Role of Family in Small business Development:A comparative Study of Vietnam and South Korea

Dr. Nguyen Quy ThanhVietnam National University, Hanoi

Introduction

Socialist Republic of Vietnam1 and Republic of Korea or South Korea2 both situated in the East Asia where the influence of Confucianism was and has been remaining strong. These countries stand at different notches of development. Vietnam begun to develop just recently while Korea had completed industrialization in very short term. Small businesses may play essential role in development in these countries.

In 1986 Vietnam had begun the policy “open door”. Since then the number of small businesses3 increased day by day. Regulatory change, increased spending brought about renewed economic growth, and employment dislocation stemming from the downsizing of the large state owned enterprises (SOEs) have resulted in Vietnam place small enterprises in the forefront of the research agenda of social sciences.

Many people believe that there are abundant social networks in Korean society. Most agree that personal network based on regional and school background plays a critical role in Korea (Yee Jae Yeol 2000). Consequently, Korean people benefit by gaining social capital. However, there have been very few studies on the characteristics of social networks of ordinary people in Korea. Moreover, there is limited literature that enlightens the role of Korean family in small business development.

For Mead (1998), high-context cultures include China, Japan, Korea, Vietnam and other Asian countries, countries around the Mediterranean and in the Middle East. They are characterized by: long-lasting relationships; implicit, shared and indirect communication codes; personal authority with loyalty to superiors and subordinates; spoken (rather than written) agreements; clear distinctions between insiders and outsiders, and with cultural patterns that are slow to change. By contrast, low-context cultures include the Anglo countries (Australia, Britain, Canada, New Zealand and the United States), Scandinavia and Germany. These cultures are characterized by short-term relationships; explicit, logical and direct communication codes; bureaucratic and diffuse authority with impersonal relationships; written (rather than spoken) agreements based on legal systems; imprecise distinctions between insiders and outsiders, and with cultural patterns which are more adaptable to change.

Before Asian crisis struck, a strong case was being made that the “Asian economic miracle” itself could be largely credited to the dynamism of the mainly small and medium enterprises (henceforth SMEs). Pundits seized on the crisis to discredit the family management, personal networks and risk taking diversification of Asian capitalism, and its failure to produce “world-class” multinational corporations. Asian family business, whether owned by small capitalists or as part of the hundred of firms

1 Henceforth ‘Vietnam’2 Henceforth ‘Korea’3 In this essay the term of “small business” includes a range of enterprises from micro, household to medium establishments.

comprising a tycoon’s conglomerate, were seen unable to compete with professionally managed corporations, strictly focuses on their “core” business, and it was expected that many would be taken over and knocked by Western management (Harvie and Lee 2002b).

Business structures and relationships are influenced by many social and economic factors, but are significantly influenced by culture, particularly values. According to Lessem (1998, p. 46), 'Cultures earn their livings, produce and develop effectively, that which their members most value. To believe that a particular task is valuable is a necessary prelude to doing it well'. In many Western countries, business networks, comprising SMES, have been mainly formed through interventions of third parties, such as industry associations, industry bodies, development boards or governments or through a combination of these agents.

The same seems to apply in some other countries in the Asia-Pacific region, such as Korea, where the chaebol4 has been supported by government initiatives directed at encouraging large organizations to form networks, which, until recently, excluded SMEs (Fulop and Richards 2002). The keiretsu5 in Japan involves both large firms and SMEs and emerged through government legislation in the early 1940s that forced SMEs to become subcontractors to large manufacturing firms (Shadur and Kienzle 1995, p. 450). A variety of network forms exist in Japan, including those dominated by SMEs that have emerged since the 1980s through the support and patronage of various government departments and their officials (Shadur and Kienzle 1995, p. 454). Studying terminology we recognized that term ‘family business’ has been using with a quite different meaning in Vietnam and Korea. ‘Family business’ in Vietnam is often referring to micro and small business while in Korea it usually associated with big business like cheobol.

By contrast, in most of East and Southeast Asia, business network relationships are organic and have not required, or been given, deliberate help from outside agencies. Indeed, SMEs may refuse to be helped by schemes that exist to facilitate networking. This is because, in most of the region, cultures are relationship oriented, rather than principle or contract oriented: 'the relationship comes before the contract' (Hampden- Turner and Trompenaars 1997, p. 178, emphasis in original). This provides the archetype of how relationships and networks link to advance the business interests of SMEs. A large part of the explanation for these different forms of networking lies both in cultural influences and the institutional arrangements that reinforce cultural differences between nations. One helpful way to understand the context of culture was developed by Hall (1976), who distinguished between high- and low-context cultures. In high context cultures the external environment is very important, many things are hidden and meaning is conveyed indirectly. In low context countries the environment is less important, things are made more explicit and meaning is often conveyed directly. Although Hall does not clearly place different countries within his model, others such as, for example, Hofstede (1991) and Mead (1998), have undertaken such a categorization.

Recent social science research on micro-institutions is, however, to a large degree, incomplete. The literature on small-scale business frequently emphasized the role of 4 Cheobol is the name in Korean language of big business groups in Korea such as Sam Sung, LG, SK and so forth.5 Keiretsu is the name in Korean language of big business groups in Japan.

economic in the determining of economic behavior. In our opinion, there are three important to an assessment of embedded social exchange but frequently neglected factors: 1) the costs of maintaining social relationships, 2) the degree to which social relationships are endogenously determined by economic relationships, and 3) the system-wide effect of particularistic micro-institutions.

Besides to that, the study of entrepreneurs and entrepreneurship generally concentrates on either personality traits or neoclassical views of rational economic activity. Critics suggest that both approaches are inadequate in explaining entrepreneurial behavior which is embedded in networks of social relations. Competent and successful entrepreneurs draw on personal networks to extend their strategic competences and help resolve acute operating problems by supplementing internal resources. Research has shown that economic relationships are often embedded within a framework of ascribed (ethnicity, family) and achieved (school, friendships neighborhood co-residents). Therefore, the study of role of family in small business development should be considered in the larger context of Social Capital in business development. Talking about these questions we need to define related concepts such as like social capital, social network. In current policy and theoretical debates concerning the development of small businesses in developing countries, social capital has emerged as a significant feature of economic development.

Our paper is one more effort to examine the relationships between non-economic factors and economic development in general with focus on the role of family relations in small business development. We would like to find the answer for the questions how social relations (in this case familial ties) influence to small business start-ups, running in both positive and negative ways. What are the differences in this question can be observed in Vietnam, a developing country, in comparison to Korea, an industrialized country? This comparison would give Vietnam useful lessons and would predict its development in the near future by studying Korean case.

Objectives

The overall goal of our research is to understand the nature of role of social capital in small business development in general with focus on role of family ties in this field in particular. Therefore our objectives in this research are:

to determine the role of family relationships in gaining access to the credit fund need for starting and operating the business and in securing labor for their enterprises.

to find out similarities and differences between Vietnam and Korea in this question.

to generate some implications for policy makers.Methodology and Data

Our central research question is ‘what is the role of the family as a social institution could play in small business development’. Therefore, to address this question we focused on relationships between family and business development in Vietnam and Korea.

We also understand that the problem cannot be solved outside of interdisciplinary approach. In that case research question is considered in the highlight of point of views of economics and sociology. Concerning methods of information gathering and data collection, we have implemented a combination of qualitative and quantitative methods.

At initial stage we had carried a ‘desk study’ for the sake of building of theoretical framework for our study. In this period we have done literature review and secondary analysis of existing data. This analysis had been conducted in the framework that presents in the figure 2. Secondly, we have conducted some observations of how small business functioning in Korea. Our analysis has been carrying out based on following framework. Therefore, the data used in this paper had been generated from different sources. It will ensure the validity and representativeness of our conclusions.Figure 1. Analytical Framework of Role of Family in Small Business Development

Economic Capital

Small Business Development

Capital issueManagement issueLabor issue

SocialCapital

Family relations

Social Netwo

rk

Chapter I. Socio-Economic indicators of Vietnam and Korea1.1. Countries profiles

Vietnam and Korea locate in East Asia. Both countries share many historical similarities. Vietnam and Korea either influenced by Chinese culture, especially Confucianism value. These nations also experienced bloody wars in XX century. However, Vietnam had been unified in 1975 while Korea is still divided from 1953. After signed armistice agreement with the North, Korea had achieved economic success that caused the rest world calls it as “miracle beside Han river. Vietnam had implemented the doi moi6 or Renovation policy in 1986. From then, Vietnam enjoy quite high tempo of economic growth. However, in term of GNI per capita Vietnam lags behind Korean 22 times.

Table 1. Vietnam and Korea Major Indicators and Statistics1997 2000 2001

Vietnam Korea Vietnam Korea Vietnam KoreaPeoplePopulation, total (million)Population growth (annual %) National poverty rate (% of population) Life expectancy (years) Fertility rate (births per woman) Infant mortality rate (per 1,000 live births) Under 5 mortality rate (per 1,000 children) Births attended by skilled health staff (% of total) Child malnutrition, weight for age (% of under 5 ) Child immunization, measles (% of under 1 year) Prevalence of HIV (female, % ages 15-24) Illiteracy total (% age 15 and above) Illiteracy female (% of age 15 and above) Primary completion rate, total (% age group) Primary completion rate, female (% age group) Net primary enrollment (% relevant age group) Net secondary enrollment (% relevant age group)

75.51.4..

68.12.430.2

..

..

..96.0

..8.110.3

..

..87.854.2

46.00.7..

72.31.65.6..

100.0..

85.0‘’

2.84.4....

92.996.9

78.51.3..

69.12.227.634.469.634.097.0

..7.59.3....

95.462.5

47.00.7..

73.31.45.06.0....

95.0..

2.23.6

96.297.899.590.9

79.51.2..

69.42.2

30.038.0

..

..97.00.27.39.1

101.097.9

..

..

47.30.6..

73.61.45.05.0....

97.00.02.13.4........

EnvironmentSurface area (sq. km, thousand) Forests (1,000 sq. km) Deforestation (average annual % 1990-2000) Water use (% of total resources) CO2 emissions (metric tons per capita) Access to improved water source (% of total pop.) Access to improved sanitation (% of urban pop.) Energy use per capita (kg of oil equivalent) Electricity use per capita (kwh)

331.7......

0.5....

446.3202.8

99.26......

9.2....

3,884.54,851.9

331.798,190.0

-0.511,350.0

..77.082.0

470.8285.5

99.2662,540.0

0.11,485.0

..92.076.0

4,119.05,607.1

331.7................

99.26................

EconomyGNI, Atlas method (current US$, billion) GNI per capita, Atlas method (current US$) GDP (current $, billion) GDP growth (annual %) GDP implicit price deflator (annual % growth) Value added in agriculture (% of GDP) Value added in industry (% of GDP)

25.7340.026.8

523.711,400.0

476.5

30.3390.031.2

423.59,010.0461.5

32.8410.032.7

447.69,460.0422.2

6 Like the term Perestroika in Russian language, Doi moi in Vietnamese were internationalized because of social, economical and political restructuring and renovation processes that begun in these countries in the late of 1980s last century. In English Doi moi means ‘Renovation’.

Value added in services (% of GDP) Exports of goods and services (% of GDP) Imports of goods and services (% of GDP) Gross capital formation (% of GDP) Current revenue, excluding grants (% of GDP) Overall budget balance, including grants (% of GDP)

8.16.625.832.142.243.151.228.319.7-1.7

5.03.15.4

43.151.634.735.734.220.0-1.3

6.83.424.536.738.755.057.529.619.9-2.8

9.3-1.14.7

42.452.944.841.728.2

..

..

6.82.7

23.637.838.654.756.830.920.0-2.9

3.01.34.4

41.454.142.940.626.7

..

..Technology and infrastructureFixed lines and mobile telephones (per 1,000 people) Telephone average cost of local call (US$ per three minutes) Personal computers (per 1,000 people) Internet users (million)Paved roads (% of total) Aircraft departures (thousand)

19.5

0.14.6

0.00325.133.5

593.6

0.0150.71.6

74.0229.3

41.7

0.08.80.229.0

1,060.1

0.0244.819.0

..226.9

53.0

0.011.71.0..

35.4

1,106.4

0.0256.524.4

..225.7

Trade and financeTrade in goods as a share of GDP (%) Trade in goods as a share of goods GDP (%) High-technology exports (% of manufactured exports)Net barter terms of trade (1995=100)Foreign direct investment, net inflows in reporting country (current US$, billion) Present value of debt (current US$, billion) Total debt service (% of exports of goods and services) Short-term debt outstanding (current US$, billion) Aid per capita (current US$)

77.6....

..2.2

0.07.72.3

13.2

58.9123.026.0

88.12.8

0.08.2

53.8

-3.5

95.1....

..1.3

11.17.5

924.9

21.4

72.1152.934.2

72.19.3

128.410.940.5

-4.2

93.6....

..1.3

10.96.7

784.5

18.0

69.1152.629.1

..3.2

0.013.835.1

-2.3

Source: Adapted from World Development Indicators database, April 2003Vietnam has larger surface area, bigger population than Korea, but it less developed

comparing many indicators. Many researchers believe that Vietnam lags behind Korea about 20-30 years. However, the comparison between Vietnam and Korea would be useful in term of predicting for development of Vietnam. The development of Korea may be determined by many factors. Among the others small businesses, which comprises of absolute majority of all business in Korea, play a great role.

1.2. The Definitions of Small Business

In Korea SMEs is generally defined as a company which employs fewer than 300 persons or whose paid-in-capital amounts to below 8 billion won ($US 6,626,0007). More specific standards on the classification of SME is stipulated in 'Article 2 of the Framework Act on Small and Medium Enterprises' as table 2.

Table 2. Definition of Small and Medium Sized Enterprises in Korea

Industry Small-Scale Business Medium-Scale BusinessMining, Manufacturing,

Transportation 50 of fewer employees 51 to 300 employees

7 It is calculated at exchange rate Won/$US in December 1998.

Construction 30 or fewer employees 31 to 200 employeesCommerce, Other Services 10 or fewer employees 11 to 20 employees

Source: Korea Foundation for Small and Medium Enterprises

There are certain types of businesses, which are classified as small business even though the number of employees exceeds the above definition due to the labor intensiveness of the industry. Some businesses in capital-intensive industries, which should be classified as small business based on the number of employees, are excluded from the small business category due to their excessive capital assets.

In Vietnam, at present time SMEs are officially defined by the government as enterprises with chartered capital of less than 10 billion VND8 (or $US 650 0009) or fewer than 300 staff10. This criterion is changed from old one that consider all enterprises with an SME is defined as one that has less than VND 5 billion capital (equal to USD 330,00011) and employs about 200 workers.12 However, there is no distinction for manufacturing and non-manufacturing establishments. Concerning small and micro enterprise there is no official definition. However, researchers have built the criteria for defining of small business. According to them the enterprises with less than 9 works are considered as micro enterprises while those with labor force in the range from 10 to 49 staff are small ones (Hang, Pham Thi Thu 2002). Other researchers use a different scheme of clarification, according to which, small enterprises are ones that employ less than 30 workers and possesses less than one billion VND ($US 65,000), while medium enterprises have from one to five billions VND with from 30 to 300 staff (Harvie and Lee 2002b).

Thus, in Vietnam there is no detailed definition of SMEs according to industries that is comparable to Korea. Anyway, it is easily to see the fact that in term of capital SME in Korea is about tenfold more than those in Vietnam. Small amount of capital shows the low level of development of these enterprises in term of finance and technology. It is to set obstacles for renovation technology or implementing new one. It also partly points to the limitations of financial market for small businesses in Vietnam at present time.

1.3. State of Small Business in Korea and Vietnam

1.3.2. Small Business in Vietnam

SMEs comprise of 97% of the total number of enterprises in the Vietnam. This figure is just a little bit behind Korean one (see below). Concerning non-state sector, SMEs account for 99.0 % (Nguyen Thi Hien 2001). Since 1986, when the doi moi had been implemented, Vietnam have showed its honest intention of developing non-state economic sector. A lot of restrictions have been lifted and the promoting ones have been adopted. It is confirmed at highest level of authority in Vietnam. Farmers, household micro enterprises, private SMEs and relatively large foreign invested enterprises comprise the private sector in Vietnam. The decline of cooperatives of agriculture,

8 VND (or dong) is Vietnamese currency.9 It is calculated by exchange rate VND/$US in 2001.10 It is cited according to Decree of Vietnamese government No 90/2001/ND-CP.11 It is calculated by exchange rate VND/$US in 1998.12 According to Circulation 681/CP-KTN, June 20th, 1998.

together with the approval of the Domestic and Foreign Investment laws in the late 1980s, as well as the Commercial Law in the early 1990s, were extremely effective in promoting growth of the private sector from a negligible base. The economic reforms of the 1980s were remarkably effective in galvanizing the energy of millions of Vietnamese individuals who diversified and expanded their agricultural production rapidly, and set up many micro household enterprises as well as domestic private registered SMEs. Foreign firms invested in majority foreign- owned joint ventures or in wholly foreign-owned enterprises. Tapping the potential of individual farmers' drive and dynamism through 'doi moi' was key to the rapid growth and employment generation of the 1990s. In the early part of the 21st century, unleashing the potential of the private non-farm sector, to produce and to export, is likely to be the key to restoring higher growth of income and employment during the next decade.

While systematic data on the performance of the domestic private sector is limited, what does exist suggests a significant expansion and diversification of private sector activities in the last 10 years. Some important facts about the performance of the private sector can be usefully highlighted. First, the share of the private sector in total GDP in 1998 was about 50 per cent, which is approximately the same share as in 1993. Hence the domestic private sector's share of GDP has remained stagnant in recent years. During the 1995- 98 period, the domestic private sector, despite its many constraints,

Photo 1. ChoLon (Big Market) in Ho Chi Minh City - the Preferable Place for doing Business in Vietnam Source : http://www.terragalleria.com/vietnam/vietnam.html

grew at 9 per cent a year, only a percentage point lower than the growth of the state-owned sector. Table 3. Contribution to GDP of Sectors 1995-1999 (at price 1994)

1995 1996 1997 1998 1999TotalState sectorNon-state sector

Domestic enterprises Household and farm Registered private enterprises Cooperatives FDI

10040.159.953.235.97.759.76.7

10040.859.251.935.07.79.17.3

10041.458.850.434.27.58.78.2

10041.358.749.533.47.58.59.2

10041.158.948.933.17.28.610.4

Source: General Statistical Office: Yearbook 2000.

