MINISTRY OF EDUCATION AND TRAINING
NATIONAL ECONOMICS UNIVERSITY VIETNAM
---------------------------------
Phùng Minh Thu Thủy
KNOWLEDGE SOURCES AS
DETERMINANTS OF FIRM LEVEL
INNOVATION IN VIETNAM:
AN EMPIRICAL STUDY
DISSERTATION
FOR THE DEGREE OF DOCTOR OF
PHILOSOPHY IN ECONOMICS
HANOI – 2020
MINISTRY OF EDUCATION AND TRAINING
NATIONAL ECONOMICS UNIVERSITY VIETNAM
---------------------------------
Phùng Minh Thu Thủy
KNOWLEDGE SOURCES AS
DETERMINANTS OF FIRM LEVEL
INNOVATION IN VIETNAM:
AN EMPIRICAL STUDY
Major: Economic Management
Code: 9310110_QL
DISSERTATION
FOR THE DEGREE OF DOCTOR OF
PHILOSOPHY IN ECONOMICS
Scientific instructors:
1. Prof. Dr. TRẦN THỌ ĐẠT
HANOI – 2020
i
DECLARATION
I have read and understood the violations of academic honesty, and I commit
by my personal honor that this research is my own and does not violate the
requirement of honesty in academic.
Dissertation author
Phùng Minh Thu Thủy
ii
ACKNOWLEDGEMENT
I would like to express my sincere appreciation and thanks to Professor Tran
Tho Dat, for his regular provision of invaluable pieces of advice, guidance,
correction, and encouragement to me throughout this research. I could not finish this
PhD course without his supports and encouragements.
I also like to extend my heartfelt thanks of gratitude to Professor Joris
Knoben and Professor Patrick Vermeulen from Radboud university in The
Netherlands, who guided me from my first step to set up this research and spent a
countless amount of time to support me. This dissertation could not have been
successfully accomplished without their contributions.
Finally, I would like to dedicate this success to my beloved husband and
lovely daughter, who all the time stay beside me. I would not be able to achieve this
success without their continuous supports and great deal of understanding.
iii
ABBREVIATIONS AND ACRONYMS
ADB
: Asian development bank
EU
: European Union
Eurostat
: European Statistical System
GDP
: Gross Domestic Product
KBV
: The Knowledge-based view
OECD
: Organization for Economic Co-operation and Development
R&D
: Research and Development
RBV
: The resources-based view
SMEs
: Small and Medium Enterprises
SMEs
: Small and Medium Enterprises
The ES
: The Enterprise Survey
The ICS
: The Innovation Capabilities Survey
USD
: United States Dollar
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TABLE OF CONTENTS
DECLARATION ....................................................................................................... i
ACKNOWLEDGEMENT ....................................................................................... ii
ABBREVIATIONS AND ACRONYMS ............................................................... iii
LIST OF TABLES .................................................................................................. vi
LIST OF FIGURES ............................................................................................... vii
TABLE OF CONTENTS ........................................................................................ iv
CHAPTER 1: INTRODUCTION ............................................................................1
1.1. Background ..........................................................................................................1
1.2. Problem Statement ...............................................................................................4
1.3. Study Objective ....................................................................................................7
1.4. Study process .......................................................................................................7
1.5. Scope of Study .....................................................................................................8
1.6. Contribution of Study .........................................................................................11
1.7. Limitation of Study ............................................................................................11
1.8. Organization of the Dissertation ........................................................................12
CHAPTER 2: LITERATURE REVIEW ..............................................................13
2.1. Research on Innovation in the world .................................................................13
2.1.1. Ground theory research ............................................................................13
2.1.2. Determinant of innovation research .........................................................17
2.1.3. Product innovation research .....................................................................27
2.2. Research on Innovation in Vietnam ...................................................................30
CHAPTER 3: THEORY FRAMEWORK ............................................................39
3.1. Definition of Innovation .....................................................................................39
3.2. Types of Innovation ...........................................................................................41
3.3. Determinants of Innovation................................................................................44
3.3.1. Following Resources Based view theory .................................................44
3.3.2. Following Knowledge based view theory ................................................46
3.3.3. Conclusion ................................................................................................47
3.4. Knowledge sources ............................................................................................48
3.4.1. Internal Knowledge Sources.....................................................................49
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3.4.2. Collaborative Knowledge Sources ...........................................................49
3.4.3. Regional Knowledge Sources...................................................................50
3.5. Hypotheses .........................................................................................................50
