Overview of Viet Nam enterprise development in the period 2011-2017

OVERVIEW OF VIET NAM ENTERPRISE DEVELOPMENT
IN THE PERIOD 2011 - 2017
Assoc. Prof. To Trung Thanh

National Economics University
PhD. Candidate, Nguyen Thi Hong Nham

Academy of Policy and Development
Abstract
The article accesses the development status and the role of different sectors in
Vietnam for the period 2011-2017. The results show that enterprises operating in Vietnam
have had strong development steps in this period. The article also identifies the limitations
of the business sector, especially for private firms, in terms of quantity, size and ownership,
and identifies key shortcomings and constraints from the enterprise itself and the
inadequacies in the state management to the enterprise sector.
Keywords: ROA, ROE, SMEs, PEs, Vietnam enterprises.
1. Introduction
Enterprise is seen as particularly important in the economic development, and it
represents the major contribution to gross domestic product (GDP). In recent years, the
activities of enterprises have made remarkable progress, contributing to the development of
production capacity, mobilizing and promoting internal resources for socio-economic
development, contributing to economic growth and recovery, increasing export turnover,
budget revenue and effectively solving social problems such as job creations, hunger
eradication and poverty reduction.
In 2017, economic growth reaches 6.81%. After the difficulties of bottoming out in
2012, it is showing quite the economy continues stable growth, always above the average
growth rate in the period 2011 - 2017. The enterprise sector contributes about 60% economic
growth. Therefore, it is very important to help enterprises and policy makers understand
enterprises development so that enterprises can get process orientation and get access to
investment opportunities. It also serves as a basis for the government to make policies to
treat all business sectors equally, especially the private sector and small and medium sized

enterprises (SMEs). Therefore, the study focuses current state of enterprises in the period
2011-2016, and shows the role of each business sector in the economy as well as finds the
limitations and causes of these restrictions in the corporate sector. The study approaches to
combining the annual survey data of the GSO with the latest survey data in 2017.
In addition to the introduction and reference, the structure of the study included
three different categories. Section 2 presents the research methodology. Section 3 evaluates
research results. Section 4 is the main conclusion.

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2. Method
The research will use basic qualitative methods such as statistics, description,
synthesis and comparison. The assessment of the development of Vietnamese enterprises is
shown by the characteristics of the enterprise (the number of enterprises currently, the
structure of enterprises by size and ownership, the business results of the enterprise
business; at the same time, assess the role of different business sectors in the economy).
This shows the limitations of the business sector and the causes of these limitations.
3. Results
3.1. The development process of Vietnamese enterprises
Characteristics of enterprises
The number of enterprises
Figure 1: Number of enterprises between 2011 and 2017
Unit: number of enterprises
600,000
500,000
400,000

325,000

347,000

2011

2012

373,000

402,000

546,000

561,064

2016

2017

442,000

300,000
200,000
100,000
0
2013

2014

2015

Source: General Statistics Office of Vietnam (GSO)
Since the Enterprise Law 2015 took full effects with more flexible terms regarding to
business registration, the number of enterprises has increased steadily. According to GSO,
there were more than 325,000 enterprises operating in 2012, but in 2017 this number nearly
doubled to more than 546,000 and up 11.1 % compared to 2016. The number of enterprises
in the period from 2011 to 2016 grew by an average of 9.73% of the total per year.
Figure 2: Number of newly registered enterprises and enterprises that stop operation
Unit: number of enterprises
150,000
100,000
50,000
0
2011

2012

2013
New - born

2014

2015

2016

Break - down

Source: General Statistics Office of Vietnam (GSO)

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2017


In 2017, the number of newly established enterprises nationwide reached the
highest record ever with 126,859 enterprises, which increased 1.6 times compared to 2011.
On average, 90,106 new enterprises were established each year during the period 2011 2017. However, in 2017 the number of enterprises suspended from operation was 60,553, a
decrease of 20% compared to 2016. Figure 1.2 shows the gap between the number of
newly established enterprises compared to the number of enterprises that have to stop
operating has increased since 2014. This result shows that the difficulties faced by
enterprises are growing, especially for start-ups.
Table 1: Allocation of enterprises by labour size and ownership form in 2016
Ownership form
PEs

FIEs

1,028

495,259

1,482

497,769

0.21

99.5

0.3

96.77

Percentage by column(%)

28.16

97.75

36.1

Quantity (E)

2,623

11,387

2,623

16,633

Percentage by line (%)

15.77

68.46

15.77

3.23

Percentage by column (%)

