Economic Crises Affected Smes Heavily Commerce Essay

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As defined by the European Commission, a Small and Medium enterprise is a company that has not more than 250 workers and with annual revenue less than 50 Million Euro (European Commission, 2012). SMEs play important roles in the economy of a country and "make up the largest business in every World Economic sector "(Culkin & Smith 2000) that's why the SMEs supporting activities are considered as an integral part of economic development strategy of a country.

In almost countries, SMEs not only contribute their respective GDPs to the economic development, but also have great contribution as creating a large number of jobs, "SMEs represent over 95% of enterprises in most countries and generate over half of private sector employment" (Edit Lukács ) . SMEs reuse the surplus labor force of big corporations and state enterprises, which often dismiss large amounts of labor in their restructuring, process, "through a multiplier effect, this employment provides income to regions which stimulates local economic activity which in turn, drives wealth and further creation of employment" (Walker & Webster 2004). Thus, SMEs help to reduce and maintain a stable unemployment rate and consequently reduce the risks of economic, political and social situation that caused by rising unemployment rate.

The 2007-2012 economic crises affect SMEs heavily, market demands reduced quickly and as a result it damages the financial capability of SMEs. According to the Organization for Economic Cooperation and Development ( OECD), the total number of insolvency increased by 11 % between 2007 and 2008. In some countries like Denmark, Italy, Ireland, Norway, and Spain the surge in corporate insolvency was higher than 25%. The increase of insolvency and bankruptcy in SMEs through the economic crisis period proves that a majority of SMEs do not well prepare for crisis and they do not have strategic "to gain as efficiently as possible, a sustainable edge over its competitors" (O'Regan & Ghobadian 2002).

Strategic planning is concerned with the setting of long-term organizational goals, the development and application of plans to achieve these goals, and the allocation or diversion of resources necessary for realizing these goals (Calvin Wang, Elizabeth A. Walker and Janice Redmond, 2006). There are many research has been expended prove that most of SMEs do not engage the strategic planning activities or just have a short term strategic planning with passive action. Even with some companies that do the strategic planning still face many difficulties when applying the plan such as unable handling the plan in the phase of implementation and match with strategic objectives.

On the performance aspect, SMEs that have a good strategic planning can develop better and faster, they have a bigger market, better experience and technology and own many competitive advantages than those don't have strategic planning. "Perhaps most importantly, SMEs that engage in strategic planning are less likely to be those that fail" (Calvin Wang, Elizabeth A. Walker and Janice Redmond, 2006).

On the financial aspect, Fred R David (2001) recognizes that " businesses using strategic-management concepts show significant improvement in sales, profitability, and productivity compared to firms without systematic planning activities. High-performing firms tend to do systematic planning to prepare for future fluctuations in their external and internal environments. Firms with planning systems more closely resembling strategic-management theory generally exhibit superior long-term financial performance relative to their industry."

With SMEs in Vietnam, according to Vietnam Chamber of Commerce and Industry (VCCI), in the end of the year 2011, Vietnam has 543,963 enterprises and 96% of these companies are SMEs. The SMEs use 51% of the social workforce of the country and contributes over 40% of GDP. They not only contribute significantly to the economic development of the country but also create more than a million jobs each year for a majority of the workforce. The SMEs in Vietnam play an important role in the economy of Vietnam because they have a high effective performance investment than other state enterprises. To create a unit of GDP value, the private sector just spends 3.74 units of investment, while public sector units use up to 8.28 units.

However, during the 2007-2012 global economic crises, it affected the Vietnamese SMEs heavily and Vietnamese SMEs suffer a great pressure as the market demand shrank and as a result, it increases the stock level together with a high inflation rate, interest rates on bank loans. Moreover, majority of SMEs are impossible to access the funds from banks or financial aid packages of government. Based on the statistic of Vietnam Ministry of Planning and Investment, there are only 463,802 SMEs are actually operating in total of 647,627 registered enterprises in Vietnam and in the first quarter of 2102, 9.2% of Vietnamese SMEs were bankrupt or insolvent.

There are many reasons leading Vietnamese SMEs to bankruptcy or insolvency. Problem factors as lack of funding, high interest rates, hostile labor relation and high inflation rate were found out in many researches of Vietnamese scholars and the main reason is that company Vietnamese SMEs lack of strategic thinking. They do not have such strategy planning or scenarios that can help them deal with business risk. However, many SMEs engage strategic planning for long term, they invest in human resources development, operating process, R&D and that create competitive advantages, therefore, they grow well through the economic crisis.

Research focus

David 2001 asserts that "Strategic management allows an organization to be more proactive than reactive in shaping its own future; it allows an organization to initiate and influence (rather than just respond to) activities-and thus to exert control over its own destiny. Small business owners, chief executive officers, presidents, and managers of many for-profit and nonprofit organizations have recognized and realized the benefits of strategic management."

Although there are many research of scholars on the theory of strategic management but in fact that it is very different when applying in to organizations because all the organization have different sizes, functions, operating environment. Strategic management covers many processes and phases that are thought to be suitable for large organizations. With SMEs, there are many difficulties when applying strategic management just because of its characteristic such as SMEs lack of resources, lack of experience and knowledge especially at the top of company management. This dissertation will study how SMEs do the strategic management and find out what are their difficulties when applying strategic management and focus on Vietnamese SMEs that are operating in a risky and unstable business environment. After that, the author will propose recommendation for Vietnamese SMEs to survive through the current financial crisis period.

Overall Research Aim and Research objectives

This research aimed to understand more clearly the application of strategic management in Vietnamese SMEs. The research result will then make suggestions to help Vietnamese SMEs overcome the crisis, contribute to the economic development of Vietnam. The objectives of this research are as below:

Evaluate the relative importance of strategic management applying in SMEs.

Identify the difficulties of SMEs when applying strategic management.

