate than other owner/manager of firms (Cohen & Levinthal, 1989).
The innovating firms have tendency to expand their markets to earn higher profits
from their investment (Teece, 1986). Thus, the positive relationship between export and
innovation is expected.
In many theories, networks and communities is the source of knowledge, and social
capital is the indispensable factor of the innovation. According to Molina‐Morales et al
(2010), they considered the role of social capital effect on firms’ innovation through
process and product innovation.

16


According Hyvarinen (1990), the table below describes three indicators of innovation

when they are studied based on four dimensions including technology, individual,
enterprise, market/ environment.
Table 1: The innovativeness indicators for SMEs in different dimensions
Dimension

Input

Output

Technology

* Personnel

participating
R&D
* Inventions
* Different technologies
information
* Information
* Know-how from outside
* Timetables
* Degree of newness
* Life cycle

* Innovations

Individual

* Know-how

* Job

* Ideas

* Profit

types and
* Change in enterprise
ideas
‘s technology
* Inventions
* Improved
* Patents
technologies
* Licenses
* Other innovations
* Delays in reaction to
* New ideas
- information in results of
* Renewals
- innovation process
* Development
possibilities
* Diffusion of
innovation

* Motivation

* Know-how

* Attitude

* Skill

* Working

hours
* Education

*

of
individual
* Better living standard
* Employments
* Status
* Motivation

* Personnel

* Growth

* Success

* Funds

* Profit

* Improved

* Strategy

* Better

* Financial

Enterprise

Impact

input

* Information
* Know-how
* Competition
* Cooperation

departments

between-

satisfaction

* Dividends

Adoption and/or
development of ideas

strategies
Innovations

* Improved know-how
* Skills
* Publications
* Exports

17

* Development

value
added Equity
increases Enlargedmarket
* Better image
* Rewards
* Development of
enterprise
Internationalization


Market and
environment

* Education

* Payback

* Infrastructure

* Taxes

* Political

* Products

inputs

* Branch

of loans

* Innovations

Markets

* Market
* Competition
* Hostility
* Location
* Interest

group

* Development

of
branches
* New enterprises
Employment
* Regional
development Facts

* Know-how
* Economic growths
* Diffusion of
innovation

Source: Hyvarinen (1990)
2.1.5. SMEs and their contribution to economic growth
There are widely recognized descriptions about the small and medium enterprises
(SMEs). It might be founded in the producing agriculture in village, a small coffee shop at
the corner to a production base in small town or automotive parts manufacturer selling to
domestic and overseas markets. The owner might come from many different social background, markets (urban, rural, local, national, regional), different levels of skills, capital
and many others.
According to OECD (2005), Small and medium-sized enterprises are non-subsidiary.
In statistics, it is usually based on amount of employees and value of assets to classify the
size of enterprises. The given number of employees are different in across countries. In the
European Union, the upper limit employees of SMEs is 250, while there are around 500 in
the United States. Small firms are mostly with fewer than 50 employees. Even, there is also
defined as “micro” enterprises, with fewer than 10 employees.
The other key features determining an enterprise is a SMEs is financial assets.
Table 2: Cataloged SMEs by financial assets.
Company category Staff headcount Turnover

Balance sheet total

Medium-sized

< 250

≤ € 50 m

≤ € 43 m

Small

< 50

≤ € 10 m

≤ € 10 m

18


Micro

< 10

≤€2m

≤€2m

Note: can use one in two indicator turnover or balance sheet total
Source: OECD (2005)
According the recent empirical studies, in high-income countries, SMEs contribute to
over 55% of GDP and over 65% of total employment. In middle-income countries, they
contribute about 70% of GDP and over 95% of total employment. In low-income countries
is over 60% of GDP and over 70% of total employment (figure 2).
Figure 2: SMEs’ contribution to GDP and employment

Source: Ayyagari, Beck and Demirgüc-Kunt (2003),p. 27-28

Table 3 show that SMEs are an important source of export in some East Asia, African
developing economies and OECD countries. The share of export in more industrialized
East Asian economies (Taipei – 56%, China – 40%, India – 31.5%) less than industrialized
African economies (Tanzania and Malawi - <1%). One important thing is that small
enterprises with employees more than 50 have lower export potential than medium-sized
enterprises.
Table 3: SMEs’ Shares of Manufactured Exports in Developing and OECD
Economies
Economy Year

Definition of an SME (a)
Developing Economies

19

% SME
manufacture
exports


Chinese
Taipei

Early 1990s

<100 employees

56

China

Early 1990s

<100 employees

40-60

Korea

1995

<300 employees

42.4

Vietnam

Early 1990s

<200 employees

20

India

1991/1992

& machinery

31.5

Singapore Early 1990s

<100 employees

16

Malaysia Early 1990s

<75 employees

15

Indonesia Early 1990s

<100 employees

11

Thailand Early 1990s

<100 employees

10

Mauritius 1997

<50 employees

2.2

Tanzania 2002

<50 employees

<1.0

Malawi

<50 employees

<1.0

2003

OECD
Denmark Early 1990s

<500 employees

46

France

1994

<500 employees

28.6

Sweden

Early 1990s

<200 employees

24.1

Finland

1991

<500 employees

23.3

Japan

1991

<300 employees

13.3

USA

1994

<500 employees

11

Average for 6 OECD
countries

24.4

Note: (a) Definition adopted by each study, which may be different to the official
national definition of an SME.
Studies: Korea (Kim and Nugent, 1999), India (Badrinath and Others, 1997),
Mauritius (Wignaraja and O’Neil, 1999), Tanzania and Malawi (estimates based on
Wignaraja’s fieldwork), the remaining countries (OECD, 1997).
Source: Wignaraja, Ganesh (2003).
The SMEs have some advantages to adapt socioeconomic situation – they constitute
an important dynamic element in economy. Because of the small production, they are
20

Commented [KH2]: 30tr Rupees (tiền ấn độ)


flexible and easy to make adjustment to the economic shock. They are also more active
and responsive to changes in the market, changes in their activities and products to meet
market demand – it is also the innovation of SMEs.

Commented [KH3]: Tính năng động của SMEs

SMEs played an important part in the enhancing poverty alleviation, especially in rural
areas. Another point is narrowing the development gaps among provinces, urban, and rural
areas. It create more job opportunities with low cost. The saving solution and allocation in

many areas from SMRs can make a lot of occupations for many candidates in the whole
country. Especially in rural area, they also take part in reducing the job migration to the
big city. Besides, firms can take advantages of this local resources to operations and
contributed in the economics growth.
Moreover, in order to gain the comparative advantages with large firms and
corporations, goods and services of SMEs must be diversified not only in quantity but also
in quality. They entry the niche market which the large firms skipped.
The SMEs is also contribution in industrialization and modernization process in
Vietnam, speeding the urbanization process, supporting and encouraging the development
of large enterprises through their networks with these enterprises. Confronting with trade
barriers, transport costs fall and globalization, SMEs are required to create the products
which more added value to stay ahead and compete with rivals with lower cost. This is the
Commented [KH4]: Bổ sung các cty đều bắt đầu từ SMEs.

main reason of firms to apply innovation.

2.2. SOCIAL CAPITAL
The principal theory about the social capital is that networks of relationships. This is
the intangible assets of firms which can be applied for the individual or the group. For the
individual level, social capital is one’s relationships with others. As Portes (1998) define
the social capital consists of two elements: first the network of the relationships which
allows individuals to access resources possessed by their associates, and secondly the
quantity and quality of resources possessed by member of a network. Adler & Kwon, 2000
focus on the social capital of actors at micro level, with a focus on networks and social
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