The Impacts of Selling Expense Structure on Enterprise Growth in Large Enterprises: A Study from Vietnam
2. Literature Review
- Koga and Kato (2017) thought that the traditional way many businesses using to measure growth is to compare their revenues between this year and the previous year instead of comparing the respective profits annually (Delmar et al. 2003; Storey 2009; Huynh and Petrunia 2010; Davidsson et al. 2010). With this traditional way of measurement, however, it is easy to lead administrators and businesses to an “illusion” in growth: while corporate revenue increases, the profitability of the business decreases. This is because the “growth in that dream” is made by the trade-off between the decrease in selling price and the increase in the quantity of sold products, whereas the production cost remains constant or even higher. Many other scientists such as Delmar et al. (2003) agreed with Koga and Kato’s (2017) opinion that business growth is dependent on the characteristics of the industry and the objectives of the business in a phased manner. More specifically, for some service sectors, the growth of the business is measured by the number of customers that the business serves in specific years such as the tourism industry. With several newly established companies, the growth of these businesses is decided through the business pricing (firm value) in merger and acquisition transactions. Ultimately, in large-scale companies, the best way to measure business growth is to compare the performance of your business to that of competitors (Delmar et al. 2003).
- Coad and Hölzl (2010) have made a separate rule and doctrine entitled Gibrat’s Law Gibrat (1931) to measure the growth rates of a business. Gibrat’s law indicated that the best way to measure business growth is to rely on the scale of the business. Many scientists also agreed with this measurement method such as Mansfield (1962), Hart and Oulton (1996), Dunne and Hughes (1994), Lotti et al. (2010), Calvo (2006), and Mengistae (1999). Indeed, these scientists have pointed out that firm size is one of the most important factors to compare the growth of businesses to each other or to evaluate the growth factor of businesses in the present year with the previous year. Any change in the enterprise size can directly influence the business growth in the present period or in the subsequent period.
- Upgrading sales means encouraging customer commitments, which help the company with reputation and market share achievement. This is because if the customers are more interested in buying products from a company, they tend to make several “free marketing” these products to their friends and family members with a great review. In the digital age, attracting more customers is an important key to quickly increase sales and service provision, for any type of business. Approving with this opinion, Melfi (2016), Jena (2013), Haas et al. (2012), Levitt (1960), Lindgreen and Wynstra (2005), and Ramsey and Sohi (1997) indicated that “sales are tied to revenue, and setting sales goals makes it possible to forecast quarterly performance”. Sales not only guarantee the ability of any business to achieve its growth goals but also plays an important role in motivating employees and helping managers set strategies in the right direction (Ramsey and Sohi 1997). This is the reason why many large enterprises have spent over 10% of their annual revenue on marketing for dominating the market and becoming a “monopoly” in the industry (Markdao 2019).
- Affirming the position of sale staffs in generating revenue and, thereby, motivating business growth is one of the vital aspects that previous researchers tend to. Indeed, finding the right weighted formula for who (individuals, stores, e-commerce personnel) gets what is the challenge (Haas et al. 2012, Lindgreen and Wynstra 2005, Ramsey and Sohi 1997). In other words, this sentence means that finding ways to make sales and marketing strategies reasonable to a customer audience through different sales channels is the best method to achieve business goals (Drucker 1973, Woodruff 1997, Ramsey and Sohi 1997). Furthermore, sales employees act as a bridge between businesses and customers, building relationships and creating value from these relationships (Haas et al. 2012).
- The impact of marketing on business growth showed that marketing and advertising expenditures are recognised as an essential element influencing the profitability negatively in the short term, but they can add more value for the firm in the long-term (Konak 2015). In each marketing campaign or a business’s sales strategy launched, the most important purpose of business is not just upgrading the revenue figure or the amount of money that customers are willing to spend on products and services provided by that business, but it is for developing customer loyalty and competitive advantages (Konak 2015; Kumar 1985; Blattberg et al. 2009). Therefore, it is possible to assume that the cost of marketing and selling activity is directly correlated to the revenue and market size of the business, influencing significantly the business growth.
