Institutional Environment of the Small and Medium Enterprises



The research develops a theoretical background for making an analysis of institutional environment to identify factors hindering SME growth in Vietnam. Old institutional economics assumes that institutions can influence individual behavior - individuals act out of duty or awareness of what one is “supposed” to do. New institutional economics adds cognitive influence - individuals act because of conceptions rather than acting based on obligation. Social institutionalism (SI) adopts a multidimensional approach to explain individual behavior. The organizational performance is influenced by external institutional environmental factors and factors at an organizational level. The external institutional factors hindering SME development in Vietnam include economic constraints (limited access to loan, high labor costs), low level of technology, tight competition and high costs of complying formal institutions. At the organizational level, factors
hindering SME development are low firm's flexibility in shifting from informal into formal sector, low firm’s competence and poor organizational strategic orientation. Policies promote SME development should remove above
mentioned factors.

Keywords: institutional environment, economic constraints, institutional factors, limited access to loan, tight competition.

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Department of Public Administration
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Khon Kaen University, Khon Kaen, Thailand

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