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Chapter 1 Introduction and definitions
Introduction After initiating the renovation process Doimoi
in 1986,Vietnam
adopted some basic regulations on entry into and exit from the market of
different forms of enterprises. Thanks to the new legal framework, some forms of
business, which never existed or existed informally before Doimoi, now have a
legal base to be established and to operate. Vietnam’s private sector has
quickly asserted its position and role, particularly in generating jobs for the
labor force, and in contributing to the state budget and exports it has become
one of the important parts of the economy.
State sector comprises State enterprises and State administration. State-owned enterprises are for-profit corporations which have two levels: central and local SOEs. Resources and accessibility to resources Resources include credit, labor, land, technology and other facilities that are used or necessary in operation of enterprises, and have strong and partly decisive effects on enterprises’ stability and development. Some enterprises do find easy to approach resources while others do not. Accessibility to resources in this paper is simply considered as the ability of enterprises to access to credit, labor, land and other production resources both qualitatively and quantitatively. The accessibility to resources may depend on major elements such as legal status, government policies, policy implementation, public perceptions, entrepreneurs.
Equality amongst enterprises of all economics sectors Access to resources of enterprises has a close relationship to the concept of equality. In theory, equality amongst enterprises of all economic sectors should be understood as follows: · Generally, equality is understood in a specific legal framework; different types of enterprises should be treated as the same by law. · Equality does not mean that every enterprise is totally the same in every field, but equality comprises also of specific differences. · Equality amongst enterprises is resulted from a long process, in which differences can be and should be changed to suit with social-economic development condition. · Equality is not unconditioned. Equality means equality in legal treatment, based on each enterprise’s functions, tasks and social-economic role.
Access to labor
In general, both SOEs and PEs are lack of skilled and qualified employees. However, access to labor of PEs is wider than that of SOEs. During the years of employee cut down crusade in public administrative authorities and state-owned enterprises, it was primarily private enterprises, companies who absorbed employees made redundant by the State sector. However, enterprise management pool of non-state sector in Vietnam was primarily trained during the 90s. They, therefore, are lack of experience in numerous aspects ranging from management skills to knowledge of technology and market. The major problem of human resource is the shortage of technical workers such as qualified engineers and highly skilled workers (MPDF 1999). PEs are more flexible in employing labor, they have wider range to select people they want, easier to sack or fire them. But most people do not want to work for private enterprises if they have two alternative options to work in PEs or SOEs. It is because of differences in reputations, public confidence, health care insurance and social insurance, human training.
Private enterprises just do business, they do not take part in controlling market, stabilizing price, they do not have to implement social tasks such as supplying necessary goods to isolated areas, difficult areas, etc. Besides, although there are not documented regulations, in reality very few PEs participate in public utility operation. These regulations may originate from wrong understanding that SOEs are tools of the State in implementing social functions. This may hinder PEs’ participation in public utility activities, supplying goods, services to isolated and difficult areas, which may result in “monopoly” of SOEs in these activities. The State should set up criteria to select enterprises which can meet the requirements. Regulations on encouraging commerce, especially export, have many criteria that take into account traditional factors, scale, and qualification so much, this accidentally hinders PEs’ participation into trading activities. With directed viewpoint is gradually reducing the State’s intervention into businessmen’s activities, actually give businessmen of every economic sector autonomy in market mechanism. However, in fact, if we make comparison between results of trading activities or import-export activities and their potential, there seems to be unbalance between private economic sector and State economic sector. Trading activities In all trading areas there is no large difference in policies that can creates advantages or disadvantages to any economic sector and there is no differentiation amongst economic sectors in terms of legal documents. To PEs, basically when enterprises sell goods, it has owner-right and rights to decide on the goods. But to SOEs, due to ownership in SOEs belongs to all people, the Government uniformly implements owner-right to these enterprises and divides a part of this owner-right to the functioning ministry or Provincial People Committee belonging to the Central, so SOEs have no right to decide themselves; they have to ask for ideas or approval of supervising levels, even of the Prime Minister. Thank to having higher autonomy than SOEs, in many trading areas PEs have very big advantages.