Explore the real situation of strategic management application in Vietnamese SMEs

Formulate recommendations on applying strategic management in Vietnamese SMEs.

Research questions

To clear out the above research objectives, we have to answer the emerged questions as below:

What is strategic management and why SMEs have to apply the strategic management to get a sustainable development?

Why SMEs cannot apply the strategic management successfully?

How Vietnamese SMEs apply the strategic management?

Which aspects of strategic management that can be applied by Vietnamese SMEs to motivate and promote the sustainable grow?


Small and Medium Enterprise ( SME)

European Union (2003) defines that an enterprise is considered to be any entity engaged in an economic activity, irrespective of its legal form. This includes, in particular, self-employed persons and family businesses engaged in craft or other activities, and partnerships or associations regularly engaged in an economic activity. The category of micro, small and medium-sized enterprises (SMEs) is made up of enterprises, which employ fewer than 250 persons and which have an annual turnover not exceeding EUR 50 million, and/or an annual balance sheet total not exceeding EUR 43 million. Barnett and Machness (1983) characterized a SME and small firm as a lack of specialist services to advise management; the necessity for senior people to get involved in all aspects of running the business; only one or two people are usually involved in significant decision making; a lack of time for the senior men to think about the development of the firm. Some argue that the least objectionable way to define "small business" would be "to sort out firms according to the number of employees or persons engaged" (Nimalathasan,2009).

Nimalathasan (2009) found out that historically, the small-scale enterprises have formed the base of industrial structures and facilitated the process of industrialization in most countries irrespective of their stages of development. In the light of scarce resource endowments and other socio-economic realities of developing countries, this sector typically comprises over ninety percent of all industries. The sheer numbers of SMEs make them an important constituent of local, regional and national economics and as such a potential target for policy intervention (Analoui & Karami, 2003).

Analoui & Karami ( 2003) recognize that small business became one of the mainstays of the economy and play a major role in both job creation and economic growth throughout the next decade. In terms of entrepreneurial activity, SMEs often occupy fragmented or niche markets which large firms either cannot economically enter or are reluctant to enter because of 'unattractive' risk-return considerations (Brouthers, Andriessen & Nicolaes 1998 cited in Wang, Walker& Redmond, 2007). SMEs dominate many important industry sectors such as retailing, service and construction; and form crucial forward and backward links in the supply chain of large scale capital intensive manufacturing industries such as automotive, mining, marine and defense (Robinson & Pearce 1984; Abdullah 2000; Wang, Rowe & Cripps 2006 cited in Wang, Walker& Redmond, 2007 )

Strategic management theory

Each organization or company has its operational objectives, from these objectives, they build up strategy in short term and long term. If there is no strategic management, the company look like a boat drifting in the ocean without destination. However, not all organizations apply well the strategic management as they could not understand and do not apply the appropriate model with their actual situation and available resources. Therefore, the research and learn about the strategic management theory and tools is necessary and important. To understand what strategic management is, we need to find out about the term of strategy and management

The strategy definition is firstly used in the military and the history of strategic planning began in the military. A key aim of both business and military strategy is that "to gain competitive advantage" (Wheelen & Hunger, 2004). A lot of military strategy theory has been researched by many scholars and bring many benefits to modern business strategy nowadays that is why there are many similarities between military strategy and business strategy. Of course, a fundamental difference between military and business strategy is that business strategy is formulated, implemented, and evaluated with an assumption of competition, whereas military strategy is based on an assumption of conflict (Wheelen & Hunger, 2004).

Minzberg (1995) defined a corporate strategy as the pattern or plan that integrates an organization's major goals, policies, and action sequences into a cohesive whole. A well formulated strategy helps to marshal and allocate an organization's resources into a unique and viable posture based on its relative internal competencies and shortcomings, anticipated changes in the environment, and contingent moves by intelligent opponents (Minzberg, 199, cited in Steven French, 2009). According to Fayol (1949), the functions of strategy as to forecast, plan, to organize, to command, to coordinate, and to control. David (2001) emphasized the long-term aspect that the company strategies are the means by which long-term objectives will be achieved. Business strategies may include geographic expansion, diversification, acquisition, product development, market penetration, retrenchment, divestiture, liquidation, and joint ventures.

The term of strategic management or strategic planning are firstly mentioned from 1960s to 1970s. During this period, U.S. companies focused on implementing strategic planning and management but it did not bring significant effective because the models and frameworks were not appropriate and it was left aside. Until 1990s, strategic management has been applied and studied until now (David, 2001).

Strategic management is a set of managerial decisions and actions that determines the long run performance of a corporation. It includes environmental scanning (both external and internal), strategy formulation (strategic or long-range planning), strategy implementation, and evaluation and control (Wheelen & Hunger, 2004 ). Marsden & Forbes (2003) defined that "the field of strategic management consist of the study of strategy and strategic management process. A strategy can be defined as an action a company takes to achieve one or more of its goal and the strategic management process is the way in which manager develop strategies. In more detail, the strategic management process is often conceived of as consisting of four major steps: analysis, formulation, implementation and evaluation/ adjustment". Strategic Management focuses on the activities of the general manager who is responsible for determining the shape and character of the total enterprise or one of its businesses, divisions, or profit centers (Satterlee, 2001).

David (2001) advised that these processes are based on the belief that organizations should continually monitor internal and external events and trends so that timely changes can be made as needed. The rate and magnitude of changes that affect organizations are increasing dramatically as evidenced how the global economic recession has caught so many firms by surprise. Firms, like organisms, must be "adept at adapting" or they will not survive (David, 2001). All the definitions have the same concept on strategic management process that includes four phases: Analysis (or environmental scanning), strategy formulation, strategy implementation and evaluation / adjustment.

