Doctoral thesis summary: The impact of the investment environment on investment decisions of small and medium enterprises in Vietnam

1

2

BACKGROUND
1. The rationale of the thesis
The investment decision is the commencement of production and business
activities, it also contributes to boosting economic growth, create jobs, reduce
poverty and improves welfare. Therefore, in the process of development, countries
always strive to improve their investment environment to meet the expectations
better, this can help to promote strong investment. However, due to specificity,
different types of businesses also have different motives and expectations when
deciding on an investment. Since then, the improvement of investment
environment has become complicated when taking into account both general and
moderate factors to satisfy the differences between the businesses that need
support. Meanwhile, small and medium enterprises (SMEs) in very large numbers
appear in almost all geographical areas and these business sectors always occupy
the key position of the economy. Therefore, the process of improving the current
investment environment of all countries is interested in promoting investment,
increasing business efficiency and competitiveness of these enterprises.
As a prominent issue today, the investment environment in developing
countries is affected by incompletion state management mechanisms, lacking
of infrastructure and along with incomplete, unstable and difficult to predict
polices and legal frameworks. A lot of research has focused on the investment
environment context between countries, they made concentration in improving
investment environment to attract foreign investment. Although making an
important contribution, they even provide core information to help countries
create an attractive investment environment, but changes at the national level
to attract foreign investment are not quite suitable and enough to stimulate
investment by domestic enterprises, especially SMEs with many different
characteristics. In this context, it is necessary to consider at a more specific

level, such as in a country to provide effective information for investment
environment upgrading activities (Meyer, 2004).
In Vietnam, the investment activities of Vietnamese enterprises create
many jobs to help control unemployment while contributing to improve income
as well as mobilizing and promoting idle resources in society. The Vietnam
legal system and policies which support investment for SMEs have been
gradually improved, partly encourage enterprises have motivation and
expectation to build and implement investment decisions increasingly strong.

The most obvious illustration is the total investment capital and especially the
number of SMEs increases annually. However, in parallel with that, the rate of
enterprises facing difficulties in business investment and operation ceasing is
also very high, accounting for about two thirds of enterprises that are set up
every year. This proves that investment activities of SMEs now face many
difficulties and obstacles, the sustainable and stable development is being
threatened. If this situation is not resolved, it can completely create a warning
effect of the investment decisions of SMEs. Although SMEs are not mentioned
directly, the results of some recent studies have suggested the causes of the
above limitations, lacking the investment environment is one of them. Tuyen
T.Q. et al (2016); Viet P.H. (2013), Thuy & Dijk (2008) report annually on the
provincial competitiveness of VCCI Vietnam, which initially pointed out that
there are still many aspects of investment environment such as incomplete legal
policy corridors, high unofficial fees or difficulties in accessing technology,
land, capital and output markets. These limitations and shortcomings, let
enterprises operate ineffective and unfavorable in terms of competitiveness
(Phan Nhat Thanh, 2011).
The investment environment may impact on the investment of SMEs in
the context of Vietnam's economy, which lacking of specific scientific
evidence. Improving the investment environment to create an effective support
mechanism for SMEs with many characteristics which only from the

perspective of differences between countries, or generally for all types of
enterprises is very difficult. It is important to clarify the relationships of
variable investment environment that affect the investment decisions of
SMEs within a specific country like Vietnam. Thereby, it is possible to
correctly and effectively adjust policies to create a better investment
environment for these businesses and contributing to promoting economic
development. This is an important and pressing issue in the development of
Vietnam's economy, over time, that problem is not only lost, but on the
contrary it becomes more and more urgent. Therefore, the topic "The impact
of the investment environment on investment decisions of small and
medium enterprises in Vietnam" of the thesis is to see whether the decisions
of SMEs are really affected by the investment environment and What are the
specific influences that have important implications both in theory and
practice in the current context in Vietnam.


3

4

2. Research objectives of the thesis
The thesis explores clearly defining components of investment
environment, assessing the status of investment environment, investment
situation of SMEs in Vietnam. At the same time, the thesis measures and
analyzes the impact of investment factors on the investment decisions of SMEs.
From the research results, the author proposes solutions to the investment
environment towards promoting investment of SMEs in Vietnam.
Research questions: 1) What factors of the investment environment can
affect investment decisions of small and medium enterprises ?, 2) How current
situation of investment environment and investment situation of small and

medium-sized enterpries in Vietnam are ?, 3) How does the investment
environment affect investment decisions of small and medium enterprises in
Vietnam ?, 4) How does Investment environment need to be improved to
promote small and medium enterprises in Vietnam to invest more strongly?
3. Subjects and scope of research
The research object of the thesis is the investment decision of SMEs in Vietnam
and the impact of investment environment on the investment decisions of
SMEs. The thesis focuses on the external investment environment factors,
considering their impacts on investment decisions (in the field of development
investment) of domestic SMEs. Subjects of the survey are the owners and
directors of SMEs. The thesis is carried out from 2014 to 2017.
4. New contributions of the thesis
The thesis has systematized and clarified the content of investment environment,
from each component element has been identified, the thesis clearly shows the
ability of investment environment to influence investment decisions of SMEs. The
results of empirical research contributed to strengthen the theory as well as new
discoveries: First, the detection and the formation of new independent variable
scale is the "administrative management efficiency" of the administrations showed
that the investment environment with the investment decision of SMEs is
considered by 6 component concepts instead of 5 concepts as originally planned.
Secondly, the thesis assessed the level of influence of investment environment
elements to the investment decisions of SMEs in Vietnam.
Achievements and limitations in improving investment environment are
clearly analyzed and related to the investment transformation of SMEs. This
result provided orientations and warnings on key issues to be addressed to