Import-export activities Before August 1998, enterprises, which want to import or export, all have to get license for doing business in import-export areas. But there remained some impediments due to very complicated, strict but unclear conditions. Since the issuance of Decree 57/ND-CP dated 31 July 1998, all enterprises both SOEs and non-SOEs are allowed to undertake import-export activities within the business areas register before without license on doing business in import-export areas. Then, the Government and ministries stipulated series of documents to destabilize renovation policies on international trading of Vietnam. Although the number of enterprises working in import-export areas has increased as two-fold, the proportion of non-State economic sector is not high. This partly dues to scale and quality of non-SOEs, partly dues to many un-match problems in policies on import-export activities of enterprises belonging to different economic sectors.
Fund for supporting export The State also organizes fund for supporting export with the beneficiaries include both SOEs and PEs. Nevertheless, with criteria for being supported given out by Ministry of Trade, only SOEs can benefited from these supports. Problems hinder PEs’ approaches to Fund for supporting export comprise of: First, the fund totally or partly assists interest rates used by banks. Only enterprises which borrowed money from banks to export are benefited from interest rates supporting. In reality, PEs find it hard to borrow credit for exporting, so they rarely are beneficiary of the support. Second, the fund totally or partly assists the difference between interest rates for short-term lending of banks and preferential interest rates offered to enterprises buying agricultural products for exporting as directed by the Prime Minister. These enterprises are mainly SOEs appointed to purchase goods for export under governmental contract. Third, the fund will totally or partly assist interest rates of banking loans to enterprises buying agricultural products for export or doing task of speculation. By current regulations, these are mainly SOEs. Fourth, most PEs have not yet reached regulations such as earning much foreign hard currencies, high growth rates of export, finding new market with rather good purchasing power, etc. So, it is hard to be supported with funds. Quota problemsThere are both advantages and disadvantages for enterprises in policies on commercial intermediary, entrusting goods transaction, bidding goods, and evaluating goods but it is not the case in tendering export quotas. Trade liberalization has been making progress in Viet Nam since the 1998 enactment of the Commerce Law. Quantitative restrictions in the form of quotas have been abolished and customs have been lowered. The abolishment of quotas and the major reviews of import licensees will improve import access for PEs and benefit the overall economy of Vietnam. Now quota restrictions only remain in place for the textile products. Quotas on textile products remain a serious problem for PEs, especially those PE manufacturers at the heart of the textile industry. However, the results for quota allocation show that only a small fraction of the quotas are going to PEs. SOEs are advantageous at auctions due to their stronger capital bases. There are also cases in which SOEs are bidding on items in the auction that they have already received quotas for under the allocation system and so they are able to participate in the auction from an advantageous position, they can reduce profit margins by pushing up the bid prices.
Information: Many private enterprises feel that they are not as strong as SOEs in obtaining information from mass media, networks, the government and other agencies. Even when there is equal access to the information, PEs are not likely to be selected by the foreign firms due to their weakness of capital. For the foreign firms there is less risk in dealing with an SOE. As a result, even if PEs have efficient production and superior business management, they will not be able to accumulate technologies and experience as they don't receive orders. Science, Technology and Environment: In recent years, to strengthen the upgrading of the economy’s technological level, the State has stipulated many legal documents to improve policies concerning this field in the tendency that better exploit resources from all economic sectors, to create equality amongst enterprises belonging to different ownership, especially in technology transfer. Most technology transfer cases were carried out by foreign investors. Local investors, in general, or are not accustomed to this matter, or are afraid of complexity of the procedures related to technology transfer, or lack funds to do it. Another "barrier" impeding technology transfer is high price of using communication and Internet as compared with neighbor countries. That created barrier and did not encourage investors to transfer technology.