Second, private firms produced less than half of manufacturing GDP in 1998, but the share is increasing, with the domestic private sector dominating that share. The domestic private sector, especially household enterprises, has had an important role in manufacturing. Micro household enterprises and private SMEs account for 28 percent of manufacturing GDP. As of 1999 there were around 600 000 micro household enterprises in manufacturing, contributing 18 per cent of manufacturing value added, and 5 600 private SMEs in manufacturing accounting for 10 per cent of manufacturing GDP. However, with the introduction of the Enterprise Law in 2000 the situation was changing rapidly, especially for private registered SMEs, with more than 10 000 new firms registered during the first nine months of 2000.

Table 4. Non-Farm Enterprises in Vietnam

Year State owned Enterprises

Cooperatives Household Enterprises

FDI Enterprises

Number of registered

by year1992 6365 - 1 066 000 106 39851993 6427 - 1 196 000 168 74211994 6372 - 1 279 000 344 71761995 5784 - 1 783 000 556 61581996 5343 - 1 457 000 717 54851997 5242 - 1 557 000 787 46361998 4819 - 1 596 000 979 42521999 4740 - 1 704 000 1076 57822000 5500 - 1 810 000 - 14 4132001 4291 2 100 000 18 000

(estimated)Source: General Statistical Office. Year Book 2000.

New enterprise law that came to light in 2000 has made the procedure of establishment of business very simple. It resulted in acceleration in number of newly established enterprises from 2000. Absolute majority of those are non-state and belong to SMEs category. One can say that most of enterprises, including SOEs, in Vietnam belong to either small or medium establishments in term of capital. There are several

types of SOEs in Vietnam: central, local and that belong to social organizations. Most of them are unprofitable and quite small. There is ongoing process of equitizing of SOEs that would result in less number of those in next few years. Table 5. Major Characteristics of Small enterprises in Private Sector in Vietnam

Urban Area Rural AreaHouseholdEnterprises

Individual Enterprises

Limited companies

HouseholdEnterprises

Individual Enterprises

Other types

Income (thousands VND)

Employees (persons)

Paid workers (%)

Added value per worker (thousands VND)

Asset per worker (thousand VND)

Cost, salary per worker (Thousand VND)

Profit -capital, asset ratio (%)

208 797

5.7

3.6

10 982

28 015

6 027

32.3

1 273 722

22.5

20.7

17 455

51 759

7 253

16.9

2 680 600

31.9

30.5

21 322

71 453

6 875

13.7

62 113

3.5

1.2

7 699

12 565

5 136

65.6

86 850

17.2

14.5

13 656

29 022

5 250

26.8

1 521 963

30.0

27.4

14 545

50 709

5 091

9.2

Source: Maud Hemlin, Bhargavy Ramamurthy and Per Ronnas 1998.13

As a developing country, Vietnam needs to develop small business as a viable route to response the uncertainties of market economy. Small business is very dynamic, therefore it easily adapts or readapts to changing environment. At present time, Vietnam is transforming from central planed economy, which concentrated in building heavy industry with gigantic industrial complex. Many researchers have pointed out the similarities in the way of development between China and Vietnam. China had carried out some experiments in socio-economic development. In respect of small business China had developed a lot of ‘Communal Enterprises’ in the late 1950s along with big businesses. However, China “having realized the inherent limitations of large-scale, capital intensive, modern industrial sectors in promoting rural modernization, Mainland China launched the campaign of “walking on two legs” that called for establishment of relatively small-scale, labor-intensive native skill-based industries for indigenous rural development. Millions of small shops and factories were set up by rural commune so that all around local sufficiency would be achieved by utilizing local available resource and stimulating grassroots initiatives” (Chang Kyung-Sup 1993).14 However, the current development of small business in Vietnam, which has a family basis, is completely different in comparison to development of small business in the form of ‘communal enterprises’ in China some decades ago.

1.3.3. Small Business in KoreaNumber of SMEs in Korea is 2.67 millions that institutes 99 % of all businesses. 73

% of economic active population is working in SMEs. And the average size of one SME is 17

13 It is re-quoted from Hang, Pham Thi Thu 2002, p. 47 (in Vietnamese). 14According to professor Chang Kyung-Sup, it is about the situation of the late 1950s in China when Mao Zedong was experimenting with a radically communalist approach to rural industrialization, rather than a family-dependent one. And it was a time when the family business was not welcomed.

(Chris Hall 2002). Currently, SMES employ 9.1 million persons, representing nearly 80% of the total workforce in Korea (Gary D. Gregory 2002). The significance of SMEs in national economy of Korea had been clearly stated by many researchers. For example, according to Nugent and Yhee (2001) virtually nowhere has the relative role of SMEs in the country changed as much over time as in Korea. The role of its SMEs has gone through at least two very distinct phases: a sharp decline from the early 1960s to about 1976, and a gradual rise from 1976 to at least quite recently. With the currency and monetary crisis of 1997–99, and a relative decline in investment in SMEs since the mid-1990s, however, it is quite possible that the latter trend has been stalled and beginning to be reversed once again. Whether this is only a temporary stall or a turning point to another period of relative SME decline remains to be seen and may hinge on the way in which the crisis is resolved.

In Korea the SMEs have not only ups but also downs. They dominated the manufacturing sector of the economy in the early 1960s but by the mid-1970s, Korea had become known for the extreme dominance in economic and public policy of its large chaebol (conglomerate) firms in the economy. Indeed, it had become so much large firm and chaebol-oriented that Korea has often been contrasted with other East Asian economies like Japan and Taiwan where SMEs have continued to play a comparatively much more important role. Less well known is that since the mid-to- late 1970s there has been a steady decline in the dominance of large firms and a corresponding rise in the role of SMEs in all aspects of manufacturing activity. The dramatic rise of the chaebol and the Korean economy as a whole has been closely linked to an especially cozy relation between government and business and to the country’s development strategy. Whether Korea’s economic development has been helped or hurt by the country’s development strategy is still hotly debated as is of course the extent to which the financial and currency crisis of the last two years can be attributed to the excessive power and international borrowing of the chaebol. Even more controversial is what, if anything, should be done to correct the widely perceived excesses of the chaebol and government policies in support of them. Meanwhile, gradually and especially since the early 1980s, the Korean government has instituted a whole host of policies designed to assist SMEs. But, there is little evidence to date as to whether these policies have had any significant effects and, if so, whether or not these policies have been cost-effective in social terms. (Jeffrey B. Nugent and Seung-Jae Yhee 2001).

Role of Small Business- Driving force for sustaining economic growth- Promotion of social stability by the creation of employment - Enhancement of industrial restructuring - Promotion of ability to meet changing market situations - Promotion of international trade and cooperation - Satisfaction of diversified tastes on the part of consumers - Stimulation of local economies on a balanced basis Source: Small and Medium Business Administration, Government of Republic of Korea, at www.smba.go.or.

In virtually all dimensions the role of SMEs in the Korean economy has been ever-changing. In general, and in most dimensions, there have been at least two and possibly three or four distinct and opposing trends. First, an upward trend (in the share of SMEs in both establishments and employment at least) in the 1950s; second, a declining trend in the SME share from the early 1960s to the mid-to-late 1970s; third, an again

rising trend until the mid-1990s; and, since then a stalling or even possibly a reversal in that trend. Evidence for the first and the last of these possible trends, however, is much weaker than for the others.

Table 6. SME Shares in Number of Establishments, Employment, Value Added, and Gross Production in Manufacturing 1952–96 (%)15

Manufacturingestablishments

Manufacturingemployment

Manufacturingvalue-added

Manufacturingproduction

Small and

medium(5-300)

Large(300+)

Small and

medium

Large(300+)

Small and

medium

Large(300+)

Small and

medium

Large(300+)

1952195519601966197019731975198019851990199119921993199419961997

95.897.297.698.397.197.096.296.697.596.198.598.698.999.099.199.1

4.22.82.41.72.93.03.83.42.53.91.51.41.11.00.90.9

61.563.367.760.349.046.345.749.656.161.763.565.868.969.169.269.3

38.536.732.339.751.053.754.350.443.938.336.534.231.130.930.830.7

57.042.528.533.931.735.237.644.345.847.650.349.247.246.5

43.057.571.566.168.364.862.455.754.252.449.750.852.853.5

46.630.333.830.731.935.442.744.645.847.847.946.846.3

54.469.766.269.368.164.657.355.454.252.252.153.253.7

Note: Definition of small and medium-sized enterprise changed: 5–200 workers before 1973 and 5–300 thereafter.

Source: National Statistics Office, Report of the Mining and Manufacturing Census and Survey, various years Korean Federation of Small Business, Central Cooperative.

The change of definition of SMEs in Korea caused the same problem, as it did in Vietnam, in comparability of statistics from year to year. The basic trends of SMEs changing can be observed in Table 6. The official size cutoff between SMEs and large corporations changed from 200 employees to 300 after 1973, making the top part of the table not exactly comparable to the bottom part. There are also some differences in the years of the turning points among the different dimensions. For example, in the case of number of establishments, the first turning point occurred only in 1966, whereas for employment it occurred in 1960. Similarly, the second turning point occurred only in 1975 for both numbers of establishments and employment but in 1970 for both value added and production. In the case of both value added and production, moreover, a new trend reversal of declining SME shares seems to have occurred since 1993 or 1994 but not yet for employment. If, as before, the turning points in the SME shares of value added and production precede that in employment, these declines in SME shares in value added 15 The figures presented in this table exclude very small plants with one to four workers, or in other word, micro enterprises.

and production could presage a decline in the SME share of employment by the turn of the century.

According to figures in the table 6, the SME share concerning employment rose from 61.5 percent in 1952 to 67.7 percent in 1960, then fell to 45.7 percent in 1975, and finally rose again to 69.3 percent in 1997. These are remarkably strong shifts in employment structure, a decline of more than 20 percent in manufacturing employment between 1960 and 1975 followed by a rise of almost 25 percent by 1997.

The statistics show that the shares of the two largest size classes of SMEs in the total employment of those SMEs with 100–199 and 200–299 employees, respectively were falling between 1978 and 1997, from 25.5 percent and 18.7 percent in 1978 to 15.1 percent and 8.5 percent, respectively, in 1997. At the same time, those establishments with 5–49 employees have been increasing the share in employment. Since 1978 the share of this group (i.e., the three smallest size groups in Table 7) rose from 35.9 percent of the SME total in 1978 to 58.7 percent in 1996. Hence, it is clear that the upward trend in the SME share in manufacturing employment since 1978 is primarily due to the rising share of small SMEs (those with fewer than 50 employees) rather than to the growth of relatively small SMEs into medium sized ones. Consistent with the virtual disappearance of any trend in the share of SMEs in total employment between 1996 and 1997, even within SMEs there was an increase in the share of establishments of 100 or more workers between 1996 and 1997.

Table 7. Size Shares of Employment Among SMEs in Manufacturing Over Time, in Percent

Year/Size 5–9 10–19 20–49 50–99 100–199 200–299 Total1960196619731978198619921993199419961997

17.6920.4814.087.356.689.9612.1612.3414.2815.11

20.5718.0412.409.2211.4415.68 17.1517.1717.6616.94

27.5220.9918.0719.3224.0728.2527.8527.6726.8326.23

14.1415.8017.8019.8122.1419.5618.7018.6517.7617.79

14.0815.5422.4325.5522.1016.8815.485.4414.9715.48

6.009.1515.2218.7413.589.678.668.728.508.47

100100100100100100100100100100

Source: Economic Planning Board, Report of the Mining and Manufacturing Census and Surveys, various years.

Prior to 1978 the shares within SMEs of the two largest size classes (i.e., those with 100 or more workers) increased sharply from 20 percent in 1960 to 44.2 percent in 1978. Within the two smallest size classes, however, there was considerable volatility in the pre-1978 period.

The Korea's small manufacturing firms showed strong growth in the 1980s, but Korea has still far fewer such establishments than either Japan or Taiwan. As of 1988 the number of small manufacturing establishments per 1,000 people in Korea was only 4.3, in contrast to the Japanese figure of 7.2 in 1986 and the Taiwanese figure of 6.7 in 1986.8 Taiwan had over 50 percent more SMEs per capita than Korea, and Japan 67 percent more (Park, Hun-Joo 2002).

In short the contribution of small businesses to national economy in Vietnam and Korea is significant. The contribution of small businesses to GDP in Vietnam is 65% while it comprises of a half portion in Korea. The share of SMEs in total export in Korea and Vietnam account for 40% and 20% respectively. They have both social and economical meaning. Small businesses in both countries may play the role of safe valve for labor mobility. The redundant labor of downsizing state owned enterprises (SOEs) in Vietnam or of Cheobol in Korean could find job by starting their own business. 85% workforce in Vietnam and 69% in Korea are working for SME (Harvie and Lee 2002b). Many factors have put imprints on prosperity of small business in Vietnam and Korea. In parallel with economic ones are non-economic. Among the latter role of social capital that derives from social relations such as family ties will be discussed in next chapters.

Chapter II. Family as Social Capital 2.1. Theoretical framework of understanding of Social CapitalTo understand the nature of family as social capital we have to review what have

been done in this field by researchers in theoretical and empirical levels. However, we consider rational a beginning of this chapter with a brief explanation-orientation on ‘what is the social Capital”. In general meaning social capital is considered as the norms and social relations embedded in the social structure of a group that enable people to coordinate action to achieve desired goals. That means social capital refers to the institutions, relationships, and norms that shape the quality and quantity of a society's social interactions. Increasing evidence shows that social cohesion is critical for societies to prosper economically and for development to be sustainable. Social capital is not just the sum of the institutions which underpin a society – it is the glue that holds them together. Many researchers suggest that social capital as channels of access to resources that inhere in someone relations. Such ties provide different incubation prospects for new business ideas, depending on the quality of the information and resources flowing through them.

Recognizing the importance of social capital as a factor of sustainable development, the World Bank has supported series of research in the framework of “Social Capital Initiatives”. Up to date 26 research papers and book concerning this topic have been published. The very first researches were devoted to theory analysis of social capital. Among those, the paper of Tine Rossing Feldman, Susan Assaf “Social Capital: Conceptual Frameworks and Empirical Evidence--An Annotated Bibliography” was critical16. They had done a comprehensive review of contention and empirical studies.

However, theorists disagreed over the definition and interpretation of the term of social capital. Bourdieu (1986) and Putnam (1993) used group as the level of analysis in their argument that that group collectively enhance their member life chance thru social capital. By contrast Lin (1999) used individual as the unit of analysis to argue that of human capital is instrumental for business and work. Coleman (1988) seemed to use term with both collective and individual reference. He considers social capital as resource for social action that could lead to the acquisition of other forms of capital, human and physical.

Here a range of definitions and concepts are explored. In particular, Woolcock and Narayan’s (2000) work on social capital in an economic development is used as an organizing framework for the critical review. In this work, they develop four distinct categories of social capital: the communitarian view, the network view, the institutional view and the synergy view. The communitarian view, for example, takes a positive approach to social capital by emphasizing social solidarity and informal groupings. The network approach emphasizes strong intra-community and family inter-personal ties. The institutional view of social capital argues that the vitality of community networks and civil society is largely the product of political, legal and institutional environment. Whereas the synergy view, attempts to incorporate both a network and institutional perspective in order to foster economic development synergies. Each of these

16 All of the papers in series “Social Capital Initiative” could be downloaded from the website http://www.iris.umd.edu/publications/browse.asp?pn=1&how=sci&orderby=&string=

perspectives is evaluated in the paper to examine their implications for economic development on the one hand, and for organizational emergence on the other.

 Very often that social capital is a positive feature and enabler of economic development. Indeed, many government policies augment focus and attention on the informal institution of social capital for its perceived ability to promote collaboration and cooperation between small businesses in local communities. However, few studies identify the ways in which social capital also generates large negative externalities, whereby productive social capital is replaced by ‘perverse’ social capital and results in economic exclusion and ethnic tensions. Also, in developing countries, many entrepreneurs use their social capital to form relationships with the state and to influence policy-making. From this perspective, social capital becomes a dynamic process of power negotiation, which reinforces the status, position and resource attributes of elite groups (involving small business owners) and inhibits economic development.

 There is growing empirical evidence that social capital contributes significantly to sustainable development. Sustainability is to leave future generations as many, or more, opportunities as we ourselves have had. Growing opportunity requires an expanding stock of capital. The traditional composition of natural capital, physical or produced capital, and human capital needs to be broadened to include social capital. Social capital refers to the internal social and cultural coherence of society, the norms and values that govern interactions among people and the institutions in which they are embedded. Social capital is the glue that holds societies together and without which there can be no economic growth or human well-being. Without social capital, society at large will collapse, and today’s world presents some very sad examples of this. The challenge of development agencies such as the World Bank is to operationalize the concept of social capital and to demonstrate how and how much it affects development outcomes. Ways need to be found to create an environment supportive of the emergence of social capital as well as to invest in it directly.

In developing and transitional regions, we often observe countries with similar endowments of natural, physical, and human capital achieving very different levels of economic success. For example, the ‘East Asian Economic miracle’ has been credited by significant number of researchers to cultural infrastructure in this area. This paradox has led scholars on a search for deeper and more meaningful explanations about what holds people and societies together in order to foster economic development. Over time, scholars have constructed various frameworks for understanding the social aspects of this phenomenon and what we currently refer to as “social capital”. Fueled by continuous empirical investigations, these frameworks have evolved quite rapidly in recent decades. James Coleman popularized the term as he sought to conceptualize the aspects of social structure that facilitate economic transactions. His work is widely recognized as one of the most significant, as is Robert Putnam’s study of voluntary associations in Italy. Putnam concluded that the high density of voluntary associations in the north was responsible for the region’s economic success. Many others have also made significant strides in advancing our knowledge and understanding of the subject.

One of the earliest pioneers in the study of social capital is Lyda Judson Hanifan (The Community Center, 1920) who argued that “social capital… refer[s] to … those tangible assets [that] count for most in the daily lives of people: namely goodwill,

fellowship, sympathy, and social intercourse among the individuals and families who make up a social unit” (Woolcok 1998). In the recent years, the names of Robert Putnam and James Coleman are frequently quoted in social capital related papers. They are credited with bringing the term “social capital” to prominence. Putnam viewed social capital as a set of horizontal associations between people, which foster cooperation for the mutual benefit of the community. Coleman later expanded this narrow definition to include vertical relationships characterized by a hierarchical structure and unequal power distribution. He also suggested that social capital could even yield useless or harmful affects for society as a whole.

