New mechanisms are being called for to encourage FIEs to conduct tech transfer and personnel training, photo Le Toan

Like many others, National Assembly (NA) deputy La Thanh Tan from the northern city of Haiphong last week told the legislative body that there is now an urgent need for the country to boost innovation ecosystems featured by strong connectivity among Vietnamese and foreign enterprises as well as research and development centres, universities, institutes, and venture funds.

“To increase the country’s localisation rate, there must be strong links between Vietnamese businesses and foreign-invested enterprises (FIEs), towards the application of compulsory localisation rates in some strategic industries,” Tan said. “Vietnamese companies must be supported in capacity improvement so that they can meet standards to join FIEs’ supply chains.”

Tan also proposed that supply chain linking programmes be developed for both Vietnamese and foreign firms, especially in supporting industries and high-tech manufacturing industries.

“To this end, there must be new mechanisms to encourage FIEs to conduct technological transfer, personnel training, and assist Vietnamese companies’ capacity improvement,” Tan added.

Additionally, it is necessary to develop centres to support domestic enterprises to join global supply chains, centres to promote supporting industries, and those to connect Vietnamese companies and FIEs at industrial parks and economic zones.

If FIEs transfer technologies to Vietnamese businesses and use products and services made by Vietnamese enterprises, they must be entitled to investment incentives, Tan suggested.

NA deputy Ta Dinh Thi, representing Hanoi, pointed out that Vietnam is now facing profound challenges in the transformation process, not only technically but also related to institutions, resources, and awareness.

“Regarding the digital gap and competitiveness, the localisation rate in technology production is only about 36.6 per cent, heavily dependent on FIEs, which accounts for about 75 per cent of exports,” Thi said. “Domestic businesses, especially small- and medium-sized enterprises, have not yet established a position in the global value chain, and supporting industries have developed slowly.”

According to Thi, Vietnam’s labour productivity in the 2021-2025 period increased by only 5.24 per cent per year, lower than the target and significantly lower than other countries in the region.

“There is a shortage of high-quality human resources in key areas, while digital infrastructure is not yet synchronised and is still limited, especially in remote areas, making it difficult to popularise comprehensive digital transformation,” Thi said.

Earlier this year, the government issued Decree No.205/2025/ND-CP to promote the development of supporting industries. It clearly defines the target by 2035 that the localisation rate must reach from 50-60 per cent. There must be at least 3,000 supporting industrial enterprises with sufficient capacity to supply FIEs, and supporting industries must contribute 10 per cent of the value of industrial production of processing and manufacturing.

The decree requires FIEs wanting to receive incentives to have partnership agreements with domestic enterprises, thereby encouraging the participation of Vietnamese businesses in global supply chains. In particular, the decree has expanded the scope to develop the production, processing and manufacturing ecosystem, considering supporting industries as the pillar of an autonomous and innovative industry.

The government has also established a national supporting industry development fund to facilitate enterprises to develop supporting industries.

“Domestic enterprises welcome the establishment of fund because this is the first time there is a long-term financial mechanism with low interest rates, helping them invest in innovation in automation technology and raising international standards,” said NA deputy Nguyen Duy Minh, representing Danang.

FIEs also appreciate the conditional incentive policy because it creates opportunities for deeper cooperation with Vietnamese enterprises.

“However, enterprises also expressed concerns about the ability to access the fund due to complicated project approval procedures, and they also requested to ensure transparency, fairness, and more accessibility for smaller businesses,” Minh stressed.

“Some also said that requesting FIEs to have specific localisation rates and conduct technology transfer is correct, but there needs to be clear regulations on monitoring implementation and avoiding formalities so that the supporting industries can develop sustainably, commercial interests can be protected, and the economy’s competitiveness can be improved,” added Minh.

At present, mechanisms on supporting industry development in Vietnam are being adjusted and found in many different laws and decrees, which are not synchronous or strong enough, according to many lawmakers.

Vietnam’s current vision on private sector development requires priority policies to support access to capital, land, technology, and markets for the development of supporting industries.

“Therefore, I propose that the government pay attention to early institutionalisation of the Party’s policy, by developing the Law on Supporting Industry Development to form a unified and stable legal framework, ensuring production autonomy, sustainable integration, and development of Vietnamese enterprises in the global value chain,” Minh said.

It has been suggested at the NA that the national supporting industry development fund be effectively implemented in 2026, ensuring preferential loans to enterprises producing components, materials, and precision technology.

“Simultaneously, it is necessary to implement a one-stop mechanism to assist supporting industries, shorten procedures and processes, create conditions for businesses to access quickly and effectively, ensure that Decree 205 is truly implemented, and bring practical results to the national industry,” Minh said.

According to the lawmakers, currently, many domestic enterprises cannot participate in FIEs’ supply chains due to the lack of engineers in materials, mold technology, automation and production management according to international standards.

Therefore, it is recommended that the government prioritise capital from the national supporting industry development fund to support on-site training tuition fees, support internship scholarships at enterprises, and at the same time, boost international cooperation in technology transfer to train human resources.

Vietnam’s economic future will largely depend on its ability to transition to higher value manufacturing and services. Vietnam aims to become a high-income country by 2045. Achieving this goal will require more than tripling Vietnam’s current income, implying a sustained average GDP growth per capita of about 6 per cent every year over the next 20 years.

While a driver of past success, Vietnam’s current export-driven growth model will not be sufficient to deliver the labour productivity growth necessary to achieve this objective.

As the experience of Japan, South Korea, Singapore, and now China shows, Vietnam will need to continue to move up the value chain, shifting into higher value-added manufacturing and services using improved technology, skills, and innovation.

Conversely, if Vietnam fails to make this transition, it faces a real risk of premature deceleration, potentially impeding its economic progress and leaving it vulnerable to global competition.

Underlying Vietnam’s current export model is a dual economic structure, with export activity concentrated within foreign-invested enterprises and limited participation of domestic firms. The former, while representing only 3 per cent of the total more than 900,000 enterprises operating in Vietnam, employ a significant number of people - 17.8 million workers, or 35 per cent of the country’s formal workforce. These firms are crucial to the export sector, particularly in specific subsectors.

On the other hand, domestic firms are largely involved in traditional sectors such as construction, repairs, and hospitality, and are generally inward-looking, focusing on servicing the domestic market. As such, foreign-led firms largely operate in isolation rather than as a catalyst for economy-wide growth, with limited spillovers to the domestic private sector in the form of increased demand for inputs, access to new technology, managerial skills, demonstration effects and agglomeration benefits.Source: World Bank