Business Confidence Index : A Reflection of Business Sentiment in Viet Nam

1

Business Confidence Index:
A Reflection of Business Sentiment in Viet Nam＊

Khoi Van LUONG
Souksavanh VIXATHEP†

Abstract
With the reform embarked in the late 1980s, the economy of Vietnam has
been increasingly integrated to the regional and global economy. Given rapid
globalization developments in the world economy have had significant impacts on
Vietnam’s economy and Vietnamese enterprises. Hence, it is essential to build a
set of indicators which would serve the macroeconomic management and business
operation purposes. Among such indicators, the early “warning indicators” areparticularly important because they anticipate events that are likely going to happen
to the economy.
The paper presents the framework for building indices of business confidence
and analyzes the current and future prospects of the Vietnamese economy for two
major industries, the ‘manufacturing industry’ and the ‘commerce and services’.
The study reveals that businesses in Vietnam have faced difficulties due to a fallin demand for goods and services, decrease in profits and revenue, and limited
capacity utilization. Businesses in the ‘manufacturing’ have been more optimistic
than the ‘commerce and services’ in many aspects, including general economic
conditions, employment and finances. The findings pertain to the policies promoting
technical upgrading, access to finance and penetrating external markets to maintaincompetitiveness of the domestic firms and boost business confidence in the country.
1．Introduction
Vietnam is a small and open country whose economy is exposed to the＊ Director, Department of World Economy, National Centre for Socio-economic Information and Forecast,
Ministry of Planning and Investment, S.R. of Viet Nam† Assistant Professor, Graduate School of Economics, Kyoto University

Journal of International Cooperation Studies, Vol.23, No.2（2016.1）

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world’s economic developments. Vietnamese enterprises have been more andmore participated in the global production network. The prospect of economic
development, such as economic growth; economic stagnation; economic recession
or economic crisis; can be identified using a set of appropriate economic indicators.
Given the frequent (sometime unpredictable) changes of the global and domestic
economy, it is essential to build a set of indicators to serve not only the Government
for macroeconomic management purposes, but also the domestic enterprises tomeet their business operation purposes. Among such indicators, the early “warning
indicators” are particularly important because they anticipate events that are likely
going to happen to the economy.
Business Confidence index (BCI) is one of the most important early warning
indicators. The BCI is calculated based on monthly and quarterly surveys on businessconditions and business expectations of business executives and entrepreneurs(called Business Confidence Survey - BCS). The BCI is a short term early warning
system to forecast the trend of the economy, in which the diffusion index of business
confidence is one of the most important indicators that anticipates developmentin the immediate future. In addition, from a Business Confidence Survey (BCS), a
Present Business Situation Index (PBSI), which reflects the present business situationof enterprises, can be calculated.
These surveys, also known as business opinion or business climate surveys,
ask firm managers about the current situation of their business and about theirplans and expectations for the near future. The survey results would not only help
identify the business environment for firm owners, but also be used to analyze andformulate the macro- and micro-economic policies and strategies, and evaluate
the economy’s health and the relationship between business environment and thefinancial sector. In other words, the BCI would anticipate the perception of thebusiness community on the future prospects, future plans on capital investment andemployment of corporations, expectations on the power of prices and the impacts
of price on demand (which is closely related to the price elasticity of demand),and the evaluation of various industries on the future business prospects of firms.
Furthermore, this indicator would also help international investors and multinational
enterprises’ executives have a general picture on Vietnam’s business activities in theBusiness Confidence Index : A Reflection of Business Sentiment in Viet Nam

3coming months so that they could make the suitable decisions on their investment
and business activities in/with Vietnam.
The main objectives of this paper are (i) to present the construction of the
Present Business Situation Indices (PBSIs) and the Business Tendency Indices (BTIs)
by means of a Business Tendency Survey in Vietnam; and (ii) to apply these indicesto analyze the current and future prospects of the Vietnamese economy for two
major industry groups: the ‘manufacturing industry’ and the ‘commerce and services’.
These indices of the present situation and future tendencies are essential for theVietnamese government to effectively manage the national economy and formulate
sound policies, and for the private sectors to supervise their business activities.
The remaining of the paper is organized as follows. Session 2 describes thebusiness confidence survey in terms of the sampling, scope, scale and timing. The
framework and methodology for constructing indices of business confidence and theprocessing of the results are presented in Section 3. Applying the indices of business
confidence, Session 4 discusses business sentiment and confidence in Vietnam,with an emphasis on the ‘manufacturing industry’ and the ‘commerce and services
industry.’ Session 5 provides major conclusions and some policy implications for the
public and private sectors.
2. Framework of Business Confidence Survey
The Business Confidence Index is very popular in many countries, including
East Asian Countries, OECD member countries and non-OECD member countries.
The implementation of the BCS has become more standardized, as the OECD has
developed a system of harmonized business tendency surveys (the same as BCS),
which have been applied in many transition countries in Europe and adopted by manyother economies (OECD, 2003; Ronny Nilsson, 2000). Vietnam, without exception,
also uses the OECD method for building the BCIs and PBSIs.
2.1 Sample selection
The sample selection was implemented in the following three stages:
Stage 1: As there was no data on GDP by province, three representative
provinces/cities with the largest shares of net business and production revenue of

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firms and the largest number of firms were selected in each of the three main regions(the North, the Central and the South), namely Hanoi city, Danang city and Ho Chi
Minh city. The total net production and business revenue of firms in these threecities were used to calculate the share of the net production and business revenue ofeach city to the total revenue. Based on these shares, the number of surveyed firms
in each city was identified.
Stage 2: The GDP of the ‘manufacturing industry’ and ‘commerce andservices industry’ were calculated (with 3 activities including ‘wholesale and retailtrade and repair of motor vehicles and motorcycles’; ‘transportation and storage’;and ‘accommodation and food service’ activities). Next, the share of GDP of eachindustry to this total GDP was calculated in order to identify the number of surveyed
firms in each industry. For the ‘commerce and services industry’, the number ofsurveyed firms in each sub-industry was calculated based on the share of GDP ofeach sub-industry to total GDP of the industry. For the ‘manufacturing industry’,
because there was no data on GDP for each sub-industry (with 4 activities including‘manufacture of food products’; ‘manufacture of textiles’, ‘manufacture of wearing
apparel’, ‘manufacture of leather and related products’; ‘manufacture of computer’,‘electronic and optical products’; and others), the data on industrial production valueof each sub-industry was used to calculate the share of each sub-industry to thetotal production value of the industry. Then, based on these shares, the number ofsurveyed firms in each sub-industry was identified.
Stage 3: The firms in each sub-industry of these two industries were grouped
into different scale levels. For each scale group, the firms were selected randomly.
Based on the selected sectors mentioned above, the survey was conducted interms of a random sample by stratifying the universe (population) into three groups
that have similar variance with regard to the key variables covered in the survey.
Strata are defined in terms of the size of firms and the kinds of activities in which
they are engaged. According to the experience of OECD countries, about 30 reporting
units are sufficient to obtain an acceptable level of precision for each stratum forwhich data are to be published. In practice, this is a maximum as a few very large
firms for which two or three responses might suffice when dominating some kinds ofactivity (OECD, 2003, p.22). Therefore, the sample has been selected ensuring two

