Innovative Enterprises Bolster Productivity Enhancement

Since 2010, Vietnam’s labor productivity has greatly enhanced, driven by improved business conditions, high-quality human capital, and significant FDI inflows

Many barriers in many areas

According to Mr. Dang Quang Vinh, a senior private sector expert from the World Bank in Vietnam, a specialized topic in the World Bank’s report on fostering innovative startups revealed that Vietnam continues to face structural barriers across numerous domains. These include regulatory impediments, skill deficits, low rates of technology assimilation and initial phase financing challenges, all of which significantly impact Vietnam’s productivity growth and hinder the evolution of innovative startups.

The World Bank’s analysis indicates that since 2010, labor productivity in Vietnam has outpaced many other countries, primarily due to enhancements in the business environment, the caliber of human capital, and substantial Foreign Direct Investment (FDI) inflows. However, despite commendable growth, the average labor productivity still lags considerably behind other nations.

The World Bank’s survey of startup businesses seeking venture capital reveals that these enterprises are predominantly concentrated in the Information and Communication Technology (ICT) sector and a few other service fields. The majority of these businesses are introducing novel products and services to new global markets.

Nonetheless, numerous constraints inhibit the development of innovative startups. According to Mr. Vinh, at present, universities and research institutes in Vietnam have made limit  ed contributions to the inception of startup businesses, with merely about 12% of startups deriving ideas or inspiration from domestic scientific research or academia. The proportion of expenditure by universities and research institutes to total expenditure on research and development has seen a significant reduction. Less than 40% of the surveyed employer organizations believe that new graduates are adequately prepared, especially for high-skilled positions. Furthermore, despite the crucial role of patents, the number of domestic patents in Vietnam remains limit  ed.

According to research conducted by the World Bank, the private sector in Vietnam, particularly start-up businesses, continues to face significant challenges in securing financing. Despite the robust inflow of capital and venture funds, there is a noticeable deficit in the initial stages of start-up activities, particularly for businesses that are knowledge and patent-dependent. Angel investors, who play a crucial role in early-stage financing, are both scarce and lack professionalization. It’s also worth noting that domestic funds and investors are subject to numerous restrictions and lack incentives, despite the existence of Decree 38 on start-up investment.

The state’s support for start-ups remains fragmented, with both the quality and level of support being subpar. This support is dispersed across various ministries, departments, and implementation units, and the pace of implementation and coordination has not kept up with leading countries worldwide. Furthermore, financial support is severely limit  ed in both scale and scope. Research indicates that less than 8% of businesses reap the benefits; there is no state equity investment policy tool in place to assist businesses (for instance, funding funds, direct investment funds, or co-investment funds). Although Vietnam has implemented the national Project 844, which supports approximately 2,000 projects and numerous students, the impact has not been substantial enough.

Mr. Vinh noted that despite reform efforts, start-ups and investors continue to encounter obstacles within the legal framework. 38% of businesses surveyed reported that they still face numerous challenges in market access; the legal framework remains ambiguous, and there is no pilot mechanism or sandbox for many potential sectors such as finance, banking, or gaming. The legal framework for domestic investment fund registration (Decree 38) is still limit  ed and has not fostered motivation, resulting in few registered funds and a small total investment. Vietnam’s mechanisms for technology transfer and intellectual property transfer are still inconsistent and have conflicting policies, which hinders technology transfer activities. Additionally, regulations on the ownership of research and development assets are not yet clearly defined.

Innovating the ecosystem support program

To bolster innovative startups and improve Vietnam’s productivity growth, the World Bank advocated the creation of a more conducive environment in Vietnam. This could involve the innovation of the crucial Ecosystem Support Program (Program 844), aimed at fostering businesses that are primed for investment. This includes the enhancement of support mechanisms, enabling private fund managers to establish domestic investment funds, and strengthening the capabilities of ecosystem stakeholders such as incubators and accelerators.

Vietnam also needs to streamline regulations and advance reforms to address legal impediments for domestic investment funds (Decree 38 on investment in innovative startups). Simplifying procedures to facilitate investment inflow into Vietnam and vice versa is crucial, especially for investments in innovative startup enterprises.

Furthermore, it is imperative to amplify the contribution of academia and public research. Conditions should be created for universities and public research organizations to contribute to startups, through incubators, idea development support, and innovative startup training centers (via public-private partnership models). The public research sector can assume a more significant role by modernizing the intellectual property and technology transfer framework, rewarding research endeavors with commercial potential, and building the capacity of institutions, universities and research organizations for effective technology transfer to startups.