The Promotion of Market Information

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The Promotion of Market Information

in the “Business Development Services”-market

in the Plastic Sub-sector in Ho Chi Minh City

By Hoa Pham

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The Promotion of Market Information

in the “Business Development Services”-market

in the Plastic Sub-sector in Ho Chi Minh City

By Hoa Pham

The research was conducted for Swisscontact SME Promotion Program Vietnam under the supervision of:

Drs. B.J.W. Pennink

Mr. P. Weijers, program manager Professor Dr. S.K.T. Boersma.

Swisscontact SME Promotion Program Vietnam Faculty Management of Organisation 40 Ba Huyen Thanh Quan University of Groningen,

District 2 - Ho Chi Minh City Landleven 5

Vietnam Post Box 800

Tel (+84-8) 930 3114 9700 AV Groningen

Fax (+84-8) 930 3230 The Netherlands

Tel (+31-50) 363 3825 Fax (+31-50) 363 3850

Contact address: De Fennen 370

8918 CR Leeuwarden

The Netherlands

All rights reserved. No part of this publication may be reproduced or distributed, stored in a retrieval system or transmitted in any form by any means, without the written permission of the author or the faculty of Management and Organisation at the University of Groningen. The faculty is not responsible for the educational supervision and does not accept the responsibility whatsoever of the content of this report.

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Preface

The last part of the master degree in International Business at the faculty of Management and Organisation at the University of Groningen, are taken by a graduation project.

Since the beginning of my study I always wanted to do my graduation project in Vietnam.

Who would have thought that last year I went two times to Vietnam for educational purposes. First I was honoured to be selected by the International Study Project of the University of Groningen to conduct a research in the handicrafts sector in Vietnam. Two months after this three month project in Vietnam I started my six month graduation project, again in Vietnam.

This report has been written as a part of the graduation project. I want to thank my

academic supervisors, Mr. Pennink and Mr. Boersma, for their support. This report is also written for all those involved in Swisscontact SME Promotion Program Vietnam. I want to thank them for their professional support and their hospitability. I also want to thank all the plastic SME manufacturers who where willing to spare a few moments to cooperate with the survey and share their experiences with me. I am very grateful to have gotten the opportunity to contribute to the development of the economy of Vietnam. My highest appreciation goes to Mr. Paul Weijers who had given me this opportunity.

I truly want like to thank my girlfriend Marjan Bouius, who accompanied me during my stay in Vietnam and my family for all their support during my research. Actually, I want to thank them for their support during my whole study.

Leeuwarden, May 19 2003,

Hoa Viet Nhat Pham

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List of Terms

This list of terms refers only to the way these terms are used in this report. It does not necessarily reflect general usage in the international Business Development Services field.

Business Development Services (BDS): any non-financial service provided to businesses on either a formal or informal basis.

Demand: the quantity and type of services that SMEs wish to purchase at any conceivable price (describes the behaviour of consumers).

Embedded Services: services that are embedded in other transactions or BDS obtained by an enterprise. The service is either provided for free or for an indirect fee included in the main transaction (as a mark up).

Consumer: a SME that is a potential or actual user of BDS.

Customer: a SME that has purchased a particular BDS.

Intervention: a donor or government sponsored activity designed to develop a BDS market.

Market: SME consumers, BDS providers and the transactions among the two.

Market information: any data about the served market that supports SMEs in their decisions and actions.

Provider: any individual, firm or institution that provides BDS directly to SMEs. They may be private companies, state-owned companies, NGOs, national or sub-national government agencies, industry associations, etc.

Service: the product consumed by SMEs (e.g. auditing, technical training, advice, information).

Supply: the quantity and type of services that providers wish to sell at any conceivable

price (describes the behaviour of suppliers)

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Acronyms and abbreviations

ADB Asian Development Bank

AFPI ASEAN Federation of Plastic Industries BDA Business Development Adviser

BDS Business Development Services

BIZIC Business Information Centre (under VCCI) DPI Department of Planning and Investment

FGD Focus Group Discussion

GDP Gross Domestic Product

GTZ German Development Cooperation HCMC Ho Chi Minh City

ICT Information and Communication Technology ILO International Labour Office

MPDF Mekong Project Development Facility ISO International Standard Organization ISP Internet Service Provider

MPI Ministry of Planning and Investment MS Microsoft

NGO Non-Government Organization

SDC Swiss Agency for Development and Cooperation SEED Small Enterprise Development

SME Small and Medium Enterprise SOE State Owned Enterprises STG Saigon Times Group TBKTSG Thoi Bao Kinh Te Saigon

TTKT The Youth Centre for Economic Information & Consultation

TOR Terms of Reference

UAI Usage, Attitude and Image

UNIDO United Nations Industrial Development Organization USD United States Dollar

VCCI Vietnam Chamber of Commerce and Industry

VND Vietnamese Dong

VSPA Vietnam-Saigon Plastic Association

VNN Vietnam Net

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Summary

During a one-year period until mid-2002, thorough sub-sector research and a general BDS market assessment were undertaken, creating a valuable basis for project and intervention design. Market information is one of the selected BDS that is subjected for further

analysis and development. The general conclusion of the studies is that there is weak supply and a weak demand of market information BDS and consequently a good potential for interventions in market information BDS market in the plastic sub-sector. The SMEs also viewed the availed market information as low quality, but on the other hand BDS providers stated that SMEs are unaware of effectively making use of market information.

Additionally, the two studies argued the importance of embedded BDS.

However, the information that was obtained in the two studies is rather limited in volume and details to come up with effective interventions to promote market information BDS.

