Making Service Markets Work for Enterprise Competitiveness 8 March 2006 Phuket, Thailand

1. From Research to Policy Actions: GTZ and the Development of Selected Service Markets in Vietnam Making Service Markets Work for Enterprise Competitiveness 8 March 2006 Phuket, Thailand Le Duy Binh GTZ SME Development Programme

2. Vietnam: A Quick Overview of the Enterprise Sector • A relatively fast growing economy • A boom in the development of the enterprises. Now nearly 200,000 enterprises and 2.6 million micro business (family based). • Private enterprises now contribute to 39% of GDP, providing 88.2% of total regular jobs and 28% of total investment into the economy. • However, enterprise incidence is low at less than 2 enterprise per 1,000 population. • Aim: 500,000 formally registered enterprises by 2010. • Competitiveness of private enterprises is now a matter of critical concern by the Government, particularly in the context of Vietnam’s imminent accession to WTO and full implementation of bilateral trade agreements to which the country is a signing party. • Strong national trend and commitment to improving the business environment for SMEs.

3. Business Service Market in Vietnam: A Quick Diagnostic of Problems At the onset, GTZ undertook consumer research on use and satisfaction on 14 different services and found that: • It is quite difficult persuading consumers to try service for the first time. • Entrepreneurs are very risk adverse • Many don’t see the need for particular services • The business culture in Vietnam discourages outsourcing of services • A lack of suppliers and appropriate, good quality service products • Costs are high in some service markets • Retention is also problematic in many service markets. • Provision of free services is quite rare in Vietnam, however, subsidized services are significant in some service markets like business management advisory, technical and vocational training and technology advisory services. Interviews with users and providers in some service markets indicated a strong link between the low level of reach, low level of retention and the legal constraints in that service sector.

4. This link urged GTZ to undertake an investigation into the legal environment for BDS… • Initiated by GTZ and implemented by a consortium of local institutions • CIEM (policy think tank), Vision (consultancy company) and VCCI (Chamber of Commerce) • Covering 7 services in the first phase and 3 services in the second. Selection criteria: • High relevance of services for SME • Interest of the general public in the development of the service market • High potential benefit of reform for the functioning of the BDS market • Feasibility to reach an effective policy reform

5. The Findings Highlighted Some Key Legal Constraints for BDS Market Development • Regulations on specific BDS contradict the Law on Enterprises (LOE) • Decree on Consulting Services does not recognize individual and freelance consultants • Criteria for market entry complicated or unclear • IP service providers must have min. 2 members with IP agent certificates (very difficult to obtain) • Restrictions on the transactions of BDS remain • 7% cap on spending on advertisement services • Attitude of business registration officers • Entrepreneurs may not be able to register a service, when the officer has never heard about it before • Unfair and discriminatory treatment between private and state-owned service providers: • Some service industry is only reserved for SOEs or the entry conditions for private SMEs are very high.

6. The choice we made…. In the face of these problems, GTZ adopts an integrated approach to improve the legal framework for selected BDS markets in Vietnam • Origins: The Project has evolved from providing inputs at micro and meso level (from 1994 – 1999) to interventions at meso and macro level (appro. 2000-04), i.e. from the “creation and growth of SMEs” to “improve access of services for SMEs” and “a better environment for BDS”. • Objective is “a functioning market for BDS contributes to strengthening the competitiveness of SMEs”. • Strategy: Unblocking legal constraints of selected service markets will facilitate their development • Role: Right at the outset, we saw our role to facilitate the work and performance of other national facilitators.

7. Creation of an Enabling Environment for BDS Markets in Vietnam SME PROVIDER PROVIDER SME SME PROVIDER PROVIDER SME SME PROVIDER PROVIDER SME SME PROVIDER F A C I L I T A T I O N Reason for our choice • Availability of local capacity on policy research/ analysis; • National trend and commitment to improving business environment for SMEs – hence promising a higher chance of success; • Strong opportunity to strengthen facilitation skills in local organizations • In the belief that many enterprises will benefit from an improved policy, the potential outreach and impact of the action will be larger; • There is no risk of subsidy to transaction of services. • The approach promises that local ownership will be sustained, even after external facilitation like the one by GTZ ceases.

8. How our intervention worked in practice: the case of intellectual property (IP) services • Our first action: selection of IP service market as a target market. • A critical important service for business but with very low reach (5%) and retention (45%). • Our in-depth study on a legal framework for IP service found: • Market entry conditions: too high for IP service providers, hence limited competition in the market. And this market entry condition is against the Enterprise Law. • Study results publicly discussed in GTZ co-organized forums with national stakeholders like VCCI and Vietnam Business Forum • Support to VIPA (Vietnam Intellectual Property Association) in using the result of the study for its advocacy work. • Findings and recommendations discussed with the Enterprise Law Implementation Taskforce, the body directed by the PM to remove legal stipulation against the Enterprise Law.

