Support needed to place SMEs on the globe

photo source VCCI

At a recent conference on Vietnamese firms’ competitiveness, many experts and business leaders have noted that Vietnamese small and medium-sized enterprises (SMEs) are currently enduring a plethora of hurdles, which hampers their growth and prevents them from exerting their full presence on the global market.

“It is unfortunate to see Vietnamese private companies struggling for survival. About 96 per cent of private firms are small-scale, most of which are household or informal businesses. Medium-sized companies take up another meagre 2 per cent, which explains why Vietnam is suffering from the “missing middle” syndrome, in which state-owned and large-scale enterprises monopolise the domestic market, leaving SMEs vulnerable,” said Vu Tien Loc, president of the Vietnamese Chamber of Commerce and Industry (VCCI).

Loc then identified some of the main challenges for Vietnamese SMEs, including the inadequate investment capital, low levels of corporate governance and the lack of modern technology and skilled staff. As a consequence, SMEs are unable to expand and join the global supply chain, which puts them in a worsening position, especially as Vietnam has recently signed numerous free trade agreements and is poised to join the ASEAN Economic Community and the Trans-Pacific Partnership.

In a similar vein, CEO of U&I Investment Corporation Mai Huu Tin complained that it was extremely hard for SMEs to take out bank loans for their business activities. After the recent bad debt crisis, banks have become sceptical of SMEs and charge these firms high interest rates, deterring them from borrowing.

“As a result, lots of Vietnamese SMEs’ owners are discouraged from expanding their business. A number of them are even trying to nurture their firms for a while and then selling them to foreign investors because they can hardly manage on their own. This is surely not desirable, especially when Vietnam is striving to boost its private sector in the wake of global economic integration,” said Tin.

In response to this complaint, CEO of HSBC Vietnam Pham Hong Hai acknowledged that some banks are indeed reluctant to lend money to SMEs due to fear of non-performance. However, SMEs still have access to loans, provided they can prove their profitability and ability to do good on their repayment obligations.

“I advise Vietnamese SMEs to keep transparent financial sheets, clear business objectives and detailed plans when approaching banks for loans. Besides, I think the authorities should release a loan package or sponsor organisations for SMEs, so as to encourage more lending from banks to this layer of the economy,” said Hai.

Vu Tien Loc also announced that VCCI has partnered with the Ministry of Planning and Investment to devise a new the Law of SMEs, which could be finished within the next two years. This new piece of legislation will give SMEs clear instructions on the adequate standards of corporate governance, product quality and social responsibility and will be specifically geared towards joining the global supply chain.

Somhatai Panichewa, CEO of Thailand’s leading urban development investor Amata Vietnam, has also shared her experiences from the Thai private sector. Panichewa noted that both the authorities and state-owned enterprises in Thailand have been supportive of nurturing Thai SMEs.

“It has been a concerted effort by the government, state-owned and even private large-scale firms to grow domestic SMEs. For example, large international firms, such as SCG and Amata, often bring along Thai SMEs when they enter a new market. This has prompted the growth of SMEs, especially those in the support industries. Thus, I believe Vietnamese SMEs would also benefit greatly from a joint effort such as this, to grow and venture overseas,” Panichewa said.