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Relevance of the topic
In most developing countries, non-farm activities have become increasingly important to the development of rural areas in particular and the economy as a whole. Non-farm activity performed in rural areas by peasants is an effective way to help diversify the rural economy away from pure reliance on agricultural production. It has the effect to increase rural employment opportunities, diversify income sources, alleviate poverty, improve the living standard, narrow the rural-urban income gap and reduce migration to the cities. In
Vietnam, 77 percent of Vietnam's population resides in rural areas and 74
percent of the total labor force is engaged in agriculture. The population
growth rate in Vietnam is rather high at 1.8 percent annually, making the labor
force increase by approximately 1 million persons annually (WB 1998a). Vietnam
also faces with problems of arable land scarcity, unemployment, poverty, and
rural-urban income discrepancies. There are a large number of Vietnamese villages where people traditionally have a long experience in producing non-agricultural handicraft goods, such as wooden sculptures, ceramics, furniture, cloths, and processed foods. Quite a few of them are doing very well, but, there have also been many cases of failures. If non-farm economic activity is to be developed sustainably, it needs a long-term strategy, a commitment to investing time and effort as well as funds. Thus, a study of villages with specialized non-farm products is useful to understand and support rural development in Vietnam. So
far, quite a few researchers have studied the situation of the traditional
craft production in Vietnam. Most of
them focused on what should be done to preserve and promote the villages with
specialized non-farm products as aspects of the country's cultural heritage,
irrespective of costs. Some researchers have mentioned the economic value of
these villages, but mostly about how to preserve non-farm economic activities
and provide better access to capital or technology. Matters such as
marketability and dynamic trends of development were addressed only in general.
There is not yet a clear classification of market niches for these
villages. In other words, the economic
realities of preserving them have not been sufficiently addressed. Therefore, a
more general empirical analysis, with a more specific classification of
potential rural non-farm economic activities, is needed to determine the
relative role and future prospect of villages with specialised non-farm
products in Vietnam.
The
RRD and the Mekong delta are the two main population centers of Vietnam. The
research will focus only in the RRD, the second largest region after Mekong
delta in terms of population, with nearly 17 million people. Its population
density is the highest in the country: over 1,000 persons per square km. The
RRD also has a high concentration of poverty, due to the high population
density. In this region, more than anywhere else, it is urgent to draw labor
into non-farm activities to reduce the intense pressure of population on land.
The
research is intended to answer to the following questions: 1/
Why and how is the rural non-farm manufacturing economy organized? 2/
What is the impact of transition to a market economy on the rural non-farm
manufacturing sector in the RRD, and the prospects of the SMVs in economic
development? Classifications of potential non-farm
economic activities What are the main constraints facing the
development of these SMVs How do some SMVs become winners, while
the others fail? 3/
Identification of policy options to deal with the constraints and the
development of SMVs. Should the government help?
1.1. Definitions & approach
The
definition made by Saith (1992) is relevant:
“farm” refers to a set of economic activities including
crop-cultivation, and other auxiliary activities such as fishing and
aquaculture, dairying and animal husbandry, poultry-rearing and bee keeping.
Non-farm work not included in this range of activities can involve
manufacturing, processing, trade and services.
The
concept of an SMV differs from different research. In this research, SMVs are
understood to be villages where a large proportion of its citizens – from about
30% or 35% - have, or recently had (since about the 1970s) skills and
involvement in manufacturing the same line of products.
In
a SMV, there is usually a mixture of households, more or less dependent on
agriculture: agricultural, mixed type and non-agricultural households.
According to MARD (1997): ·
Agricultural
households are those in which all or most laborers participate in agricultural
(forestry/fishery) production and the principal means of subsistence of these
household members relies on the returns from their agricultural
(forestry/fishery) production activities. ·
Mixed-type
households are the households, which do both farm-work and non-farm business at
the same time. Both types of productive activities play significant roles in
securing employment, incomes and livelihood for the household. · Non-farm households are households in which all or most laborers, whether household members or hired outsiders, engage in non-farm occupations in any form of production or service practice, and the main source of household income is from non-farm business activities. Non-farm households may have agricultural land, but the number of laborers from their households participating in the farm-work, and their income from farming production are small, compared to their incomes gained from the non-farm activities.
