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Innovation Policy to Promote MSME Growth: Best Practices and Implications for Vietnam and Other APEC Developing Economies

Published on March 23, 2018

This study reviews best practices around the world, explores how innovation policy can help promote MSME development, and describes the status of Vietnam’s innovation policy for MSMEs. The study provides recommendations for relevant innovation policy for Vietnam in particular and developing economies across APEC in general to improve their MSME development.

Comparing against best practices, it is found that Vietnam’s general framework for MSME innovation is somewhat comprehensive. The main challenge faced is Vietnam’s lack of implementation efficiency.
MSMEs lack the information and resources required to undertake the application processes for support and development initiatives and services. As a result, government incentives are often given to larger companies rather than smaller companies in need.
Policymakers in Vietnam should engage MSMEs more in the policymaking process, as part of a larger evidence-based policymaking initiative to address low level implementation efficiency, so that policies better reflect their problems and needs.

In the past few years, issues related to MSME innovation have been increasingly featured in policy dialogues in Vietnam. Vietnam’s has recently jumped from low to lower-middle income, and policy makers are now facing questions about avoiding the “middle-income trap” and generating economic growth without increased exploitation of natural resources and cheap labour that would result in deteriorating environmental and social standards. Focusing on using innovation for MSME growth will help achieve this goal.

While Vietnam is an economy with high growth potential, several major barriers to MSMEs’ innovation continue to persist, such as limitations in its ability to scale and capacity for technology absorption. Considering the best practices identified, this research report includes several recommendations to promote innovation and MSME development in the country. Concurrently, generalizations are made to other related developing country contexts across the APEC region.

Conducted by Lan H. Phan, Hieu M. Tu, and Thomas Borgert, this research report is one of three published for the APEC-Canada Growing Business Partnership around the theme of technology and innovation, with a focus on Vietnam and other APEC economies. 

“While Vietnam has been considered an economy with high growth potential, it has several major barriers to MSMEs’ innovation.”