The development of small and mediumsized enterprises in german economy in recent years

systematically presented theoretical issues about the development of SMEs in the economy, clarifying the controversial definition of SMEs, specifying the role of SMEs and clearly identifying the influencing factors as well as formulating criteria to evaluate the development of SMEs in the national economy. Practical significance of the thesis: The thesis has assessed the current situation of the development of SMEs in Germany from 2000 to present through each milestone. From there, analyzing the advantages and disadvantages of the SME development process in Germany as well as drawing lessons from the actual development of SMEs in the German economy. The thesis compares the similarities and differences between Vietnam and Germany in the process of developing their own SME sector, drawing useful policy recommendations for Vietnam in the coming time. 6. Structure of the thesis 5 The thesis includes four chapters: Chapter 1: Literature review. Chapter 2: Theoretical framework for the development of small and medium-sized enterprises. Chapter 3: Current situation of small and medium-sized enterprises’ development in German economy in recent years. Chapter 4: Current situation of small and medium-sized enterprises’ development in Vietnam’s economy and policy recommendations. CHAPTER 1 LITERATURE REVIEW 1.1. Publications related to the thesis 1.1.1. Publications related to theoretical framework of the SMEs There are two schools of thought that define SMEs: by qualitative and quantitative standards. Identifying SMEs according to qualitative standards is quite difficult, therefore, countries often use quantitative standards. There is no consensus in the definition between countries due to the difference in economic conditions and levels 1.1.2 Publications related to the role of SMEs Creating jobs, reducing the unemployment rate; Platform of the economy, promote growth; To compensate for the shortage and promote limited resources in the economy; Great potential in innovation. 6 1.1.3. Publications related to the influencing factors and the State’s supportive policies for SMEs Internal factors: enterprise resources; business management capacity; corporate culture; business development strategy. External factors: regulatory environment; policy environment; the role of the bussiness Associations; market competition. 1.1.4. Publications related to existing problems of SMEs Access to capital, technology, skilled labor, difficult to enter the market, affecting SMEs development. 1.2. Research gap and future research direction: 1.2.1. Contribution of previous studies: Previously published studies have solved many theoretical and practical problems related to the development of SMEs in the economy. 1.2.2. The gap needs further research in the thesis: There are not many fully systematized studies about the theoretical issues such as concepts, classification, roles and the impact factors, assessment criteria for SMEs development. The previous studies mainly analyze SMEs in Europe in general, few studies and assessments on the development of SMEs in German economy. The author of thesis found that there is still a lack of research focusing on the period from 2000 to present about the experience of developing SMEs in Germany, from that, to draw practical lessons for Vietnam. In addition, there are not many studies regarding a series of future difficulties that SMEs in Germany have to face, such as generation crisis, the race of SMEs in the industrial revolution 4.0 which is happening more and more strongly. 7 CHAPTER 2 THEORETICAL FRAMEWORK FOR THE DEVELOPMENT OF SMALL AND MEDIUM-SIZED ENTERPRISES 2.1. Theories of SMEs development Penrose’s The Theory of the Growth of the Firm; Resource-based view of the firm theory and dynamic capabilities theory; Greiner growth model; Michael Porter’s competitive strategy. 2.2. Small medium-sized enterprises 2.2.1. Definition Basing on qualitative standards: SMEs have much simpler operations and structures than large firms, low level of management complexity with few management clues. They also operate according to personal principles and the leader is usally the business owner. Basing on quantitative standards: The three criteria most commonly used by countries are based on the firm's annual balance sheet, its annual turnover, and the number of its employees. These criteria are not the same between countries due to differences in economic and social conditions ... In which, the criterion for determining SMEs in Germany is having less than 500 employees and a turnover equal or less than 50 million euros per year. 2.2.2. Characteristics of SMEs SMEs often have a simpler and more flexible operating structure and management method than large firms. The competitive position 8 of SMEs in the market is often unclear. SMEs also have limited capital resources, often relying mainly on the equity resources of the business owner. SMEs' ability to access loans from credit institutions is also much weaker than large firms. 2.2.3. Roles of SMEs in the economy SMEs create jobs, reduce unemployment; SMEs are the foundation of the economy, promoting economic growth; SMEs help to compensate for the shortages and promote limited resources in the economy; SMEs have great potential for innovation. 2.3. Concepts, evaluation criteria and factors influencing SMEs 2.3.1. Concept of promoting SMEs The concept of promoting SMEs has been popular since the late 1940s with the proposal of targeted policies including credit subsidies, tax support ... as well as the establishment of specialized government agencies to supporting SMEs to establish and develop. From the previous conclusions, the author of the thesis believes that promoting SMEs is a process to assist businesses in improving production and business activities through increasing access to the missing resources, improving the business environment, helping young businesses easily enter the market, and operating businesses can get favorable conditions for development, thereby re-contributing to the national socio-economy. 