1

2

CHAPTER 1

orientation: the case study of Vietnamese small and medium enterprises" has
been selected as the topic of this study.

GENERAL INTRODUCTION OF THE STUDY
1.1 The necessity of the study
The important role of institutions to economic development of each country has
been recognized in previous studies around the world and in Vietnam. At the
organizational level, institutional theory shows that institutional factors affect
organizational strategies and processes (Scott, 1995). Institutions as part of the
business environment affecting the development of businesses including SMEs have
attracted research interests from scholars. However, available institutional documents
mainly focus on formal institutions, while the effects of informal institutions are less of
a concern (Roxas and Chadee, 2012).
In recent years, Entrepreneurial Orientation has become a popular topic in the
field of business studies in general and the entrepreneurial orientation in particular. Vij
and Bedi (2012) argue that entrepreneurial orientation is a key determinant of the
success of a business. Many previous studies have explored entrepreneurial orientation
in the context of SMEs (for example, Keh et al., 2007; Wang et al., 2015). In
developing countries like Vietnam, entrepreneurial orientation and and some of its
premises have also attracted the attention of researchers, but to a modest level
(Nguyen, 2009, 2011; Swierczek and Thai, 2003).
Institutions have effects on the expectations, awareness of risks and profits of
business activities (Avnimelech et al, 2014; Shane, 2003), and innovation capabilities
of businesses (Chadee and Roxas, 2013). However, there seems to be a lack of research
on the relationship between institutions, especially informal institutional groups and

of SMEs in developing countries like Vietnam.
4 / The relationship between execution quality and entrepreneurial orientation of
SMEs may change towards opposite direction depending on the context.
Practical contribution
While formal institutional barriers and corruption remain at a high level that
negatively affects the entrepreneurial orientation, institutional trust of many SMEs
does not seem to be as such. Therefore, the positive role of institutional trust to
entrepreneurial orientation is a finding with many practical implications in
Vietnamese context. In addition to solutions to eliminate formal institutional
barriers and constrain corruption, those aimed at strengthening institutional trust
will be an important driving force to promote the entrepreneurial orientation of
Vietnamese SMEs.

1.5 Structure of the thesis
The thesis "Effects of institutions on entrepreneurial orientation: case
study of Vietnamese small and medium enterprises" consists of 159 pages,
including the list of tables and figures, Table of content, main section of five
chapters, references and appendices. Five chapters include Chapter 1 which generally
introduces the study, Chapter 2 on research overview and theoretical framework of
institutional effects on entrepreneurial orientation of enterprises; Chapter 3 on
research methodology; Chapter 4 on research findings; Chapter 5 on Evaluation of
research findings and some suggestions. There are 20 tables and 5 figures in total.

RESEARCH OVERVIEW AND THEORETICAL FRAMEWORK
2.1 Overview of the relationship between institutions and entrepreneurial
orientation of SMEs.
2.1.1 Research overview and gaps
While entrepreneurial orientation has been studied by scholars, informal
institutional factors are mainly considered as national culture and only formal
institutions are scholars’ interest. However, informal institutions are not necessarily

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6

Table 2.2: Concepts used in the research

The execution quality of state management agencies is defined as barriers to
businesses' activities such as tax rates, tax administration, inspection activities
imposed by the State (Chadee and Roxas, 2013). These institutional barriers also
include a lack of State support to business development of businesses such as finance
and support services (Hashi and Krasniqi, 2011; Zhu et al., 2012). Execution quality
refers to the rigidity and bureaucracy that businesses face when dealing with
representative state agencies, for example when going to business registration or
granting a business license to conduct a specific business activity (Norton, 1998).
This concept also refers to rules, procedures, processes and level of suitability to the
provisions of the current laws, which leads to unreasonable cost burden on
businesses. This increases the cost for businesses to deal transactions with state
agencies. These costs could be financial costs, time and effort spent to complete
procedures (Fogel et al., 2006). These barriers also increase transaction costs and
uncertainty, thereby preventing access to resources to support innovation activities
(Chadee and Roxas, 2013). Most research in the context of transition and developing
economies has indicated that execution quality negatively effects the ability of
businesses to innovate (Chadee and Roxas, 2013; Xheneti and Bartlett, 2012). Zhu et
al. (2012) have pointed out that innovation activities of SMEs are hampered by
innovation-related costs such as tax burdens, financial costs, etc., or compliance with
bureaucracy and rigidity of state agencies. This barrier leads to the escalation of
uncertainties and costs, preventing the ability of businesses to access resources to
support or stimulate innovation. In addition, enterprises’ awareness of opportunities
and risks affects innovation and pionnering proactiveness of enteprises (Haro et al.,
2011). When the level of uncertainty and cost increases, the ability of risk

mechanism, regulation and oversight of the
relevant
agencies
to
help
policy
implementation.

