Obstacles to Internationalization of Vietnamese SMEs

Obstacles to Internationalization of Vietnamese SMEsMajor difficulties and obstacles to internationalisation of Vietnamese SMEsFinancing problemsLack of expectant to expand drudgery and business argon considered as common phenomenon of SMEs. Despite of Vietnamese governments effort to facilitate SMEs process of accessing capital and commercial banks come do great strides in the provision of credit to SMEs, surveyed nearly the difficulties, to a greater extent than than 60% of SMEs often have difficulty in financing, according to Vietnamese Ministry of Planning and investiture (VMPI, 2009). SMEs usually mobilized capital from relatives, friends or bank loans. Clearly, the poor access and low speed to access to capital is main disadvantage of SMEs compared to large corporations because it stymies the expansion, especially remote expansion, of SMEs. The fact that only 30% of the capital is borrowed from banks and credit institutions. The main reasons are, most business have ins ufficient collateral for the institution to borrow money, financial prudence is non really transparent, and creditors manytimes acquire reputations as credit worthy because of moral hazard and adverse selection problems (TD). Sometimes, in hurry and selecting capital, SMEs have to chip in for non-financial creditors with interest rates 3 to 6 times higher than common official rates (VMPI, 2009).Difficulties in defeat and production set forthAnother difficulties that SMEs have to face is land and production premises. To some extend, it is also another financial problems for them. Over half of SMEs have major operations in the field of grapple and most of them use their house as office, or lease wee offices (VGSO, 2009). Otherwise, many manufacturing SMEs have to rent the land or premises with high cost. yet when they want to have long-term investment, thither still is hesitation due to lack of legal guarantee (TD). Recently, many places have carried come on many supplying and construction of industrial clusters of SMEs aimed at bringing together the business production business. Some provinces such as Ha Noi, Bac Ninh, Vinh Phuc, Hung Yen, Hai Duong, Ha Nam, Thai Binh, Da Nang, Quang Nam, Quang Ngai, Binh Duong, ding Nai, Ho Chi Minh Cityhave built many industrial clusters for production and attracting foreign investment. However, due to rent land with inadequate financial capacity of businesses in low-down scale, so many SMEs still cannot access these zones. SME survey data in 30 northern provinces, showed that 42% of businesses having difficulty in land and production premises. corrupt informationAnother disadvantage of SMEs entry is their information disadvantages about grocery such as labor market, materials market, and output market conditions. Besides, customers poor information about these new entrants also account for blockade new SMEs have to face in foreign expansion procedure. However, there is argument that steady entry force erode t he information barriers because later entrants can learn from earlier entrants mistakes. The higher steady flow of new entrants, the less dependence of customers and even workers on complete large corporations (TD)Corporate solicitude is not high flavour and low quality human resourcesLevel of production and business management of SMEs which are much or less private green lights, is still limited and largely based on personal experiences of business owners, investment with little application of information technology into management. Skilled workers in SMEs are fewer compared to large corporations because of relatively lower and less stable salary. Especially, new market entrants also may find it difficult to attract good workers because employment and contracts with established large firms are seen as less risky.Low level of technology, weaknesses in RDMost SMEs have the backward technology, equipment. According to VMPI, results of survey for petite and medium forecastpris es in 30 Northern provinces, in the nearly 11 thousand industrial enterprises surveyed, there are only 8% of businesses having advanced technology. Surprisingly, there are 50% of businesses said they could reach the average level of technology, and the remaining 42% of enterprises chose the answer of backward technology (VMPI, 2009).Moreover, skilled workers in SMEs are few, so the quality of products, goods and services is not high, thus they have weak fighting and difficult to dominate domestic and international market. The level of investment in scientific renovation of enterprises is still low compared with development requirements. Most SMEs are lack of motivation on the research for technological diversity. Content of technology and knowledge in goods of Vietnam SMEs are low. In fact, the product is made mainly based on capital and unskilled labors. Only some small firms are innovators. Many little firms undertake no innovative activity. Some may be serving local niche mar kets relying on owners control. Still other small firms might be unsuccessful innovators (TD)Awareness and observance of the law is limitedA number of SMEs have not followed strictly the purvey of law, especially provisions on taxation, financial management, labors management, quality of goods and intellectual property. The situation of complaint about the laws compliance of enterprises has been popular even in the period of deeper economic integration with variant international commitments. This could even lead to conviction because of tax and financial violations. Therefore, limited awareness of law brings greater barriers to foreign expansion because SMEs need to work with not only domestic but also foreign legal system.Survey report The difficulties and benefits to the internationalization of SMEs1. DifficultiesTo find out solutions to promote internationalization, research has to point out the obstacles from the milieu inside and outside the enterprises. For SMEs, the main difficulties are often referred to as inside and outside difficulties.Inside difficulties of Vietnamese SMEsInside difficulties Lack of capital, Lack of quality human resources, Out of date Technology, Difficulties in acquiring land and facilities for manufacturing and trade activities, Lack of knowledge and experiences in international business purlieu, and Limitation in management capability.1 Lack of capital2 Lack of quality human resources3 Out of date Technology4 Difficulties in acquiring land and facilities for manufacturing and trade activities5 Lack of knowledge and experiences in international business environment6 Limitation in management