The CIEM survey covered 200 operating enterprises of all economic sectors in Vietnam. When building the survey program, the enterprises were chosen based on principles that they are distributed in the areas of many enterprises, they must have features that are representative to all enterprises in Vietnam. The choice was mainly done randomly based on classifying enterprises according to their business forms. I select a sample of 70 enterprises in Hanoi to analyze as a case study. Amongst the total of 70 selected enterprises, SOEs take the proportion of 43 percent (30 enterprises) and PEs take 57 percent (40 enterprises). Table a: Different types of SOEs and PEs
Credit Making comparison between SOEs and PEs in terms of credit field, we can find the following points: SOEs have a big advantage of being supplied initial amount of capital. There are 29 (97%) of 30 questioned SOEs answer that they get capital from budget. In operating process, they are continuously supplemented capital, both fix and working capital. In the two years, 1999-2000, 17 SOEs, equivalent to 57%, were supplemented with the average fix capital of 18 billion VND and working capital of 12 billion VND. For private enterprises, the initial capital comes from individuals. During the time of operating, all 40 private enterprises have to mobilize capital from different sources out of budget. 78% of private enterprises do not or cannot ask banks for capital to run business. They rely almost on firm’s profit, mobilizing from workers, or other organizations. At present, much more PEs have not used banking services in their business transactions and payment than SOEs. Because they do not have or have not enough assets to pledge as collaterals for loans from banks to put in necessary investments. In the year 2000, up to 30% private enterprises do not intend to borrow money from banks while that in state sector is only 6%. That is, SOEs, beside granted capital, have much demand on banks as compared with private enterprises. Demand for loans: The data shows that 90% SOEs have demand for short-term loan and that 47% for long-term loan, while to private enterprises that are 72% and 20%, respectively. Loan satisfaction: It is not much different that SOEs and PEs are satisfied the demand for long-term loan as 4 PEs and 3 SOEs are not meet requirement. But it is not the case in short-term loan when 16 private enterprises, accounted for 60%, are rejected to borrow loans while only 5 SOEs, account for 16%, have to face this problem. Using econometric test, t- test, it has not revealed any discernible difference in probability of borrowing long-term loan with regard to different types of firms. On the other hand, the difference in probability of borrowing short-term loan were about 14 million VND. It is statistically significant at 1% level that there was a difference and, specifically, SOEs have higher probability of access to loans from banks in the year 2000 than PEs. Furthermore, problem that blamed by PEs as the most inequality as compared with SOEs is conditions for capital borrowing. 68.6 percent of the total 70 interviewed enterprises said that SOEs are much more favored than PEs in terms of confidentiality. Binomial logistic regressions have also found that SOEs have higher probability to access loans than private enterprises. Private enterprises have few opportunities and conditions to borrow money from state commercial banks. There are three most important and direct to this problem, including i) complicated and time- consuming (which can result in missing business opportunities of enterprises), ii) strict collateral requirement and iii) bad feeling of bank to wards non-SOEs. Enterprises themselves reveal that, up to 45 percent from total number of enterprises do not need collateral when borrowing pledged. Enterprises borrowing money without collateral are SOEs, 94%. At the same time, only 25% PEs have not to have collateral. Therefore, on the one hand, SOEs have big sizes of land and are not required collaterals but PEs have smaller sizes and are required collaterals on the other hand. Almost enterprises without collateral have to be required business project or project feasibility. There is not any clear difference between SOE and PE in this requirement. However, many private enterprises are embarrassed with project feasibility due to lower quality projects than SOEs and not having their functional bodies in project field.
