Transitioning from a Dual Economy to Domestic Value Chain Integration

Vietnam’s economy is currently characterized by two coexisting sectors: the FDI sector and the domestic enterprise sector. FDI enterprises play a pivotal role, accounting for over 73% of total export turnover and serving as the primary driver of trade growth. In contrast, most domestic businesses are concentrated in non-export sectors such as real estate, traditional services, or small-scale manufacturing, with low productivity and added value.

Moreover, small and medium-sized enterprises (SMEs)—which make up the majority of the domestic economic structure—face numerous barriers to entering FDI supply chains. These barriers include stringent technical standards, high investment costs, and a lack of information about international market requirements.

To bridge the gap between the two economic sectors, Vietnam must develop a comprehensive strategy to strengthen the connections between domestic and FDI enterprises. Specific measures could include:

+ Developing Supplier Development Programs (SDPs): The government should support domestic enterprises in enhancing production capacity and meeting international standards. For instance, SDPs can help SMEs join global value chains by providing training, financial aid, and technological assistance.

+ Establishing Business Connection Platforms: Organizing forums and networking events between domestic and FDI enterprises to foster direct trade relationships. This would help domestic businesses better understand market demands and identify opportunities for collaboration.

+ Strengthening Financial Support: Providing flexible financial packages for SMEs, such as preferential loans for upgrading technology and enhancing competitiveness. This would not only enable domestic businesses to participate more deeply in value chains but also encourage FDI enterprises to source locally instead of importing raw materials or intermediate goods.

Closer integration between the two economic sectors would not only increase the domestic value-added content of exports but also reduce dependency on external factors, contributing to long-term economic stability.

In addition to fostering connectivity, improving the competitiveness of domestic businesses is crucial for deeper integration into global value chains.

+ Technological Innovation: Investing in research and development (R&D) is essential for domestic businesses to produce internationally competitive products and services. FDI enterprises can act as "technology bridges," transferring knowledge and skills to local firms through collaborative projects.

+ Human Resource Development: Training high-quality labor, especially in fields such as engineering, information technology, and supply chain management, will help domestic businesses improve productivity and competitiveness. The government should collaborate with the private sector to design training programs tailored to market needs.

+ Improving the Business Environment: A transparent, stable, and efficient business environment will encourage stronger investment in production upgrades. Simultaneously, reforming administrative procedures will facilitate domestic enterprises’ expansion and deeper participation in value chains.

To achieve sustainable development and elevate its position in the global economy, Vietnam must move beyond the dual economy model by promoting the extensive integration of domestic enterprises into global value chains. This is a challenging but necessary journey that requires the collective efforts of the government, businesses, and supporting organizations.

Increasing connectivity between economic sectors will not only enhance domestic value-added content but also contribute to building a resilient and flexible economy, capable of withstanding external shocks. With strategic initiatives and the right investments, Vietnam can transform its potential into reality, becoming a standout player in the global economic ecosystem.