Drawing lessons from East Asia—particularly Japan, South Korea, and Singapore—Vietnam must refine its approach to long-term development planning and execution.
A Familiar Path, but Without Similar Results
East Asian success stories did not happen by chance. These countries adopted a coherent mix of industrial policies, focused investments, and structural reforms that spanned decades. Key to their success was the strategic prioritisation of critical industries through coordinated fiscal incentives, access to affordable credit, and the creation of an enabling business environment. Simultaneously, they aggressively promoted export-led industrialisation, attracted foreign direct investment (FDI) for capital and technology transfer, and invested in developing a high-skilled workforce.
Importantly, the state played a catalytic role—designating priority sectors, designing targeted support mechanisms, and fostering a conducive ecosystem for businesses to scale. Japan leveraged domestic savings and industrial planning; South Korea championed chaebols; Singapore capitalised on its strategic location and openness; and China implemented sweeping reforms to enhance its business climate.
Vietnam has, to a large extent, followed this path. Over the past three decades, it has evolved into one of the world’s most trade-integrated economies, with an impressive record of attracting FDI, particularly in labour-intensive manufacturing. It has also actively embraced a network of next-generation free trade agreements (FTAs), embedding itself in the global trading system.
Yet the outcomes have fallen short. Vietnamese firms remain marginal players in global value chains. FDI enterprises are often disconnected from domestic suppliers, resulting in limited technology spillover and a domestic manufacturing base focused on low value-added assembly. This structural gap has constrained the economy’s ability to climb the value chain and exposed it to external vulnerabilities.
Missing the Backbone: An Overly Broad Strategy
Unlike its East Asian peers, Vietnam has yet to articulate a coherent industrial strategy that identifies and supports a limited number of high-potential sectors. Its industrial policy remains broad-brushed, with no clear “backbone” industry capable of driving national competitiveness.
This absence of strategic focus has left Vietnam heavily reliant on processing exports—particularly in textiles, footwear, and basic electronics—making the economy highly susceptible to global demand shocks, trade frictions, and protectionist measures. The recent disruptions in global supply chains have further underscored the fragility of such an approach.
If there is one common denominator across successful East Asian models, it is the active and strategic involvement of the state. Vietnam must similarly adopt a more assertive role in shaping industrial priorities, channelling capital and policy support toward sectors that are not only export-oriented but also capable of delivering higher value-added.
A selective strategy that targets industries with technological depth, skilled labour demand, and innovation capacity—such as advanced manufacturing, precision engineering, green technologies, and digital services—offers the potential to raise productivity and reduce dependence on imported inputs.
High-tech goods, by their nature, face less price competition, are less sensitive to tariff barriers, and tend to command more stable export markets. This explains why South Korea, Japan, and increasingly China, continue to invest in sectors such as semiconductors, machinery, robotics, and fine chemicals.
Vietnam, in contrast, needs to break out of its low-cost labour and assembly-based growth paradigm. A logical starting point is to offer corporate income tax incentives tied to localisation ratios—rewarding firms that use domestic inputs, components, and services. This approach not only enhances domestic value added but also nurtures supporting industries, creates employment, and strengthens national manufacturing capacity.
No country has successfully developed high-value industries without first investing heavily in infrastructure and education. Vietnam must continue to expand and modernise its transport networks, power generation, digital infrastructure, and logistics systems—key enablers that reduce transaction costs and increase supply chain efficiency.
Equally crucial is human capital. An industrial policy is only as effective as the workforce that implements it. Vietnam must invest in technical and vocational education, upskilling its labour force to meet the demands of more sophisticated production.
Rethinking the Role of State-Owned Enterprises
One structural impediment to industrial modernisation is the dominant presence of state-owned enterprises (SOEs) in non-strategic sectors. Many SOEs continue to operate inefficiently, absorbing scarce resources and crowding out more dynamic private sector actors. Reforming SOEs—through equitisation, restructuring, or divestment—should be a cornerstone of Vietnam’s growth transition.
SOEs should focus on strategic sectors where market failures justify public involvement, such as energy security or critical infrastructure. In all other areas, the private sector should lead, with the government playing a supportive regulatory role.
Vietnam’s growth ambitions will also require large-scale capital mobilisation. Public-private partnerships (PPPs) offer a viable mechanism to pool state capacity with private sector efficiency. By jointly investing in infrastructure, innovation hubs, or strategic supply chains, the state and business community can co-create long-term economic assets.
However, for PPPs to succeed, Vietnam must strengthen legal frameworks, ensure transparency in procurement, and manage risks more effectively—particularly around land acquisition, project delays, and revenue guarantees.
Vietnam stands at a pivotal juncture. The export-led growth model that has delivered rapid gains over the past three decades is nearing its limits. A shift toward a more strategic, innovation-driven, and value-added growth model is both urgent and achievable.
Doing so will require clear industrial priorities, bold reforms in state enterprise management, heavy investments in infrastructure and skills, and a policy ecosystem that empowers both domestic and foreign enterprises to move up the value chain.
The lessons from East Asia are clear. But their application in Vietnam will depend not just on ambition—but on execution.
