Integrating Domestic Enterprises into Global Value Chains: The Key to Escaping the Middle-Income Trap

Global Value Chains (GVCs)High-income statusThis chapter emphasizes that integrating domestic enterprises into global value chains (GVCs) is essential for Vietnam’s transition to high-income status. However, the domestic private sector remains dominated by small, informal firms with limited capacity to benefit from technological spillovers, constrained access to finance, and a widening skills gap. About 98 percent of Vietnamese businesses are household-owned or small informal firms, each employing only about three workers. These enterprises primarily serve domestic markets, contribute modestly to exports and total value added, and operate with much lower productivity compared to larger firms. To address these challenges, the chapter proposes a dual-track policy framework aimed at both expanding employment and upgrading the country’s production base. In the short and medium term, policies should focus on integrating informal workers into the formal economy by strengthening linkages with existing GVCs, promoting labor-intensive light manufacturing, and attracting high-quality FDI. In the longer term, Vietnam must raise the value-added content of its production and foster innovation to remain competitive with upper-middle-income economies. This requires early investment in firm-level technology adoption, workforce education and skills upgrading, and research and development—all critical to sustaining productivity growth and achieving high-income status.