UNIVERSITY OF ECONOMICS ERASMUS UNVERSITY ROTTERDAM HO CHI MINH CITY INSTITUTE OF SOCIAL STUDIES VIETNAM THE NETHERLANDS VIETNAM – THE NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS THE EFFECT OF SOCIAL CAPITAL ON INNOVATION OF SMALL AND MEDIUM-SIZED ENTERPRISES IN VIETNAM BY HOANG DUY KHOA MASTER OF ARTS IN DEVELOPMENT ECONOMICS HO CHI MINH CITY, NOVEMBER 2016 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com UNIVERSITY OF ECONOMIC INSTITUTE OF SOCIAL STUDIES HO CHI MINH CITY THE HAGUE VIET NAM THE NETHERLANDS VIETNAM – NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS THE EFFECT OF SOCIAL CAPITAL ON INNOVATION OF SMALL AND MEDIUM-SIZED ENTERPRISES IN VIETNAM A thesis submitted in partial fulfillment of the requirements for the degree of MASTER OF ARTS IN DEVELOPMENT ECONOMICS By HOANG DUY KHOA Academic Supervisor: Dr. LE VAN CHON HO CHI MINH CITY, NOVEMBER 2016 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com Table of contents DECLARATION. 4 LIST OF FIGURES. 5 LIST OF TABLES.
Scope of the study. structure of the study. 9 CHAPTER 2: LITERATURE REVIEW. Definition of Innovation.
Importance of innovation in entrepreneurship. Determinants of Innovation. SMEs and their contribution to economic growth. Relationship between social capital and innovation.
23 CHAPTER 3: METHODOLOGY AND DATA .1 Multinominal logit model .2 Data and variables. 34 CHAPTER 4: EMPIRICAL RESULTS. 39 LUAN VAN CHAT LUONG download : add luanvanchat@agmail. 42 CHAPTER 5: CONCLUSION AND RECOMMENDATIONS.
53 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com DECLARATION This declaration is to certify that this thesis entitled “The effect of social capital on innovation of small and medium-sized enterprises in Vietnam” which is conducted and submitted by me in partial fulfilment of the requirements for the degree of the Vietnam – The Netherlands Programme. The thesis constitutes only my original works and due supervision and acknowledgement have been made in the text to all materials used.” Hoang Duy Khoa 1 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ACKNOWLEDGEMENT It is my pleasure to convey my heartfelt appreciation to those who greatly contributed to this thesis through supervision, support and encouragement. I would like to express my utmost gratitude to my supervisor, Dr. Le Van Chon, for his excellent guidance, advocate, caring, tolerance and patience.
It is my luck and honor to work under his supervision. His wisdom, knowledge, skill and wholehearted devotion to this paper have always touched, inspired and motivated me. Without his encouragement and persistent help, I would not have been able to complete this thesis. I am very grateful to all the lectures of Vietnam – The Netherlands Programme (VNP), who not only delivered valuable knowledge to help me carry on this paper but also gave me inspirations to do research.
I would like to send my special thanks to Prof. Nguyen Trong Hoai, Dr. Pham Khanh Nam and Dr. Truong Dang Thuy who have always accompanied us during the two – year master programme.
I am very thankful to Dr. Pham Khanh Nam and Dr. Truong Dang Thuy who gave me encouragements and comments on my Concept Note and Thesis Research Design. I would also like to thank all VNP staff for their conscientious assistance.
I am thankful to my friends from VNP who have shared bittersweet experiences of studying with me and always sent helps and encouragements whenever I need. Besides, my sincere thankfulness also goes to my company’s managers and colleague who kindly and understandingly facilitated my master studying. Finally, I am most grateful to Dad, Mom, Aunt, Sister and Brother for their unconditional love, endless support and limitless tolerance to me throughout my journeys. 2 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ABSTRACT The contribution of SMEs in the economic growth is undeniable but difficult to measure, especially in Vietnam.
SMEs take a large percentage in the total number enterprises in Vietnam, thereby offering remarkable employment opportunities. Moreover, they also play essential role in enhancing the stabilization and dynamic of the economy. One of the most important element in improving the activities of the SMEs is innovation, which has long been mentioned as a consequential component for creating and keeping up the competition and development of cooperation in SMEs. SMEs’ innovation activities are currently influenced by many components, but the SMEs usually faces the problem of lack of resources and capital.
In this context, social capital is used as a significant resources in most of SMEs activities in general and innovation process in particular. The relationship between social capital and innovation has been examined by many authors in many countries. However, there has been very little research about this issue in Vietnam. This paper aims to ascertain the consequentiality effect of social capital on the innovation by utilizing the multinomial logit model while measuring innovation of Vietnamese SMEs.
According to the theories and empirical researches of many authors in all around the world, we expect the positive relations between the social networks of enterprises and the innovation activities. Besides, we have also expected to figure out more related factors that effected on innovations activities, thus we might be able to recommend the policy makers ways to enhance the economics. About the methodology, this paper use the multinomial logit model to test its hypothesis. We measuring innovation of Vietnamese SMEs by “new products”, “improvement of existing products” “export”.
