Tài liệu The effect of social capital on innovation of smes in vietnam

UNIVERSITY OF ECONOMICS HO CHI MINH CITY VIETNAM ERASMUS UNVERSITY ROTTERDAM INSTITUTE OF SOCIAL STUDIES 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 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 Table of contents DECLARATION ........................................................................................................... 1 ACKNOWLEDGEMENT ............................................................................................. 2 ABSTRACT ................................................................................................................... 3 ABBREVIATIONS ........................................................................................................ 4 LIST OF FIGURES ....................................................................................................... 5 LIST OF TABLES ......................................................................................................... 6 CHAPTER 1: INTRODUCTION ................................................................................. 7 1.1. Problem statement ................................................................................................. 7 1.2. Research objectives ............................................................................................... 8 1.3. Research questions................................................................................................. 8 1.4. Scope of the study.................................................................................................. 9 1.5. structure of the study ............................................................................................. 9 CHAPTER 2: LITERATURE REVIEW ................................................................... 11 2.1. Innovation............................................................................................................ 11 2.1.1. Definition of Innovation ................................................................................ 11 2.1.2. Product innovation. ....................................................................................... 11 2.1.3. Importance of innovation in entrepreneurship ............................................... 13 2.1.4. Determinants of Innovation. .......................................................................... 15 2.1.5. SMEs and their contribution to economic growth ......................................... 18 2.2. Social capital ....................................................................................................... 21 2.3. Relationship between social capital and innovation ............................................. 23 CHAPTER 3: METHODOLOGY AND DATA ......................................................... 27 3.1 Multinominal logit model .................................................................................... 27 3.2 Data and variables ............................................................................................... 29 3.2.1. Data analysis ................................................................................................. 29 3.2.2. Variables ....................................................................................................... 34 CHAPTER 4: EMPIRICAL RESULTS ..................................................................... 37 4.1 Descriptive statistics ............................................................................................ 37 4.2 Regression Results ............................................................................................... 39 4.3 Marginal effects ................................................................................................... 42 CHAPTER 5: CONCLUSION AND RECOMMENDATIONS ................................ 45 5.1 Main finding ........................................................................................................ 45 5.2 Recommendations ............................................................................................... 46 REFERENCES ............................................................................................................ 48 APPENDIX .................................................................................................................. 53 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 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 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 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 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 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 CHAPTER 1: INTRODUCTION 1.1. 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 98.34% total firms. 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 83.600 to 77.500 between 2010 and 2012. 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 60.700 companies. 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 Lanzetti (1993). 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. 1.2. 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. 1.3. 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 - How does social capital affect innovation? - What should policy makers do to promote the probabilities of innovation? 1.4. 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. 1.5. STRUCTURE OF THE STUDY In more detail, Chapter 2 is used for the literature review. It is used to review theories and to display some result of empirical studies. The meanings of innovation, social capital and some designators effect on innovation will be introduced as well. In this chapter, we will able to consider the need of innovating in SMEs. Chapter 3 will be focused on explaining our methodology and data. This part will content the Econometric model that we conducted and more details about the data that we used in this paper. Chapter 4 will illustrate the results that we found through in our research. The variables description and descriptive statistic will be stated at the opening of this chapter which help us to understand clearly about all variables and statistics. The rest of the chapter is used to describe the regression result and marginal effects. Chapter 5 is for the conclusion and policy implication. All of this research will be reviewed, analyzed the advantages and disadvantages of our methodology and 9 recommendation for the future researches. This chapter will also suggest the policies for policy makers and for enterprises when they want to increase the rate of innovating product. 