Business Confidence Index : A Reflection of Business Sentiment in Viet Nam

5basic principles as follows:⑴

The surveys target business executives and entrepreneurs from all scales,1

including micro, small, medium and large firms ; and⑵

The number of surveyed firms was 840.

2.2 The scope, space and time, and scale of the survey
The survey aimed at evaluating the business situation of firms, which includes
evaluation on production situation; demand; quantities of production and export
orders; prospect of production and commodity prices; plans on future capital
investment of firms; plans on employment; expectations on prices; and some others.
Other than the tested survey location, we selected three biggest cities andprovinces as representative of the three main regions of the country, namely Hanoi,
Danang and Ho Chi Minh City. The survey was conducted in a period of nine months
from April 2012 to December 2012.
Table 1: Number of firms surveyed by locality and industry
Locality/Industry

Manufacturing

Commerce andservices

Total

Bac Giang

25

32

57

Hanoi

154

155

309

Da Nang

14

23

37

Ho Chi Minh

294

213

507

Total

487

423

910

In fact, 910 firms were surveyed instead of the initial number of 840, because
when the survey was conducted, the business areas of selected firms had changed,
and hence, more firms were added to the sampling in order to gather necessary
information. The survey consists of a questionnaire survey of 910 firms in Bac Giang
province (the area where the test survey of 57 firms was conducted), Hanoi Capital,
Danang City and Ho Chi Minh City (Table 1).
Each industry was divided into sub-industries, and each sub-industry was
further divided by scales. Table 2 describes the firms in the ‘manufacturing industry’国 際 協 力 論 集

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in BCS classified into three main sub-industries. These are the three important
sub-industries in terms of their contribution to economic growth and their roles inmeasuring participation of Vietnamese firms in global supply chains. Based on thecontribution and importance of these sub-industries, the survey focused on these subindustries as indicated in the table. The total number of surveyed firms is of 487,
grouped by scales. 58 firms among them have changed their business areas. In thistable, the number of firms are also grouped into sub-industries and then classified
by scales to calculate the sample probability and the weights for each scale group ineach sub-industry.
Table 2: Population and sampling size of the manufacturing classified by industry
and stratified scales
Scale of Labor scale Manufacture of food
firms
(persons)
products

Manufacture of
Manufacture of computer,textiles,wearing
electronic
apparel and wearing
and optical products
apparel＃ of firms ＃ of firms ＃ of firms ＃ of firms
in universe in sample in universe in sample
Large＃ of firms
in universe＃ of firms
in sample

The remainder(others)

Total＃ of firms ＃ of firms
in universe in sample

500 - ...

232

14

712

65

71

16

689

75

170

300 -499

149

5

330

24

28

2

670

34

65

Medium 200 -299

142

4

278

6

26

0

792

10

20

500 -199

887

8

1,442

20

105

3

4,729

68

99

10 -49

1,863

10

2,288

16

150

5

12,773

40

71

<10

1,824

0

2,031

3

234

1

14,157

Small
Micro
Total

41

134

27

0

4

227

429

Source : Authors’ calculation

In the ‘commerce and services industry’, 423 firms in the sub-industries(including ‘retail and wholesale trade, repair and maintenance of automobiles,
motorbikes and other motor vehicles’; ‘transport and storage’; and ‘accommodationand food service activities’) were surveyed (Table 3). These are the sub-industries
that would clearly reflect the domestic macroeconomic situation, such as total flows
of goods and services; tourism; and transport; and are the sub-industries with large
contribution to GDP. Table 3 also includes information on the population in theindividual sub-industries. This data was used to calculate the sample probability by
scale groups and to calculate the weights for firms by each scale group in each sub-

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industry.
Table 3: Population and sample size of ‘commerce and services industry’ by subindustries and scales
S c a l e o f Labor scale
firms(persons)

Wholesale and retailtrade;repair of motor
vehicles and motorcycles

Transportation andstorage

Accommodation and foodservice activities

Total＃ of firms in ＃ of firms in ＃ of firms in ＃ of firms in ＃ of firms in ＃ of firms inuniverse
the sample
universe
the sample
universe
the sample
Large
MediumSmall
Micro

500 - ...

109

14

101

12

32

12

38

300 -499

120

12

98

1

40

1

14

200 -299

204

13

127

0

58

0

13

500 -199

2,485

53

1,051

4

521

5

62

10 -4924,418

153

5,749

23

3,200

29

205

<10

85,979

24

8,120

3

6,408

2

29

49

361

Total

269

43

Source : Authors’ calculation

3. Framework and Methodology for Business Confidence Analysis
3.1 Indicators of business confidence
The BCI intends to find out a general idea about the economic conditions ofbusinesses. For the ‘manufacturing industry’, the Business Confidence Indicators
consist of ‘general domestic economic situation’ (situation and expectation within 6months); ‘business situation’; ‘order books’ (total and export); ‘goods demand’; ‘stocksof finished goods’; ‘financial situation’; ‘access to credit’; ‘production’; ‘selling prices’;‘sales’; ‘input prices or expenditure on input’; ‘profit after tax’; ‘payment delayedby client’; ‘investment in fixed capital formation’ (situation and expectation within
6 months); and ‘total number of employees’. The Business Confidence Indicators ofthe ‘commerce and services industry’ include: ‘general domestic economic situation’(situation and expectation within 6 months); ‘business situation’; ‘stocks of finishedgoods’; ‘financial situation’; ‘access to credit’; ‘demand on goods and services’;‘competition ability’; ‘order books’; ‘sales’; ‘profit after tax’; ‘selling prices of goods
and services’; and ‘total number of employees’.
A questionnaire, which was designed to compute the impression of thebusiness community in terms of the indicators mentioned above, could be used forforecasting about the next quarter and accessing the quarter surveyed comparing国 際 協 力 論 集