North (1992)

Informal institution

Entrepreneurial
orientation

Informal institutions refer to shared values
in a society, usually those that are not
Helmke and
expressed in writing, communicated and Levitsky (2004,
enforced outside officially recognized
2006)
channels.
This concept refers to "processes, practical
activities and decision-making activities
Miller (1983);
that lead to the birth of new things in the
Lumpkin and
business." Entrepreneurial orientation
Dess (1996)
consists of three elements: risk- taking,

regulations with any form of legislations and/or government decisions, especially
those affecting business field (Forgel, 2001). State policies could be considered as a
pipeline through which SMEs can participate in business activities in accordance with
external rules and regulations, thus reducing the level of uncertainties in their
businesses (Roxas et al., 2008). Institutional documents, both theoretical and
empirical ones have indicated that state policies and regulations have a direct effect
on entrepreneurial orientation (Dickson and Weaver, 2008; Roxas et al., 2008 ;
Alvarez and Urbano, 2012). Most studies have found that comprehensive and
developed regulations ensuring full compliance with market mechanism have a
positive relationship with the development of enterprises through ability of
innovation and strategic decisions (Roxas et al., 2008). The relationship will be
negative if legal regulations become barriers to businesses‘ operations (Chadee and
Roxas, 2013; Liu, 2011; Zhu et al., 2012). State regulations and policies can promote
or hinder opportunities for SMEs to pursue more risky but promising innovative
projects (Zhu et al., 2012). The instability and complexity of the regulation and
policy systems cause policy risks, business risks, loss of motivation to innovation and
affect investment and development decisions of enterprises (Nguyen Thi Luyến,
2018). Because policies are not appropriate, environment becomes contrary to
business growth and entrepreneurs find it difficult to predict future economic
prospects to establish contractual relationships. This may prevent SMEs from taking
risks for investments (Lajqi and Krasniqi, 2017). In addition, the complexity and
volatility of state regulations and policies will make it difficult for businesses to
predict as well as how to conform to regulations when they want to pioneer in the
market. This may negatively affect the pionnering proactiveness of businesses. Based
on overall results, the thesis proposes following research hypotheses:
H2a: The mismatch of the state system of policies and regulations is negatively
correlated with the level of innovation.
H2b: The mismatch of the state system of policies and regulations is negatively
correlated with the risk-taking level.
H2c: The mismatch of the state system of policies and regulations is negatively

possible. This concept of corruption has been used in many previous studies,
including those for the context of transition and developing economies (Avnimelech
et al., 2014, Chadee and Roxas, 2013), and is also used in this study. In fact,
corruption exists in all countries. However, in transition economies, it has been
considered as a common phenomenon and its level is significantly higher than in
developed economies (Tonoyan et al., 2010). Although the government's anticorruption efforts and anti-corruption campaigns are different in developing
countries, corruption is still a big challenge to businesses' operations and it has been
suggested to be an important factor affecting businesses' behaviour (Chadee and
Roxas, 2013; Le, 2017).
Regarding the effects of corruption on businesses’ behavior, literature review
has shown that corruption affects immediate or future resource allocation (Macrae,


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1982) and may have some positive effects in the short term but it will hinder
innovation and sustainable development of businesses (Avnimelech et al, 2014;
Nguyen et al., 2016). At the national level, the negative impact of corruption has been
widely recognised in previous studies such as causing negative incentives for
entrepreneurs to engage in value creation opportunities from doing business and thus
lead to a reduction in entrepreneurship activities (Avnimelech et al., 2014). At the
corporate level, some previous studies have shown the negative impact of corruption
on corporate innovation (Chadee and Roxas, 2013, Nguyen et al., 2016). Corruption
has contributed to shaping entrepreneurial behavior of small businesses in the context
of transition economies (Tonoyan et al., 2010). Corruption is identified as a huge
obstacle to the performance of SMEs (Aidis, 2005; Hashi & Krasniqi, 2011). When
corruption is at high level, enterprises tend to do short-term business, little investment
and snatching (Nguyen Van Thang, 2015). Thus, the level of risk taking and

can affect every aspect of entrepreneurial orientation. Although there is no central
theoretical framework for this study, the research model is proposed in Figure 2.4
based on literature review and inherited from the empirical evidence and suggestions
from previous studies.