capability7 Others data from our survey shows that Lack of capital, Lack of quality human resources and Lack of knowledge and experiences in international business environment are main difficulties of SMEs. Especially, there are about 50% of SMEs considering the lack of capital is most important reason inside SMEs, which is the obstacle to the internationalization. Other reasons such as Out of date Technology, Difficulties in acquiring land and facilities for manufacturing and trade activities, Limitation in management capability are not higher but each of them also account for more than 10%.Outside difficulties of Vietnamese SMEsOutside difficulties Highly risky and competitive environment, Unattractive profit, Disadvantages from the Vietnamese Policies, Too many barriers and restrictions to market penetration in many foreign countries.1 Highly risky and competitive environment2 Unattractive profit3 Disadvantages from the Vietnamese Policies4 Too many barriers and restrictions to market penetration in many foreign countries5 OthersIn ground of outside reasons, almost SMEs (nearly 70%) consider highly risky and competitive environment is the main obstacle to internationalization. One of the special features are drawn from the survey is, in addition to concerns about the risks and fierce competition in the business environment, many SMEs consider the inadequacies of government policies in Vietnam and barriers and restrictions to market penetration in many foreign countries are the main obstacles to their internationalization2. BenefitsThe main benefits Helping innovation technology, origin experience gaining, Improving the qualification for employees and leadership skills for the management, Spreading enterprises image, brand and prestige, Providing opportunities to attract and accumulate more capital.Benefits from internationalization1 Help with innovation of technology2 Help with business experience again3 Improve the qualification for employees and leadership skills for management4 Help spread your enterprise imagine, brand and prestige5 Provide opportunities to attract and accumulate more capital6 OthersIn terms of positive effects, according to our survey, most SMEs call in that five positive effects mentioned above are the main positive impact on their business. Other positive impacts account only 1.13%. Especial liaison is, there are nearly 70% of SMEs believe internationalization will help them with business experience gaining. Actually, in a volatile business environment with many risks and challenges, this is a positive and optimistic signal of SMEs. Furthermore, many of them believe that internationalization helps to expand their business, brand and prestige. Moreover, as discussed in obstacles part, lack of capital is material obstacle to internationalization, but in the chart above, we can see that they also think internationalization as a way to providing opportunities to attract and accumulate more capital (with more than 50% of SMEs believe internationalization as a way to providing opportunities to attract and accumulate more capital).RecommendationsThe result of this research lead to some recommendations for constitution makers and SMEs managersFor policy makersCreate a favorable business legal environment which is equal, transparent, Continue to further economic reform and open the economy policy Continue to simplify the regulations to create favorable conditions for business registration, market entry and operations of the firms Enterprise Law, Land Law (Facilitate access to land and production premises for SMEs), Tax Law, Trade Law (Promote the international economic integration through bilateral, regional and multilateral channels), etc.Create favorable conditions for SME access to finance address guarantee fund, SME financial fund, venture investment fund, get loan from commercial banks, etc. (Ministry of Finance, State Bank of Vietnam, Provinces and central run cities)Support SMEs to improve their competitiveness technique innovation, intellectual property protection, training on enterprise management and for human resource, market information (Ministry of Science and Technology, Ministry of Industry and Trade, Ministry of Education and Training)For SMEs managersIn internationalization process, SMEs need take initiati ve in preparing the necessary baggage, creating a basic capacity of international economic integration and ready to kitchen range disclose the opportunities and confront challenges from this processMap out a strategy to internationalizeSMEs need to carefully research the market, study the strengths and weaknesses, research opportunities and challenges clearly define the objectives, benefits and risks of internationalization find out the main factors and conditions deciding the success of internationalization choose the suitable methods of internationalization.Take opportunities to attract more capital and innovating technologyIn terms of technology, SMEs need to promote its inherent flexibility to capture and take advantage of the opportunity to catch new technology. Besides financial aid from the government, SMEs should actively look for opportunities from other resources such as financial support from the joint venture partnership establish feasible business projects to attract capital from banks, venture capital funds conduct joint venture with other firms as needed.Apply international standards in production and businessOne of the challenges or obstacles for Vietnamese SMEs when enter the world market are the technical barriers to trade. Countries have different requirements related to goods and services. When international economic integrating, Vietnam SMEs must also acquiesce by these requirements. Therefore, it is necessary to make international standards in production and business activities actively, depending on the requirements of markets and depending on the ability of each enterprise.Emphasis on improving human resources qualitySMEs should be more emphasis on improving human resources quality, focused training and recruitment of talented and knowledgeable managers about the international market, skilled workers who have ability to grasp new technology. SMEs also need stronger links with educational institution for training and retraining of hu man resources. Moreover, to organize production and marketing in foreign market, managers need to work with new legal system and social customs. Therefore, sending out expatriate managers and experts is also necessary because managers with inexperienced in internationalization may not have necessary knowledge to be efficient international operators.