RESEARCHES & DISCUSSIONS

SMEs contribute greatly to GDP and job creation in Vietnam. Studies of what factors
are important to the development of SMEs in Vietnam are, however, scarce. Particularly,
there has been little rigorous research focusing on the roles of human and social capital
of the owners. This study reveals that education, knowledge, and social networks of the
owners are essential for innovations in management and performance of the SMEs in
Vietnam.
Keywords: SMEs, human capital, social capital, firm performance, determinants

1. Introduction
In line with the country’s economic reform and
growth, the past 25 years from “ñoåi môùi” (Renewal) have seen a dramatic development of
SMEs in Vietnam. As an important part of the
country’s development policy, SMEs have the vital
roles to play in terms of GDP contribution, job creation, and poverty reduction.
The Decree 56/2009/Nñ-CP categorizes SMEs
as very small, small, and medium enterprises according to their employment and capital size. In
fact, the promulgation of the 1999 Companies Law
created a breakthrough in development of the pri-

vate sector. Since then, there has been an enormous increase in the number of the enterprises in
all sectors, and SMEs accounted for 97% of the
total number of enterprises of all types in 2008
(Table 1). According to this table, the trading and
service sector attracts the best part of SMEs in
Vietnam, followed by the manufacturing and construction sector.
During the past 10 years, SMEs have been contributing significantly to the Vietnam economy.
They accounted for 40% of the GDP (Vietnam
Business News, 2010); 56% of the total investment
and and 35% of export value (GSO, 2009). SMEs

Table 1: SME development in Vietnam
2000
Number of SMEs

2004

2008

39,897

88,222

201,580

Having less than 5 employees

10,169

17,977

44,474

Having 5 to 9 employees

10,900

26,459

70,454


Having 10 to 49 employees

12,071

32,443

69,712

Having 50 to 299 employees

6,757

11,343

16,940

91.9

94.8

97.1

26.09

28.06

23.27

8.32


2.52

4.26

Manufacturing and construction

33.69

37.04

33.06

Trading and services

57.99

60.44

62.67

Number of SMEs / total number of enterprises (%)
Average number of employees per enterprise
Distribution of SMEs by sectors (%)
Agriculture, forestry, and aquatic products

Source: SME Development Bureau, MPI, December 2009

* Foreign Trade University


Economic Development Review - June 2011

39


RESEARCHES & DISCUSSIONS

created jobs for 67% of the total labor force and
the number of workers in SMEs rose by 4.5 times
during the period 2000 – 2008, therefore, they
play a key role in poverty reduction in Vietnam.
A question arises as to what determines the development of SMEs. The rest of the paper attempts to find an answer to this question and
comprises: (i) Section 2 that presents a review of
literature on determinants of SME development
and empirical results of the analysis of SMEs in
Vietnam; and (ii) Section 3 that offers a conclusion.

2. Determinants of SME development: human
capital and social capital
a. The roles of human and social capital
in the development of SMEs:
There are a range of determinants of SMEs development. To the extent of this study, the focus
will be on human and social capital. Human capital, of which the level of formal education or the
number of schooling years are often proxies, is
widely accepted as the key factor that determines
firm performance. Many researchers emphasize
that formal education is the most important component of human capital (Becker, 1962; Foster,
1987; and Schultz, 1993). However, others such as
Arrow (1962), Howell and Wolff (1991), Young
(1992), Madison et al. (2003), and Hackler et al.

(2008) argue that human capital should be divided
into formal education (general or basic knowledge)
and specific education such as “learning-by-doing”
and on-the-job training. The latter understanding
of human capital is often more appropriate for
analysis of SMEs, especially in developing countries. Despite differences in understanding human
capital, all of the previous studies find a strong relationship between human capital and firm performance. Welch (1970) argues that increased
education may enhance a manager’s ability to acquire and decode information about costs. Similarly, Fluitman and Ondin (1991) find that the
entrepreneurs who have attended school longer
tend to produce better performance. Focusing on
technological innovation, Nelson et al. (1966)
point out that the more educated a manager is, the
quicker he/she will be to introduce new techniques
of production and the earlier he/she will be to
adopt productive innovations because of his/her
better ability to understand and evaluate the in-

40

Economic Development Review - June 2011

formation about new products and processes.
There have been, however, few rigorous studies
about the role of human capital, especially of the
owners, in development of SMEs in Vietnam. We,
therefore, advance the following hypotheses:
Hypothesis h1a: Human capital of the owners
has positive impacts on multifaceted innovations
of the SMEs
Hypothesis h1b: Human capital of the owners

