The solutions to enhance the use of management accounting in small and medium enterprises in Thai Nguyen Province

THE SOLUTIONS TO ENHANCE THE USE OF MANAGEMENT

ACCOUNTING IN SMALL AND MEDIUM ENTERPRISES

IN THAI NGUYEN PROVINCE

A DISSERTATION

Presented to

the Faculty of the Graduate Program

of the College of Business and Accountancy

Central Philippine University, Philippines

In Collaboration with

Thai Nguyen University, Vietnam

In Partial Fulfillment

Of the Requirements for the Degree

DOCTOR OF MANAGEMENT

By

TRUONG THI VIET PHUONG

MARCH 2017

i

ACKNOWLEDGEMENTS

This dissertation has been conducted in the Doctoral Program in Business

Management within the framework of academic cooperation between Central Philippine

University and University of Economics and Business Administration, Thai Nguyen

University. During the period of writing my dissertation, I have gained precious knowledge

for my job as well as my scientific research work.

First and foremost I would like to express my sincere thanks and appreciation to my

official supervisor, Assoc. Prof. Dr. Do Anh Tai and his co-supervisor, Dr. Roldan Pila

Pescos for their ideas, guidance, encouragement, support and a lot of prayers all throughout

the process.

I would like to express my gratitude to the officials who freely gave me their time for

the interviews. The interviews that were granted to me at the enterprises with the managers

have provided their perspective for the purpose of this study.

I would like to express my deep gratitude to the leaders of the Business Registration

Division of Thai Nguyen Provincial Department of Planning and Investment, Thai Nguyen

Provincial Department of Industry and Trade, Thai Nguyen Provincial Bureau of Statistics

and the leaders of the Small and Medium Enterprises (SMEs) in Thai Nguyen Province who

have made favorable conditions and helped me in collecting the secondary data and

information during my survey and investigation in their enterprises.

My thanks also go to all of my professors of the Doctor Program in Business

Administration and the managers and staffs of the International Cooperation Centre for

Training and Study Abroad of Thai Nguyen University of Economics and Business

Administration (TUEBA) for their enthusiastic help in my research and dissertation.

I also would like to thank my interview partners who conducted the survey with me.

My thanks also extend to all of my colleagues who have encouraged me to do the

dissertation.

Last but not least, I specially would like to give my innermost thanks to my family

who have always encouraged and helped me during the time of doing my dissertation.

Thai Nguyen, March 2017

Truong Thi Viet Phuong

TABLE OF CONTENTS

ACKNOWLEDGEMENTS...........................................................................................................i

LIST OF TABLES........................................................................................................................ii

LIST OF CHART AND FIGURES .............................................................................................iii

LIST OF ABBREVIATIONS AND ACRONYMS ....................................................................iv

ABSTRACT.................................................................................................................................. v

CHAPTER 1. INTRODUCTION.............................................................................................. 1

1.1. Background and Rationale of the Study ................................................................................ 1

1.2. Objectives .............................................................................................................................. 3

1.3. Theoretical Framework.......................................................................................................... 3

1.3.1. Some economic theories and their application for management accounting ......................... 3

1.3.2. Some foundation theories relating to the research contents of the dissertation........................ 8

1.4. Conceptual Framework........................................................................................................ 10

1.5. Research Hypotheses........................................................................................................... 13

1.6. The Operational Definitions ................................................................................................ 13

1.7. Scope and Limitation ........................................................................................................... 15

CHAPTER 2. REVIEW OF RELATED LITERATURE AND STUDIES ......................... 17

2.1. Overview of small and medium enterprises......................................................................... 17

2.1.1. Concept ............................................................................................................................. 17

2.1.2. Characteristics of small and medium-sized enterprises.................................................... 20

2.1.3. The role of small and medium-sized enterprises .............................................................. 20

2.1.4. Opportunities, challenges, of the SMEs in Vietnam in the process of economic

development and global integration .................................................................................. 23

2.2. Corporate governance .......................................................................................................... 27

2.2.1. Definition .......................................................................................................................... 27