Do not be limited by explanation of social capital in term of horizontal and vertical relationships Douglass North went further. He proposes the concept of social capital developed, which encompassed formalized institutional relationships and structures such as government, the political regime, rule of law, and the court system. In other words social capital presents almost everywhere in social life. He contends that it is institutional change at this magnitude that shapes the way societies evolve over time. With a particular focus on human cooperation, he argues that historically, the evolution of institutions that create a hospitable environment for cooperative solutions to complex exchange provides for economic growth (North, D. 1990). In comparison to concept of Coleman and Putnam North’s understanding of social capital seems to be on macro level. The absence of constructive interaction between the micro- and macro-levels can result in a significant breakdown of trust – one of the most important and most widely discussed elements of social capital. The high degree of distrust in authority organs civil society institutions would be resulted in developing and maintaining the trust and cooperation inherent in their dense horizontal networks of friends and relatives.

French sociologist Pierre Bourdieu had suggested an interesting idea. He brought forth the idea that capital can be converted from one form into another. In “The Forms of Capital,” he differentiates between economic, cultural, and social forms of capital, and illustrates how they are distinguished from one another according to how easily they are transmitted. Bourdieu contends that this conversion process is used by individuals and social groups to ensure the reproduction of capital. Further develop Bourdieu’s idea of capital conversion we could suggest that family relations as the source of social capital could be converted to different kind of capital. For instance, good relations of family members with customers could be useful in gaining an order.

Building on Coleman’s concept, Francis Fukuyama more recently argued for the establishment of large, democratic, and capitalistic organizations — especially corporations — to achieve economic success. He considered trust as a measure of social capital and believes is embedded in cultural factors such as ethical and moral behaviors. According to Fukuyama, trust arises when a community shares a set of moral values in such a way as to create expectations of regular and honest behavior. We think that trust is basic fundament for building of civic society. However, according to Confucian values that prevalent in East Asian countries, the highest level of trust usually maintained by close people such as family members, relatives, friends and so forth, but not in large organization. Some recent empirical studies found relatively low trust level in East Asian countries (see below).

Mark Granovetter (1985) argues that economic transactions are embedded in social relations. He proposed the concept of embeddedness. According to him, this concept focuses on how personal relationships and networks of connections generate trust and discourage malfeasance in economic life. His concept is essential for understand, for example, how the material suppliers could let the owners delay the payment without any invoice. In the borrowing practice in informal credit sector in Vietnam, many business owners can get loans from private moneylenders without any receipt or certificate. Along with others, his concept would have significant meaning to understand the role of family in small business development in our essay.

As the main source of economic and social welfare for its members, the family is the first building block in the generation of social capital for the larger society. In addition to influencing the human capital development of children, the family's internal and external relationships model behaviors that are transmitted via children to future relationships. Relations within the family foster the development of trust, essential for the formation of all outside relationships. The family's ability to meet children's physical and emotional needs strongly influences their perceptions of the trustworthiness of others outside the family. Family dynamics also encourage reciprocity and exchange, two other important factors in social capital generation. The material and emotional support shared freely between family members generates an implicit willingness to return such support. Kinship ties can serve as vital sources of social capital for welfare and economic development (Sanders and Nee 1996). Informal relationships among kin may develop into established mutual aid and credit associations, as well as enterprises.

2.2. Social Trust and Networks

Some scholars emphasize that trust in others is a key element in developing a civic culture. Traditional agrarian and Confucian traditions often encourage trust in a relatively narrow circle of family and close friends, and caution about the strangers. The World Values Survey17 contains a standard survey question tapping trust in others. The Vietnamese respondents are somewhat skeptical about their fellow man: only 41% think that most people can be trusted, while 59% say that one needs to be careful in dealing with other people. But these results should be interpreted in the context of other cross-national findings. In all the combined nations of the 1995-98 WVS, only 26% of respondents said that most people could be trusted. In terms of other East Asian nations, 42% of Japanese respondents, 41% of the Taiwanese, 52% of the Chinese and only 6% of the Philippine respondents say they trust others. Thus the Vietnamese national level of social trust appears higher than some other nations at Vietnam's stage of economic development.

The situation of trust in South Korea at present time is clearly stated by professor Han Sang-Jin in recent article. He wrote “in Korean society, generalize trust is relatively weak and a scarce resource, whereas personal connections among those who share the same familial, territorial, and academic background are very strong. Consequently, people tend to view public institution such as state administration, political parties, banks, businesses and even the army as deeply infiltrated by the closely interwoven net of 17 World Values Survey (further WVS) in Vietnam was supported by Institute for Human Studies, Vietnam; the Institute for Future Studies, Sweden; the Institute for Social research of Michigan; and the Center for the Study of Democracy, University of California, Irvine. The similar surveys had been conducted in many other countries in the world including Korea.

private connections. Quite likely, this widespread sense of distrust will become a serious obstacle for the further development of society” (Han, Sang-Jin 2003).

In exploring the potential impact of social modernization on trust, researchers found that education and income differences in trust are very slight, not rising to the level of statistical significance. Age patterns are also not statistically significant. Expressions of interpersonal trust are, however, much more common in northern provinces (55%) than in central (28%) or southern (37%) Vietnam. Finally, we find a complex non-linear relationship between social capital, as represented by the number of group memberships, and social trust. Social trust is low among those who do not belong to any social group, and increases with membership in one or two groups. But among the hyperactive--those who belong to five or more groups--social trust dips to its lowest level (27% trustful). Researchers suspect that further analyses can isolate the characteristics of the hyperactive and provide an explanation for these results (Dalton Russell. J.; Pham Minh Hac; Pham Thanh Nghi; Nhu-Ngoc Ong 2002). By a series of correlational analyses of data of WVS in 2002, these researchers also suggest that social modernization has a complex relationship to family attitudes in Vietnam. Much as we observed for activity in social networks, the ascribed importance of the family actually is higher among the better-educated and higher income Vietnamese, and there is no erosion of these sentiments among the young. However, other patterns in these data suggest that the content of family relations may change—if not the importance of these relationships. The "strongest" measure of commitment to the parental family structure is the belief that parents have a duty to their children; these sentiments are significantly less common among the better-educated and younger Vietnamese. For instance, the percentage saying parents should have a life of their own rises from 4.5% among those over age 60 to 14.2% among those younger than age 30.

The WVS data also showed that changing family relations also have the potential impact to shape other social and political relationships that may have developed to reflect the hierarchical structures of the family. For instance, those who believe it is a parent's duty to sacrifice for their children are slightly more likely to approve of respect for authority (81%) than those who think parents should live their own lives (73%). Similarly, the former are more likely to believe that parents should emphasize obedience in raising children (57%) compared to the latter group (45%). In addition, a belief in parental duty is strongly related to social trust (taub=.12). As societies modernize, work networks often become more important, as fellow employees become the significant peers in ones life. Another feature of social modernization might be the development of institutionalized social networks, such as through community groups, sports clubs or cultural groups, or other such associations. Placed against these expectations are the cultural traditions of Vietnam, in which the family plays a large and apparently continuing role as the focal point of social life. Scholars suggest that family, village and nation are closely interrelated in creating a basic structure of Vietnamese society.

Concerning other organizations, weekly interactions among institutional social networks, such as through clubs or associations (9%) or religious groups (5%) are much less frequent in comparison to family. The gap between family activity and participation in any other network is greater in Vietnam than in China, Japan or the Philippines--but these nations also rank the family as the most central network. The Chinese also

emphasize work networks (62%), because of the importance of work cooperatives and occupational issues; but participation in work networks is roughly comparable in Vietnam, Japan (21%) and the Philippines (34%). Friendship networks appear noticeably less important in Vietnam than in other three nations; for instance, the Vietnamese are half as likely as Chinese and Philippine respondents to say they weekly meet with friends. It is also striking that religious networks are less often cited in Vietnam and Japan, and these networks are actually more active in China and the Philippines.

Social characteristics of individuals play significant role in the frequency of activity within each separate social network. The income and education relationships are most directly related to the social modernization theme. Higher levels of income and affluence tend to increase involvement in all social networks; family activity is higher among the better educated, as well as participation in work and friendship networks. For instance, the WVS data shows 55 percent of Vietnamese with a primary schooling say they meet with their parents or relatives on a weekly basis, compared to 66 percent among with at least some college education. Those in middle class occupations also tend to be more active in friendship, work and social group networks. Participation in most social networks is more common among younger Vietnamese; the only exception is the religious sector, where older respondents report more activity. There are also modest regional differences. Residents of the North are relatively more likely to engage in family or friendship network activities. Higher levels of income and education in Vietnam increase participation in an array of social networks.

These data let us to conclude that the development in Vietnam does not lead away from traditional family networks, and may actually increase the density of these networks; but at the same time there is an even greater increase in participation in work, friendship and social group networks. Thus further development in Vietnam is not so likely to exchange on set of social networks for another, but to expand the number and activity levels of the networks that connect individuals to society, and which help form their social and political identities.

We think that the degree of social involvement within a society, or what is often described as a civil society is an important indicator of social development. The term of social involvement in this paper is used to refer people’s participation in different social groups. Participation in social groups develops the interpersonal skills that are parts of the evolution of a modern society, and helps to broaden the life experiences and perspectives of group members. An active civil society also provides a training ground for developing political skills, and diverse groups may serve as agents of interest articulation within society and politics. It is a nice surprise when the WVS shows high involvement of Vietnamese people in different kind of groups. For example a fifth or more of the public report they are members of a sport/recreation group, a local community group, a social welfare organization, a women's group, or a political group. There is also substantial involvement in educational/ cultural groups, unions, professional association, and youth groups. The typical Vietnamese respondent reports belonging to 2.33 groups, which is significantly higher than the Chinese (.91), Japanese (1.41), or the Philippine (1.93) survey findings. These patterns of group membership might be partly explained by the past efforts of the Vietnamese government, which actively encouraged the public to be a member of formal social organizations groups. The formal organizations such as

Vietnamese Women's Union, the Ho Chi Minh Youth Union, the Vietnam War Veteran Association, Vietnam Farmers Association, the Vietnamese Confederation of Labor and others, have historically served as channels for the government to communicate with key social sectors in Vietnam. And very often these groups claimed large national memberships. More recently the government encouraged various local cooperatives to address certain community issues. The WVS shows that social development increases the density of social networks and civil society participation within Vietnam. Group membership is significantly higher among those who are better educated and those with higher incomes. While it is often the case that group membership increases with age and the accumulation of family responsibilities and a career, there is no such age relationship in Vietnam. This suggests that younger Vietnamese are engaging in social groups with increasing frequency as part of the social development of the nation. Thus group membership may grow even more in the future. That means although the traditional orientations toward family and community remain, modernization is broadening social networks.

Korea has achieved modernity in a very short period of time. Within only one generation, the agrarian society has been transformed into a modern and urban community. Complex organizations have proliferated during the rapid industrialization. The expansion of education has contributed to the diffusion of modern values. The country now maintains democratic institutions and modern corporations, which governs the routine life of the people. Official standards and formal conventions emphasize universalistic code of conduct. Yet there is a strong tendency for the same people using regional, school, and family ties as a means of doing business, getting information, and making important decisions (Yee Jae Yeol 2000).

According to the same study of Yee Jae Yeol, alters in the dyadic ties are classified into diverse categories as is shown in Figure 2. The most important counterparts are family members, including parents, spouse, siblings, and children. Over one third of the alters belong to family members. If we add kin members to this number, primary group occupies almost half of the tie alters. Second, most important alters are alumni. Over 17 percent of alters belong to this group. The role of alumni is more pronounced among male respondents, implying that school connection is very important in active social life. For female respondents, family ties and neighbors are more important, showing that they are more integrated into family and neighborhood. The role of spouse is most important between 30s and 50s. After late forties, children become important alter. After sixties, neighbor becomes more important. However, the role of alumni and parents become less significant as one gets older. Death of parents and the growth of children explain the transition of alters around 60s. Major contents of the ties belong to personal advice. Figure 2 shows that over 45 percent of ties contains personal advice from alter. It is followed by financial assistance (30.03 percent), assistance in job-search (18.50 percent), and assistance in purchasing goods (12.25 percent).

Figure 2. Content of Ties (Percent, N=2,348 dyads in SCEK18)

According to Yee’s study contrary to the common belief that Koreans under the Confucian influence are more kin-oriented, they practically rely less on their kin than Americans do. He explains this phenomenon by referring to instrumentality of Korean (Yee Jae Yeol 2000) that still leave a lot of uncertainties. Based on his study we can conclude that Koreans maintain larger, denser and more homogeneous with lesser proportion networks.

Table 8. Comparison of Network Forms and Compositions between Koreans and Americans

Variable Koreans(SCEK data)

Americans(GSS19 data) t-ratio

Size 3.74 (3.62) 3.11 (1.70) 5.36 ***Density .72 ( .22) .62 ( .27) 7.74 ***Proportion kin .49 ( .35) .53 ( .36) -2.68 **Age heterogeneity 7.78 (5.49) 10.46 (6.28) -8.81 ***Education heterogeneity 1.92 (1.44) 1.98 (1.65) -.67Sex heterogeneity (IQV) .54 ( .43) .69 ( .38) -6.91 ***** p<.01; *** p<.001Source: Yee Jae Yeol 2000.

We suggest that person who has more heterogeneous network, has more contacts in more places, would have greater access to resource and information. Some researchers event propose that the greater the heterogeneity in an individual’s discussion network, the greater the likelihood he or she will start new business (Renzulli, Aldrich, Moody 2000).

18 Survey on ‘Consciousness and Every day life of Contemporary Koreans (SCEK) had been carried out by Center for Social Sciences, Seoul National University in 1996 and in 1998.19 GSS is the General Social Survey that had been carried out in the United States of America. Here is the data of network module in 1985 survey.

They also suggest that the greater the proportion of kin in an individual’s discussion network, the lower the likelihood he or she will be start new business.

In summary, to be considered as high-context cultures Vietnam and Korea are rich of tradition of Confucianism, Buddhism. These cultural elements along with others are serving as basis for setting up social networks. The high trust level among the people who share similar background could play constructing as well as destroying role in business development. However, Vietnam seems to be less focused on friendship and familyship than Korea does. The networks of Vietnamese people tend to be more heterogeneous. This conclusion does not necessarily lead to automatic success of business start-up or business running. Because the latter ones also depend on other factors as showed in figure 2. Next paragraph will be devoted to review and discussion of family and family relationships in Vietnam and Korea.

2.3. Family and Family Relationships in Vietnam and Korea

As a social organization of production, the family chief advantage are not simply tangible products, such as unpaid labor, but also involve the mutual obligation and trust characteristic of solidaristic small group. The production and accumulation of social capital is an intrinsic feature of ongoing social exchange (Homans 1974: 356-73). Social capital inheres in the relationship between actors rather than in physical asset, like financial capital, or in personal human capital (Coleman 1990). Members of family engage in social exchange that give rise to mutual dependence and expectation based on the past performance of routine task and duties encompassing sexual, child-rearing, and productive activities cooperation within the family not simply from self-interest, but from a moral order in which the accumulation of obligations among members builds a degree of solidarity which best described as “household communism” (Weber 1922).

2.3.1. Vietnamese Family

The importance of family is a historic aspect of Vietnamese society, as with many Confucian societies in East Asia. The family is a basis of economic organization in an agrarian economy, the role of the father and parents in general is reinforced by cultural traditions, and family relations provide a general model for authority relations. Through history and changes in political and social regimes, the centrality of the family appears to be an enduring feature of Vietnamese society. Generally speaking, Vietnamese family structure is more complex than that of the Western-style family, which is essentially nuclear in nature and which excludes relatives and in-laws. Vietnamese people distinguish between the immediate family and the extended family. The Vietnamese immediate family includes not only the husband, wife, and their unmarried children, but also the husband's parents and the sons' wives and children, The extended family consists of the immediate family and close relatives who share the same family name and ancestors and who live in the same community.

Table 9. Size of Vietnamese Household (%)

Persons in household

Urban area Rural (delta) Highland -mountain

Total

1 0,3 1,2 0,2 0,72 4,0 7,6 4,2 5,93 17,0 12,1 14,1 13,7

4 43,7 31,4 33,0 34,35 22,0 23,6 23,0 23,16 9,0 16,8 15,6 14,97 2,7 5,5 4,2 4,58 1,0 0,9 3,8 1,8

9 and more 0,3 0,8 1,7 1,0The average size 4,3 4,5 4,7 4,5

Source: Van, Le Ngoc – Khieu, Nguyen Linh – Binh, Do Thi 2002

The complexity of the Vietnamese concept of family is reflected in the rather complex terminology designating kinship. Each member of the extended family has a particular designation according to his/her relative position and his/her role in the family structure. In Vietnamese society, the father is the head of the family. However, unlike the father in traditional Chinese society, who is empowered, at least theoretically, with absolute rights over his children and wife, the Vietnamese father shares with his wife and children collective and bilateral responsibility, legally, morally, and spiritually. In the relationship between parents and children, as well as between husband and wife, the Vietnamese people retain much of their own custom and tradition, despite the great influence of Chinese culture and Confucian doctrine. In the eyes of the children, the Vietnamese mother has the same status as the father. She is also the embodiment of love and the spirit of self-denial and sacrifice.

Table 10. Number of Generations living together in Vietnamese family

Number of Generations

Urban area Deltas Highland -mountain

Total

One 3,3 4,7 0,9 3,3Two 65,0 81,7 80,6 78,0Three 31,3 13,0 18,0 18,2

Four and more

0,3 0,7 0,4 0,5

Source: Van, Le Ngoc – Khieu, Nguyen Linh – Binh, Do Thi 2002

Vietnamese parents consider it a most important responsibility to train their children. By virtue of the principle of collective responsibility, the parents will bear the disgrace brought about by the activities of children who dishonor themselves just as they share the honor and fame of their virtuous and talented children. At an early age, children are taught by their parents to behave according to the principle of filial piety. The family is the school in which the child learns the respect rules in both behavior and linguistic response. Filial piety consists of loving, respecting, and obeying one's parents. Talking back or acting contrary to the wishes of one's parents is evidence of lack of filial piety. For the Vietnamese, the obligation to obey his parents does not end with coming of age or marriage. Filial piety also means solicitude and support to one's parents, chiefly in their old age. Vietnamese elderly people never live by themselves or in nursing homes but with one of their children, usually their eldest son. This obligation is not discontinued by the parents' death. It survives in the form of ancestral cult and the maintenance of ancestral tombs. Ancestor worship is practiced in most, if not all, Vietnamese homes even in the homes of Vietnamese people living overseas.