H3c: Corruption is negatively correlated with proactiveness.
Trust which is an important informal institution and commonly used
(Williamson, 1993; Dixit, 2009; Seyoum, 2011) has become an important principle of
the organization when there is a shortage of a strong market institution ( Nguyen et
al., 2005) and developing trust will result in better performance (Wicks and Berman,
2004; Nguyen and Rose, 2009). Trust is often perceived as a substitution for a
developed market institution (Redding, 1990; Peng & Heath, 1996). There are many
studies of different types of trust and many concepts of trust. In general, trust is
considered as an informal institution that refers to established belief systems of the
behavior of other people. It is necessary to identify specific types of trust in the study
to make appropriate comparisons. Rus and Iglic (2005) have examined the trust of
SMEs including institutional trust and inter-personal trust. Institutional trust in this
study is defined as shared expectations derived from formal social structures through
signals such as members of professional associations or intermediary mechanisms
such as legal regulations, banking, government bureaucracy (Fuglsang and Jagd,
2015), which is generally beyond a certain transaction and beyond specific exchange
partners (Zucker, 1986; p. 63).

Figure 2.4: Research model
Mismatch of
policy and
regulation systems

Innovation
Execution quality

with their companies for many years so have good understanding of their operations.
All businesses in the sample have been in active for at least 3 years. This way of
sampling can ensure the whole representativeness and has been done by a number of
previous studies on entrepreneurial orientation of SMEs in Vietnam (Nguyen, 2011;
Swierczek & Thai, 2003).

RESEARCH METHODOLOGY
3.1. Overall research design
The thesis uses both qualitative and quantitative approaches. The qualitative
one was done in phase 1 (before quantitative research) while the quantitative
approach is implemented in phase 2 to test models and research hypotheses.
Regarding qualitative approach, in-depth interviews are done to clarify and
examine the relevance of the concept and content of the 'entrepreneurial orientation'
in the context of Vietnam. In addition, since the informal institution is controversial,
sensitive, difficult to measure, it needs to be explored. In addition, qualitative
research also helps suggest an overview of the relevance of the model and the
relationships in the proposed research model before conducting quantitative research
with large sample size. In addition, qualitative research contributes to detecting and
supplementing indicators for research variables.
Quantitative research was conducted through a sample survey of Vietnamese
SMEs in three big economic centers (Hanoi, Da Nang and Ho Chi Minh city). The
model and research hypotheses are tested with survey data collected from the
research sample. The use of both quantitative and qualitative approaches helps us
deeply understand the research problem and give more reliable research findings.
3.2 Qualitative research

3.2.1 Objectives
There is still a number of different views on the entrepreneurial orientation of
SMEs (Hoang Van Hoa, 2010), and the relationships between institutional factors and
aspects of entrepreneurial orientation are not really clear. Based on the general

during visits to companies based on good relationship with these companies. During
each visit, the author regularly works and discusses directly with the top leaders of
each company. Therefore, the author can observe the performance of companies, the
behavior of company leaders and may have a better view of the level of
entrepreneurial orientation of each of them. The focus of the interviews was to
understand the formal and informal institutional factors, as well as their effects on the
aspects of entrepreneurial orientation of SMEs. In particular, the respondents were


13

firstly asked to provide an overall picture of the company's performance over the past
five years and identify key barriers to their business, especially from the institutional
environment. Then, the level of proactiveness, innovation and risk-taking level of the
company (ie three aspects of entrepreneurial orientation) were examined and the
factors affecting the entrepreneurial practices of these companies were explored.
During interviews, effects of institutional elements, especially informal institutions
(corruption and institutional trust) on each aspect of entrepreneurial orientation have
been carefully studied. Each interview lasted for between 45 and 60 minutes.
Interviews were conducted at the office of the interviewee or at places which were
suggested by interviewees as long as they were comfortable. The interviews were
recorded, then converted to texts for analysis.
All interviews were recorded. After tape processing was completed, interview
information was typed and analysed. Content coming out from each interview was
noted and analyzed. After each interview, information was carefully reviewed in order
to change and prepare for the next rounds.
Then, to analyse the evidence obtained from the first qualitative research,
content collected has been coded based on the theoretical concept of entrepreneurial
orientation and its aspects. Then codes were calculated to come up with frequency
from each interviewer and used as a basis for aggregating for each topic at all

