This paper has examined internal business organization in the private garment industry in Vietnam, and has shown that the country’s private sector is much more heterogeneous than
is often suggested. Four segments of enterprises distinguished by their locations in northern or southern Vietnam, the business owner’s origin in either, and also whether they are of Vietnamese or Chinese ethnicity, have been included in this analysis. The paper has used the business systems approach to highlight systematic disparities in internal business organisation between these four segments.
While ethnicity clearly had a bearing on internal business organisation, this was not for the reasons that one might have expected. Vietnam may have two ethnically based business systems as suggested in the theoretical section above but, at least in terms of internal business organisation, the differences between them do not really appear to depend on culture. In this respect, it makes most sense to see how ethnicity and culture influence management and ownership by comparing the two segments that live and originate in HCMC, since the other conditions created by historical and present-day key social institutions for these segments have been the same. Using the business system method of systematic comparison and contrast has brought us to the important conclusion that ways of dealing with firm-level organisation differ very little between these two segments of enterprise owners. This is perhaps not so surprising, since Vietnamese as well as Chinese culture is basically Confucian, and therefore characterised by similar family-based and patriarchal authority relations. Still, this result is in itself interesting given the serious lack of knowledge about Vietnamese business culture compared to, for instance, the overseas Chinese family business. Also, systematic comparisons of the two groups’ ways of running private enterprises in Vietnam today otherwise barely exist. It is also clear from the analysis that while the Hanoi and HCMC segments differed, enterprise location in one of these two places was not a satisfactory explanation for this, since there were also differences between the two types of Vietnamese-owned enterprises in HCMC.
Thus, the business systems approach has helped us reveal a picture, a snapshot, of similarities and divergences in terms of internal business organisation in contemporary Vietnam, but it has not really offered causal explanations for them. Further reflections on the reasons why there are still differences between the four segments of enterprise owners are needed. These reflections are mainly based on factors that do not derive from the business systems approach but mainly have to do with the personal “state” histories of enterprise owners. The most plausible explanations for the differences between private-sector enterprise owners in Vietnam therefore seem to relate mostly to their origin in two very different political economic systems, rather than where they are located today. Hence, Hanoi enterprise owners and Vietnamese of northern origin in HCMC are much more influenced by the former planned economy than their Vietnamese and Vietnamese Chinese counterparts who come from HCMC.
Moreover, differences are constructed through the relationship between the Vietnamese state and private enterprises in general and the Chinese minority, historically and at the present day, in particular, which creates a Vietnamese Chinese segment that is much more
“consciously private” and much less influenced by any version of state relationships than any other segments. Finally, these differences relate to the transitional nature of Vietnam’s economy today, which means that the private sector contains a variety of former SOEs, former state-sector employees and small-scale family businesses, in which factors like the diverse educational backgrounds and former employment influence the present management strategies of enterprise owners.
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Paper 3: Divisions within the private clothing industry in Vietnam: business–state relations and access to finance and land
Introduction
Economic reform in Vietnam has lead to a boom in private enterprise. The registered private sector is highly heterogeneous, for example, in that it consists not only of newly registered enterprises, but also of “equitized” state-owned ones. Moreover, other intra-sectoral differentiations exist that have been subject to virtually no research. It is argued here that these derive mainly from Vietnam’s political history and current political economy, both of which profoundly influence the relations of owners of private enterprises with the state today. Two interrelated aspects of the effect of such relations are the focus here: first, business owners’ access to those resources that are associated with establishing and expanding businesses, most importantly capital and land; and secondly their access to and support from business associations in terms of obtaining these resources. This paper suggests that both types of access and support depend less on regulation – and in the case of access to business associations, less on attributes like size of enterprise or specialisation, as would commonly be the case in the West – and much more on personalised relations (quan he) between the owners of private enterprises and different levels of state officials.
Business–state relations exist between the owners of private enterprises and individuals at different levels of the state, including state-owned enterprises (SOEs), intermediary associations, the police, customs, ministries, and various peoples’ committees (city, district, ward). They generally relate, for instance, to private enterprise owners’ former employment in the state sector or their party membership20. The paper further argues that, in the Vietnamese clothing industry, enterprise owners’ possession or lack of such relationships is closely connected to their ethnicity, as well as their present location and/or origin in either northern or southern Vietnam. Hence the paper deals with four segments of private-sector enterprise owners against this background, namely Vietnamese Chinese in Ho Chi Minh City (HCMC), Vietnamese in Hanoi, Vietnamese of southern origin in HCMC and Vietnamese of northern origin in HCMC.