Even though such patterns are widely cited in the literature on Vietnam, there is limited empirical research on family relations and attitudes toward the family. Thus the World Values Survey provides a valuable opportunity to systematically examine public opinion on this aspect of social life. For example, one question asked about the importance of several life domains. The family is ranked as "very important" by 82% of the Vietnamese; this is roughly comparable to the other East Asian nations in the 1995-98 WVS: China (77%), Taiwan (77%), Korea (90%), and Japan (91%). Another survey question shows that most respondents (88%) think a greater emphasis on family life would be a good thing. The centrality of the family in social life and social relations is apparent throughout our survey.

According the same survey, the Vietnamese believe in filial piety as the children's duty toward their parents. Traditions of ancestor worship and the acceptance of patrilineal authority further deepened the importance of the family as basis for social life. Thus, we find that almost all respondents (99%) say that parents are to be respected regardless of their qualities and faults. In another question, 97% state that "one of my main goals in life has been to make my parents proud." Indeed, even in comparison to other East Asian nations in the 1995-98 WVS, Vietnam ranks the highest on respect for parents. At the same time, 87% of Vietnamese say that it is the "parents' duty is to do their best for their children even at the expense of their own well-being."

The notion of family ties is imprinted in the mind of the Vietnamese because of the importance of filial piety. Respect and love are demanded of young people to members of the parental generation and above. Visiting parent’s house is children’s obligation. Children should pay visit whenever they have time or when their parents want to see them. According to WVS in Vietnam 59% said they spend time with their parents or relatives on a weekly basis, compared to only 32% who weekly spend time with work colleagues, or 17% with social friends. These results reaffirm Hirschman and Vu's (1996) findings that more than three quarters of Vietnamese people with living parents saw them on a weekly basis; these authors concluded that this was "an extraordinary pattern of intimate family ties". However, here we can see descending tendency in family communication. The industrialization and urbanization of life make people busier. The migrations of young people also make them living farther from their home town and their parents. Thus, these are obstacles for family members to see each other frequently. In Vietnamese culture, the relationship between siblings is determined by the principle of seniority, which requires younger siblings to respect and obey older ones. The eldest brother is entrusted with a heavy responsibility that of substituting for the parents in case of emergency.

2.3.2. The Korean Family

Though traditional Koreans thought blood relationships natural and ideal starting points for good relationships outside the family, they never assumed that happy family life emerged spontaneously. Harmony and smooth flow of affection were seen as the result of proper patriarchal regulation of women and children. The family should be run as a "benevolent monarchy," the eldest male as household head. Sons remained home after they married, while daughters went to live with their husbands' families.

Late marriage, family with small size, or nucleation of family, becomes more and more typical for Korean young generation. Therefore the population of Korea is increasing with low tempo. Total fertility rate in Korea relatively low – 1.3 in the year of 2001, and continues decreasing tendency. This figure is much less than 2.1 that a woman should have for sustainable population development. By year of 2003, the population in Korea comprises of 48,517,871 people and lives in 16,489,107 households. That means the average size of Korean family is less than 3 persons. It is significant small (2.9 in 2002) in comparison to size of Vietnamese household (4.2 in urban and 5.3 in rural areas).

Table 11. Size of Korean Household (%)1980 1985 1990 1995 2000

single household 4.8 6.9 9.0 12.7 15.5two-person household 10.5 12.3 13.8 16.9 19.1three-person household 14.5 16.5 19.1 20.3 20.9four-person household 20.3 25.3 29.5 31.7 31.1five-person household 20.0 19.5 18.8 12.9 10.1

Six and more 29.9 19.5 9.8 5.5 3.3Source: Kim, Doo-Sub; Park Sang-Tea and Eun, Ki-Soo 2002.

Although historically younger sons and their wives eventually split from their extended families after a few years of marriage, they lived nearby, socially dependent on their grandfathers, fathers and elder brothers. Eldest sons succeeded to the family leadership and inherited the bulk of the wealth. They did not leave their extended families because they were responsible for their aged parents. When their parents died, eldest sons adhered to complex mourning restrictions for one to three years, and conducted annual memorial ceremonies for their parents and other members of their family line. As long as there were sons to take over family leadership when their fathers died, families were maintained indefinitely.

Young children in Korea were (and are) indulged. By the time a child reached six or seven, however, training began in earnest: parents began the strict separation of girls and boys, in accordance with Confucian ethics, and they trained children to use the respectful voice to those older or more socially prominent.

The Confucian ideal of strict separation of males and females led to division of labor into inside and outside work. Men labored outside while women worked inside doing housework. Although this division of labor was a matter of principle for the elite, ordinary people found it a matter of practical survival. For farming households, the inside-outside division worked well; women could stay home with their children while working. But where this division of labor undermined economic survival, other divisions were adopted -- despite the loss of family status in deviating from the Confucian ideal. For example, in fishing villages on islands off the south coast of Korea, for instance in Jindo island, male and female roles were regularly reversed. In these nonagricultural areas, women provided family income by diving for seaweed, shellfish and other edibles. In other parts of Korea women sometimes earned a living as shamans, religious specialists who tended to the spiritual welfare of their clients by performing ceremonies

for them. In either case, when females provided most of the family income, male and female roles could be reversed with men at home and women running the family.

After liberation from the Japanese in 1945, Korean scholars and lawyers revised Korea's legal structure. They revised family, as well as commercial, law to accommodate relationships more suited to the industrial society they hoped to build. Now most Koreans live in cities and work in factories or large companies and no longer farm. Large extended families, which cannot fit into crowded city apartments, are difficult to maintain. Since people often move to find work, eldest sons often cannot live with their parents. The New Civil Code of 1958 legalized changes favoring these new conditions. Essentially the new code weakened the power of the house head and strengthened the husband-wife relationship.

Today the house head cannot determine where family members live. An eldest son can now leave home against his father's will. Husbands and wives share the power to determine the education and punishment of the children. Children can decide on their own marriages, and parental permission is not required if they are of age. Younger sons leave their parents to form their own families when they marry, and the house head no longer has the legal right to manage all family property. Since the New Civil Code, all children have equal claim to their parents' property.

Table 12. Number of Generations Living together in Korean family

Numbers of generations 1980 1985 1990 1995 2000One generation 8.3 9.6 10.7 12.7 14.2

Two generations 68.5 67.0 66.3 63.3 60.8 Three generations 16.5 14.4 12.2 9.8 8.2

Four and more 0.5 0.4 0.3 0.2 0.2 Other20 6.3 8.6 10.5 14.1 16.7

Source: Kim, Doo-Sub; Park Sang-Tea and Eun, Ki-Soo 2002.

The prevalence of nuclear families is not a social product of a rapid industrialization but a continuing trend begun in early decades and centuries. However, if a more strict conception of nuclear family is adopted to emphasize its economic basis financial autonomy and its social basis for relatively democratic and affectionate union between husband and wife and between parents and children, even most of those demographically nuclear families appear to have been nucleated only in various unbalance ways (Chang Kyung-Sup 1995).

In spite of the recent changes, fundamental characteristics of the traditional Korean family remain. Each person in the family still has a clearly defined role, each dependent on others within the family unit. Koreans adapt their traditional ideas of spiritual and biological interdependence within the family to new conditions. The family still retains a male house head. According a recent census, 81.5% of all households’ head are males. However, the census also shows the decreasing trend of male proportion among households’ heads (Kim Doo-Sub, Park Sang-Tae, Eun Ki-Soo 2002). Inheritance of family leadership still continues through the father's line, and sons still inherit more wealth than daughters. Children, especially eldest sons, are still legally responsible for the

20 ‘Other category’ includes households where people who are not biologically related to each other live together.

care of their aged parents. Men earn the living, and women take care of the house and children. Even when wives work outside the home, husbands usually think it embarrassing to help with housework, and sociologists have found that it is rare for husbands to do so, although some younger ones do help. However, even as we go to press, the situation in Korea changes rapidly, more and more women graduating from college and working outside the home. This change cannot fail to affect divisions of labor dramatically, especially in urban areas. The structure or the family remains with only peripheral changes, more significant changes in potentia, because the core Confucian values, which shaped it, are still a great force in Korean life.

In sum, the interweaving of social and economic relationships is often seen as a promising route to industrial revival in developed countries and to development in other countries, such as Vietnam (Piore and Sabel 1984). Embedding business within community is thought to solve many of the problems of exchange in asset (start-up and working capital), goods (material and product), and labor markets. The literature on small-scale enterprise frequently emphasizes the role of non-economic relationships in the determining economic behavior, particularly in situations where markets are imperfect and where official regulatory mechanisms only insufficiently protect creditors, business partners, and workers. Moreover, the cooperative pooling of labor and orders can result in enhanced flexibility and performance, possibly giving networks of small firms a competitive advantage over ossified large state enterprises.

The family can be viewed as a network of obligations that embodies social, economic and cultural investments. The family endows each of its members with the backing of collective-owned capital, a credential that entitles members to credit in the various senses of the word (Bourdieu 1983). Thus, family comprises a social network that can be effectively harnessed to achieved collective goals (Coleman 1988).

We can say that family both in Vietnam and in Korea is frequently the main social organization supporting the establishment and operation of a small business. Family ties of mutual obligation and trust encourage highly motivated and cooperative groups efforts. The change toward couple-centered modern family in Korea does not occur as fast as functionalist and modernization theories suggested. In the initial phase of industrialization in Korea some decades ago and in contemporary Vietnam kin network may play important role in migration, job recruiting, and mutual assistance. Kin relationship appears to be useful resource for people who decided to start their own business. Although the extended kin relationships gradually break down along with industrialization (in Korea) in the long run, they featly help urban families to survive economic and to improve economic hardships and to improve economic during the early stage of industrialization (Lee Mijeong 1998).

A common question throughout East Asia asks how social modernization might interact with the traditional importance of the family, and the images of hierarchical (and paternalistic) authority that this implies. Exposure to outside media, the pressures of contemporary economics, and other social forces are generally seen as eroding the traditional role of the family in nations across the globe, as well as East Asia where Vietnam and Korea belong to. With continued social modernization these trends may gradually erode the authority structure of family relations, even while the social importance of family may prove more durable. And as a consequence, other aspects of

Vietnamese and Korean societies and politics that are connected to family authority patterns may also change. As with members of the immediate family, members of the extended family are bound together by a strong sense of collective responsibility and mutual obligation. The notion of blood relationship is always present in the mind of the Vietnamese and Korean. In honor or in disgrace, members of the extended family will share the same fate as if they were members of the immediate family. They are expected to give one another moral and material assistance, especially in time of stress. On the social and political planes, this strong sense of loyalty to the extended family tends to encourage the spirit of sectarianism and nepotism.

Chapter III. The interfere of Economic FACOTRS and family relations in Development of Small Business

3.1. Demands of Capital in Running Small Business

Small business owners in Vietnam often claim of chronic shortage of credit, while Korean counterpart faced the shortage and credit crunch after 1997 financial crisis. It seems that small enterprises in Vietnam easier assess to the credit source of “Poverty Reduction and Hunger Elimination program” than to the bank’s credit. However, this program targets at poor household, but not household enterprises. The present of “Fund for job creation” is not clear. Only 6.7 % of surveyed small enterprises have applied for fund from this organization (Pham Thi Thu Hang 2002).

Table 13. Demands of Small and Micro Enterprises for Credit and their Accessibility in Vietnam

Proportion has tried accessed

Proportion of success

State-Owned and private BanksState Credit FundInternational ProjectsFriends, FamilyPrivate LendersOther sources

24.58.71.938.811.22.6

20.27.11.338.510.61.9

Source: Vietnam Chamber of Commerce and Industry (VCCI): Research Report of Small and Micro Enterprises21.

As we can see in table 13 family and friends serve the main capital source for small business owners. Moreover, the percent of success when they tried seek fund from family members and fiends is highest. Extended family provides a social safety net by meeting material and financial needs during difficult times and assisting in the care of children and elders. Relatives are sources of financial and human capital for budding entrepreneurs. Strong kinship ties encourage loans or grants for business ventures and provide inexpensive labor. They also foster a sharing of expertise and an avoidance of direct competition that has enabled family networks to dominate certain industries.

In Korea, SMEs suffered a severe credit crunch in the restructuring process following the foreign exchange crisis in 1997. Unmeet need for credit was taken to account of Korean Government. Accordingly, in 1998, the government took various measures aimed at expanding the fund supply and easing the financial difficulties facing SMEs. Since 1999, the financial conditions have improved greatly.   With the completion of the first phase of restructuring of financial institutions and enterprises in the first half of 1999, the fund availability greatly improved in terms of loans from financial institutions and financing through the direct money market. Besides, the financing costs, including interests, decreased to a great extent. Thus, the fund availability of Korean SMEs improved and these favorable conditions were historically unprecedented.21 This survey was sponsored by International Labor Organization and was carried out by VCCI in 2001. The main objective is to assess state of labor force and to analyze the reactions of small and micro enterprises toward current policies. 312 enterprises were surveyed, included firms with number of workers from 1 to 50 and household enterprises.

In summary, Small businesses in Vietnam claim of credit need while in Korea thay faced the credit crunch after 1997 crisis. However, nowadays in Korea SMEs enjoy a lot of capital sources, while in Vietnam they have very scare ones. Moreover, In Vietnam, small business especially micro and household enterprises are still difficult in accessibility to formal financial institutions, because they lack of mortgages. The Vietnam Government has issued a lot of business-friendly policies. But, in practice they are still not implemented in full scale. Moreover, the discriminatory attitude toward businesses in non-state sector still exists in mind of many officials. Fortunately, this situation has been changing day-by-day as Vietnam joined ASEAN, APEC and AFTA, and as it is in negotiating phrase to be accepted into World Trade Organization.

3.1. Family Relations in Getting Capital

In industrial economies, households generally obtain credit, against individual guarantees, from commercial sources that reach loan decisions on the basis of readily available information on borrowers’ credit risk. In most developing economies, however, poor households usually do not have access to these guarantee mechanisms, such as non-real estate-based collateral.

In Vietnam, because of low level of economic development, many household earn money enough only for living not for savings. In the household that can save some money, this is not a big amount. Therefore the they cannot give much money to its members as they start the business. However, in many cases they can share the land for office or workshops. This situation, combined with the overall lack of information about these potential borrowers’ creditworthiness, contributes to a virtual exclusion of this group of borrowers from formal credit markets. However, several classes of institutional arrangements offer to these borrowers valid substitutes for individual collateral, and to the lenders low-cost alternatives to imperfect creditworthiness information. An increasing number of finance institutions provide credit to the poor on the basis of “social collateral”, through which borrowers’ reputation, or the social networks to which they belong, take the place of traditional physical or financial collateral.

Since these arrangements build, to various degrees, on the extent and strength of personal relationships, they provide a fertile ground for the analysis of the role of social capital in the provision of credit. In addition, credit arrangements rely on several classes of social capital identified in the conceptual literature, such as horizontal, vertical and ethnic-based relationships. Finally, the role of social connections in obtaining credit is also greatest for poor borrowers: as the financial needs of the borrowers increase, their reliance on immediate social networks for credit decreases. Loans from family and friends are perhaps the most common form of informal finance. These arrangements are characterized by uncollateralized loans that carry no or little interest, feature open-ended repayment arrangements, and have a strong focus on reciprocity. The traditional local moneylender can be seen as a commercialized variation on this widespread type of lending arrangement.

Moneylenders, typically landowners or traders, are often the only source of credit available to the poor in developing countries, especially in the rural areas of Asia. Their loans are extended quickly and for short periods, and at interest rate levels that are high in comparison with other lenders, including micro finance programs. Like the other credit arrangements presented in this paper, money lending is a method to address imperfect

information in segmented financial markets. Because of their long-term presence in the village and their networks of influence over many aspects of the community life, moneylenders have a good knowledge of the credit-worthiness of the borrowers, and can design personalized interest rate structures accordingly. As Stiglitz (1990: 352) notes, “the local moneylenders have one important advantage over the formal [lending] institutions: they have more detailed knowledge of the borrowers. They therefore can separate out high-risk and low-risk borrowers and charge them appropriate interest rates”. Most moneylenders are not primarily in the business of lending money: funds lent are often a means to obtaining returns on other transactions in which both lender and borrower are involved.

Since these relationships are the very mechanism through which information about the borrower and his/her ability to repay is indicated to the lender, a segmentation by borrower-lender clusters often arises.

The lending relationships that moneylenders cultivate with the borrowers are of a long-term nature, and they are usually based on a pattern of personal interactions with the borrowers and their families. They directly draw on the traditional patron-client relationship, or a set of hierarchical social interactions reminiscent of the vertical dimensions of Coleman’s (1988) definition of social capital. These relationships are, by nature, unequal, as the moneylender has access to several classes of means—including harassment and force—to ensure repayment. Interest rates are often set in such a way that full repayment is unlikely and unexpected from the lender’s side, and the loan is used as a way to secure asset transfers or long-term indenture relationships with borrowers and their families.

Many Vietnamese small businesses owners get credit via participating in rotating savings and credit associations (ROSCAs). ROSCAs are quite prevalent in Vietnam, especially in rural areas and among small businesses. So, what are ROSCAs? How do they function? What’s the role they do play in small business development?

ROSCAs are a response by a socially connected group to credit market exclusion and a widespread way to crystallize social relations in an informal—yet often formally run— system of internal credit delivery22. A ROSCA is a group of men and/or women who contribute to a collective fund which is at regular intervals distributed—randomly, by auction, or by collective decision—to one of the group’s members. In effect, all members of the group (except the last person in the rotation) receive an advance that they repay through their contribution to the fund for the duration of the cycle; the earlier an individual’s position in the rotation, the larger the credit he/she receives, and the lower the risk he/she faces (if a person fails to contribute after he/she receives the fund, only those members after him/her will be adversely affected). At the end of a cycle, i.e., when each member has received the fund once, the ROSCA is dismantled or, more often, reconstituted with the same or similar membership. This creates the possibility that well-performing member can move up in the rotation, providing an incentive for good payment record that spans several rotations, and—if new entrants are chosen carefully— potentially reinforces the efficiency of the association. ROSCAs play in important role as a risk management tool; they can offer an insurance mechanism against income shocks, provided that these shocks are not correlated among participants. In “The Economics of Rotating Savings and Credit Associations,” Timothy Besley, Stephen Coate, and Glenn Loury examine the economic role and performance of different types of RoSCAs. In these small, often indigenous, savings and credit

22 The concept of ROSCA is known as chit fund in India, kye in Korea, partners in Jamaica, susu in Ghana, njangeh in Cameroon, tontine in Senegal, cheetu in Sri Lanka, arisan in Indonesia, and pasanaku in Bolivia and Ho or Hui in Vietnam. Under their different formats, they have been extensively studied by anthropologists, economists and sociologists.

groups, social relationships—or social capital—is used as an alternative source of collateral.

