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Research Leadership Capacity of Small and Medium-sized Enterprise Directors: The Case Study in Thanh Hoa Province, Vietnam

Do Minh Thuy, Nguyen Thi Loan*

Faculty of Economic and Business Administration, Hong Duc University

Abstract: The director is the head, who is in charge of operating the business and is the highest accountability about the results of the business as well as the life of the employees. Therefore, the assessment and development of director’s leadership capacity are essential. In this study, the author focuses on analyzing the leadership skills of SME managers in Thanh Hoa based on the survey results of 196 enterprises in the multi-capacity assessment method. 360 degrees, thereby suggest solutions to improve and develop the leadership capacity in coming time.

Keywords: leadership capacity, director, SME

Received November 14, 2018; Revised December 24, 2018; Accepted January 17, 2019

Citation: Do Minh Thuy, Nguyen Thi Loan, Research Leadership Capacity of Small and Medium-sized Enterprise Directors: The Case Study in Thanh Hoa Province, Vietnam. Journal of Business and Management Sciences, 7 (1). 12-18. January 2019. doi:10.12691/jbms-7-1-2

1. Introduction

The director of an enterprise, who is in charge of running the business, is the highest accountable person regarding the business results of the business as well as the life of the employees [1]. According to VCCI, the capacity and qualifications of Vietnamese business managers are increasingly changing; the education level is increasing, the average age of the director is rejuvenating, the ability to do business in the international environment is increasing. However, this capacity has not met the needs of development and integration. For small and medium-sized enterprises (SMEs) in Vietnam, typically, the general director is both the highest level manager and the owner of the enterprise, so the level and capacity of management of the director have significant impact on the quality and efficiency of business operations [2]. However, according to a survey conducted by the Vietnam Chamber of Commerce and Industry, 77% of SMEs managers start with family size, individual business households; management knowledge is lacking and weak, lack of in-depth training, lack of opportunity to update new knowledge, thus creating many constraints in management [3].

In Thanh Hoa, a province with the third largest area in the country, has enough conditions to develop a dynamic economy with abundant natural resources, which are suitable for agriculture, industry and tourism development; having the second largest economic zone in the country - Nghi Son Focal Economic Zone and there are 3 industrial parks with long coastline, vast agricultural land and fertile land. However, by December 2017, there were only nearly 9,000 enterprises (98.2% of SMEs), with an average of over 300 people per enterprise in Thanh Hoa province, compared to 130 people per enterprise in the whole country [4] According to the statistics of the Department of Planning and Investment, up to 6/2017, 40 out of 100 enterprises have been dissolved, bankrupt or stopped, of which 100% of businesses bankrupt are small and medium scale. According to experts, many causes are leading to the failure of Thanh Hoa SMEs, in which the leading causes are lack of capital, lack of management capacity, lack of sensitivity and market coverage [5]. From the role and importance of SMEs, from the current situation of management capacity, management and efficiency of enterprises in Thanh Hoa, study to evaluate management capacity of managers of SMEs has meaning in term of State management and practical meanings for the enterprise. So that, the author would like to propose strategic solutions that contribute to improving the leadership and management capacity of the director, effectively activities of SMEs. In this study, the focus of research is to exploit and propose solutions to develop and improve the knowledge and leadership capacity of SME managers in Thanh Hoa.

2. Overview of Small and Medium Enterprises in Thanh Hoa

In Thanh Hoa, by the end of 2017, there are nearly 9,000 enterprises, of which 98,02% are SMEs. Most of the SMEs belong to the non-state sector, contributing 35-45% of GRDP annually, creating more than 60% of total job opportunities, the main force contributing to promoting and developing large enterprises in Thanh Hoa [6]. Of the total SMEs in Thanh Hoa, commercial enterprises account for over 30%, followed by construction and processing enterprises account for over 50%. Approximately 76% of SMEs operate in the form of limited liability companies and private enterprises [4]

Table 1. Quantity and proportion of Thanh Hoa enterprises (Unit: Enterprise)

In terms of ownership classification, the majority of SMEs in Thanh Hoa belong to non-state owned enterprises, of which micro and small enterprises account for 97.8% of total SMEs. Compared with the whole country, Thanh Hoa has a small percentage of small enterprises more than 10% (nationwide 87%). The number of employees in enterprises is also very modest; the number of enterprises with less than 10 employees is very high (over 50%) and tends to decrease. There are many reasons to explain such as the economic crisis (2009-2013) enterprises have to cut costs, labor or enterprises actively applying science and technology into production, or due to the restructuring of the organization, the number of employee’s decreases.