2.3.2. Criteria for assessing SMEs development in the economy Criteria for assessing SMEs development in the economy include: the proportion of SMEs number in the economy; the 9 proportion of SMEs contribution in the economy; the share of employment in SMEs sector; the rate of vocational training in SMEs. 2.3.3. Factors influencing SME development Internal factors include: enterprise resources; business management capacity; corporate culture; business development strategy. External factors include: the regulatory environment; policy environment; the role of business associations; market competition. 10 2.4. Framework for analyzing the development of small and medium-sized enterprises in the German economy 11 CHAPTER 3 CURRENT SITUATION OF SMALL AND MEDIUM-SIZED ENTERPRISES’ DEVELOPMENT IN GERMAN ECONOMY IN RECENT YEARS 3.1. An overview of the development of SMEs in German economy Although existed for a long time in the economy, it was not until the 1970s of the twentieth century that the role of SMEs was appreciated and gained great attention. At that time the German economy was facing many worries such as decreased growth rate, high unemployment rate in large enterprises due to technological innovation, restructuring operations leading to job cuts, potential risks including the risk of instability to the German labor market in general and would gradually create a great burden on the economy. It was during this period that the SME sector was expected to help the economy solve labor problems, create jobs for workers who lost their jobs, help stabilize production activities and promote national export capacity. With the advantages of small scale, flexibility in operating, and the recognition of the increasingly active role of SMEs by the German Government, SMEs in Germany have risen strongly, affirming an important position in the economy through many direct and indirect contributions, specifically: job creation, reduction of unemployment rate, promote start-up and self-employed trends, vocational training in enterprises, promote import – export, stabilizing East German and West German economies after reunification. 12 As of 2003, there were 3.38 million SMEs in Germany (accounting for 99.7% of the total number of enterprises nationwide), employing 19.98 million workers (accounting for 70.2% of the total number of employees), contributing 41,2% of total revenue in the economy and provide vocational training programs for 81.9% of total apprentice workers. In the early 2000s, the German labor market experienced many waves. The unemployment rate tended to increase. By December 2002, the number of unemployment registration applications reached 4.16 million, an increase of 197,000 over the previous year. The unemployment rate stood at 9,779% in 2003 and peaked at 11,167% in 2005. The bleak economy, the rising unemployment rate, and the heavy social spending burden required Germany to make timely reforms in order to stabilize the situation. 3.1.1. SMEs development in the early 2000s The Government was determined to implement a series of comprehensive solutions to thoroughly reform the German labor market and the difficult social welfare system. The core of this program was "Hartz reform" to support workers out of unemployment through vocational training subsidy programs, new job placement, start-up support; in addition to restructuring Federal Work Offices; reform of social assistance policies for the unemployed ... To achieve these goals, the German Government identified SMEs as the key to maintaining economic stability, the main driver of many jobs. Specifically, the German Ministry of Economy and Labor issued the "Small and Medium Enterprise Initiative" in January 2003 to specifically support this business sector's development. The initiative was also part of the German Government's 2010 Agenda 13 with six focused issues: Promoting entrepreneurship; Ensure financial support; Promoting vocational training, especially skilled workers; Reducing barriers from bureaucratic procedures; Promoting enterprise innovation; Promote investment and foreign trade exchange. In order to achieve the above objectives, the German Government implemented a series of solutions, through specific programs and policies to support SMEs, specifically: Regulating the business environment; Developing a cultural and entrepreneurial society; Promoting entrepreneurship in women; Help SMEs to access international markets, access financial resources; Promote development of e-commerce, innovation of technology for SMEs; Human resource training for businesses. With a series of synchronous solutions, the German Federal Government, through the contributions of SMEs, achieved many positive results, helping the economy gradually return to its trajectory when GDP growth from the lowest level which was -0.714% in 2003, rebounded to 1.19% in 2004, 0.722% in 2005 and peaked at 3,815% in 2006 before showing signs of decline due to the effects of the global economic recession in 2008. The German labor market benefited when in the early 2000s, the unemployment rate increased over the years and peaked at 11,167% in 2005, which tended to decrease in the following years. This shows that the solutions of the German Government have been effective and, in particular, the SME sector has shown its role in helping to stabilize the labor market. The position of SMEs in Germany is confirmed in the economy when it still plays a role as a support to the economy, promotes growth and plays a great role in creating jobs, reducing the 14 unemployment rate with the rate of enterprises account for 99.27% of the total number of enterprises in the country, of which more than 58% of the national labor rate. In addition, the rate of annual revenue contributing to the economy still maintains a significant market share at 33.64%, especially the role in vocational training and labor training is confirmed with 82.94%, helping to maintain sustainable static of the labor market. In addition, SMEs also help promote limited resources in the economy and have great potential for innovation. 