Key aspects of strategic management are a long-time horizon, the formality, the use of planning instruments, and frequent control of plans. Strategic planning can contribute to performance by generating relevant information, by creating a better understanding of the important environment, and by reducing uncertainty (Hodgetts and Kuratko, 2001, cited in Nimalathasan, 2009). The study of strategic management, therefore, emphasizes the monitoring and evaluating of external opportunities and threats in light of a corporation's strengths and weaknesses (Wheelen & Hunger, 2004). In a practical sense, strategic planning is about competitive advantage. This is encapsulated by Ohmae (1983 in O'Regan & Ghobadian, 2002, p.664) who stated that the purpose of strategic management is to enable a business "to gain as efficiently as possible, a sustainable edge over its competitors" (Wang, Walker, & Redmond, 2007).

Strategic management process

The strategic analysis is the first phase of strategic management; it makes sure that the corporate strategy has been written down base on the appropriate information about of a company. In military strategy, is there a famous sentence that is " know the enemy, know us", this precept is the most important on the battlefield, it means that before starting a battle, you first know clearly about our forces and enemy forces, after we can choose a suitable strategy to get the advantages. Another precept is that the condition of success is "Heaven, Earth and Human Luck", these terms can be understood as the internal and external environment. Nowadays the business strategy is inherited from military strategy that in the stage of business analysis, beside the business enemy or business competitors, we have to analysis about the company environment and it included internal and external. David (2001) claimed that strategy analysis and choice seek to determine alternative courses of action that could best enable the firm to achieve its mission and objectives. The firm's present strategies, objectives, and mission, coupled with the external and internal audit information, provide a basis for generating and evaluating feasible alternative strategies.

Strategic analysis

External environment analysis

An external analysis focuses on identifying and evaluating trends and events beyond the control of a single firm, such as increased foreign competition, population shifts, an aging society, consumer fear of traveling, and stock market volatility. An external audit reveals key opportunities and threats confronting an organization so that managers can formulate strategies to take advantage of the opportunities and avoid or reduce the impact of threats. (David, 2001).

Wheelen & Hunger (2004) believe that Opportunities arise when a company can take advantage of conditions in its environment to formulate and implement strategies that enable it to become more profitable. Threats arise when conditions in the external environment endanger the integrity and profitability of the company's business. The external environment is a key factor that affects the company, a company's success or fail that is affected fifty percent by the external environment. Although we cannot control the external environment, we can use the information from the external environment to have a good strategy for the company in a long term.

The purpose of an external analysis is to develop a finite list of opportunities that could benefit a firm and threats that should be avoided. As the term finite suggests, the external audit is not aimed at developing an exhaustive list of every possible factor that could influence the business; rather, it is aimed at identifying key variables that offer actionable responses. Firms should be able to respond either offensively or defensively to the factors by formulating strategies that take advantage of external opportunities or that minimize the impact of potential threats. (David, 2001).

To realize what factors of the external environment are opportunities or threats, strategic managers must first be aware of the many variables within a micro environment is mankind's social system that includes general forces that do not directly touch on the short-run activities of the organization that can, and often do, influence its long-run decisions. These factors affect multiple industries and are as follows:

Economic forces that regulate the exchange of materials, money, energy, and information.

Technological forces that generate problem-solving inventions.

Political-legal forces that allocate power and provide constraining and protecting laws and regulations.

Socio cultural forces that regulate the values, mores, and customs of society.

The second point of external analysis is to identify the industry that a company competes in. To do this, managers must begin by looking at the basic customer needs their company is serving that is, they must take a customer-oriented view of their business, as opposed to a product-oriented view. The basic customer needs that are served by a market define an industry's boundary (Charles W. L. Hill, 2009). The business boundary defining is important for strategists because their business may get difficulties when serving for a basic customer needs and facing with many competitors.

Once the boundaries of an industry have been identified, the task facing managers is to analyze competitive forces in the industry environment to identify opportunities and threats. Michael E. Porter's well-known framework, known as the five forces model, helps managers with this analysis. (Porter,1980, Charles, Hill, 2009). According to Porter, the nature of competitiveness in a given industry can be viewed as a composite of five forces:

Rivalry among competing firms

Potential entry of new competitors

Potential development of substitute products

Bargaining power of suppliers

Bargaining power of consumers

This framework is very useful to identify key aspects or elements of each competitive force that influence the firm, evaluate how strong and important each element is for the firm and decide whether the collective strength of the elements is worth the firm entering or staying in the industry.

Internal environment analysis

According to Wheelen & Hunger (2004), scanning and analyzing the external environment for opportunities and threats is not enough to provide an organization a competitive advantage. Analysts must also look within the corporation itself to identify internal strategic factors-critical strengths and weaknesses that are likely to determine whether a firm will be able to take advantage of opportunities while avoiding threats. This internal scanning, often referred to as organizational analysis, is concerned with identifying and developing an organization's resources and competencies. Competitive advantages and the difference they create in firm performance are strongly related to the resources that the firm holds and how they are managed. Resources, capabilities, and core competencies are the foundation of competitive advantage. Resources are bundled to create organizational capabilities. In turn, capabilities are the source of a firm's core competencies, which are the basis of competitive advantages. (Michael A.Hitt, 2009).

The Resource-Based View (RBV) approach is used by the company to help them get a better competitive advantage .The proponents of the RBV view contend that organizational performance will primarily be determined by internal resources that can be grouped into three all-encompassing categories: physical resources, human resources, and organizational resources (J. B. Barney,1991, cited in Wheelen & Hunger, 2004) . Physical resources include all plant and equipment, location, technology, raw materials, machines; human resources include all employees, training, experience, intelligence, knowledge, skills, abilities; and organizational resources include firm structure, planning processes, information systems, patents, trademarks, copyrights, databases, and so on. RBV theory asserts that resources are actually, what helps a firm exploit opportunities and neutralize threats.

