[Research Contribution] Removing Institutional Bottlenecks, Unlocking Innovation Drivers for Vietnam’s Private Sector
25 June, 2026
Keywords: Private sector, innovation, development institutions, economic growth, public policy, innovative entrepreneurship, digital transformation
As Vietnam aims for double-digit GDP growth from 2026, unleashing the potential of the private sector has become an urgent imperative. From a research perspective, Prof. Dr. Nguyen Dong Phong and Dr. Nguyen Kim Duc (University of Economics Ho Chi Minh City – UEH) have analyzed the bottlenecks hindering investment and innovation in private enterprises, while proposing policy directions to unlock resources for growth.
Vietnam has set a goal of entering a new era of advancement with the expectation of double-digit GDP growth from 2026. In this context, the private sector is expected to continue playing a crucial role in driving growth, creating employment, and enhancing the economy’s competitiveness. However, according to Prof. Dr. Nguyen Dong Phong and Dr. Nguyen Kim Duc, unless the existing bottlenecks in the private sector are addressed in a timely manner, this growth target will face significant challenges. Based on independent research conducted from 2025 through surveys and in-depth interviews with business leaders in the private sector, the authors have analyzed the core bottlenecks hindering enterprise development and proposed policy directions to promote innovation and enhance the competitiveness of Vietnam’s private sector.
Four bottlenecks of the private sector and their systemic interconnections
According to the Vietnam Private Sector Report 2025 by the Vietnam Chamber of Commerce and Industry (VCCI), the four major bottlenecks currently facing the private sector are: output markets, access to capital, policy transparency and predictability, and informal costs. From a research perspective, the authors argue that these bottlenecks do not exist independently but are part of a chain reaction with close interconnections.
Regarding output markets, the decline in global aggregate demand, coupled with new standards on the green economy, circular economy, and digitalization, is placing significant pressure on enterprises’ ability to maintain and expand their markets. Despite their understanding of the domestic market, many Vietnamese private enterprises still face limitations in meeting requirements to participate more deeply in global supply chains.
On the issue of access to capital, this remains one of the traditional bottlenecks of the private enterprise sector. Many enterprises are experiencing long-term capital shortages but face difficulties accessing credit due to a lack of collateral or unstandardized financial reporting systems. According to the authors, capital should be understood not only as financial resources or land but also as the capacity to absorb science and technology, foster innovation, and drive digital transformation. These limitations are even more severe for small and medium-sized enterprises.
Furthermore, uncertainty in policy forecasting and overlapping regulations at the local level are increasing legal risks for enterprises. To protect themselves or expedite administrative procedures, enterprises may have to accept informal costs. This not only increases operating costs but also diminishes the motivation for long-term investment.
According to the research team, if these bottlenecks are not removed in a timely manner, Vietnam’s high-growth targets will face numerous challenges. On one hand, the private sector is still predominantly composed of small and micro-enterprises with limited governance capacity, making it difficult to accumulate capital for expansion without unlocking resources related to capital and land. On the other hand, an unstable business environment leads many enterprises to adopt defensive strategies, prioritizing short-term cash flow or speculative sectors over investment in technology, green infrastructure, or digital transformation.
Institutions as the priority bottleneck to be removed
Based on the theoretical framework for private sector development by Miyamoto and Chiofalo (2017), the authors propose approaching bottlenecks at three levels: upstream (institutions and policy), midstream (market operations), and downstream (internal enterprise capacity).
Among these, the upstream level is identified as the top priority because it reflects bottlenecks related to institutions, transparency, and policy predictability. According to the research team, institutions shape market behavior; therefore, removing barriers must begin with a shift in legislative thinking from “ex-ante” to “ex-post” control, minimizing the criminalization of purely economic relations, and implementing a substantive one-stop-shop mechanism.
Additionally, the legal system needs to be designed with greater flexibility and adaptability to the rapid development of science and technology, innovation, and digital transformation. Legal documents should shift from a prescriptive regulatory approach to a principles-based approach to mitigate the risk of obsolescence and create conditions for new business models to thrive.
According to the authors, once the upstream level is unblocked, barriers at the midstream level will also be removed. A transparent and stable policy environment will help reduce legal risks, enabling resources such as capital, land, technology, and development opportunities to be allocated more efficiently through market mechanisms. Consequently, enterprises can focus their resources on production, business operations, and market expansion.
Expanding policy space for innovation and entrepreneurship
According to the research team, innovation and entrepreneurship are among the key drivers of economic growth. However, for the private sector to boldly invest in research, technology, and new business models, breakthrough policy changes are needed.
One proposed solution is to establish a controlled regulatory sandbox with clear principles, allowing enterprises to be exempted from legal liability for regulations that have not yet been updated, provided that any resulting risks do not stem from fraudulent behavior. At the same time, procedures related to intellectual property need to be simplified to encourage research activities and technology commercialization.
Furthermore, the authors propose expanding the venture capital space through innovation and green transformation investment funds involving both the public and private sectors. Tax incentive policies should also shift from revenue- and profit-based incentives to incentives based on investment costs in research and development (R&D).
The State also needs to play a market-shaping role through public procurement mechanisms, prioritizing the use of products and technological solutions developed by domestic enterprises. Concurrently, strengthening decentralization and delegation of authority to localities will help better exploit the specific advantages of each region, facilitating enterprise access to markets and administrative procedures.
Transparency and policy predictability – The greatest bottleneck for innovation
From the research team’s perspective, among the current bottlenecks, transparency and policy predictability have the greatest impact on the private sector’s motivation for innovation.
The essence of innovation involves risk-taking, experimenting with new approaches, and requiring long periods for capital recovery. If the policy environment lacks stability, with overlapping or abrupt regulatory changes, enterprises will face difficulties in assessing legal risks and formulating long-term investment strategies. Consequently, the common choice will be short-term business activities rather than investment in research and development or technological innovation.
To address this bottleneck, the authors argue that management thinking needs to be reformed, shifting from process- and procedure-based management to performance- and efficiency-based management; enhancing policy transparency; and strengthening the advisory, guidance, and communication functions of policy so that enterprises can proactively adapt to changes in the business environment.
Substantivizing the “Three-party” linkage model in the innovation ecosystem
International experience shows that many successful economies have established effective linkage mechanisms between the State, enterprises, and research institutions. Taiwan developed strongly thanks to its linkage model between the state, research institutes, and technology enterprises, while Korea demonstrated the State’s enabling role through policies supporting SMEs and innovation.
For Vietnam, the research team argues for the need to substantivize the “three-party” linkage model (State – Enterprise – Research Institution) through mechanisms for risk-sharing, technology procurement, and support for commercializing research results. Going further, this model can be developed into a 4P cooperation model (Public – Private – People – Partnership), mobilizing participation from the public sector, private sector, academia, and the community to create comprehensive and long-term development momentum for the economy.
Authors: Prof. Dr. Nguyen Dong Phong, Dr. Nguyen Kim Duc – University of Economics Ho Chi Minh City
This article is part of a series disseminating research and applied knowledge with the message “Research Contribution For All,” implemented by UEH. UEH respectfully invites readers to watch the next bulletin.
News, Photos: Authors, UEH Department of Communications and Partnerships
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