improve investment environment effectively, helping SMEs to overcome
difficulties, barriers and continue to increase investment.
The direction and levels of influence of factors on SME investment
decisions in Vietnam have been clearly established after empirical research was

completed. This helps policymakers have information, firm foundation and
ensure science in establishing and improving investment environment to
promote investment more effectively, contributing to the implementation of the
economic goals of the country as well as of the localities in the country.
5. Thesis structure
The whole research content of the thesis includes 04 chapters: Chapter 1:
Overview of research works and research methods; Chapter 2: Rationale for the
impact of investment environment on the investment decisions of small and
medium enterprises; Chapter 3: The reality of the impact of investment
environment in the investment decisions of small and medium enterprises in
Vietnam; Chapter 4. Solutions to improve the investment environment to
promote the investment of small and medium enterprises in Vietnam.
CHAPTER 1.
OVERVIEW OF THE THESIS AND RESEARCH METHODOLOGY
1.1. The thesis overview
1.1.1. Overview of investment environment
Some researches considered investment environment to be an independent
multi-factor set that reflects comprehensively the initial environment such as:
Tidiane kinda and colleagues (2011); David Dollar et al. (2004), Lauren M.
Phillips (2006). Meanwhile, a number of studies have combined the variables of
investment environment into groups of component indicators, especially those
related to enterprises investment decisions such as Li and Li (1999). ), Stern
(2002), Chin-Shan Lu et al (2006). From assessing the advantages and
disadvantages of the approaches, the author has chosen to approach the
investment environment under 5 main elements, including: 1) Politics - law; 2)
Infrastructure; 3) Cost; 4) Market; 5) Social culture.
1.1.2. Overview of foreign researches
1.1.2.1. Politics - law
Hallward-Driemeier et al. (2006), Kaufmann et al. (2008) argued that
political institutions directly influenced the establishment and maintenance of a

5

6

stable legal system and thus had the same impact on the enterprise's decision to
invest. Schneider and Frey (1985), Henisz (2000), Hallward-Driemeier et al.
(2006) assessed political institutions have a stronger influence on corporate
investment decisions, institutional instability is a type of risk, and therefore
businesses will decide to invest in a certain country based not only on wealth
with a large population but also on the fact that in that country there are reliable
political principles or not.
1.1.2.2. The infrastructure
There are quite a number of studies recognizing that infrastructure plays a
major role in promoting enterprises to make investment decisions such as Root
and Ahmed (1979), Wheeler and Mody (1992), Dunning (1981, 1988,1993),
Chin. -Shan Lu et al. (2006), David Dollar et al (2005), Ching-Chiao Yang
(2006), Mary Hallward-Driemeier (2006), Khalid Sekkat (2007), AJKhadarool
and B. Seetanah (2010) and many other studies. Enterprises will decide to
invest when they are satisfied and find that the place where the investment is
expected to have more advantages in infrastructure than other locations.
1.1.2.3. Cost
Wu and Strange (2000), Oum and Park (2004), Graeme Newell and Ross
Seabrook (2006); Mebratu seyoum and Jihong Lin (2015) argued that the prices
of labor and prices of other inputs such as land, energy, raw materials, and
transport are important so that investors must consider before decide whether to
invest or not. High costs have a negative impact on investment decisions, due to
the impact of cost factors to the investment intentions of enterprises, the
authorities need to provide inputs such as land and high quality labor to

motivate investors.
1.1.2.4. Market
According to Ekrem and Keith (1998), Oum and Park (2004), Chin-Shan
Lu et al (2006), Buckley et al (2007), factors such as market size, market
growth potential, the level of competition, economic growth in the place of
investment played a positive role to attract investors.
1.1.2.5. Social culture
According to Jose et al. (2007) and a number of other studies, sociocultural factors, including: 1) Living standards and public services; 2) The
attitude of the local community for enterprises; 3) Cultural similarity is a
significant factor affecting whether an enterprise decides to invest in a locality

or not. The proximity to social culture is an advantage compared to other
businesses in the area where the investment is expected. It is an important factor
that facilitates the acceleration and rationalization of the transfer and
assimilation of technological systems, knowledge and management for
enterprises to make investment.
1.1.3. Overview of studies in Vietnam
In Vietnam, very few studies directly mentioned how investment
decisions of SMEs are affected by investment environment, most of the
research aimed at overall businesses in general or focused on foreign direct
investment enterprises as competitiveness report (VCCI); Phan Nhat Thanh
(2011); Viet, P.H. (2013) Hoa & Lin (2016) Route T.Q. et al (2016). There are
several studies discussing the impact of investment environment on the
investment decisions of enterprises, including a few studies on SMEs such as
Le Hoang Ba Huyen (2012); Le The Phiet (2012), Hoa & Lin (2016), Le Lu
LAN (2017) have shown that the investment decisions of businesses are
affected by both internal factors and factors outside the enterprise.
1.1.4. General assessment and research gaps
Previous studies have focused on reviewing investment environment of
countries in a region or a group of countries to assess their impact on

enterprises deciding to invest in a country. These research results do not
provide many concrete results to realize which aspects of investment
environment play an important role in the investment decisions of enterprises
within a country.
- The researches are mainly concerned with the foreign direct investment
enterprises or overall businesses in general. SMEs have many specific
characteristics, so applying the above research results in practice may not be
entirely appropriate.
A small number of studies on SME investment decision making have just
stopped in one or a few aspects of investment environment, so it is not enough
to make a general conclusion about the role and influence of the investment
environment for investment decision making of SMEs.
Different perspectives exist about the role investment environment factors
in investment decisions. At the same time, the use of evidence from studies in
other countries may not reflect accurately when considering the context of