3.5.1. Internal knowledge sources ......................................................................50
3.5.2. Collaborative knowledge sources .............................................................52
3.5.3. Regional knowledge sources ....................................................................54
3.6. Research model ..................................................................................................55
CHAPTER 4: METHODOLOGY AND DATA COLLECTION ......................60
4.1. Research context ................................................................................................60
4.2. Methodology approach.......................................................................................69
4.2.1. Logistic regression ....................................................................................69
4.2.2. Innovation research used logit regression ................................................70
4.3. Data collection ...................................................................................................71
4.4. Variables ............................................................................................................75
CHAPTER 5: RESEARCH RESULTS ................................................................81
5.1. General description of the ES and ICS sample ..................................................81
5.1.1. Distribution of firms by sector and region ...............................................81
5.1.2 Descriptive statistics ..................................................................................84
5.1.3. Innovation .................................................................................................85
5.2. Descriptive statistics of the sample merged from ES and ICS ..........................92
5.3. Knowledge Sources and Product Innovation .....................................................93
CHAPTER 6: CONCLUSION AND RECOMMENDATION .........................101
6.1. Conclusion........................................................................................................101
6.2. Recommendation..............................................................................................105
6.2.1. Policy recommendation ..........................................................................105
6.2.2. Recommendation for firms .....................................................................109
6.3. Limitations of the research ...............................................................................112
LIST OF RESEARCH BY THE AUTHOR
REFERENCES
APPENDIX
vi
LIST OF TABLES
Table 2.1: List of innovation models .......................................................................15
Table 2.2: List of main innovation research categorized by theory .........................27
Table 3.1: Firms resources ........................................................................................45
Table 4.1: Key Policy Documents related to innovation in Vietnam .......................64
Table 4.2: Variable measurement .............................................................................78
Table 5.1: Distribution of firms by region ................................................................81
Table 5.2: Distribution of firms by sector and region ...............................................83
Table 5.3: Distribution of firms by size and region ..................................................84
Table 5.4: Descriptive statistics ................................................................................85
Table 5.5: Product Innovation ...................................................................................86
Table 5.6: Product Innovation orientation ................................................................87
Table 5.7: Objectives of product innovation .............................................................88
Table 5.8: Innovation activities .................................................................................89
Table 5.9: Sources of information for innovation .....................................................90
Table 5.10: Barriers to innovation ............................................................................91
Table 5.11: Descriptive statistics and correlations....................................................93
Table 5.12: Logistic Regression Result of the baseline model .................................94
Table 5.13: Logistic Regression Results of each individual knowledge source models ...95
Table 5.14: Logistic Regression Results of the all independent variables
simultaneously model ..............................................................................97
Table 5.15: Robustness tests ....................................................................................99
vii
LIST OF FIGURES
Figure 2.1 Research model in Nguyen Van Thang et al. study ................................34
Figure 3.1: Research model with all the variables ....................................................59
Figure 4.1. Distribution of the realized sample by region ........................................74
Figure 5.1: Product innovation and using knowledge sources from the supply chain......100
1
CHAPTER 1: INTRODUCTION
1.1. Background
There is no doubt about the advantages that innovation can bring to a nation.
OECD (2007) reported strong evidence for a positive relationship between innovation
and national competitiveness. Innovation plays an essential role in economic growth
and is an indispensable factor to contribute to creating more jobs. More broadly, both
past theory and practice suggest that countries will follow different development
trajectories, depending on their ability to identify and capture technological progress.
Applying new technology translates technological and scientific advances into more
productive economic activity. As such, it is not surprising that many OECD member
countries have adopted national strategies to boost innovation and enhance their
economic performance though increased productivity and growth.