3.1.2. SMEs development in Germany during the world economic crisis: The global economic crisis caused damage to every country in the world and Germany was one of the most heavily affected economy. The German Government was then facing more difficulties. GDP growth rate in 2009 bottomed out at -5,697%. Export of goods and services decreased, accounting for only 38.12% of GDP in 2009. With more than 99% of them being SMEs, employing a large number of workers in the economy, the German Government understood that the role of SMEs was of utmost importance in continuing to keep the economy stable. With the existing advantages of this business sector such as small scale, adaptive flexibility, flexibility in operation, skilled labor and the background of family companies operating through generations, the German Government adopted many supportive policies that gave priority to SMEs in Germany to quickly restore production during the crisis to help stabilize the socio-economic order. 15 First of all, to help ensure jobs for workers, stabilize business operations, the Government reopened the program "Kurzarbeit" with the aim of reducing working hours for employees. In this way, businesses would still be able to maintain operations without cutting labor, reducing the risk of unemployment burdens for society. Along with that, the Government also through communication channels and trade unions, widely advertised this campaign to workers to increase awareness and sense of cooperation among workers with businesses. Accordingly, the Federal Employment Agency would pay workers up to two-thirds of the wages lost during the reduction of hours compared to the past and would compensate between 50% and 100% of the contribution to other social security contributions that the business owner must pay. In addition, the Government also measured to support the macro-economy such as introducing a series of initiatives to stimulate economic activities in some areas, including direct credit support to businesses, sponsored by KfW Central Bank, subject to special interest in SMEs. The Government also constantly innovated and promoted the creative and entrepreneurial spirit of enterprises and entrepreneurs. With the timely support from the German Government, the SMEs in the economy gradually stabilized their production activities and contributed to stabilizing the labor market. Confidence and optimism from SMEs were back. In 2009, there were only 90,000 job loss cases, a very small percentage of the SME workforce. In 2010, a positive trend in new enterprise establishment was recorded, reaching 417,600 enterprises, an increase of 1.2% over the previous year. Besides timely policies from the Government, the SMEs in Germany also received strength from the European Union. Accordingly, the 16 Small and Medium Enterprises Act passed by the European Commission in June 2008, expressed the expectation and reflected the European Commission's political will to define the position and the important role of SMEs in the EU economy. Summarizing in the world economic crisis, although the economy faced many difficulties, with a series of synchronous and timely policy solutions before and during the crisis, the German economy with SMEs as the backbone had quickly regained their momentum of growth and stabilized their production. The GDP growth rate bounced back in 2010 when it reached 4,179% and remained high at 3,924% in 2011. The unemployment rate in Germany has steadily declined over the years. This reflects that German production and business activities are generally guaranteed and the labor market protection policy has taken effect. In 2010, the unemployment rate dropped to below 7% and only 5.379% in 2012. Annual German export figures also jumped from the bottom to 1,272 billion euros (accounting for 46.3% of total GDP) in 2012. As of 2011, the proportion of SMEs still accounted for more than 99.6% of the total number of enterprises and employed about 60.2% of the total national employees. In addition, the role in vocational training and training still accounted for a high level, up to 83.2%. The SME sector also contributed 37% of the total revenue in the economy and accounted for 51.8% of the total contribution to value added. It can be seen that SMEs in Germany still maintain effective operations despite the prolonged economic crisis. 3.1.3. SMEs development in Germany in recent years: In recent years, the world economy in general and the German economy in particular have gradually recovered after the crisis, with 17 many signs of prosperity. SMEs in Germany during the past crises always asserted their position and role as a foundation of the economy and were recognized. The development of the SME sector not only helps create jobs and reduces unemployment rate but also directly boosts the economy (through strong contributions to GDP, import and export value), helping to promote scare resources in the economy and promotes innovation, creating a more flexible and competitive economy. The development of SMEs in the period from 2010 up to now is mainly in the direction and development of the entire EU bloc. In the new context, in order to effectively implement the goals of the European Strategy 2020 and return the economy to a development trajectory, the German Federal Government has identified SMEs as the top priority. The German Federal Government has implemented a series of policy reform measures to promote the SME sector to continue to prosper in the economy, in particular: Eliminate bureaucracy; Attract and train skilled workers; Improve access to finance; Promote innovation through research and development funding programs; Promote entrepreneurship. Accordingly, by 2018, there were about 3.81 million SMEs in Germany (statistics based on the definition of German