7

8

Vietnam's economy, a developing country along with a Socialist-oriented
market economy.
1.2. Research Methods
1.2.1. Research process
The main steps to accomplish the objectives of the thesis include:
Determining the groups of factors of investment environment, building scales,
preliminary research, qualitative research, quantitative research and finally
proposing solutions
1.2.2. Models and research hypotheses

From other theories and related studies, to conduct research on the impact
of the investment environment on the investment decisions of SMEs in the
context of Vietnam, the author has expected the research model with dependent
variables is the investment decision of an enterprise under the influence of
investment environment represented by five independent variables including:
Politics, law; The infrastructure; Cost; Market and Social Culture. Together
with 05 research hypotheses corresponding to these 5 variables.
1.2.3. Investment environment scale
Political-law: Political-legal variables in an investment environment reflect
the factors related to the formation, maintenance and ability to implement
common frameworks, which are mandatory for businesses in investing activities.
Based on Chin-Shan Lu et al. (2006); Sun et al. (2002); Dollar et al. (2005) and
some other studies have described this variable, the legal political scale will
consist of 12 observed variables.
Infrastructure: From the approach point of view, this is the technical
infrastructure, reflecting the conditions that businesses can access the input, the
output market and the ability to operate production. According to Galan et al.
(2007); Chin-Shan Lu et al (2006); Sun et al. (2002) Infrastructure will be
measured by 5 observed variables:
Cost: Factors that reflect the cost of approaching and using the main input
resources of the business. Costs can be measured by 5 observations.
Market: a factor that expresses the ability and potential of consuming
output products, directly related to the target market of the enterprise. Market
variables are expected to be measured by 5 observations
Social culture: Reflecting the ability of enterprises to adapt to culture at
the place where enterprises invest, is measured by 3 observations.

1.2.4. Sample and research methods
In order to achieve the objectives, the thesis used a combination of
qualitative research methods and quantitative research methods

Qualitative research method: With qualitative research method, the author
has used the in-depth interview technique with the content prepared in advance
with the variables, the observations developed from the research review process
with the item destination check and complete the scale. In-depth interviews
were conducted with 15 subjects, including 10 SMEs managers and 05 expert
subjects.
Quantitative research methods are conducted through two steps:
Preliminary quantitative research: Preliminary assessment of the
reliability of scales and adjustments to build a complete set of scales before
official quantitative research. The sample size used by the author is 72.
Official quantitative research: For the purpose of providing evidence and
answering research questions. Selected samples included 231 enterprises in 5
provinces / cities in the survey are Hanoi, Hai Duong, Hai Phong, Quang Ninh
and Ha Giang. The regression equation is expressed in the following equation:
Y = β0 + β1.PL + β2.I + β3.C + β4.M+ β5.SC +
In this equation, the dependent variable Y is the "Investment decision of
SMEs"; 5 independent variables: PL, I, C, M,SC in turn correspond to Politics Law, Infrastructure, Cost, Market and Social Culture. β0 is the coefficient of
freedom, βi is the regression coefficient that needs to be estimated to measure
the impact of the investment environment variable in the investment decision of
SMEs and ultimately the random error
CHAPTER 2.
THEORETICAL BASIS OF INVESTMENT ENVIRONMENT TO
INVESTMENT DECISIONS OF SMALL AND MEDIUM ENTERPRISES
2.1. Investment environment and the necessary of improving the
investment environment
2.1.1. Investment environment concept
From the research perspective of the thesis, the author has drawn the
concept that investment environment is a combination of factors outside the
enterprise, where the business is operating or expected to invest, investment
environment created advantages or difficulties for The process of implementing

9

10

and operating investment activities therefore a consequence, therefore it will
affect the investment decision of the business.
2.1.2. The factors that constitute the investment environment
Investment environment is made up of many factors, Chin-Shan Lu et al.
(2006), Galan et al. (2007) and many other scientists have established groups of
components of investment environment on the basis of their ability to influence to
the responsiveness and potential profitability of the business. The thesis also uses
this approach, whereby, investment environment includes the following main
elements: Politics-law; The infrastructure; Cost; Market and Social Culture.
2.1.3. The necessary to improve the investment environment
A good investment environment promotes investment and opens a premise
to promote production, develop a range of low-cost goods and services, create
greater consumer benefits. At the same time, it also supports the government's
budget by sustainable tax revenues to finance other important social goals such as
investment in health, education and other welfare policies. Therefore, the
improvement of investment environment is necessary, but the ability to improve
investment environment also depends on many factors such as: Natural conditions;
Political institutional characteristics and economic development strategies and
policies of the country and the locality; Cultural characteristics; The status of
economic integration and Finally is the ability of the government
2.2. Investment decision of small and medium enterprises
2.2.1. Some basic issues about small and medium enterprises
The criteria for classification of SMEs can be classified into two groups:
Quantitative criteria and Qualitative criteria. The current classification of SMEs

