How Vietnamese Business Owners View the Future

¶ … Vietnamese Entrepreneurship (1975-2013)

Microbusinesses form a large share of the economy of Vietnam. Owned by self-employed entrepreneurs, they create employment and provide income for millions. Although the density of vendors, boutiques, and other small shops in any Vietnamese city or town is impressive, such activities were banned by authorities until the end of the 1980s.

Communist rulers have long believed that private businesses had no place in the socialist economy. This policy had been implemented in North Vietnam after French colonialism came to an end in 1954. Following the fall of South Vietnam and the reunification of the country in 1975 and 1976, it was also applied to the South. It proved to be a significant failure. In 1979, the government began to realize that its policies were leading the nation toward complete collapse. (Freeman, 1996) A short war with China, ignited by Vietnam's liberation of Cambodia, resulted in economic despair that forced authorities to tolerate the beginnings of what would become a bustling private sector. For years, the Vietnamese government would desperately try to contain it.

Gradually, Party leadership realized that fighting underground private sector businesses was harming society. The poorly-managed State-Owned Enterprises failed to provide employment for all, and by 1986 inflation was almost 500%. (Kimura, 2003) A year later, a process named Doi Moi ("change to something new") gave private businesses greater freedom. In a gentle process of a few years, a free market emerged. The underground entrepreneurs came to the surface.

The socio-economic developments of the past decades explain how the teeming streets came to be. When confronted with this abundance of entrepreneurship, it seems absurd that the authorities ignored its economic potential for such an extended period of time. But despite being an obvious part of present day Vietnamese economy, the small entrepreneurs that fill the streets of towns and cities are not the ones contributing to its growth. Growth comes from foreign investments. The additional capital from the FDI inflow is the only channel that helps increase the economic growth in Vietnam. (Hoang, Wiboonchutikula & Tubtimtong, 2010)

With substantial growth coming from foreign investment, there was little urge for Vietnam to focus on its numerous but ineffective State-Owned Enterprises (SOE). Suffering from foreign competition in virtually all activities these companies are engaged in, many SOEs owe their survival to the generous support they receive from Party officials. This preferential treatment comes in the form of protectionist measures that harm foreign competition, cheap access to capital through state-owned banks, and selective enforcement of laws and regulations. The state-owned corporations employed 1.9 million employees in 2006, making up 4 per cent of the total employment in the country. (Viet, 2009) In an effort to avoid excessive debt levels, certain SOEs are being (partially) privatized, forcing them to focus more on growth and competitiveness. If adequately managed, these companies could, in the long run, contribute to economic growth as well.

1.1.2 Entrepreneurship as an engine for economic growth

Many scholars believe that entrepreneurship has an underappreciated but significant causal relationship with economic growth. (Bunten, 2010) Various countries have adopted policies aimed at facilitating the business creation process, such as tax incentives and a simplified administrative process. The governments that implemented such measures are trying to extract the entrepreneurial potential from their population. Very often, this potential remains unused as many individuals prefer the predictability and relative security of paid employment.

In Vietnam, the opposite was the norm for decades. Rather than extracting and utilizing the entrepreneurial potential, the government tried to cap it. Although in theory this has changed, the Ease of Doing Business ranking of the World Bank indicates that Vietnam still scores poorly in the ease of starting a business category, 109th out of 189 countries. (World Bank, 2013) Without improvement in this area, Vietnam will remain unable to help small-scale entrepreneurs unleash their potential.

Instead of relying on uncertain foreign investment and uncompetitive SOEs, Vietnam could take measures to develop the entrepreneurial resources it already possesses. Policy makers around the world are increasingly aware of the economic growth opportunities offered by entrepreneurship. One example is the European Union. The "Entrepreneurship Action Plan" created by the European Commission urges member states to remove obstacles and implement supportive measures. The Commission believes that investing in entrepreneurship education is one of the highest return investments Europe can make. Surveys suggest that between 15% and 20% of students who participate in a mini-company program in secondary school will later start their own company, a figure that is about three to five times that for the general population. (European Commission, 2013)

This study focuses primarily on the motivations that drive many Vietnamese to become entrepreneurs. However, the researcher's long-term objective is that this knowledge ultimately contributes to creating an economic environment in which entrepreneurs are recognized as important actors in the development of the Vietnamese economy.