Another traditional instrument is commonly used in the internal environment analysis is the SWOT analysis. SWOT is an acronym used to describe the particular Strengths, Weaknesses, Opportunities, and Threats that are strategic factors for a specific company. The external environment consists of variables (Opportunities and Threats) that are outside the organization and not typically within the short-run control of top management. These variables form the context within which the corporation exists. (Wheelen & Hunger, 2004) Once the source of the problem has been identified via SWOT analysis, strategic managers must determine the desired future state of the company-that is, how it should change its strategy and structure to achieve the new goals they have set for it. (Charles W. L. Hill, 2009).

David (2001) argues that the SWOT analysis still has some limitations. First, SWOT does not show how to achieve a competitive advantage, so it must not be an end in itself. The matrix should be the starting point for a discussion on how proposed strategies could be implemented as well as cost-benefit considerations that ultimately could lead to competitive advantage. Second, SWOT is a static assessment in time. A SWOT matrix can be like studying a single frame of a motion picture where you see the lead characters and the setting but have no clue as to the plot. As circumstances, capabilities, threats, and strategies change, the dynamics of a competitive environment may not be revealed in a single matrix. Third, SWOT analysis may lead the firm to overemphasize a single internal or external factor in formulating strategies. There are interrelationships among the key internal and external factors that SWOT does not reveal that may be important in devising strategies.

Strategic formulation

Strategic formulation often referred to as strategic planning or long-range planning, is concerned with developing a corporation's mission, objectives, strategies, and policies. It begins with situation analysis: the process of finding a strategic fit between external opportunities and internal strengths while working around external threats and internal weaknesses. (Wheelen & Hunger, 2004)

The entire strategy formulation process base on the information about company's strength, weakness, threats and opportunities that arise from the strategic analysis to make a appropriate strategy. A good strategy of a company doesn't need to be a perfect plan and process but it must bring back a good result for the company business in the long term and it fits the size with the company context. Business strategy focuses on improving the competitive position of a company's or business unit's products or services within the specific industry or market segment that the company or business unit serves. Business strategy is extremely important because research shows that business unit effects have double the impact on overall company performance than do either corporate or industry effects (Wheelen & Hunger, 2004)

Mission and vision statement is a part of strategy formulation; it is a foundation for a strategist to focus on the company to achieve long-term objectives.

Developing mission, vision statement is part of strategic management before the company set up the business. A business mission is the foundation for priorities, strategies, plans, and work assignments. It is the starting point for the design of managerial jobs and, above all, for the design of managerial structures. Nothing may seem simpler or more obvious than to know what a company's business is. ( Peter Drucker, 1974). A clear vision provides the foundation for developing a comprehensive mission statement. Many organizations have both a vision and mission statement, but the vision statement should be established first and foremost. The vision statement should be short, preferably one sentence, and as many managers as possible should have input into developing the statement. (David, 2001). Many company strategists are sometimes confuses company profit with company mission or vision statement but actually, the company profit is not enough to motivate company people. According to David (2001), when employees and managers together shape or fashion the vision and mission statements for a firm, the resultant documents can reflect the personal visions that managers and employees have in their hearts and minds about their own futures. Shared vision creates a commonality of interests that can lift workers out of the monotony of daily work and put them into a new world of opportunity and challenge.

The other approach of strategy formulation is defining strategic alternatives. Strategy analysis and choice seek to determine alternative courses of action that could best enable the firm to achieve its mission and objectives. The firm's present strategies, objectives, and mission, coupled with the external and internal audit information, provide a basis for generating and evaluating feasible alternative strategies. Identifying and evaluating alternative strategies should involve many of the managers and employees who earlier assembled the organizational vision and mission statements, performed the external audit, and conducted the internal audit. (David, 2001). Although the company has many strategic alternatives, it should choose the most appropriate strategy that fits with the company resources and abilities to achieve competitive advantages.

Strategy implementation

In this part, we will walk through some important aspect of strategy implementation stages. The strategy implementation is an important phase and decides how the strategic management is success or fail. Actually, many companies normally invest too much time into the strategic analysis and formulation and though that the strategy will be executed easily. In the phase of implementation, the strategy will be transformed into actions. According to David ( 2001) , Strategy implementation is the sum total of the activities and choices required for the execution of a strategic plan. It is the process by which objectives, strategies, and policies are put into action through the development of programs, budgets, and procedures. Although implementation is usually considered after a strategy has been formulated, implementation is a key part of strategic management. Strategy implementation involves establishing programs to create a series of new organizational activities, budgets to allocate funds to the new activities, and procedures to handle the day-to-day details. (David, 2001).

The stages of strategy implementation

Review the strategy, goal and mission is the first step of strategy implementation. The purpose of this step is to ensure that those whose are responsible for the implementation must accurately grasp the strategic content, understand the reason why the company follow the strategy and the corresponding target. The strategic reviewing is a final step of evaluation of the goals and strategies that have been set out in the formulation phase.

After reviewing the strategy, we have to choose who will implement the strategy. Depending on how a corporation is organized, those who implement the strategy will probably be a much more diverse set of people than those who formulate it. Therefore, every operational manager down to the first-line supervisor and every employee is involved in some way in the implementation of corporate, business, and functional strategies. (David, 2001). To implement the strategy successfully, the company must determine an appropriate organizational structure. We must specify who is responsible for organizing the implementation strategy and how is responsible for the implementation of the strategy? We can organize a training program if those people's knowledge cannot match with the strategy requirement. Managers can choose many structural models to suit business and with strategic implementation requirements. The most common models are:

The functional structure: Parts of the company are divided by function, the division responsible for the production, marketing, research and development, finance etc., but we have to focus on the coordination between departments in order to increase operational efficiency.

The regional structure: This structure will have specialized parts in different geographical areas. Because the economic, social and cultural factors in each different area of the market are different.