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with the previous quarter of the same year as well as the corresponding quarter of2

the previous year .
From a quarterly survey, two sets of indices are calculated: (i) the set ofindices derived from present quarter data which is called Present Business Status
Indices (PBSI) of each component as well as a diffusion index; and (ii) the set ofindices derived from the assessment of the sample firms based on the anticipationof business conditions in the following quarter(s), which is called the Business
Confidence Indices (BCI) and a diffusion index of business confidence as well.
3.2 Method for processing the survey results
The method used in this survey is borrowed from OECD (2003) and describedin this section. First, the basic results for a question of the multiple-choice type are
obtained in the form of three or more percentage according to the number of reply
opinions. It is customary to convert this information into a single number. Weighting
is the next step in processing the results. In aggregating qualitative data theweighting system is somewhat more complicated than in the case of quantitative data.
BCS results are normally converted into a single number. One of the most common
ways is to use “Balances” (also called “Net-Balances”).
Three reply options: in most BCSs respondents have three reply options, suchas up; same; down; or above normal; normal; below normal. For convenience we denote
up/above normal by (+), same/normal by (=) and down/below normal by (–).
The first step is to convert the numbers of answers to each of the three reply
options into percentage. For instance, if there are 200 respondents and 40 have replied(+), 60 (=) and 100 (–), in percentage terms these would become 20%, 30% and 50%,
respectively. The net balance is then calculated by subtracting the (+) percentage fromthe (–) percentage, i.e. 20 ─ 50= ─ 30.
Four-plus reply options: if respondents are offered more than three choices –such as much better; better; same; worse; much worse – balances are calculated in thesame way as in the three option case. The only difference is that the five options are
assigned weights such as 1; 0.5; 0; ─ 0.5; ─ 1 going from much better to much worse.
In practice, four or more reply options are used mainly in consumer surveys.
It is worth noting that in the calculation of balances the (=) replies are9Business Confidence Index : A Reflection of Business Sentiment in Viet Nam

discarded. Experience in the OECD countries has shown that this loss of informationis unimportant for most uses of BCI data. For cyclical analysis, the use of the balanceis both practical and entirely adequate. However, for a given balance, the changes in
the percentage of (=) replies can be interpreted as indicating changes in the degreeof uncertainty among respondents. If it is desired to retain this information for uses,
one possibility is to show the percentage of (=) replies either alongside or below thebalance.
The balance of each question is calculated using the following formula:
Bks== ∑    i=1 (1⁄fiks × ×xiks)⁄∑    ∑i=1_    (1⁄fiks) 	   
nks

nks

(1)

where: Bks==  the balance of each question of firms in size group s within industries k ;fiks = the sampling probability for firm i in industry k belonging to size group s, andxiks=  +1, 0 or ─ 1 depending on the answer given by firm i belonging to the size groups for its activity in industry k.
when each report unit is given a weight according to its size, the estimates ofthe balances (Bks) from the sample will be:
Bks  = ∑i=1(1⁄foks × ×wiks × ×xiks)⁄∑    ∑i=1_  (1⁄fiks × ×wiks) 		                           (2)
nks

nks

s

s

Bk==^∑ ((wks × ×Bks )⁄ ∑   wks

			where: wks  =∑=∑_i=1  (1⁄fiks × ×wiks)
nks

k

k

B =∑
= (wk × Bk)⁄∑     wk ) 				swhere wk==^∑   wks 					                           (3)		   (4)(5)(6)

Only estimates containing individual weights for the report units (wi values) arelabelled weighted estimates in this paper.
In summary, it is recommended that formulas (2), (3) and (5) be used for
estimating the balances. If the wks values (total value added or employment in sizegroup s of industry k) and/or the wk values (total value added or employment inindustry k) are known from other sources, these values should be used for weighting
rather the estimates of them derived from the sample.

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4. Business Confidence and Business Sentiment in Vietnam
Based on the data on the firms in the sample and the population of eachscale group of each sub-industry, the sample probability fi was identified. In the nextstage, the adjusting factor to adjust to the population level was identified based on
the sample probability fi. This is a factor to adjust the answers to the populationlevel. However, in this stage, the scale weights of firm had not been considered.
If this were the end of the calculation process, the set of calculated BCIs would be
imprecise and were not able to reflect the importance of large firms, because theanswers from large scale firms always had larger weights than those of small scale
firms. Therefore, the adjusting weights to adjust to the population level needed tobe calculated based on the adjusting factors and firm’s scales (usually measured by
the number of labor in the surveyed firms). The questionnaires were designed tocollect two pieces of information that would become the weights of scale, including
the total number of labor in the firm in 2011 and the firm revenue in 2011 at current
prices. However, the data on revenue was collected poorly because this was asensitive issue and firms were not ready to provide this data. In addition, some firms
did not fill in the information on the number of laborers; hence, a direct follow up by
telephone with those firms was necessary to obtain this information.
Based on the calculated adjusting weights (to adjust to the population level),the answers were adjusted with these weights. In order to calculate the BCI for eachanswer, the answers need to be transformed into the number with values of +1, 0, and─ 1, which are equivalent the set of answers “good”, “normal” and “bad”, or “better”,“unchanged” and “worse”, etc. In general, the positive answer has the value of++1; theanswer “unchanged” the value of 0, and the negative answer the value of ─ 1.
Regarding the questions with five answer options recommended by OECD,such as the question on the firm situation, the answers “very good” and “good” arechanged into the value +1; the answer “normal” into the value 0; and the answers “bad”
and “very bad” into the value ─ 1. Also, typically for the questions on the inventory
stocks of finished products of firms; the average input costs for one unit of productof firms; the level of payment delay by customers; etc., the values applied to eachanswer were in a reverse order. For example, the answers “better” and “increase”
were reversed into the value of ─ 1 and vice versa. After these stages, the businessBusiness Confidence Index : A Reflection of Business Sentiment in Viet Nam