contributes positively to the performance of SMEs
Apart from human capital, social capital is also
recognized as an important factor. Talking about
social capital, it is far from judicious when not
mentioning the two most well known theorists,
namely James Coleman and Robert D. Putnam,
who have created a breakthrough in social capital
theory. Coleman (1988) argues that social capital
comes through changes in the relations among
persons that facilitate productive activity. Social
capital is similar to but less tangible than physical
and human capital. Meanwhile, Putnam (1995) indicates that the central premise of social capital
is that social networks have value. Social capital
refers to the collective value of all "social networks" and the inclinations that arise from these
networks to do things for each other. He also distinguishes between informal and formal social networks. Formal networks include ties to voluntary
associations such as trade associations and the
like, while informal networks include ties held between family members, friends and neighbors. Indeed, many studies have attempted to examine the
effects of social capital on firm performance. Lechner et al. (2005) find the important role of relationships with direct competitors on firm
development in years after foundation. Johnson et
al. (2003) in their investigation of enterprises in
Columbia, stress that social capital, as measured
by the number of relationships that a firm maintains, which strongly depends on its owner’s networks, contributes positively and significantly to
its economic performance, as measured by revenue
per worker. Besides, a number of other studies on
social capital such as Akoten et al. (2006), Nadvi
(1999), Vu et al. (2010) agree on the importance
of social capital to enterprise performance. Therefore, we would like to advance the following hypotheses:
Hypothesis h2a: Social capital has a positive
relationship with innovations of the SMEs



RESEARCHES & DISCUSSIONS

Hypothesis h2b: Social capital is a positive
factor that determines performance of the SMEs
b. The case of SMEs in Vietnam:
In this study, we use the panel data extracted
from the surveys of SMEs in Vietnam in 2004,
2006, and 2008. The surveys were carried out by
Institute of Labour Studies and Social Affairs
(ILSSA) under the Ministry of Labour, War Invalids and Social Affairs in collaboration with Department of Economics, University of Copenhagen
with funding from DANIDA. Characteristics of the
enterprises and their owners are shown in Tables
2 and 3. According to Table 2, the average number
of employees in SMEs is smaller than that in
Table 1. Although the number of employees
slightly decreased, added value and profit of the
SMEs increased remarkably in 2008. In addition,
the percentage of enterprises that have new products or new production process has been significantly reduced, suggesting that such innovations
are becoming more difficult for the enterprises.
Table 3 presents characteristics of the enterprise
owners. In this table, it is worth noting that over
time more owners complete higher education, i.e.
college and university study, suggesting that education becomes increasingly important. There is
not much change other than the said ones in characteristics of the owners.
In order to test the hypotheses advanced in the
previous section, we estimated the determinants
of innovations and performance of the enterprises.
We expect to empirically show that human capital
and social capital contribute to multifaceted innovations and such innovations determine perform-


ance of the enterprises. Such estimation strategy
requires instruments because innovations are endogenous in the performance functions. Also, variables indicating social capital including “number
of people the owners often have contact with” and
“whether the owner is a member of any association” are endogenous. Therefore, the availability
of instruments is the key to the perfect estimation
scheme.
Unfortunately, we were not able to find good
instruments in the data set. We, thus, decided to
use another method as the second best choice.
First of all, we conducted first stage regression to
estimate the determinants of innovations and performance of the enterprises. We also estimated
the determinants of social capital using the same
set of explanatory variables, which include human
capital. If we find that those regressions are structurally similar, we may conclude that human capital and social capital contribute to innovations
and performance of the enterprises. We may also
infer that innovations are important to good performance of the enterprises. Secondly, we tried to
estimate the structural equations using Fixed Effects models. Even though these models cannot
solve the endogeneity problem, they help to reduce
the inefficiency in the OLS models when we include social capital and innovations in the performance estimation functions.
In summary, in the first stage, we estimated
the determinants of: (1) performance of the enterprises measured by added value, gross profit, and
labor productivity ; (2) innovation in production of
the enterprises measured by the application of

Table 2: Performance of SMEs in Vietnam
2004
Average number of employees per enterprise

2006


2008

14.8

14.4

11.9

Average value added (VND million)

348.9

443.7

700.5

Average gross profit (VND million)

200.0

239.4

435.1

Using power machines (%)

86

87


89

Developing new products (%)

40

5

3

New production process (%)

29

15

14

Using advertisement (%)

11

9

11

Having registered (%)

35


71

66

2,691

2,621

2,500

Business strategy dummies

Number of enterprises
Source: Authors’ calculation from the data set

Economic Development Review - June 2011

41


RESEARCHES & DISCUSSIONS

Table 3: Basic characteristics of the owners of SMEs
2004

2006

2008


General education (%)
Not finished primary
Finished primary

2.7

3.5

3.1

7.4

8.1

9.3

Finished junior secondary

32.0

31.5

28.5

Finished senior secondary

57.7

55.9


58.3

Elementary worker

33.3

30.1

5.2

Technical worker without certificate

11.1

15.3

29.3

Technical worker with certificate

18.6

18.2

15.3

College/university/post-graduate

2.1


1.3

19.8

Companies Law

2.3

2.1

2.2

Labor Code

2.3

2.1

2.1

Customs Law

1.6

1.4

1.4

Insurance Law


1.7

1.5

1.5

Tax Law

2.5

2.4

2.3

Environmental Law

2.0

1.7

1.7

Land Law

2.1

1.8

1.9


Investment Law

1.7

1.5

1.6

Contacts with enterprises in the same industry**

2.5

1.7

1.9

Contacts with enterprises in other industries***

2.3

2.7

2.7

Member of an association (%)

