Hanoi (VNS/VNA) -Innovation was critical for the growth of factory productivity, but Vietnamesefirms spent less on research and development (R&D) than in most otherSoutheast Asian countries.

This was highlighted in a recentWorld Bank report titled: "Vietnam: Enhancing Enterprise Competitiveness and SMELinkages."

“While  a substantial  proportion  of  firms  declare spending  on  R&D,  the  average amount spent as aproportion of sales is lower than in most other  Southeast Asiancountries," the report said. "Relatively few firms in Vietnam investin licensed or patented knowledge to support their innovation efforts.”

Findings showed that the averageR&D effort in monetary terms was 1.6 percent of annual sales, much lowerthan in Laos (14.5 percent), the Philippines (3.6 percent), Malaysia (2.6 percent) and Cambodia (1.9 percent).

Compared to other countries inthe region, relatively few Vietnamese firms appeared to be spending on thepurchase or licensing of inventions and knowledge for the development of newproducts and processes, the report said. “They more rarely introduce productsthat are new to their markets and have completely new functions compared totheir existing products.”

According to the report, therewas scope to dedicate more resources to R&D and the licensing of foreigntechnologies, adding that innovation seemed driven by larger firms rather thansmall and medium-sized enterprises (SMEs).

The Government of Vietnam has putin place a supporting industries policy framework that aims to upgrade thecapacities and technology of local enterprises to facilitate supplier linkageswith FDI as well as SME policy for strengthening the domestic private sector.

Promoting linkages was consideredan effective way to enhance the transfer of technology, know-how and managementpractices, and help raise domestic firm productivity.

However, the report found thatlack of availability of skilled workers and lack of information on FDI sourcingstrategies and standards appeared to be the binding constraints for domesticsuppliers.

“Across manufacturing sectors,Vietnamese firms also suffer from lack of management skills. Without formalinformation channels to obtain information on FDI sourcing strategies,potential domestic suppliers with no business connections are disadvantaged interms of linkage opportunities.”

In addition, there was a lack ofcompetitive local suppliers and access to finance remained restrictive,according to the report.

The report said the World Bankproposed Vietnam strengthen and streamline the governance and institutionalarrangements for supporting industries policy and linkage programme implementationthrough the set up of an interministerial committee on supporting industrydevelopment and competitiveness.

The second proposed pillar was toconnect multinational enterprises and local firms through providing informationabout FDI sourcing information and requirements and implementation of effectivebusiness-to-business match-making services.

In addition, it was necessary todesign and implement a demand-driven supplier development programme to upgradecapacities and improve competitiveness of local suppliers.-VNA