11tendency index was calculated for each issue of the firms in each sub-industry. These
BCIs would reflect the representativeness of the firms in each sub-industry.
To form a basis for the calculation of the set of BCIs by two large industries
surveyed, it is essential to calculate the weights of each sub-industry based on
the value-added or GDP of each sub-industry. With respect to the sub-industriesin ‘commerce and services industry’, as the data on GDP of these industries areavailable in the statistical yearbooks, these data would be used as the weight for
all calculations of BCIs for this industry. On the other hand, as the data on thevalue-added of these sub-industries were not available for the sub-industries in‘manufacturing industry’, we opted to use the share of industrial production valueof these sub-industries for the calculation. This indicator was multiplied by thevalue-added of the ‘manufacturing industry’ to calculate the value-added of the subindustries, and these values were used as the weights for all calculations of BCIs inthe ‘manufacturing industry’. The calculations of sample weights, scale weights andsub-industry weights reflect the representativeness of the firms in the scale groupsof the sub-industries and in the two large industries (i.e. the ‘commerce and services
industry’ and the ‘manufacturing industry’) in the survey.
4.1 Recent business tendency in Vietnam
Based on the survey data and the selected calculation method, the sets of
PBSI and BCI for the firms in Vietnam were calculated for the issues related to thecurrent situation, as well as the prospect of the economy and of the firms in the subindustries and the industries concerned. Derived from the definition on the BCS, thecomponents of the PBSI and BCI would include most of the content of the survey andthe qualitative answers, which would eventually be transformed into the quantitative
answers aligned with OECD regulations and would be used to calculate the diffusionindex of PBSIs and BCIs for the two industries under study.
The general result shows the quantitative evaluation of firms on the present
business situation and the business tendency on the economy through the sets of
PBSIs and BCIs of individual components. The indices clearly illustrate the present
business situation and the firms’ confidence on the economy, the business situationand specific issues of the sub-industries in ‘commerce and services industry’ and国 際 協 力 論 集

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第1号‘manufacturing industry’ and of the two industries at a more aggregate level. The
PBSI and BCI reflect the present business situation (of the third quarter of 2012 ascompared to the second quarter of 2012) and the business confidence of firms forthe next quarter and/or the next six months, and are classified into three groups as
below:・ ─ 100 ≦ PBSI or BCI  <  0   means that the present business situation or thebusiness tendency of the firms was not good/negative/bad.
・PBSI or BCI  =  0   implies that the current business situation or the businesstendency of the firms was normal.
・ 0 <  P BSI or BCI ≦ 100   means that the current business situation or thebusiness tendency of the firms was good/positive.
The sets of PBSIs and BCIs and the combined set of PBSIs and BCIs describe
the picture on the present business situation (of the third quarter when the survey
was done as compared to the second quarter of 2012) and describe the businesstendency of the firms on the prospects of the economy and their business activities.
By observing these indices, the policy makers, business community and researchers
are able to see the present/current business situation of firms in the economy andforecast the economic prospects for the next quarter and/or the next six months.
Hence, the diffusion index of BCI and the sets of BCIs are viewed as the leading
indicators or the early warning indicators, which present reliable information on
economic developments and the business situation of firms in the next quarter and/or
the next six months.
4.2 Business confidence in commerce and services
Table 4 shows that the current business situation of firms in the ‘commerceand services industry’ in the third quarter of 2012 was bad/worse as compared tothat of the second quarter of 2012 with the combined PBSI at ─ 23. The decreaseof the combined PBSI of the ‘commerce and services industry’ in the third quartercame from the decrease of most indicators used to calculate this index (11 out of 12
component indicators). This showed that the present business situation of the third

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quarter of 2012 in Vietnam was very pessimistic.
Table 4: PBSI and BCI indices of the Commerce and services
STT

Surveyed contents＊

PSBI Index

BCI Index

─ 51

19

1

General domestic economic situation

2

Business situation

─ 36

21

3

Stocks of finished goods

─6

2

4

Financing situation

─8

33

5

Access to credit

─ 32

21

6

Demand on products

─ 20

25

7

Competition ability

225

Order books, total

─ 30

16

Sales

─ 32

33

Profit after tax

─ 38

20

11

Payment delayed by client

─ 13

12

Selling prices of goods and services

─9

8
9
10

13

Total number of employees

Diffusion Index

10
─9

─ 23

18

Source:Author’s calculation from survey data
Note:The symbol '＊'indicates the situation and expectation within six month

The component indicators that were worst off in the third quarter include:
domestic economic situation ( ─ 51), after-tax profits ( ─ 38), business situation offirms ( ─ 36), revenue and access to credit ( ─ 32), orders ( ─ 30), etc. Only the PBSI
for the component ‘competitiveness of firm’ improved in the context of crisis (+ 2).
Among 11 components with PBSI <  0, six components had PBSI < ─ 20. This showsthat the economic situation in the third quarter of 2012 was gloomy. Although
the firms’ inventory stock was seen as a serious problem at that time, the survey
results revealed that the inventory of finished products of the surveyed firms in the‘commerce and services industry’ industry was not very serious. The PBSI of thiscomponent indicator was at ─ 6 as compared to the balance level of 0. The mostsurprising feature is the financial situation of firms. Although the recent evaluationfrom the relevant authorities showed that the corporate financial situation had been
increasingly strongly problematic, the survey results on the situation of firms in the‘commerce and services industry’ revealed a less severe problem, as this indicator

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decreased to ─ 8 in the third quarter. Among the 12 components, the domestic
economic situation was evaluated to be the worst indicator with PBSI at ─ 51, followedby the business situation of firms with PBSI at ─ 36. It can be seen clearly that thedemand and orders for the products in the ‘commerce and services industry’ wererelatively weak with PBSI at ─ 20 and ─ 30, respectively. Access to credit was also notin a good position with PBSI at ─32. Many firms accepted to reduce their goods andservices’ prices to improve their competitiveness. The survey showed that in thecrisis period, firms with unplanned business activities would eventually go bankrupt
or close their business, while those with clear business plans and strategies had theopportunities to restructure their organization and improve their competitiveness.
In contrast to the evaluations of firms on the current business situation in thethird quarter of 2012, the business confidence of firms in the next quarter (the fourth
quarter) (Table 4, Column 3) and/or the next six months was strongly improved. The
combined diffusion index of BCI of the ‘commerce and services industry’ industry
increased to +18. The improvement in this business confidence came from theimprovement of almost every component indicators (11 out of 12 components have
BCI > 0). This showed that, at the time of survey, the firms in ‘commerce and services
industry’ had a strong confidence on the Government’s macroeconomic stabilization
policies in the coming time, and on the international and domestic economic
recovery. This helped improve their confidence on the corporate financial situation
as their access to credit might be improved and facilitated. The firms were confident
that demand and orders for their products would increase, which would push up theprices of goods and services, and this in turn would help improve their profits andrevenue. The clearest sign of improved business confidence of firms was the strong
increase of finished product inventory stock as this component indicator increased
from ─ 6 in the third quarter to++2 in the fourth quarter. This showed that the firms
in the ‘commerce and services industry’ believed that inventory stock would not be a
problem for them.
Table 4 shows some optimism of firm owners in the ‘commerce and services
industry’ about the world and domestic economic recovery. Their business confidence
for the fourth quarter and/or the next six months increased strongly as comparedto the third quarter. The results of the fourth quarter showed that BCIs of mostBusiness Confidence Index : A Reflection of Business Sentiment in Viet Nam