in Vietnam is basically based on the size of the capital and the annual average
number of employees of each enterprise, have additional industry criteria. It
means that basically according to quantitative criteria.
The role of small and medium enterprises
SMEs have great contributions to the production and supply of goods to
society. The main roles of widely recognized SMEs include Promoting
economic growth; creating jobs, gathering small and idle capital sources
Characteristics of small and medium enterprises
SMEs have a number of characteristics that are relatively easy to set up,
which are diverse, flexible and widely distributed throughout the economy.
SMEs also have their own limitations, notably resources constraints and

difficulty, especially the capital. Countries that support SMEs are based on the
principle of promotion and especially in particular to remove difficulties and
limitations as mentioned above.
2.2.2. Some theories about investment decision making process
Eclectic theory: Dunning's eclectic theory (1980, 1988, 1993) is
considered a fundamental theory for empirical research on investment decision
making, providing general concepts as well as shaping the factors which
explain the reasons for investment decisions of businesses. Accordingly, three
potential advantages serve as an incentive for businesses to decide to invest in a
certain location, including: (1) Ownership advantages; (2) Internal advantage
and (3) Location advantage.
The theory of institutions underscores the influence of government by
establishing rules and rules for the behavior of different subject in economic
and social life. In addition, a number of other theories can explain business
investment decisions such as optimal choice theory, local marketing theory.
2.2.3. Investment decisions and differences in investment decisions of
small and medium enterprises
Concept of investment and development investment

It can be understood that investment is the process by which businesses
use their resources to achieve beneficial outcomes or achieve a range of
desirable goals. Development investment is the use of current capital and other
resources to maintain activities and increasing new assets, improving the state
of technology, quality of human resources and thereby improving capacity
business production of enterprises. Development investment is always
associated with the construction of new buildings or it can also be the
production of new products and services, improving peoples' lives.
The nature of investment decisions.
The investment decision is essentially a form of governance decision,
which is the process that senior managers based on both internal and external
factors to make a variety of decisions such as decisions whether to invest or not,
where to invest, what areas and scale of investment, ... all these decisions
always come with the enterprise having to spend an additional cost at the
present in order to gain greater benefits in the future, therefore after all, it is the
decision on the amount of invested capital to be deployed.
Factors affecting investment decisions


11

12

Based on previous theories and results of relevant studies, it can be seen
that the investment decision making process is influenced by the combination
of many factors, including the internal and external factors of enterprises. The
above mentioned factors are actually a set of factors that constitute investment
environment. Since then, the potential advantages from the investment
environment will have an important impact on the expected investment and
business performance and are considered an intangible asset for investors when

they decide to invest in a local or national or not.
Some differences in investment decisions of small and medium enterprises.
The investment decisions of SMEs have noticeable differences compared
to other types of businesses. It can be summarized through a number of key
points such as: Investment decisions in capital scarcity and difficulty in
accessing official capital sources; Investment decisions are accompanied by
small and odd capital sizes that lack strategicity; Missing information; Being
spontaneous and less sustainable; Less emphasis on investment in technology.
2.3. The impact of the investment environment on investment
decisions of small and medium enterprises
Politics -law: Enterprises must base on political and legal factors to know
what they can do or not. The addition and changing of these factors may occur
when relevant organizations wish to orient investment activities to achieve
specific economic, political and social objectives. Therefore, this is a factor that
can influence investment decisions through a number of key aspects such as
political stability, legal system, preferential policies and public services to
support investment, effective administrative administration.
Infrastructure: Infrastructure such as transportation, improved energy
development has created better conditions for businesses to easily access the input
and output markets, as well as conditions to maintain product stability export, cut
business costs. Since then, it is possible to stimulate investment decisions of
enterprises, in other words, an investment environment ensure the availability of
quality infrastructure will have a positive impact on investment decisions.
Cost: For SMEs, cost becomes more important, not only by relying on simple
revenue and cost forecasts, their ability to mobilize capital are very limited
Market: The market is the base of ideas and investment opportunities, a
condition to maintain the continuity of business and production activities. In
general, market size and development potential are important factors to

stimulate investment. If the output market is stable and has the potential to

expand, it will help reduce the challenges and difficulties in product
consumption, help businesses expand the market to seek profits and vice versa.
Social culture: Culture forms the basis of a society, is able to lead change
and dominate the process of change in political, legal, technological acquisition,
economic conditions, the cultural transformation in a locality can set a series of
opportunities as well as challenges for businesses.
2.4. Practical experience and lessons for Vietnam in improving
investment environment to promote the investment of small and medium
enterprises
Japan, China and South Korea are certain countries that have had
certain successes in improving the efficiency of their investment in boosting
the investment of SMEs. These countries all take concrete actions to
empower businesses to invest, from thinking to supporting core issues such
as management experience, building strategies; Regarding financial support,
tax reduction, labor training. Some lessons learned for Vietnam, such as
improving investment environment, need to pay attention to the practical and
core contents of SMEs' investment activities; Increasing professionalism,
consistency and smoothness in operation, implementing support policies
among relevant agencies; Need to concretize support content, support level
for specific objects; To adopt policies to reasonably prioritize prospective,
more efficient or priority investment enterprises according to regions and
industries with particularly difficult conditions to be developed; Accurately
grasp and timely solve obstacles between businesses and organizations
implementing policies on investment environment
CHAPTER 3
THE CURRENT STATUS OF THE INVESTMENT ENVIRONMENT
AFFECTING TO INVESTMENT DECISIONS OF SMALL AND
MEDIUM ENTERPRISES IN VIET NAM
3.1. Overview of small and medium enterprises in Vietnam in the
2006-2017 period