3. Literature Review

The results of a review of domestic and international literature on managerial and leadership capacity of business managers found that the study abroad and in the country used a variety of ways to evaluate the leadership capacity of the director. In particular, many authors use the ASK model, such as Seema Sanghi [7], Le Quan [8], [9], Do Anh Duc [2], Claire Wardell [10], Le Thi Phuong Thao [11]. Model-based approach (joint capacity and core competencies) by Chung-Herrera et al. [12], Michael Armstrong [13], Laguna et al. associates [14]. Alternatively, approach to capacity systems such as Harvard University (2005) published in the Leadership Dictionaries, Andrew et al. [15], Tran Kieu Trang [16], Nguyen Thanh Long [17], Mai Thanh Lan and Ta Huy Hung [18], Ngo Quy Nham [19,20]. Compared with the local conditions and the suitability of the models, the authors selected the ASK model to apply in this study. The ASK model consists of three main groups of factors that constitute leadership: knowledge, skills, and attitudes. In that knowledge capacity is a lot of experts and research studies, specifically as the following:

Knowledge: Knowledge of leadership is the whole of knowledge that a person acquires, accumulates through experience or learning and can apply to his or her leadership [11]. Many studies have mentioned and emphasized the importance of knowledge, which influencing and contributing to leadership development. In the study by Peter G. Northouse [21], the synthesis of knowledge was also mentioned in other studies. In studies of managerial competence focused on the work of the head and the necessary knowledge rather than the leadership qualities [22]; According to Nguyen Thi Loan [23] professional knowledge is one of the four most essential managerial capabilities of a director. Leadership knowledge includes general knowledge, professional knowledge and complementary knowledge, specifically, knowledge about the market, customers, competitors, human resources management, strategy, marketing, sales, international integration, foreign languages, and computer.

Inheriting previous studies, the author establishes a list of necessary competencies of the SME director including knowledge, skills, and attitudes. In this study, the author focuses only on analyzing and evaluating the group of managerial knowledge competencies of SME managers. After gathering the necessary capacity and asking for expert opinions, the author builds the framework of knowledge capacity needed as follows:

Table 2. The framework of knowledge capacity

4. Research Methodology and Sample Selection

Quantitative and qualitative methods were employed in this study. Qualitative research was used to develop factor frameworks, scales, and questionnaires through an in-depth interview with two groups of experts, who were successful SMEs managers and scientists from the institutes and universities. After the model and the scale were constructed, the author conducted a test on a sample of 120 questionnaires. A number of non-satisfactory factors will be excluded from the model and the research scale (Cronbach's Alpha < 0.5). Scales and standard questionnaires were then included in quantitative research. Quantitative research samples are scientifically chosen, ensuring the representativeness of the diversity of the industry and the type of business. The optimal sample size depends on the expectation of reliability, the method of data analysis, the estimation method used in the study, the parameters to be estimated. To verify the scale, the researchers did not give a specific number of samples that needed to be given the ratio between the number of samples needed and the number of parameters to be estimated. For factor analysis, the sample size will depend on the number of variables included in the factor analysis, according to Hair and Jones [24] that the number of samples is four to five times greater than the number of variables. Two hundred fifty (250) surveys were sent to the manager of SME in localities at a rate equivalent to the current rate of business via email, Google docs and hard copy (contacted and confirmed earlier). As a result, 196 questionnaires were collected and eligible for inclusion in the analysis (78.4%). From the research model, quantitative research was combined with the support of statistical analysis tools SPSS 20.0, using Cronbach's Alpha testing, factor analysis, and regression analysis to conclude on the level of impact of the factors to the success of SMEs that propose development solutions.

5. Research Results

The survey results show that in 196 respondents, 93% were small and micro enterprises with the size of less than 200 employees and less than 50 billion VND. This is also representative because in small and micro enterprises SMEs account for a considerable proportion (over 95%). In the field of business, SMEs are in all fields of agriculture, forestry and fishery; construction industry; and trade or service. Survey results show that the majority of businesses in the trade and services sector account for more than 50%, the rest are the manufacturing and construction enterprises. Enterprises with 5-10 years of operation account for a large proportion (40%), in which the number of enterprises with age of less than 3 years has a modest ratio (only 6%).