These
are establishments set up in rural areas, carrying out only non-agricultural
production activities, which are granted business licenses in compliance with
the laws, regardless of operational
scale and economic sector, except for the SOEs (MARD, 1997).
There
are two different approaches towards analysing the rural non-farm economy: the
locational approach and the linkage approach (Saith A., 1992): (i)
Conventional (locational) approach defines that rural non-farm manufacturing
activities are those performed in a location within a designated rural area. (ii)
Linkage approach emphasizes all non-farm activities that generate significant
development linkages with the rural dwellers, no matter where they are taken
place As discussed above, this research will focus on rural non-farm manufacturing activities that maintain rural dwellers working in their homeland, not to migrate to cities and towns. Therefore, the conventional approach definition is of relevance to the study.
Non-farm
sector in rural areas is an alternative to farm work and of crucial importance,
in the sense of employment creation, income diversification and generation, and
out-migration restriction, to deal with the relative stagnation in the agricultural
sector such as risks and uncertainty, land scarcity, etc.
In
a market economy, risk and uncertainty surround all economic activities. But to
the agricultural sector, they are often of greater degree, since agricultural
production is vulnerable to unpredictable climatic and price fluctuations. Even
when there are methods to limit uncertainty, they may introduce new problems.
For example, pesticides are thought as "risk-reducing" inputs, when
we consider only uncertainty about pest density and pesticide effectiveness.
But if the uncertainties of other factors such as price and potential yield are
considered, pesticides could be either risk-reducing or risk-increasing. A
traditional view is that diversification by generating income from several
activities is a key risk management strategy.
Beyond
the general environment of risks and uncertainties, several processes of change
have facilitated the diversification of rural production activities. First,
it must be recognized that land is a limited resource. New areas of land have
been exploited, but it is not enough given the population increase. Second,
the introductions of new technology, and advanced cultivating methods have
augmented the cultivable capacity and reduced the need for manual labor. Too
little land with too many people has been a problem in developing countries,
particularly in the RRD. Hence, the need for exploring the potential of the
non-farm sector is crucial.
The
farmers theoretically have two diversification options away from agriculture as
follows: ·
Job-seeking
migration to urban areas ·
Employment
in rural non-farm activities
Dynamic
rural - urban migration is a common and inevitable phenomenon in the process of
economic development. Rural-urban movement provides a major source of labor
force for urban industrialization. They make up the labor shortage in cities,
especially in hard, dirty, and dangerous work such as cleaners, and
construction workers. Economically,
migration from rural areas seems to generally benefit the migrants, their
families and their rural communities. Firstly, it helps relieve the
unemployment and underemployment in rural area. Secondly, rural migrants may
send remittances back to their families. In the process of development,
although rural-urban migration is an inevitable consequence of growth, rapid
urbanization is not only associated with successful development, but also
associated with negative social consequences such as prostitution, crime, etc.
Besides, the rush of millions of floating population adds pressure on urban
infrastructure such as housing, transportation, and social security in cities.
It adds difficulties on the administration and plan of cities.
SMVs have
great potential to create jobs in the countryside. Generating employment in
non-farm production in SMVs can achieve various objectives: ·
SMVs can
utilize agricultural labor available in off-peak periods and provide job
opportunities, which reduce seasonal rural-urban migration. ·
Creating
jobs without gender bias: non-farm manufacturing offer employment opportunities
for women, who have few chances in other sectors. ·
Reducing
the income gap between urban and rural areas, thus reducing the pull factors
that make urban places so attractive to rural migrants. It also limits the push
factors of unemployment or underemployment in the agricultural sector. ·
Economically
efficient and hence sustainable production. Families
with not enough land need other job opportunities in their own homeland. Rural
non-farm activities, therefore, are an effective measure for sustainable rural
development.