71.84

2.25

63.9

Quantity (E)

3,651

506,646

4,105

Ratio (%)

0.71

98.49

0.8

Number (E)

Size

SMEs Percentage by line (%)

LEs

Total

SOEs

Total

514,402

Source: Data processing from the GSO enterprises survey in 2016
Table 1 shows that 99% of private enterprises are SMEs, but only 2.25% are large
private firms. This is a noteworthy point for policymakers to support private enterprises as well
as SMEs, which have not received proper attention in the past. SOEs account for only 0.71%
of the total number of enterprises but large enterprises contribute 71.84% and SMEs account
for 28.16%, while the percentage of FDI enterprises is 0.80% with 63.90% large enterprises.
Figure 3: Total capital in the period 2011-2016
30.00

25.00

25.00

20.00

20.00

15.00

15.00
10.00

10.00

5.00

5.00
0.00

0.00
2011

2012

2013

Capital (left axis - million VND)

2014

2015

2016

Capital growth (right axis - %)

Source: Data processing from the GSO annual enterprises survey

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Total capital of enterprises in the economy in this period increased 1.78 times, from
14.86 trillion in 2011 to 26.43 trillion in 2016, with the average growth rate of about 13.75% /
year (Figure 3). According to the GSO, the total registered capital of new businesses is
estimated at VND 1300 billion in 2017, an increase of 45.4% compared to 2016. In the period
2011 - 2017, the capital growth rate is always higher than the growth rate in the number of
enterprises, which shows that the growth in capital size of enterprises has been increasing. The
average capital of enterprises has increased 1.5 times, from VND37.4 billion in 2011 to
VND45 billion in 2016, corresponding to the size of the enterprise by capital criteria.
The increase in capital scale takes place in all three types of enterprises; in which
SOE sector take the lead. SOEs have the highest average capital scale, which is 6 times
higher than the average capital scale of FDI enterprises and 87 times higher than the
average capital scale of private enterprises. FDI enterprises and private enterprises have the
same average growth rate of capital, increasing 1.5 times in 2011-2016. As such, the
increase in scale of capital has helped small and medium enterprises transition from small
capital to medium capital scale, while SOEs and FDI enterprises still have large capital
scale. However, it also shows that private firms in Vietnam now have a small capital scale.
Figure 4: Average capital size of enterprises in the period 2011-2016
Unit : VND billion
3,000
2,500
2,000
1,500
1,000
500
0
2011

2012

2013
SOEs

PEs

2014
FDI Es

2015

2016

Source: Data processing from the GSO annual enterprises survey
Business performance of enterprises
Loss-making enterprises in the period 2011 - 2016
Apart from the remarkable achievements in the number of enterprises or the capital
scale, the enterprises production and business results have not been improved at a
sufficient level. The rate of business making losses in the peerprises (SMEs) fluctuated significantly. The ROE of the sector was 14.25% in
2012, then went down to 9.89% in 2013 and ended with the upward of 15.21% in 2016.
It is evident that in spite of high losses, ROE and ROE of FDI enterprises still
achieved the highest level over the period of 2011-2016, partly due to the "transfer
pricing". Although the number of private enterprises is the majority, most of them are
small-size in comparison with SOEs and FDI enterprises in terms of both labor and capital.
At the same time, the production and business activities of this sector, which give always
the poorest performance, encounter disadvantages. Obviously, much as government has
supported to improve the business environment especially for the private sector in recent
years, enterprises generally and private companies particularly are facing big challenges
and obstacles for their survival, operation and development.
3.2. Enterprise Sector Role

Regarding contribution to domestic products, during the implementation of The
Multi-sectoral Development Programme, our country‘s economic structure according to
sector has been changing with the trend of the decreasing proportion of the public sector;
the increasing proportion of the non-public sector and the foreign-invested economic

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sector. Currently, the private sector has made the largest contribution to GDP with the
proportion of 43.52% in 2016, in comparison with 28.81% of the public sector and 18.59%
of the FDI.
Regarding contribution to investment, the execution of the Enterprise Law and the
new Investment Law in efforts to improve the business environment has had dramatic
impacts on the funds mobilization of the private sector. In 2016, the private sector
contributed about 39% of total investment, while the figures of the public sector and FDI
were 37.60% and 23.40%, respectively. It has also shown that the investment capital of
private sector into society has accounted for the largest part.
Regarding contribution to employment offer, in the process of economic renewal,
the rapid growth of the private sector and foreign invested sector has provided labourers
with many career opportunities. With all of the competition in local-wide investment and
the ability to attract more workers, the private sector has been the main source of
employment and drawing attention of the main labour force. Generally, the business and
production companies in the private sector, which employed more than 70% of the labour
force of the economy in 2016, have introduced over 1 million jobs per year at the average.
Table 2: Contribution of types of enterprises to the economy in 2016
Unit: %
Enterprise Scale

