1. Report on SME Situation in Vietnam Danny

2. Title and Content SME Cluster in Vietnam SME Cluster and Export Consortium SME situation in Vietnam SME in GMS and its importance

3. - SMEs contribute to economic development in varies ways by creating employment for rural and urban growing labor force, providing desirable sustainability and innovation in the economy - The development of SME is seen as the way to triumph over poverty and inequality - SMEs have a propensity to employ more labor-intensive production processes than large enterprises SME in GMS and its importance

4. - SMEs in Mekong Region tend to be a lot smaller than SMEs in developed countries. - The first issues concern the lack of technical capacity - Government agencies is also lack of ability to provide expert assistance - The bank tend to have little interest in assisting such small scale business - The markets being served tend to be fairly rudimentary - The power in the relationship remains with principal supplier - The options for local production are very limited SME in GMS and its importance -> Lack of technical ability, plant and investment capital mean it is very difficult for SME entrepreneurs to replicate or replace imports and provide alternatives slanted towards the local market.

5. - Government Decree 90/2001/ND-CP (Decree 90), promulgated in November 2001, provided for the first time an official definition of an SME as “a business establishment with registered capital of no more than VND 10 billion or with an annual average workforce of no more than 300 employees” - The Comprehensive Poverty Reduction and Growth Strategy (CPRGS) finalized in May 2002 took it one step further by defining the role of SMEs as “contributing to the growth of the national economy, job creation, poverty alleviation and hunger eradication” SME situation in Vietnam

6. Prospective Vietnam Association of Small and Medium Enterprises (VINASME) has gathered 20,000 members and is one of the largest association in the term of member in the country In the upcoming time, VINSASME will aim at specific targets as follows: Increasing the consent and actively contributing opinions Proposals to policies on the socio-economic development Supporting further member enterprises to get access to the market information Credit sources Trade promotion and training of human forces Challenge Shortages of capital Limited access to international markets due to technical standards Production technology utilized by Vietnamese SMEs is backward and obsolete Land regulation and planning is not transparent Training and management skills in SMEs are very low

7. Policies for SME Development and Promotion Decree 90/2001 Encouraging investment Setting up the Credit Guarantee Fund for SMEs Credit sources Creating favorable conditions for SMEs to have proper production ground Expanding markets for and raising competitiveness of SMEs Encouraging SMEs to boost export and create conditions for them to cooperate with foreign partners, expand goods and service export markets Providing information, consultancy, and human resource training Decision 143/2004 Training and enhancing human resources Enhancing quality of business support service providers

8. Policies for SME Development and Promotion Decree 108/2006 Technology transfer Training support fund Development investment and investment services Decision 236/2006 Approve the Five-Year SME development plan (2006-2010) Emphasized on the State’s role in the creation of “a sound policy”, legal, and institutional environment that ensures fair competition for SME Stressed the importance of raising awareness for all-level authorities on the SME role The support from government is planned to be shifted from direct support to indirect support in the future

9. GroupInstitution NameFunctionOperation’s scale ISME promotion CouncilAdvisor to the Prime Minister, public-private representation National IAgency for SME Development (ASMED) SME policy review, formulation, monitoring, provision of information on business regulations for SMEs, and similar responsibilities in business registration, and domestic investment encouragement, government agency for coordination, facilitation, does not get involved in direct service provision, expect in regulatory information National I Provincial department of Planning and Investment SME policy at local levels, support programs at local levels and monitoring of SME state and needs at localities, local level policy coordination, does not get involved in business development service (BDS) and financial service provision Provincial IISector-focused government agencies  Provincial Industrial Promotion Agencies  Provincial Investment Promotion Agencies  Agriculture Encouragement Center of Ministry of Agriculture and Rural Development  Trade Promotion Agency under Ministry of Trade  Technical Assistance Centers (in Hanoi and Ho Chi Minh city)  All agencies of this category that provide services to SMEs Provincial and National IIIBusiness Association Of a general nature (VCCI, Young Entrepreneurs, Rural SME Association, Vietnam Cooperative Alliance, and so on) or sector-specific provision of BDS and advocacy functions National and Provincial IV Private BDS service providers and financial institutions Training and consulting companies, independent consultants in BDS provision. State-owned and joint stock banks and leasing companies in financial service provision Throughout the country VUniversities and research InstitutionsProvision of BDS to SMEs, through some SME Offices or Center, but mostly via their members acting as freelance consultants for SMEs Throughout the country Organizations

10. - SME Cluster is a “geographical concentrations of interconnected companies, specialized suppliers, service providers, firms in related industries, and associated institutions that compete but also co- operate” - The above definition contains three keywords which allows to operationalize the concept of clusters: 1. Geographical concentration of related firms and institutions 2. Interconnections between firms and other institutions (networks) 3. Cooperation and competition among the actors of the industrial clusters SME Cluster

11. - An export consortium is a voluntary alliance of firms with the objective of promoting the export of goods and services of its members through joint actions 1. Risk Reduction 2. Cost Reduction 3. Access to larger markets and larger orders 4. Knowledge Accumulation Export Consortium

12. SME Clusters in Vietnam Garments Garments firms appear to be highly concentrated in southern Vietnam, in particular, in Ho Chi Minh City and the neighboring two provinces, Dong Nai and Binh Duong. The garments industry cluster, consisting of these three neighboring provinces, is composed of large foreign invested enterprises (FIEs) as well as many SMEs. Motor vehicle and parts 54 motor vehicle enterprises are listed, of which 17 are automobile assemblers registered by the Vietnam Automobile Manufacturers’ Association (VAMA) and the remaining 37 enterprises are either motorbike makers or producers of small-scale vehicles, such as agricultural vehicles Craft Villages In Vietnam, There are clusters of “local” industries in rural areas called “craft villages”. Compared to the industrial clusters mentioned above, agglomeration in these villages is more apparent, and hundreds to thousands of households in one village are engaged in the economic activities of certain industries. P roducts of craft villages vary from processed local foods to traditional handicrafts and housewares that contribute to the domestic market. After more than 15 years of development, some craft villages have increased their size and level of industrialization

13. Craft Villages in Vietnam Bat Trang - Ceramic Van Phuc - Textile Dong Ky – Wooden Furniture Duong O – Paper Da Hoi - Steel Number of Craft Villages Number of Participating Households Number of Participating Labors Red River delta 615167,868412,228 Northern Highlands 438,49220,196 Central Coast 28954,248143,835 Central Highlands 7292474 South East 113,9389,361 Mekong Delta 11221,20769,712 Total 1,077256,045655,806

14. Prospective SME Clusters in Vietnam SME Cluster Government Agencies Business Association Universities / Research Centers Supporting Industries Direct ExportLocal MarketExport Agents Wholesale Dealer

15. Prospective SME Clusters in Vietnam Phase I – Mapping of SME Clusters Textile and garment Footwear and leather processing Wood processing and furniture Phase II – Technical Support Provide technical support to selected clusters Technology transfers and technical assistance Prepare business partnership proposals to Italian enterprises Phase III – Long term cooperation linkages Agreement will be promoted The Italian Ministry of Foreign Affairs (MAE) - the Ministry of Planning and Investment of Vietnam (MPI), have signed a Letter of Intent with the aim of involving the Italian industrial system in the implementation of the cooperation project “SME Cluster Development” The project is fully funded by the Government of Italy, (€3 million, MAE/DGCS) and it is implemented by the UNIDO

16. Focused on a narrow set of activities without the breadth of related and supporting industries Cheap and unskilled labor Interactions between firms and universities and research centers are limited Need an improvement in coordination of policies The absence of strong and representative business associations Challenges