ROSCAs are the social networks that are prevalent in Vietnam and also in Korea in a certain level. Many ROSCAs had been organized on the kinships basis. That means non-kin people is not able to get involved. We have a wonderful opportunity to observe it in Chollanam-do. This Kye have been existing for nearly 400 years. At the initial phase, the member had contributed not money but rice. And the pooling fund of rice had been used mainly for children’s education supporting. Today, each member has pooled cash equivalent US$ 2000. This fund can be use also for providing loans to a member who wants begin business.

According a recent study the family supports self-employment by furnishing labor and enabling the pooling of financial resources. For example, informal subleasing arrangement in which home owners share their residence with adult siblings and in-law reduce living costs and promote accumulation of financial capital (Sanders and Nee 1996).

Since Korea’s 1997 crisis has been largely attributed to the weak financial sector, information on firms’ financial position is of particular importance in assessing the impact of the crisis on firms and understanding their responses to the crisis. A survey had investigated the sources of funds and how these changed after the onset of the crisis. Before the crisis, the biggest source of funds, at about 49%, was sales revenue in the case of short-term funds, while it was loans from domestic banks in the case of long-term funds, also at about 49%. The next biggest sources of short-term and long-term funds were loans from domestic banks (38%) and sales revenue (35%), respectively. The proportion of these two biggest sources was predominant, both accounting for more than 80% in both cases. In short, from these two sources, firms raised most of the funds they needed. Other sources were loans from other domestic financial institutions (6%), loans from foreign banks (2%), and the bond market (1-2%).

This structure of funding sources showed some significant changes with the onset of the crisis. First of all, in both the short-term and the long-term financing, the proportion of sales revenue rose and that of loans from domestic banks fell sharply. The change was so substantial for long-term financing that the first and the second biggest sources were reversed after the crisis. That is, sales revenue became the biggest source (44%) followed by loans from domestic banks (41%). Before the crisis, domestic loans were the biggest funding source (49%) and sales revenue was the second largest (35%). In Korea the number of firms which get loans from local money lender is very small: around 1% for either long-term and short –term financing. This figure had not been changed due to crisis. One of the controversial issues during the crisis was whether the credit crunch existed and how serious it was. Although we already discussed this issue in the above sections, we also directly investigated it with a question on the change in the availability of credit. Firms were asked to assess the change in the availability of credit after the onset of crisis with 5 for ‘much less restrictive’, 3 for ‘same’, and 1 for ‘much more restrictive’. The survey showed that the availability of credit was substantially restricted in all financial sources. The answer was less than 2.5 for all financial sources. This implies that a significant credit crunch did, in fact, exist. The most restrictive sources were local money lenders (1.9), which is generally considered as the most sensitive to the change in the money market. The family followed. Many people had bankrupted during 1997 crisis in Korea, thus the fund source from family become also less available. Relatively less restrictive sources were suppliers, partner firms, and

domestic banks. Among the financial institutions, domestic banks were the least restrictive credit suppliers (Choi, Nak- Gyoon and Kang, Du-Yong 1999).

The share of loans to SMEs of all loans of deposit money banks has steadily increased for the last forty years. Banks have, however, significantly expanded loans to households and tried to reduce their risk exposure to SMEs, as well as large firms, especially since the financial crisis in 1997. SMEs in Korea have been well served by credit guarantee programs and the mandatory minimum ratio of bank loans to SMEs. The credit guarantee schemes have played an important role in inducing the banking sector to lend under circumstances in which, without the guarantee, they would be unwilling to lend. The government allocated about 40 per cent of the budget appropriations for the SME sector to credit guarantee programs in 1999. The sharp increase in credit guarantees has lead to greater finance being provided to SMEs by banks and non-bank financial institutions since the financial crisis (Kang Moon-Soo 2002).

3.1.1. Family Relations in Obtaining Start-up Capital

An essential step toward establishing of business is acquiring start-up capital. Entrepreneurs may try several ways to get fund in the case when their savings are not enough for this purpose. The most frequently source of capital which entrepreneurs in Vietnam and Korea consider of at first moment is family. When adequate capital cannot be raised within the nuclear family, entrepreneurs often approach members of their extended family.

Sanders J. M. and Nee V. when studying of Korean immigrants in United States had suggested that because of collective interests and strong ties, the family facilitates the pooling of labor power and financial resource. Enterprising immigrants draw on these resource when establishing and operating small business (Sanders and Nee 1996). Infra-family loans play an important role in facilitating the launching of the new businesses.

Social background affect the availability of investment capital from relative and ability to qualify for loans from ethnic lending institution in the United States. (Portes and Zhou 1992). We could say the same referring to situation in Vietnam and Korea.

Formal capital markets are poorly developed in Vietnam. Informal relationships have the potential to ameliorate the shortcomings of the official institutions. Almost all capital needed to start small businesses comes from savings, the family, friends, suppliers or customers. According our data from 1995 survey in Hanoi23, just over half of our respondents relied on family help to buy the equipment needed too start their business. One-tenth receives capital from fiends. One-eight received help from material suppliers and five percents obtained aid from customers (Appold, Nguyen, Le, Kasarda 1995). We don’t rule out the possibility that the small owners appropriated fund from suppliers and customers. It represents in the form of delayed payment for material or pay in advance for products. Surely, this practice has been occurred quite often among small owners.

Table 14. Informal Sources of Capital for Starting Business (%)

Sources Furniture makers

Aluminum Formers

Iron Workers

Clothing Makers

TotalSample

23 This was a pilot survey of 124 small-scale enterprises, which manufacture 1) aluminum cooking utensils, 2) ornamental iron for buildings, 3) clothing, and 4) wooden furniture in Hanoi.

Family Family onlyFriendsMaterial SuppliersCustomersNo outside choice

50.019.27.723.115.438.5

77.859.314.811.10.018.5

70.463.37.47.43.729.6

27.918.69.39.32.362.8

52.237.410.612.24.940.7

Source: Stephen J. Appold, Nguyen Quy Thanh, Le Ngoc Hung, and John Kasarda. 1995.

According the mentioned study the family’s help clearly dominates as a source of start up capital; thirty seven percent of respondents reported that they had received economical support from their families and no other source. At the same time, however, 41 percent of small business owners received no outside help at and relied exclusively on their savings. In other words the primary source of capital is either the individual himself or his relatives. But, we should not too hastily deduce from that most small business as a family concern because it is unlikely that the funds mustered by an individual and his family are sufficient to set up an enterprises other than a very modest one. As it is showed by figures in the table 14 the common format for a new business to assume is that of partnership are pooled by persons largely unrelated by ties of descent or marriage.

Our discussion with Korean scholars shows that many owners of small businesses in Korean is relying on their savings when starting business. The most common way of small owner in Korea is that their begun career as government or other high status employment. When they reach a certain age and when they have saved some money, Koreans often want to start their own business. The studies in 1980s suggested more than 50 % of Koreans wants start own business.

The so-called “rotating credit association”, the same as kye (in English means bond), is important element in community life, as indeed it is in the virtually all East Asia (Chun Kyung-Soo 1984: 127). The Key is quite popular among rural people in the past time, and at the present time this socio-economic phenomenon still exists among small businesses like small traders in market such as Dongdemun or Namdemum markets in Seoul. However, the chain collapse of the Kye in the early 1990s had caused a lot of social problems. In Vietnam the chain collapse of ROSCA had also put many small businesses owners in shock. Many of them had bankrupted.

Despite of the geographical clustering of the enterprises, few of the capital sources were nearby. Only ten percent of the capital sources were located in the neighborhood of the business; the majority of those appear to be family member.

The sources of start-up capital among micro and small business in Vietnam, varied by sectors. Aluminum formers and iron workers were more likely to receive funds from their families than the sample as whole while clothing makers less likely. Furniture makers were more likely to receive start-up capital from material suppliers and from customers than other the enterprises in other sectors. There were no sectoral differences in receiving start-up capital from friends.

Those not receiving any outside start-up capital tend to be younger (r=.18, p=.05) and in the clothing sector. While approximately 40 percent of the sample received no outside help in gathering the necessary start-up capital, 61 percent of those in the clothing

sector received no help. Aluminum formers (18 percent) and iron workers (30 percent) where the least likely to not received any fund outside.

Although there is no overall relationship between helping out one’s family as motivation for entrepreneurship and receiving help from them in the form of start-up capital, in our study, entrepreneurs in the clothing sector were the most likely to state “helping family finances” as a motivation for going into business but the least likely to receive fund from them.

Maintenance of strong ties with supplies and customers along with friends and relatives is essential for business owners especially in the wake of Asian financial crisis. This pattern of behavior is popular not only in Korea but in other countries (area) in East Asia.

The only kind of relationship I treasure is the one related to my client, fiends, upstream and downstream. These are the relationships that must be maintained. (TW2)

My upstream partner suppliers me with raw material, my downstream partner is responsible for marketing and retail and we have been working as production network for ten, fifteen years. As a network we are almost like big corporation, especially in terms of capitalization and risk. Simultaneously, when we work as a network, we also have a better chance to survive. (TW2)

Among my friends in Taiwan, we helped each other during the crisis. We gave jobs and we lent them money to help them tide over difficult time. (TW4)

Source: Lever-Tracy and David 2002

According our 1995 study sex make no difference in raising start-up capital from friends, suppliers, or customers. Although only a small minority of enterprises gathered any of their start-up capital in their geographical neighborhood, women were much more likely than men to do so (chi-square = 6.88, d.f. = 1, p < .01). The age of the entrepreneurs may partially explain the higher success of men in winning family support. The men owners of investigated small enterprises are significantly older than women owners and age are significantly correlated with the ability to raise start-up capital. Age is correlated (r = .18, p = .05) with the ability to raise the start-up capital from material suppliers but a bit more strongly correlated with the ability to raise start-up capital (r = .22, p = .01).

Almost 70 percent of the entrepreneurs from professional families received help with start-up capital from their family members while only 40 percent of those who father’s were in craft received such help (chi-square = 8.71, d.f. = 4, p =.04). Similarly, those whose previous job was in the professions were more likely to receive help from their families, 65 percent, while those who previously worked in craft were much less likely, 43 percent, to receive such help (chi-square = 8.46, d.f. = 4, p = .08). That is, 43 percent of those with previous experience in the field of business received start-up capital from their families while 58 percent of those with no experience did so.

This pattern does not imply that those receiving family help are smaller, less promising businesses. Businesses receiving family help are larger in term of floor area (r = .22, p = .01) and in term of total number of employees (r = .021, p = .02). And, although our measure is subjective we have tentative evidence that the enterprises receiving family help are more successful than do not (p <.10). receiving start-up capital from a friend appear to result in a greater number of non-family workers (r = .24, p

= .03), a greater number of total workers (r = .23, p = .01) and a larger number of machines (r = .23, p = .02). Those who received start-up capital from family members appears to be somewhat less likely to cooperate with other firms (29 percent versus 43 percent, chi-square = 2.57, p = .10).

Our data of 200224 study of small and micro enterprises showed 41.4% of surveyed establishment have borrowed from different sources when they started business. 55.4 % of those enterprises reported that they borrowed loans from a person, not from the banks for starting business, and 3.76 % borrowed from informal credit association such as ROSCA. Among the lenders 51.4% are family members and 26.1% from relatives. That means more three fourth of lenders has kin relations with borrowers.

According a recent research network composition heterogeneity are important influent on business start-up, implying that the information found in heterogeneous network with nonkin ties is unique and useful to nascent entrepreneurs (Renzulli, Aldrich and Moody 2000). These authors also found that network spanning multiple domain of social life apparently provide nascent entrepreneurs with greater access to multiple sources of information than do more homogenous network and thus enable them to make transition from idea to action. The actors with network that draw information from multiple source – those with high heterogeneity and low proportion of kin – are much more likely to start a new business than those with more homogeneous network. And evidently the increased social support provided by kinship ties does not offset the loss of information due to restriction on network range. (Renzulli, Aldrich and Moody 2000).

The Special Act on Small Business Support of Korea came into being in April 1997. The economy suffered from the surge in unemployment and witnessed severe economic difficulties of many newly-poor households after the financial crisis in 1997. From April 1999, the government launched the financial assistance program for small businesses with the objective to support start-ups and improvements of small businesses. The government earmarked 300 billion won25 and 200 billion won in 1999 and 2000, respectively, for the program. The maximum loan amount was increased from 30 million won to 50 million won and the maturity of loan was extended from three to four years. From April 1999 to June 2000, 21,657 loans for 1,141.6 billion won were made for start-ups and improvements of small businesses.

Table 15. Loans for Small Business Start-up and Improvement in Korea(unit 100 millions won)

1999 2000 TotalFirst quarter Second

quarterRecommendation 6351 3015 2050 11 416Loans 2152 858 1127 4497Source: Moon-Soo Kang 2002.

24 This survey had been conducted in framework of project “Social Relations and Economic Exchange in Contemporary Vietnam” which supported by National University of Singapore. We had surveyed 447 small and micro enterprises at four sample sites: Hanoi, Ha Tay province, Ho Chi Minh city and Can Tho province.25 Won is Korean currency.

On contrary to developed financial market in Korea, Vietnam just in the very first steps in the market building. By recent time many restrictions in accessing credit have been lifted. However, no one could say that getting loans for small business in Vietnam is easy thing. The procedure of loan borrowing from formal financial institution tires the business owners. To substitute they often ask the fund from family members, relatives, friends or private money-lenders who usually offers loans with very high interest.

3.1.2. Family Relations in Getting Working Capital

Enterprises require working as well as start-up capital. Because having start-up capital is necessary but not enough for running business. Business owners need working capital for purchasing the material and for paying salary for workers. The amount of operating capital depends on extent of business activities. Our study in 1995 had showed that in fact, all but four percent of the investigated enterprises rely on outside source for some amount of operating capital. Family member are remain a principal source of working capital, supplying help to 55 percent of whole sample. Friends decrease even further as a source for, giving five percent of those surveyed. The prevalence of help from business relationships, however, increases dramatically. Eighty percent of sample reported that their suppliers allow them delay of purchasing for material, one kind of supplying working capital while customer lend fund to buy supplier to 46 percent of sample. Only 8 percent rely solely on family help in purchasing material.

Clothing making is the sector least likely to receive working capital from family member while furniture manufactures are most likely. It can be explained that these different sectors requires different extent of working capital. Furniture enterprises need more working capital, because the cost for wooden material is much more expensive than clothing one. Moreover, the furniture products often are at high price while the price for one set of completed clothing is not so high. So, customers do not feel sorry to pay for it in advance. Therefore, clothing makers are more likely rely on their own capital or on fund from customers. At the same time aluminum formers and iron workers less like to rely on customers for working funds than average while clothing makers are most likely. Cloth makers are also least likely to receive family fund for operating funds. Perhaps their families are not affluent enough to help them economically.

The sources of capital appear to be independent of each other. We found, in particular, only a modest relationship between friends and family as sources of start-up capital (chi-square = 3.38, d.f. = 1, p = .066) and no relationship for operating capital (chi-square = 1.58, d.f. = 1, p = .021). That is there is a little tendency to rely social ties versus business ties in seeking funds. There is, however, a tendency to received both start-up and operating capital from family member if their help is received at all. (chi-square = 10.26, d.f. = 1, p = .001). A similar relationship is found for friends also (chi-square = 4.88, d.f. 1, p = .03).

Table 16. Informal Sources of Working Capital (%) in Vietnam

Sources Furniture makers

Aluminum Formers

Iron Workers

Clothing Makers

TotalSample

Family Family only

78.60.07.1

70.015.010.0

60.015.05.0

20.00.00.0

55.48.15.4

FriendsMaterial SuppliersCustomersNo outside choice

78.664.37.1

80.010.05.0

85.525.00.0

85.090.05.0

82.445.94.1

Source: Stephen J. Appold, Nguyen Quy Thanh, Le Ngoc Hung, and John Kasarda. 1995.

Our study in 1995 have showed a week relationship between gender and ability to raise capital from particular source. Men appear to be better able to rise start-up capital (chi-square = 3.32, d.f. = 1, p = .07) and operating capital (chi-square = 4.88, d.f. = 1, p = .04). As mentioned earlier sex make no difference in raising start-up capital from friends, suppliers, or customers but women are somewhat more likely to be able to raise operating capital from suppliers (chi-square = 2.75, d.f. = 1, p = .09) and customers (chi-square = 3.73, d.f. = 1, p = .05) than men. Age is not only strongly correlated with ability to raise start-up capital but also operating one from family source (r = .26, p = 03). In other words the older owners the more chances they can get to receive the funds from family members for business operation.

What smothered the development of Korea's small business was the military authoritarian regime's pursuit of a big business-based, growth-at-almost-any-cost strategy. For example, the small business' share of deposit money banks' credit stagnated in the 1970s. In fact, it declined significantly in the latter half of 1970s if we consider the change of SME definition from 5-199 to 5-299 regular employees at the end of 1972. Note that the banks were the major source of external funds for the corporate sector through the mid-1980s. The successor regime under another military strongman Chun Doo Hwan in the 1980s, interestingly, initiated quite radical changes in its small business policy. Accordingly, small firms began to have better access to the bank credits than large firms. The SME share increased to 45 percent by the mid-1980s from 20-30 percent during the 1970s. This reversal in the credit flow is a result not only of the regime's policy of eliminating preferential interest rates to export as well as heavy and chemical industrialization sectors, in which the chaebol firms predominated, but also of the policy of mandating all banking institutions to reserve a certain portion of industrial credit for small firms. As the following section on Japan makes it clear, however, Korea's financial policy support for small business remained far smaller than Japan's. There is a close correlation between the change in financial policy or money flow and the change in the activity of small manufacturers (Hun Joo Park 2002).

Our 2002 survey on small business have found the lower level of borrowing working capital in comparison with start-up capital (16.6% versus 41.4%). At first glance, it seems to be surprising. However, understanding that size of small business in Vietnam is really small we could consider this data as normal. As they small, they just need a very modest amount of fund. Once they have borrowed start-up capital, the latter is able to partly cover the need for running. In term of lenders, it is similar to situation with start up capital, when most of them are not formal ones but are family members (20.5%), relatives (15.9%). Unfortunately, there is no comparable data of Korea from existing literature in English that we have. However, thru some interviews and observation we could suggest that the absolute amount of personal savings in Korea is higher in Korea. Therefore, the small business owners in Korea favor to rely on their own resource.

In sum, the credit demands for small businesses does exist both in Vietnam and Korea. The level of unmeet need of capital is higher in Vietnam because of country’s lower economic development and imperfect of financial market. Small business owners, although easier in receiving credit from state institutions, still orients to informal financial market as the important source of capital. Among the informal money lenders in Vietnam, family members, relatives and friends are most popular. The private money lenders also have place informal credit circle for businesses owners. However, the own savings in both countries are important source of capital.