2.2.2. The role of corporate governance ..................................................................................... 28

2.2.3. The content of corporate governance................................................................................ 29

2.2.4. The functions of corporate governance............................................................................. 29

2.3. Roles and functions of Management Accounting................................................................ 32

2.4. Contents of Management Accounting ................................................................................. 32

2.5. Management Accounting of Enterprise ............................................................................... 33

2.5.1. Conception ........................................................................................................................ 33

2.5.2. Essence of Management Accounting................................................................................ 34

2.5.3. Methods of Management Accounting............................................................................... 34

2.3.3.Information of management accounting and function of enterprise management............ 37

2.3.4.Organizations of management accounting in enterprises.................................................. 39

2.3.5.Organizing machine model of management accounting in enterprise .............................. 41

2.4. Review of previous studies.................................................................................................. 43

2.4.1. International studies.......................................................................................................... 43

2.4.2. Domestic studies............................................................................................................... 45

2.5. Research gap and the author‟s research orientation............................................................. 49

CHAPTER 3. METHODOLOGY........................................................................................... 51

3.1. Research process.................................................................................................................. 51

3.2. Research method.................................................................................................................. 52

3.2.1. Data collection method ..................................................................................................... 52

3.2.2. Quantitative research ........................................................................................................ 53

3.2.3. Analysis method, data processing method........................................................................ 54

3.3. Research design ................................................................................................................... 55

3.3.1. Research samples.............................................................................................................. 55

3.3.2. Investigation method......................................................................................................... 57

3.3.3. Design measurement scale................................................................................................ 57

3.3.4. Design questionnaire......................................................................................................... 59

3.4. Research model and hypothese............................................................................................ 60

3.5. Data processing method....................................................................................................... 60

CHAPTER 4. DATA PRESENTATION, ANALYSIS AND INTERPRETATION........... 64

4.1. Small and medium-sized enterprises in Thai Nguyen province and current situation of

management accounting .................................................................................................... 64

4.2. Descriptive statistics of respondents.................................................................................... 65

4.3. Research Sample Description and Reliability Analysis of Scale......................................... 68

4.3.1. Survey Variable Description, Statistics and Analysis....................................................... 68

4.3.2. Reliability Analysis of Scale............................................................................................. 72

4.4. Exploratory Factor Analysis................................................................................................ 74

4.5. Linear regression analysis and hypodissertation test........................................................... 78

4.5.1. Correlation Analysis ......................................................................................................... 78

4.5.2. Regression Analysis.......................................................................................................... 79

4.5. Test of the difference ........................................................................................................... 84

4.5.1. Independent Sample Test.................................................................................................. 84

4.5.2. One Way Anova test ......................................................................................................... 84

4.6. Research and discussion result............................................................................................. 85

CHAPTER 5. SUMMARY, CONCLUSION AND POLICY RECOMMENDATIONS ... 90

5.1. Summary............................................................................................................................ 90

5.2. Conclusion ......................................................................................................................... 104

5.3. Recommend solutions........................................................................................................ 105

5.3.1.Management support solution implication ...................................................................... 105

5.3.2.Strategic link solution implication................................................................................... 106

5.3.3.Quality standard application solution implication........................................................... 107

5.3.4.Labor and inventory solution implication ....................................................................... 108

5.3.5.Strategic vision solution implication............................................................................... 110

5.4. Limitations of the research................................................................................................. 113

REFERENCES........................................................................................................................ 114

APPENDIX.............................................................................................................................. 117

ii

LIST OF TABLES

Table 2.1: Classification criteria of small and medium-sized enterprise in some countries........ 17

Table 2.2: Classification of SMEs in Korea ................................................................................. 18

Table 2.3: Classification of SMEs in Vietnam according to Decree No. 56/2009/ND-CP ................ 19

Table 3.1: Offical measurement scale......................................................................................... 58

Table 4.1: Personal information of the enterprises owner, the chief accountant, accounting

manager or representative for enterprises in Thai Nguyen province ...................... 66

