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Many household businesses lukewarm to enterprise status

Thuy Dung
Thursday,  Oct 5,2017,17:11 (GMT+7)
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Many household businesses lukewarm to enterprise status

Thuy Dung

HANOI – Many household businesses do not want to convert themselves into enterprises, which is the reason while the number of laborers in the informal sector remains large, at more than 50%, the Vietnam Center for Economic and Policy Research (VEPR) said.

At a meeting on local informal labor market held by the International Labor Organization (ILO) in Hanoi on Tuesday, Nguyen Khac Giang from VEPR said the country currently has 4.9 million family-run businesses employing 8.2 million workers including 60% of them regarded as informal employees.

If these family-run businesses agree on an upgrade into enterprises, informal workers can sign labor contracts with employers to enjoy social insurance benefits and better working conditions.

However, it is not an easy job.

According to a study by VERP, a shoe shop operating for over 20 years with two large outlets and more than 20 staff has not registered itself as an enterprise. The shop owner explained he cannot meet labor regulations as he has not signed employment contracts with employees.

Another reason is high transformation costs including taxes, labor costs and other unofficial expenditures.
In addition, employers do not want to hire official staff due to complicated procedures.

According to the Provincial Competitiveness Index (PCI) this year, 9-11% of surveyed enterprises said unofficial expenditures account for over 10% of their revenues.

Besides, difficult access to markets, capital and technologies also impedes the transformation. Most of household business owners use their own capital or borrow from their friends or relatives instead of official credit sources.

Lack of management skills, including the accounting skill, is another challenge to these household businesses. Up to 62% and 79% of household businesses in Hanoi and HCMC respectively have no effective accounting systems.

Moreover, the high rate of informal laborers results from the severe competition in the labor market. There are 6.4 million informal employees working for State-owned companies and agencies under short-term contracts, accounting for 31% of the total workforce there. These workers are not covered by compulsory social insurance.

Some enterprises in industrial parks even seek to dismiss employees when they turn over 35 years of age. As a result, the older workers become, the less opportunities they have to be employed officially.

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