Along with the economic growth in Vietnam were positive changes,
increasingly strong development of SMEs. If there were only 125.1 thousand
enterprises in 2006, then by 2017, the number of SMEs reached over 508
thousand enterprises. The number of newly established SMEs was also very


13

14

close in the last 5 years, ranging from 72,597 thousand enterprises (in 2014) to
106,797 enterprises (in 2016). The total capital of the entire SME sector was
increasing every year, from VND 954.4 trillion in 2006 to an increase of
approximately 20 times to over VND 19.4 million. However, the development
of Vietnamese SMEs has more or less shown spontaneity, lack of efficiency
and sustainability. Notably, the smaller the enterprises, the greater the loss rate.
Every year, the number of SMEs ceases which is equivalent to about 70% of the
number of SMEs registered for establishment.
3.2. Current status of investment environment and the impact of
investment environment on investment decisions of small and medium
enterprises in Vietnam
3.2.1. Investment environment in Vietnam
The investment environment in Vietnam has had more positive changes,
some of the most positive changes have been drawn, including
Regarding legal politics, Vietnam maintains good stability of socialpolitical security, legal system and investment-related sub-law documents.
Regarding infrastructure, Vietnam continuously spends a high
proportion of investment in infrastructure, total investment capital for
transport, telecommunications, electricity, gas and water supply accounts
from above 10.3. % Of GDP / year. A series of important projects such as
transportation, energy are implemented and promoted effectively in practice,

this helps to improve Vietnam's global competitiveness from ranking 75 in
2012 to 55 in 2017.
In terms of cost, with the spirit of serving businesses, encouraging
investment, Vietnam has many policies and actions towards the goal of how to
cut the most of costs for businesses such as leasing and using. land and capital
mobilization costs; Transportation costs, Labor costs and electricity costs.
Regarding the market, in addition to the advantages of large market size
and market growth rate, the government and organizations also have many
support activities such as national trade promotion programs, fairs and
exhibitions, trade promotion for the business community, 90% of participating
enterprises are SMEs.
3.2.2. Investment situation of small and medium enterprises
The scale of annual investment
The scale of investment capital for SMEs from 2006 until now has

generally increased, averaging over VND 558 trillion annually. From VND
79.6 trillion in 2006, the total investment capital in 2017 reached VND 455.9
trillion. In particular, small businesses always accounted for the largest
proportion of investment capital with about 58.4% of the total investment
capital of the entire SME sector. In terms of regions, the majority of SMEs'
investment capital is contributed by non-state enterprises, corresponding to a
rate of over 60%, followed by the foreign-invested enterprises, SMEs in the
state sector. According to the business sector, the SMEs in the construction
industry contribute a large amount of investment annually, with a ratio of
56.3% to 95.4% of the mobilized capital of SMEs. The service sector tended to
fall sharply in 3 years from 2013 to 2015.
Capital structure of SMEs
From 2006 up to now, the ratio of equity capital of enterprises over the
years has gradually decreased, the self-financing coefficient from 43.9% in
2006 to 33.4% in 2017, it means that capital was mobilized from other sources

have increased. Accordingly, in 2006, a capital of SMEs had 0.561 dong of
capital, which was the contribution from creditors, then by 2017, in each
investment capital that enterprises made, creditors contribute 0.666 dong.
Business investment results
In terms of absolute numbers, the profit before tax of SMEs has increased
over the years, but the growth rate of profit is smaller than the growth rate of
capital, equity and revenue. In general, the investment situation of SMEs is
much more difficult, the benefits to investors are being reduced.
3.2.3. The impact of the investment environment on investment
decisions of small and medium enterprises
3.2.3.1. Positive effects from investment in SMEs' investment decisions
Firstly, the stability of political institutions and especially the
improvement of the legal system and SME support policies, concretized in
many aspects which has strengthened the confidence and optimism for
enterprises making investment decisions to exploit business opportunities.
Secondly, accessing the ability of infrastructure, labor and land were improved,
contributes to the business needs of businesses that also bring positive effects.
Thirdly, Vietnam has established a financial support system for SMEs. Not
only commercial banks, but also investment funds, funds to support SMEs at all


15

16

levels are the basis for businesses to approach and solve the need for capital, a
difficult problem that Vietnamese SMEs have ever come to now always face.
Fourthly, the general level of the cost of using infrastructure and other
inputs in Vietnam is relatively stable, along with some effective support
policies such as policy implementation. Tax incentives, land rental costs,