The close association between a business’s relations with the state and its ability to access resources is also an issue in some of the literature on other transition economies, as well as on South East Asian economies. In South East Asia, business–state relations are often
20 More recently and/or strategically established relations also exist. They seem less “effective” and more randomly used than personalised relations. Here, however, it is the connection between the personal background of enterprise owners and their present possibilities that is the main focus.
considered a “grey” zone and are seen not least to relate to networks of large-scale enterprise owners in general and of ethnic Chinese-owned enterprises in particular, although this point cannot be confirmed in the empirical case of Vietnam, as discussed below. Of the private enterprise owners described in this study, the Vietnamese Chinese engage least in relations with state officials, while ethnic Vietnamese of northern origin and with historical relationships to the communist government in Hanoi are much more
“connected”. It is very clear that those business people who had close connections with the North Vietnamese state before the country’s reunification are also those with the most effective networks today.
In transition economies, as a result of privatization specific resources are no longer state property, but the question then becomes to what extent access to them has ceased being a matter of state control. In Vietnam, difficulties in accessing capital and land21 are commonly regarded as symptomatic of the private sector in general as opposed to the state sector (see Appendix I for details of the land market and the financial market). SOEs are allowed to borrow from the state-owned commercial banks, which account for three quarters of total credit in Vietnam. Therefore, credits are mainly distributed to SOEs (Vietnam Development Report, 2005). As a consequence, it has been estimated that only about 55% of Vietnam’s private enterprises have access to bank loans, mainly in the form of short-term credit that is used for working capital rather than for fixed capital investment. Thus, private enterprises generally rely on family savings, retained earnings or informal credit markets at high interest rates (MPDF, 2004;
Cortés and Berggren, 2001). Likewise, the existing distribution of land also favours SOEs, which receive an initial land allocation free of charge, along with long-term land-use rights (see e.g. Vietnam Development Report, 2005). For private enterprises, obtaining land-use rights by leasing land from the government is a very lengthy and costly process, and in any case these cannot be transferred without state permission. As a consequence, an estimated 70% of all transactions in land-use rights take place in the vibrant unofficial market in which private businesses lease areas of land from SOEs or farmers (IFC, 2003).
However, it is argued here that this notion of a private–state dichotomy is far too simplistic in the sense that, while SOEs may be generally favoured, not all private enterprises work under equally adverse conditions. This is not least because state and private ownership is not easily distinguished in contemporary Vietnam, where a large proportion of enterprises are neither really private nor truly state-owned (Gainsborough, 2003). For example, some former SOEs have been “equitized” and registered as private but still contain state stock, while other private enterprise owners are former state employees who have been able to transfer particular assets to their private enterprises. Based on extensive fieldwork, this paper suggests that in Vietnam access to resources for businesses does not so much relate
21 Land is not regarded as a commodity in Vietnam, and trading in land is not allowed by law. Only land-use rights are regarded as a commodity, and hence a market for these rather than for land itself (Dinh, 2003) (see Appendix I for details).
to their size, as the literature on small and medium-size enterprise (SME) performance commonly suggests (see e.g. Harvie and Lee, 2002; Steel and Webster, 1992), nor does it depend entirely on ownership form, as is commonly suggested by scholars of Vietnam (see e.g. Van Arkadie and Mallon, 2003; Diehl, 1998). More significantly, it is determined by the owners’ historical – and thus present – relations with the state, and is therefore mediated primarily by Vietnam’s political history. In demonstration of this argument, the paper examines the different possibilities for accessing finance and land for the four segments of private enterprises in the clothing industry. As already mentioned, these segments are based on the owners’ ethnicities and also on their origin and/or location in southern or northern Vietnam, all of which, it is argued, have an impact on their relations with the state, both historically and today.
Business associations are often regarded as important mediators between the private sector and those bodies in the state system that regulates it. Doner and Schneider (2000) remark that, from a New Institutional Economics point of view, business associations are usually seen as non-state institutions that may or may not, for instance, reduce transaction costs and rent-seeking. Likewise, potentially they have the ability to support their members in accessing specific resources, either by providing them with various kinds of business service, or more indirectly in terms of contributing to the construction of a business climate or a regulatory system that can offer better opportunities for enterprises. Bearing in mind that the private and state sectors are not easily distinguished in Vietnam, as suggested above, the question here is to what extent Vietnamese business associations offer support that matches the needs of private enterprise owners in Vietnam in general, or whether they contribute only to widening the gap between state-connected and state-unconnected enterprises, and thus to further segmentation of the industry.
The paper falls into three parts. First, it will examine the discussion of business–state relations in other South East Asian economies and other transition economies. Secondly, some background on the role of business associations in Vietnam is provided. Thirdly, the different segments of enterprise owners’ access to land and capital, including their gains in this respect from different business associations, are examined sequentially. Finally, the findings are summarized and discussed.