The vital role of innovation is not only affirmed in OECD countries but
also developing countries OECD (2012). There is a plethora of reasons why
innovation is important for developing and emerging countries (OECD, 2012). For
example, innovation in agriculture plays an important role in reducing poverty and
promoting economic growth. Other advantages that innovation can bring to those
countries are creating more jobs, improving welfare, access to business
opportunities, reaching the world technological frontier in many industries, and
especially having the way to avoid “middle income traps”.
The Asian development bank (ADB) (2014) states that countries fall into the
middle-income trap if they are unable to move from a low-cost to a high-value
economy, making it difficult for them to compete with both low-income and highincome countries. The ADB (2014) also stresses the vital role of innovation to avoid
the middle-income trap as it raises productivity and promotes structural change. The
ADB (2014) mentions Vietnam is a lower-middle-income country, which needs to
increase the productivity of capital, land and other resources to avoid falling into the
middle-income trap as well. Eric Sidgwick, Country Director of ADB in Vietnam,
2
said it was too early to say whether Vietnam was trapped in the middle-income trap,
but the country needed policies to create higher incomes and increase labor
productivity.
Recently, some emerging economies have become significant actors in the
global innovation system. Given the importance of innovation for economic growth,
it is of utmost importance to understand the determinants of successful innovation. In
order to gain that understanding innovation needs to be studied at the level at which
it is generated, namely the firm level.
At firm level, the ability to innovate leads to the wealth generation capacity.
Innovations reduce production cost and improve quality of firms’ goods and services.
Numerous empirical studies suggest that innovation enhances firm performance
because the product of innovation increases firm competitiveness and the process of
innovation transforms a firm’s internal capabilities making it more adaptive to change
(Neely & Hii, 1998). De Jong and Brouwer (1999) confirmed the same idea in their
empirical research with small and medium enterprises (SMEs). Those SMEs work in
an environment of changing consumer preferences, increasing competition and
changing technological requirements, in order to achieve business goals such as profit
and growth, having a continuous flow of successful innovations is crucial for them.
They build their competitiveness position by offering high quality products and
services that match their customers’ demand, so they need a permanent flow of
innovations.
As mentioned above, there are plentiful studies on innovations. However,
only a limited number of studies are conducted in developing countries especially in
the case of Vietnam. Vietnam has been known as a poor country that suffered many
wars along its history. In 1975, Vietnam became independent, but the economy was
in an atrocious condition. The first five - year plan mission was to build a technical
infrastructure and form a new economy that could improve people’s lives. However,
the economy was not improved significantly and after two five – year plans it fell into
3
crisis. From 1975 to 1985, Vietnam had low economic growth with an annual increase
of 4.6% and domestic production did not meet demand (Nguyen Quang Ngoc, 2006).
In 1986, the Vietnamese Government started “Doi Moi” period to change
the situation. After more than 20 years of economic reform, changing from a
centrally planned economy into the market economy, Vietnam has undergone
significant economic growth and become a lower ‘middle-income’ country in 2010.
Vietnam has been one of the fastest growing countries in the past 20 years, but in
terms of "development quality", it has not been achieved like other countries such
as Korea, India or China. According to Nguyen Xuan Thanh from Fulbright
University in Vietnam, the country can develop more only thanks to technology
enterprises although this journey may last for decades more. Notwithstanding, the
Government of Vietnam has set a target, namely, to become a middle-income
industrialized country by 2020. To achieve this ambitious goal, there is a need for a
more effective application of science, technology and innovation in the economy in
order to drive productivity growth and diversification in production (Nguyen Anh,
Nguyen Mai, & Doan Hung, 2013) or in the other words, this is the time the country
should pay attention to innovation.
In lieu of the lack of research regarding innovation in developing countries,
In Vietnam, there is a specific dearth of firm-level innovation studies (Nguyen Ngoc
Anh, Nguyen Dinh Chuc & Nguyen Duc Nhat, 2011; Nguyen Ngoc Anh, Pham
Quang Ngoc, Nguyen Dinh Chuc & Nguyen Duc Nhat, 2008; Nguyen Thi Phuong
Linh, Nguyen Ke Nghia, Do Thi Dong, & Nguyen Thi Tuyet Mai, 2019). Moreover,
firms are the dominant economic actors that drive innovation, and particularly the
commercialization of innovations, it is necessary to have a study on innovation at the
firm level. In addition, with innovation firms can develop and create more value for
the nation such as creating jobs, improving welfare, access to business
opportunities, reaching the world technological frontier which could bring social
benefits for a country. Hence, there is a call for more innovation studies in Vietnam
than ever before.