Across countries, the non-farm sector may
be organized differently. In developing countries like Vietnam, at the very
beginning periods of rural industrialization, they may have similar
characteristics as follows: operation in small scale and household enterprises,
concentration and specialization in production.
Rural non-farm activities, as secondary
jobs, are usually centered in small-scale household enterprises for
appropriateness with its primary agricultural sector. Small-scale household enterprises are
more flexible, bear lower administrative costs, can easily be started and
managed, and also minimize risks. Small scale usually goes together with
labor intensive technology. The reason is that capital-intensive technology
means production economies of scale of factory is best. SMVs need skilled
labour-intensive and few scale economies to be "winners". Products of small-scale household
enterprises in SMVs tend to originate from indigenous craft traditions, which
are already skilled labour intensive.
Each village has a different formation
history. The concentration of particular industries in certain locations can be
explained as a matter of geography, of historical accident, or economics.
It is argued that SMVs emerge in
proximity to raw material or markets. Villages located close to natural
resources and materials usually have special advantages in particular non-farm
activities. The choice of vocation may be made when
the village is near a market that demands the products. Transportation
sometimes is decisive. Historical factors are thought to play a part, in some villages that exhausted on-site resources and survived due to the skill and prestige of its artisans. However, there are also cases where SMVs
were first established in obviously illogical locations. This is explained by
the chance that ingenious entrepreneurs tend to start manufacture of a product
in their native village. With the success of this "founder", other
villagers set to work imitating him and thus a SMV is born (Gourou, 1936). The
location of particular SMV may be due to a combination of various factors
above.
It can be a matter of tradition,
especially in the village society of Vietnam, where social and economic lives
are deeply intertwined. Rural non-farm activities usually take
place in small-scale households. Small industry is an easy entry sector.
However, village membership is not an automatic privilege, but a complex identity
that encompass the history, customs, ethics and common aspirations of its
inhabitants. Following this pattern, artisans within a village would often
organize themselves into a guild, which shares knowledge within the group, but
guards it from outsiders (Gregory Booth, 1996). Households become involved in the same
business for various reasons: Firstly, from the demand side, consumers
in "bargaining markets" prefer to have as many sellers in one
location to maximize their bargaining . Secondly, from the supply side, as Alfred
Marshall analysed (S. Mundle and B. Van Arkadie, 1997), there are advantages as
follows: ·
Labor
market externalities: These relate to the advantages which a production unit
may take from the easy availability of workers and trainers with particular
skills, by locating in an area where there are others specializing in the same
business, and requiring workers of similar skills. On the other hand, the
workers also gain advantage to move to areas where there are several firms requiring
labor with a particular skill, thus increasing their chance of finding another
job if they lose employment in one firm, and affording them the advantage of
market opportunities for improved wages and working conditions ·
Intermediate
goods economies of scale and externalities: These relate to the cheaper and
easier availability of particular intermediate goods as well as services and
information. The entry of the new production units to produce the same products
in the same area will expand the volume of demand for intermediate goods
suppliers, who will reap the benefits of large scale production, in turn
enabling them to bring down their prices. ·
Technology
externalities: Technology spillover occurs because of the easy circulation of
information due to proximity. Much of the technological progress takes place in
the form of innovative incremental improvements, which are diffused informally
through discussions and demonstrations among peers in the same sector.
Production units located in specialized clusters can take advantage of such
information to reduce costs, improve product quality and efficiency, bringing
about a competitive advantage vis-a-vis units located in isolated areas. ·
Market
access and economies of wholesaling When enterprises of the same type locate
close together, they may benefit from an easy access to skilled labor, an
exchange of technical information, and from lower costs of inputs &
marketing.