10

10


10

Professional education (%)

Knowledge about laws *

Social capital

Note: (*): Owners were asked to self mark their knowledge about laws, scoring from 0=no knowledge to 4= very good
(**): Contacts with other firms that produce the same product (same ISIC code) at least once every 3 months, which
the owner finds useful for his/her business operations
(***): Contacts with other firms that produce different products (different ISIC code)
Source: Authors’ calculation from the data set

power machines, introduction of new products, and
introduction of new production process; (3) innovation in marketing measured by the use of advertisement and the registration of the enterprises;
and (4) the social capital of the enterprises measured by the size of the networks in which the enterprises are operating. Furthermore, we
regressed performance of the enterprises on the
social capital and innovations using Fixed Effects
models.
The first-step regression function of the estimations mentioned above is as follows:
PERINSOit = b0 + b1GEDUCi + b2PEDUCi +

42

Economic Development Review - June 2011

b0POCCUi + b0KNOWi + b0Xit + b0PROVi + b0t +
eit
in which:

i means observation i, and t means time period,
which is 2004, 2006, or 2008;
PERINSOit is can be either enterprise performance, enterprises innovation, or social capital of
the enterprises;
GEDUCi is a set of dummy variables for the
highest general education that the enterprise owners have acquired, which takes values of 1 if the
owner completed either senior secondary school,
junior secondary school, or primary school; or has


RESEARCHES & DISCUSSIONS

not completed primary school but spent at least
several years of schooling and takes values of 0 in
case of having not attended any school yet;
PEDUCi is a set of dummy variables for the
highest professional education that the enterprise
owners have acquired, which takes values of 1 if
the owner has obtained either elementary worker,
technical worker without certificate, technical
worker with certificate, or college/university/postgraduate degree and take values of 0 if none of
these mentioned above is obtained;
POCCUi is a set of dummy variables for the
previous occupation of the enterprise owners,
which takes values of 1 if the owner used to be a
manager, highly educated professional worker,
medium educated professional worker, office and
customer service worker, service/sales/security
worker, agricultural worker, production worker,
operator/installation worker, or military worker

and takes values of 0 otherwise;
KNOWi is a set of dummy variables for the
knowledge about different laws that the enterprises owners have mastered, which takes values
of 1 if the owner has knowledge about either Companies Law, Labor Code, Customs Law, Insurance
Law, Tax Law, Environmental Law, Land Law, or
Investment Law and takes values of 0 otherwise;
Xit is a set of variables of other characteristics
of the enterprises and the owners including
owner’s age, owner’s gender, owner’s ethnicity;
three dummy variables concerning the owner’s socical background (war veteran or cadre), number
of adults in owner’s household, enterprise’s operation years; a dummy variable for enterprise’s
business sector, which takes value of 1 if manufacturing and 0 otherwise; and two dummy variables for the infrastructure of the enterprise’s
location, which take values of 1 if the enterprise
has good access to either road or port and 0 otherwise;
PROVi is a set of dummy variables that takes
values of 1 if the enterprises are located in either
Hà Nội, Phú Thọ, Hà Tây, Hải Phòng, Nghệ An,
Quảng Nam, Khánh Hòa, Lâm đồng, HCMC and
takes values of 0 if in Long An.
Tables 4 to 7 present the first stage regressions. The same set of explanatory variables consists of five groups: (1) variables indicating human
capital possessed by enterprise owners including
dummies for general education of the owners,

dummies for professional education of the owners,
dummies for previous occupation of the owners,
owner’s knowledge about different laws; (2) variables indicating other characteristics of the owners and their households such as age, gender,
ethnicity, number of adults in the households; (3)
variables indicating characteristics of the enterprises including operation years and business sector; (4) dummy variables indicating infrastructure
conditions including access to road and port; and
(5) nine dummy variables for provinces where the

enterprises are located and two year dummy variables. We use OLS estimations in Tables 6 and 7
and Logit estimations in Tables 4 and 5.
Table 4 shows that general education of the
owner is important to his innovation in production
management, especially for the development of
new products. The positive and significant coefficients of professional education variables in this
table suggest that professional education of the
owners contributes greatly to innovations in management including application of power machines,
development of new products, and application of
new production process. In addition, knowledge
about different types of laws in this table also has
positive and significant effects on innovations in
the SMEs. These findings support our Hypothesis
h1a about the role of human capital in innovations
in the SMEs in Vietnam. Moreover, the coefficients of the infrastructure variables are generally
positive and highly significant in Table 4, suggesting that good infrastructure facilitates innovations
of the SMEs in Vietnam. It is interesting that the
variables we are interested in generally have the
same signs and significance in other regressions
in Tables 5, 6, and 7.
The structural similarity of the regressions in
Tables 4 to 7 may suggest that human capital and
social capital are important determinants of the
enterprise innovations and performance. We, however, would like to directly estimate the effects of
social capital and innovations by including two
groups of endogenous variables, which are social
capital and various kinds of innovations, and applying Fixed Effects models in the regressions of
enterprise performance. Table 5 shows that the
owners who completed university or post-graduate
study and those who have knowledge of Companies Law perform better than others. In addition,