Table 4.2: Observable Variable Description and Statistics ........................................................ 69

Table 4.3: Test reliability of the scale......................................................................................... 73

Table 4.4: Results of reliability calculation of scale................................................................... 74

Table 4.5: Exploratory Factor Analysis (EFA) of independent variables .................................. 75

Table 4.6: Exploratory Factor Analysis (EFA) of dependent variables...................................... 76

Table 4.7: Results of Exploratory Factor Analysis..................................................................... 77

Table 4.8: Correlation analysis of factors affecting the use of management accounting of

SMEs in Thai Nguyen.............................................................................................. 78

Table 4.9: Determination coefficient .......................................................................................... 79

Table 4.10: ANOVA variance analysis ...................................................................................... 79

Table 4.11: Multicollinearity test................................................................................................ 80

Table 4.12: Coefficients of the regression model ....................................................................... 82

Table 4.13: Testing result of the hypodissertation pair............................................................... 83

Table 4.14: Independent Sample Test......................................................................................... 84

Table 4.15: One Way Anova test................................................................................................ 85

iii

LIST OF CHART AND FIGURES

Chart 1.1: Functions of administration ....................................................................................... 31

Diagram 2.1: The relationship between information of management accounting

information and function of enterprise management ............................................... 38

Diagram 2.2: Organizational machine of management accounting in enterprises .................... 42

Figure 1.1: Analysis framework of the dissertation..................................................................... 12

Figure 3.1: Research process ...................................................................................................... 51

Figure 3.2: Research model ........................................................................................................ 60

Figure 4.1: Scatterplot graph....................................................................................................... 81

Figure 4.2: Histogram of the standardized residuals .................................................................. 81

iv

LIST OF ABBREVIATIONS AND ACRONYMS

1. E: Enterprise

2. BA: Business Activity

3. SMEs: Small and Medium Enterprises

4. FS: Financial Statements

5. WTO: World Trade Organization

6. GRDP: Gross Regional Domestic Products

7. PC: People‟s Committee

8. MA: Management Accounting

9. TPP: Trans-Pacific Partnership Agreement

v

ABSTRACT

There have been a lot of studies and scientific researches on management accounting with

many different topics and scopes. However, all of them have focused on state-owned enterprises

and big and strong economic corporations of Vietnam only, none on the SMEs. The SMEs in

Vietnam have its own characteristics, so effective management requires proper management

accounting information. This study has assessed the actual use of management accounting of the

SMEs in Thai Nguyen Province, identified and analyzed the factors affecting the tendency to use

management accounting in the SMEs in Thai Nguyen Province in order to propose the solutions to

enhance management accounting of the SMEs in Thai Nguyen Province.

The author has collected 200 survey questionnaires (corresponding to 200 samples) from

the SMEs in Thai Nguyen Province, among which limited liability companies account for about

45%, join-stock companies about 33%, private enterprises about 13% and the others account

for the rest.

Surveying 200 SMEs in Thai Nguyen Province has shown that the use of management

accounting in the SMEs is directly affected by five factors in the assumed model, which are

Management Support (TN), Strategic Vision (TC), Strategic Link (LK), Inventory Labor (LT),

Quality Standards Application (CL) and Dependent Variable of Management Accounting Use

of the SMEs in Thai Nguyen Province (SD). From these findings, the dissertation has made

effective measures to enhance management accounting in the SMEs of Thai Nguyen Province.

This will be a scientific contribution of the author in applying theories to the SMEs in Thai

Nguyen Province.

1

CHAPTER 1. INTRODUCTION

1.1. Background and Rationale of the Study

In Vietnam, over the years, SMEs have developed throughout the country and they

are considered the „backbone‟ of the economy. Currently, along with the process of

economic reform, Vietnam has been actively promoting international economic

integration; especially, Vietnam has joined the World Trade Organization (WTO), a global

trade organization. The process of integration has a strong impact on the economy in

general and businesses as well as SMEs in particular, which has set up a more favorable

business environment, helping SMEs have more opportunities to develop.