10 CHAPTER 2: LITERATURE REVIEW 2.1. INNOVATION 2.1.1. Definition of Innovation The concept of innovation has evolved radically over the last forty years and one is known as the knowledge-based innovation. There are a lot of concepts about this types such as knowledge-based innovation derived from science; knowledge-based innovation derived from market needs; knowledge-based innovation derived from linkages between actors in markets; knowledge-based innovation derived from technological networks or knowledge-based innovation derived from social networks. According to Hyvarinen (1990), innovation includes both internal and external activities of firms which are creating new products, enhancing existing products, process, governance or marketing… The first type of innovation is very familiar with any business operation, the research and development (R&D) process. In addition, these innovation activities will be considered as a crucial components decided the “life of SMEs” while technology is applied at a broader sense rather than relating to products only. He also classified innovation into five types: product, process, marketing, organizational and social innovations. As a research scale, we just focus on product innovation. 2.1.2. Product innovation. Product innovation is defined as the development of new products, changes in design of established products or use new technology in the manufacture of established products. It takes many advantages for firm such as: inventing a new product, improving a product's quality, enhancing product's technical features or adding new parts, input and expecting functions to an established product hence firm can growth, expansion and gaining a competitive advantage. Especially in small enterprises the influence of individuals is considered, the individuals or a group of them who get the ideas, make decisions of buying the new products. Drucker (1985) is mentioned the influence of time, the entrepreneur’s relationship to individual’s environment. 11 While substantial studies have been investigating and providing proofs of relationship between countries’ export and their innovation activities at macro level (Greenhalgh, 1190), less effort and papers on this correlation at micro level have been presented. On the one view, a considerable studies have showed evidence for a significant positive influence of innovation which are represented by R&D expenditure or number of innovations on the performance of export. Innovation is defined as “implemented technologically new products and processes and significant technological improvements in products and processes” (Becheikh et al., 2006). According to their perceptions, (technical) innovation refers to either a technologically new product/process or an existing product/process which are experienced a substantially technological advancement. A rough distinction can be made between product innovation (including both new product innovation and modification of an existing product) and process innovation. Process innovations are a way to improve productivity and reduce production costs, while product innovation gives the innovating firms a competitive advantage. Following Utterback and Abernathy (1975) and Cassiman and Martínez-Ros (2004) we could hypothesize that product innovations and process innovations have a different effect on export performance. But often, product innovation and process innovation are linked as newly developed products or modified products often requires new production technology. Innovation is treated as an underlying determinant of a quality, such as firm performance or productivity. The adaptable with changing market condition needs firms accumulate new knowledge and constantly modify their products and processes. Innovation is also considered as a tool of entrepreneurs to exploit change as an opportunity for a new or a different business and service (OECD, 2005). Innovation is evaluated in various ways. On the one hand, the input-oriented measurement of innovation uses data on R&D (research and development). But R&D expenditure tends to overestimate innovation, because it includes aborted efforts that do 12 not necessarily lead to new products/processes or improved products/processes. On the other hand, the output-oriented measurement applies patent data, innovation count and firm-based surveys. However, a patent would better represent an invention rather than innovation. The method of innovation count is deemed an object approach which relies on innovation data from various sources, such new product/process announcements, database, journals, etc. (Becheikh et al., 2006). Reguia (2014) has showed some advantages of product innovation: - Growth, expansion and gaining a competitive advantage. Enterprises can make the difference between their product and market will be able to earn profits. The research and find out way to making product more attractive by contrasting its unique value and difference with other competing products. Therefore, small firms can develop their businesses by exploit product innovation effectively, gaining a competitive advantage, attract customer as unique or superior. - Brand switching: the successfully product innovation will attract customers from rival brands. The introduction of the iPhone make mobile phone users to switch from Nokia, Motorola, Sony, etc. is the example. Besides, product innovation not only take advantages but also many drawbacks: - First, innovation will contain high costs and high risk of failure: When a firm engages to innovate its product, it