Structural barriers in capital, technology, governance, and R&D keep many private firms small and limit their participation in higher-value supply chains

Struggling to move beyond small scale

According to the 2025 Vietnam Private Sector Report recently published by the Vietnam Chamber of Commerce and Industry (VCCI), Vietnam's corporate sector continued to expand in both number and operational scale despite domestic and global economic fluctuations. The number of active businesses increased steadily during the 2020-2025 period, from about 811,500 enterprises at the end of 2020 to more than 1 million by the end of 2025. However, market entry and exit data show that this numerical expansion has been accompanied by increasingly intense market screening. During 2020-2025, the number of newly established businesses rose from around 179,000 in 2020 to about 297,500 in 2025. At the same time, the number of businesses exiting the market also increased significantly, from around 101,700 in 2020 to 227,200 in 2025. As a result, although the total number of active firms continued to grow steadily, the pressure to remain in operation also increased in recent years. This suggests that growth in the number of active enterprises should be assessed alongside market entry and exit dynamics. In other words, numerical expansion does not change the fact that the sector faces increasing turnover and competitive pressure.

From a structural perspective, Vietnam's private sector remains characterized as "large in number but small in scale," with most firms having limited capital, labor, and revenue. Analysis shows that most businesses remain at their initial scale for long periods, while expansion is slow and relatively uncommon. In addition, enterprises continue to be concentrated in certain industries and locations, with limited participation in value chains and low innovation capacity. These characteristics reflect underlying barriers to the private sector's ability to accumulate capital, scale up, and improve productivity, consistent with the challenges identified in Resolution 68-NQ/TW.

Most Vietnamese private firms remain small in both workforce and capital

Looking at business structure and capital accumulation, barriers to business expansion become even more apparent. According to the report, among enterprises that started with capital of less than VND3 billion (US$120,000), 37.3% remained at the same scale, while 16.4% expanded to the VND3-10 billion (US$120,000-US$400,000) bracket, 4.3% reached VND10-20 billion (US$400,000-US$800,000), and 2.8% exceeded VND20 billion (US$800,000). Among enterprises that started with capital of VND3-10 billion (US$120,000-US$400,000), 17.6% maintained their scale, while 4.7% and 3.5% expanded to higher capital brackets, respectively. Enterprises that started with larger capital bases of VND10 billion (US$400,000) or more generally maintained or slightly increased their scale, but they accounted for only a small share of the total.

Notably, most cases of business expansion originated from the smallest enterprise group, indicating that growth potential in recent years has been concentrated in this segment. Despite this trend toward expansion, growth has occurred mostly in small increments, while a large share of businesses have remained "stuck" at their initial scale for extended periods. This suggests that the main challenge facing the corporate sector is not simply its size, but its ability to scale up and accumulate capital beyond the small-business threshold.

Falling behind in innovation and R&D

According to the report, the limitations of Vietnam's private sector are reflected not only in its scale and resources, but also in its capacity for innovation, research and development (R&D), and corporate governance quality, all of which are critical to productivity growth and long-term expansion.

Specifically, only 7.5% of enterprises in Vietnam introduced new products or services over the past three years, significantly lower than the figures for Malaysia (21.7%), Thailand (18.9%), and the regional average (28.5%). This gap persists even among medium and large enterprises, suggesting that the challenge extends beyond small business size and reflects broader structural constraints. Similarly, the share of enterprises investing in R&D remains low, at only around 5.1% in 2023, well below regional peers and the global average.

Vietnam's private sector has grown significantly and plays a central role in creating jobs and generating income across the economy

Indicators related to technological capability and integration present a similar picture. The share of enterprises with international quality certification (6.8%) and those using foreign-licensed technology (10.7%) both remain below regional and global averages, reflecting limited participation in higher-value and technology-intensive value chains.

In addition, according to the report, the quality of corporate governance practices in Vietnam remains relatively low compared with regional peers, even among medium and large enterprises. A notable characteristic of Vietnamese businesses is the high concentration of ownership and management. Specifically, as many as 92.6% of enterprises have their largest owner also serving as the top manager, significantly higher than the East Asia and Pacific average (84.0%), the global average (76.1%), and the figures for Malaysia (77.1%) and Thailand (80.2%). This suggests that businesses in Vietnam tend to follow an owner-managed model rather than employ professional management teams.

This model reflects a limited degree of managerial specialization. The average experience of senior managers in Vietnam is lower than regional and global averages, while the quality of corporate governance practices also lags behind peer countries. This indicates that the gap in governance capacity is not limited to small businesses but also extends to larger enterprises. The lack of structured governance systems further constrains efforts to improve productivity, control costs, and scale up operations.

"The shortcomings of the private sector highlighted above were identified in Resolution 68-NQ/TW and suggest that there remains significant room to address these structural constraints. International experience shows that the small scale of private enterprises is not inherently a problem, but rather a common characteristic of developing economies. However, most Vietnamese businesses remain at their initial scale, and the expansion process is slow. This indicates a need for more supportive policies and a more favorable business environment to help enterprises overcome initial barriers to productivity improvement and business expansion," the report said.