business premises and wage labor policies are favorable conditions for
businesses to reduce investment costs at startup as well as reduce production
costs and product costs help increasing the competitiveness of businesses.
3.2.3.2. Negative effects from investment environment to investment
decisions of SMEs
Firstly, many policies and incentive programs from the government and
local governments diverge from the ability to access and benefit SMEs.
Secondly, ineffective in facilitating investment capital, the mobilization
rate from informal credit sources is very large, which will cause difficulties in
stability, interest expense ...
Thirdly, the orientation and support of the output market is still weak,
causing many enterprises to lack information to follow unproven market
demands, leading to unsold goods that cannot be consumed.
Fourthly, the policy of training, supplying and using labor has not kept
pace with the reality, SMEs must accept the use of nearly 75% of the labor force
who have not undergone technical and professional training (Cao Sy Kiem, 2013 ) is
clearly a big difficulty in labor performance and business efficiency.
Fifthly, the level of science and technology is low, Vietnamese SMEs face
increasingly fierce competition of enterprises from the big economies with high
technology and management level. . It is a severe and heavy challenge for
SMEs which are weak in innovation capacity and backward technology
3.3. Experimental results of the impact of the investment environment on
investment decisions of small and medium enterprises in Vietnam
3.3.1. Results of qualitative research
Test results of independent variables: Based on the results of qualitative
research, Political-legal factors, infrastructure, costs, markets and social culture
can be used to determine and predict investment decisions of SMEs. Therefore,
the preliminary research model will be used to conduct research.
Results of scale evaluation
Basically, the scale of the survey objects understands the meaning

correctly and can be answered easily. In addition to the comments on the
expression, the linguistic structure of some variables, there are only a few minor
issues for some observations on the political-legal and social-cultural variables.
Therefore, the basic scales will be preserved to be included in the detailed
questionnaire in quantitative research after a few minor adjustments in the scale
of Political-legal and social-cultural variables. Words and expressions of some
observed variables are also reviewed to be more appropriate.
The results of the dependent variable test
Comments are correctly understood and ensured about the ability of
enterprises to make investment decisions.
Adjusting and encoding the scale
Specifically, after the qualitative research step, the set of scales is
composed of 5 independent variables which are used to analyze the impact of
investment in the investment decisions of SMEs. In particular, political-law
variables include 10 observations, 4 independent variables, each of which is
measured by 5 observations. This scale will be used for quantitative research
sections (see Appendix 06 for details).
3.3.2. Preliminary quantitative research results
In the preliminary quantitative study, the scale continued to be assessed
for reliability through Cronbach’s Alpha coefficients with data from 72
questionnaires obtained from the survey subjects. In the results, the Cronbach’s
Alpha reliability coefficient for all scales are greater than 0.7. The correlation
coefficients are greater than 0.3. The scales generally guarantee reliability for
use in official quantitative research.
3.3.3. Results of official quantitative research
Based on the data set from 231 valid responses from the official investigation,
quantitative research studies conducted, the main results are as follows:
Evaluating the reliability of the scale
All scales have Cronbach’s Alpha confidence coefficients ranging from

0.780 to 0.875 and the correlation coefficients are greater than 0.3
Validating the value of the official scale by exploratory factor analysis (EFA
First EFA result: From the first 30 observed variables, 7 factors were
extracted, the total variance explained when the factor group was drawn was
67,088 (> 50%) Factor value loading received of all the observed variables are
greater than 0.5, except for the fourth observed variable of the market variable


17

18

(TT_4) of 0.436, which also meets the requirement as greater than 0.3.
Particularly for Political-legal variables, the study has made noticeable
findings, 10 political measurement criteria - the law is loaded into 2 different
factors. Therefore, theoretically, these 10 observed variables measure the
concept of Politics-law, but in fact in Vietnam, they are separated into two
separate concepts. Reference some previous studies such as Thuy & Dijk
(2008); Chin-Shan Lu et al (2006); David Dollar et al (2005); Wei (2000), the
author named this new variable "administrative governance effectiveness", It
does not reflect problems in the formulation and issuance of legal and policy
documents, but the internal function is the deployment process, perform with
the right nature as committed to those documents or not.
The results of the second EFA re-run: Results of KMO and Bartlett
tests still ensure that the variables are related to each other and are qualified to
conduct exploratory factor analysis with KMO results = 0,759, Bartlett testing
for Sig value is 0,000. From the original 29 observed variables, 6 factors were
extracted, the total variance explained when the factor group was extracted was
64,788 (> 50%). Factor values loading the lowest is 0.425 (TT_4), meeting the
required standard.

The results of testing the impact of the investment environment on the
investment decisions of small and medium enterprises.
Results of hypothesis testing: Firstly, the study examines the relationship of 6
independent variables with the dependent variable of investment environment
without the participation of control variables. Then, the research continues to
consider the role of control variables when participating in the model. There are
all three control variables selected: Type of business, number of years of
operation and size of investment capital
Results of accreditation of regression models: There is enough basis to
assume that there are 5 out of 6 groups of factors of investment environment
that affect the investment decisions of enterprises. Among them, there are 4
positive influences, including: Political law, Administrative management
efficiency, Infrastructure and market. There is another factor that negatively
influences SMEs' investment decisions. At the same time, all the models result
that there is not enough basis to conclude that cultural and social factors
positively affect the investment decisions of enterprises. Regarding the
explanatory level of each model, it can be seen that the regression model 05

obtained the adjusted R2 coefficient of 0.420, the largest in the models, that
would better explain the variation in the investment decisions of the business.
(Explain 42% of the variation of investment decision variable). Therefore, the
results of model 5 are selected to demonstrate the impact of investment in the
investment decisions of SMEs in Vietnam.
Results of verification of research models
Variables and parameters
Accreditation

Factors (standardized)
Model 3:
Overall

control Model 4: model (5):
Model 1:
Model 2:
the
controlling There are
No control
Control number the size of
three
variables
the type of
of
the
control
business operation business variables
years
.149*
.132*
.121*
.155**
.121*

Politics - Law
Administrative
management
.296**
.289**
efficiency
Infrastructure
.296**
.318**

Cost
-.200** -.224**
Market
.213**
.190**
Socialcutral
-.022
.001
Business types
-.107
Operation years
Capital
Adjusted R Square
.365
.355
Durbin-Watson
1.781
1.814
Fchange
21.446
19.093
Sig.
0.000
0.000
- Dependent variable: Investment decision of SMEs
**.
Correlation
is
significant
at

- *. Correlation is significant at 0.05 level (2 sides).