Investment Almost enterprises have invested in the year 2000. SOEs invested much higher than investment of private enterprises. This difference is significant at level 1% according to the t-test. The reason that SOEs invested more than PEs may due to scale of production, advantages in borrowing from banks and other assistances from the Government. PEs do not benefit from preferential credit as 95% PEs did not get any assistance of preferential credit, only 5% did but only with little amounts. It is different from SOEs as 30% SOEs can access some of these attractive credits, and 17% of SOEs were assisted much. For Funds, with current regulations, development supporting fund in fact is out of small and medium enterprises’ reaches, PEs. The investors states that they are rarely benefited from regulations. Specially, supplement of an interest rates’ part in preferential investment projects has not been carried out on the one hand because there have not been specific regulations, on the other hand, because procedures for borrowing are so complicated, especially procedures on mortgaging for loans. Some enterprises complained that it is very difficult to borrow money from Fund for development investment due to strict requirements and they said that they would rather go to commercial banks than go to the Fund.
Land Up to this point, SOEs were assigned very large areas of land with convenient place in the time of subsidy mechanism Average land area of SOEs is higher than that of PEs. Some SOEs re-lease the land unused to non-SOEs. Some PEs have to lease land areas from SOEs or use their owned land as production areas. When being inquired demand and ability to satisfy production the result shows that only 53% demand for land of PEs is met while for SOEs that is 95%, see Table 7. In terms of pledging, domestic organizations leasing land from the State for business purpose can pledge land used right as security for loans, but they have to combine the land with the assets on the land and just are allowed to pledge in Vietnam banks. Although being amended and supplemented, there are still some problems in land using, which have impact on difficulties of private enterprises, put them in disadvantageous situation as compared with SOEs. Those problems are: - Normally state managing agencies are more prudent to non-SOEs than to SOEs when they have demand on land using. - After having land-supplying decision, SOEs are supported, guaranteed by a system of functioning agencies. Most SOEs are also helped by local State management agencies in clearing out land areas. These almost never happen to non-SOEs. - Advantages of land are pre-conditions to create many other advantages to SOEs in comparison with non-SOEs. According to data surveyed by the project, 60 percent of interviewed enterprises saying that they have to use land, workshops to pledge as security when borrowing capital from banks Because PEs have to hire land for their production, as a result, they also have to depend on the owners of the hired lands. It makes PEs hesitate in investment or they are not allowed to make some changes on the land in order to realize their business purposes. Private enterprises face difficulties in long-term investment and cannot make decision objectively. Therefore, production would be affected, many good opportunities to investment are not taken by PEs.
Science and technology In our survey, enterprises reveal that the supports of the Government have a very important role in successful implementation of researches, in application of scientific and technological advances as well as in projects to renovate products and to modernize technology. About 55.7 percent of interviewed State owned enterprises say that the State supported necessary conditions for enterprises’ research and application of scientific and technological advances. While, only 41.53 percent of interviewed PEs answer that they are supported by the State in this field. Both SOEs and non-SOEs are allowed by the State to borrow capital for technology renovation, products improvement and renewal, deep investment, etc. However, when completing specific procedures, as above presented, PEs face many difficulties in terms of collateral, pledging, etc. Another fact need to be realized is that although policies do not create advantages for SOEs, the superior proportion of SOEs in many industries and service. Beside above advantages, SOEs also have disadvantages as compared with PEs as SOEs’ autonomy on expenses, on expense standards is more limited than that of PEs. Moreover, in procurement of equipment and machinery, or in evaluation of bidders, although procedures, order have been simplified much, they still make these processes slower than those of PEs. Bidding procedures also make SOEs purchase equipment at higher price than PEs but they do not insure that SOEs can purchase equipment with better quality as compared with that of PEs. Labor There is a big difference in the number of employee between SOE and PE. It is because SOE’s scale is greater than PE’s. However, normal employees in SOEs take a large proportion in each enterprise. Many find their jobs just after leaving high school. It implies that, in general, the requirements for normal works in SOE are not very strict and complicated. Meanwhile, PEs with its smaller production scale employ fewer employees they have opportunity to seek higher qualified ones for their purposes as labor supply in market exceeds labor demand, as a result, unemployment becomes a big concern in the economy. In terms of employing labors, basically there is not much difference between SOEs and PEs. In interviewing enterprises, the similar proportion of the two types of enterprises saying that there are difficulties in employing labors. The two groups of enterprises give out similar differences. But in developing human resource policies of enterprises from the two groups are not the same. Normally, SOEs pay more attention to training their human resource than PEs. This difference is not originated from the State’s policies but from their actual potentiality or shortage of money for organizing of PEs.