4
Previous studies have shown that some firms are more capable of developing
innovations than others. This research attempts to understand the reason behind that
and aims to fill in the gap in research in firm level innovation generally and
contributes to literature regarding the significance of firm’s innovation determinants
by deeply investigating the relationship between innovation and one of the key
determinants – knowledge sources for innovation at firm level. By doing so, the
author expects to provide empirical evidence for policy makers in Vietnam to foster
innovation at macro level.
1.2. Problem Statement
Innovation has received much attention over the last decades as it is
considered as a source for economic development. Most studies conducted in this
area focus on developed countries even though for (firms on) developing countries
innovation also is of crucial importance in order to grow and become internationally
competitive. However, the difference in stages of development can be a barrier when
applying the outcomes of studies in developed countries and in developing countries.
Moreover, most of these studies, also those done in Vietnam, are about
understanding innovation process at the macro level and provided limited or out of
date empirical evidence for policy makers. They predominantly focus on national
innovation systems and government innovation policies. Researches on innovation in
Vietnam begins from early 2000s, though, most of the examinations is about
innovation in agriculture field (Chairatana & Sinh, 2003; Martin, Castella, Anh,
Eguienta, & Hieu, 2004; Spielman & Kelemework, 2009; Van Linh, 2001). Recently,
innovation studies are getting more attention in macro level and other fields as well
(Nguyen Ngoc Anh et al., 2011; Nguyen Ngoc Thang et al., 2013; Phan Thi Thuc
Anh, 2014. However, there is still very little evidence about what drives firm level
innovation in countries like Vietnam. Therefore, this research includes firm level
variables in order to analyze the relative importance of different resources that affect
firm level innovation and access the capabilities of a firm to utilize these resources.
5
Moreover, it is necessary to understand determinants of innovation in Vietnam to
provide empirical inputs for evidence-based policy makers. Innovation is important
as firms with innovation normally develop very fast and hence create lots of job
opportunity which we could consider as one of the social benefits for a country.
The case of Vietnam is especially salient to analyze as it has changed from a
central planning regime where the central government decided output targets and
prices, domestic and international trade with bureaucratic controls to a more marketbased economy since 1986. Thirty years after the enactment of Vietnam’s “Doi Moi”
(renovation) policy in 1986, the country has increased economic liberalization and
achieved structural reforms needed to modernize the economy and to produce more
competitive, export-driven industries. State-owned enterprises now account for
roughly 40% of GDP. Vietnam has enjoyed rapid economic growth, which has been
among the fastest in the world, with a mean of 6.4 percent a year since 2000.
Remarkably, it has been transformed from one of the poorest to a lower middleincome country (Cao Sinh Viet et al.,2016).
With a population of almost 93 million people (GSO, 2018), Vietnam is a
densely populated developing country with 34.6% of the population living in urban
areas. Even though its poverty has declined significantly, the country is working to
create jobs to meet the challenge of a labor force that is growing every year by more
than one million people. As mention above, Vietnam is now dealing to escape the
Middle-income trap which is the stage where an economy has overwhelmed the
low-income threshold (below US $ 1,025/person) to grow into a middle-income
country (US $ 1,025 - US $ 12,475/person), but stuck. At this level of income, it
is impossible to continue to rise up to become a high-income country (over 12,475
USD/person). This trapping has factors such as: no longer has the advantage of
cheap labor costs as low-income countries; There is also no advantage in terms of
infrastructure, high level human resources and modern technology - technology
like high-income countries. Vietnam has moved out of the low-income countries
group since 2008 (based on GDP per capita in that year reaching USD
6
1,145/person). However, it is believed that Vietnam is still face to the risk of
middle -income trap and the highly recommend solution is to rely on innovation
and technology firms (Ngo Thang Loi, 2019).
