The country's innovation capacity, in comparison with its structural peers and its regional and aspirational set of countries, leaves much room for improvement.

According to the Global Competitiveness Index 2017-2018, Vietnam ranks 55th out of 137 countries, behind Singapore (3rd), Malaysia (23rd), China (27th), and Indonesia (36th), and just above the Philippines (56th).

While the country has successfully expanded and diversified its exports, structural change towards high-technology and more knowledge-intensive production has been slow compared to its peers. In 2016, Vietnam ranked 95th in the Economic Complexity Index (ECI), while China ranked 18th.

According to the report, Vietnamese firms showed a lower innovation level than what is expected for the country’s level of development, particularly in terms of product or process innovation. While Vietnamese firms innovate more than those in Malaysia, Indonesia, Thailand and Turkey but less than those in China, the Republic of Korea, Singapore and the Philippines they trail behind all of their peers on radical product innovation. Fewer firms in Vietnam (53 percent of product innovators) report their main innovation to be new to their market, compared to Malaysia (75 percent), the Philippines (62 percent), and Thailand (86 percent).

A similar pattern could be observed among firms in the manufacturing sector, one of the country's most important economic pillars. In a recent survey conducted by the National Agency for Science and Technology Information (NASATI) only 49 percent of firms reported innovating in terms of product or process.

While larger and joint-venture firms in Vietnam are more likely to undertake product innovation than are smaller and domestic firms they are no more likely to undertake radical product (new to the market) or process innovation. On balance, firms operating in the services sector are less likely to undertake innovation compared to firms in the manufacturing sector.

As Vietnam seeks to reach high-income status by 2035, global trends in automation, export concentration and servicification present new opportunities and challenges for the country's export-led manufacturing growth model. The country cannot count on less innovative tasks for an accessible pathway to continue to grow rapidly. With the rapid development of technology and automation, Vietnam's major manufacturing and export sectors, which often are characterised as labour-intensive may soon find themselves in a disadvantageous position.

In order to address the mentioned above issues, the report has made a number of recommendations for the country's policymakers and firms including a strong focus on the adoption of new technologies in firms, especially in small-to-medium-sized firms.

Government must play an active role in the promotion of technology and innovation and in encouraging innovative ventures and finance through a simplified and streamlined process of granting firms support.

Firms must find ways to attract skilled workers, especially Vietnamese workers from abroad and to improve managerial skills for innovation through business associations network.

A number of long-term solutions to support the country's STI development included more robust public-private sector collaboration, increase the allocation of resources to instruments to facilitate technology adoption, as well as to strengthen the overall capacity of the Intellectual Property Rights protection system to enforce patent protection copyrights, and industrial property rights.