.293**

.266**

.267**

.306**
-.205**
.165*
.008

.287**
-.199**
.200**
-.018

.310**
-.218**
.150*
.020
-.063
.187**
.160**
.420
1.810
19.538
0.000

.228**
.396
1.822
22.514
0.000
0.01

.207**
.388
1.762
21.810
0.000
level

(2

sides)

From the results of the regression model 05, the estimates of the
parameters of the relationship between the 6 investment environment variables
and control variables show that the relationships between the Political-legal


19

20

variable and the Market are statistically significant at p <0.05, variables of
Administrative Performance, Infrastructure and Costs are statistically
significant at p <0.01, it means that basically the hypotheses H01, H02, H03,

H04 , H05 on the relationship of concepts proposed in the research model is
accepted.
After experimentally studying the impact of investment environment on
investment decisions of SMEs can be expressed as follows:

administrative management efficiency, Cost, Market and Politics law. At the
same time, the analytical results also show that there is no basis to affirm social
culture that affects the investment decisions of enterprises. In addition, the
research results also show the existence of a positive relationship between the
size of capital and the age of enterprises with the possibility of increasing the
investment of SMEs.

Political - Law

+0,121

+ 0,150

Rejected

Investment
decision
of SME’s

Infrastructure
+ 0,310

Socialcutral

+ 0,267

- 0,218

Cost
Operation
years
+ 0,187

Market

Administrative
management

Capital

+ 0,160

Results of overall regression
Source: Research results
3.4. Comment on research results
The study has found new in the content of exploratory factor analysis, when 10
Political-legal scales have been split into two groups of factors. This shows that
in theory this is the component concepts of a variable, but in the context of the
rural environment in Vietnam for SMEs they represent two different variables.
With 5 observable variables separated for the definition of a new variable,
based on the internal meaning and reference to some previous relevant studies,
this new variable is called " administrative management efficiency ". The
result of official quantitative research has shown the impact of investment
environment on the investment decisions of SMEs in Vietnam. Overall, the
local infrastructure is an important factor, the most positive and strongest

influence on the investment decisions of SMEs, followed by the factors of

CHAPTER 4
SOLUTIONS TO IMPROVE THE INVESTMENT ENVIRONMENT
WHICH PROMOTE INVESTMENT OF SMALL AND MEDIUM
ENTERPRISES IN VIETNAM
4.1. Development orientation of small and medium enterprises in
Vietnam
Firstly, in terms of target, specific target in the immediate future, by 2020,
Vietnam must have at least 900 thousand of SMEs, the private sector is mainly
SMEs contributing from 48 to 49% of GDP, about 49 % of total social
investment capital.
Secondly, the development of SMEs should attach importance to the
mechanism and a roadmap for enterprise development in the field of industrial
production.
Thirdly, the science and technology level of SMEs is improved,
narrowing the gap with the average level of the world.
Fourthly, to improve competitiveness, SMEs must be able to respond
quickly and effectively to the signals of the market and competitors, not only in
the country but more importantly the international market.
Fifthly, forming a part of SMEs with good ability to meet product quality
requirement in the supporting industry.
Sixthly, maximizing the spread of management skills, technology and
production techniques from big enterprises, FDI enterprises to SMEs.
Seventhly, SMEs are positive factor in the process of creating a fair and
transparent investment environment, not merely an awaiting or be demanded
passively subject.
Eighthly, SMEs are an important economic force which play fundamental
and pivotal role to motivate the development of Vietnam's economy.

21

22

4.2. Some solutions to improve the investment environment to
promote the investment of SMEs in Vietnam
Based on the research results and discussion, the study proposes some
solutions to improve the investment environment in order to support SMEs to
operate effectively as well as to increase investment.
4.2.1. Groups of political factors - law
Some issues need to be implemented such as: First, promoting the
mechanism of effective dialogue and cooperation with SMEs in removing the
difficulties in implementing policies and legal regulations. Second, it is
necessary to concretize legal conditions to implement SME support. Thirdly,
selective supporting is better than equal supporting, regardless of SMEs.
Fourth, facilitating SMEs to help themselves by removing barriers instead of
providing direct support. Fifth, strengthen coordination between the central
government and local authorities. Sixth, strengthen mechanisms for monitoring
the implementation process of law and SME support policies.
4.2.2. Improving the effectiveness of governance, implementing the
commitment of the government
Improving and raising the administrative efficiency, in which,
bureaucracy, complexity in implementing procedures and transaction costs in
the process of implementing investment is one of the most important
bottlenecks and challenging to remove in order to promote the investment of
small and medium enterprises in Vietnam. The solution can be divided into two
impact ways, the first, including indirect measures, to improve the quality of
human resources in the administrative apparatus, it can include reducing the
staff, advanced professional training and especially moral ideological education