The matrix structure model

In matrix structures, functions and product forms are combined simultaneously at the same level of the organization. Employees have two superiors, a product or project manager, and a functional manager. The "home" department-that is, engineering, manufacturing, or sales-is usually functional and is reasonably permanent. People from these functional units are often assigned temporarily to one or more product units or projects. The product units or projects are usually temporary and act like divisions in that they are differentiated on a product-market basis (Wheelen & Hunger, 2004).This model will optimize the company resources, but they are quite complicated because each staff has to follow more than one manager's direction.

The next step is building a strategic implantation program. The purpose of a program is to make a strategy action oriented (Wheelen & Hunger, 2004).The whole strategic plan is normally complicated so to achieve the entire of strategic objectives, the company should divide the main strategic plan into smaller plan or program and policy. The strategy implementation organizing team must ensure that all the small plans and programs are coordinated closely together and follow the main schedule.

After programs have been developed, the budget process begins. Planning a budget is the last real check a corporation has on the feasibility of its selected strategy. An ideal strategy might be found to be completely impractical only after specific implementation programs are costed in detail (Wheelen & Hunger, 2004).Strategy budgeting is another important step. In the strategy implementation phase, the company has to follow many objectives and plan, so they must build a suitable budget for each strategy in a certain period. A common problem in this phase is that company does not support a corresponding budget for specific programs and that will make the whole strategy fail or it just brings back a partial success.

Strategic evaluation and control

Strategy evaluation is the final stage in strategic management. According to David ( 2001), The strategic-management process results in decisions that can have significant, long lasting consequences. Erroneous strategic decisions can inflict severe penalties and can be exceedingly difficult, if not impossible, to reverse. Most strategists agree, therefore, that strategy evaluation is vital to an organization's well-being; timely evaluations can alert management to problems or potential problems before a situation becomes critical.

The evaluation and control process ensures that a company is achieving what it set out to accomplish. It compares performance with desired results and provides the feedback necessary for management to evaluate the results and take corrective action, as needed. Wheelen & Hunger (2004) proposed five steps of strategy evaluation and control.

Determine what to measure: Top managers and operational managers need to specify what implementation processes and results will be monitored and evaluated. The processes and results must be capable of being measured in a reasonably objective and consistent manner. The focus should be on the most significant elements in a process-the ones that account for the highest proportion of expenses or the greatest number of problems. Measurements must be found in all important areas, regardless of difficulty.

Establish standards of performance: Standards used to measure performance are detailed expressions of strategic objectives. They are measures of acceptable performance results. Each standard usually includes a tolerance range, which defines acceptable deviations. Standards can be set not only for final output but also for intermediate stages of production output.

Measure actual performance: Measurements must be made at predetermined times.

Compare actual performance with the standard: If actual performance results are within the desired tolerance range, the measurement process stops here.

Take corrective action: If actual results fall outside the desired tolerance range, action must be taken to correct the deviation.

Strategic management benefit

The Strategic management becomes increasingly important as the environment becomes more unstable and research indicates that organizations using strategic-management concepts are more profitable and successful than those that do not (G. L. Schwenk and K. Schrader,1993, cited in David,2001). The principal benefit of strategic management has been to help organizations formulate better strategies with a more systematic, logical, and rational approach to strategic choice. This certainly continues to be a major benefit of strategic management, but research studies now indicate that the process, rather than the decision or document, is the most important contribution of strategic management (Ann Langley, 1988, Cited in David, 2001): .

Strategic management emphasizes long-term performance. Many companies can manage short-term bursts of high performance, but only a few can sustain it over a longer period of time (Wheelen & Hunger, 2004). Strategic management allows an organization to be more proactive than reactive in shaping its own future; it allows an organization to initiate and influence (rather than just respond to) activities-and thus to exert control over its own destiny. Small business owners, chief executive officers, presidents, and managers of many for-profit and nonprofit organizations have recognized and realized the benefits of strategic management. (David, 2001)

David (2001) claimed that strategic management offers other tangible benefits, such as an enhanced awareness of external threats, an improved understanding of competitors' strategies, increased employee productivity, reduced resistance to change, and a clearer understanding of performance-reward relationships. Strategic management enhances the problem-prevention capabilities of organizations because it promotes interaction among managers at all divisional and functional levels (David, 2001)

The manner in which strategic management is carried out is thus exceptionally important. A major aim of the process is to achieve the understanding and commitment from all managers and employees. Understanding may be the most important benefit of strategic management, followed by commitment. (David, 2001)

Strategic management in small and medium Enterprise

Research has consistently shown that most small and medium sized enterprises (SMEs) do not engage in strategic planning (e.g., Robinson & Pearce 1984; Sexton & van Auken 1985; Berman, Gordon & Sussman 1997; Orser, Hogarth-Scott & Riding 2000; Sandberg, Robinson & Pearce 2001; Beaver 2003). (Wang, Walker, & Redmond, 2007). A study of 131 firms filing for bankruptcy revealed that 72% lacked mission statements and objectives for their businesses. Around 40% of existing small family-owned businesses do not have written strategic plans.( S. C. Perry,2001, D. B. Bradley III, 2002, cited in (Wheelen & Hunger, 2004)). In spite of their many contributions, SMEs are "plagued by high failure rates and poor performance levels" (Jocumsen 2004, p.659) and a key determinant of business success lies in the absence or presence of strategic planning (Wang, Walker, & Redmond, 2007). While it is certainly true more than strategic planning alone drives that SME performance success, the findings generally support the contention that there are, on balance, greater advantages to planning than not planning (Wang, Walker, & Redmond, 2007)

In practice, SMEs tend to orientate towards short-term operational rather than long-term strategic issues, and decision-making tends to be reactive rather than proactive (Wang, Walker, & Redmond, 2007). In SMEs that claim to plan, plans are frequently ad hoc and more intuitive rather than formal written, and provide little basis upon which business performance can be measured or analyzed (Kelmar & Noy 1990). (Wang, Walker, & Redmond, 2007)