Of the 196 managers surveyed, 80.8% were men, and 19.2% were women. The proportion of female directors in the study was equivalent to the proportion of female entrepreneurs in the province (21.1%). The proportion of the director of SMEs having age from 35 to 55 was 65.6%. Regarding years of experience, over 55% of business managers have experience of less than 5 years. Concerning qualifications, university graduates account for 57%; the master degree of 12%, and intermediate level, college level 30%.

Table 3. Characteristics of enterprise managers in the survey sample

The table shows that most managers are male, their education level is high (67% of university level or above), management experience over 3 years accounts for over 50%; the average age of the director is relatively young, the number of the director under 45 years old accounts for nearly 70%. Thus, we can see that the sample reflects fairly well with the general characteristics of the overall and highly representative.

6. Group Knowledge Capacity of SME Managers in Thanh Hoa.

The results of the survey on the degree of necessity and the level of leadership ability of the director's leadership by the 360-degree multidimensional assessment method are as follows:

For general knowledge capacity: Most managers have a specific understanding of the micro and macro business environment with mean = 3.4. However, considering the specific knowledge groups, there is a difference in the performance of the director and staff. Specifically, "Knowledge of International Integration" and "Knowledge of legal politics” was evaluated at the level of basic response and did not respond with the mean from 2.53 to 2.97. Meanwhile, the group "Knowledge of legal politics" is considered to be very important for the process of running a business. The results are consistent with the capacity of managers in the Northern Central area in the study of Le Thi Phuong Thao [11].

Table 4. Overall knowledge capacity of SME managers

For the group of professional knowledge capacity: The business director meets the expert knowledge group with mean = 3.7. However, each criterion of "knowledge of finance/accounting" has the lowest response rate with the mean from 2.38 (unmet) to 2.96 (basic response) lower than the general capability of Director of SME in Vietnam (mean 3.6). Knowledge of strategic business and financial planning is assessed to have a very significant impact on the managerial leadership capacity. So in the coming time, in order to meet the requirements of managerial leadership, care should be taken to increase these capacities.

Table 5. Level of professional knowledge of SME managers

For the group of complementary knowledge: although not decisive in management, this knowledge helps enterprises take advantage of opportunities, overcome challenges to develop. However, most business managers have not focused on developing this knowledge base, so only "risk management knowledge" is met the requirements but at low levels (with mean = 3.5 - 3.9). "Knowledge of foreign languages" has not met the requirements, while according to research results of Le Quan [9], the director of SMEs in Vietnam meet this capacity at the basic level. Computer literacy and technology governance only meet the basic level, equivalent to the level of responsiveness of Vietnamese SMEs managers.

Table 6. Level of supplementary knowledge of SME managers

Research results show that there are three groups of knowledge competency. In general, the competencies met the job requirements of the manager with a mean of > 2.5, except for the foreign language ability (mean = 2.38) that did not meet the job requirement, while the foreign language was the factor that is very important for business managers. Statistical results show that there is a gap in the assessment of the importance and level of responsiveness of managers' knowledge of SMEs. Specifically, see Chart 1.

Chart 1. Level of knowledge capacity of SME managers

The results show that knowledge of finance, knowledge of strategic planning, knowledge of legal politics, knowledge of international integration, knowledge of computer science, foreign language with low level of response (basically meet or not meet). This is a common weakness of Vietnamese enterprises, so there should be training strategies in the near future.

Through the self-evaluation of the managers and evaluation of staff, knowledge of SMEs’ managers in Thanh Hoa generally have responded well to industry, culture, society, politics, and law. Some knowledge is quite good such as marketing, finance, production management - services, international integration. However, the results also indicate that in terms of the level of knowledge leadership present, the SME management team in Thanh Hoa is limited in knowledge of strategy, knowledge of change management, financial management. This result is entirely consistent with the results of previous studies. In the study of Dang Ngoc Su [25], Le Quan [9], Le Thi Phuong Thao [11], regarding strategic vision, Vietnam SMEs leaders have certain limitations. It is the leader who does not understand the nature and importance of strategic vision; not interested in the capacity of strategic vision; the requirements for strategic vision are not met. About financial and accounting, business executives are only known at the level of experience, not knowledgeable about the process, the nature of which leads to many errors and mistakes in directing financial issues. This result is the same as the finding of Le Thi Phuong Thao [11]. In terms of foreign language skills, this is a significant knowledge but not paid enough attention by business leaders to accumulate, thus making limitation in the communication with foreign partners and accessing the source [23], so it is vital for every director to be aware of the importance of this issue in order to develop in the future.