Additional research in the market information BDS market in the plastic sub-sector is deemed necessary prior to the development and implementation of Swisscontact’s interventions. Hence, during the additional research an explicit attention was paid to the constraints and opportunities related to embedded market information.

The following methodologies were used to gather and analyse the data necessary to design effective interventions.

1. Assessment of the demand side of the BDS market

2. Assessment of the transactional supply side of the BDS market 3. Assessment of the embedded supply side of the BDS market

The table below shows that transactional price information and market trends have the highest score. If the market information comes embedded, than market trends and product design score the highest. Also the important related sources and identified BDS providers are listed in the table below. The most important sources are derived from the data of the demand side survey.

The table below presents possible solutions for the identified opportunities. It is further suggested that interventions will initially start with these kind of market information and in the long term expand to other kinds of market information.

1 This column presents examples only. These providers are indicative and identified during the BDS demand assessment. Partner selection, however, may include also other BDS providers.

Highest potential market information

Most important sources

BDS providers

¹

Transactional price

information ^48%

Newspapers Internet

Saigon Times Group

ISPs and Plastic/SME websites Transactional market trends 54%

Newspapers Internet

Association directory

Saigon Times Group

ISPs and Plastic/SME websites VSPA

Embedded market trends 52% Business clients Business clients-group Embedded product design 46% Business clients

Business supplier Business clients-group Business suppliers-group

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Opportunities Solutions

1 Price information via

newspapers A Better quality A Use of internet by

SMEs 2 Price information via internet

B Better websites 3 Market trends via

newspapers A Better quality A Use of internet by

SMEs 4 Market trends via internet

B Better websites

Transactional

5 Market trends via association

directories A Better quality A Awareness creating 6 Market trends via business

clients B Better quality

A Awareness creating 7 Product design via business

clients B Better quality

A Awareness creating

Supply

Embedded

8 Product design via business

suppliers B Better quality

A Promote understanding

Demand

⁹

Limited understanding of importance market

information B Advertising

Based on the opportunities and possible solution presented here in the table above, the following 7 possible interventions (of which some are interrelated) are recommended:

Recommendations 1. MI-team within VSPA 2. Use of internet by SMEs

3. Publication of market information

4. Dissemination of market information via websites

Development of the transactional supply side

5. Opportunities for improved embedded BDS Development of the embedded supply side

6. Marketing and computer courses

7. Awareness creation Development the demand side

Interventions 1 to 4 are designed to develop the transactional supply side of the market information BDS market. The initial focus is to increase the quality the existing market information via upgrading the capabilities of the transactional BDS providers. The

interventions targeted to upgrade the capabilities of transactional BDS providers are aimed to develop commercial BDS markets.

Intervention 5 deals with the development of the embedded supply side and is targeted to upgrade the capabilities of embedded BDS providers, but may also have impact on reaching many SMEs. The promotion of embedded market information will expose SMEs to the importance of market information services and in the long run shift to transactional market information BDS.

Finally interventions 5 and 6 are recommended to develop the demand side of the market

information BDS market. This is initially not embodied in Swisscontact’s focus, which is

the development of the supply side of the market information BDS market. However,

research findings have shown that it is worth the effort to also develop this side of the

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market information BDS market. SMEs do not always know what is in their interest.

Interventions are based on the analysis of SMEs’ situation and may have to educate SMEs on the potential benefits of the interventions.

Small and medium sized private enterprises are in a good position to invest and take the effort to develop and grow, but in the end, each firm has to find its own competitive edge.

With upgraded marketing skills and relevant market information availability, SMEs will compete more effectively. This will ultimately contribute to the development of the BDS market and foster SME growth, hence creating more jobs.

Hopefully, these recommendations will serve as a basis for more detailed intervention plan

by Swisscontact and contribute to the development of the BDS market and country’s small

and medium-scale enterprises.

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ANNEXES A. Map of Vietnam B. Basic facts about Vietnam C. Vietnam Chamber of Commerce and Industry D. Types of BDS E. Plastic and Processing F. Plastic associations G. Definitions forms of enterprises H. Questionnaire (English) I. Guiding questions transactional supply assessment J. List of interviewed enterprises K. Quality of market information L. Averaged quality per kind of market information M. Transactional supply assessment TABLE AND FIGURES Figure 2-1. Swisscontact’s Area of operation...17

Figure 2-2. Strategic partner, operational partners, and targeted clients ...18

Figure 3-1. Turnover of enterprises in VND...23

Figure 3-2. Number of employees ...23

Figure 3-3. Products of enterprises ...23

Figure 3-4. Registered capital of enterprises in VND...24

Figure 6-1a. Old approach: Substitute for the market ...44

Figure 6-1b. New approach: Facilitate market development ...44

Figure 6-2. Transactional market information BDS...47

Figure 6-3. Embedded market information BDS ...47

Figure 7-1. Kind of market information ...51

Figure 7-2. Source of market information ...52

Figure 7-3. Embedded vs. transactional market information ...52

Figure 7-4. Embedded vs. transactional kind of market information...54

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Figure 7-5. Embedded vs. transactional source of market information...55

Figure 7-6. Transactional general/specific market information...55

Figure 7-7. Embedded general/specific market information...56

Figure 9-1. Functions in a BDS Market ...70

Figure 9-2. Market information BDS market development and the potential for intervention. ...72

Table 4-1. Methodology overview...33

Table 4-2. Survey sample ...34

Table 4-3. Sources of market information...35

Table 5-1. Constraints for SMEs growth...42

Table 6-1. Existing and potential BDS providers ...46

Table 7-1. Newspapers ...56

Table 7-2. Use of market information...57

Table 7-3. Criteria to rank the kind of market information...59

Table 7-4. Use of market information...59

Table 7-5. Quality of market information ...60

Table 8-1. Highest potential market information and the most important related sources...64

Table 10-1. Opportunities and solutions ...74

Table 10-2. Recommendations...74

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1. Introduction

The last decades small to medium-sized enterprises (SMEs) have been identified by most western governments as significant components of economic strategies for job and wealth creation. SMEs in western countries have played a considerable role in

economic regeneration in general, and the creation of employment opportunities in particular (e.g. Hill, 2001; Hodgetts and Kuratko, 1995). Also development practitioners and researchers have recognized the importance of small business development in increasing employment and income among poor and low-income people in developing countries. However, the development of these small businesses is constrained by non-financial factors such as lack of education, inadequate technical skills, poor access to markets, lack of information and unreliable infrastructure (Miehlbradt and McVay, 2002).

Business development services (BDS) are designed to help SMEs in developing countries overcome these barriers to increase profitability; increase productivity; and access high value markets so they can realize their potential to help poor people work their way out of poverty, grow local economies and create jobs. Consequently, BDS refers to any non-financial service used by an enterprise to assist its business functioning or growth, provided in a formal or informal manner (Miehlbradt, 2000).

Swisscontact’s objective is to design interventions to support the development of SMEs in developing countries. Vietnam is one of the selected developing countries where Swisscontact is promoting the development of SMEs. This support will be done by developing commercial markets for BDS.

Market information is one of the selected BDS that is subjected for further analysis and development. Other selected BDS are recycling, technical training and export promotion. This report presents additional research findings of market information BDS in the plastic sub-sector in Ho Chi Minh City. Besides the support of the commercial BDS markets in developing countries, previous studies (e.g. Riddle, 1998; Van Bussel, 1998; and Anderson, 2000) noted the importance of ‘embedded’, ‘hidden’ or ‘informal’

BDS in these developing countries. During the research, the important role of

‘embedded’ market information was not neglected.

This research will initially focus the provision and availability of market information.

Emphasis will be on the development of the supply side of the market information BDS

market and also the development of the supply of embedded market information BDS

will be explored and promoted where it can have a positive impact.

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2. General background

2.1. Swisscontact

Swisscontact is a foundation engaged in development cooperation founded in 1959 by personalities of the Swiss private business sector and universities. 260 collaborators in the project countries as well as 30 people in Switzerland are actively involved. The most important goal is to promote socially, ecologically and economically sustainable development in selected countries. Cooperation with local partners is a priority for Swisscontact as their main principle is: "Helping Others to Help Themselves".

The goal of development cooperation is to fight against world poverty. Millions of people in developing countries and Eastern Europe live in a state of destitution. Their opportunities for development are extremely restricted by economic and political conditions as well as their financial and social situations. Through further education and vocational training, Swisscontact would like to ensure that, even in the poorest

countries, people can attain a better standard of life.

In order to support the development of a country and to fight against poverty, programs are prepared in various fields:

Promotion of vocational training through further education and instruction Promotion of small and medium sized enterprises (SMEs) through the

improvement of services and competitiveness

Environmental protection: the decrease of environmental destruction in the cities Financial business services: improvement of savings and credit opportunities for

small and medium sized enterprises (SMEs)

The work of Swisscontact is conducted according to the following principles:

To contribute to the advancement of civil society and strengthening of the structures of private business

Helping others to help themselves

Long-term cooperation with local partners Advancement of equal opportunity for women Consideration of environmental protection

Swisscontact promotes “sustainable solutions and initiatives” related to development programs. The main objectives of Swisscontact’s interventions are to support the development of small and medium scale enterprises and the people engaged in these.

Swisscontact’s direct support goes to the development and application of instruments and techniques that contribute to the objectives of the different programs.

The financing of one part of work is only possible to the support of corporations and

associations, foundations, public donors as well as support of private benefactors. The

majority of the projects are fully financed by various institutions.

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2.2. Vietnam

²

Vietnam is a country undergoing a transition towards a modern market economy. In 1986, as part of its ‘Doi Moi’ or ‘renovation’ policy, Vietnam first articulated a desire to undertake meaningful economic reform and integrate into the world economy.

Vietnam grew robustly in the mid-1990, driven by large inflows of foreign direct investment and resurgence in long-suppressed domestic demand. The country

experienced a building boom in housing, hotels, industries and infrastructure, bringing new life to towns and cities across the country. Quality of life is growing with higher disposable incomes and purchasing power creating new markets for basic commodities as well as consumer durables and leisure products.

While the Asian economic crisis in 1997 damaged Vietnam, the country’s economy is now recovering. GDP growth in 2002 was 7.04% as a result of the Government’s demand stimulation, rising consumption and strong export performance. The country has made important achievements in the institutional, social and economic fields during the past 10 years; however, the economy still faces some main difficulties, such as a low GDP per capita, and limited foreign investment

³

.

It its 10-year socio-economic development strategy (2001 to 2010), Vietnam is seeking to repeat its high performance of rapid growth, employment creation and poverty reduction of the 1990s. GDP is expected to double in the current decade. Industrial growth is targeted at around 10 percent a year, driven in part by faster manufacturing growth. Given the fall of foreign direct investment and the stagnation of investment by state-owned enterprises (SOEs) and by the state budget, this rate can be achieved only if the investment by the private sector increases from the current 7% to around 11 to 13%

of GDP. It is widely accepted in the country that the private sector, particularly SMEs offer the best prospects for generating employment and economic growth. With its increasing integration into world trade, the Vietnamese economy needs to become more dynamic and competitive. Experience from other countries indicates that Vietnam must have a strong and dynamic SME sector to ensure the competitiveness, stability and development of its economy.

2.3. Swisscontact in Vietnam

There is a high potential for private sector development in Vietnam. State-of-the-art approaches to SME promotion, the capability of which is available with Swisscontact assistance, are tapped into the design and implementation of an SME promotion program.

After a general Business Development Services (BDS) study

⁴

in Vietnam in the period May to September 2001, a BDS-market assessment in the plastic sub-sector in Ho Chi Minh City

⁵

was undertaken in the period November 2001 to March 2002. Based on the outcome of the two studies, and taking into consideration Swisscontact’s competencies, donor programs and interests in SME promotion, and the focus of the Government of Vietnam, the BDS-market development program was further defined.

2 See Annex A for the map of Vietnam.

3 Annex B provides basic facts as published by the United Nations (March 2003).

4 The general BDS study was conducted by the VCCI, GTZ and Swisscontact.

5 In order to conduct the BDS market assessment in the plastic sub-sector in Ho Chi Minh City, Swisscontact engaged InvestConsult Group. InvestConsult is a group of business and legal consultancy companies in Vietnam. They provide a range of services and studies including market research and surveys to both companies and development organizations.

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While the initial coverage of the program is the plastics sub-sector in greater

⁶

Ho Chi Minh City, the program will expand to other sub-sectors and other geographic areas in Vietnam, depending on the availability of financial resources.

2.4. Approach of the SME promotion Program

SME promotion projects commonly differentiate between financial services and non- financial services; the latter one is generally regarded as BDS. There are different approaches to address BDS, among which are the sub-sector development approach and the BDS market development approach

⁷

.

2.4.1. Sub-sector development approach

One methodology that attempts to view all the needs of the SMEs, while simultaneously planning for sustainability, impact, and cost effectiveness, is the sub-sector approach to BDS. This approach looks at SMEs as part of a larger system that includes input suppliers, producers using different technologies, wholesale and retail distributors, transportation and finance organizations, market intermediaries, etc. There are many commercial relationships that take place between these actors in the process that takes raw materials through production transformation to the ultimate consumer,

complemented by the impact that other actors, such as government institutions, have on this process. The sub-sector approach takes account of these relationships and impacts and helps identify constraints and opportunities that lead to the development of cost effective, high impact, and sustainable interventions.

To the basic approach has been added an equal focus on understanding the BDS markets. The methodology provides a more in-depth look at the BDS needs of SMEs and of those who are providing services to address those needs. The provision of BDS is viewed from the standpoint of being sub-sector specific, although some BDS providers may service a more general clientele.

Swisscontact’s role in this approach is to identify the appropriate actors at each of these levels and to come to an understanding with them on how to address defined issues.

2.4.2. BDS market development approach

The BDS approach is based on the hypothesis that - besides access to finance – enterprises also require access to other types of services (e.g. as market information, marketing support, legal and accountancy support). These services should be provided on a business-to-business basis by specialized (for profit) providers or embedded in other commercial transactions with for profit enterprises. The role of the

donor/facilitator is to support the development of the market for particular BDS by supporting the expansion/improvement of supply and/or demand. One activity of facilitators can be to assist BDS providers in developing/adapting service products to new clients. But facilitators may also perform a variety of other activities aimed at expanding/improving the supply side of the market, such as encouraging supplier franchising, helping suppliers improve their management or marketing, providing

6 The concept “greater Ho Chi Minh City” is understood in this research as the area covered by Ho Chi Minh City and its outskirts up to 25 kilometres from the border of the city.

7 See for more information about the sub-sector development approach; Haggblade and Gamser, 1991;

Chen, 1996; and Lusby, 1999 and the BDS market development approach; “BDS Market Development a Guide for Agencies”, Gibson, Hitchins and Bear, 2001.

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access to information on demand for services, etc. Furthermore, facilitators may stimulate demand for BDS, for instance by awareness creation, social marketing, or by providing incentives to try BDS.

As a facilitator, Swisscontact needs to understand the way markets and enterprises work. It needs to have the competence (skills, language, attitude and knowledge) and the credibility to get access to the supplier (provider) and the consumer of services (entrepreneur and employees) in order to strengthen the market for BDS.

2.4.3. Swisscontact’s SME Promotion Vietnam: A blend of two approaches The project is anchored in a sub-sector approach. This implicates that intervention design, partner selection and project implementation are based on sub-sector needs assessments. Applying the sub-sector approach will focus Swisscontact’s interventions, rather than aiming a broad reach out among the total SME population in a specific geographic area in Vietnam.

Swisscontact’s BDS market interventions will be based on the assessed opportunities and constraints in the selected sub-sector. This creates potentials to address embedded BDS more focused, while at the same time the market of autonomous BDS providers with an outreach to multiple sub-sectors will be developed. Figure 2-1 is a simplified projection in which one type of BDS and one sub-sector is accounted. The sum of these two determines the project’s area of operation.

Figure 2-1. Swisscontact’s Area of operation

It is Swisscontact’s policy to address environmental conditions in SMEs. A sub-sector approach allows a wider spectrum of focused interventions, compared to generic environmentally related BDS that are applicable to SMEs in general.

Macro-level context conditions, and specifically an enabling environment for SMEs, will be addressed with focus on sub-sector specific opportunities and constraints. For instance, the plastic sub-sector has its own particularities in import/export regulations;

or the position of SOEs in this sub-sector is substantially different than in other sub- sectors. A sub-sector approach permits a focused macro-level dialogue among stakeholders.

Total SME population in a specific geographic area in Vietnam

One specific sub-sector in Vietnam

Outreach of one type of BDS within the specific geographic area

Area of operation

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2.5. Partners and targeted clients

Although the project is anchored in a sub-sector development approach, Swisscontact’s position is to support the development of the BDS market. As a facilitator, Swisscontact needs to understand the way markets and enterprises work.

It needs to have the competence and the credibility to get access to the BDS supplier and the consumer of services in order to strengthen the market for BDS. Support can be directed to the provider or it can be directed towards the consumers. The project

distinguishes between strategic partner, operational partners, and targeted clients, which is illustrated as follows:

Figure 2-2. Strategic partner, operational partners, and targeted clients

The project does not provide direct support to its ultimate target group at enterprise level, but instead it will support meso-level organizations and institutions to address this target group. Agreements between SC and its operational partners at meso-level,

generally to be regarded as BDS providers, will be based on a business relation.

Swisscontact signed a cooperation agreement with the Vietnam Chamber of Commerce and Industry (VCCI)

⁸

of Ho Chi Minh City. VCCI is Swisscontact’s strategic partner in its SME Promotion Project in Vietnam. Swisscontact supports the VCCI in its

organizational development as BDS facilitator. The VCCI is mandated by the

government of Vietnam to assist local enterprises and promote commercial, economic and technological cooperation between local and foreign businesses.

Operational partners are those organizations or institutions in the targeted sub-sectors that will be engaged in the further development and implementation of interventions. As far as it concerns the development of the BDS market, these will predominantly come from the BDS providers potential.

The ultimate target group of the project is the private sector SMEs in Vietnam. The target clients are the private sector SMEs within the selected sub-sector and/or BDS markets. Here, the impact of the project will be measured. There will be no direct interventions from Swisscontact at this level.

8 Annex C provides further information on the VCCI.

Strategic

partner

→ ^VCCI

Operational

partners

→ Organisations (mainly BDS providers) in the targeted BDS market

Target

clients

→ Private sector SMEs within a selected sub- sector

VCCI

Organizational Development

Swisscontact

BDS-providers SMEs

Transactions

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3. Research background

3.1. Introduction

General information of this research was discussed in the previous chapter. This chapter presents the background of the additional research. It is important to review these findings, because it contains elements which might be useful for the design of

interventions to develop the market information BDS market. Based on the outcomes of the BDS demand assessment and the sub-sector assessment, and Swisscontact’s

expertise in development cooperation, Swisscontact has selected market information BDS for further analysis and development. This chapter reviews the findings of the

“Usage, Attitude, Image”-study (general BDS demand assessment) and the Plastic sub- sector study (sub-sector assessment) in greater Ho Chi Minh City. Only the data related to market information will be derived from the two studies and reviewed. The two studies also found the important role of embedded services. In addition, these and other findings on embedded services will be reviewed.

The characteristics of the Vietnamese SMEs and the principles of BDS are discussed later in this report in respectively chapter 5 and 6. This chapter is illustrative only to understand the rationale of the additional research. The statement of the research objectives and research questions are presented in the next chapter.

3.2. UAI study

GTZ, VCCI and Swisscontact conducted the UAI study

⁹

in the period September 2001 to May 2002. The consumer survey covered 1,211 registered private SMEs in Hanoi, Ho Chi Minh City, Da Nang, Hai Phong, Dong Nai and Binh Duong. The aim of the study was to understand existing BDS markets for SMEs in Vietnam. The objectives of this study were:

To develop a broad understanding of BDS markets for SMEs in Vietnam.

To identify the main constraints and opportunities for developing BDS markets in Vietnam.

To gain sufficient information to design effective and efficient interventions to develop selected BDS markets in Vietnam.

A quantitative consumer survey was designed based on the “Usage, Attitude, Image”

market study, a consumer survey tool commonly used in the private sector to gain an overview of a market and pinpoints specific market constraints and opportunities. This tool has been adapted to look at the markets for a range of business services for small and medium enterprises. The qualitative discussions were conducted using the “Focus Group Discussion” methodology.

The UAI study in Vietnam focused on 14 business development services. Market information was not specifically one of the 14 studied services. One of the BDS studied was market research, thus viewing the findings of the UAI study on market research are of relevance. The UAI study defines market research as a service in which outsourced professional(s) study factors such as demand, supply, customer behaviour, and the legal

9 For more information on this method see Miehlbradt (2002), Guide to Market Assessment for BDS Program Design, forthcoming from the International Labour Organization (ILO).

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and administrative framework in the market to facilitate the presence of a new enterprise in the market and/or to promote product sales of a certain enterprise in the market. Consequently, market information can be regarded as an essential component for market research. In the following, relevant data relating to market information BDS are filtered from the UAI study and summed below.

3.2.1. Overview ‘market research’ market

Market Penetration 6%

Market Size - # of Firms 2,481

Market Size - Expenditure VND 4,002,973,065 USD 263,007 Awareness 83%

Understanding 89%

Reach 7%

Retention 62%

The table above shows the overall awareness, understanding, reach and retention of business services in Vietnam. In marketing terminology, the percentage of consumers who know about the service is called the “awareness ratio.” The percentage of consumers who understand the service out of those who are aware is called the

“understanding ratio”. The percent of consumers who try the service out of those who understand it is called the “reach ratio”. The percentage of consumers who continue using a service out of those who tried the service is called the “retention ratio”.

Reach was very low, because of several reasons. There was a lack of suppliers who provide appropriate good quality market research and many SMEs do not see a need for particular services. The business culture in Vietnam discourages outsourcing of

services. The ‘Business Services in Vietnam’ study of MPDF (1998) supports this finding. The study of MPDF has observed that over-reliance on internal services in Vietnam can be linked to the lack of quality service products. The study also founded that in the private sector entrepreneurs often do not outsource because it reflects a weakness in one’s own operation. A related issue is a concern, especially for family- based businesses, about sharing competitive information about one’s operations with others for fear that knowledge may be misused. The quite high unit cost of services was also a factor why the reach is low. In addition to this finding, the MPDF also founded that the business services in Vietnam were more expensive than warranted by their quality.

Amount of expenditure in VND

Median Average

Last Purchase VND880,000 USD 57

VND 9,585,769 USD 622 Last Year VND 1,000,000

USD 65

VND 5,995,625 USD 289

3.2.2. Demand for market research

Information sources % Who cited source Colleagues and friends 67%

Mass media 25%

Business association/chamber 24%

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The key reason why enterprises outsource market research services was to increase their customer base. And the key reasons why some enterprises did not outsource market research services were because they did not feel a need for the service or they do it in- house.

Service Benefits Expected: SMEs expected market research to help them identify new

customers and learn how to better meet demand by getting feedback from consumers.

For example, one entrepreneur said, “Before making a plan for any new product, we have to know all the information about the market so that I will be able to launch a new product that is appropriate for market demand”. Entrepreneurs wanted information on consumers’ tastes, habits, price sensitivity and the scale of potential market

opportunities. Market research was particularly used to help launch new products.

Ultimately, entrepreneurs expect market research to help them increase their sales.

Service Features Demanded: SMEs wanted marketing research firms to provide better

market information then they could generate with in-house capacity. SMEs appreciated more than just information; they also wanted recommendations based on the market research results.

3.2.3. Supply of market research

Type of Provider % Of SME customers

Individual 44%

Private Enterprise 21%

Donor 13%

State authority 10%

Basis of competition % Of customers who cited reason

Recommendations by colleagues/friends 41%

Reputation 41%

Price 22%

Relationship with provider (friend/relative) 19%

Satisfaction with previous use 16%

Service quality: The quality was moderately good and on the whole, consumers were

fairly satisfied with available services. They would, however, liked to see consistently accurate market research with sufficient depth of information for making management and marketing decisions.

3.3. Plastic sub-sector study in greater Ho Chi Minh City

The Plastic sub-sector study in greater Ho Chi Minh City was, nearly parallel to the UAI study, conducted by Swisscontact in period November 2001 to April 2002. The target sample size of the survey was 192 plastic manufacturers SMEs in greater Ho Chi Minh City. A quantitative consumer survey was designed and conducted. Also a workshop was held to validate the findings. The Plastic sub-sector study in the greater Ho Chi Minh City aimed to achieve the following objectives:

Have adequate BDS-market information about the plastics sub-sector in Ho Chi Minh City

Identify existing problems in this plastics sub-sector BDS-market

Formulate recommendations, based on the above information, as to potential BDS-

market interventions.

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The Plastic sub-sector study focused on 7 categories of BDS. Each category is divided in different types of BDS. Swisscontact has identified 50 types of BDS

¹⁰

. Market information is a type of BDS that belong to the “Market access”-category. In the following relevant data relating to market information BDS are filtered from the study and summed below.

3.3.1. Industry

Vietnam’s plastic industry has grown at an average rate of over 27% per annum over the past 5 years, marking an increase in the national average plastic consumption index from 0.77 kg to 11.57 kg per capita. Greater HCMC, as the biggest economic centre in Vietnam, has especially contributed to this increase and currently contributes 80% to the total output of Vietnam’s plastics industry. Industries based in this area have also been esteemed the most dynamic premises with an average plastic consumption index of 100 kg per capita. There are approximately 1,000 plastic producers in Vietnam with 80% of those located in the Ho Chi Minh City area. To direct the development of this industry, the Government of Vietnam has approved the development strategy of plastic industries till the year 2010, in which domestic and foreign investment in plastic raw material are given priority. With the open policy of the government, plastics

manufacturers have the opportunity to go abroad, visit international exhibitions and conduct business exchanges with plastic equipment and materials suppliers. All of these factors will contribute to the modernization of management and production. There are several kinds of plastic technology processes such as injection moulding, blow

moulding, extrusion, vacuum /thermoforming, etc

¹¹

. The materials used are also diverse.

Some years ago most materials were commodity thermoplastics, however, plastics manufacturers are increasingly looking for engineering thermoplastics and thermo sets.

In the interest of increased competitiveness, industries are demonstrating greater concern for maintenance and quality control, and are looking into product development with the use of additives/colouring systems and modern equipment.

Over next ten years, it is estimated that the growth rate of this industry will be

maintained at 20-25%. In terms of target markets, the domestic market has been defined as the major one in the coming years to 2005. For the years after 2006, plastic products will mainly be exported

¹²

.

At present, associations involving members of Vietnam’s plastics industry are restructured including the following three organizations

¹³

:

The Vietnam Plastic Manufacturers Association (VPMA) The Vietnam Saigon Plastic Association (VSPA)

The Vietnam rubber-plastic Directors Club (VPDC)

Almost all plastics enterprises in greater Ho Chi Minh City belong to the private sector in which Limited Liability Company

¹⁴

is the most preferred form while state owned

10 Annex D provides a list of BDS identified by Swisscontact. The list is not exhaustive and illustrates an on-going attempt at developing a comprehensive list of BDS.

11 See Annex E for further details on plastics and processing techniques.

12 Source: AFPI Directory 2001-2002

13 See Annex F for more information about the plastic associations.

14 The private sector includes Private Companies that are unlimited liability and the Limited Liability Company. See Annex G for forms of enterprises.

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Less than 1 billion 40%

From 1 to 3 billions From 3 to 5 billions 43%

5%

From 5 to 10 billions 7%

Above 10 billions 5%

11 - 50 69%

Le s s tha n 10 7%

Abo ve 200 51 - 200 4%

20%

Others 38%

E-accessories 3%

Utensils 27%

Conductors 2%

Pipes 10%

Packages 20%

enterprises account for only 3%. The majority of plastics enterprises are of small and medium scale, the proportion of enterprises with registered capital of less then 3 billion reaches 84%, of which 53% of enterprises have registered capital of less than 1 billion.

In correspondence with the scale of their operations, the turnover of plastic enterprises is also low (see figure 3-1).

Figure 3-1. Turnover of enterprises in VND

Almost all plastic enterprises have less than 50 labourers (76% of enterprises) except for state owned enterprises. All SOEs have more than 51 labourers, 50% of which have over 200 labourers (see figure 3-2).

Figure 3-2. Number of employees

In respect of the products of plastic enterprises, products requiring sophisticated manufacturing technology are in relatively small proportion, e.g. conductors with 2%

and e-accessories with 3% while simple products including utensils, packages and pipes account for bigger proportions (27%, 20%, and 10% respectively). Other plastic

products such as toys, bags, plastic nets, wallets, nylon, and etc. account for 38% of products (see figure 3-3 below).

Figure 3-3. Products of enterprises

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Figure 3-4 presents the registered capital of the enterprises. A major part of the plastic SME manufacturers (53%) in greater Ho Chi Minh City has a registered capital of less than VND 1 billion (USD 65.000).

Less than 1 billion 53 % Above 5

billions 9%

From 3 to 5 billions

7% From 1 to 3

billions 31%

Figure 3-4. Registered capital of enterprises in VND

3.3.2. Current market situation

The main markets for plastic products are for their use in other manufactures and for export. The total output of plastic products that go directly to the retail market is estimated to be less than 10% of total plastic production in Vietnam.

According to 48% of respondents, plastic products are mainly supplied for other manufactures. In particular it was noted that more than half of the enterprises (60% - 62%) that are producing packages and conductors are providing their product to other industries. Another important output market of this sub-sector is the export market.

Export markets are most important to enterprises that are producing utensils and e- accessories. As a result, it may be concluded that the output volume of the plastics sub- sector is heavily dependent upon other sub-sectors, where its products are consumed most (such as the electric sub-sector, telecommunications, and other industries), and export markets. Consequently, the BDS used for market access and promotion for this sub-sector should be specifically targeted to improve accessibility to these two markets.

Information gained from the survey has helped to make a sub-sector map that provides a graphic illustration of input and output in this sector. Figure 3-5 shows the dynamic nature of SMEs in this sub-sector by clarifying production and distribution channels.

Looking at the map will help to visualize the plastic industry as a whole and identify

what is being faced in terms of constraints and needs to for intervention.

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25

Half-fabricate Final products

Input Industrial activitiesDistributionEnd user

Local scrap Local resin manufacturing Imported resin

Local distributors

50% 10%

Private sector:

Production groups (30%) SOEs (3%)

Retail market Import/Export

company Export market

Private sector:

Limited companies (54%) Private Ltd (10%)

Joint-stock (3%) Other manufacturers Other

30%

10% 12% 48%

20% 10%

SME context

BDS-providers -Input supply BDS-providers -Market access -Training and technical assistance

-Technology and product development -Input supply -Alternative financing mechanisms

-Infrastructure -Policy/advocacy

BDS-providers -Market access -Training and technical assistance -Alternative financing mechanisms

-Infrastructure -Policy/advocacy

Packaging products (20%) Utensils (27%)

Piping products (10%) E-accessories (3%) Conductors (2%) Other (53%)

Figure 3-5. Map plastic sub-sector in Ho Chi Minh City

Import/Export company

30% 5%

4%

1%

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3.3.3. Competition

The main competitors of plastic producers are other local enterprises. This was most strongly held by package (90%) and utensil (87%) producers, and was evident to a lesser extent in responses from conductor producers (60%). This indicates that the enterprises in this sub-sector are competing against each other, rather than producers in other countries. Furthermore, enterprises in HCMC are providing about 80% of all domestic plastics sub-sector production. To increase market share in this competitive sub-sector the plastic manufacturers SMEs main objective is to improve product quality as a first priority and lower price as the second. Foreign /JV enterprises in Vietnam and imported products are not big competitors of the SMEs in HCMC.

3.3.4. Constraints and opportunities

The study revealed that 29% of plastic manufacturers feel they lack of market information. This can be considered as market weakness and this represents a good opportunity for providers of foreign and domestic market information services.

Most transactional market information BDS providers operating at the highest-level of professionalism target their services at foreign companies or large local enterprises (not SMEs), who have big budgets and a thorough understanding of the importance of market information services and their use. The providers did not always receive a positive evaluation of these services by the SMEs who received them. The providers stated that the assessments of their services by SMEs were not really reliable, as a result of inaccurate perceptions or limited awareness of the services available.

If the plastic manufacturers are not aware of the important role of BDS, it is because they also did not know how to identify their real demand or if they did, their expression of understanding was limited. On the other hand, this is an opportunity to enhance, because the entrepreneurs always use their past experiences to evaluate the market situation and therefore cannot develop their demands into a comprehensive plan.

The SMEs in Ho Chi Minh City acknowledge the importance role of market

information for their businesses. The issue of concern with these enterprises is how to deal with the process from the information collection to the information processing and decision-making stages. Usually the enterprises properly value the information provided to them, but were unaware of how to effectively make use of it. At times, market

information provided to local business was out of date or not entirely relevant to the business.

One remarkable observation should be made here. Most plastic producers in HCMC are Vietnamese Chinese and are located in District 5 (known as "China town" in HCMC).

Therefore, the plastic sub-sector in HCMC is heavily influenced by "Chinese business culture" which can be briefly described as follows:

Someone who has prestige and profound knowledge about the plastics sub-sector takes leadership. This person is influential in the community

Business transactions are based on personal trust rather than on official agreements and manual/contractual records.

Capital is easily mobilized and circulated amongst such enterprises owners.

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3.3.5. Demand/supply matrix of market access services

In order to assess the BDS-market, it is necessary to obtain more specific knowledge about how effective the demand and supply of services is.

To identify the level of demand, the following 2 parameters were used:

The level of recognition that a solution is required: The degree to which SMEs have already identified a problem and are seeking solutions to that problem.

The willingness to pay for a solution: The degree to which SMEs are willing to pay for the solution they require.

BDS supply can be assessed based on an evaluation of the 2 following parameters:

The BDS providers' capability to solve business problems: The providers have sufficient skills, knowledge, technology and resources to solve the problems of SMEs to a certain degree.

The BDS provider’s ability to develop an offer that SMEs want and value: The providers' ability to package all skills, knowledge, resources in to a product/offer that can be understood by SMEs and is attractive to SMEs.

The matrix below shows the demand and supply level for market access services:

The matrix shows all the BDS types in the market access category. On the demand side of market information the following can be derived; the level of recognition that a solution is required is high and there is an average degree of willingness to pay for the solution they require. On the supply side of market information the following can be derived; the ability of BDS providers to develop an offer that SMEs want and value is low and the degree of capability to address SMEs demand is average.

3.4. Findings on embedded services

Although not specifically included in the UAI study and Plastic sub-sector study, respondents indicated the delivery of services through other commercial transactions. In Vietnam, a major portion of information delivery is embedded in other commercial

Demand for BDS

Willingness to pay for service

Recognition that a solution is required

Supply of BDS

Capability to offer BDS that is valued

Capacity to address SME demand

Marketing business

Marketing business Market linkages

Market linkages Trade fairs and exhibitions

Trade fairs and exhibitions Develop samples

Develop samples Market information

Market information Marketing trips and meetings

Marketing trips and meetings Market research

Market research Showrooms

Showrooms Advertisement

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transactions. Business decisions in Vietnam are in general made based on information from personal contacts.

Often these embedded services were neither purchased nor provided on a commission basis, but were provided as part of a business relationship or partnership. For example, in the private sector, many large wholesale businesses purchase from SMEs and sell to distant urban or export markets. Sometimes these large wholesalers supply services, such as quality control, packaging or promotion, whose costs are paid by the mark-up on the SME products (Miehlbradt and McVay, 2002). Similarly, companies that supply inputs or technology to SMEs sometimes provide training or advice as part of the sale.

Previous studies and practices in the field of development cooperation also noted the importance of embedded services in developing countries. Van Bussel (1998) found in his study in Bangladesh that entrepreneurs sought few formal services, but used many informal and voluntary services. These services related mainly to general business information, advice, counselling and networking and were provided by competitors. All entrepreneurs mentioned that they are members of an informal group of entrepreneurs.

In most cases these were groups of business acquaintances that operated in the same area and met on an ad hoc basis. They indicated that they would rather consult them for advice, business information and other support than any other support organization.

Anderson (2000) made a similar observation in his study in Thailand and Vietnam. He found that in Vietnam services provided through business relationship is viewed the most important for SMEs. Riddle (1998) also found that in Vietnam friends and business colleagues often provide valuable advice without any charge. In addition, Riddle presented the view that the reason services were not purchased was the lack of information on the quality of the providers, which led to doubts as to whether the service would meet the specific need of the firm. Quality was therefore a bigger issue than price.

3.5. Conclusion on the analysis of secondary data

The UAI study covered more SMEs than the Plastic sub-sector study, respectively 1,211 and 192 SMEs. The UAI study gives a broad understanding of BDS markets in Vietnam.

Conclusion is that the ‘market research’ BDS market it is a relatively young market that has strong growth potential if suppliers can convince customers of the potential value added of out-sourcing market research rather than doing it in-house.

The findings of the Plastic sub-sector study indicate that the most important measures for plastic SMEs to increase individual market share are improving product quality as a first priority and lowering price as the second. The justification for this is that the majority of plastic products in the market are input materials for other manufacturers, who strongly require high product quality and low price for their final products.

The level of recognition that a solution is required is high. However, plastic SMEs generally considered the available market information outdated and limited in relevance to the production line of the manufacturer. On the other hand, the ability of BDS

providers to develop an offer that SMEs want and value is low. We can conclude that

the demand is strong and the supply is weak for market information. Nevertheless, the

providers argue that the SMEs consider the market information of low quality, because

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of inaccurate identifying their real demand and their limited expression of understanding the role of market information BDS.

The information that was obtained in the two studies is rather limited in volume and details to come up with effective interventions, because the focus of these studies was not primary on market information. Additional research in the market information BDS market in the plastic sub-sector is deemed necessary prior to the development and implementation of Swisscontact’s interventions.

Additionally, the UAI, Plastic sub-sector study and other studies argued the importance of embedded BDS. Hence, during the additional research in the market information BDS market, an explicit attention is paid to constraints and opportunities related to embedded market information.