3.2. Family Relations in Daily Business Operation

Research suggests that many small business owners benefit from tangible and emotional support of family members in running their business. Thus, lack of family support may place small business owners at a disadvantage. Alternatively, heavy family responsibilities may detract from the owner’s ability to devote time to the enterprises, thereby detracting from business success (Loscocco, Robinson, Hall, Allen 1991).

3.2.1. Dealing with Internal Matters

In fact the division of management into internal and external is very relative. However such division help us more understand the assignments of family members in running business. We consider all issues concerning daily operation of business as internal. Moreover, many micro enterprises function at home. It means that their living and working place are shared. In that case homework has been done in merging with business. Taking care of children of business owners, helping them out in cooking or washing ect. is another part of internal management of these enterprises.

Thinking of small business, people in Vietnam do not make clear distinction between ‘owner’ and ‘manager’. We could say almost the same of Korea. Very often that one person is the owner and at the same time he/she works as manager for his enterprise. In other words many of them are not professional managers. The small size in term of capital and employment does not require very high standard of management. Therefore, many ex-workers of SOEs begun their own business after were dismissed. The lesser business size the more often we can observe this phenomenon.

Some authors suggest that family labor can be trusted to handle sensitive transactions in which the risk of opportunism and malfeasance is high. Likewise, family members can be trusted in under-the-counter cash transactions aim at evading tax and other state regulation (Sanders and Nee 1996). When Milton L Barnett characterizes the behavioral pattern of Cantonese entrepreneurs in the USA as familial, he is talking about nepotism or preferential recruitment and promotion of kinsmen within a firm. He writes “priority is given to relatives and fellow villagers when proprietor engages a staff of employees” (Barnett 1960). But in a second usage, the substance of kinship obligation gives way to an ideal image of how superiors and subordinates should interact in a company. The principles of family organization were applied in the family business unit (Sui-lun Wong 1985).

Photo 2. Seoul Open-Air Market – Good location for Small businesses Owners

However, many researchers agreed that kin ties are less likely than nonkin ties to provide instrumental resource and unique information. For example, family members are much more likely to share information with each other than are nonkin members. Therefore, if individuals have a large of proportion of kin in their network, they may be at disadvantage in business community because their social ties are more inward looking. A high proportion of kin network may indicate a high level of redundancy of information source.

Data of our 2002 survey most of surveyed small business owners (65.5%) did not receive any kind of help from members of extended family, while 34.5% receive some help. They received some help from relative only these people live nearby. 43.3% of those whose extended family live in neighborhood reported they receive some internal help, while just 1.4% of those whose extended family din not live nearby. Their parents, siblings or in-law help them out with taking of children, cooking, cleaning, washing and so on. This practice is similar to small business in low-income area where I have been to.

Next to my building where I live in, there is a convenient store. The store opens almost 24/24. A young couple own and operate this store. They have small daughter. Selling work is mostly function of wife. However, the husband does selling too, especially at evening time and at night when the wife has to look at their small daughter. They do not have go out for buying goods for selling. Sometime I see a small van carry all necessary to their store.

The evening is busiest time in the working day. At this time very often that both wife and husband work together. Their small daughter plays nearby. Sometime I see their mother – in – law help out them in keeping their daughter while they are busy with the customers.

3.2.2. Dealing with External Negotiations

The enterprises cannot survive if the do not have market. They also have to negotiate with supplies for sake to have material in time. Or some time they have to negotiate with the last to delay with payment. They have to work also with tax collectors, local authority or environmental inspectors for example. These are many things, which the managers should concern about. However, they have limited time. In the big enterprises there are division responsible for each task. But for small, and especially

micro or household enterprises they do not have enough resources for creation of such department. Therefore all burden of business lay on the owners-managers shoulders. Family in many case serve for business owners as social capital that they are able use in necessary cases. Relations of family members with their high status acquaintances are proved very useful in critical moments. In Vietnam as in Korea many enterprises have received orders or contracts due to relationships of their family members. Many business owners say, “If you do not have any relations you’d better not start your business”. The term ‘relations’ means a broad range network, which the person who wants to be entrepreneur should have. It includes ties with authority organs at different levels, relations with customers. The relations with suppliers are not the most important, according many entrepreneurs, simply because they are in plenty.

In 2000 when Vietnam had implemented new ‘Enterprise Law” that very much simplified the procedure of business registering, keeping good relations with authority organs is not considered as the most important for starting business as earlier. The entrepreneurs now more focus on market promotion and customers seeking.

Receiving start-up capital from family members does not affect the sharing the machinery, material, and work place. We had hypothesized that family supported firms may be less likely to cooperate on orders simply because they are, on average, larger. However, we have found no overall correlation between total employment size and propensity to cooperate on orders. We did find the negative relationship between the number of family members employed and the sharing of large order (r = -.22, p = .02). Other capital suppliers do not step in fulfill a coordinate role. Those who receive start-up fund from supplies, customers, or friends are not more likely to cooperate on large order than other firms. Surprisingly, those who receive start-up capital from immediate neighborhood appeared to be less likely cooperate on the large order (r = .-16, p = .07).

Similar to situation in dealing with internal matters, the small business owners could receive some help if their extended family lives nearby. However, their parents, siblings and in-law gave them much less help with external issues. Only 22.3% of those whose family lives in neighborhood receive some help from their close relative concerning external matters, while none of those whose family live far said they received any help. Perhaps, the external matters are more complicated, so old parents and unskillful relatives are not useful for help.

The possibility for profit to be retained and reinvest is much enhanced in East Asian family firms. Frequently they used all their profits to finance expansion, it is almost certain he was referring to those, which were in this second phrase of their development. Besides reinvestment, the father entrepreneur is also able to transfer funds from one line of business to another for lateral expansion and mutual sustenance. Capital is mobile within the family group of enterprises because it belongs to a common unified family budget.

However, dense family networks may also limit economic growth by imposing barriers to integration within external networks. High levels of internal trust may generate distrust of non-family members and institutions, preventing potentially productive relationships. Strong family systems are often found in places where the rule of law is weak. Kinship networks may place heavy obligations on entrepreneurs that divert

resources away from current and potential investments (e.g. "private protection" systems, as used by some immigrant communities).

In short, The small family size, the shortage of manpower do not allow Korean people help out their family member in doing business frequently as it has been doing in Vietnam. The involvement of family members in business may reduce the total cost, increases therefore, the profit and helps secure labor flexibility. It supposedly has important role in maintaining strong ties between relatives too. However, in opposite way it may put negative imprints in business such as restrict information from outsiders, untransparency in business activities ect. The policy-makers should take it into their account for new policy.

3.3. Family Relations in Labor Securing

The family can provide important resource to members who pursue self-employment. The ability rely on family labor significantly reduces the costs of business operation. Because they have a greater stake in the success of the business, family workers are more productive than non-family labor when hourly wages are low. Furthermore, as mentioned above, family labor can be trusted to handle sensitive transactions in which the risk of opportunism and malfeasance is high. Likewise, family members can be trusted in under-the-counter cash transactions aim at evading tax and other state regulation. That means the preference for relying on family members reflex pragmatic assessment of the potential for conflict and increase transaction costs when nonfamily business partners are involved.

Many entrepreneurs are apprehensive of excessive involvement of family members in their business. Therefore they chose the way invest independently asking capital from other source such as private lenders, government “fund for job creation” (Vietnam), or from the banks. Concerning labor they prefer recruit outsiders that are in plenty at the informal labor market. The bigger population and size of household in Vietnam is a source of labor force while in Korea we cannot conclude the same. Marital partners, children out of school hours, and other family members usually at hand of small business owners when they need do something in short term. For example, when the entrepreneurs need to unload the manufacturing materials or load the products for customers, especially out of working hours, family members are cheapest labor force, and they would not complain (much) of hard work. Family-base social capital in the form of mutual obligation and trust encourage highly motivated and cooperative efforts in the pursuit common objectives. This intangible capital spills over into more tangible contributions by family members in the form of labor and finance inputs.

Most of Vietnamese population lives in large rural areas. They do agricultural works and face seasonal unemployment. The official statistics show low level of time utilization in the rural area – around 75 % (see more in annexes). In other words rural people have nothing to do ¼ year. At this time relatives, who run business in the cities, can hire them. Or they can go there and joint into informal labor market. The unemployment rate in Vietnam is about two times more than in Korea. This rate in Korea on April 2003 is 3.3 % (seasonally-adjusted unemployment rate is 3.2) while in Vietnam this figure fixed at more than 6%.

The practice of labor sharing among family members is not popular in Korea. The children in Korea have privilege spend all time for their education. It often happens that they even do not have to do housework. The wife usually maintains all these works. The business matters are assigned to the owners. The members of their extended family do not have time to help them out too. Moreover, most of Korean family at present time is nuclear with a quite small size. The total fertility rate (TFR) dramatically drops from 4.53 in 1970 to 1.30 in 2001. The nuclear families are prevalent in Korea with 82 % of total in 2001 (Kim, Doo-Sub; Park Sang-Tea and Eun, Ki-Soo 2002).

Therefore, enterprises in Korea, especially SMEs face chronic shortage of labor force. Every year Korea has to imported hundreds thousand blue workers from other Asian countries like China, Philippines, Vietnam, Thailand ect. This situation may create some difficulties for owners of SME in Korea. Recent statistics of the Justice Ministry put the number of illegal aliens at 289,494 in the first four months of the 2003-year.

Conflicts Emerging Among SMEs Over Work Permit System

The small- and mid-sized business community is divided over the projected work permit system for foreign workers. About 1,000 CEOs of small-and mid-sized enterprises (SMEs) yesterday launched a rally against the introduction of the work permit system at the headquarters of the Korea Federation of Small and Medium Business (KFSB) in Yoido. They said if foreign workers are paid the same as local employees and form labor unions there will be labor unrest and labor cost will rise.

Companies in the rally, the majority of which hire foreign workers through the current industrial trainee system, predicted that the labor cost would rise 20 percent to 30 percent under the work permit system. On the other hand, a day earlier, a group of small-scaled business owners facing a severe labor shortage called for the government to introduce the employment permit system early, in the hope that they can secure as many foreign workers as they need.

In a statement, small-scaled businesses, including companies with less 10 workers, said despite the similarity in the pay to foreign and local workers, it is still hard for small companies to hire the right number of foreign workers under the current industrial trainee system.

Foreign workers have been hired through the industrial trainee system since 1991 by SMES suffering labor shortages. Under the system, SMEs are able to use foreign trainees as workers and they are paid lower wages for two years. This system has had such side effects as human right abuses and an increase in the number of illegal foreign migrants.

In an attempt to tackle such side effects, the Ministry of Labor has decided to introduce the work permit system. While Korea can enhance its human rights reputation by legislation and enforcement of the new system, the work permit system will increase the labor cost at SMEs.

This is why leading business organizations, including the Korea Federation of Small and Medium Business (KFSB), have opposed the government’s move by collecting one million signatures against the adoption of the system, holding street protests and presenting a petition to the court. ``The new system is a win-win strategy that will benefit all players in the market and the economy. Under the system, employers will be able to directly select and hire foreign workers who possess skills they need, which will help reduce labor cost in the long term,’’ a ministry official said. He added that the government also expects the new system to decrease prolonged illegal stays by foreign workers and crimes by and against the workers will be sharply reduced.

http://times.hankooki.com/lpage/tech/200304/kt2003041617301911810.htm

By Seo Jee-yeon

Staff Reporter

Studying enterprises owned by Korean immigrant in Chicago, USA, Kim and Hurh (1985) and Yoon (1991) found that while the use of ethnic resource facilitate businesses start-ups, success in business was hindered by continued reliance on ethnic resource. By contrast, the use of family labor and human capital/class resources like education contributed to operating a successful business.

Korean people do not share labor because they have to run their own business or simply their have no time. Working as employments for government agencies or for big company like cheobol is considered by Koreans more prestigious. Therefore, after graduation almost everyone strives to apply a job in these organizations. Many small enterprises in Vietnam complained of chronic shortage of capital that force them operate in tight budget. In that case family labor is essential for the revival of the business especially in the cases of small and micro enterprises. Family labor is also important in business that hires outsiders. Because, family labor often is unpaid that reduce the general costs of business.

According our 2002 survey found that majority of labor in investigated is the family members or relatives. More than 88% of labor in these enterprises are unpaid by cash. This practice is not unusual for Vietnam and even for household enterprises in Korea. The argument is that they are family members or close relative, therefore they should not be paid, but they could eat and live together in the enterprise owner’s house. The family labor can reduce the costs in business running. 29.5% of respondents reported that there is one or more relatives working at their enterprise.

Our study in 1995 showed that any firms is likely to need to adjust to fluctuations in market demand by employing larger then smaller numbers of workers. Small firms may rely on family membership to tie worker to their enterprise in the absent of steady employment, thereby increasing flexibility without sacrificing efficiency. As noted earlier, receiving start-up capital from family member appears result in a greater number of workers in the enterprises. Family capital is not, however, correlated with either the number or the preservation of the enterprise work force comprised of family members. Receiving family help in gathering start-up capital is negatively correlated with the proportion of the work force that works only as needed (r = -.35, p = .02) but this may be due to the effect of the family capital on the size of enterprise. The proportion of the work force that is on call is negatively related to the total number of workers (r = -.31, p = .04). Receiving start-up capital from friends appears to positively affect total employment size (r = .23, p = .01) and the number of workers that are not family members (r = .24, p = .03) but negatively correlated with proportion of the work force that are family members (r = -.30, p = .001). We find, however, no effect on the proportion of the work force that work on an as needed basis. The proportion of the enterprise work force that is comprise of family member is positively correlated with the number (r = .42, p = .003) and proportion (r = .40, p = .008) of employees who work only when necessary. That proportion is, however, negatively, related to total employment (r = -.052, p < .001) and physical size (r = -.26, p < .01). The proportion of the work force comprise of family member available on call is not related to the age or gender of small business owners. Clothing makers have higher proportion of their total work force “on call” than other investigated sectors (r = .33, p = .03). Again, they are smaller. Thirty eight percent of

enterprises went into business to help their families. The expression of that motivation was negatively correlated with total employment size but positively related with proportion of work force that are family members (r = .32, p = .002).

Studying of Korean firms after Asian financial crisis 1997 the authors of the Korea’s country’s report showed interesting figures on employment (Choi Nak-Gyoon and Kang Du-Yong 1999). According their research during the crisis of small firms, 62 % have reduced their workforce, while 79.8 of large firms are employing fewer worker. Small firms have more difficult time in an economic crisis, but apparently they also more reluctant to let workers go.

Reliance upon family labor may have also negative impact on family. Burt (1992) suggests that maintaining and investing in particular relationships requires considerable effort and has significant opportunity costs in terms of future options. Moreover, trust exposes actors to risks. The control of opportunism, therefore, entails costs. Therefore, some individuals may prefer to operate in low trust environments, demanding frequent payments and eschewing the extension and acceptance of credit. In addition, historical considerations of the family suggest that a reliance upon family labor in an enterprise may sacrifice future family benefits for immediate labor as children neglect schooling. Therefore, a specific solution to a market problem, such as employing trustworthy children, may have unanticipated costs, such as reduced career prospects for the next generation.

Although the social relationships that sometimes surround economic exchanges are often viewed as exogenous to the economic relationship, Nee and Ingram (1995) argue that that is not the case. Individuals will often cultivate social relationships in anticipation of economic need. Even relationships within the immediate family can vary among individuals and over time in the degree of intimacy and trust. Moreover, actual kinship ties not only can vary in intensity, new forms of fictive kinships may arise, particularly in a society where the better educated urban residents have a low level of fertility. Therefore, household structure may shift as "life cycle" servants reemerge as part of a strategy to use social relationships to stabilize economic exchanges. New micro-institutions may reverse the historical trend in industrializing economies to separate the family economy from the public economy and shift the locus of social life from the external workplace to the home.

Reliance upon social relationships to regulate economic exchange may limit system-level efficiency by, in effect, trading transaction cost savings for performance losses. However, to the degree that social relationships are used as arenas for sorting among prospective partners, rather than as purely insurance mechanisms, micro-institutions might increase productivity and efficiency, by creating contests for particular rewards. When Granovetter (1974) cites the role of old friendships in generating job offers, the social ties presumably function not only as communicators of opportunity but also of the information on past performance that would encourage or discourage an individual from transmitting information about opportunities.

In short, despite of the fact that unemployment rate in Korea at present time account for around 3%, the work at SMEs is often not considered by many young people as preferable. Young Korean people like seek good job as a state employee, teacher,

doctor, lawyer and so forth. At least they would apply for a job at the prestigious company. Therefore, the SMEs in Korea now face chronic shortage of manpower. Thus, family labor is limited among small businesses in Korea. In Vietnam the small businesses are dynamic channel of labor mobility and self-employment. The unemployment rate in Vietnam is about 2.5 times more than in Korea. The portion of university educated labor force is not as high as in Korea while main proportion of manpower, especially in the rural area, is unskillful and they are able to do just physical job. In other word, small businesses in Vietnam have advantage in cheap and affluent labor. Therefore, family members always in hand whenever business owners felt into manpower shortage.

Conclusions Thru the analysis of existing literature and empirical data we can conclude that

researchers consider the terminology of ‘family business’ in a quite different ways in Vietnam and Korea. Up to now ‘family business’ in Vietnam is referring to micro and small business while in Korea it usually associated with big business.

Family continues play important role in small business development in Vietnam and Korea. Moreover, in Korea family ties are essential for big business like cheobol too. A Korean entrepreneur could expect more than Vietnamese counterpart in getting start-up and operational capital from their family while Vietnamese entrepreneurs could rely on family members as they need secure labor. In our point of view, family ties may have both positive and negative impact on business development. Family’s impact on big business may cause the un-transparency in the company’s activities, especially in the financial operation. However, in the level of small business negative side of family’s involvement is not clear while positive one is being seen by almost every researcher.

The financial market in Korea is more developed than in Vietnam, thus SMEs in Korea easier access to capital sources of the banks while those in Vietnam rely more on informal source such as ROSCA, private lender, Credit Cooperatives, customers, suppliers, Micro credit Programs of social organizations, development projects of non-government organizations, ect. Recently, situation has been changing toward lifting many limitations and making SME to get loans easier.

