SME

Toward the development of Capital Ventures in Vietnam and so easier access to funding for SMEs

 

startup

 

Without the existence of capital ventures, may be there would be no Silicon Valley in the US. Recognizing that capital is a pre-requisite for the success of any start-up business and in view to promote innovation and make Vietnam an entrepreneur nation, a draft legislation is currently submitted by Vietnam’s Ministry of Planning and Investment to public review with the aim to make easier and simpler the set-up, management and operation of venture capital funds.

Basically, with this new legislation:

  • Venture capital into start-ups is defined as investment with high level of risk either through loans or equity stake in view to launch and develop a business in its early stage for its potential and which is not yet profitable.
  • The time needed to launch a venture capital fund would be minimum, only three days
  • The existing regulations on the securities investment funds (eg. have a minimum capital of VND50 billion or US$2.2 million or at least 100 investors) would not be applicable to the operation of a venture capital fund.  A venture capital fund however would not be allowed to borrow money for investments.

This should contribute to accelerate the development of start-ups and SMEs in Vietnam particularly in the industries such as IT, medical industry.. .where the country has significant competitive advantages.

Today the number of capital ventures dedicated to SMEs in Vietnam is very limited (eg. FPT Venture). Most of the other funds, coming from the banks and the large State-owned enterprises, target mainly large projects for established companies.

Some foreign funds have a representation in Vietnam (eg. CyberAgent , 500 Startups, Golden Gate Ventures) but the number of transactions is limited, about 10 per year currently.

 

 

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2016 Wish List - State's concrete supports be made available to SMEs at earliest date

 

2016

 

In parallel to the prochain adaptation of the Trade Law which should clarify further the legal framework of doing business in Vietnam and particularly the principle and enforcement for a fair competition for all participants in the marketplace, a new legislation aimed at providing support to SMEs is in the process to be prepared in Vietnam. According to the Ministry of Planning & Investments, this preparation process can take up 2 to 3 years before its submission to the Parliament for vote.

While such a long delay may be justified by the law-making process, the competitiveness of Vietnam domestic enterprises and SMEs particularly is deterioting visibly by the days ( -10% in Vietnam’s total export vs +21% for FDIs in 3Q2015 compared to a year earlier – Source : Vietnam’s customs department / Bloomberg Nov 9, 2015), and this in a context of higher integration of Vietnam in global economy with the coming entry in force of large free trade agreements (TPP, Vietnam-European Union, Asean …) and so more fierce competition from other countries.

Urgency is thus required that necessary supports to SMEs be implemented and effective at earliest date. Such supports which are in fact needed to re-etablish the fair competition for SMEs as recognized by many countries including the US, Japan, Korea, European Union, could include:

In terms of infrastructure


- A one-stop-center administration to help / assist SMEs across the country
- A percentage of all public procurement tendering is reserved to SMEs
- A guaranteed access of SMEs through Partnership contracts to public technical resources (universities,      Research centers…)
- Develop specific industrial parks with favorable terms and conditions for SMEs encouraging industry cluster
- Develop training centers to cover key needs of SMEs particularly in high technology skills

In terms of funding

- Create conditions for the development of venturre capital funds
- A public fund dedicated to equity investments in SMEs and start-up upon economic criteria
- Set up mutual to provide collective collaterals for loans to SMEs
- Set up legal framework to develop crowdfunding for SMEs with tax deduction for public investors
- Provide subsidies and grants for R&D costs
- Provide tax incentives to startups/SMES in their beginning years

This is also ATTP Capital's wish for 2016.

 

 

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Join force to transform Vietnam SMEs into Global Champions on world market

 

engineer

 

Vietnam is a market of 90 million people. It succeeds to establish itself as a global manufacturing hub thanks to a high skilled but low wages workforce, a favorable geographic position close to China, a stable and business-oriented government and being the member of a large free trade zone.

In terms of industrial achievement however, Vietnam’s success is limited.

It has leading position on world market for some farm products (rice, pepper, rubber, coffee …) or seafoods . Its products however are still not part of the best quality or price in the marketplace.

For industrial products, Vietnam is a world exporter for garments, footwear, leather, electronics and telephone. It is however mainly a labor provider to foreign-direct-investment companies established in Vietnam (FDIs).

So there is still a lot to be done for Vietnam to be at the level in comparison to other countries in the region (particularly Malaysia, Taiwan, Korea) and to be able to build global champion positions under its own brands, with products and services created and engineered by its own people, with most added value kept in the country.

Small and medium enterprises (SMEs) are the main force in this battle. Taking into account Vietnamese SMEs’ main recognized weaknesses :

  • working mostly in isolation
  • unsufficient access to up-to-date technology
  • lack of funding for growth investment,
  • focus mainly on domestic market and low cost product
  • lack of concrete and sufficient support from the state,
  • unfair competition from state-owned enterprises and FDIs

At ATTP Capital, we believe important to provide the SMEs with the facilities to easily join force through cooperation and partnership, within the business community at large, Vietnamese and foreign enterprises, in the key areas of business development: technology transfer, marketing and distribution, manufacturing, supply chain, equity funding, in view to accelerate growth .

This is also the objective of our service, free of charge, of Business Cooperation Search & Offering. ATTP Capital can assist you in the negotiation of the contractual agreement between the parties.

Vietnam SMEs and Growth strategy

 

prelim overview

 

 

Vietnam now is at the center of a free trade zone covering a major part of world economy thank to the free trade agreements already signed and implemented ( Asean, Japan, Korea, China, India, Australia, New Zealand, Chile, Customs Union of Russia, Belarus and Kazakhstan) or being finalized ( Trans-Pacific Partnership which has a much larger scope than just tax and customs, signed in October 2015 and pending ratification, European Union, negotiation concluded and to be signed in beginning 2016).

With its lower wages but educated workforce, its relatively good infrastructure and easy business environment and the State’s volontarist industrial policy, Vietnam will benefit a significant competitive advantage, not only on cost, to attract foreign investments to become a stronger world manufacturing hub compared to its most direct competitors (China, India, Thailand, Philippines) and to increase its export power particularly within its large free trade zone.

Meantime, the local business, particularly SMEs, will face in its domestic market with tougher competition from other countries as a result of a long time priority given to export at the detriment of home market and of unsufficient funding and so investments in product quality, innovation and marketing compared to competitive products from other countries.

Overall however, being part of large free trade zone, which includes the most important consumer markets such as the US, Europe, China, Russia, India, Mexico and Asean countries, provides the historic opportunity for Vietnam’s enterprises to enter and develop and grow market share, not only on labor contribution but more importantly on value added products and services. To make this happens requires :

- A clear understanding of the business current status
- A careful thinking , planning and execution by business leaders in respect of market and product offering, business organization, profitability and funding over a period of 3 to 5 years.

At ATTP Capital, we work together with our clients in this critical process through the preparation of the preliminary Business Overview in the first stage and then the building of the Growth Strategy in the second stage.

 

 

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