Small and medium-sized enterprises (SMEs) that engage in innovation, particularly product innovation, tend to achieve higher value-added output, stronger revenue growth, and greater profitability than firms that do not innovate. Despite these tangible benefits, recent surveys reveal a paradox: the proportion of SMEs undertaking innovation activities has been declining.
A decline in product and technology innovation
According to the Ministry of Science and Technology’s 2025 enterprise innovation survey, innovation activity among Vietnamese businesses showed signs of weakening in 2024, particularly among SMEs.
The proportion of small enterprises engaging in innovation fell from 35.7% to 28.8%, while the rate among medium-sized enterprises declined from 41.2% to 36.2% between 2023 and 2024. Although the innovation rate among large enterprises increased significantly from 42.9% to 63.1%, large firms account for only a small share of the business population. As a result, the overall proportion of Vietnamese enterprises undertaking innovation activities declined slightly from 38.8% to 34.6% during the aforesaid period.
Another enterprise survey conducted by the World Bank in 2023 found that Vietnamese firms lag considerably behind global averages in innovation performance. Only 6.6% of small enterprises introduced new products or services to the market, nearly three times lower than the average among countries with similar income levels (19.5%) and almost four times lower than the global average (26.1%).
The widening gap between large and small enterprises
In an increasingly competitive and globally integrated business environment, technological disparities among firms tend to widen over time.
According to the theory of competition and innovation advanced by French economist Philippe Aghion, recipient of the 2025 Nobel Prize in Economics, competitive pressure can have mixed effects on firms’ innovation capacity. For large enterprises with strong technological capabilities, international economic integration creates significant opportunities to increase investment, expand exports, and upgrade technologies.
For smaller firms with outdated technologies, however, heightened competition and market liberalization may have adverse consequences. Competitive pressure in both product markets and factor markets can erode profit margins and reduce the resources available for SMEs to invest in technological upgrading and innovation.
The result is that innovation activity becomes increasingly concentrated among a relatively small group of large enterprises, while the majority of SMEs risk being left behind in the technology race.
Which sector is driving innovation?
The innovation gap between domestic enterprises and foreign-invested firms also appears to be widening.
According to the latest data from the World Intellectual Property Organization (WIPO), the number of patents granted in Vietnam increased by 254% between 2017 and 2024, particularly following the country’s accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
Patents are widely regarded as a credible indicator of a firm’s innovation capability and research strength. Therefore, the rapid growth in patent grants is generally viewed as a positive development.
However, the overwhelming majority of patents granted in Vietnam belong to foreign individuals and organizations. In 2024, 93.05% of all patents granted in the country were awarded to foreign entities, while only about 7% belonged to domestic inventors and organizations.
Weak linkages with the innovation ecosystem
The fact that foreign-invested enterprises outperform domestic firms in innovation is not necessarily bad news. What is more concerning is the limited capacity of domestic enterprises to learn from, collaborate with, and absorb technology from foreign direct investment (FDI) firms and other actors within the innovation ecosystem.
Without effective linkages and technology transfer mechanisms, SMEs will find it increasingly difficult to keep pace with technological advances and benefit from innovation.
Data from the Ministry of Science and Technology show that in 2024, only 20.6% of small enterprises and 13.1% of medium-sized enterprises collaborated with other organizations to develop innovations or improve products. These modest figures suggest that cooperation with partners across the innovation ecosystem remains a significant challenge.
Limited awareness of government support programs
In recent years, the government has introduced a range of incentives and support policies aimed at encouraging innovation among SMEs, including tax incentives, preferential credit schemes, technical consulting services, and other assistance programs.
Although the proportion of SMEs benefiting from these measures has increased, it remains relatively low. In 2024, only about 16.5% of small enterprises received support under technology innovation programs, while just 12% benefited from credit support schemes.
A lack of information remains the primary barrier to accessing these programs. A survey conducted by the Ministry of Science and Technology found that nearly 40% of respondents were either unaware of the existence of such programs or did not know which agencies were responsible for implementing them.
A shortage of high-quality human resources
According to the Global Innovation Index 2024 published by the World Intellectual Property Organization (WIPO), Vietnam ranked only 70th out of 139 economies in the category measuring human capital and research. The weakest component was post-secondary education, including universities, colleges, and vocational training institutions.
Similarly, the World Bank’s 2023 Enterprise Survey identified deficiencies in workforce skills and training quality as one of the three most significant obstacles facing businesses in Vietnam.
A lack of an innovation culture
Beyond the shortage of skilled workers capable of driving innovation, many enterprises may also lack the mindset, habits, and organizational culture necessary to sustain innovation over the long term.
According to Marc Kramer, a veteran U.S. expert in entrepreneurship and innovation, Vietnamese students are highly creative and perform exceptionally well in innovation and startup competitions. However, he argues that their strengths often remain confined to contest environments.
Once they begin implementing projects in real-world settings or applying ideas within businesses, many quickly become discouraged after experiencing a few setbacks.
For startups and SMEs, success depends not only on technical capabilities but also on cultivating a culture in which innovation becomes a habit, a mindset, and a shared value embraced throughout the organization.
Such a culture should be embedded across all levels of a company and form a core component of its corporate identity. Likewise, society and the education system should encourage students not merely to achieve success in startup competitions, but to develop resilience, experimentation, and a long-term commitment to innovation.
This article has highlighted several key trends in SME innovation performance in Vietnam from 2023 to the present. While some challenges stem from internal factors within firms themselves, many are rooted in broader structural constraints, including intensifying competitive pressures, weak connections with the innovation ecosystem, limited access to information, and shortages of high-quality human resources.
These realities underscore the need for deeper analysis and more practical policy solutions to help SMEs strengthen their innovation capabilities and achieve sustainable growth in an increasingly volatile global economic environment.