working style, income improvement ... Second way is called direct measures,
derived from senior management commitment to lower levels to change
bureaucracy and harassment situation to enterprises. In addition to continue
researching to minimize and transparent administrative procedures and still
achieve the set legal objectives, it is more important to drastically reduce
communication channels and direct contact between businesses with personnel
in the local government apparatus.
4.2.3. Approach to infrastructure and some input resources
Satisfying the need for approaching to infrastructure plays an important
role with the development of SMEs' business and production, promoting the

investment of SMEs in Vietnam. Land, labor, capital, energy and materials,
transportation infrastructure all need to be improved to avoid the possibility of
damage and become direct barriers to investment activities.
4.2.4. Solution on investment and business costs
Input cost is an issue that takes much of the interest of SMEs in making
investment decisions. The most prominent issues need and can take actions to
reduce costs for SMEs such as capital mobilization costs, logistics costs, land use
and labor costs.
4.2.5. Market solutions
The type of SMEs is facing difficulties and disadvantages in approaching
and exploiting the target market compared with large enterprises, economic
integration, technological revolution not only creates opportunities but
challenges also increase. Therefore, if the development investment enterprises
want to take advantage of new opportunities, it is necessary to have policies to
support the market for these businesses such as: Promoting the linkage between
SMEs, both horizontal and vertical; Helping and linking mutually beneficial
relations between SMEs and large enterprises, especially FDI enterprises;
Enhancing the effectiveness of trade promotion activities for SMEs; Promoting
the application and development of e commerce infrastructure for SMEs;

Support SMEs in exporting goods.
4.2.6. Solution on cultural and social factors
Although research has shown that there is no evidence of cultural influence on
SME investment promotion, maintaining and promoting mutual understanding
and strengthening cultural and social exchanges are the most necessary in the
context of the current globalization with the strongly developed information
system, the cultural flows become easier to affect the awareness of both
people, businesses and forces human resources in governments
4.2.7. Some suggestions for SMEs
All support policies will be difficult to promote effectively if SMEs are
not self-aware of favorable conditions, objective and subjective difficulties to
actively improve their performance. In other words, businesses must support
themselves first, such as: Having a long-term and methodical investment and
business strategy; Building and confirming the core values of enterprises and
products; Eliminating the point of view that technology is only a race of large


23

24

enterprises with advantages in resources, to have a reasonable investment
strategy because only mastering new technology makes SMEs have
opportunities to break through.
4.3. Limitations and future research directions
The thesis has answered the initial research questions, though, besides the
results obtained, the thesis also has some limitations of the scope of the survey
without provinces in the regions of Central and South Vietnam, have not
studied the factors within the enterprises. Subsequent studies related to this
topic can be developed in the following directions: (i) Expanding the scope of

the survey to have a better representative province, possibly surveying cities
and provinces in provinces in the regions of Central and South Vietnam, (ii)
Expanding the content of influencing factors located both inside and outside of
the business environment or or expand to the remaining business objects.

still faces many difficulties, implicating in the launching of investment
decisions
Experimental research results in addition to clearly determine the level
and direction of the impact of specific factors in the investment environment
that have made it clear, the effectiveness of administrative governance or the
ability to enforce legal policies investment as committed has become a separate
concept in an investment environment for SMEs. This shows that no matter
how good the creation of a good framework for investment activities is,
deploying them is still the key to the final decision.
From the main results, the thesis has proposed a number of solutions for
investment environment to promote investment decisions of enterprises. It is a
series of activities related to many aspects, but based on the common view that
a good environment must create advantages for SMEs to decide to invest in
business opportunities, enhance efficiency and promote national economic
growth. Therefore, SMEs' investment promotion policies should be integrated
into economic development strategies both at the national level, local level and
specific occupations. That process will face many difficulties, so it requires
organizational and scientific change in many areas, many stakeholders, and
requires coordination of both public and private sector, governments at all
levels and the system of public and private support organizations are essential
factors, contributing significantly to this process. Effective sharing of
responsibilities and cooperation can help accelerate the process of identifying
and correctly handling barriers, enhancing the likelihood of success and thereby
promoting strong SME investment.
Although the study still has some limitations and can develop further

research directions to add new findings as acknowledged above, however, the
research has been based on research methodology and process which has the
necessary reliability. Therefore, the results of the study are certain valuable
information in developing policies to actualize the development prospects and
the role of Vietnamese SMEs.

CONCLUSION
By using survey data at the enterprise level, based on a sample of 231
enterprises in three economic sectors including Industry and Construction,
Services / Trade and Agriculture / Forestry / Fisheries, this is the first
experimental studies analyzing the impact of environment investment on the
investment decisions of SMEs in Vietnam. Initially, the study presents a
conceptual framework of environmental investment, used as a basic theoretical
perspective to examine factors that motivate enterprises to make investment
decisions. Next, the results of qualitative and quantitative research have
affirmed that the investment decisions of SMEs can be explained by the
components of environment investment concepts.
The thesis has inherited previous studies to build basic arguments and research
model . On that basis, the thesis analyzed the most basic aspects of the
investment environment and the investment situation of SMEs in Vietnam. On
the one hand, investment environment is increasingly improved, leading to
strong development and investment of enterprises, but on the other hand, there
are many limitations, if the limitations are not solved, they can cause extreme
negative effects , obstruct to investment capacity. One of the major limitation is
the fact that the introduction of policies and laws into the real life of enterprises