19.4 percent of small and medium enterprises (SMEs) reportedly disappeared from the market in 2009. LookAtVietnam – 19.4 percent of small and medium enterprises (SMEs) reportedly disappeared from the market in 2009. However, experts believe that this should not be seen as bad news, but rather as a temporary “strategic withdrawal” to deal with the economic downturn.
This is the conclusion drawn from the report on the characteristics of the business environment in Vietnam released a few days ago by the Central Institute for Economic Management (CIEM) which conducted a survey on 2543 SMEs in 10 provinces in 2009.
Business environment seems to become worse
Finn Tarp from Copenhagen University believes that Vietnam’s business environment became worse in 2007-2009.
The survey showed that 65.4 percent of SMEs said the global economic crisis had negative impacts on their business conditions.
Simon McCoy, also from Copenhagen University, said that there were four biggest barriers for enterprises’ operation. Lacking capital was always the biggest difficulty. The other difficulties included the limited demand for products, the stiffer competition and the lack of land for workshop premises.
In 2009, more businesses had difficulties selling their products than in 2007. And the number of enterprises, which said that they met no obstacles in doing business, decreased significantly over 2007.
The period of 2007-2009 was a special period for Vietnam. At that time, the national economy witnessed a lot of ups and downs, from high inflation to economic downturn. 2009 was the year when Vietnam’s exports plunged dramatically with a lot of orders canceled.
Businesses’ disappearance just temporary
This was the conclusion by Simon McCoy from Copenhagen University about the disappearance of 393 enterprises, after his research team returned to continue their survey on 2492 enterprises they once surveyed in 2007.
“19.4 percent of businesses closed down. But this was not a big problem for Vietnam,” he said.
He went on to say that the enterprises only shut down temporarily, for 6-9 months. In many cases, enterprises operated in accordance with the seasons, and they halted operation for three months in the year because of the lack of orders.
Therefore, 1/5 of businesses polled said halting production is a normal feature in their operation, while 43 percent of businesses said they had to halt production because of the lack of orders.
According to Mr McCoy, there were a lot of other reasons, including the difficulties in obtaining materials, higher production costs, bad marketing and distribution network and the low quality of products.
Finn Tarp considered the temporary withdrawal as a sign of flexibility of the Vietnamese enterprises in dealing with the global financial crisis.
Twelve percent of businesses said that the crisis benefited them them, when their rivals’ competitiveness weakened.
Meanwhile, according to Le Ngu Binh from the Institute of Social Sciences and Labour, the new state policies were also the reason behind the disappearance of enterprises.
In Lam Dong province, for example, 23 enterprises had to move from their headquarters in 2009 to make the space available for other projects. Also in 2009, 37 enterprises went bankrupt, and most of them were the household-run workshops that made bricks and could not meet the new requirements on environment protection.
Bank credit access remains biggest obstacle
36 percent of thebusinesses polled said that lack of capital remains the biggest challenge for their operation. In 2002, only 25 percent of businesses said they met difficulties in accessing bank loans, while the figure rose to 46 percent in 2007 and 49 percent in 2009.
In 2009, only 36.5 percent of SMEs applied for loans. However, this did not mean that the remaining businesses did not have the demand for capital. 71 percent of businesses have to rely on “unofficial capital sources”.