The positive relations between the social networks of enterprises and the innovation activities which is evidenced by previous literature again presented in this study. In addition, we also find some factors which affect innovation, since the policy makers will be able to motivate the economy development by implementing the innovation support's policies. Keywords: product innovation, social capital, SMEs, Vietnam, multinomial logit model. 3 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ABBREVIATIONS GDP Gross domestic product SME Small and medium-sized enterprises CIEM Central Institute for Economic Management MPI Ministry of Planning and Investment of Vietnam ILSSA Institute of Labor Science and Social Affairs MoLISA Ministry of Labor, Invalids and Social Affairs of Vietnam BSPS Business Sector Programme Support R&D Research and development PPF Production–possibility frontier OECD Organization for Economic Cooperation and Development OLS Ordinary least squares MNL Multinomial logit model SOEs State-owned enterprises MIT Ministry of Industry and Trade FDI Foreign Direct Investment 4 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com LIST OF FIGURES Figure 1: The movement of PPF curve to the right when have technological innovations.
15 Figure 2: SMEs’ contribution to GDP and employment. 19 Figure 3: Conceptual Framework. 26 Figure 4: The 2013 SMEs’ survey sample by location. 32 Figure 5: The 2013 SMEs’ survey sample by sector.
33 5 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com LIST OF TABLES Table 1: The innovativeness indicators for SMEs in different dimensions. 17 Table 2: Cataloged SMEs by financial assets. 18 Table 3: SMEs’ Shares of Manufactured Exports in Developing and OECD Economies 19 Table 4: Firm ownership structure. 30 Table 5: Firm size.
31 Table 6: Different between Large enterprises and SMEs. 33 Table 7: Number of observations with improve existing product and new process. 37 Table 8: Interaction between improve existing product and new process. 37 Table 9: Descriptive statistics.
37 Table 10: The dummy variable descriptive statistics. 38 Table 11: Multinomial logistic result. 39 Table 12: Marginal effect results. 43 6 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com CHAPTER 1: INTRODUCTION 1.
PROBLEM STATEMENT Vietnam had official economic renovation (Doi moi) in 1986, but this process had a slow advance until 2000, especially after the Asian financial crisis. Up to now, along with international economic integration, the economic reform began strongly happens emphasis on private sector. Vietnam had accomplished stunning accomplishments such as steadiness economic growth, the rapid development of foreign trade/investment or the reduction of destitution. Among that accomplishment, the importance of the small-and-medium-sized enterprises (SMEs) in undeniable.
According to the General Statistic Office, the number of formal SMEs in 2012 was 286.468 firms which took account of 98. It contributed approximately 40% of GDP and provided 51% labor force in Vietnam each year and created sustainable economic development. However, the Vietnamese SMEs also have to struggle many obstacles. The total number of newly established firms had decreased sharply from 83.
Moreover, the exiting the market of current firms is an upward trend. For example, the number of disbanded and discontinued operating firms was increased by 11.9% in 2012 which accounted for 60. Understanding this urgent situation, many developing countries’ legislature are implementing a lot of policy in order to fortify the development of its SMEs. However, the big question is how they could motivate the development of SMEs by enhancing its performance.
Many researchers found out that the increasing productivity could be conducted by innovation. Innovation will create the competitive advantages and be the essential source of the increasing in productivity. There are a lot of theoretical and empirical studies such as Brüderl (1998), Maskell, P. (2000), Molina‐Morales (2010), Stam et al (2014) emphasized the consequentiality of the technical for economic and determinants of innovation while the social capital has only been noticed over the past few years.
The most famous case study is the Putnam Nanni 7 LUAN VAN CHAT LUONG download : add luanvanchat@agmail. As per this paper, the social capital is characterize as the essential resource for firm and which cooperate among individuals. Because of this possibility, the individual social capital could influence firm’s innovation by using different indicators to measure the social capital. Moreover, through social capital, some capabilities allow firms to integrate their resources, engendering and sharing knowledge to make their improvement.
There is a network connection which connect people and solve the matter together. In this studies, the social capital of owner/manager of enterprises will be mentioned as well. However, there are a few of the scientific research approve that the social capital have the influence on innovation, especially SMEs in Vietnam. This research also illustrate delineate a few key components having sway on SMEs innovation.
The data collected from the surveys of Vietnam SMEs conducted in 2013 will be acclimated to accentuate the impacts of social capital on the innovation. The qualitative results will be used to introduce the different aspects of potential factors influencing the innovation and some suggestions about the development of SMEs in Vietnam will also be mentioned. The enterprises will refer to this research when promoting innovation for their product. RESEARCH OBJECTIVES This paper aims to claim the need of social capital for the product innovation activities and determine which elements exhibit the significant impact on product innovation activities of Vietnamese SMEs.
Throughout the understanding of which elements impact the product innovation, the enterprise’s owner/manager can adjust the firm’s strategy to gain the competitive advantages not only in residential market but also in worldwide market. Besides, the policy makers might be able to control the influential elements of each industry in order to make suitable decision to assist the innovation of specific sector. RESEARCH QUESTIONS For how to increase the productivity of SMEs in Vietnam, we will deal with these following questions: - Does social capital affect innovation of SMEs in the case of Vietnam? 8 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com - How does social capital affect innovation? - What should policy makers do to promote the probabilities of innovation? 1. SCOPE OF THE STUDY The SMEs Survey in Vietnam, which is financed by the Royal Embassy of Denmark in Vietnam (hereafter Danida) under the Business Sector Programme Support (BSPS) has been conducted six times, the latest is the period 2007-2013.
There are three department that organized this survey together such as the Central Institute for Economic Management (CIEM) of the Ministry of Planning and Investment of Vietnam (MPI); the Institute of Labor Science and Social Affairs (ILSSA) of the Ministry of Labor, Invalids and Social Affairs of Vietnam (MoLISA); and the Development Economics Research Group (DERG) of the University of Copenhagen.