social capital measured by the number of contacts

Economic Development Review - June 2011

43


RESEARCHES & DISCUSSIONS

with people in the same industry and with people
in other industries contributes to greater operation size measured by both value added and gross
profit of the enterprises. Being a member of an association is, however, not important to performance of the enterprises as the coefficients of the
association dummy are positive but not statistically significant in all three regressions in this
table. It is reasonable and consistent with other

studies about the inefficiency of the associations
in Vietnam. These findings about the role of
human and social capital support our Hypotheses
h1a, h1b, h2a, and h2b. Moreover, the variables
indicating innovations in the enterprises are generally positive and significant. This finding suggests that innovations in the enterprises are
important to their better performance.

Table 4: Determinants of production management of SMEs in Vietnam
Using power machines
(=1 if yes; =0 if no)

New product
(=1 if yes; =0 if no)

New production process

(=1 if yes; =0 if no)

General education (Yes=1; No education=0)
Not finished primary

0.55

(1.32)

13.87***

(20.92)

0.04

(0.10)

Finished primary

0.53

(1.35)

13.60***

(24.07)

0.25

(0.62)


Finished junior secondary

0.53

(1.39)

13.55***

(22.57)

0.18

(0.45)

Finished senior secondary

0.75*

(1.92)

13.48***

(22.04)

0.23

(0.56)

0.42***


(4.06)

0.27***

(2.69)

0.43***

(5.85)

0.36

(1.39)

0.48**

(2.01)

0.30**

(1.99)

Technical worker with certificate

0.30**

(2.00)

0.25*


(1.80)

0.12

(1.21)

College/university/post-graduate

0.11

(0.90)

0.27*

(1.90)

0.19**

(2.17)

0.05

(0.30)

0.02

(0.15)

0.23**


(1.90)

Highly educated professional worker

-0.09

(-0.46)

0.18

(1.03)

0.31**

(2.45)

Medium educated professional worker

-0.20

(-1.04)

-0.12

(-0.60)

0.05

(0.33)


-0.32*

(-1.88)

-0.16

(-0.82)

-0.06

(-0.52)

Professional education (Yes=1; Unskilled=0)
Elementary worker
Technical worker without certificate

Previous occupation (Yes=1; Unskilled worker =0)
Manager

Office and customer service worker
Service, sales, and security worker

0.07

(0.28)

-0.22

(-1.02)


0.47***

(2.83)

Agricultural worker

-0.70***

(-4.45)

-0.40**

(-2.02)

-0.35***

(-2.70)

Production worker

-0.11

(-0.92)

0.04

(0.30)

0.20**


(2.38)

Operator and installation worker

-0.13

(-0.73)

-0.04

(-0.24)

0.08

(0.72)

Military worker

-0.30

(-1.53)

-0.19

(-0.47)

0.01

(-0.04)


Companies Law

0.03

(0.50)

0.19***

(3.09)

0.20***

(4.68)

Labor Code

0.05

(0.77)

-0.03

(-0.44)

0.01

(0.26)

-0.27***


(-3.27)

0.04

(0.67)

0.07

(1.30)

Insurance Law

0.18**

(2.10)

-0.08

(-1.22)

0.05

(0.93)

Tax Law

0.16**

(2.52)


0.19***

(3.00)

0.13***

(2.88)

0.10

(1.32)

-0.06

(-0.96)

-0.02

(-0.33)

-0.10

(-1.49)

0.02

(0.35)

-0.04


(-0.94)

0.06

(0.76)

0.11*

(1.84)

0.01

(0.14)

0.01

(-1.14)

-0.02***

(-4.07)

-0.02***

(-6.25)

0.33***

(4.04)


0.35***

(4.01)

0.19***

(3.03)

Knowledge about laws (Yes=1; No=0)

Customs Law

Environmental Law
Land Law
Investment Law
Age of the owner
Gender of the owner

44

Economic Development Review - June 2011


RESEARCHES & DISCUSSIONS

Owner is a war veteran (Yes=1; No=0)
Owner used to be a cadre (Y=1;N=0)

-0.19


(-1.39)

0.14

(0.92)

0.20*

(1.84)

-0.31**

(-1.97)

0.18

(1.11)

0.09

(0.70)

-0.26

(-1.48)

0.11

(0.67)


0.22*

(1.84)

Owner ethnicity (Kinh=1; Others=0)
No. of adults (15-60) in owner's household
Operation years of enterprise

0.01

(0.45)

-0.04*

(-1.69)

-0.01

(-0.07)

-0.01***

(-3.53)

0.01

(0.07)

-0.01


(-4.08)

-0.10

(-0.96)

0.44***

(2.82)

0.88***

(12.26)

0.47***

(5.08)

0.35***

(3.35)

0.47***

(6.64)

(0.50)

0.31***


(3.12)

0.32***

(4.72)

