Innovative entrepreneurship for a high-income Vietnam

To unlock productivity growth through high potential startups, Vietnam needs to reorient public support programmes, address regulatory barriers, and encourage the public research sector to contribute more to the development of innovative startups.

High growth needs sustaining by innovative entrepreneurship

Vietnam has been a global economic star over the last 30 years, during which it has experienced one of the fastest GDP growth rates in the world. This remarkable performance has been driven by three engines of growth: capital accumulation, plentiful labour supply, and high productivity growth. Moving forward, productivity growth will be key to sustaining Vietnam’s economic miracle and achieving its goal of becoming a high-income country in 2045.

Vietnam’s labour productivity grew by about two-thirds in 2010-2020, faster than many regional peers. However, labour productivity levels are well below their peers. Productivity of the business sector can grow through three main channels: improving efficiency of the existing firms by adopting new technologies and managerial practices; reallocating resources from less efficient to more efficient firms and industries; and allowing higher-productivity firms, especially innovative startups, to enter and low-productivity firms to exit the market. This is why entry and growth of innovative startups play a very important role in boosting productivity in Vietnam.

In recent years, the Vietnamese startup ecosystem has grown in both the number of startups and investment they receive, and Vietnam has had four unicorns (startups valued at least $1 billion), two in gaming (VNG and Sky Mavis) and two in e-payments (VNLIFE and MoMo).

However, Vietnamese innovative startups are facing challenges in various components of the ecosystem. The Vietnamese research sector contributes little to the pipeline of ideas and companies that feed into the country’s entrepreneurship ecosystem. Our survey shows that only 12 per cent of startups got ideas from domestic academic or scientific research. Finding skilled and technical talent, C-suite managers, and executives are major challenges.

Policy and ecosystem shortcomings

Innovative startups need support from the government and other players in the ecosystem. However, current policies to support startups and entrepreneurship are fragmented across several ministries and implementing agencies, and the overall quality, targeting, and level of support provided is low. The Provincial Competitiveness Index 2021 report reveals only 8 per cent of surveyed firms say they have benefited from any government support under the SME support law.

Vietnamese startups have received sizeable investments, but there are gaps in financing for early stage and later stage startups. Angel investors, who generally play a key role in early-stage funding, are scarce and not professionalised. The venture capital market is heavily dependent on foreign funds and investors, making it vulnerable to shocks in global capital markets. Vietnamese investors and funds face restrictions in under the current legal framework.

Despite reform efforts, startups still face barriers in the regulatory framework. Processes for obtaining business sub-licenses for some economic activities are burdensome, while there is a lack of clarity on the legality of a broad range of economic activities such as fintech and game. Vietnam’s intellectual property and technology transfer framework suffers from contradictions and inconsistencies, inhibiting technology transfer activities, making it less attractive to engage in research and development (R&D) and commercialisation activities.

Nurturing innovative entrepreneurship for economic success

Many things need improving to make Vietnamese startup ecosystem mature and capable of producing successful innovative startups with a critical mass, but we can focus on most important policy items. Firstly, public support programmes such as the Project 844 should be reoriented to make more impact by building a pipeline of investment-ready innovative startups. More direct support should be given to them so they can survive initial hardship and be ready for investors to invest.

Secondly, the government should address regulatory barriers through fast-track reforms, especially regulations on venture capital investment in startups up to a certain investment size. There should be clearer regulatory framework or regulatory sandbox for new products and services so startups can quickly bring their products and services to the market.

Thirdly, the public research sector should be encouraged to contribute more to the innovative startup agenda. This means a clearer incentive structure for public universities, research institutions and researchers to engage in R&D, commercialisation of research results and cooperate more with businesses.

Vietnam’s journey towards becoming a high-income economy hinges on development of a robust ecosystem for innovative startups. By addressing existing challenges and implementing targeted reforms, Vietnam can unlock the full potential of its entrepreneurial talent and sustain its economic success.

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