7. Solutions to Improve the Knowledge Capacity of SME Managers

Many factors affect the leadership capacity of the director, such as the directors, the business, the business environment, the supportive policy [2,11]. Therefore, many solutions are needed to improve the capacity of corporate managers to meet market and social development requirements [26]. However, in this study, the author focuses primarily on some training-related solutions and directors. Specifically:

The director needs to be aware of the reality of his / her existing capacity, from which strategies to supplement and accumulate to improve the knowledge capacity meet the development needs of themselves and businesses.

In the immediate future, it is necessary to pay attention to improving the level of financial accounting, strategy, and knowledge on technology 4.0 in order to well run the enterprise, then develop long-term roadmaps and strategies for further study to gain access to the new knowledge repository, to expand the business partnership and to improve the capabilities of a successful corporate director.

Businesses (mid-level managers, assistants) need to pay more attention to their work to create more time for the manager to accumulate more knowledge necessary for executive management.

The Director of SME should actively organize and participate in short-term training courses to improve skills, especially knowledge and leadership skills to ensure flexibility and effectiveness in their work. The cost to implement this solution is not small, but it will bring significant effect to improve the leadership capacity of the director and the management level in the enterprise.

In addition to external training, managers can be trained from within the company (internal training) through training courses by the experts in the enterprise. Training programs include retraining, extra training, and advanced training, specialized in professional competence (mainly in finance and foreign languages if having the advantage). In practice, managers often focus on outsourcing and hiring professionals from elsewhere to teach or ignoring high-quality experts within the firms themselves. Taking advantage of inside specialists has many benefits. One is that the internal trainers themselves are knowledgeable about the business and know what the shortage of leaders, colleagues. Second, the class in the enterprise will be active, compact, minimize costs. Thirdly, the in-house lecturers themselves will feel encouraged, honored and motivated in their teaching and daily work. Fourthly, faculty members will need to improve themselves in order to be placed in the classroom, which will motivate them to become more qualified. Trainers may be department heads or business managers. Thus, the Director of the same job has achieved many goals such as self-improvement management capacity, communicative presentation capacity, TOT capacity, motivational capacity, and grasp staff psychology, through the content exchange, training, discovered the core for TOT.

A good manager, besides the available resources, should be trained through the job and need to regularly update information to improve the level, knowledge, skills to meet the requirements of work in the new context. The director also needs to be aware of the role and importance of self-learning to improve personal ability. Due to the limited time and resources, training courses will not be organized on a regular basis, whether with internal trainers. Thus, self-learning knowledge, reading more specialized books, practicing their skills, and raising personal awareness can be done daily and visible improvement results are evident in the workplace. Besides, self-study and fostering will be a good example for the grassroots and lower levels of staff in raisingthe self-esteem, as well as increasing respect and trust. At the managerial level, the sense of learning is the training of the skills, patience, energy, ability to influence and inspire of the business leaders.

For state management agencies, there should be training programs for SME managers. In addition to the short training courses, there should be more exchange activities, forums for business people are constantly updated, new knowledge acquisition to meet the management requirements. In addition, the government also has long-term strategies such as support self-learning software, ebook dedicated to entrepreneurs can self-study, self-improvement knowledge at any time, anywhere.

8. Conclusion

The study about leadership competency has formulated a framework for capacity building, leadership competency assessment, multi-dimensional modeling of leadership competency based on the ASK capability model. The research results show that, in general, the director of the SME has met the necessary knowledge of a director. However, many abilities are not enough to meet the requirements. Further training, especially the knowledge of financial accounting, strategy and foreign languages is necessary. Director of the enterprise should raise awareness; persist in learning, and self-study to improve the capacity and efficiency of business operations.

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