15components, except total labor, were positive and much higher than those of thethird quarter. This showed that the business tendency of firms in the ‘commerce andservices industry’ on the macroeconomic prospect and business prospect was very
positive. The firms’ tendency on the macroeconomic prospect in the next six months
as compared to the previous six months (second quarter and third quarter) was much
improved, with the BCI increasing from ─ 51 to +19. This improvement of BCI impliedthat the domestic economic prospect for the next six months would be much better
than the previous six months, particularly based on the Government policies oninterest rates, bad debt treatment and macroeconomic stabilization.
The business prospect of the firms in the ‘commerce and services industry’was also improved strongly, with the strong improvement of the BCI for the next
six months to + 21 as compared to the PBSI of the third quarter at ─ 36. This wasin line with the general business tendency of firms as they were confident in the
improvement of most components such as corporate financial situation, access tocredit, demand for products, orders, inventory stock of finished products, prices ofgoods and services, and pre-tax profits, with the BCIs of all these components being
positive. However, firm owners were worried about increasing input costs, especiallywages and salaries, as their expectations on labor recruitment was still negative withBCI at ─ 9.
Table 5 shows that the present business situation of three sub-industries inthe ‘commerce and services industry’, including ‘retail and wholesale trade, repair
and maintenance of automobiles, motorbikes and other motor vehicles’ (mainly retail
and wholesale trade, and hereafter called ‘retail and wholesale trade’); ‘transport andstorage’, and ‘accommodation and food service activities’. The table also illustrates
that the present business situation of all three industries was not bright with the
combined PBSIs of three sub-industries being ─ 16, ─ 39 and ─ 36, respectively. The
present business situation of ‘transport and storage’ was the worst among them, andthe situation of ‘retail and wholesale trade’ was relatively less severe than the othertwo sub-industries.
The set of PBSIs show that all firms in all sub-industries of the ‘commerceand services industry’ were pessimistic about the macroeconomic situation andthe business situation. Especially, the firms in the ‘transport and storage’ sub-

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industry with PBSIs of its components at ─ 74 and ─ 68, respectively. However,some components, such as competitiveness; inventory stocks; demand for products;
financial situation; among others, were less severe.
Table 5: PBSIs of the commerce and services for the second quarter 2012
STT Surveyed contents

Commerce Wholesale and Transportation Accommodation andand services
retail tradeand storage food service activities

1 General domestic economic
situation

─ 51

─ 46

─ 74

─ 52

2 Business situation

─ 36

─ 22

─ 68

─ 62

3 Stocks of finished goods

─6

─ 10

─ 11

12

4 Financing situation

─8

─4

─ 19

─ 13

5 Access to credit

─ 32

─ 25

─ 39

─ 49

6 Demand on products

─ 20

─ 11

─ 43

─ 36

7 Competitiveness

2

18

─ 16

─ 37

8 Order books,total

─ 30

─ 21

─ 43

─ 51

9 Sales

─ 32

─ 18

─ 60

─ 60

10 Profit after tax

─ 38

─ 28

─ 68

─ 52

11 Payment delayed by client

─ 13

─ 20

─ 21

16

12 Selling prices of goods andservices

─9

0

─6

─ 45

─ 23

─ 16

─ 39

─ 36

Diffusion Index
Source:Author’s calculation from survey data

Observing the PBSI of the components of sub-industries ‘accommodation andfood service activities’ reveals that two components, namely the ‘inventory stocks’
and the ‘delay in customer payment’, had PBSI > 0, which was at +12 and +16,
respectively. Some difficulties could be seen in the two sub-industries ‘retail andwholesale trade’ and ‘transport and storage’ with PBSIs of these components of theformer sub-industry at ─ 20 and ─ 21, respectively, and PBSIs of the components of
the later sub-industry at ─ 10 and ─ 11, respectively. This was completely aligned withthe real business situation of these sub-industries.
In the ‘retail and wholesale trade’, the present business situation for thecomponents ‘competitiveness’ and ‘prices of goods and services’ was relatively goodwith the PBSIs at +18 and +0, respectively. The PBSIs of the other components were
negative, which reflected the pessimistic business situation.

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Regarding the business confidence of firms in the third quarter of 2012, Table
6 shows that the business tendency of firms in all three sub-industries was strongly
improved, and firms in the ‘retail and wholesale trade’ sub-industry were very
optimistic with BCI at +37. The business tendency of the two other sub-industries,
i.e. ‘transport and storage’ and ‘accommodation and food service activities’, wasalso much improved, although the combined BCIs were still negative. The combined
diffusion index of BCIs of these two sub-industries was ─ 1 and ─ 32, respectively,
as compared to the diffusion index of PBSIs for the third quarter at ─ 39 and ─ 36
(Table 5), respectively.
Table 6: Weighted BCIs in Commerce and services for the third quarter 2012(future
prospect)
STT Components

Commerce Wholesale and Transportation Accommodation andand services
retail tradeand storage food service activities