However, we found that while the situation varies by sector and although purely business contacts become more prevalent as source of operating funds, fiends and family are important source of start-up capital. Support of family appears to help improve the low supply of funds in the formal capital market for these sectors. On the other hand, the availability of that support appears to be limited. Those receiving start-up capital from family source are older and more likely to be male. Further, family background determine whether support is received; experience in the sector does not have positive effect. The effect of informal financing through family source could be overcome information imperfection in the capital market about the talents of the particular individuals. Therefore, while there appear to be substantial social benefits in the forms of greater product availability and employment creation, entrepreneurship at this level may have only limited application as an income redistribution mechanism.

Family help in dealing with internal and external matters in small business could take place mainly thank to neighborhood of their (extended) family. As their parents, siblings or in-law live far, the small business owners receive very little help from them. This sort of help is more prevalent in Vietnam than in Korea, where the size of family smaller and children have more privileges in education investment.

Moreover, due to shortage of labor force the practice of labor sharing among (extended) family members of small business owners in Korea is not so prevalence as it is in Vietnam. We also find correlation between the proportion of the firm work force that are family members and the proportion that only work as needed, so that family ties do contribute to labor flexibility as well.

Korea used to gain much from small businesses development. Vietnam should push it forward with new rhythms too. Agglomeration of small businesses are often seen in industrialized countries as a promising route to industrial revival and to industrialization in developing countries, such as Vietnam. Social, especially family, ties are hypothesized to play significant role in economic transaction in these agglomerations. The formation of family big business in Korea might be the good evidence to this trend.

Last, but not least, family ties could have both positive and negative imprints on business development. The decision makers should take it into their account whenever they issue any policy to reduce negative impact and to encourage positive one in business development.

ReferencesA. In Vietnamese1. Hang, Pham Thi Thu. 2002. Tao Viec Lam Tot Bang Chinh Sach Phat Trien

Doanh Nghiep Nho. (Job Creation by Policies of Small Enterprises Promotion. National Political Publishing House, 2002.)

2. Tong Cuc Thong Ke: Nien Giam Thong Ke 2000. NXB Thong Ke, Ha Noi, 2001. (General Statistical Office: Year Book 2000. Statistical Publishing House, Hanoi 2001.)

3. Van, Le Ngoc; Khieu, Nguyen Linh; Binh Do Thi. 2002. So lieu dieu tra co ban ve gia dinh Viet nam va nguoi phu nu trong gia dinh thoi ky CNH, HDH (Khu vuc mien Bac). (Basic data of Vietnamese family and women in period of Industrialization and Modernization). Social Sciences publishing house. Hanoi, 2002.

4. Phong Thuong Mai va Cong Nghiep Viet Nam. Bao Cao Nghien Cuu ve Doanh Nghiep Vua Va Nho.(Vietnamese Chamber of Commerce and Industry. 2001. Research Report of Small and Micro Enterprises).

B. In English5. Appold, Stephen J.; Nguyen Quy Thanh, Le Ngoc Hung, and John Kasarda. 1995.

Family and Friends in Small-Scale Business, an Exploratory Study of Industrial District in Hanoi. This research paper had been presented at the 1995 Southern Sociological Society Meetings, Atlanta, Georgia April 6-8.

6. Bastelaer, Thierry van. 2000. Does Social Capital Facilitate the Poor’s Access to Credit? A Review of the Economic Literature. Social Capital Initiative Working Paper No. 8. The World Bank. February 2000. http://www.inform.umd.edu/EdRes/Colleges/BSOS/Depts/IRIS/IRIS/docs/sci8.pdf. Visited November 20, 2002.

7. Besley, T., Coate, S., and Loury, G. (1993). “The Economics of Rotating Savings and Credit Associations.” American Economic Review, 83 (4): 792-810.

8. Bourdieu, Pierre. 1983. “Forms of Capital”. pp. 241-58 in Handbook of theory and Research for the Sociology of Education, edited by J. Richardson. New York: Greenwood Press.

9. Burt, Ronald S. 1992. Structural Hole: The Social Structure of Competition. Harvard University Press.

10. Chang, Kyung- Sup. 1995. “Neo-Confucian Right and Family Politics in South Korea: The Nuclear Family as an Ideological Construct. Economy and Society, Vol. 26, No 1. pp. 22-42.

11. Chang, Kyung-Sup. 1993. “The Peasant Family in the Transition from Maoist to Lewisian Rural Transformation”. Journal of Development Studies, Volume 29, No 2, January 1993, pp. 220-244.

12. Choi Nak-Goon and Kang Du-Yong. 1999. A Study on the Crisis, Recovery and Industrial Upgrading in Korea. Country Report at Conference on Asian Corporate Recovery: Corporate Governance & Government Policy, Bangkok, March 31- April 2, 1999.

13. Chun, Kyung-Soo. 1985. Reciprocity and Korean Society: An Ethnography of Hasami. Seoul National University Press. pp. 232.

14. Coleman, J. (1988). “Social Capital in the Creation of Human Capital.” American Journal of Sociology, 94: S95-S120.

15. Constance Lever-Tracy and David Ip.2002. ‘Small Chinese Business after the Asian Crisis: Surviving and reviving’. In Harvie, Charles and Lee, Boo-Chye (eds). 2002. Globalization and SMEs in East Asia. Edward Elgar Publishing Inc. Volume I. pp: 253-274.

16. Dalton Russell. J. & Nhu-Ngoc Ong. 2002a. The Vietnamese Public in Transaction: The World Values Surveys: Vietnam 2001. At www.democ.uci.edu/democ/archive/vietnam.htm, visited November 12, 2002.

17. Dalton Russell. J. & Nhu-Ngoc Ong. 2002b. Democracy and Market: Citizen in the Pacific Rim Region. At www.democ.uci.edu/democ/archive/vietnam.htm, visited November 12, 2002.

18. Dalton Russell. J.; Pham Minh Hac; Pham Thanh Nghi; Nhu-Ngoc Ong. (2002c) Social Relation and Social Capital in Vietnam: The World Values Surveys 2001. At www.democ.uci.edu/democ/archive/vietnam.htm, visited November 12, 2002.

19. Feldman, Tine Rossing and Assaf, Sussan. 1999. Social Capital Conceptual Framework and Empirical Evidence. Social Capital Initiative Working Paper No. 5.

20. Fulo, Liz and Richards D. 2002. ‘Connections, Culture and Context: Business Relationship and Networks in the Asia-Pacific Region’. In Harvie, Charles and Lee, Boo-Chye (eds). 2002a. Globalization and SMEs in East Asia. Edward Elgar Publishing Inc. Volume I. pp. 274-297.

21. Granovetter, Mark S. 1985. “Economic Action and Social Structure: the problem of embeddedness”. American Journal of Sociology 91: 481-510.

22. ___________. 1974. Getting a Job: a Study of Contact and Career. Harvard University Press.

23. Gregory, Gary D. 2002. ‘Promoting SMEs in Korea: Government Response to the Asian Financial Crisis’. In Harvie, Charles and Lee, Boo-Chye (eds). 2002b. The Role of SMEs in National Economy in East Asia. Edward Elgar Publishing Inc. Volume II. pp.238-268.

24. Hall Chris. 2002. ‘Profile of SMEs and SME Issue in East Asia’. The Role of SMEs in National Economy in East Asia. Edward Elgar Publishing Inc. Volume II. pp. 21-50.

25. Hall, E. T. 1976. Beyond Culture, New York: Anchor Press/Doubleday.26. Hampden-Turner, C and F. Trompenaars. 1997. Mastering the Infinite Game,

Oxford: Capstone.27. Han, Sang-Jin. 2002. ‘How to build a society of trust’. In Daily The Korea Time

No 16170. November 2002.28. Harvie, Charles and Lee, Boo-Chye. 2002a. The Role of SMEs in National

Economy in East Asia. Edward Elgar Publishing Inc. Volume I.29. Harvie, Charles and Lee, Boo-Chye. 2002b. The Role of SMEs in National

Economy in East Asia. Edward Elgar Publishing Inc. Volume II.30. Hien, Nguyen Thi. 2001. Vietnam’s SMES in the Globalized Market: Potentials

and Constrains. Research Report. Central Institute of Economic Management.

31. Hirschman, Charles and Vu Manh Loi. 1996. ‘Family and household structure in Vietnam: Some glimpses from a recent survey’. In Pacific affairs, 69 (2): 229-249.

32. Hofstede, G. 1993. “Cultural constrains in Management Theory”, Academy of Management Executive, 7 (1), 81-94.

33. Homans, G. 1974. Social Behavior, Its Elementary Forms. Reprint, New York: Harcourt Brace Jovanovich.

34. Kang, Moon-Soo. 2002. Bank Loans to Micro-Enterprises, Small and Medium-sized Enterprises and Poor Household in the Republic of Korea. Research Paper. Korea Development Institute Seoul, 2022.

35. Kim, Doo-Sub, Park Sang-Tea and Eun Ki-Soo. 2002. Chapter ‘Family and Household’. In Population of Korea. National Statistical Office, 2002.

36. Kim, Kwang Chung and Woo Moon Hurh. 1985. ‘Ethnic Resource Utilization of Korean Immigrant Entrepreneurs in the Chicago Minority Area’. International Migration Review 19:82-111.

37. Lee, Mijeong. 1998. Women’s Education, Work, Marriage in Korea. Seoul National University Press, 1998.

38. Lessem, R. 1998. Management Development through Cultural Diversity, London: Routledge.

39. Lin, Nan. 1999. “Building Network Theory of Social Capital.” Connection 22:28-51.

40. Linda A. Renzulli, Howard Aldrich, and James Moody. 2000. “Family matters: Genders, Network, and Entrepreneurial Outcome”. Social force, Volume 79, Issue 2 (Dec. 2000): 523-46.

41. Loscocco A. Karyn; Robinson Joyce; Hall H. Richard; Allen K. John.1991. “Gender and Small Business: An Inquiry into Woman’s Relative Disadvantage”. Social Forces, Volume 70, Issue 1 (Sep. 1991), pp. 65-845.

42. Mead, R. 1998. International Management: Cross Cultural Dimensions (2nd

edition), Oxford,: Blackwell.43. North, D. 1990. Institutions, Institutional Change, and Economic Performance.

New York: Cambridge University Press, p.vii.44. Nugent, Jeffrey B. and Yhee, Seung-Jae . 2001. Small and Medium Enterprises in

Korea: Achievements, Constraints and Policy Issues. An World Bank research Report.

45. Park, Hun Joo.2002. ‘Dirigiste Modernization, Coalition Politics, and Financial Policy Towards Small Business : Korea, Japan, and Taiwan compared’. School of Public Policy and Management, Korea Development Institute.p.183

46. Portes and Min Zhou. 1993. ‘Embeddednes and Immigration: Note on Social Determinants of Economic Action’. American Journal of Sociology 98:1230-50.

47. Putnam, R. 1993. ‘The prosperous Community – Social Capital and Public life’. American prospect (13): 35-42.

48. Richards, David; Harvie, Charles; Ha Nguyen, Nguyen Van Lan. 2002. ‘Limping Tiger: Problem in Transition for Small and Medium Sized Enterprises in Vietnam’. In Harvie, Charles and Lee, Boo-Chye (eds). 2002a. The Role of SMEs in National Economy in East Asia. Edward Elgar Publishing Inc. Volume II. pp. 89-135.

49. Sanders J. M. and Nee V. 1996. ‘Immigrant self-employment: the Family as Social Capital and the Value of Human Capital’. American Sociological Review, Volume 61, Issue 2 (April 1996): 231-249.

50. Shadur, M and R. Kienzle. 1996. “Development in Business network in East Asia”, In Business Network-Business Growth, Canberra: Commonwealth of Australia, pp. 449-62.

51. Stiglitz, J. (1990). ‘Peer Monitoring and Credit Markets’. World Bank Economic Review, 4 (3): 351-366.

52. Thanh, Nguyen Quy. 2002. ‘Vietnamese traditional values in the context of modernization’. Research paper presented in International Workshop on “Cultural Infrastructure of Knowledge-Based Development”, Seoul, November 29-30, 2002.

53. Thanh, Nguyen Quy and Appold Steve. 2003. The Prevalence of Social Capital Among Small Businesses in Vietnam. Research Report.

54. Weber, M. 1922 and 1978. Economy and Society, Reprint, Berkeley and Los Angeles, CA University of California Press.

55. Wong, Sui-Lun. 1985. ‘The Chinese Family Firms: A model’. British Journal of Sociology, Volume 36, Issue 1 (Mar., 1985), 58-72.

56. Woolcock, M. 1998. “Social Capital and Economic Development: Towards a Theoretical Synthesis and Policy Framework.” Theory and Society, 27: 151-208, p. 192.

57. Woolcok, M. and Narayan, D. 2000. ‘Social capital: Implication for the Development Theory, Research and Policy’. The World Bank Research Observer, Vol. 15 No 2, August.

58. Worl Bank website. http://econ.worldbank.org/ and http://www.worldbank.org.vn/

59. World Bank. 2000. ‘The Initiative on Defining, Monitoring and Measuring Social Capital: Overview and Program Description’. Social Capital Initiative Working Paper No. 1. http://www.iris.umd.edu/publications/browse.asp?pn=1&how=sci last visit July 7th , 2003.

60. Yee, Jae Yeol. 2000. “Social Networks of Koreans”. Korea Journal Vol. 40. No 1. 2000. This research paper also had been presented at the 52nd Annual Meetings of Associations for Asia Studies, San Diego, March 9-12, 2002.

61. Yoon, In-Jin. 1991. ‘The Changing Significance of Ethnic and Class Resource in Immigrant Businesses: The Case of Korean Immigrant Businesses in Chicago. International Migration Review 25:303-31.

IndexesCredit (Tín dụng ) 3, 18, 30-35, 37- 40,46-47. Family business (Kinh doanh gia đình) 2, 41, 47.Family labor (Lao động gia đình) 41, 43, 45, 46, 47. Family relations (Quan hệ gia đình) 3, 17, 19, 23, 25, 30,

31, 34, 38, 40, 43.Household enterprises (Doanh nghiêp hộ gia đình) 8-9, 30-31, 42, 46.Network (Mạng) 1-3, 15, 17-18, 19, 20-

23, 28, 30-32, 36-37, 41- 43.

Role of family in Small business development (Vai trò của gia đình trong sự phát triển doanh nghiệp vừa và nhỏ) 1, 3-4, 17.Small and Medium Enterprise (SME) (Doanh nghiệp vừa và nhỏ) 1-3, 6-14, 30-31, 34,

39, 44-45, 47-48.Small business (Kinh doanh nhỏ) 1-4, 6-7, 10-12, 14, 16, 18,

28, 30-32, 34-44, 46-49.

Social Capital (Vốn xã hội) 1, 3, 14-19, 23, 31-33, 42, 44.

Trust (Lòng tin) 17-19, 23, 37, 41-42, 44, 47.

AnnexesSocio-Economic

Indicators of VietnamAnnex 1. Foreign Direct Investment from 1988 to the end of 2002 Unit: millions USD

1/ By years 2/ The biggest investors

1988 371.8 1) Singapore 6,194.7

1989 582.5 2) Taiwan 5,598.9

1990 839.0 3) Hong Kong 3,844.3

1991 1.322.3 4) Japan 3,694.1

1992 2.165.0 5) Korea 3,586.6

1993 2.900.0 6) France 2,588.3

1994 3.765.6 7) British Vigin Islands 1,968.5

1995 6.530.8 8) England 1,808.3

1996 8.497.3 9) Russia 1,615.8

1997 4.649.1 10) United State 1,591.5

1998 3.897.0 11) Malaysia 1,226.9

1999 1.568.0 12) Australia 1,199.9

2000 2.012.4 13) Thailand 1,176.6

2001 2.503.0 14) Holland 1,160.5

Estimated 2002 1,333.2 These 14 countries (areas) have total investment 37,255.9 millions USD, 86.8% of total FDI.Total 42,937.0

Vietnam Economic TimesSource : General Statistical Office - (09/05/2003)

Annex 2. Vietnamese Population

Year

  Population (thousand persons)

Growth (%)

Cơ cấu (%)

Male Female Urban Rural

1990 66.0167 1.92 48.78 51.22 19.51 80.49

1991 67.242,4 1.86 48.80 51.20 19.67 80.33

1992 68.450,1 1.80 48.83 51.17 19.85  80.15

1993 69.644,5 1.74 48.86 51.14 20.05 79.95

1994 70.824,5 1.69 48.90 51.10 20.37 79.63

1995 71.995,5 1.65 48.94 51.06 20.75 79.25

1996 73.156,7 1.61 49.01 50.99 21.08 78.92

1997 74.306,9 1.57 49.08 50.92 22.66 77.34

1998 75.456,3 1.55 49.15 50.85 23.15 76.85

1999 76.596,7 1.51 49.17 50.83 23.61 76.39

2000 77.635,4 1.36 49.16 50.84 24.22 75.78

2001 78.685,8 1.35 49.16 50.84 24.76 75.24

Estimated

2002

79.715,4 1.31 49.2 50.8 25.0 75.0

Vietnam Economic TimesSource : General Statistical Office - (09/05/2003)

Annex 3: TOTAL EMPLOYMENT BY SECTOR

(in thousand of persons) Prel.  1995 1996 1997 1998 1999 2000 2001

Total Employed Labor Force 33,031 33,761 34,493 35,233 35,976 36,702 37,721 State 3,053 3137.7 3,267 3,383 3,433 3,501 3,420 Non-state 29,978 30,623 31,226 31,850 32,543 33,201 34,301

State Sector Employment 3,053 3,138 3,267 3,383 3,433 3,501 3,420Central 1,281 1,300 1,359 1,404 1,422 1,442 1,427Local 1,772 1,838 1,908 1,979 2,011 2,059 1,992

Employment by Sector

Agriculture, forestry & fisheries 23,535 23,874 24,196 24,504 24,792 25,045 -- Industry and Construction 3,756 3,888 4,021 4,157 4,300 4,445 --

Services 5,740 5,999 6,276 6,572 6,884 7,212 --               

Note: Figures are rounded.Source: General Statistical Office, Statistical Yearbook 2002