will spend a lot of capital, resources into innovation process and it could take times for a business which an uncertain return. - Second, lost connect with others partners: the firms change the way operate, and the relationships between the business including customers, suppliers and counterpart will break down too. 2.1.3. Importance of innovation in entrepreneurship According Yeniyurt (2014), to determine the needs of communities which are changing from time to time, the industry leaders always needs to make the adaptation to maintain the economy. Both small and large business play the important role to help the 13 economy survive the changing times. In other words, it is necessary for a business to be productive, innovative and ingenious. Creating new products, enhancing the existing one or improving the manufacturer process are the samples revealed the importance of innovation in entrepreneurship. For examples, a business will have to consider to expand their current products and service to satisfy the changing prerequisite of their clients. They always seek the opportunity to find a way to make their product better through the innovation. In term of small enterprise, innovation is far more important than other factors in the success of their company. Why? Firstly, as a small enterprise, they will be able to compete with large companies by implementing lower price strategy which mean cost-effective and qualitative. In addition, they incentive their employees create something useful for the company. Both of it might be achieved by innovation. Nowadays, the global economy has been transformed to the knowledge economy. At the beginning, the economy commences from an agricultural economy to the postindustrial/mass production economy and it is continuously developing as the knowledge economy. Technology in general and knowledge technology in particular are the highly important elements. It will help to create the educational and innovative products and services which will gains more returns to business, especially in exportation. It marked by technological innovations movement and the global competitive for innovation with new products and processes. The Production–possibility frontier (PPF) curve is the clearly illustration for the importance of innovation. A production–possibility frontier (PPF) is a graphical exhibit of conceivable combination of two components which is the constant resources and the technology (Samuelson, 1967). In bellowed picture, the A, B, C, D are the points to produce. It means that the increasing the amount of product X will make the decreasing the amount of product Y. However, by adding technological progress, the PPF curve will move to the right and the possible point will now be the E which means we can produce more. 14 The economic will be able to produce more products and services than before. Thus, the innovation in entrepreneurship will also make the increase the productivity, then Gross Domestic Product will increase too. Figure 1: The movement of PPF curve to the right when have technological innovations Source: Samuelson (1967) 2.1.4. Determinants of Innovation. Limited resources and capabilities, weak external contacts, underdeveloped education, training and especially the cost are the disadvantages that all enterprises have to face. The invocation process is require in order to solve these negative effects. For example, through innovation, firms might find the best solution for cost reduction then they will be able to enhance the firm’s competitiveness in the global markets. Based on literature and case studies of innovations, the authors illustrate some factors determination innovation which will be stated below. First of all, knowledge-based innovation open up the ability to improve the products or the processes of manufacturing. The bases of new process and improved products are the research and development (R&D). The innovation process normally starts from the 15 R&D activities such as demand analysis, market survey, developing the new idea, testing it with assessment, learning and applying new technology, designing the new product. R&D is considered as the key factor encouraging technological change (Grunertet al., 1997). Most of the research claim that changing in technological is a necessary for innovation of firms (Huiban & Bouhsina, 1998). But some researchers have showed that innovation in small firms is not primarily R&D based (Le Bars et al., 1998). This statement seems to be true for this paper. In particular, according to Vietnam 2013 SMEs’ survey, there are a large amount of missing data because R&D cost cannot separate clearly from other costs. Commented [KH1]: 1.R&D 2.Phần này có nên bổ sung từ 4.1 lên hay không? Secondly, the characteristics of the entrepreneur such as background and skills and are believed to have a significant impact on innovation. These characteristics are considered to be more important in small firms than large firms which are complex and difficult to making decisions. These factors related to enterprise's characters such as: firm size, firm age, training cost, amount of labor, firm asset, firm profit, export activity…Empirical findings show that young owner/manager are more likely to innovate than the older owner/manager (Mascitelli, 2000; Avermaete, Viaene, & Morgan, 2002). Moreover, many studies have emphasized the importance of owner/manager’s educational background for innovation. They suggested that owner/manager with post-school qualification are more likely to innovate than other owner/manager of firms (Cohen & Levinthal, 1989). The innovating firms have tendency to expand their markets to earn higher profits from their investment (Teece, 1986). Thus, the positive relationship between export and innovation is expected. In many theories, networks and communities is the source of knowledge, and social capital is the indispensable factor of the innovation. According to Molina‐Morales et al (2010), they considered the role of social capital effect on firms’ innovation through process and product innovation. 16