Domestic private sector SMEs in Vietnam with a focus on growth

Topic - This paper examines the growth of domestic private sector small and medium enterprises (SMEs) and their contribution to the economy of Vietnam. It also discusses issues that have recently emerged to SMEs in Vietnam in the current global financial crisis. Research Question - The focuses of the paper are on the following questions: (i) What are periods of growth for Vietnamese private sector SMEs? (ii) How are SMEs contributing to the transition economy of Vietnam? (iii) How does the current financial crisis impact on Vietnamese SMEs? and (iv) What are the policy implications in the current environment? Methodology - Secondary data are analysed to describe the growth patterns of Vietnamese SMEs and their contributions to different aspects of the economy. Policy implications are derived from the analysis. Findings - The paper identifies two periods of growth for Vietnamese SMEs. The first period was in the 1990s and started after the introduction of the Company Law and Private Enterprise Law in 1990 and 1991, respectively. Enterprise registrations were slow during this period due to ongoing regulatory and environmental barriers. The second period, occurring with the introduction of the Enterprise Law in 2000, saw a strong increase in the registration of new SMEs as a result of easier entry regulations, and the increased recognition by the authorities of the importance of this sector for the ongoing economic development of the country. SMEs are found to have an increasingly significant role in the economy of Vietnam. They also have potential contribution to: furthering economic growth, expanding employment opportunities, tackling regional income inequalities and poverty and further integrating the country into the global economy. A discussion of the impact of the global economic and financial crisis on the country's SMEs reveals that they have the opportunity to withstand the crisis with effective policy responses to minimise potential adverse effects. Implications - Several lessons could be drawn from the paper. Reform on entry regulations and removal of barriers could greatly facilitate the growth of SMEs, especially in the context of transitional economies. The potential of private SMEs, once unleashed, can have significant contributions to national economy. In times of crisis, the role of SMEs is ever important but relevant policy measures are needed to help them weather it