Although Vietnam does have firms and industries actively engaged in
innovation, the overall innovation system is weak. Vietnam ranks eleventh out of
twelve East Asian countries in terms of human resource capacity (3.79 out of 10)
reported by OECD & The World Bank (2014). Firms in transition economies exhibit
a number of striking differences with firms in developed countries, such as a lack of
complete discretion to acquire and allocate resources and little knowledge and
experience to compete in a competitive, market-based economy (Peng, 2000).
Performing this research with empirical data in Vietnam, the author can evaluate
factors that affect innovation in Vietnam and compare with advanced economies.
This is in line with the Ministry of Science and Technology (MOST) of Vietnam as
in recent year, they has identified firms as the center of innovation which could
creative innovation, in which, attributing importance to technological innovation to
increase productivity and competitiveness of enterprises and nation.
In addition, Quintane et al.(2011) has stated that innovation is knowledge
based outcome. In their research, they emphasized the vital role of knowledge as well
as the source where the knowledge come from. Furthermore, our Party has
determined since early 90’s Vietnam need to associate industrialization and
modernization with the development of the knowledge-based economy, in which the
whole country should "promote industrialization and modernization with the
development of the knowledge-based economy and environmental protection."
(Document of the 11th National Congress of the Communist Party of Vietnam). The
party emphasized that technological development and knowledge related to that are
really a fundamental driver of the process of rapid and sustainable development.
Hence, study related to knowledge sources for innovation in Vietnam is really in
critical need.
7
To sum up, there are four main reasons that the author would like to conduct this
research. They are: (1) innovation related-knowledges are public goods and firms could
benefit from diffusion these knowledge; (2) Majority of firms in Vietnam are small and
medium size, i.e. they lack of resources for conducting innovation; (3) Social benefits
could be improved if evidence-based industrial policies create better changes and
assessing resources for firms which are pursuing innovation activities; (4) Good
evidence-based policies grounds on understanding the determinants of innovation.
1.3. Study Objective
The main objectives of this dissertation are:
•
To review the literature on innovation and the determinants of innovation
especially knowledge sources for innovation at firm level.
•
To analyze the current situation of innovation of manufacturing firms in
Vietnam
•
To identify the knowledge sources that manufacturing firms in Vietnam
use for innovating and test the relationship between those knowledge sources
and innovation outcome.
•
To propose several solutions for manufacturing firms as well as policy
makers in order to foster innovation in Vietnam based on empirical evidence.
1.4. Study process
This study was conducted with 6 steps as following:
Step 1: Literature review: Review all related studies and summarize the
result of those studies.
Step 2: Theory framework structuring
+ Identify research questions
+ Identify all the variables
+ Identify possible hypotheses
8
Step 3: Designing questionnaire to interview firm managers on innovation
at firm level.
Step 4: Selecting database available to use secondary data
This study use data from The World bank survey for innovation in Vietnam
Step 5: Data analyzing using Excel and Stata
This step conducted to test the hypotheses and analyze the impact of
independent variables on dependent variable.
Step 6: Dissertation composing
Use the results from step 5 to compose this dissertation.
1.5. Scope of Study
This study focuses on innovation in manufacturing firms in Vietnam.
Manufacturing firms are considered as a basic economic unit, the cell of the
national economy. At this level, product creation activities take place - providing
these types of products - for social needs. The role of those firms in a market
economy is undeniable. Manufacturing firms is usually seen as any firms use
components, parts or raw materials to produce a finished product. It is defined by
Kenton (2018) that firms which create or assemble finished goods for sale on a
large scale. Those firms can utilize a quantity of methods, including human and
engine labor, and biological and chemical progressions, to make raw materials into
finished products by using tools.
It is said that production or production of material wealth is a major
activity of human economic activities. It is defined as the process of making a
product for use, or for trade. The concept of manufacturing firms is those that use
resources and production materials in combination with the application of science
and technology to produce commodity products to meet market demand (Nguyen
Le Thanh Tuyen, 2013).
