Organisational Innovation by Manufacturing SMEs in Vietnam

Abstract

This chapter focuses on organisational innovation in Vietnam’s private domestic SMEs (small- and medium-scale enterprises) and examines determinants of organisational innovation and its effects on firm performance . We use the SME survey of 2015, which is also employed in the longitudinal data in Chap. 2. However, in this chapter, we introduce some new ideas. First, unlike in other chapters, we examine organisational innovation ; second, we employ a different method (propensity score matching analysis ) for empirical analysis; and, third, a combination of quantitative analysis and qualitative firm interview surveys gives the study a vivid image and enhance its significance. More specifically, ISO9001 certification is regarded as an organisational innovation and human capital (higher education of entrepreneurs and workers), social capital (business association membership) and other innovations (other certifications or investments in equipment/machinery) are found to be significant determinants. This type of innovation influences firm’s business scale in terms of profit, value added, labour as well as TFP . Yet, it has no effect on labour productivity and Return On Assets (ROA) . We also found that almost all ISO9001 certified firms introduced Kaizen/5S , a Japanese management system, which works well with the former to enhance the firms’ innovation system and gain new customers.

Appendix

Valance of characteristics is described in Table 4.8.

Table 4.8 Valance of characteristics

The table explains the before (raw) and after (matched) of the calculation of propensity score. Propensity score enables the reducing of biases between ISO9001 certified and non-certified groups in terms of valance of characteristics. After the calculation of the propensity score, we checked the valances by calculating standardised differences (d) which is defined as below:

$$ d = \frac{{\left( {\bar{x}_{\text{treatment}} - \bar{x}_{\text{control}} } \right)}}{{\sqrt {\frac{{s_{\text{treatment}}^{2} + s_{\text{control}}^{2} }}{2}} }}\quad {\text{in terms of quantitative variables}} $$

$$ d = \frac{{\left( {\hat{p}_{\text{treatment}} - \hat{p}_{\text{control}} } \right)}}{{\sqrt {\frac{{\hat{p}_{\text{treatment}} \left( {1 - \hat{p}_{\text{treatment}} } \right) + \hat{p}_{\text{control}} \left( {1 - \hat{p}_{\text{control}} } \right)}}{2}} }}\quad {\text{in terms of dummy variables}} $$

$\bar{x}$ means the mean of quantitative variables, s means standard deviation and $\hat{p}$ means the mean of propensity score. Therefore, standardised differences indicate the standardised gap of each controlled characteristics between ISO9001 certified group and non-certified.

Most standardised differences get closer to 0 and variance ratios get closer to 1. It means that the two groups, ISO9001 certified and non-certified, are comparable with controlling for the firm characteristics. Some variables like educgm and export may be unsuitable (over 10% differences between two groups), but the author left them to control.

We also checked each firm’s characteristics before and after matching by describing balance plot as figures below. These figures show that we reduced the gap of the seven characteristics between two groups by calculating propensity score (Fig. 4.3).

Fig. 4.3

Source Author’s calculation

Balance plot of firm’s characteristics before and after matching.