Enterprise sector (Manufacturing=1; Others=0)
Infrastructure (Yes=1; No=0)
Main road leading to enterprise
Easy access to port

0.05

Nine province dummies

Yes

Yes

Yes

Two year dummies

Yes

Yes

Yes


Constant

0.89*

(1.80)

-14.38

(-2.08)

-1.45***

(0.25)

0.13

R-squared

0.07

0.29

No. of observations

7183

7183

(-3.08)


7183

Numbers in parentheses are t-statistics based on heteroskedasticity-robust standard errors.
*, **, and *** indicate the significance level at 10%, 5%, and 1%, respectively.
Table 5: Determinants of advertisement and formality of SMEs in Vietnam
Registration

Advertisement

General education (Yes=1; No education=0)
Not finished primary

-0.42

(-1.07)

-1.00

(-0.97)

Finished primary

-0.43

(-1.15)

-0.15

(-0.17)


Finished junior secondary

-0.43

(-1.19)

0.02

(0.02)

Finished senior secondary

-0.10

(-0.25)

0.45

(0.52)

Professional education (Yes=1; Unskilled=0)
Elementary worker

-0.09

(-0.97)

0.46***

(2.74)


Technical worker without certificate

1.06***

(4.40)

1.27**

(5.90)

Technical worker with certificate

0.70***

(5.21)

0.88***

(5.25)

College/university/post-graduate

1.07***

(4.40)

0.72***

(4.35)


0.41**

(2.40)

0.04

(0.21)

0.60***

(3.03)

-0.08

(-0.49)

Medium educated professional worker

-0.21

(-1.23)

-0.21

(-1.10)

Office and customer service worker

0.055


(0.72)

-0.06

(-0.34)

Service, sales, and security worker

0.02

(0.11)

-0.80**

(-2.08)

Agricultural worker

-0.21

(-0.96)

-0.42

(-1.22)

Production worker

0.15


(1.41)

-0.32**

(-1.98)

-0.04

(-0.25)

-0.18

(-0.85)

0.04

(0.20)

0.18

(0.62)

0.66***

(11.32)

0.41***

(5.44)


Previous occupation (Yes=1; Unskilled worker=0)
Manager
Highly educated professional worker

Operator and installation worker
Military worker
Knowledge about laws (Yes=1; No=0)
Companies Law

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45


RESEARCHES & DISCUSSIONS

Labor Code

0.01

(0.08)

0.19**

(2.33)

Customs Law

-0.09


(-1.22)

0.14**

(2.17)

Insurance Law

0.09

(1.22)

0.15**

(2.18)

0.42***

(7.04)

0.01

(0.03)

Tax Law
Environmental Law
Land Law
Investment Law


0.09

(1.40)

-0.08

(-1.20)

-0.38***

(-6.35)

-0.08

(-1.10)

0.20***

(2.91)

0.01

(0.23)

0.01

(0.73)

0.01


(0.51)

-0.13

(-1.61)

0.02

(0.20)

Age of the owner
Gender of the owner
Owner is a war veteran (Yes=1; No=0)

0.06

(0.39)

-0.08

(-0.41)

-0.32**

(-2.01)

-0.20

(-0.93)


-0.24

(-1.42)

-0.10

(-0.50)

0.06**

(2.36)

-0.01

(-0.29)

-0.01***

(-3.11)

-0.01***

(-2.17)

0.35***

(3.92)

-0.04


(-0.29)

1.22***

(14.72)

0.67***

(5.43)

Easy access to port

0.1

(1.20)

0.28**

(2.11)

Nine province dummies

Yes

Yes

Two year dummies

Yes


Yes

Owner used to be a cadre (Y=1;N=0)
Owner ethnicity (Kinh=1; Others=0)
No. of adults (15-60) in owner's household
Operation years of enterprise
Enterprise sector (Manufacturing=1; Others=0)
Infrastructure (Yes=1; No=0)
Main road leading to enterprise

Constant

-3.75

(-8.03)

-3.75

R-squared

0.45

0.22

No. of observations

7183

7183


(-4.03)

Numbers in parentheses are t-statistics based on heteroskedasticity-robust standard errors.
*, **, and *** indicate the significance level at 10%, 5%, and 1%, respectively.
Table 6: Determinants of social capital
Contacts with the
same business

Contacts with other
businesses

Member of
association

General education (Yes=1; No education=0)
Not finished primary
Finished primary

0.04

(0.29)

0.23

(1.15)

-0.04

(-0.92)


-0.06

(-0.42)

0.23

(1.20)

-0.04

(-1.02)

Finished junior secondary

0.07

(0.54)

0.25

(1.32)

-0.04

(-0.88)

Finished senior secondary

0.13


(0.97)

0.28

(1.51)

-0.03

(-0.72)

0.08**

(2.31)

-0.01

(-0.32)

0.01

(0.98)

0.15**

(2.28)

0.17**

(2.35)


0.04*

(1.72)

Technical worker with certificate

0.09**

(2.02)

0.06

(1.29)

0.04***

(2.89)