Trading rights “Asking for quotas” is the factor that answered by enterprises as “do not have difficulties” with the highest proportion (50 percent of SOEs and 45.5 percent of PEs). However, number of enterprises sometimes and usually facing difficulties from these factors when importing also takes rather high proportion. Therefore, these factors have strong effect on enterprises’ import activities. Functioning agencies have very important role in making these difficulties simple. From which, “guiding documents” is the most noticeable factor because many enterprises always face difficulties by this factor. After that are “customs procedures” and “borrowing foreign currencies for import” factors. To other factors the answer “always face difficulty” is not much different between the two economic sectors. Some enterprises blame negative phenomena in importing activities, namely customs officers asking for money out of stipulated expenses. The un-match between legal documents also force some enterprises deal with difficulties in their importing operation. With surveyed data, we can see that SOEs receive more supports from the State than PEs in terms of collecting information on import-export activities. Regarding both SOEs and PEs, number of enterprises which do not benefit from the State’s export supporting measures takes rather high proportion. 87 percent of SOEs and 69.8 percent of PEs answer “do not benefit” from “subsidy for market approaching”, while there is only 4.3 percent of SOEs and 16.3 percent of PEs saying “much benefit” from this measure. Generally, the difference in level of benefit of SOEs and PEs from the State’s export supporting measures is not remarkable. There are measures which bring more benefit to many SOEs than PEs and vice verse.
State-owned enterprises have more advantages in access to credit than private enterprises State-owned enterprises are not only provided with initial capital when they start up business, but they can also easily obtain financing from State-owned commercial banks without tied requirements such as land-use right certificates, machines, factories, and equipment, project feasibility. Moreover, banks generally value their collateral at a lower price than that of SOEs. Even when they are feasible they are rejected by the banks under various reasons. Advantage of SOEs or disadvantage of PEs in terms of loan is because of not only strengths of SOEs and weaknesses of PEs but of also different treatment to the two sectors.
Private enterprises are disadvantaged in terms of land SOEs, in the time of subsidy mechanism, were assigned a very large area of land in convenient places. Private enterprises have limited access to land-use rights, and rarely have land-use right allocated by the government. Furthermore, SOEs tend to have longer leasing periods than PEs. As a result, there will be some constraints to investors in production.
Both SOEs and Private Enterprises do not encounter many difficulties in labor but shortage of highly skilled labor Although the unemployment rate is still high, both SOEs and PEs complain that they find it difficult to have qualified employees, technical workers, qualified engineers. PEs are active and flexible in employing labor but working places in SOEs seem more attractive than in PEs because of better conditions, higher job safety, employment stability, and many opportunities.
In terms of trading rights, SOEs are more advantaged than PEs in general. While PEs have more autonomy than SOEs in goods transaction, SOEs have strong support from the government. This originates from different features of owner-rights of two economic sectors, so legal documents on the policies are also different. Therefore, it is difficult to determine which enterprise benefits more from these regulations. In terms of import-export, PEs are still weak; the proportion of the non-State economic sector in the whole country’s exports is low because of small scale and low quality of PEs, and the lack of conditions in import-export activities. Fund for supporting export are beneficiaries for both SOEs and non-SOEs. However, with criteria for being supported given out by Ministry of Trade, only SOEs can benefited from these supports. Many problems hinder PEs’ approaches to the Fund for supporting exports.
In scientific and technological fields, there are some discriminations between SOEs and non-SOEs There are still some differences in access to technology although direct supports of the State to different economic sectors have been more synchronous. Most PEs are not supported by the State, if not they are required more conditions. Large SOEs receive a big advantage of science and technology transferred by the State as the Government directly supports SOEs with a part of the total expenses in implementing researches and applications of technology.
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