9. These actions are supported by a press campaign • Mass media becomes informed and active player in the process • National stakeholders encouraged to talk about the issues on the local press • A local PR company contracted to advise on the campaign and to implement part of the work • More than 40 articles on local leading newspaper, TV within 7-month time frame • Heightened awareness of legal constraint puts pressure on relevant authority to take action.

10. LOE Implementation Report recommends: “…Number of IP Representative Certificates required should be reduced or replaced with business conditions” Directive by PM: “….Ministry of Science & Env’t shall replace IP representative certificate requirement with business conditions…” Action by Ministry of Science: A Decree was drafted to reduce the # of required certificates to one and ease entry conditions (in April 2005) The process produced some results in terms of policy change which make the life of IP service providers easier: BDS Research Report: “…IP service providers must have min. 2 members with IP agent certificates (very difficult to obtain)…”

11. Some impacts observed at the enterprise level • Market Entry: The new decree allows that “law offices can also provide IP services”, helping to increase the number of IP service providers to more than 200 hundred all over the country (source: Vision and Associates); • Appropriate Service Offers: Due to stronger competition, IP services are much better in terms of timely delivery, quality, price and customers satisfaction. • Bottom Line Benefits to Service Providers: No data on aggregate spending in the last two years on IP services available, but 5 companies interviewed by GTZ in August 2005 disclosed that their revenue from IP service increased by at least 15% as compared with the same period of 2004.

12. Challenges which threatened to derail our effort: • Skepticism of some national facilitators at the beginning about the possible impacts of intervention at more macro level: • GTZ worked out a road map and a strategy, and discussed with many potential facilitators in order to find the ones with the most interest • Lack of experience in Vietnam on this kind of intervention in development of service market • GTZ adopted a learning by doing process. Learning from the mistake we made. • Some national facilitators lost enthusiasm and interest during the process due to the too long process (more than two years) which produce very little tangible results at the beginning. • GTZ identified some most immediate and tangible results to encourage them, e.g. the interest of the public has increased which is proved by the number of articles written. • Negative Reaction from the government ministry who was going to lose the regulation which impose legal constraint on the service market • GTZ used public pressure on them through the press, encouraging biz association like VIPA to speak up, encouraging the LOE Taskforce to show that the legal stipulation is against the law.

13. Lessons on effective facilitation • Before entering the process • Testing the national interest: topic of common interest with national facilitators • Making sure that the national stakeholders are aware of the importance of the problem if they are addressed. • Showing the benefits (short-term and long term) to the national facilitators if the issue is addressed (both for their institution and for the business community). E.g. VIPA will be more recognized by its members if the issue is addressed. • Together with national facilitators, working out a common objective, pre-defined indicators of possible impacts and results, using it as the orientation for the whole implementation process.

14. Lessons on Effective Facilitation • To sustain national ownership of the process and the success of the exit plan make sure it produces concrete results • National facilitators implementing the works: national ownership is important to make sure that action will be taken; • External facilitator only provide advices, international good practices. • Selecting the right partners: making sure that the facilitators which we work with have direct reporting channel to policy making bodies and the Government. The partners need to the progressive, active in policy advocacy and have a good image. • Linking the issue with the core mandate of the national stakeholder. • As policy improvement intervention is a lengthy process, national facilitators might lose interest in the middle of the process, it is important to find out the immediate results of the actions and show them to national stakeholders as encouragement. E.g. about number of articles on newspaper, feedback of the business community, etc. • The mass media play a critically important role in producing policy change in favor of service market development.

15. Lessons on Effective Facilitation • Implement an exit plan to ensure that national ownership and follow-up actions will be sustained: • Strengthening the capacity of the national facilitators in facilitation. • The entire process, lessons learnt, techniques are documented, enabling national facilitator to replicate and manage the whole process independently • After the process, discuss with the national stakeholders about how the process has benefited their organization in particular (e.g. in terms of fulfilling their mandate) and the business community in general • Creating a kind of peer pressure which force them to perform even better after the process is finalized. • Pressure by VIPA members to urge the association to take additional action to address other legal issue in the IP service market and to monitor the implementation of the promise by the Government. • Pressure from the press on CIEM to address other issues which are against the Enterprise Law • Provide some “after- sale service” by GTZ even after it phased out of the intervention: e.g. limited support to VIPA to monitor action taken by the Government or to CIEM in tracking down the impacts of the action which was taken by the Government.

16. Thank you and for additional information, please contact us:GTZ SME Development Programme G.P.O Box 195, Hanoi, VietnamEmail: binh.le@gtz.deWebsite:www.sme-gtz.org.vnwww.sme.com.vn