College/university/post-graduate

0.06

(1.56)

0.10**

(2.47)

0.04***


(3.26)

(-0.12)

0.18***

(3.30)

0.01

(0.07)

Professional education (Yes=1; Unskilled=0)
Elementary worker
cate

Technical worker without certifi-

Previous occupation (Yes=1; Unskilled worker=0)
Manager

46

-0.01

Economic Development Review - June 2011


RESEARCHES & DISCUSSIONS


Highly educated professional

0.03

(0.47)

0.03

(0.48)

0.01

(-0.02)

-0.13**

(-2.34)

-0.09

(-1.41)

0.01

(0.10)

-0.03

(-0.54)


-0.06

(-1.05)

-0.03*

(-1.81)

-0.10

(-1.26)

0.19**

(2.31)

-0.01

(-0.62)

Agricultural worker

-0.20***

(-3.40)

0.31***

(4.87)


-0.03**

(-2.12)

Production worker

-0.08**

(-2.03)

0.02

(0.44)

0.01

(0.88)

-0.09

(-1.60)

-0.13**

(-2.20)

-0.03***

(-2.59)


0.02

(0.30)

-0.22***

(-2.67)

0.02

(0.75)

Companies Law

0.04**

(2.18)

0.02

(0.88)

0.02***

(2.87)

Labor Code

0.05**


(2.15)

0.01

(0.40)

0.03***

(4.01)

0.04

(1.56)

-0.08***

(-3.16)

0.01

(1.31)

0.06***

(2.61)

0.01

(-0.05)


0.03***

(3.91)

Tax Law

-0.03

(-1.37)

0.05**

(2.13)

0.01

(-0.7)

Environmental Law

-0.01

(-0.55)

-0.02

(-1.09)

0.01


(0.51)

0.02

(0.84)

-0.08***

(-3.77)

-0.01*

(-1.68)

-0.01

(-0.21)

0.13***

(5.52)

0.02***

(3.04)

Age of the owner

0.01


(-0.86)

0.01

(0.18)

0.01***

(3.97)

Gender of the owner

0.04

(1.55)

0.01

(0.04)

-0.01

(-1.03)

-0.02

(-0.50)

-0.10*


(-1.93)

0.02

(1.48)

Owner used to be a cadre (Y=1;N=0)

0.01

(0.09)

-0.05

(-0.87)

0.06***

(3.11)

Owner ethnicity (Kinh=1; Others=0)

0.01

(0.21)

-0.14**

(-2.48)


0.01

(-0.06)

0.02**

(2.03)

0.02*

(1.90)

0.01

(0.92)

Operation years of enterprise

0.01***

(4.00)

-0.01***

(-3.69)

0.01***

(3.47)


Enterprise sector
(Manufacturing=1; Others=0)

0.03

(0.95)

-0.21***

(-6.08)

0.03***

(3.00)

0.19

(6.60)

0.24***

(6.94)

0.03***

(2.95)

Easy access to port

-0.05


(-1.48)

0.14***

(4.31)

-0.01

(-0.30)

Nine province dummies

Yes

Yes

Yes

Two year dummies

Yes

Yes

Yes

Constant

2.20


R-squared

0.22

0.18

0.12

No. of observations

7183

7183

7183

worker
worker
worker
worker

Medium educated professional
Office and customer service
Service, sales, and security

Operator and installation worker
Military worker
Knowledge about laws (Yes=1; No=0)


Customs Law
Insurance Law

Land Law
Investment Law

Owner is a war veteran
(Yes=1; No=0)

No. of adults (15-60) in owner's household

Infrastructure (Yes=1; No=0)
Main road leading to enterprise

(12.95)

2.31***

(10.51)

-0.22***

(-4.29)

Numbers in parentheses are t-statistics based on heteroskedasticity-robust standard errors.
*, **, and *** indicate the significance level at 10%, 5%, and 1%, respectively.

Economic Development Review - June 2011

47



RESEARCHES & DISCUSSIONS

Table 7: Determinants of performance of SMEs in Vietnam
log(value added)

log(gross profit)

log(VA per employee)

General education (Yes=1; No education=0)
Not finished primary

0.01

(0.08)

0.05

(0.34)

-0.05

(-0.47)

Finished primary

0.15


(0.92)

0.21

(1.41)

0.06

(0.58)

Finished junior secondary

0.19

(1.12)

0.23

(1.56)

0.11

(1.06)

Finished senior secondary

0.46***

(2.77)


0.48***

(3.23)

0.22**

(2.11)

Professional education (Yes=1; Unskilled=0)
Elementary worker

0.07*

(1.91)

0.02

(0.64)

0.05**

(2.15)

Technical worker without certificate

0.54***

(6.22)

0.53***


(6.02)

0.11*

(1.67)

Technical worker with certificate

0.43***

(8.67)

0.39***

(7.49)

0.09***

(2.74)

College/university/post-graduate

0.21***

(4.93)

0.11***

(2.72)


0.05*

(1.93)

Previous occupation (Yes=1; Unskilled worker=0)
Manager

0.08

(1.35)