All
factors related to manufacturing and distributing a product can cause the
enterprise to win or lose. They can be classified as follows:
Production
exists only if demand for the product can be secured. Discovering a market
niche and investing in a marketable product is the key to being a winner or a
loser. Whether the products are marketable or not depends on various factors,
such as the taste and income of consumers, the introduction of substitute
products, and technology improvements. All of these factors can change over
time. As income rises, demand for inferior
goods declines. People prefer better quality products to traditional goods. The
transition in tastes and consumption patterns pushes some villages with
specialized non-farm products into losses, as their products are no longer
marketable. ·
Technology
improvement: When technology improves, and
well-organized industrial mass production takes place, large quantities of
standardized high quality products appear at low prices. Industrial mass
production benefits from economies of scale and thus is usually more productive
and standardized. Also, as most of the products of SMVs are in the nature of
inferior goods. With development, these products are gradually replaced by
better substitutes. Therefore, with an expansion of modern industry, some craft
SMV products tend to disappear. Nevertheless, technology improvement for
SMVs can also be a decisive factor for success. The main reason for the low
levels of labor productivity in SMV households is the simple nature of
technology used. Small investments in equipment may increase manufacturing
productivity and release labor for higher value jobs, but the distorted nature
of rural financial systems.
The
agricultural sector has a close relationship with the non-farm sector in rural
areas in at least three ways: through production, through consumption and
through labour market linkages. Many
rural non-farm economic activities are characterized by the use of agricultural
produce as raw materials, and production of goods for use in agricultural
production or rural consumption. A
fast growing agriculture sector may create impetus for non-farm economic
activities. Higher levels of income in the agricultural sector, however, may
also decrease demand for some existing non-farm production, as explained above.
In
addition, in the agriculturally better-developed villages, processing of
agricultural products seems to be getting reduced in importance in rural areas.
The larger volumes to be processed see economies of scale work to shift food
processing activities towards large-scale factories. Furthermore,
a growing agricultural sector can raise agricultural wages, and these in turn
raise the opportunity cost of labor in non-farm activities. This induces a
shift in the com of non-farm activity into more skilled, higher return
activities (P. Hazell and S. Haggblade, 1993).
In
addition to the competitive problem in production and marketability with larger
scale industries, the competitive of SMV household enterprises is
often weakened by the lack of access to institutional credit. SMV
household enterprises come from very poor economic backgrounds. It is natural
for them to face serious shortages of finance in establishing and operating
enterprises, despite the low capital requirement (R. Islam, 1987). The
problem of capital may lead non-farm enterprises to stagnation or dependence on
informal borrowing at high rates of interest. Increased access to credit would
facilitate expansion of the non-farm economy and the application of new
technology.
Labor
is probably the most important factors in SMVs. It is the comparative advantage
of the villages: cheap and skillful. Most producers in SMVs learn their craft
over many years, acquiring skills, which have been passed along through the
generations. Very few of them take formal training. Craft making is the same as
any other business or trade in that continued education and training are
essential to compete and survive. The common low education level of labor in
rural areas in developing countries is often regarded as a problem. The poor
will get poorer, as they either cannot afford school costs or need their
children to work to help the family. It is a kind of vicious circle as they
rarely get rich without basic education. Literacy
enhances the productivity of the workforce and makes it easier to master skills
provided through on-the-job training. Education stimulates entrepreneurial
capacity. Skillful labor is not enough as to drive a business to sustainable
development. Managing skills, marketing skills, awareness of business and
accounting practices and other "human resource skills" are
important.
The
availability of raw materials is an important factor determining the production
and sustainability of many SMVs as for many other manufacturing
industries. Since
most raw materials for SMV production come from the agricultural sector,
stagnation or decline in the production of relevant crops can constrain further
expansion of processing capacity for such crops. Besides renewable inputs, shortages in non-renewable inputs can
make future production unsustainable.
Moreover, there are industries using imported materials, like textiles,
fabric and thread for embroidery. Availability of such inputs to SMVs depends
on factors like the import policy of the government, and access to foreign
exchange (R. Islam, 1987).
