Il-Dong Kwon

Which policy measures will have the greatest impact in shifting Vietnam from a cost-driven to an innovation-driven growth model?

Five measures are likely to have the greatest impact. First, with credit-to-GDP above 140 per cent, Vietnam can benefit from greater access to equity, venture capital and corporate bonds. The FTSE upgrade from September and targeted MSCI upgrade in 2028-2031 can therefore be seen as part of the broader innovation policy.

Second, the 200 per cent research and development (R&D) super-deduction is a positive step, but Vietnam’s R&D spending remains only 0.4–0.5 per cent of GDP. Tax incentives alone are insufficient; direct government co-funding could also help support early-stage, high-risk R&D.

Third, Vietnam could shift from a “managing” to a “facilitating” state by introducing regulatory sandboxes, cutting processing times and business conditions by at least 30 per cent, moving away from the “request-and-approval” model, and ensuring faster, more predictable approvals.

Fourth, develop sector-specific talent. Talent policies could focus on strategic areas such as semiconductor integrated circuit design and AI, with training aligned closely with industry needs. Existing initiatives by Google and Intel provide a foundation but could become more targeted.

Finally, Vietnam could prioritise anchor investors committed to technology transfer and stronger domestic links, helping build industrial ecosystems and making foreign direct investment (FDI) a catalyst for innovation, technology upgrading, and domestic value creation rather than mainly low-cost production.

How do you assess Vietnam’s position in AI, semiconductors, data centres, and biotech, and how can Resolution No.10-NQ/TW on foreign investment be implemented for regional edge?

Vietnam has a strong base in semiconductor assembly, packaging and testing, but could move into chip design and, longer term, fabrication.

AI is also growing rapidly, with investment rising 13-fold since 2023 to $130 million. Data centres have strong potential, supported by a digital economy accounting for around 14 per cent of GDP, but face power and land constraints. Biotech remains at an early stage and could benefit from more investment in R&D, infrastructure, talent and industry linkages. Regionally, Vietnam’s advantages include its young population, diversified global value chain participation, disciplined workforce and rapid institutional reform. Yet competition is intensifying, with Malaysia leading in semiconductor packaging, Singapore in capital depth and biotech, and India and Indonesia offering larger talent pools.

Converting these advantages into a durable regional edge will depend on how effectively policy translates them into action.

To gain a regional edge, Resolution 10 could adopt outcome-based incentives tied to technology transfer, local suppliers, R&D and domestic capability development. These incentives could be backed by reliable power, industrial land and efficient permitting, with consistent implementation across all provinces and centrally governed cities.

Finally, the resolution could build on existing National Innovation Centre (NIC) partnerships with global technology leaders such as Nvidia, TSMC, Samsung, Qualcomm, and ASML, and align with the national semiconductor industry master plan. A priority could be to scale existing initiatives and strengthen domestic capabilities rather than create overlapping programmes.

What incentives would help the private sector see R&D as an investment, not a cost?

A simple tax deduction mainly benefits profitable companies, while many R&D-intensive startups and early-stage technology firms remain loss-making. Vietnam could therefore consider broader, targeted incentives to encourage R&D as a long-term investment.

One option is refundable R&D tax credits for loss-making, R&D-intensive firms, providing support before they generate taxable profits. Vietnam could also consider “patent-box” tax treatment, offering preferential taxation on income from commercialised intellectual property and encouraging firms to turn R&D into valuable products and technologies.

Government co-funding or matching grants could also help share the risks of early-stage R&D, following models such as South Korea’s. These mechanisms are especially important for technologies with long development cycles, high upfront costs and uncertain returns.

Stronger intellectual property protection is equally essential. R&D incentives will have limited impact unless companies can trust that their technologies, patents and other intellectual assets will be effectively protected, giving them confidence to invest in innovation.

Vietnam could also develop R&D-linked financing, including venture debt and intellectual property-backed lending, as its bank-based, collateral-driven system is poorly suited to asset-light, R&D-intensive businesses whose value lies mainly in intellectual property, technology and talent.

Finally, R&D incentives should be linked to talent development, for example by increasing tax credits based on the number of domestic researchers hired or trained.

How will FDI decisions be influenced over the next 5-10 years, and what is critical to implementation?

Resolution 10 is likely to make FDI more selective rather than simply increase or reduce inflows. High-quality investments in semiconductors, AI, data centres and eco-industrial parks could deepen their commitment to Vietnam, while low-value assembly and transshipment projects may face less favourable treatment amid tighter origin scrutiny and anti-fraud measures.

This mirrors Singapore’s shift from prioritising FDI volume to investment quality. As Vietnam follows this path, headline FDI may grow more slowly, while domestic value and technological capabilities generated per dollar increase. This could be viewed as a sign of the policy working as intended.

Implementation will depend on policy predictability, infrastructure and talent. Investors need consistent policies across all provinces and centrally governed cities, reliable power, suitable industrial land, and efficient approvals. Vietnam could also develop specialised talent alongside investment attraction, particularly for high-tech industries.

Finally, relevant resolutions could be implemented in a coordinated manner, with clear responsibilities and aligned mechanisms. The ultimate measure of success could extend beyond FDI volume to include tech transfer, stronger domestic supply chains, higher productivity and greater domestic value creation.

What aspects could be prioritised to build a globally competitive innovation ecosystem?

There are six main areas to look at. First, strengthen collaboration among government, businesses, research institutions and startups, building on the NIC’s existing initiatives and partnerships.

Second, deepen capital markets to finance scale-ups and provide credible exit opportunities. The expected $3-5 billion initial public offering pipeline for 2026-27, alongside the market upgrade process, can be viewed as part of innovation policy.

Third, concentrate resources in two or three flagship technology clusters rather than spreading them too thinly, for example, semiconductors in Bac Ninh, Bac Giang, and Thai Nguyen; AI in Hanoi and Ho Chi Minh City; and green technology and fintech through the international financial centre in Danang.

Fourth, strengthen talent absorption and retention through joint R&D labs, localisation targets and closer links between companies, universities and research institutions, following models such as Taiwan’s Industrial Technology Research Institute-Hsinchu ecosystem. Stronger intellectual property protection should also be treated as essential innovation infrastructure.

Fifth, empower strong domestic companies to lead key technology sectors while developing broad supplier and small and medium-sized enterprise ecosystems around them. The target of two million enterprises can help strengthen domestic supply chain depth and resilience.

Finally, deepen international integration, connecting Vietnam with global capital, overseas Vietnamese talent, universities and research institutions. This would complement domestic capabilities and accelerate the transfer of knowledge, tech, and talent.