1 General domestic economic
situation

19

35

─6

─ 20

2 Business situation

21

38

19

─ 38

3 Stocks of finished goods

2

0

1

9

4 Financing situation

33

54

16

─ 25

5 Access to credit

21

38

16

─ 37

6 Demand on products

25

49

0

─ 40

7 Competitiveness

25

42

19

─ 31

8 Order books, total

16

36

─3

─ 38

9 Sales

33

57

17

─ 38

10 Profit after tax

20

44

─2

─ 45

11 Selling prices of goods andservicest

10

24

4

─ 34

12 Total number of employees

─9

22

─ 96

─ 51

18

37

─1

─ 32

Diffusion Index
Source:Author’s calculation from survey data

Firms in the ‘retail and wholesale trade’ sub-industry were very optimistic
about the general economic prospect and the business prospect of firms. The strong
improvement of the combined BCI of this sub-industry came from the improvementof all components. The combined BCI of Transport and Storage sub-industry wasmuch improved, although it was still low at ─ 1. The worst component was ‘changes

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in total labor’ of this sub-industry, with BCI at  ─ 96 (very close to the lowest pointof ─ 100). Except the component ‘total labor’, the business tendency of firms in allother components were much improved, particularly the business situation (BCI at+19), inventory stock (BCI at +1), financial situation and access to credit (BCI  =16).
The business tendency of firms in the ‘accommodation and food service activities’
sub-industry was improved slightly for the fourth quarter and/or the next six months
as the combined BCI of this sub-industry was still stable at ─ 32 as compared to the
PBSI of ─ 36 for the third quarter. The business tendency of firms in this sub-industry
was relatively pessimistic because most components were still worse than the normal
conditions.
4.3 Business confidence in the manufacturing
The combined PBSI and BCI or diffusion index of the ‘manufacturing industry’as well as the sets of PBSIs and BCIs were calculated by the same methods, andthere were no weights for both two sets of PBSIs and BCIs (Table 7).
The table shows that the present business situation of firms in the‘manufacturing industry’ was better than of those in the ‘commerce and services
industry’ with the diffusion index of PBSI of this industry group in the third quarter at
─ 9, much more higher than the value of ─ 23 of the ‘commerce and services industry’.
However, the evaluation on the general economic situation of this industry was
rather pessimistic with the PBSI of this industry at ─ 46. Firms were most pessimistic
about the production input costs, because the prices of input increased frequently,
particularly wages, electricity and oil, and this created huge difficulties for firms inproduction and business activities. In addition, the lower level of orders and weakdomestic and external demand created difficulties for them and forced them to lower
their prices to survive. Although the PBSI of the component “inventory stock” wasnegative at ─ 7, this level was not as bad as what had been indicated by the media.
A surprising result from this survey was that the PBSIs, such as corporate
financial situation; general production; revenue and fixed assets, were positive. Thisimplies that these components were in a relatively good situation. The financial
situation of firms in this industry was relatively good with PBSI at +10 implying astrong improvement of the third quarter as compared to the second quarter. The

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improvement of this indicator was associated with the improvement of fixed assets
investment with PBSI at +20, and this showed that the expansion of investment in
fixed assets during the last six months was rather good.
Table 7: PBSIs and BCIs of firms in the manufacturing
STT

Surveyed contents

PSBI Index

BCI Index

1

General domestic economic situation

─ 46

34

2

Business situation

─3

43

3

Order books, total

─ 11

4

Demand on products

─95

Order books, export market

─ 12

6

Foreign demand

─ 10

7

Stocks of finished goods

─7

─3

8

Financing situation

10

41

9

Access to credit

─7

11

10

Production

8

44

11

Selling prices of finished goods

12

Sales

13

9
8

44

Expenditure on input/cost

─ 54

─ 35

14

Profit after tax

─ 21

11

15

Payment delayed by client

─ 15

16

Fixed assets

20

18

17

Total number of employees

3

10

─9

19

Diffusion Index
Source:Author’s calculation from survey data

Expanded investment in fixed assets has brought about the improvement in thenumber of labor hired in the firms of this industry as compared to the second quarterwith PBSI at +3. The probability to expand firms’ investment in fixed assets would
be increased if the demand for their goods and their profits increases. Also, the very
high borrowing costs also hindered the investment plans of firms in the previous six
months.
The total production/output of the aggregate ‘manufacturing industry’ was

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evaluated to be positive in the third quarter as compared to the second quarter,with PBSI at +8. The business tendency of firms in this industry was evaluated tobe very positive for the fourth quarter and/or the next six months with BCI > 0 for
most components (11 out of 12 components). Particularly, BCI was very high for thecomponents, such as the general economic situation; the business situation of firms;
the corporate financial situation; the general production; and the revenue of firm,
which was ranging from +34 to +44. This showed that the business tendency of firms
was very good. However, firms in this sub-industry were still pessimistic about theincreasing input costs because this would bring about difficulties for firms’ businessactivities. The prospect for expanding investment in fixed assets of firms in the next
six month was good, and this would improve the prospect for increasing the total
output of the industry. BCI of this component increased from +8 for the third quarterto +44 for the fourth quarter. Shortage of domestic demand, external demand andskilled labor and low sale prices were the key factors that would hinder firm output
expansion. Moreover, the competition from imported goods was an important factor
that hinders the output expansion capacity of the industry. This would point to a factthat Vietnam’s imported goods were mainly semi-finished products, which would go
through only one or several simple stages to be finished and then be consumed in thedomestic market or exported (Luong, 2012b). For large scale firms, the shortage ofskilled labor was not a problem, because they believed that the skilled labor needs tobe trained at the job, and they did not expect that firms could hire high skilled labor
trained by the market or by the current vocational training system. The small scale
firms did not focus on training the workers because they feared that the workers
would likely to leave their firms for other firms to look for a higher wages.
Regarding the present business situation (PBSI) by sub-industries in the‘manufacturing industry’, Table 8 shows that PBSI was the highest for ‘electronics,
computers and optical products’, at +4. The PBSI diffusion index was lowest for‘food processing’ at ─ 23, which showed that the present business situation of firms
in this sub-industry was the most pessimistic. The second pessimistic sub-industry
was ‘textiles, garments, leathers and leather products’ with PBSI diffusion index at
─ 12. The business tendency of the ‘others’ or ‘the remainder’ sub-industry was also
negative with PBSI diffusion index at ─ 5, though it was still better than the general