0.06

(0.90)

0.06

(1.60)

Highly educated professional worker

0.07

(0.97)

0.04

(0.53)


0.02

(0.42)

Medium educated professional worker

-0.09

(-1.47)

-0.14**

(-2.16

-0.01

(-0.15)

Office and customer service worker

-0.04

(-0.59)

-0.01

(-0.15)

0.04


(1.01)

Service, sales, and security worker

-0.11

(-1.25)

-0.06

(-0.75)

0.07

(1.50)

Agricultural worker

-0.09

(-1.50)

-0.03

(-0.47)

0.02

(0.39)


Production worker

-0.05

(-1.10)

-0.04

(-0.93)

0.02

(0.87)

-0.15***

(-2.68)

-0.11*

(-1.88)

0.01

(0.25)

0.08

(1.11)


0.11

(1.52)

0.12**

(2.29)

Companies Law

0.29***

(13.52)

0.25***

(11.45)

0.08***

(5.70)

Labor Code

0.14***

(5.83)

0.10***


(4.24)

0.02

(1.59)

Customs Law

0.13***

(4.37)

0.15***

(5.05)

0.01

(0.12)

Insurance Law

0.11***

(4.07)

0.08***

(2.98)


-0.01

(-0.13)

Tax Law

0.08***

(3.75)

0.06***

(2.79)

0.05***

(3.26)

-0.02

(-0.71)

-0.02

(-0.91)

-0.02

(-1.58)


-0.11***

(-5.08)

-0.10***

(-4.61)

-0.03**

(-2.03)

0.10***

(3.79

0.11***

(4.18)

0.05***

(3.04)

Age of the owner

-0.01**

(-2.11)


-0.01

(-1.22)

-0.01***

(-5.27)

Gender of the owner

0.10***

(2.88)

0.07**

(2.22)

0.04**

(2.13)

Owner is a war veteran
(Yes=1; No=0)

-0.12**

(-2.30)

-0.12**


(-2.33)

-0.09***

(-3.10)

-0.03

(-0.41)

-0.05

(-0.90)

-0.01

(-0.22)

-0.15***

(-2.90)

-0.22***

(-4.05)

-0.14***

(-4.06)


Operator and installation worker
Military worker
Knowledge about laws (Yes=1; No=0)

Environmental Law
Land Law
Investment Law

Owner used to be a cadre (Y=1;N=0)
Owner ethnicity (Kinh=1; Others=0)
No. of adults (15-60) in owner's household

0.04***

(3.99)

0.05***

(5.32)

-0.01

(-0.20)

Operation years of enterprise

-0.01***

(-6.96)


-0.01***

(-6.35)

-0.01***

(-6.78)

Enterprise sector
(Manufacturing=1; Others=0)

0.18***

(5.35)

0.05

(1.33)

0.05**

(2.08)

0.61***

(17.36)

0.54***


(15.54)

0.19***

(8.36)

Infrastructure (Yes=1; No=0)
Main road leading to enterprise

48

Economic Development Review - June 2011


RESEARCHES & DISCUSSIONS

Easy access to port

0.06*

(1.73)

0.02

(0.58)

-0.01

Nine province dummies


Yes

Yes

Yes

Two year dummies

Yes

Yes

Yes

Constant

2.72***

R-squared
No. of observations

(13.78)

2.50***

(13.73)

2.62***

0.54


0.47

0.34

7183

7183

7183

(-0.59)

(22.15)

Numbers in parentheses are t-statistics based on heteroskedasticity-robust standard errors.
*, **, and *** indicate the significance level at 10%, 5%, and 1%, respectively.
Table 8: Determinants of performance of SMEs in Vietnam (Fixed effects)
ln
(value added)
General education (Yes=1; No education=0)
Not finished primary
Finished primary
Finished junior secondary
Finished senior secondary
Professional education (Yes=1; Unskilled=0)
Elementary worker
Technical worker without certificate
Technical worker with certificate
College/university/post-graduate

Previous occupation (Yes=1; Unskilled worker=0)
Manager
Highly educated professional worker
Medium educated professional worker
Office and customer service worker
Service, sales, and security worker
Agricultural worker
Production worker
Operator and installation worker
Military worker
Knowledge about laws (Yes=1; No=0)
Companies Law
Labor Code
Customs Law
Insurance Law
Tax Law
Environmental Law
Land Law
Investment Law
Social capital
Contacts with same industry
Contacts with other industries
Member of an association
Business strategy dummies
Using power machines
Developing new products
New production process

ln
(gross profit)


ln
(added value per worker)

-0.01
0.10
0.10
0.13

(-0.10)
(0.64)
(0.65)
(0.86)

0.02
0.20
0.18
0.22

(0.10)
(1.07)
(0.99)
(1.20)

-0.12
-0.03
-0.05
-0.03

(-0.83)

(-0.22)
(-0.33)
(-0.22)

0.01
0.17**
0.01
-0.01

(0.37)
(2.55)
(0.28)
(-0.38)