One
way that the government can encourage the development of rural industry in
general or SMVs in particular is by providing infrastructure in industrial
areas. The
expansion of roads, transport, and communications infrastructure leads to
specialization of labor by rural households. It promotes the development of
trade, marketing, and distribution networks, including subcontracting
arrangements linking farm and non-farm sectors to local towns or big cities. The expansion of transport and communication
facilities linking the rural sector with the cities may also have a negative
impact on the rural non-farm sector. As rural areas become more accessible,
competition from cheaper urban or imported products and changes in rural
consumption patterns may also result. On balance, however, the net effect of
improved infrastructure is beneficial because it stimulates the growth of an
efficient and competitive rural sector. To
conclude, factors affecting SMVs can be divided into two groups as illustrated
in figure 1: ·
The first
group includes external dynamic processes that decide the competitiveness of
the product, like science and technology improvement, introduction of better
substitute products, changes in consumer tastes, and an increase in people's
incomes. ·
The second
group are constant internal inputs (e.i. human resources, credit, capital,
material supplies, technical improvement, infrastructure, and government
policies). The
first group can be considered determinants of the existence and development of
SMVs in the long run, while the second group is basic factors that either
weaken or strengthen all sorts of business activity overtime. Success requires
elements from both groups of factors.
2.1. General socio-economic features
The
RRD lies in the northern coastal areas of Vietnam, with 16,644 square km,
framed by branches of the Red River, the longest in North Vietnam. It includes 11 provinces. The whole areas of
all 11 provinces are called the RRD Region, with 27,898 square km (MOSTE, 1998)
The
population of the RRD was 16.8 million persons in 1997, of which 81% were
living in rural areas. The population density averages 1,010 persons/km2,
making it one of the most densely populated regions in the world. The official unemployment rate in Vietnam's rural areas was low (at 3.9 percent in 1997), but there was also substantial underemployment - 25 percent (WB, 1998a). This fact can be explained that in spite of a low per capita land area, almost all farmers have land to cultivate, although often not enough. They have their jobs for a certain period of the year and are not finding themselves unemployed. According to a MOLISA report in 1996, 2.04 million rural people in Vietnam go to urban centers for jobs during slack seasons, accounting for 7% of the total rural working population. Facing
the reality of little land, dense population, underemployment and problems when
migrating, most households try other economic activities apart from farming to
guarantee their food security. Throughout North Vietnam, today, about 68% of
rural households can be considered purely farming ones. Up to 24 % of rural
households are engaged both in agriculture and in other professions, of which
11% started non-farm jobs before 1981, 14% from 1982 to 1988, 31% from 1989 to 1992
and 44% from 1993 to 1997. This shows the growing number of families shifting
to non-farm activities. (MARD, 1997).
When
the North of Vietnam declared independence in 1954, the State took complete
control over production by starting collectivization efforts in every sector of
the economy. This led to a period of massive restructuring in SMVs. During this
period, exports were mostly to the socialist bloc, primarily to the former
Soviet Union and Eastern Europe. Until 1978, officially, all craft workers
belonged to cooperatives. In fact, there was a private sector, but oppressed
and illegal. State enterprises and cooperatives - as the only official sectors
- dominated the economy. Due to the structure of ownership and the lack of work
incentives, production was weak and cooperatives began disbanding. The central
planning mechanism became even more irrelevant when export markets in the
Soviet bloc collapsed in 1989. The
renovation policies of 1986 were initially aimed at improving the productivity
of all sectors by recognizing private ownership. Production cooperatives from
the planning economy had little or no flexibility to respond to changing
circumstances. Consequently, the number of handicraft cooperatives in Vietnam
declined from 13,087 in 1990 to only 1,648 in 1994, while the number of private
craft enterprises increased from 770 to 4,909 (MARD, 1997). However, since 1988, the withdrawal of state support, the introduction of the market economy, and competition from Chinese smuggled goods created a shock leading to collapse for some non-farm manufacturing activities. Nevertheless, for some entrepreneurs the reforms were a springboard to use their ability and potential. For those who can identify market demand, who can develop product variety and choice for the customers at a high quality, who can complete work on time and at competitive rates, the transition to a market economy afforded opportunities.