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situation of the aggregate ‘manufacturing industry’. Firms in all these four subindustries had pessimistic evaluation on the ‘general economic situation’ and ‘input
costs’ in the previous six months, with the PBSI decreased from ─ 31 to ─ 59 for theformer sub-industry and from ─ 40 to ─ 64 for the latter case.
The PBSIs of 12 out of 16 components of the ‘electronics, computers andoptical products’ sub-industry were positive (PBSI== +6). Although the domestic
demand for products of this sub-industry decreased slightly, the external demand andtotal orders and export orders for products of this sub-industry were still optimistic.
Firms in this sub-industry had the most positive financial situation with PBSI at +17.
Investment in fixed assets still increased strongly, which made the general outputof this sub-industry increase strongly with PBSI at +48. Increase in investment andoutput also helped push the demand for labor of this sub-industry. However, as inother sub-industries in the manufacturing, the input costs increased strongly in thethird quarter as compared to the previous quarter, and firms in this sub-industry had
a very pessimistic evaluation on this issue (PBSI = ─40). The inventory stock of thissub-industry was at normal level with PBSI = 0.
Among the surveyed sub-industries of the ‘manufacturing industry’, the ‘foodprocessing’ was the sub-industry with most pessimistic business situation with PBSI
diffusion index equaling ─ 23. Up to 15 out of 16 components had PBSI < 0, and themost pessimistic component was input costs ( ─ 64), the general domestic economic
situation ( ─ 59), profits ( ─ 42), the financial situation ( ─ 39), etc. However, this subindustry still saw the expansion in labor and employment (+3).
Although the ‘textiles, garments, leathers and leather products’ had a negative
business situation with PBSI diffusion index at ─ 12, the fixed assets investment in
the previous months increased and the financial situation was good. The present
business situation of the other sub-industries was better than the ‘textiles, garments,
leathers and leather products’ sub-industry with the improvements of its components
including business situation, general output situation, revenue and fixed investments
as compared to the third quarter.
The inventory stock was a serious problem for the ‘food processing’ subindustry but not a problem for the ‘electronics, computers and optical products’ subindustry and not very sever for the other sub-industries in manufacturing. Thus, it国 際 協 力 論 集22

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can be concluded that the inventory situation only appeared in some industries rather
than all industries of the economy. Except for the ‘electronics, computers and opticalproducts’ sub-industry, the total domestic and external demand for products of the‘manufacturing industry’ decreased in the third quarter as compared to the second
quarter. At the same time, a strong increase in input prices has lowered the profits offirms in the manufacturing in the third quarter strongly and this was reflected in thepessimistic evaluation of firms on this component with PBSI at ─ 21.
Table 8: Weighted PBSIs of the manufacturing
STT Surveyed contents

Manufacting

Manufactureof food @@@@
product

─ 46

─ 59

2 Business situation

─3

3 Order books, total

─ 11

4 Demand on products

1 General domestic economic
situation

Manufacture of Manufacture of The remainder/
texiles,
computer,otherswearing apparel electronic andand wearing
optical productapparel
─ 42

─ 31

─ 43

─ 31

─9

6

7

─ 20

─ 18

5

─7

─9

─ 14

─ 13

─8

─6

5 Order books,export market

─ 12

─ 19

─ 15

6

─ 11

6 Foreign demand

─ 10

─ 15

─ 18

8

─9

7 Stocks of finished goods

─7

─ 18

─1

0

─5

8 Financing situation

10

─ 39

18

17

24

9 Access to credit

─7

─7

─9

5

─7

10 Production

8

─ 10

─2

48

13

11 Sales

8

─ 11

3

4

16

12 Expenditure on input

─ 54

─ 64

─ 65

─ 40

─ 50

13 Profit after tax

─ 21

─ 42

─ 35

─2

─ 12

14 Payment delayed by client

─ 15

─ 21

─5

8

─ 17

20

─ 25

23

34

33

3

24

─3

12

─4

─9

─ 23

─ 12

4

─5

15 Fixed assets
16 Total number of employees
Diffusion Index

Source:Author’s calculation from survey data

Regarding the business prospect of firms in sub-industries of the ‘manufacturingindustry’, Table 9 shows that in general the business confidence of firms in thisindustry increased strongly. While the combined PBSI of the third quarter was at
─ 9 (Table 8, Column 1), the combined BCI diffusion index for the fourth quarter
increased to +19. This showed that the business confidence of firms has improved.
Firms in all sub-industries of the ‘manufacturing industry’ had positive tendency on

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23

the general macroeconomic prospect for the next six months with high positive BCIs,
from +26 for the ‘textiles, garments, leathers and leather products’ sub-industry to+64 for ‘electronics, computers and optical products’ sub-industry. The businesstendency of firms on the business situation and prospect was also much better asreflected in the increase of BCI for the next six months ranging from +35 to +68.
The business tendency of firms on the inventory stock was also improved strongly,
particularly, the firms in the ‘electronics, computers and optical products’ subindustry and ‘textiles, garments, leathers and leather products’ sub-industry withgood prospect on finished product inventory with BCIs +13 and +6, respectively.
Table 9: Weighted BCIs of firms in manufacturing(future prospect)
STT Surveyed contents

1 General domestic economic
situation

Manufacting

Manufactureof food @@@@
products

Manufacture of Manufacture of The remainder/
texiles,otherscomputer,wearing apparel electronic andand wearing
optical products
apparel

34

36

26

64

32

2 Business situation

43

65

37

68

35

3 Stocks of finished goods

─3

─ 13

6

13

─3
46

4 Financing situation

41

37

22

44

5 Access to credit

11

16

10

38

7

6 Production

44

48

30

52

45

7 Selling prices of finished
goods

9

34

─9

14

4

44

75

27

45

37

─ 35

─ 54

─ 41

─7

─ 29

10 Profit after tax

11

15

─ 12

18

14

＊

18

9

18

─ 19

24

10

19

21

14

4

19

24

11

29

18

8 Sales
9 Expenditure on input/cost

11 Fixed assets

12 Total number of employees
Diffusion Index

Source:Author’s calculation from survey data
Note:The symbol'＊'indicates the situation and expectation within six month

On the other hand, all sub-industries of the manufacturing were still pessimistic
about the input costs. The increased input costs would have led to an increasein prices of finished products, while the domestic and external demand was still
weak, and this affected the decision to expand fixed assets investment of firms
in the ‘electronics, computers and optical products’ sub-industry (BCI at ─ 19).
Although the expectation on profits of firms in the ‘textiles, garments, leathers and国 際 協 力 論 集24