When starting the international integration, enterprises in Vietnam in general and the

small and medium-sized enterprises (SMEs) in particular face new opportunities and

challenges. With small production scale, difficulties in access to funding and low-level

employees etc..., especially SMEs are not used to applying management accounting to

operation, so they are at a disadvantage when competing with large corporations and

foreign corporations. Under the general terms when joining the WTO and other trade

organizations such as ASEAN or the signing of free trade agreement between Vietnam and

the Eurasian Economic Union on May 29, 2015, Vietnam has to gradually dismantle tariff

barriers so that trade becomes easier. But it also means that the level of competition will

become more acute (The Working Committee on the Accession to WTO of Vietnam,

2006). However, a worrying problem herein is that Vietnam‟s economy has slow reform

from its inside due to the characteristics of transform from subsidized economy into

socialist-oriented market economy. Therefore, SMEs not only take advantage of many

opportunities but also face many difficulties created by integration process.

Once the business environment changes according to the trend of global integration,

Vietnam‟s managers must cope with a major challenge which is that they have to use new

management tools in order to respond and increase competitive advantage of their

businesses. Therefore, more than ever SMEs have to rapidly use management accounting

to help managers get the timely, appropriate and effective information to support the

decision-making process. However, because the market economy has been formed later

than other countries in the world, teaching of management accounting in Vietnam only

started in the early 1990s of the 20th century; therefore, today most of the accounting

departments in SMEs in Vietnam are still unfamiliar with the use of management

accounting. Through the author‟s preliminary survey as well as previous researches, so far

the application of management accounting to management operations in SMEs are still

2

limited; consequently, the application rate of management accounting in SMEs in general

is still low, applied technical tools of management accounting are mostly traditional

technical tools and the effectiveness contributed to management affairs is not high.

However, in fact the application of management accounting is influenced by many factors

inside and outside the enterprise, and these factors may increase the feasibility of applying

management accounting in SMEs in Vietnam or and vice versa.

Although 2015 was a difficult year for the national economy in general and economy

of Thai Nguyen Province in particular, with the efforts, creativity and determination of

both political system and business community, the province has successfully completed its

task: Its Gross Regional Domestic Products (GRDP) in 2015 was estimated to increase by

25.2% compared to them in 2014, in which the agriculture, fishery and forestry increased

by 4.8%, contributing 0.84 percentage points to the overall growth rate; industry and

construction went up by 45.5%, contributing 21.4 percentage points; the service sector

increased by 8.4%, contributing 3 percentage points to the overall growth rate. (according

to Report No. 235/BC-UBND dated 13/11/2015 of Thai Nguyen Provincial People‟s

Committee on reporting results of implementing socio-economic development tasks in

2015). To achieve these important results, Thai Nguyen has always recognized the efforts

of enterprises in production and business activities, and their efforts to overcome

difficulties and preserve their sustainable value, maintain life and stable jobs for their

employees, and have effective contributions to the local budget. At the same time, the

enterprises always take good social responsibility, pioneer in poverty reduction, actively

participate in humanitarian activities, charitable activities, social welfare activities, etc…

However, in the situation of international economic integration and multilateral

cooperation at present, the SMEs in Vietnam in general and those in Thai Nguyen Province

in particular are not only under the competitive pressure with domestic companies but also

compete more severely with multinational corporations which are much more powerful in

terms of capital, trademark and management skills. Thus, to be competitive, Vietnamese

SMEs have to find themselves a reasonable path for their own survival and development.

One of the necessary solutions is to save production costs and improve management

efficiency, etc… in which accounting information plays an important role as basic

information. Therefore, if SMEs want to have sustainable development, they must have

good and efficient accounting system. However, few SMEs can accomplish that goal

because most of them are the newly established enterprises with limited capital. Having a

good accounting system requires enterprises to invest heavily, so few companies are able

or dare to do this. Therefore, the commonly current solution is hiring professional

3

accountants to work overtime or hiring low level ones with affordable costs. Consequently,

businesses will have an inefficient accounting system, not providing timely information for

decision making. Thus, it is urgent to raise the awareness of role of accounting system in

general and management accounting in particular for SMEs to overcome difficulties, enhance

the efficiency of managers‟ decision-making for sustainable development of enterprises. From

the above-mentioned reasons, the author has chosen the dissertation: The solutions to

enhance the use of management accounting in small and medium enterprises in Thai

Nguyen Province as her doctoral dissertation so as to contribute theoretical and practical basis

to management accounting activities of SMEs.

