Mounting Pressures
The COVID-19 pandemic dealt a significant blow to SMEs, and the post-pandemic business environment has continued to shift dramatically. Companies now face the necessity of digital transformation, e-commerce integration, artificial intelligence (AI) applications, and automation to remain competitive.
Unfortunately, many SMEs lack the resources to innovate and struggle to keep up with these changes, leading to their gradual exit from the market. In 2024, despite impressive economic growth, business closures continued to outnumber new business formations, underscoring SMEs’ difficulty in adapting and the inadequacy of policies supporting them.
Furthermore, tariff policies initiated during President Donald Trump’s administration—such as imposing heavy duties on imports from trade-deficit countries like China and Europe—have driven major corporations to expand their production in Vietnam to bypass tariffs when exporting to the U.S. Consequently, foreign direct investment (FDI) enterprises with strong financial backing, structured management, and cost-cutting capabilities have exerted immense pressure on domestic SMEs.
Previously, FDI enterprises were seen as an opportunity for Vietnamese SMEs, as they primarily focused on exports while local SMEs played a supporting role in the supply chain. However, the standards set by FDI enterprises and large corporations have risen, incorporating environmental, social, and governance (ESG) criteria. Many SMEs lack the resources or awareness to meet these new standards, making it difficult for them to secure contracts from larger firms.
Additionally, SMEs that once thrived in the domestic market are now facing direct competition from FDI enterprises. The influx of FDI into retail, e-commerce, manufacturing, and logistics has led to price wars, superior service quality, and economies of scale that outmatch local SMEs. Large corporations have easy access to AI, automation, and e-commerce technologies, optimizing costs and improving efficiency, further squeezing SMEs out of the market.
Changing consumer behavior presents another challenge. Shoppers are shifting towards online platforms, causing traditional retailers to lose customers. E-commerce platforms are outperforming brick-and-mortar stores by offering lower prices and faster delivery.
Rising operational costs have also forced many SMEs to shut down. Soaring raw material prices, transportation costs, and wages have left SMEs—who lack the negotiation power of large corporations—struggling to secure favorable terms with suppliers and customers.
Another major concern is access to capital. Many SMEs struggle to obtain financing due to stringent lending requirements and a lack of collateral. Banks often prefer to lend to larger corporations with lower perceived risks, leaving SMEs with fewer funding options. Alternative financing methods, such as venture capital and angel investors, remain underdeveloped in many markets, further limiting SMEs' ability to expand or modernize operations.
Additionally, workforce challenges contribute to the difficulties faced by SMEs. Recruiting and retaining skilled workers has become increasingly difficult, particularly as larger corporations offer better salaries, benefits, and career growth opportunities. Many SMEs lack the resources to provide comprehensive training programs, resulting in skill gaps that hinder innovation and efficiency.
The regulatory environment also poses significant hurdles for SMEs. Complex legal and tax regulations create administrative burdens that are often difficult for small businesses to navigate. Compliance with international trade regulations and evolving environmental laws adds further strain, requiring SMEs to dedicate significant time and resources to meet these requirements.
Practical Support Policies Needed
Given these challenges, government support in the form of financial aid and tax relief is crucial. Policies should include corporate income tax reductions, extended tax and social insurance payment deadlines, low-interest credit packages, and improved access to investment funds to foster innovation.
However, SMEs must also take proactive steps toward digital transformation to optimize operations, reduce costs, and reach customers more effectively. Implementing management software, utilizing e-commerce, AI, and big data can not only enhance efficiency but also open new business opportunities.
Flexibility in business models and product diversification is another key strategy for SMEs to stay competitive. Combining online and offline sales, expanding product lines, or offering value-added services can help SMEs strengthen their market position.
Comprehensive government programs supporting SMEs in digital transformation and technology adoption are essential. Initiatives promoting e-commerce, AI, big data, and automation, along with financial assistance for SMEs investing in these areas, can enhance competitiveness.
Furthermore, helping SMEs participate in trade fairs, leverage free trade agreements, and access export credit guarantees can facilitate their expansion into international markets. Collaboration with FDI enterprises and large corporations can integrate SMEs into global supply chains, strengthening their production capabilities and market reach.
In addition to financial and technological support, training programs aimed at enhancing managerial skills, innovation capabilities, and ESG compliance are crucial. Governments and business associations should provide workshops and mentorship programs to equip SMEs with the knowledge and skills necessary to compete in a rapidly evolving market.
Encouraging public-private partnerships can also play a key role in SME development. Large corporations can support SMEs by integrating them into supply chains, providing technical training, and facilitating access to international markets. Incentives for big businesses to collaborate with SMEs can create a more inclusive and competitive business ecosystem.
By gaining access to advanced technology, management expertise, and broader markets, SMEs can achieve sustainable growth and reduce the risk of being outpaced in an increasingly competitive and transparent business environment. To truly thrive, a concerted effort from governments, financial institutions, industry leaders, and SMEs themselves is required to create a resilient and adaptive economic landscape.
