“The total investment in innovative startups in Vietnam is still much lower than that in other regional countries, such as Indonesia, Malaysia and India,” said Dang Quang Vinh from the World Bank.

“This is because Vietnam’s startups are not attractive enough. They don’t strive to create groundbreaking products and services based on high technologies and new inventions. In most cases, startups just re-make existing products and services provided by other enterprises,” he explained.

Vietnam’s innovative startups mostly focus on information and communications technology (ICT) and services, not on fields which requires patents and hardware products.

Vietnam has great advantages in IT and the investment needed in researching and developing IT services is lower than investment in hardware products using new technologies, such as drones and other smart devices.

IT firms can provide services on the internet quickly with low distribution costs, while they can quickly approach users. But the distribution of hardware products requires higher logistics costs.

Inventions, which reflect knowledge, technology and intelligence development content of a country, must be seen a factor for Vietnam to become a developed country. 

However, though the number of inventions has increased in recent years, the number of patents granted to domestic institutions and individuals has decreased slightly. The majority of patents have been granted to foreign organizations.

This shows that the technological potential remains limited, which can hardly satisfy the requirements for the development of a technology- and knowledge-based economy.

“It is necessary to heighten people’s and businesses’ awareness and strengthen R&D (research and development) to obtain more inventions. It is also necessary to clarify the benefits for researchers in registering inventions, and offer more benefits to encourage them,” Vinh said.

“The procedures for registering inventions and secret protection during the registration process also need to be improved. This is a process and there are many things to be done. We need to start the process right now,” he said.

A survey of the contribution of R&D units to creating business ideas found that only 12 percent of businesses said they got ideas from R&D units and universities.

Amid limited R&D capability and the lack of connection between universities, research institutions and businesses, only 20 percent innovative startups in Vietnam said they have launched new products and services into the international market. Meanwhile, the majority of startups just target the domestic market.

Where’s the capital from?

In general, there are not many opportunities for Vietnam’s startups to approach financial sources, which poses a challenge for businesses.

The capital injected into innovative startups in Vietnam is mostly from foreign sources and venture capital. The amount of capital increased rapidly with $1.5 billion poured into 165 deals in Vietnam in 2021, but later decreased like in other countries.

There are nearly 30 investment funds established in accordance with Decree 38 on investment in innovative startups. However, the capital from the funds comes in dribs and drabs because of many problems. For example, every fund must have 30 investors, while the enterprises setting up the funds must bear tax, and other barriers.

Large investment funds mostly eye startups which have finished products and initial turnover. The number of ‘angel investors’ remains modest and unprofessional.

Meanwhile, it is nearly impossible to seek support from state agencies and state funds. The 2021 PCI (provincial competitiveness index) survey found that less than 8 percent of businesses said they could benefit from the state’s support programs.

Barriers in business environment

Vinh recalled the appearance of e-hailing apps in Vietnam in 2016-2017 – Uber and Grab. A lot of arguments were raised at that time about the new business model which threatened the existence of traditional taxis. Many startups are still facing similar questions and doubts today.

“There are many barriers in our business environment, which makes it difficult for startups to join the market to realize their business ideas,” Vinh commented.

The World Bank study on promoting innovative startups in Vietnam conducted recently showed that 38 percent of surveyed businesses said they were still facing challenges in market access.