Factors
considered main difficulties affecting SMV activities ranking in order of
volume, which can be grouped as follows: 1
- Lack of capital 2
- Poor technology and working condition 3
- Human factor 4
- Raw material supply 5
- Infrastructure
The
MARD survey in 1997 shows that lack of capital is by far the most frequent main
constraint to the growth of enterprises, at least, according to enterprise
managers. About 80% of total non-farm production units claimed credit
availability as a constraint to their business. In fact, over 55% of non-farm
establishments need borrowed capital to their business performance. But the
number of borrowers of non-farm and mix type households is at only around
22%-32%. These figures as well as a large network of commercial banks in the
RRD seems either to contradict their claims, or to be explained that these
entrepreneurs do not have much capital for investment and operation, but the
legal environment for lending is a bottleneck, especially as it relates to
collateral requirements. Short of fixed assets, enterprises can not qualify for
loans. Borrowing from the bank and other financial institutions is difficult,
but people try not to get loans from informal lenders, which is usually with
high interest rate. Loans from friends and relatives without interest rate are
not sustainable solutions. However, it also should be noted that shortage of capital may not be the biggest obstacle. Most craft SOEs fail despite a favorable business environment in terms of capital availability and foreign market access. This raises the question that whether shortage of capital is a major problem or just a constraining factor to business growth. Capital
is necessary for business operation and business expansion, but more important
is a flexible effective operating mechanism. Capital could be a problem, but
neither difficult nor costly to overcome (Refer to Chapter II. Material supply and Chapter III. How are they organized?). Lack of
capital may just be the symptom of more fundamental constraints on business
development.
Non-farm households generally use their houses as production places. In comparison with the whole country, production conditions in RRD households are considered rather good, where nearly half of them live in permanent houses. However, business places are small for household enterprises, often failing to meet technical requirements, product quality and environment hygiene. Mechanized
production is evident in only 27-37% of SMV households
Vietnam's most valuable economic resource is its abundant relatively skilled and competitively priced labor. Literacy rates of household labor in the RRD are rather high. These are favorable conditions for "on-the-job" vocational training, and internalizing and disseminating knowledge of new technology. But the well-trained labor of non-farm and mixed-type households is still limited, and the proportion of trained labor with certificates is low. The
working skills of labor in SMVs are usually passed on through generations by
“learning-by-doing”. This unofficial training is effective in popularizing
handicraft production. However, some
important skills in art craft SMVs (e.g. design) could hardly develop just by
"on-the-job" training. Therefore, official research on
skill-requirements and then additional formal training courses may assist human
resources development in targeted SMVs.
Household
heads direct the economic activities of households. They help non-farm
establishments succeed or fail. Training
at vocational schools is important for businesses of SMVs. But literary is a
basic requirement for filling the "skills gap" of management,
marketing and information for running any business. Especially as for the
majority of household businesses, only less than 8% college graduated managers
is a low rate. Although learning from experience, overcoming problems as method
of understanding work well, this way seems too expensive. Losing a contract, a
relationship, is a much higher cost than a VND 1 million training course. Thus,
this leads to limited efficiency in production and business activities and limits the scope for the development of this
sector.