1.2. Objectives

• Overall objective

Along with systematizing theoretical and practical basis of management accounting

in SMEs, the dissertation will analyze and assess the situation of the role of corporate

management accounting system. It will identify and analyze the factors affecting the

tendency to use management accounting in the SMEs in Thai Nguyen Province to propose

solutions to contribute to enhancement of management accounting use in the SMEs of Thai

Nguyen Province.

• Specific objectives

- Systematizing the theory for SMEs and corporate management accounting

- Assessing the situation and role of corporate management accounting system

- Identifying and analyzing the factors affecting the tendency to use management

accounting in the SMEs in Thai Nguyen Province

- Specifying the nature of limitation and inadequacy of management accounting to

provide the solutions that enhance the efficiency of use of management accounting in the

SMEs in Thai Nguyen Province

1.3. Theoretical Framework

1.3.1. Some economic theories and their application for management accounting

Management accounting is a set of techniques to support management functions with

the goal of enhancing the value of organization (Chenhall, 2007; Răc and Williamson, 2007).

Management accounting is motivated by the needs of managers but not by the stakeholder.

Through the use of techniques, management accounting is affected by different organizations,

behavioral factors, and socio-economic factors. Therefore the theories: Prevention theory,

agency theory, sociological theory and psychological theory are applied frequently in the

management accounting research. Applying different theories of management accounting

research allow researchers to understand management accounting from different perspectives,

4

to evaluate the effectiveness of various techniques of management accounting (Maleen &

Michael, 2009).

1.3.1.1. Prevention theory

Researchers of traditional organizational theory believe that it is possible to determine

the optimal structure for all organizations (Fayol, 1949; Taylor, 1911; Weber, 1946). However,

in fact, organizational structure has a significant change. The contemporary theorists believe

that there is not only the “best” organizational structure for the organizations. The performance

of an organization depends on the conformity with its organizational structure and contextual

variables such as environment, strategy, technology, scale, culture (Chenhall 2007). The

suitable theories between organizational structure and contextual variables are collectively

known as Prevention theories

According to prevention theory, management accounting is considered as part of

organizational structure. Researching management accounting through prevention theory is

process of adjusting suitability between detailed management accounting and contextual

variables in an organization. Variables such as the external environment, technology,

organizational structure and scale (Otley 1980; Waterhouse and Tiessen 1978) has been

studied by researchers of management accounting for over 25 years. In last two decades of the

20th century, the researchers of management accounting changes variables as culture (Harrison

and McKinnon 1999) and strategy (Langfield- Smith 2006). Besides, technology is variable

affecting vary greatly to management accounting research. Changes in technology used by

organizations often lead to changes in requirements of institutions on management accounting.

For example, organizations use technology of mass production in manufacturing, process of

manufacturing requires budgeting system supporting management of daily activities (Chenhall

2007). On the contrary, organizations applying complex production technology and requiring

the control and flexible control should encourage staffs to react quickly with different

situations (Woodward 1965). With the introduction of modern management initiatives such as

Just-in time (JIT) and total quality management (TQM), organizations need effective means to

measure the results of strategic initiatives of the administrators. Managing control system of

strategic alliance and operating as Balanced Scorecard to be suitable with the demands of

administrators.

In the mid of 1960s, prevention theory was developed and used by researchers of

management accounting between 1970s and 1980s. Prevention theory has significant

importance in researching management accounting because it dominates behavior accounting

since 1975. Moreover, prevention theory is widely used in research of management accounting

of Otley (1980).