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leather products’ sub-industry was still negative with BCI at ─ 12, this was still an
improvement as compared to the BCI of the third quarter at ─ 35 and reflected thepresent business situation of firms in this sub-industry.
6. Conclusions and Implications from the Business Confidence Survey
6.1 Conclusions
Derived from the detailed discussions in Section 5, some major conclusions
on the business tendency in Vietnam can be drawn as follows: First, the businessand production situation of firms, particularly, those in the ‘manufacturing industry’and ‘commerce and services industry’ have faced difficulties due to a fall in demand
for goods and services, decrease in profits and revenue, limited capacity utilization(some firms used under 10% of the maximum capacity), and the like. Many firms
faced with reduced revenue and profits and contraction in output, reduced theircapacity utilization. The results of this survey were closely in line with the realsituation and reflected the general difficulties for Vietnamese firms. This was clearlyreflected through the pessimistic present business situation of firms with the diffusionindex of PBSIs of the ‘manufacturing industry’ and ‘commerce and services industry’at ─ 9 and ─ 23, respectively (Table 8 and Table 5). However, the business tendency
of firms in these two industries had improved strongly and this showed that firms inthese two industries were relatively optimistic. The strong increase of the diffusionindex of BCI resulted from improvement in most of the components of this index.
Firms were relatively optimistic about the general economic and business situation
because they were confident in the world and domestic economic recovery, whichstrongly improved the prospect for firms’ business activities.
Second, firms in two industries – ‘manufacturing industry’ and ‘commerceand services industry’ – were pessimistic about the general domestic economic
situation in the second half of 2012. Among the sub-industries of the ‘commerceand services industry’, the situation of the ‘transport and storage’ sub-industry wasmost pessimistic, followed by the ‘accommodation and food service activities’ subindustry and the ‘retail and wholesale trade’ sub-industry. On the other hand, in the‘manufacturing industry’, the situation of the ‘food processing’ sub-industry was mostpessimistic. The business situation of firms in the two large industries was similarly

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25

pessimistic. However, the business tendency of firms on the production and businessprospect for the immediate future was relatively optimistic. Many firms believed thatthe macroeconomic situation and the business situation of firms would be improvedin the near future. The optimism of firm owners originated from the expectation on
the world and domestic economic recovery and the current Government’s policy
measures to reduce difficulties for firms in doing business.
Third, with respect to finance and employment, firms in the ‘commerce andservices industry’ were generally less optimistic than those in the ‘manufacturingindustry.’ Given the difficulties in production and business activities, many surveyed
firms (27% of the surveyed firms) had to cut off their labor, while the share of firms
which increased their labor was low (14.4%). The prospect for employment in thelast part of 2012 was not very optimistic as most firms expected that they would notchange the number of their labor in the fourth quarter, 20% expected to increase
labor and 18% expected to reduce labor. Yet, the prospect in the economy is mixed,
as the ‘commerce and services industry’ was more pessimistic, while the tendency
on the expansion of labor in firms in the ‘manufacturing industry’ was very optimistic.
The business confidence on the macroeconomic situation and on the world anddomestic economic recovery in these two industries has improved in toward the endof 2012.
Fourth, the export orders (external demand) in the ‘manufacturing industry’have decreased, which reflects the negative impacts of the global financial crisis andeconomic recession on the domestic economy, and illustrates the pessimism in thisindustry. This pessimism was mainly from the ‘food processing’ sub-industry and‘textiles, garments, leathers and leather products’ sub-industry, while the tendency inthe ‘electronics, computers and optical products’ has been quite optimistic.
Fifth, the prospect of investment in fixed assets of firms in the ‘manufacturingindustry’ has been positive and improved toward the end of 2012, implying that the
manufacturing activities still expanded in the study period. Limited expansion in
investment in fixed assets has been attributed to insufficient increase in demand,high borrowing costs, lack of profits of reinvestment, and high costs of machinery andequipment.
Finally, the factors that hindered the capacity to expand the business activities

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of firms in the ‘commerce and services industry’ includes insufficient demand,competition from firms in the same industry, inflation, high financing costs (interest
rates), difficulties in access to credit. Indeed, high interest rates were the very
important factor that prevented firms from doing or expanding business activities in
the period under study.
6.2 Implications
The reasons for constraints in the production and business activities aremainly the changes in external and domestic macroeconomic conditions and domestic
business environment. Firms are still confident about the business prospect for the
future and ready to expand their investment and business activities, if the external
conditions become more favorable. Hence, in order to solve the difficulties for firms,
more attention should be paid to stimulating demand, both domestic and external
demand for goods and services, and to increasing access to credit and reducing
borrowing cost and other costs for firms. This can be achieved through various
measures and policies, such as appropriately easing the monetary policy to increase
access to credits for enterprises; stimulating domestic demand; and upgrading thequality of services sector.
Moreover, in order to stimulate the consumer demand, particularly to becompetitive to imported goods and services, it is necessary for domestic firms toactively seek solutions to improve their competitiveness of the goods and services
sectors. Areas of possible improvement include, but not limited to, upgrade in
production technology via investment in modern technology; enhancement inmarketing skills; improvement in quality of goods and services; and penetrating newexport markets.
References
Luong, V. K. (2012a). Project on Business Confident Survey in Vietnam. Hanoi: Ministry of Planning andInvestment, S.R. of Vietnam.
Luong, V. K. (2012b). Quantitative analysis for figuring out main reasons of high and continuous trade
deficit in the Vietnamese economy. Scientific Research Paper at ministerial level meeting of the year
2012. Ministry of Planning and Investment, S.R. of Vietnam.
Nilsson, R. (2000). Business tendency surveys Methodology, analytical use and presentation of results.
Paris: Organization for Economic Cooperation and Development (OECD).

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OECD. (2000). Business tendency surveys: Harmonising and strengthening business tendency surveys indeveloping countries in the Asia Pacific Region. Proceeding of the joint OECD-ADB-Escap workshop.
Bangkok, November 2000.
OECD. (2003). Business Tendency Survey: A Handbook. Paris: Organisation for Economic Co-operation andDevelopment.

Notes
1

Small and medium enterprises (SMEs) were identified based on the definition in Decree No. 56/2009/
ND -CP dated 30/6/2009 of the Vietnamese Government on supporting small and medium sized firms, andbased on the scale levels stipulated in the Statistical Yearbooks of the General Statistics Office.

2

The questionnaire, which was designed based on experience from Business Tendency Surveys of OECD
countries and non-OECD countries, Thailand and China among others, in order to collect information on
business confidence of firms (OECD, 2000)

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