Annex 4. Unemployment and percent of time utilization in rural area. Unit: %

  1996 1997 1998 1999 2000 2001 Prel. 2002

1. Unemployment rate 5.88 6.01 6.85 7.40 6.44 6.28 5.85

- Red river Delta 7.57 7.56 8.25 9.34 7.34 7.07 6.44

- North-East 6.42 6.43 6.60 8.72 6.49 6.73 5.90

- North-West 4.51 3.73 5.92 6.58 6.02 5.62 4.94

- North-Central 6.96 6.68 7.26 8.26 6.87 6.72 5.58

- Central coast 5.57 5.42 6.67 7.07 6.31 6.15 5.25

- Central Highland 4.24 4.99 5.88 5.95 5.16 5.55 4.74

- South-East 5.43 5.89 6.44 6.52 6.20 5.92 6.15

- Mekong Delta 4.73 4.72 6.35 6.53 6.15 6.08 5.50

2. Percent of time utilization in rural area

72.11 73.14 71.13 73.49 73.86 74.37 75.41

- Red river Delta 75.69 72.88 72.51 73.98 74.98 75.63 75.53

- North-East 79.01 74.38 67.19 71.40 72.67 73.12 75.48

- North-West     66.46 72.62 73.23 72.83 71.08

- North-Central 73.35 72.92 69.20 72.28 71.78 72.80 74.58

- Central coast 70.98 74.05 77.23 78.65 76.74 77.16 78.07

- Central Highland 74.98 74.05 77.23 78.65 76.74 77.16 75.50

- South-East 61.76 74.52 74.55 76.20 76.44 75.50 75.50

- Mekong Delta 68.16 71.56 71.40 73.16 73.10 73.39 76.62

Annex 5. Growth and structure of GDP (%)

Year Growth (based on constant price) Structure (currant price)

  Total Agriculture-

Forestry-Aquiculture

Industry-Construction Service Total

Agriculture-Forestry-

Aquiculture

Industry-Construction Service

1986 2.84 2.99 10.84 -2.27 100.00 38.06 28.88 33.06

1987 3.63 -1.14 8.46 4.57 100.00 40.56 28.36 31.08

1988 6.01 3.65 5.00 8.77 100.00 46.30 23.96 29.74

1989 4.68 7.00 -2.59 7.86 100.00 42.07 22.94 34.99

1990 5.09 1.00 2.27 10.19 100.00 38.74 22.67 38.59

1991 5.81 2.18 7.71 7.38 100.00 40.49 23.79 35.72

1992 8.70 6.88 12.79 7.58 100.00 33.94 27.26 38.80

1993 8.08 3.28 12.62 8.64 100.00 29.87 28.90 41.23

1994 8.83 3.37 13.39 9.56 100.00 27.43 28.87 43.70

1995 9.54 4.80 13.60 9.83 100.00 27.18 28.76 44.06

1996 9.34 4.40 14.46 8.80 100.00 27.76 29.73 42.51

1997 8.15 4.33 12.62 7.14 100.00 25.77 32.08 42.15

1998 5.76 3.53 8.33 5.08 100.00 25.78 32.49 41.73

1999 4.77 5.23 7.68 2.25 100.000 25.43 34.49 40.08

2000 6.79 4.63 10.07 5.32 100.00 24.53 36.73 38.74

2001 6.89 2.98 10.39 6.10 100.00 23.25 38.12 38.63

Estimated2002 7.04 4.06 9.44 6.54 100.00 22.99 38.55 38.46

Nguyen Quy ThanhVietnam National University, Hanoi

Role of Family in Small Business Development: an Comparative study in Vietnam and Korea

Annex 6. GDP BY INDUSTRIAL ORIGIN AND BY ECONOMIC SECTOR IN CURRENT PRICES Unit: Billions of Dong

        Rev Prel Prel  1995 1996 1997 1998 1999 2000 2001

Total 228,892 272,036 313,623 361,016 399,942 441,646 484,493 State 91,977 108,634 126,970 144,406 154,927 170,141 186,958 Non-State 136,915 163,402 186,653 216,610 245,015 271,505 297,535

Agri, Forestry and Fishery 62,219 75,514 80,826 93,072 101,723 108,356 114,412 Agriculture 52,713 61,048 65,883 76,170 83,335 87,537 91,687 Forestry 2,842 4,695 4,813 5,304 5,737 5,913 6,080 Fisheries 6,664 9,771 10,130 11,598 12,651 14,906 16,645

Industry and Construction 65,820 80,876 100,594 117,299 137,959 162,220 183,291Mining 11,009 15,282 19,768 24,196 33,703 42,606 44,544Manufacturing 34,318 41,290 51,700 61,906 70,767 81,979 95,129Electricity and water 4,701 6,538 8,604 10,339 11,725 13,993 16,197

Construction 15,792 17,766 20,522 20,858 21,764 23,642 27,421

Services 100,853 115,646 132,203 150,645 160,260 171,070 186,790Trade 37,491 43125 48,914 55,783 59,384 62,836 67,893Hotel & Restaurant 8,625 9776 11,307 12,404 13,412 14,343 15,808Transportation & Telecom 9,117 10390 12,418 14,076 15,546 17,341 19,431Finance, Banking & Insurance 4,604 5148 5,444 6,274 7,488 8,148 8,847Science and Technology 1,405 1629 1,774 2,026 1,902 2,345 2,656Real Estate and renting 12,392 13507 15,355 17,683 18,260 19,173 21,589Public Administration 8,278 9417 10,460 11,849 11,683 12,066 12,645Education & Training 8,293 9887 11,274 13,202 14,004 14,841 16,489Healthcare and social welfare 3,642 4007 4,381 4,979 5,401 5,999 6,367Culture and recreation 1,259 1511 1,844 2,068 2,378 2,558 2,731Party and Association 223 281 443 577 584 614 653Community and social service 4,979 6319 7,855 8,874 9,323 9,853 10,672Private household employment 545 649 734 850 895 953 1,009

Source: General Statistical Office, Statistical Yearbook 2002Annex 7. GDP BY INDUSTRIAL ORIGIN -- GROWTH RATE Unit: Billions of Dong in Constant 1994 Prices

          Rev Prel Prel  1995 1996 1997 1998 1999 2000 2001

Total 9.3 8.2 5.8 4.8 6.8 6.8 State 11.4 9.7 5.6 2.6 7.7 7.8 Non-State 7.9 7.1 5.9 6.3 6.2 6.1

Agri, Forestry and Fishery 4.4 4.3 3.5 5.2 4.6 2.8 Agriculture 4.6 5.0 3.6 5.5 4.0 2.0 Forestry 2.0 0.1 0.4 3.1 0.4 0.3 Fisheries 4.1 1.0 4.3 3.8 11.6 10.6

Industry and Construction 14.5 12.6 8.3 7.7 10.1 10.3Mining 13.6 13.2 14.0 13.4 7.2 4.1Manufacturing 13.6 12.8 10.2 8.0 11.7 11.3

1

Nguyen Quy ThanhVietnam National University, Hanoi

Role of Family in Small Business Development: an Comparative study in Vietnam and Korea

Electricity and water 17.8 14.7 12.3 7.7 14.6 13.2 Construction 16.1 11.3 -0.5 2.4 7.5 12.7

Services 8.7 7.1 5.1 2.3 5.3 6.1Trade 9.7 6.9 4.4 2.0 6.3 7.2Hotel & Restaurant 10.2 7.0 4.5 2.5 4.1 6.9Transportation & Telecom 7.4 8.9 3.9 6.3 5.8 6.6Finance, Banking & Insurance 11.4 4.3 5.8 10.0 6.1 5.3Science and Technology 6.8 3.4 5.9 -9.0 24.0 12.3Real Estate and renting 6.2 7.1 5.5 2.1 2.6 3.3Public Administration 7.0 4.0 4.0 -5.5 3.9 4.0Education & Training 8.0 7.1 6.8 2.3 4.0 7.0Healthcare and social welfare 7.0 4.0 6.5 4.0 6.4 5.2Culture and recreation 8.3 9.9 7.9 6.6 6.4 0.5Party and Association 14.8 23.3 19.3 1.0 5.7 5.4Community and social service 11.7 16.2 7.3 2.4 3.1 5.1Private household employment   -1.1 5.1 10.4 1.5 3.1 2.8

Source: General Statistical Office, Statistical Yearbook 2002

Annex 8. GDP DEFLATOR (Billions of Dong in Constant 1994 Prices)          Rev Prel Prel  1995 1996 1997 1998 1999 2000 2001Total 117.0 127.2 135.6 147.6 156.1 161.4 165.7

State 117.5 124.6 132.8 143.0 149.6 152.6 155.5 Non-State 116.7 129.0 137.6 150.8 160.4 167.4 172.9

Agri, Forestry and Fishery 121.2 140.9 144.6 160.8 167.0 170.1 174.7 Agriculture 120.7 133.7 137.5 153.4 159.1 160.6 165.0 Forestry 118.5 191.8 196.4 215.7 226.3 232.4 238.3 Fisheries 126.6 178.4 183.2 201.1 211.3 223.1 225.2

Industry and Construction 112.4 120.7 133.3 143.5 156.7 167.4 171.4Mining 106.4 130.0 148.6 159.5 195.9 231.2 232.2Manufacturing 113.5 120.2 133.4 145.0 153.5 159.2 166.1Electricity and water 138.9 164.0 188.2 201.3 212.0 220.8 225.9

Construction 108.2 104.9 108.8 111.2 113.3 114.5 117.8

Services 117.6 124.0 132.3 143.5 149.3 151.3 155.7Trade 111.6 117.0 124.1 135.5 141.4 140.7 141.9Hotel & Restaurant 127.9 131.6 142.2 149.3 157.5 161.8 166.8Transportation & Telecom 116.1 123.3 135.3 147.6 153.3 161.6 169.8Finance, Banking & Insurance 116.9 117.3 118.9 129.5 140.6 144.2 148.6Science and Technology 118.0 128.1 134.9 145.5 150.1 149.3 150.5Real Estate and renting 127.3 130.7 138.7 151.4 153.1 156.8 170.9Public Administration 117.2 124.6 133.1 145.0 151.3 150.4 151.6Education & Training 119.0 131.4 139.8 153.3 159.0 162.0 168.2Healthcare and social welfare 121.0 124.4 130.9 139.6 145.7 152.0 153.4Culture and recreation 114.5 126.9 140.9 146.5 158.0 159.8 169.7Party and Association 126.7 139.1 177.9 194.3 194.7 193.7 195.5Community and social service 127.7 145.1 155.1 163.4 167.6 171.8 177.1Private household employment 115.5 139.0 149.5 156.8 162.7 168.1 173.1

2

Nguyen Quy ThanhVietnam National University, Hanoi

Role of Family in Small Business Development: an Comparative study in Vietnam and Korea

               Source: General Statistical Office, Statistical Yearbook 2002

Annex 9. GDP BY INDUSTRIAL ORIGIN AND BY ECONOMIC SECTOR IN CONSTANT 1994 PRICES Unit: Billions of Dong

          Rev Prel Prel  1995 1996 1997 1998 1999 2000 2001

Total 195,567 213,833 231,264 244,596 256,272 273,666 292,376 State 78,267 87,208 95,638 100,953 103,531 111,522 120,266 Non-State 117,300 126,625 135,626 143,643 152,741 162,144 172,110

Agri, Forestry and Fishery 51,319 53,577 55,895 57,866 60,895 63,717 65,497 Agriculture 43,658 45,652 47,915 49,639 52,372 54,493 55,556 Forestry 2,399 2,448 2,450 2,459 2,535 2,544 2,551 Fisheries 5,262 5,477 5,530 5,768 5,988 6,680 7,390

Industry and Construction 58,550 67,016 75,474 81,764 88,047 96,913 106,914Mining 10,345 11,753 13,304 15,173 17,200 18,430 19,185Manufacturing 30,231 34,339 38,743 42,694 46,105 51,492 57,285Electricity and water 3,384 3,986 4,572 5,136 5,531 6,337 7,171

Construction 14,590 16,938 18,855 18,761 19,211 20,654 23,273

Services 85,743 93,240 99,895 104,966 107,330 113,036 119,965Trade 33,595 36,866 39,422 41,170 41,994 44,644 47,854Hotel & Restaurant 6,741 7,428 7,949 8,307 8,517 8,863 9,478Transportation & Telecom 7,851 8,429 9,178 9,536 10,141 10,729 11,441Finance, Banking & Insurance 3,940 4,388 4,578 4,843 5,327 5,650 5,952Science and Technology 1,191 1,272 1,315 1,392 1,267 1,571 1,765Real Estate and renting 9,738 10,337 11,071 11,682 11,926 12,231 12,631Public Administration 7,063 7,558 7,860 8,174 7,723 8,021 8,339Education & Training 6,968 7,526 8,062 8,614 8,809 9,162 9,802Healthcare and social welfare 3,009 3,220 3,348 3,566 3,707 3,946 4,151Culture and recreation 1,100 1,191 1,309 1,412 1,505 1,601 1,609Party and Association 176 202 249 297 300 317 334Community and social service 3,899 4,356 5,063 5,431 5,564 5,734 6,026Private household employment 472 467 491 542 550 567 583

               Source: General Statistical Office, Statistical Yearbook 2002

Annex 10. CHANGE IN GDP DEFLATOR(1995=100%)

          Rev Prel Prel  1995 1996 1997 1998 1999 2000 2001

Total 100.0 108.7 115.9 126.1 133.3 137.9 141.6 State 100.0 106.0 113.0 121.7 127.3 129.8 132.3 Non-State 100.0 110.6 117.9 129.2 137.4 143.5 148.1

Agri, Forestry and Fishery 100.0 116.3 119.3 132.7 137.8 140.3 144.1

3

Nguyen Quy ThanhVietnam National University, Hanoi

Role of Family in Small Business Development: an Comparative study in Vietnam and Korea

Agriculture 100.0 110.8 113.9 127.1 131.8 133.0 136.7 Forestry 100.0 161.9 165.8 182.1 191.0 196.2 201.2 Fisheries

Industry and Construction 100.0 107.4 118.6 127.6 139.4 148.9 152.5Mining 100.0 122.2 139.6 149.8 184.1 217.2 218.2Manufacturing 100.0 105.9 117.6 127.7 135.2 140.2 146.3Electricity and water 100.0 118.1 135.5 144.9 152.6 159.0 162.6

Construction 100.0 96.9 100.6 102.7 104.7 105.8 108.9

Services 100.0 105.4 112.5 122.0 126.9 128.7 132.4Trade 100.0 104.8 111.2 121.4 126.7 126.1 127.1Hotel & Restaurant 100.0 102.9 111.2 116.7 123.1 126.5 130.4Transportation & Telecom 100.0 106.1 116.5 127.1 132.0 139.2 146.3Finance, Banking & Insurance 100.0 100.4 101.8 110.9 120.3 123.4 127.2Science and Technology 100.0 108.6 114.4 123.4 127.3 126.5 127.6Real Estate and renting 100.0 102.7 109.0 119.0 120.3 123.2 134.3Public Administration 100.0 106.3 113.5 123.7 129.1 128.4 129.4Education & Training 100.0 110.4 117.5 128.8 133.6 136.1 141.3Healthcare and social welfare 100.0 102.8 108.1 115.4 120.4 125.6 126.7Culture and recreation 100.0 110.8 123.1 128.0 138.1 139.6 148.3Party and Association 100.0 109.8 140.4 153.3 153.6 152.9 154.3Community and social service 100.0 113.6 121.5 128.0 131.2 134.6 138.7Private household employment 100.0 120.4 129.5 135.8 140.9 145.6 149.9

               Source: General Statistical Office, Statistical Yearbook 2002

Annex 11. Industrial growth and main productsAt constant 1994 prices, VND billion

        Rev Prel. Prel.1995 1996 1997 1998 1999 2000 2001

Gross Industrial Production 103,375 118,097 134,420 151,223 168,749 198,326 226,406State sector 51,991 58,166 64,474 69,463 73,208 82,897 93,393

Central 33,920 38,411 42,216 45,677 48,395 54,962 62,161Local 18,071 19,755 22,258 23,785 24,813 27,935 31,322

Non-state sector 25,451 28,369 31,068 33,402 37,027 44,144 53,106Collectives 650 684 751 859 1,076 1,334 1,592Private, Households and Mixed 24,801 27,685 30,317 32,544 35,951 42,810 51,514

Foreign-Invested sector 25,933 31,562 38,878 48,359 58,515 71,285 79,908

Key IndustriesCoal 1,677 1,930 2,229 2,138 2,048 2,366 2,695Oil and Gas 10,845 12,467 14,329 16,869 20,582 22,746 23,701Mining and metal ores 236 283 172 200 191 209 230Stones and other mining 1,162 1,288 1,674 1,911 1,759 2,015 2,322Food and beverage 27,008 30,887 34,015 36,496 37,744 43,634 49,389Cigarettes and tobacco 3,997 4,196 4,400 4,895 4,796 5,744 6,636Textile products 6,176 6,374 7,261 8,366 8,388 10,046 11,578Garment/apparel 2,950 3,400 4,325 1,667 5,218 6,042 6,924

4

Nguyen Quy ThanhVietnam National University, Hanoi

Role of Family in Small Business Development: an Comparative study in Vietnam and Korea

Lether tanning and processing 3,570 4,469 6,614 7,083 7,725 8,851 10,074Wood and wood products 3,306 3,199 3,146 2,956 3,180 3,598 4,056Paper and paper products 1,947 2,294 2,644 3,178 3,470 3,930 4,479Printing and publishing 1,510 1,515 1,621 1,868 2,012 2,274 2,552Chemicals 5,086 6,283 7,223 8,144 9,682 11,123 12,714Rubber products and plastic 2,272 2,760 3,528 4,418 5,427 6,456 7,624Non-Metallic products 9,220 10,121 12,223 13,745 14,785 18,259 21,781Metalic production 3,428 4,086 4,000 4,080 5,000 5,914 6,886Metallic products 2,332 2,941 3,559 4,210 5,036 5,768 6,601Machinery and equipment 1,345 1,560 1,674 2,050 2,163 2,761 3,263Computer and office equipment 28 40 38 228 1,703 1,295 733Electric and electronic equipments 1,088 1,342 1,650 2,308 2,944 3,622 4,320Radio, TV and telecom 2,065 2,079 3,278 3,478 3,993 4,395 4,819Production & repairing motor vehicles 1,460 1,375 1,629 1,668 1,846 3,232 3,762Production & repairing other transport

means 1,893 1,982 1,815 3,379 4,574 6,414 8,354Furnitures 1,970 2,265 2,564 2,815 3,395 3,931 4,611Recycles products 89 123 133 161 127 150 173Electricity and gas 5,444 6,538 7,597 8,520 9,496 11,828 14,177Water supply 751 804 847 920 971 1,066 1,181

Number of Industrial EnterprisesTotal 615,374 626,129 617,805 592,948 618,198 654,968

State owned 1,958 1,879 1,843 1,821 1,786 1,633Domestic non-state 612,977 623,710 615,296 590,246 615,453 652,272Foreign invested 439 540 666 881 959 1,063

               Source: General Statistical Office, Statistical Yearbook 2002

5