3. Hypothesis, Empirical Models, and Research Methods
3.2. Empirical Models
- Model 1: PGRit = α + β1 × LABit + β2 × MATit + β3 × DEPit + β4 × OUTit + β5 × OTHit + ε
- Model 2: RGRit = α + β1 × LABit + β2 × MATit + β3 × DEPit + β4 × OUTit + β5 × OTHit + ε
- Model 3: SGRit = α + β1 × LABit + β2 × MATit + β3 × DEPit + β4 × OUTit + β5 × OTHit + ε
- Suitable to study the dynamics of change.
- Detect and measure efficiently effects that could not be observed in time series data and cross-section data.
- Used to study more complex behavioural models
- Minimises discrepancies if authors aggregate individuals or businesses into aggregate figures.
3.3. Research Method
- Time period: Data is collected from financial statements of large enterprises throughout the last four years from 2015 to 2018 when Vietnam’s economy witnessed a recovery period of positive GDP growth and lower inflation compared to the financial difficulties during the period of 2011–2014 despite facing various challenges from the global economic environment (World Bank 2018). Vietnam’s economy has witnessed a strong domestic demand in export-oriented Industrial and Manufacture sectors, which are significantly contributed to by large enterprises. Moreover, the last four-year period helps the study to ensure the updated information to provide topical results before giving an overview of the whole process as well as tracking in detail the specific fluctuations each year.
- The observations scale: To ensure the validity and reliability of the study, we proceeded to select relevance sampling, which is also called purposive sampling (Krippendorf 2004). This paper selects the sample by the business scale rather than the industry, which is the way previous studies often do, thereby increasing the justice and objectivity in assessing the selling cost structure and the growth of businesses with the same size. The study of large enterprises in Vietnam is essential because the number of large enterprises accounts for only 2.5% of enterprises nationwide but contributes up to 60% of GDP in Vietnam (Ha 2018).
- The number of observations: Currently, there are 1533 companies listed on the three biggest stock exchanges in Vietnam including HNX, HOSE, and UpCom, from which the authors selected 255 enterprises (including Consumer Staples, Industrials and Manufacture sectors) to ensure the criteria: meeting the large enterprise standards according to the Decree No. 39/2018/ND-CP (Goverment 2018), having full financial statements for the 2015–2018 period, and especially having full explanation of the selling expense structure on notes to financial statements. Like most countries in the world, the classification of large, small, medium, and micro enterprises in Vietnam is also based on criteria such as the number of employees and either turnover or balance sheet total (European Commission 2015; Dotdash 2019). Table 2 indicates the list of criteria for the big enterprise in Vietnam according to Decree No. 39/2018/ND-CP (Goverment 2018).
4.1. Descriptive Analysis
4.2. Empirical Models
- Model 1:
- PGRi,t = 1.162 + 0.170 × LABi,t − 0.377 × MATi,t + 2.237* × DEPi,t − 0.826 × OUTi,t −0.729 × OTHi,t + εi,t.
- Model 2:
- RGRi,t = −3.930 − 0.850 × LABi,t − 3.946 × MATi,t −0.281 × DEPi,t + 2.122 × OUTi,t + 5.153 × OTHi,t + εi,t.
- Model 3:
- SGRi,t = 0.150*** + 0.000491 × LABi,t − 0.240 × MATi,t − 0.148 × DEPi,t + 0.105* × OUTi,t −0.121 × OTHi,t + εi,t.