Robinson and Pearce (1984) suggested that a lack of time, a lack of specialized expertise, inadequate knowledge of the planning processes, or a reluctance to share strategic plans with employees and external consultants are detrimental to and compromise strategic planning in small business . Others have proposed that environmental uncertainty or turbulence (Shrader, Mulford & Blackburn 1989; Matthews & Scott 1995; Yusuf & Saffu 2005), size of business (Stonehouse & Pemberton 2002), type of industry (Shrader, Mulford & Blackburn 1989), internal implementation barriers (O'Regan & Ghobadian 2002) and business life-cycle/stage of development (Berry 1998) may account for what Sexton and van Auken (1982, p.25) described as the "anemic level" of strategic planning in SMEs. (Wang, Walker, & Redmond, 2007)

Wheelen & Hunger (2004) proposed that the lack of strategic planning practices in many small business firms is because of:

Not enough time: Day-to-day operating problems take up the time necessary for long term planning. It's relatively easy to justify avoiding strategic planning on the basis of day-to-day crisis management. Some will ask: "How can I be expected to do strategic planning when I don't know if I'm going to be in business next week?"

Unfamiliar with strategic planning: A small-business CEO may be unaware of strategic planning or may view it as irrelevant to the small-business situation. Planning may be viewed as a straitjacket that limits flexibility.

Lack of skills: Small-business managers often lack the skills necessary to begin strategic planning and do not have or want to spend the money necessary to import trained consultants. Future uncertainty may be used to justify a lack of planning. One entrepreneur admits, "Deep down, I know I should plan. But I don't know what to do. I'm the leader, but I don't know how to lead the planning process."

Lack of trust and openness: Many small-business owner-managers are very sensitive regarding key information about the business and are thus unwilling to share strategic planning with employees or outsiders. For this reason, boards of directors are often composed only of close friends and relatives of the owner-manager-people unlikely to provide an objective viewpoint or professional advice. (Wheelen & Hunger, 2004)

Strategic management issue in SME

Issues in Environmental Scanning and Strategy Formulation

Environmental scanning in small businesses is much less sophisticated than it is in large corporations. The business is usually too small to justify hiring someone to do only environmental scanning or strategic planning. Top managers, especially if they are the founders, tend to believe that they know the business and can follow it better than anyone else. A study of 220 small rapid growth companies revealed that the majority of CEOs were actively and personally involved in all phases of the planning process, especially in the setting of objectives. Only 15% of the companies used a planning officer or formed a planning group to assist in the planning process. In the rest of the firms, operating managers who participated in strategic planning provided input only to the CEO, who then formulated the plan. (Wheelen & Hunger, 2004)

Conducting a periodic industry analysis using Porter's forces is just as important for a small business as for a large one. Nevertheless, few small businesses do much competitor analysis. If they do analyze competition, typical small business owners often only look locally, without considering competitors across town or in a nearby city.( J. C. Shuman , J. A. Seeger, 1986 , R. C. Pineda, L. D. Lerner, M. C. Miller, and S. J. Phillips, 1998 cited in Wheelen & Hunger, 2004).

Basic SWOT analysis is just as relevant to new entrepreneurial businesses as it is to establish large ones. Both the greatest strength and the greatest weakness of a small firm, at least in the beginning, rest with the entrepreneur-the owner-manager of the business. The entrepreneur is the manager, the source of product/market strategy, and the dynamo who energizes the company. That is why the internal assessment of a new venture's strengths and weaknesses focuses on the founder's personal characteristics-his or her assets, expertise, abilities, and experience. Research reveals that founder competencies, motivations, and connections plus the firm's competitive strategies are direct predictors of new venture growth and success. ( J. Low and P. C. Kalafut,, 2003 cited in Wheelen&Hunger, 2004).

A fundamental reason for differences in strategy formulation between large and small entrepreneurial companies lies in the relationship between owners and managers. The CEO of a large corporation has to consider and balance the varied needs of the corporation's many stakeholders. The CEO of a small business, however, is very likely also to be the owner-the company's primary stakeholder. Personal and family needs can thus strongly affect a small business's mission and objectives and can overrule other considerations (S. Birley and P. Westhead, 1990 cited in Wheelen & Hunger, 2004).

Size can affect the selection of an appropriate corporate strategy. Large corporations often choose growth strategies for their many side benefits for management as well as for shareholders. A small company may, however, choose a stability strategy because the entrepreneur is interested mostly in (1) generating employment for family members, (2) providing the family a "decent living," and (3) being the "boss" of a firm small enough that he or she can manage it comfortably. Some business owners don't pursue a growth strategy because they do not want the loss of control that results from bank debt or the sale of stock to outsiders. Some may even fear that growth will attract attention from larger competitors that might want to take over the company or drive it out of business. (P. Westhead,2003, J. Wiklund, P. Davidsson, and F. Delmar, 2003, cited in. (Wheelen & Hunger, 2004)

Issues in Strategy Implementation

Sandu (1997) stated that the strategy implementation process has limited impact on the SME structure. The small size of the enterprise is not allowing the use of the most common structures applied in the big companies; the firm stays compact and it accepts only fundamental and essential structures.

Another major problem of many small businesses at this stage is finding a person who is qualified to supervise the business when the owner can't be present but who is still willing to work for a very modest salary. An entrepreneur usually tries to use a family member rather than hire an outsider who lacks the entrepreneur's dedication to the business and (in the words of one owner-manager) "steals them blind." (Wheelen & Hunger, 2004)

The key issue at this stage is whether the company should be used as a platform for growth or as a means of support for the owners as they completely or partially disengage from the company. The company is transformed into a functionally structured organization, but it still relies on the entrepreneur for all key decisions (Wheelen & Hunger, 2004)

Even though the founders of the companies are the primary forces in starting the entrepreneurial ventures, their needs for business support and financial assistance cause them to turn to family members, who can be trusted, over unknown outsiders of questionable integrity who may demand more salary than the enterprise can afford.