are considered to have critical impacts on the entrepreneurial orientation of
SMEs. Initially, corruption is found to negatively affect entrepreneurial
orientation while institutional trust having positive impact. This finding is also
consistent with the proposed research model. Institutional trust is felt and
shared positively by some businesses, so one additional indicator is suggested
to relect this content.

3.3 Quantitative research
Sau khi thực hiện nghiên cứu định tính, tác giả tiến hành nghiên cứu định
lượng thông qua một cuộc điều tra các DNNVV nhằm mục đích kiểm định mô hình
và các giả thuyết nghiên cứu. Phần sau đây sẽ trình bày một số nội dung chính như
sau: các thang đo sử dụng trong luận án và quá trình xây dựng bảng hỏi, mẫu điều tra
và cách thức thu thập dữ liệu điều tra. After conducting qualitative research,
quantitative exercise was done through a survey of SMEs for the purpose of testing
models and research hypotheses. This section presents following items: scales used in
the thesis and the process of developing questionnaires, survey forms and data
collection methodology.

3.3.1 Scales and questionnaire development
3.3.1.1 Scales
Most of the scales in this study are inherited from previous studies, are
screened and adjusted to adapt to the research context in Vietnam. The screening and
adjustment of these scales is done under the guidance of the two experienced experts
in training, teaching and research of entrepreneurial orientation and institutions. The
thesis was also added by five indicators for three variables as a result of previous
studies and qualitative research findings. All scales inherited from previous studies
are 5-point Likert-type. Therefore, the 5-point scale has also been used for this thesis
with 1 being fully disagree, 2 is disagree, 3 is normal (neutral), 4 is agree, 5 is fully
agree.
Based on the findings of previous studies and of qualitative research, the

The survey was conducted in Hanoi, Da Nang and Ho Chi Minh city. These are
the three most dynamic economic centers of the country and account for more than
80% of all SMEs operating in Vietnam (General Statistics Office, 2018). This
research sample was also selected to be representative for the whole Vietnamese
SMEs (for example, Swierczek and Thai, 2003).
The sample size was based on the number of observed variables of the study
and the research space. According to Hair et al. (1998), the minimum sample size is 5
to 10 times higher than the number of observed variables that can be used for factor
analysis and regression analysis. Thus, with 24 observed variables, then the sample
size should be at least 240 enterprises.
The sampling framework of the study is expected to meet the following
requirements:
1 / SMEs in accordance with the definition in Government Decree No. 56/2009
/ ND-CP, dated June 30, 2009; 2 / Having at least 3 years in operation; 3 / Enterprises
working in 5 areas including: industry/manufacturing; service/trade; mineral
extraction; construction; agriculture/ forestry/fishery. In which service/trade
enterprises accounts for 70.6% (General Statistics Office, 2018); 4 / The share of
micro and small enterprises out of the total number of SMEs in each region based on
official statistics of 98.5% (GSO, 2018); 5 / Type of ownership of both state and
private enterprises. Of which, private businesses accounts for 99.5% (GSO, 2018).
Based on the research objectives of the thesis and the sampling framework, the
Legal Department of VCCI was contacted to get a list of businesses which was
engaged in PCI 2016 survey in Hanoi, Da Nang and Ho Chi Minh city. This is the list
selected by VCCI based on random stratification method. After eliminating backup

According to Mangione (1995), the rate from 50% to 59% is acceptable, while
the response rate of many current studies is only 30% (Nguyen Thi Tuyet Mai and
Nguyen Vu Hung, 2015). Therefore, based on the minimum sample size requirement,
all 1,269 survey questionnaires were used.
In order to conduct data collection, 10 enumerators were trained on how to

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CHAPTER 4

.70) when these
variables were dropped out. The EFA results with the remaining variables show that the
three factors are extracted as expected, ensuring the distinct and convergence value of
the scales, with the total variance extracted of 76.721%.