5. Conclusions and Recommendation
5.3.1. For the State
5.3.2. For Vietnamese Enterprises
Conflicts of Interest
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|SGR||Dependent variable||Size Growth Ratio||Ln (total asset)t − Ln (total asset)t−1||Y1|
|Ln (total asset)t−1|
|RGR||Dependent variable||Revenue Growth Ratio||Net Sales t − Net Sales t−1||Y2|
|Net Sales t−1|
|PGR||Dependent variable||Profit Growth Ratio||Net Income t − Net Income t−1||Y3|
|Net Income t−1|
|LAB||Independent variable||Labour Expense||Labour Expense t − Labour Expense t−1||X1|
|Labour Expense t−1|
|MAT||Independent variable||Material and Tool Expenses||Material and Tool Expenses t − Material and Tool Expenses t−1||X2|
|Material and Tool Expenses t−1|
|DEP||Independent variable||Depreciation expense||Depreciation expense t − Depreciation expense t−1||X3|
|Depreciation expense t−1|
|OUT||Independent variable||Outsourcing Expenses||Outsourcing expenses t − Outsourcing expenses t−1||X4|
|Outsourcing expenses t−1|
|OTH||Independent variable||Other Expenses||Other expenses t − Other expenses t−1||X5|
|Other expenses t − 1|
|Industry||Agriculture, Forestry, and Fishery||Industrials and Construction||Trade and Services|
|Total revenue per year or balance sheet total||Total Revenue per year from over 200 billion VND or balance sheet total from over 100 billion VND||Total Revenue per year from over 200 billion VND or balance sheet total from over 100 billion VND||Total Revenue per year from over 300 billion VND or balance sheet total from over 100 billion VND|
|Total employees||More than 200 people||More than 200 people||More than 100 people|
|Profit Growth Ratio (PGR)||Revenue Growth Ratio (RGR)||Size Growth Ratio (SGR)||Labour Expense (LAB)||Material and Tool Expenses (MAT)||Depreciation Expense (DEP)||Outsourcing Expenses (OUT)||Other Expenses (OTH)|
|Sum Sq. Dev.||25,473||450,587||166||45||6||20||95||56|
|Profit Growth Ratio (PGR)||Revenue Growth Ratio (RGR)||Size Growth Ratio (SGR)||Labour Expense (LAB)||Material and Tool Expenses (MAT)||Depreciation Expense (DEP)||Outsourcing Expenses (OUT)||Other Expenses (OTH)|
|VARIABLES||FEM||REM||REM *||FEM||REM||REM *||FEM||REM|
|LAB (Labour Expense)||−0.729||0.0349||0.170||−4.299||−0.362||−0.850||−0.167||0.000491|
|MAT (Material and Tool Expenses)||4.772||−1.163||−0.377||−22.14||0.128||−3.946||−0.722 *||−0.240|
|DEP (Depreciation expense)||0.582||2.399 **||2.237 *||−1.333||0.130||−0.281||−0.610 ***||−0.148|
|OUT (Outsourcing Expenses)||0.425||−0.671||−0.826||3.905||1.768||2.122||0.142 *||0.105 *|
|OTH (Other Expenses)||−0.978||−0.393||−0.729||6.136||4.642||5.153||−0.0674||−0.121|
|Constant||0.757||1.016||1.162||−3.300||−3.638||−3.930||0.188 ***||0.150 ***|
|Number of No||255||255||255||255||255||255||255||255|
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Nguyen, V.C.; Nguyen, T.N.L.; Pham, T.H.; Vu, S.H. The Impacts of Selling Expense Structure on Enterprise Growth in Large Enterprises: A Study from Vietnam. J. Risk Financial Manag. 2020, 13, 4. https://doi.org/10.3390/jrfm13010004
Nguyen VC, Nguyen TNL, Pham TH, Vu SH. The Impacts of Selling Expense Structure on Enterprise Growth in Large Enterprises: A Study from Vietnam. Journal of Risk and Financial Management. 2020; 13(1):4. https://doi.org/10.3390/jrfm13010004Chicago/Turabian Style
Nguyen, Van Cong, Thi Ngoc Lan Nguyen, Thanh Hang Pham, and Song Hoa Vu. 2020. "The Impacts of Selling Expense Structure on Enterprise Growth in Large Enterprises: A Study from Vietnam" Journal of Risk and Financial Management 13, no. 1: 4. https://doi.org/10.3390/jrfm13010004