Brian Jeffrey
The Evolution of Vietnamese Entrepreneurship
Vietnamese entrepreneurs have faced various challenges and transformations throughout history. Following the doi moi reforms, Vietnam embraced a multi-sector economy, paving the way for business owners to emerge more visibly in society.
The journey of Vietnamese entrepreneurship is often marked as beginning in 1990 when private enterprises gained legal recognition. The government’s elimination of subsidies for state-owned businesses shifted the landscape towards a more autonomous market-driven model.
By 2011, the significance of private enterprises as a crucial economic component was acknowledged, and they have recently been heralded as vital drivers of economic growth.
Vietnamese businesses have evolved from operating underground to operating within legal frameworks set by the state, leading to the current environment where business rights are well-defined and protected by law.
Over the past three decades, the number of firms across various sectors has increased in both size and quality, becoming a central element of Vietnam’s national economy.
From 1991 to 2016, the number of active businesses surged from nearly 30,000 to 500,000—an increase of 17 times. Currently, Vietnam boasts around 930,000 operating businesses, though this number falls short of the target of 1 million businesses by 2020 and 1.5 million by 2025.
Despite rapid growth, the total number of enterprises remains relatively low, with a slow rate of business density in the population.
Geographical Distribution and Business Types
The distribution of businesses shows that approximately 70% are situated in the Red River Delta and Southeast regions, averaging about 9 businesses per 1,000 working-age individuals. In some areas, this figure drops significantly to just 1-3 enterprises per 1,000 people.
Most enterprises (about 70%) are concentrated in three main sectors: manufacturing (16%), construction (14-15%), and retail/wholesale & vehicle repair (37%). Sectors involving high-quality services and added value, including logistics, technology, healthcare, education, and entertainment, have a minimal presence.
When looking at the size of businesses, micro enterprises make up 70%, small businesses 25%, medium enterprises 3.5%, and large enterprises only 2.6%.
The growth in the number of operational businesses is not high and is even seeing a downturn. This trend suggests that the ambitious targets for the total number of enterprises are becoming less achievable over time.
The dominance of micro businesses indicates a lack of medium-sized firms, which are crucial in bridging the gap between small and large companies.
Profitability remains an issue, with only 40% of domestic private enterprises reporting profits compared to 50% of foreign-invested enterprises (FIEs) and 80% of state-owned enterprises (SOEs). While 47% of FIEs report losses, the rates are 50% for local private firms and 20% for SOEs.
Profit margins vary by business size, with less than 30% of micro businesses managing to turn a profit. In contrast, nearly two-thirds of SMEs and 70% of large corporations report profitability, while a significant percentage of small and medium enterprises are in the red.
This indicates a positive correlation between business size and profit generation.
Overall, domestic private enterprises lag behind FIEs in profitability and competitiveness, with vital industries such as healthcare, education, and entertainment seeing only 20% of service sector enterprises making a profit.
Outside of the Red River Delta, the proportion of profitable enterprises tends to decrease across five other regions, with Central Highlands, northern central areas, and coastal provinces performing particularly poorly. Businesses in the southeast region are also witnessing a decline in various performance metrics.
In conclusion, domestic private enterprises face challenges in competitiveness and integration when compared with their foreign counterparts.