Issues in Evaluation and Control

An entrepreneur creates what is needed as the business grows. Because of his or her personal involvement in decision-making, the entrepreneur managing a small business has little need for a formal, detailed reporting system. Thus a founder who has little understanding of accounting and a shortage of cash might employ a bookkeeper instead of an accountant. A formal personnel function might never appear because the entrepreneur lumps it in with simple bookkeeping and uses a secretary to handle personnel files (Wheelen & Hunger, 2004)

Financial statements, in particular, tell only half the story in small, privately owned companies. The formality of the financial reporting system in such a company is usually a result of pressures from government tax agencies, not from management's desire for an objective evaluation and control system. (Wheelen & Hunger, 2004)

Attempts to derive an understanding of the strategic management process in SMEs have been constrained by a dominant debate. This is centered on short-term financial success and survival rather than long-term sustainability and 'strategic' aspects. Combine this with the entrepreneur's willingness or inability to model the dynamic processes of the internal interactions within the organization or the interactions with its external environment and the problem becomes a more deep-rooted one. The idea that organizations can position themselves or strategically operate in 'good' or 'bad' industrial structures or strategic groups is found to be flawed when attempted in the SME context (MacGregor, 1999). (Lobontiu, 2002).

Whilst it is difficult to make generalizations about the preferred strategy-making style of SME owner-managers and entrepreneurs, the grater discretion afforded under the resource-based view and the difficulties inherent in positioning within globalized industry structures found in Industrial Organization theory (Porter, 1980) mean that many entrepreneurs tend to focus upon that which is 'closest to home'.


Research question and objectives

This research aimed to understand more clearly the application of strategic management in Vietnamese SMEs. The research result will then make suggestions to help Vietnamese SMEs overcome the crisis, contribute to the economic development of Vietnam.

The objectives of this research are as below:

Evaluate the relative importance of strategic management applying in SMEs.

Identify the difficulties of SMEs when applying strategic management.

Explore the real situation of strategic management application in Vietnamese SMEs

Formulate recommendations on applying strategic management in Vietnamese SMEs.

To clear out the above research objectives, we have to answer the emerged questions as below:

What is strategic management and why SMEs have to apply the strategic management to get a sustainable development?

Why SMEs cannot apply the strategic management successfully?

How Vietnamese SMEs apply the strategic management what are their advantages and disadvantages?

Which aspects of strategic management that can be applied by Vietnamese SMEs to motivate and promote the sustainable grow?

The Literature Review chapter of this dissertation has provided some information that is related to the theory of strategic management and describe the aspects of strategic management benefits for SMEs, at the same time, it also mentions the difficulties of SMEs when applying strategic management. However, there are still many differences when applying strategic management for Vietnamese SMEs of because they are different in the business context and characteristics of Vietnamese SMEs including the level of economic development, culture, politics, social…. By using the case study research method will help answer the question "How Vietnamese SMEs apply the strategic management? "And" Which aspects of strategic management that can be applied by Vietnamese SMEs to motivate and promote the Sustainable Grow? " By comparing the real situation with the theory of the Literature review.

Research philosophy

Research paradigm and philosophy are important parts of research methodology in order to collect data in an effective and appropriate manner. According to Johnson and Christensen (2005), research paradigm is a perspective that is based on the set of shared assumptions, values, concepts and practices. In another world, the paradigm can be defined as a function of how researcher thinks about the development of knowledge. Research paradigm is a combination of two ideas that are related to the nature of the world and the function of researchers. It helps researcher to conduct the study in an effective manner. (William, 2011 - WEBSITE)

Research paradigm has some different terminologies such as positivism, interpretivism research philosophies…

Positivism Philosophy: Positivism philosophy is based upon the highly structured methodology to enable generalization and quantifiable observations and evaluate the result with the help of statistical methods. Positivism philosophy is commonly used in natural science and it is a critical and objective base method (Sundars 2003). A researcher with a positivist view of the world is someone who holds that reality is objective and independent of the observer and so can be measured and predicted (Orlikowski and Baroudi 1991; Remenyi, 1998). The emphasis on quantifiable data is the reason that positivist research is equated with quantitative research, but the two concepts, although similar, are not exactly the same. (Biggam, 2008).

Interpretive Philosophy: The interpretive philosophy believes that the social world of management and business is too complex as to be formulated in theories and laws such as in the natural science. Interpretive philosophy represents the critical thinking about positivism philosophy. According to this philosophy, there are many truths and meaning of a simple fact and these are suitable for every situation and for every research problem (Johnson and Christensen 2010). For interpretative researchers, human participation and observation, and the context and time these occur, are fundamental to their research. The emphasis on human interpretations of events leads interpretative research to be identified, correctly, with qualitative research. (Biggam, 2008).

As one of this dissertation objective is "Explore the real situation of strategic management application in Vietnamese SMEs" so this can be understood as a phenomena and it is affected by many environmental factors. Through the description above , we believe that interpretive philosophy is suitable to the purpose of this dissertation, which means that all data presented in this research will be analyzed and interpreted using about the phenomena of strategic management in Vietnamese SMEs.

Research Approach

There are two common research approaches that are inductive and deductive approach.

Deductive research is a study in which a conceptual and theoretical structure is developed and then tested by empirical observation; thus, particular instances are deduced from general inferences. For this reason, the deductive method is referred as moving from the general to the particular. Inductive research is a study in which theory is developed from the observation of empirical reality; thus, general inferences are induced from particular instances, which is the reverse of the deductive method. Since it involves moving from individual observation to statements of general patterns or laws, it is referred as moving from the specific to the general. For example, you may have observed from factory records in your company that production levels go down after two hours of the shift and you conclude that production levels vary with the length of time worked. (Collis & Hussey , 2008). So the inductive approach is suitable for this research because we use the existing theory from other researcher and base on empirical findings through data collection on Vietnamese SMEs.