Enterprise ownership forms

Contribution of
enterprise sector

SMEs

Les

SOEs

FDIEs

PEs

GDP

49.67

49.13

28.81

18.59

43.52

Investment

49.24

50.76

37.60

23.40

39

Budget

45.21

54.79

28.77

26

45.23

Employment

60.12

39.88

7.60

29.68

70.32

Source: Data processing from the GSO enterprises survey in 2016
Regarding contribution to state budget revenue, private enterprise sector also has a
great contribution. According to the data of GSO of Vietnam in 2016, the non-state sector
contributed to the state budget 434.7 trillion dong, accounting for over 45% of total
revenue, followed by SOEs with the amount of 277.3 trillion dong, equally to 29% and the
FDI sector with the lowest level of 250.9 trillion dong, equivalent to 26%.
Although the private enterprises play an important role in contributing to the state
budget, there is "a paradox" related to the number of private enterprises and their
contribution rates. Despite being the largest sector in economy, the private enterprises have
witness the highest rate of losses. However, this sector also solves almost jobs, contributes
greatly to investment, state budget as well as gross domestic product. It can be seen that in
spite of many current difficulties, the private enterprises has contributed enormously to the
development of the economy. Thus, it is no doubt that the private sector is ―an important
driving force of the economy‖.

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3.3. Limitations of the enterprises sector
Over the past years, the activities of enterprises increasingly developed. It was the
result of improvement in the business environment and especially economic policies of the
government in support of development of private sector and creating a business investment
environment conductive to business growth as a driving force of the company. However,
the enterprises sector has also had certain limitations.
In terms of quantity, it can be seen that enterprises in Vietnam have had strong
development steps in the period of 2011 to 2017. Although the number of newly
established enterprises is still higher than that of stopped or dissolved enterprises, this gap
is gradually narrowing. This, on the one hand, shows the difficulty that enterprises have to
face; it is also an opportunity for enterprises to restructure and for weak enterprises to be

eliminated in the economy, toward a higher developing speed of economy on the other.
In terms of scale, more than 97% of Vietnamese enterprises is SMEs, of which
nearly 60% are very small with backward technical conditions. Therefore, the business
performance is not high, and this affects profit. SMEs account for more than 97% in
quantity, SMEs account for less than 40% of total assets while large enterprises,
accounting for less than 3%, of total number, hold 60% of the total assets of the whole
enterprises area. Moreover, 99% of SMEs is private enterprises, which in turn increases the
difficulty for enterprises to maintain and develop. In addition, these two sectors also reveal
the following limitations as spontaneous survival and development, lack of economic and
technical conection; weak management and financial ability, small market and low
competitiveness. Especially, because of the "small and medium size", these enterprises are
also affected by unhealthy competition causing awakardness to access to national resources
as well as land, labor, technology, training, market ... compared to SOEs.
In terms of ownership, the growth rate of the private sector has tended to decrease
in recent years. The scale of the private sector, which still expands slowly, mainly includes
individual business households with small and micro scale, of which more than 90% have
total capital of less than one billion dong. Not only private sector but also enterprises sector
has low technology and slow innovation; low even family-oriented management.
Especially, many enterprises do not want to "grow" or have no conditions to grow up.
Another "weakness" of this area is the limited level of technology and labor; low labor
productivity, poor product and service quality without the satisfaction of the market
requirements, especially the market of developed countries. Moreover, it is impossible for
the private sector to participate in the production connection network, value chain or only
simple stages with low added value. In addition, the competitiveness of the private sector is
restricted because of the shortage of prestigious and branded enterprises to compete with
the major competitors in the international market; its unreasonable business structure,
failure to cooperate with each other and with other economic sectors; the restrained ability
to intergrate international economy, the failure of the satisfactory of requirements of
regional and global production value chains‘requirements. Many private enterprises have
stopped operating, dissolved and went bankrupt.

