1. Major difficulties and obstacles to internationalization of Vietnamese SMEs

1. Financing problems

Lack of capital to expand production and business are considered as common phenomenon of SMEs. Despite of Vietnamese government’s effort to facilitate SMEs’ process of accessing capital and commercial banks have made great strides in the provision of credit to SMEs, surveyed about the difficulties, more than 60% of SMEs often have difficulty in financing, according to Vietnamese Ministry of Planning and Investment (VMPI, 2009). SMEs usually mobilized capital from relatives, friends or bank loans. Clearly, the poor access and low speed to access to capital is main disadvantage of SMEs compared to large corporations because it stymies the expansion, especially foreign expansion, of SMEs. The fact that only 30% of the capital is borrowed from banks and credit institutions. The main reasons are, most business have insufficient collateral for the institution to borrow money, financial management is not really transparent, and creditors sometimes acquire reputations as credit worthy because of moral hazard and adverse selection problems (TD). Sometimes, in hurry and needing capital, SMEs have to pay for non-financial creditors with interest rates 3 to 6 times higher than common official rates (VMPI, 2009).

2. Difficulties in land and production premises

Another difficulties that SMEs have to face is land and production premises. To some extend, it is also another financial problems for them. Over half of SMEs have major operations in the field of trade and most of them use their house as office, or lease small offices (VGSO, 2009). Otherwise, many manufacturing SMEs have to rent the land or premises with high cost. Even when they want to have long-term investment, there still is hesitation due to lack of legal guarantee (TD). Recently, many places have carried out many planning and construction of industrial clusters of SMEs aimed at bringing together the business production business. Some provinces such as Ha Noi, Bac Ninh, Vinh Phuc, Hung Yen, Hai Duong, Ha Nam, Thai Binh, Da Nang, Quang Nam, Quang Ngai, Binh Duong, Dong Nai, Ho Chi Minh City…have built many industrial clusters for production and attracting foreign investment. However, due to rent land with inadequate financial capacity of businesses in small scale, so many SMEs still cannot access these zones. SME survey data in 30 northern provinces, showed that 42% of businesses having difficulty in land and production premises.

3. Imperfect information

Another disadvantage of SMEs’ entry is their information disadvantages about market such as labor market, materials market, and output market conditions. Besides, customers’ poor information about these new entrants also account for blockade new SMEs have to face in foreign expansion procedure. However, there is argument that steady entry might erode the information barriers because later entrants can learn from earlier entrants’ mistakes. The higher steady flow of new entrants, the less dependence of customers and even workers on established large corporations (TD)

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4. Corporate management is not high quality and low quality human resources

Level of production and business management of SMEs which are almost private enterprises, is still limited and largely based on personal experiences of business owners, investment with little application of information technology into management. Skilled workers in SMEs are fewer compared to large corporations because of relatively lower and less stable salary. Especially, new market entrants also may find it difficult to attract good workers because employment and contracts with established large firms are seen as less risky.