Academic journal article Journal of Small Business Management

Planning Behavior of Small Firms in Central Vietnam [*]

Academic journal article Journal of Small Business Management

Planning Behavior of Small Firms in Central Vietnam [*]

Article excerpt

Although planning is a prerequisite for business growth, profitability, and job creation for both large and small firms in developed market economies, does this precondition also apply to small and medium-sized enterprises (SMES) in Vietnam's transitional economy? Does the planning behavior of small and medium-sized firms from this developing country differ significantly from the planning behavior of their counterparts in the Western world?

This study examined the planning activities of more than 900 Vietnamese SMEs from seven different sectors. It supports the generally accepted importance of scale for planning--larger firms more often work with a business plan than do smaller firms. Within the group of firms that plan, there is also a scale effect for planning characteristics such as the integration of a financial budget with the investment plan and the period covered by this plan. The presence of a business plan also has its merits for generating profits.

Research on Small Business Planning

Much has been written about the planning behavior of SMEs. (For an overview of empirical research on formal planning in SMEs and the relationship between planning and entrepreneurship, see Stone and Brush 1996). Two different conclusions regarding planning have been drawn: (1) the adoption and consistent use of planning are not widespread; and (2) planning is useful for the attainment of external validation. The partial adoption and the inconsistent use of planning can be explained by entrepreneurs' widespread perception that planning reduces their freedom and their ability to use their intuition. The relationship between planning and external validation is quite obvious, given the demands of outside investors for more certainty as they invest financial resources in these firms.

Much of the small business planning literature is focused on the relationship between planning behavior and SME size, the latter normally being expressed in terms of employment or sales. The relationship is generally found to be positive--for several reasons, larger firms plan more often and more intensively than do smaller firms, and small firms plan operationally rather than strategically (Risseeuw and Masurel 1994; Robinson and Pearce 1984; Shrader, Mulford, and Blackburn 1989).

Studies directed at the relationship between SME planning and business performance have, however, yielded ambiguous results. Baker, Addams, and Davis (1993) found that only some operating dimensions (such as decision-making, communication, unity; and motivation) were positively affected by business planning. As has already been mentioned, operational planning is positively correlated with business performance. However, no relation between strategic planning and performance has been found (Shrader, Mulford, and Blackburn 1989). Another stream of research has indicted that planning firms performed no better than did non-planning firms (Robinson and Pearce 1983). The failure to correlate planning and performance may be explained by the possibility that SMEs enhance their effectiveness through the informal application of business planning concepts. It may also be exacerbated by the fact that a firm's performance is dominated by other factors, such as its size and business activities (Risseeuw and Masurel 1994).

In spite of this ambiguity; a positive relationship between planning and performance can generally be expected if and only if a small business uses the right kind of planning. The existence of a planning process (rather than the presence of a business plan) makes the business operator more aware of the firm's actual strengths and weaknesses and therefore makes the anticipation of future opportunities and problems more likely.

Hypotheses

Based on previous literature, then, the following hypotheses can be formulated:

[H.sub.1]: Planning behavior and size of SMEs are positively correlated.

[H. …

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