Research methods

The research method can be explained by two methods, they are qualitative and quantitative method. The former type - quantitative - refers to research that is concerned with quantities and measurements (Biggam, 2008) , a quantitative research approach is likely to be associated with a deductive approach to testing theory, often using numbers or fact and therefore a positivist or natural science model, and an objectivism view of the object study. (Sue Greener , 2008)

Qualitative research, on the other hand, is linked to in-depth exploratory studies where the opportunity for 'quality' responses exist. Denzin and Lincoln (1994: 2) hold that qualitative research involves studying 'things in their natural settings, attempting to make sense of, or interpret, phenomena in terms of the meanings people bring to them'(Biggam, 2008).A qualitative approach is likely to be associated with an inductive approach to generating theory, often using an interpretivist model allowing the existence of multiple subjective perspectives and constructing knowledge rather than seeking to "find" it in "reality". (Sue Greener , 2008)

We choose the qualitative method for this dissertation because we focus on understanding the phenomenon of SMEs strategic management in Vietnamese SMEs and in each SMEs company, there are many variables that influence the application of strategic management and effects. It is quite complicated to find out what's happing in each Vietnamese SMEs by using the survey or using the quantitative methods only.

Research design

As Biggam (2008) defined research strategy is describing how you intend implementing your own research study. There are many common research strategies that include: case studies, surveys, ethnography, and action research etc. Yin (1984) suggested that the three conditions could determine the type of research program indicated: Firstly, the type of research question; secondly, the degree of investigator control possible; and finally, the degree of focus on contemporary events desired.

Management studies and organizational theory rely heavily upon the case study as a form of data collection and even as a type of unstructured analysis: As a form of research, the case study is unparalleled for its ability to consider a single or complex research question within an environment rich with contextual variables. Observation, experiments, surveys and secondary information (archival) have the advantage of producing sets of independent and dependent variables suitable for quantitative analysis. The case study is best suited for considering the how and why questions, or when the investigator has little control over events.(Schell, 1992).

'How' and 'why' questions are more explanatory by nature, and are likely to lead to the use of experiments, histories and case studies. These questions tend to deal with operational links that occur during a span of time, rather than the incidents or phenomena that occur at intervals over time. Defining the research question is the most important step in a research program, especially since this indicates the type of research programmer likely. The second criterion is the extent of control over behavioral events which the researcher can exercise.(Schell, 1992).

As mentioned above, this research will answer the two questions: " How Vietnamese SMEs apply the strategic management what are their advantages and disadvantages? " and " Which aspects of strategic management that can be applied by Vietnamese SMEs to motivate and promote the sustainable grow?". This dissertation will use the case study method and gather empirical data by interview. We hold interviews to collect data from five companies or a multiple cases are used for this research. We ask the same question for five Vietnamese SMEs and compare together to find out how these SMEs applying strategic managements and whether they get any success, from that point, I will analyze what and which part of strategic management that is best for Vietnamese SMEs.

Ying (1994) defined that A case study is an empirical inquiry that investigates a contemporary phenomenon within its real life context, especially when the boundaries between phenomenon and context are not clearly evident. This statement emphasizes that an important strength of case studies is the ability to undertake an investigation into a phenomenon in its context Rowley (2002) claimed that "case studies have often been viewed as a useful tool for the preliminary, exploratory stage of a research project, as a basis for the development of the 'more structured' tools that are necessary in surveys and experiments."

Schell ( 1992) proposed that case study usually follows one of two types of research methodology: They may be based upon the use of multiple sources of evidence: (multiple triangulation); they may be based upon review of multiple case studies. Most case studies use at least two sources of data: Multiple sources, even multiple investigators and sites may be involved in the collection of interview, observation and administrative documents and performing structured surveys. Single or multiple source case research may cover all of the forms of investigation used by any of the other research designs - It is even possible for experimental isolation to offer the potential benefits of experimental research ( Schell, 1992).

Because there are many factors that impact to SMEs strategic management include company organization, leadership, business environment… so we will use the multiple subject case study because " multiple-subject case studies are especially useful if topics are too complex or involve too many factors to be addressed using a simple interview survey " (Schell, 1992). With the case study method, A frequent question is how many cases should be included in a multiple case study. There is no simple answer to this question. Cases need to be carefully selected so that they either produce similar results (literal replication), or produce contrasting results but for predictable reasons (theoretical replication) (Rowley, 2002) so there are no limit or recommendation how many cases we choose is better, so I selected five cases that operating in different field business and their sizes and business result is variance.

Data collection

Once the research strategy has been selected, a method of collecting the research data is required. Data collection methods include a variety of techniques: sampling (discussed earlier), secondary data, observation, interviews, and questionnaires. Researchers may use more than one technique to collect data. (Biggam, 2008). This dissertation focused on using the primary data from the semi-structured and in-depth interview as a qualitative interviewing, using semi-structured questions, makes use of open-ended questions to encourage meaningful responses (Patton 1990)

. Firstly, I address basic questions to ask the interviewee as a guideline to kick up their thinking about strategic management and after that at the same time, I make more question base on their answer to have depth understanding interviewee strategic management situations. The data will be voice recorded with interviewee native languages during the discussion so that we can minimize the error or miss understanding and before recording, the interviewees have the right to allow or decline the recording, after that data will be translated into English and transcript in to research data.

This dissertation uses the multiple case interview because "multiple cases may be used to achieve replication of a single type of incident in different settings, or to compare and contrast different cases. Multiple-subject case studies are especially useful if topics are too complex or involve too many factors to be addressed using a simple interview survey. Single case studies are analogous to single experiments, and as such are justified using the same arguments as the single experiment" (Schell, 1992). So I found five companies and four of them base on Ho Chi Minh city and once company bases in Ha Noi capital which is two biggest city in Vietnam. I will perform the interview with the personal that have