A
large part of raw materials for RRD SMV production comes from within the
region, and are agro-fishery-forestry products. The rest is imported either
from other countries, or other areas of the country or from other sectors of
the economy like fabrics and thread for embroidery, and wool for carpentry. Agricultural
productivity influences non-farm activities, as agricultural products account
for a large proportion of inputs. Increased agricultural output also stimulates
forward production linkages by providing raw materials that require milling and
processing by the non-farm sector. Overall, the RRD has a net surplus of rice,
sweet potato, cassava, soyabean, peanut, jute, reed and tobacco. For
seafood processing, the RRD has a long coastline. For construction input
manufacturing, principal materials found in the RRD are limestone for crushed
rock in roads and in the building industry, and clay for manufacturing bricks
and tiles. Good quality limestone and clay outcrops occur over large areas on
the flanks of the RRD. Supply of raw materials for carpentry villages is more constrained. The wood carving and furniture sector is particularly hard hit. Due to overcutting, good quality teakwood has become scarce. Together with teak, a long list of high quality wood is banned from exploitation for environmental protection. The scarcity has led to price increases making the business more difficult. Prices of raw materials from agro-fishery-forestry sectors tend to fluctuate seasonally, which also results in output price fluctuations. However, SMV costs might be saved by buying up input stock at times of low prices and storing them. Prices also vary according to quantities purchased. Bulk purchases might be beneficial. But lack of capital to finance stocks of materials, or limited storage areas may stop this. Mutual benefit "forward contracts" between material suppliers and buyers, under which seasonal material will be traded at an agreed prior fixed price, reduce risks. This method is based on trust and contracts. If promises are broken, it becomes very difficult for such procurement deals to work again.
Infrastructure
includes transport facilities like roads, railways, waterways, ports and
communication facilities. According to the RRD Master Plan, the road network in
the RRD is adequate. The average road density of 1.18 km/km2 is well above the
national average of 0.32 km/km2. In
common with the road network, railways in the RRD were constructed over 50
years ago and have seen little investment. However, for transporting
commodities, the current status is fine. The
RRD has a large number of rivers and branches. The extensive network of wide
and deep waterways in the RRD provides an efficient means of transport.
However, the condition of the fleet and port facilities is poor and needs
upgrading. In
the RRD, there are three airports: Noi Bai international airport in Hanoi, a
small airfield in Gia Lam, and Cat Bi airport in Hai Phong. Communication
facilities in the RRD have improved considerably recently. In 1994, there was already a wide-spread
network of 572 post offices in the Delta Region, representing 30% of the total
number in Vietnam. In
short, the overview above on the current situation of various factors affecting
the operation of SMVs proved that although the situation needs much improvement
if SMVs are to be promoted, they are not major constraints and decisive factors
that can cause the SMV to "win or lose". Those operational problems
experienced by the SMV sector, seem to be common with the rest of the
developing world (Malek M. El Ashker, 1987). The
above factors are "basic conditions" to boost SMVs development.
However, it is necessary that they are profitable first before development. The
following section will look at the decisive factors towards SMV prospects - the
story of winners and losers.
For
craft production, the local market is the biggest outlet, followed by exports
and tourist sales. More than 90% of craft products are sold domestically (RRD Master Plan, Volume II, 1995).
Crafts for the local market are utilitarian, like sleeping mats, bamboo and rattan baskets. With its high population, Vietnam has a large market for consumption goods, foodstuffs, and for construction and agricultural production tools. In the short run, as incomes of most rural people in Vietnam are still so low, after meeting the basic needs, they have very little left for purchasing manufactured goods. Inferior goods still find many buyers. However, when living standards rise, people become more attentive to quality, design, and qualities other than price. Industrial mass production and open trade add competitive pressure. Cheap imports from China and elsewhere overwhelm markets. Nevertheless, the domestic market should not be ignored, and producers responding to market demands by focusing on new standards and products will succeed.
Popular
products for export and tourist sales in Vietnam are lacquerware, embroidery,
woodcarvings, rattan ware, jute and woolen carpets (RRD Master Plan, Volume II, 1995). With cheap and skillful labor as
a comparative advantage, and potential agricultural-forestry-fishery products,
this market is promising for art crafts, and semi-finished products. Greater
exposure to world market enhances the opportunities to observe and adopt new
technology. Export-oriented industries create favorable conditions for product
improvements as export market introduces big demand for quality products. Before, the state had controlled exports and imports of the whole economy through its SOEs. This was one of the difficulties for SMVs to expand markets. However, as of 1998, a big stumbling block to trade has been removed by allowing private enterprises to export products directly related to their business (VET issue 66). Opening up the business of foreign trade to private sector could greatly boost SMV growth. |