5

Prevention theory researches enterprise management accounting in interactive

relationship with the operating environment of enterprises. In other words, a management

accounting system to be suitable with enterprise depends on features of enterprise and

environment. It shows that it is impossible to build a pattern model of management accounting

to apply for all Vietnam enterprises, that applying management accounting on enterprise must

depend on the particular characteristics of each sector, each production sector, at the same time

to be suitable with the organizational structure, enterprise scale, production technology level

and organizational strategy in each stage. It means that building a management accounting

system must be adapted to each enterprise, the internal and external environment

1.3.1.2. Agency theory

The second type of theory is agency theory. According to Jensen and Mec-Kling

(1976) determine the representative relationship (or fiduciary relationship) as the contractual

relationship under which the shareholders (the principals), appoint, assign others, the company

manager (the agents), to carry out their management which including the granting authority to

decide asset disposition of the company. Agency theory said that if both sides in this

relationship (shareholders and company manager) want to maximize benefits, there is basic to

believe that the company manager will not always act because of the best interests of the

owners, i.e the shareholders. Representative relationship is also expressed in the relationship

between senior managers with junior managers in a decentralization system, between

managers with the person directly using resources of organization.

Agency theory said that conflict will arise when having incomplete and

asymmetric information between the subject and the representative of the company. Both

parties have different interests and this issue is minimized by using appropriate

mechanisms to limit the interest divergence between shareholders and managers of the

company, through the establishment of the appropriate compensation scheme for

managers, and the establishment of effective monitoring mechanisms to limit the abnormal

behaviors, self-interest of the company managers.

According to Healy and Palepu (2001) optimal contract between manager with

investor, remuneration agreement and bonus of administrator, solution on benefit

harmonization between business administrator (and business owners) with benefit of

external investors. These contracts usually require business to use information provided by

the management accounting system, such as budget system, cost control information,

allocation of resources, etc. in order for investor to assess compliance with commitments in

contract and assess business administrators having resource management of company

associated with benefits of external investor.

6

Agency theory explains reason to apply the responsibility accounting system in

business and what joint-stock companies, companies listing management accounting

system need provide to assure benefit for investors and shareholders. Especially, in

condition of Vietnam, when there is no stock market completely developed, the

information of business management accounting provided accurately and fully is really

meaningful for investors.

Agency theory is also basis to build the internal reports in business, the reports assessing

responsibilities to be appropriate with the decentralized system in Vietnam enterprises.

1.3.1.3. Sociological theory

Sociological theory focuses on how to establish organization through interaction

between people, organizations and society. Covaleski and his partners (1996) said that the

existence of an organization requires the suit with social on acceptable behaviour to

achieve a high level of production efficiency.

The sociological theorists consider management accounting system in terms of

social practice than just in terms of technique to make internal decision and organizational

effectiveness. Reality of management accounting reflects the political power and society.

For example, Wildavsky and Caiden (2003) argued that the budget system can be used for

other purposes apart from control issues as using the budget to establish and maintain

current power relationships, the political nature of budget is often observed in complex

social life. Views on labor process in works of Carl Marx emphasized the class division in

society, conflicts between labor, wage and the capitalists. From standpoint of the capitalist,

it is necessary to minimize labor and maximize surplus value, unlike other factors of

production. Therefore, the investors must control labor as well as labor process. Through

some works of Hopper and Armstrong (1991), Collinson (1987), Oakes and Covaleski

(1994), the authors argue that the management accounting and cost information are tools to

exploit production effectively.

Foucault (1926-1984) used approach to research management accounting in a wider

political and social context. A kind of sociological theory is often used as agency theory. It

explains the process of institutionalization by which standards or habits become guidelines

for social behaviour (Scott 2004). As Covaleski et al. (1996) indicated that conformity with

the social norms of acceptable behaviour and a high level of efficiency production are

relatively important for the survival of an organization.

Sociological theory suggests management accounting system in business is not only

the internal issues in business but also affected in a general social context, it relates to

current regimes and policies, and addresses the relationship with workers in business.