RESEARCH FINDINGS
This chapter presents research findings with a focus on model testing and
proposed research hypotheses. Before doing this test, a preliminary assessment of
scales through an analysis of the exploratory factor analysis (EFA) and the
Cronbach’s alpha coefficient was made. After that, confirmatory factor analysis
(CFA) was done through the evaluation of the full measurement model. Research
model and hypotheses were tested by structural equation modeling (SEM) analysis
technique. The affirmative factor analysis (CFA) and the structural equation model
(SEM) were carried out with the support of AMOS software integrated in SPSS 21.
4.1 Evaluation results of scales

4.1.1 Preliminary assessment of scales through EFA and Cronbach’s alpha
Evaluation of scale of independent variables
EFA analysis was firstly done simultaneously for all indicators measuring the
independent variables in the research model (two elements of formal institutions and
two elements of informal institutions). Before analyzing the factor, KMO and
Bartlett's Test were done. The results showed that Kaiser-Meyer-Olkin Measure of
Sampling Adequacy is equal to 0.836 (value from 0.6 is acceptable) and Bartlett's
Test of Sphericity has a significant level of under 0.05 (see annex 03). This result

hypotheses.
4.2 Current situation of institutional factors and entrepreneurial orientation of
Vietnamese SMEs

4.2.1 Descriptive statistics of institutional factors and entrepreneurial orientation of
SMEs
Statistical results of formal and informal institution factors
Statistical results show the level of the two formal institutional factors at a slightly above
the average point (> 3.2) on a scale of 5. This reflects SME’s perception of formal
institution elements being as vicious barriers to their business, especially the volatility,
inconsistency and overlapping of government policies and regulations (mean = 3,544,
S.D) = .744).
Descriptive results also show that the average score of the two elements of the
informal institution is also just above the average. Specifically, institutional trust was not
high (mean = 3.662 on a scale of 5; S.D. = .6268). Corruption is assessed at a slightly
above average level (mean = 3,351; S.D. = .8321). This reflects the fact that SMEs often
have to pay informal costs when working with state agencies and this is also a barrier to
businesses’ operations.
Statistical results of entrepreneurial orientation aspects


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20

Regarding SMEs' assessment of the three aspects of entrepreneurial orientation,
statistical results show that all three aspects are not high (
of entrepreneurial orientation is not sustainable. That change may lead to the existence
only and disproportionate development of entrepreneurial orientation. Therefore,
institutional barriers in terms of execution quality must be gradually removed for the
sustainable development of entrepreneurial orientation of SMEs.
Thirdly, since enterprises with state capital have higher awareness of institutional barriers
than those without it, entrepreneurial orientation may be more negatively affected.
Therefore, equitization and divestment process of state-owned enterprises should be
accelerated to enhance entrepreneurial orientation of this enterprise group.
Eliminate formal institutional barriers regarding the mismatch of the state system of
policies and regulations as well as execution quality, limit corruption to reduce
transaction costs for enterprises.

Strengthen institutional trust
It can be said that this is the most important, long term and most effective
solution in the current context of Vietnamese SMEs. The characteristics of informal


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institutions is regards to longer time required for changes as compared to formal
institutions, so institutional trust cannot change quickly. However, in specific
contexts, formal and informal institutions can support and replace each other.
Completing formal institution in the long run can help strengthen institutional trust.
In addition, institutional shocks may change institutional trust more quickly, because
trust with spiritual values looks like beliefs through awareness. The current anticorruption work in Vietnam is unprecedented, so this is a big push that can enhance
the trust of the whole society in general and SMEs in particular. Previous studies
have also shown that when social trust increases, then institutional trust is also
improved. This can be a favorable condition for perfecting formal institutions,

orientation increase with the increased impact of execution quality barriers just
because of existence, the relationship between entrepreneurship aspects and business
performance is unlikely. and business results. In order to understand this relationship
more deeply, further studies need to add a business performance variable to get it
simultaneously tested in the research model.
In summary, the thesis provides an important empirical evidence on the
relationship between formal, informal institutions and each aspect of entrepreneurial
orientation of Vietnamese SMEs. Given specific contribution in terms of theory and
practice, the results of this thesis can not only be further referred and used in
subsequent studies of relevant topics, but also could be served as scientific
framework for policy makers, state agencies to improve institutions towards
promoting entrepreneurial orientation of Vietnamese SMEs. Thereby, it will help
strengthen the competitiveness of SMEs in the context of broader international
integration.