1.1.3 Increased entrepreneurship-based employment in Western societies

Globalization has pushed corporations in Western societies to constantly focus on competitiveness. This is changing the structure of labor markets. Psychological contracts (Rousseau & Greller, 1994) between employers and employees, in which an employer would guarantee decades of employment in exchange of effort and loyalty, are becoming rare. Instead of permanently hiring employees, companies increase their reliance on consultants, freelancers, and interim workers.

Simultaneously, and in Europe especially, governments are realizing that the social protection measures that were established in the 20th century are becoming harder to sustain economically. Individuals that fail to secure their job in companies affected by (globalization-related) demand fluctuation, become more reliant on themselves to maintain their financial well-being. Figure 1.1.3 shows this transition and demonstrates how the labor markets in Western societies are gradually starting to resemble the situation in present-day Vietnam. The central point represents the current situation in countries such as France and Germany. Job security there is not as high as it used to be in the second half of the 20th century but it remains higher compared to the United States and Vietnam especially.

Present-day Vietnam European societies,

2nd half of 20th century

* No guaranteed jobs * High job security

* No social protection * High social protection

Figure 1.1.3: Changing societies

The researcher believes that there are two distinct types of entrepreneurs. The first type is formed by those that could not imagine being anything but an entrepreneur, and a second group which consists of individuals that were pushed towards becoming self-employed by external factors. The changing societal context is making the second group more and more important.

A survey conducted in 2009 by the independent research firm Decision Analyst mapped the views of 600 American entrepreneurs. Despite the difficult situation most U.S. businesses were facing at that time, nearly 90% of respondents would still prefer to start their own business rather than work for someone else (Wilson, 2009). However, the same survey showed that only 40% indicate that they have a positive outlook for their business in 2009. The respondents of this survey clearly belong to the first group of entrepreneurs defined above. The difficulties they were facing did not make them to question the fact that they became entrepreneurs.

The second type of entrepreneurs is playing an increasing role in Western societies. They are the ones that can be described as the forced entrepreneurs. They generally lack the skills and motivation that successful entrepreneurs consider essential. Because of the lack of employment opportunities, these individuals have no choice but to create their own jobs.

The researcher assumes that a vast majority of the Vietnamese entrepreneurs can be considered forced entrepreneurs, or necessity entrepreneurs (Serviere, 2010). This implies that most of them would prefer the financial security of employment provided that salaries are in line with their revenue as entrepreneurs. The research conducted in the scope of this study will confirm whether that is the case.

1.2 Purpose

1.2.1 Understanding Vietnamese Entrepreneurs

There is currently insufficient understanding of what motivates Vietnamese entrepreneurs to become self-employed. Despite forming such an important and visible part of the Vietnamese economy, previous studies are nonexistent. The purpose of this research is to determine if the existing theories on entrepreneurship apply to the Vietnamese context.

Current prevailing theories on entrepreneurship are based on either the economic function of entrepreneurs or on their personality and behavioral traits. This study looks at entrepreneurship from a different perspective and focusses on environmental factors influencing an individual's decision to become self-employed. The most common environmental factor is the lack of employment opportunities that offer acceptable financial benefits.

Both the economic function perspective and the one related to personality and behavior suggest that entrepreneurs are a special type of individuals. They have skills others do not possess and fulfil needs others do not recognize, refuse to fulfil, or are unable to respond to. The notion of the born entrepreneur is not compatible with the idea that environmental factors primarily influence the likelihood to become self-employed. The research carried out in the scope of this study is aimed at revealing whether born entrepreneurs form the majority of self-employed individuals in Vietnam.

