Innovation was critical for the growth of factory productivity, but Vietnamese firms spent less on R&D than in most other Southeast Asian countries.

The recent launching of a made-in-Viet Nam smartphone. Vietnamese firms should invest more in innovation and R&D, according to a World Bank report. 

This was highlighted in a recent World Bank report titled: "Viet Nam: Enhancing Enterprise Competitiveness and SME Linkages."

“While a substantial proportion of firms declare spending on R&D, the average amount spent as a proportion of sales is lower than in most other Southeast Asian countries," the report said. "Relatively few firms in Viet Nam invest in licensed or patented knowledge to support their innovation efforts.”

Findings showed that the average R&D effort in monetary terms was 1.6 per cent of annual sales, much lower than in Laos (14.5 per cent), the Philippines (3.6 per cent), Malaysia (2.6 per cent) and Cambodia (1.9 per cent).

Compared to other countries in the region, relatively few Vietnamese firms appeared to be spending on the purchase or licensing of inventions and knowledge for the development of new products and processes, the report said. “They more rarely introduce products that are new to their markets and have completely new functions compared to their existing products.”

According to the report, there was scope to dedicate more resources to R&D and the licensing of foreign technologies, adding that innovation seemed driven by larger firms rather than small and medium-sized enterprises (SMEs).

Establish linkages

The Government of Viet Nam has put in place a supporting industries policy framework that aims to upgrade the capacities and technology of local enterprises to facilitate supplier linkages with FDI as well as SME policy for strengthening the domestic private sector.

Promoting linkages was considered an effective way to enhance the transfer of technology, know-how and management practices, and help raise domestic firm productivity.

However, the report found that lack of availability of skilled workers and lack of information on FDI sourcing strategies and standards appeared to be the binding constraints for domestic suppliers.

“Across manufacturing sectors, Vietnamese firms also suffer from lack of management skills. Without formal information channels to obtain information on FDI sourcing strategies, potential domestic suppliers with no business connections are disadvantaged in terms of linkage opportunities.”

In addition, there was a lack of competitive local suppliers and access to finance remained restrictive, according to the report.

The report said the World Bank proposed Viet Nam strengthen and streamline the governance and institutional arrangements for supporting industries policy and linkage programme implementation through the set up of an interministerial committee on supporting industry development and competitiveness.

The second proposed pillar was to connect multinational enterprises and local firms through providing information about FDI sourcing information and requirements and implementation of effective business-to-business match-making services.

In addition, it was necessary to design and implement a demand-driven supplier development programme to upgrade capacities and improve competitiveness of local suppliers. 

VNS