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3.4. Causes of limitations
Enterprises sector especially private sector play an growing important role in the
country development, meanwhile, its function has not been given full play due to the
exsiting obstacles and problems caused by the enterprises itself, by the unsound
Government management of the area.
As regard to businesses, internal efforts is a key factor to ensure powerful, effective
and subtainable development. However, weak internal efforts of enterprises especially
private enterprises has been one of the difficulties and barriers for the development.
Despite the overwhelming quantity and proportion in the national enterprises system, most
of the private enterprises, being small and medium scaled, especially "micro‖, have
limitations in financial resources, management capacity, technology equipment and
inovation or renewal.
Drawbacks of resources are closely related to that of technology equipment and
technology innovation. The inevitable consequence of this situation is that the business
performance and competitiveness of private enterprises are worse than those of SOEs and
FDI enterprises.
Furthermore, the shortage of business capital is the common situation among
enterprises while it is difficult for the enterprises to access to credit capital resources of
commercial banks. Particularly, in the background of comprehensively international
integration of Vietnam, weak competitiveness of the private sector is considered as the
biggest challenge for the private enterprises.
Another hindrance for the enterprises is the low management capacity. The number of
enterprises, which is managed in a scientific manner, such as forcusing on making business
strategies as a basis for long-term investment activities, building and branding to establish a
position in the domestic and international market, has not been popular yet. Many enterprises,
mainly small-sized private enterprises, limited liability companies and joint-stock companies,

usually deal with their business by temporary means in short-term business, even snapshots to
seek profits by any tricks (tax evasion, tax fraud, fakes, counterfeited goods ...).
Apart from the types of enterprises and households under private sector, there is
also another kind, that carries out production and business activities without registeration
with state management agencies and is out of the control of the local state management
agencies. This is often referred to as the informal economic area. In addition to the positive
impacts (creating jobs and income for a part of the labor force, providing a convenient way
for some small products and services for consumers), the informal economic activities
have many negative effects both economically and socially. The main harmful impacts are:
the effect on state budget revenues due to failure to register and pay taxes; the failure to
reflect the real scale of the economy because of lacking statistics ; the cause of unhealthy
and unfair competition for registration enterprises; the insufficient benefits of employees
provided for by law, Meanwhile, the scale of the informal economy in Vietnam is quite
large and has both positive and negative impacts on the economy and society.

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As regard to state management, institutional issues and policies for enterprises have
made great efforts in improving the business environment to attract domestic and foreign
resources for development investment, However, the incentive mechanisms for businesses
are still inadequate. That causes many difficulties and challenges for enterprises, especially
newly established enterprises. According to a survey by the Vietnam Private Sector Forum
(VPSF), 44% of enterprise reported that they had missed out on business opportunities
because of legal barriers and market restriction regulations.
When the State has set up properly a legal framework and a policy system to promote
the development of the enterprises, the role of enforcement agencies is particularly important
to actualization these policies. This is clearly illustrated in the difference in the pace of
enterprise development between provinces. In the same country, with the same legal
framework and common policies, the different quality of public authorities can make a

significant distinction in the enterprises‘ ability and cost for captial access.
4. Discussion and Conclusion
The study has assessed the development status and the role of different enterprise
sectors in Vietnam in the period of 2011-2016. The study shows that enterprises operating
in Vietnam have experienced a strong growth in the period from 2011 to 2017. In the
period 2011-2016: The number of enterprises operating in the country on average
increased 9.73%/year, the number of newly established enterprises is higher than that of
dissolution and bankrupt enterprises yearly and the gap has narrowed gradually. The
percentage of enterprises suffering losses in the economy in this period increased about
40.1% per year. Of three enterprise sectors, private enterprises and FDI enterprises
suffered more losses than state-owned enterprise, in 2016 to 49.2% (PEs) and 16.37%
(SOEs) bearing losses, which clearly reflected the great difficulties the private sector faced.
The study also clarified the limitations of the enterprise sector in terms of quantity, scale
and ownership, as well as identified the shortcomings and constraints of the business itself
and its inadequacies of state management to the business sector. However, the study has
not evaluated the situation of enterprises in other aspects such as indicators reflecting the
enterprise's ability in labor, profitability, changing trend of enterprises in the period.
5. References
1. Vietnam Annual Enterprise Report 2016/2017.Vietnam Chamber of Commerce
and Industry (VCCI).
2. Characteristics of the Vietnamese business environment: Survey results of SME
in 2015.Central Institute for Economic Management, 2016.
3. Họp báo công bố các chỉ tiêu chủ yếu Ďánh giá mức Ďộ phát triển doanh nghiệp
của các tỉnh, thành phố trực thuộc Trung ương năm 2017 và giai Ďoạn 2010-2016. (2018
February 6th) Retrieved from
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