SMEs), accounting for about 99.95% of the total number of enterprises in the economy. Of these, there were about 3.1 million businesses with headquarters in West Germany (accounting for 82% of all SMEs) and 698,000 businesses with headquarters in East Germany (accounting for 18%). In which, businesses operating in the service sector increasingly accounted for the majority in the economy. Accordingly, there were about 2.87 million enterprises (accounting for 76% of all 18 SMEs) operating in the field of service provision, of which 1.51 million of these (accounting for about 40%) provide knowledge concentration services, and this trend is still increasing. There were 1.4% of SMEs (about 52,000 enterprises) operating in the field of research & development - intensive production. In addition, the other manufacturing sectors accounted for about 6.7% of the total number of SMEs yet employ 16% of the total number of employees. The rate of labor growth in SMEs has always been stable and has been on a strong trend in recent years, reaching 3.3% in 2018. This trend is seen as the result of a series of key solutions policies that the German Government has implemented to support SMEs to stabilize production activities and create a solid foundation for the national labor market. 3.2. Evaluation of SME development in the German economy 3.2.1. Advantages of SMEs in Germany Corporate culture is tight and has high flexibility; Have a business strategy based on a long-term vision; Enterprise resources, good business management capacity; Build a competitive advantage and a global customer network. 3.2.2. Some problems exist for SMEs in Germany SMEs in Germany face a generational crisis; Challenges in innovation, Industry 4.0. 3.3. The lessons learned from the experiences of SME development in Germany: Throughout the development of SMEs in Germany, especially from the 2000s onwards, the SME sector has proven effective in terms of both quantity and quality. SMEs in the German economy have been recognized their right roles and their potentials, and since 19 then the German Government has developed appropriate programs and policies to help these businesses maximize their potential development. It is easy to see that, through the upheaval of socio- economic events, the policies promulgated and implemented by the German Government focused on the stability of SMEs and taking it as the foundation for stability in the economy. Through the achievements over the past years, lessons can be drawn from the practice of developing SMEs in Germany, specifically: Renew awareness of the role of SMEs in the economy; Building a complete legal system, active policy mechanisms, eliminating bureaucracy; Promote entrepreneurship, support innovation; Increasing SMEs' access to financial resource; Human resource training; Expanding the market, participating in the global value chain; Building a foundation of corporate culture; Make good use of opportunities, seize opportunities. CHAPTER 4: CURRENT SITUATION OF SMALL AND MEDIUM SIZED ENTERPRISES IN VIETNAM'S ECONOMY AND POLICY RECOMMENDATIONS 4.1. Current status of SMEs’ development in the Vietnamese economy Since the "Doi Moi" revolution that took place after the 6th Congress of the Communist Party of Vietnam (December 1986), Vietnam has witnessed a comprehensive economic reform. From an underdeveloped economy in all aspects, central planning mechanism, 20 bureaucracy and subsidies, state-owned enterprises (SOEs) hold the majority of fixed assets and operate poorly. Due to many difficulties, the State has gradually reformed the corporate apparatus and rearranged the enterprise system. By the end of December 31, 2018, there were 714,755 enterprises nationwide, increased by 9.2% of the same period in 2017. Accordingly, in the last three years, the country has more than one hundred thousand newly established enterprises each year, the highest ever recorded (in 2016 there were 110,100 new enterprises, in 2017 there were 126,859 new enterprises and in 2018 there were 131,275 newly established enterprises). Out of 714,755 businesses, the number of private businesses accounts for 96.66%. The number of SMEs in the private sector accounts for about 98 %, the rest are large-scale enterprises, employing up to 51% of the total number of employees in the total enterprise sector and generating 43% of GDP for the economy. The SME sector also contributes about 30% of the state budget. 4.2. Similarities and differences between Vietnam and Germany It can be said that, compared to Germany, the development of the SME bloc in Vietnam is just the beginning. Capital, technology and human resources of enterprises are still limited. Business management capacity is not really professional, there is still a fragmented mentality, business development has not followed a long- term strategy and especially the SME sector in general has not formed a strong enough corporate culture and corporate identity. In addition, although the legal and policy environment has been improved, there are still many shortcomings, which are barriers for businesses to access support resources. The competition in the market is increasingly fierce when Vietnam is deeply integrated into the 21 international economy, SMEs in Vietnam will not only have to compete with domestic firms, but competitors will be global businesses, and compete in Vietnamese market itself. The role of intermediary associations, business support organizations, the Vietnam Chamber of Commerce and Industry, although initially promoting its role as a guide, connecting SMEs with large enterprises, with foreign markets, participating in the supply chain, but still need more substantial support. The above factors both subjective and objective are obstacles in the development of SMEs in Vietnam. 4.3. Some policy recommendations for Vietnam First, from an ideological point of view, it is necessary to clearly define the role and position of SMEs in the economy in order to have proper and timely support policies. Seco