Vietnam stands at a critical juncture in its economic development, with experts urging a fundamental transformation of its industrial structure to prioritize domestic industries over foreign-led growth. As the nation continues to integrate into the global economy, questions loom about the sustainability of its current model, which heavily relies on foreign direct investment (FDI) and export-driven manufacturing. With rising competition from neighboring countries and shifting global trade dynamics, there is a growing consensus that Vietnam must recalibrate its approach to ensure long-term resilience and self-reliance.
The Case for Structural Change
Vietnam’s economic rise over the past few decades has been nothing short of remarkable. Once a war-torn nation, it has emerged as a manufacturing hub, attracting billions in FDI from multinational corporations seeking low-cost labor and favorable trade agreements. Sectors like electronics, textiles, and footwear have flourished, with companies such as Samsung and Intel establishing significant operations in cities like Ho Chi Minh City and Hanoi. However, this FDI-driven model has its limits, as it often prioritizes foreign interests over domestic capacity building.
Prime Minister Phạm Minh Chính has called for a fundamental reorientation of Vietnam’s growth model toward greater self-reliance and economic independence. Speaking at a government meeting, he emphasized the need to harness Vietnam’s internal strengths—its people, natural resources, and cultural heritage—while using external resources like capital, technology, and global markets to drive strategic breakthroughs. “We must accelerate economic restructuring and renew growth models based on science, technology, innovation, digital transformation, green growth, circular economy, and sharing economy,” he stated. By embracing these new growth engines and mobilizing both the public and business sectors, Chính argued, Vietnam can navigate global uncertainties and secure long-term development grounded in national resilience. 
This perspective highlights a structural flaw in Vietnam’s current industrial framework. Many local firms struggle to compete with foreign giants due to limited access to capital, technology, and markets. As a result, the benefits of economic growth are unevenly distributed, with much of the profit repatriated abroad rather than reinvested into the local economy. This imbalance has sparked calls for policies that support small and medium-sized enterprises (SMEs), which form the backbone of Vietnam’s domestic business landscape.
Challenges of Over-Reliance on Exports
Vietnam’s export-oriented strategy has been a double-edged sword. On one hand, it has positioned the country as a key player in global trade, with exports accounting for a significant share of GDP. On the other hand, this reliance exposes Vietnam to fluctuations in international markets. The US-China trade war, for instance, initially benefited Vietnam as companies relocated production to avoid tariffs. However, it also underscored the fragility of an economy tethered to external demand rather than internal strength.
Moreover, the focus on low-value-added manufacturing has hindered Vietnam’s ability to climb the global value chain. While countries like South Korea and Taiwan transitioned from assembly-based economies to innovation-driven ones, Vietnam remains stuck in labor-intensive sectors. This stagnation limits wage growth and technological advancement, trapping the nation in a middle-income bracket—a phenomenon economists term the “middle-income trap.”
Addressing this challenge requires a deliberate pivot toward industries with higher value addition, such as advanced manufacturing, renewable energy, and technology. However, achieving this transition is no small feat. It demands substantial investment in education, research and development, and infrastructure—areas where Vietnam currently lags behind regional peers like Singapore and Malaysia.
Policy Recommendations for a Domestic Focus
To steer Vietnam toward a more sustainable industrial future, experts advocate for a multi-pronged approach. First, the government should implement incentives for domestic companies, such as tax breaks, subsidies, and access to low-interest loans. These measures could level the playing field for local SMEs, enabling them to scale up and compete with foreign firms. Additionally, policies that encourage technology transfer from FDI projects to local businesses could help bridge the innovation gap.
Second, Vietnam must prioritize workforce development. With a young and growing population, the country has a demographic advantage that, if harnessed correctly, could drive industrial transformation. Investing in vocational training and STEM (science, technology, engineering, and mathematics) education is crucial to equip workers with the skills needed for higher-value industries. Partnerships between universities, government, and private sectors could facilitate this process, ensuring that training programs align with market demands.
Third, regional integration offers both opportunities and challenges. As a member of the Association of Southeast Asian Nations (ASEAN) and signatory to trade agreements like the Regional Comprehensive Economic Partnership (RCEP), Vietnam can leverage its position to access broader markets. However, it must also protect its domestic industries from being overshadowed by more competitive neighbors. Striking this balance will require careful policy calibration to avoid the pitfalls of over-competition within the region.
The Role of Government and Private Sector Collaboration
The Vietnamese government, under the leadership of the Communist Party of Vietnam (CPV), has a pivotal role in orchestrating this industrial shift. State-owned enterprises (SOEs), which still dominate key sectors, must be reformed to operate more efficiently and support broader economic goals. Privatization and restructuring of underperforming SOEs could free up resources for investment in strategic areas like green technology and digital infrastructure.
At the same time, fostering collaboration between the public and private sectors is essential. Public-private partnerships (PPPs) could accelerate infrastructure development, particularly in industrial zones and logistics networks, which are critical for supporting domestic manufacturing. For instance, improving transport links between Hanoi, Ho Chi Minh City, and emerging industrial hubs like Da Nang could reduce costs and enhance competitiveness for local firms.
Private sector innovation should also be encouraged through policies that reward entrepreneurship. Vietnam’s burgeoning startup ecosystem, particularly in technology and e-commerce, demonstrates the potential for homegrown solutions to drive economic progress. Companies like VinFast, a Vietnamese electric vehicle manufacturer, exemplify how domestic firms can compete on the global stage with the right support. Expanding access to venture capital and mentorship programs could nurture more such success stories.
Global Context and Regional Competition
Vietnam’s industrial ambitions must be viewed within the broader context of Southeast Asia’s economic landscape. Neighbors like Thailand and Indonesia are also vying to attract FDI and develop their manufacturing bases, creating a competitive environment. Thailand, for instance, has launched its “Thailand 4.0” initiative to transition toward high-tech industries, while Indonesia is focusing on resource-based manufacturing to capitalize on its vast natural wealth.
For Vietnam, differentiation will be key. By focusing on niche sectors where it holds a comparative advantage—such as sustainable agriculture, renewable energy, and affordable technology—Vietnam can carve out a unique position in the regional economy. Additionally, embracing green industrial policies could align with global trends toward sustainability, attracting environmentally conscious investors and partners.
Looking Ahead: A Path to Resilience
As Vietnam contemplates its industrial future, the stakes could not be higher. A successful shift toward domestic industries could cement its status as a regional economic powerhouse, reducing dependency on foreign capital and fostering inclusive growth. However, failure to adapt risks perpetuating a cycle of low-value production and economic vulnerability.
The road ahead will require bold leadership, strategic planning, and a willingness to embrace change. While immediate challenges—such as funding constraints and bureaucratic inertia—loom large, the long-term benefits of a robust domestic industrial base are undeniable. As policymakers, businesses, and citizens grapple with these complex issues, one question remains: Can Vietnam transform its economic model before global pressures force its hand?