0.02
0.20
0.20
0.22

(0.10)
(1.07)
(0.99)
(1.20)

0.03
0.13
0.03
0.01

(1.18)

(2.07)
(0.74)
(1.45)

0.03
0.01
0.04
0.04
0.10
0.14***
0.10***
0.05
0.09

(0.67)
(0.12)
(0.80)
(0.74)
(1.44)
(2.88)
(2.77)
(1.15)
(1.36)

0.04
-0.03
-0.08
0.05
0.11
0.14**

0.11***
0.05
0.14*

(0.60)
(-0.40)
(-1.30)
(0.90)
(1.34)
(2.21)
(2.79)
(0.93)
(1.90)

0.02
-0.04
-0.03
0.04
0.11*
0.13***
0.07**
0.01
0.12**

(0.37)
(-0.74)
(-0.79)
(1.02)
(1.93)
(2.64)

(2.28)
(0.11)
(1.94)

0.07***
0.02
0.01
0.01
-0.01
-0.01
-0.02
0.01

(3.70)
(0.97)
(0.56)
(0.34)
(0.31)
(-0.78)
(-0.88)
(0.54)

0.07***
0.02
0.06
-0.02
0.01
-0.02
-0.02
0.03


(2.80)
(0.67)
(1.63)
(-0.56)
(-0.02)
(-0.96)
(-0.80)
(1.00)

0.02
0.01
0.01
0.01
0.01
-0.02
-0.03*
0.03

(1.43)
(0.67)
(0.80)
(0.18)
(0.41)
(-1.07)
(-1.74)
(1.51)

0.04***
0.01

0.03

(3.61)
(1.26)
(0.46)

0.05***
0.03**
-0.01

(3.97)
(2.09)
(-0.12)

0.01
0.01
0.01

(1.44)
(0.12)
(0.05)

0.11***
0.01
0.08**

(2.57)
(0.36)
(2.46)


0.10*
-0.04
0.09**

(1.92)
(-0.80)
(2.26)

0.05
-0.02
0.02

(1.24)
(-0.65)
(1.34)

Economic Development Review - June 2011

49


RESEARCHES & DISCUSSIONS

Using advertisement
Having registered
Age of the owner
Gender of the owner
Owner is a war veteran (Yes=1; No=0)
Owner used to be a cadre (Y=1;N=0)
Owner ethnicity (Kinh=1; Others=0)

No. of adults (15-60) in owner's household
Operation years of enterprise
Enterprise sector (Manufacturing=1; Others=0)
Infrastructure (Yes=1; No=0)
Main road leading to enterprise
Easy access to port
Nine province dummies
Two year dummies
Constant
No. of observations

0.11**
0.12***
0.01
0.08*
-0.08*
0.10*
-0.09
0.02
0.01***
0.02

(2.28)
(3.78)
(0.12)
(1.79)
(-1.72)
(1.71)
(-0.36)
(0.99)

(-2.64)
(0.67)

0.12**
0.14***
0.01
0.08*
-0.09
0.08
-0.09
0.02
0.01***
0.03

(2.07)
(3.78)
(0.21)
(1.69)
(-1.49)
(1.13)
(-0.99)
(1.48)
(-2.68)
(0.71)

0.06*
0.06**
0.01
0.02
-0.06

0.10*
-0.06
-0.01
0.01**
0.01

(1.65)
(2.50)
(0.25)
(0.68)
(-1.54)
(1.77)
(-0.81)
(-1.24)
(-2.04)
(-0.21)

-0.01
0.01
Yes
Yes
3.99
7183

(-0.13)
(0.57)

-0.01
-0.02
Yes

Yes
3.34
7183

(-0.15)
(-0.76)

0.04
-0.04*
Yes
Yes
2.78
7183

(1.46)
(-1.67)

(19.74)

(13.36)

(14.67)

Numbers in parentheses are t-statistics based on heteroskedasticity-robust standard errors.
*, **, and *** indicate the significance level at 10%, 5%, and 1%, respectively.

3. Conclusions
Findings about the roles of human and social
capital in innovations and performance of enterprises are, by no means new ideas. However, discovering such roles in the SMEs in Vietnam are
new and interesting for policy makers. This study

reveals that basic education, i.e. below senior secondary school, may no longer be a decisive factor
to develop SMEs. It is technical education and college/university education that equips the owners
of SMEs with the capacity to carry out multifaceted innovations and develop their enterprises.
Therefore, investment should focus on higher education for the owners of SMEs. Also, it is interesting to note that knowledge of Companies Law
is important for the development of SMEs in Vietnam, while knowledge about other laws are generally not statistically significant. This finding
suggests that more efforts should be made to train
the owners in the Companies Law and familiarize
them with other relevant laws and regulations. In
addition, the insignificant effects of associations
on performance of the enterprises suggest that
these organizations should be improved to make
them more efficient. Finally, the positive and statistically significant effects of infrastructure on innovations and performance of the enterprises

50

Economic Development Review - June 2011

suggests that providing basic infrastructure such
as easy access to roads and ports is a good policy
to help SMEs in Vietnamn
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