Understanding the motivations of individuals that choose self-employment requires insight in the factors that influenced their decision. Such factors include cultural dynamics as defined by Geert Hofstede in his book "Software of the Mind" (Hofstede, 1997) and the satisfaction of needs as Maslow described it in 1943. The socio-economic context forms some of the environmental factors that may influence potential entrepreneurs to start their own businesses. That explains the importance of defining that context.

1.2.2 Access to resources

Defining what Vietnamese entrepreneurs believe is required for them to become more productive is the second purpose of this study. Recognizing the resources that entrepreneurs are currently lacking is the main point of focus. Identifying these lacking resources is essential to understand which obstacles entrepreneurs are facing when attempting to grow their businesses.

Lack of adequate knowledge, competition, and a limited access to finance are generally believed to be the three main obstacles to entrepreneurship-based growth, especially in developing countries. Interviews with many Vietnamese entrepreneurs will reveal whether they are confronted with the same issues, and if one of them is dominant.

In defining the obstacles faced by Vietnamese entrepreneurs, the role of the government cannot be excluded. Despite its ongoing liberalization, Vietnamese authorities continue to exert significant control over entrepreneurs. Assessing the perception they have of government control is essential to identify whether it is considered an obstacle.

1.2.3 The Vietnamese labor market compared to Western societies

By defining what characterizes a society in which many are self-employed, the researcher's purpose is also to expose the traits of what future labor markets could look like in societies in North-America and Europe. The increasing similarities between labor markets in Western societies and the current situation in Vietnam have been highlighted in paragraph 1.1.3. By linking characteristics of Vietnamese entrepreneurs to developments in Western societies, the findings of this study can potentially travel from East to West.

The number of self-employed individuals in Western societies is growing. Environmental factors have a role in this process. Canadian scholars have demonstrated that self-employment tends to increase during recessions. (Picot, Garnett, and Heisz, 2000) In Canada, self-employment rose by 3.9% between October 2008 and October 2009. This represents an increase of more than 100,000 self-employed individuals over the period, while the number of paid workers decreased by almost half a million. (LaRochelle-Cote, 2010) Another consequence of the crisis and the resulting financial limitations of national governments is a reduction in social protection measures. Europe is particularly affected by this development. This implies that financial benefits usually available to those losing employment are becoming harder to obtain. With scarce alternative sources of income, self-employment becomes increasingly common.

1.3 Research Questions

This research will seek to answer the following research questions:

1) Which of the following motivations do Vietnamese entrepreneurs consider most important in their decision to become self-employed?

a. The availability of resources to respond to a recognized demand;

b. The possession of certain behavioral and personality traits that predestines them to become entrepreneurs;

c. The existence of environmental factors that limit the availability of alternative sources of income.

2) Among these obstacles, which do Vietnamese entrepreneurs recognize as keeping them from growing their business?

a. Insufficient knowledge about running a business;

b. Insufficient access to capital;

c. Excessive competition.

Paragraph 1.2.3 mentions the researcher's objective to translate the findings to the context of developed economies. Such comparisons will be drawn in the data interpretation stage. However, this study focusses specifically on the identification of motivations and (lacking) resources of Vietnamese entrepreneurs. The researcher believes this is the first step in having entrepreneurs play a greater role in the Vietnamese economy of the decades ahead.

1.4 Research Scope and Delimitations

1.4.1 Scope of the research questions

The scope of this research is limited in the sense that it only focuses on two elements of entrepreneurship in Vietnam:

The motivations to be or to become self-employed, and;

The unavailability of resources that limit entrepreneurs to grow their businesses.

The scope of the research on the motivations of Vietnamese entrepreneurs will be limited to three elements:

Comparing their motivations to the existing theories on entrepreneurship (related to economic functions and behavioral predisposition);

Evaluating the role of environmental factors, and;

Assessing the extent to which the notion of 'forced-entrepreneurship' applies to Vietnamese entrepreneurs.

The growth obstacles Vietnamese entrepreneurs are confronted with will be categorized as follows: