Improving efficiency and productivity growth of manufacturing SMEs: Evidence from Vietnam

SMEs play an important role in employment generation, economic growth, exporting, value chain participation, and reducing poverty and achieving social objectives in Vietnam. According to the General Statistics Office, by 2015, 442,485 formal companies were in operation of which over 97.96% were SMEs. A recent report by Vietnam‘s Ministry of Planning and Investment showed that SMEs contribute 40% of the country‘s GDP, 51% of employment, 25% of exports and nearly 30% of the government‘s budgetary revenue (MPI 2015). Despite this, the productivity gap between small and large firms has tended to be more noticeable in Vietnam, and is, partly, a reflection of the sectors in which SMEs tend to operate: low value-added, labour intensive, and low productivity sectors. This issue is applicable to not only for Vietnam, but it also applies to other less developed countries in ASEAN, such as Cambodia, Laos, and Myanmar. In the context of economic integration, this issue is of critical significance for these countries where the ASEAN Economic Community (AEC) envisions the formation of a single market and production base. There is a significant development gap between Cambodia, Laos, Myanmar and Vietnam (CLMV) and the rest of ASEAN. Thus, SMEs in CLMV are faced with more challenges due to their obstacles in term of finance, skilled labour, technology, market information, networks, and experience of domestic and international markets, as well as other weaknesses related to their small scale. There is a need to better understand the factors which contribute to the productivity and competitiveness of SMEs in the CLMV countries, in order to achieve the opportunities and overcome the challenges of economic integration as well as achieving AEC objectives. In addition, the development of SMEs in these countries is considered as a major contributor to reducing the development gap between CLMV and ASEAN-6.