9
The reason why the author focus on manufacturing firms is because Vietnam
has increasingly turned into a manufacturing hotspot in Asia mostly with electronics,
thanks to its comparatively large and low-cost labor force, constant political
atmosphere, geographical advantages, attractive tax regime, and open trade policies
from the government. Data in 2017 shows that manufacturing production increased
14.4% while the first two quarters of 2018 observed Vietnam’s ongoing
manufacturing successful at 12.9% (BBGV, 2018). They also mentioned that
Vietnam is having important advantages to encourage its industrial development
including steady and substantial foreign direct investment stream and a youthful
healthy and low-cost labor force. Multinational organizations attempt to find their
way out of the reliance on China - the manufacturer of the world, hence countries in
ASEAN are a good opportunity as they carry certain parallels. On the other hand,
Vietnam is a country that does offer many competitive advantages contrast with other
countries in ASEAN.
One of the leading advantages is that Vietnam offer low minimum wages.
(BBGV, 2018)
reported that the widest minimum wage gap in 2018 between
Vietnam and Thailand is roughly $50 per month. Correspondingly, manufacturing
industries in Vietnam have been perceiving a remarkable growth. Moreover,
Vietnamese policy makers understand the role of global integration, hence, they are
welcoming international businesses, and attempting to give those firms the same
opportunities as the local firms. If they have evidence from firm level, they could
issue more appropriate policies in the future. Hence, this study aimed to provide
policy makers in Vietnam data support related to this field.
When mention determinants of innovation at manufacturing firms, literature
shows studies on either or both exogenous and endogenous factors (Avermaete et
al.,2004; De Jong & Vermeulen, 2006). However, the scope of this study is to focus
on the impacts of knowledge sources for innovation, namely internal knowledge
sources, external knowledge sources, and regional knowledge sources. The reason is
10
because innovation is a knowledge-based activity. It is explained by the knowledgebased view theory as the firm is assumed as an institution for integrating knowledge
and knowledge performs vital role in production. This is also supported by the
concept “knowledge-based economy”. This found back to the early 1960s of the
last century, pioneered by Fritz Machlup and Peter Drucker. Over the past five
decades, there has been much research to identify and explain the mechanism of
this economy. In the past few years knowledge economy has been chosen as the
development strategy of many countries, both developed and developing countries
including Vietnam. In the knowledge economy, the main principles, ways and
factors that govern economic activities are human knowledge. Other names such
as knowledge-based economy or knowledge-driven economy give us a more
intuitive understanding with emphasis on fundamental role and influence of
knowledge in economics (Godin, 2006).
The author would like to use product innovation as an indicator for
innovation outcome as it is the highly familiar and commonly been used in
manufacturing sector (OECD, 2018; OECD/Eurostat, 2005). Product innovation
includes methods, techniques and processes to implement incremental improvements
to existing products and services including making evolutionary changes to products
that use existing technologies and organizational capabilities. Moreover, Cooper and
Kleinschmidt (1987) declared that product innovation is especially needed for firms
to compete with their counterparts in the same fields. Dougherty (1992) stated that
the exercise of product innovation is envisioned of as the establishment and
development of knowledge which connects market and technological opportunities.
In addition, product innovation is considered as a key determinant of firms’
sustainable development in many recent studies (Danneels, 2002; Laursen,
Masciarelli, & Prencipe, 2012).
These indicators are selected as dependent variables to indicate the
impacts during 2013-2016. This study focuses on firm-level data in Vietnam in
11
order to deliver critical evidence that complement macro data. The survey
conducted by the World Bank in 2015-2016 dealing with 996 firms in Vietnam.
Later, the author took 300 manufacturing firms to interview for the following
innovation survey. There are some missing variables when merging the data and
the study finalized with consists of 294 firms. Correspondents of the surveys
located in four Vietnamese regions, which are the Red River Delta, North Central
area and Central coastal, South East and the Mekong River Delta.
1.6. Contribution of Study
This research analyses the impact of different knowledge sources of
product innovation in Vietnam using firm-level data. Hence, it can help to answer
the question that whether all kinds of knowledge sources have significant
relationship with innovation or only specific one. Firms in Vietnam could base on
that and decide who and where they should take knowledge from if they intend to
do innovation.
Secondly, this study could also be a good evidence for policy makers to
understand the determinants of innovation especially the impact of knowledge
sources for innovation. Innovation related knowledges are public foods and firms
could benefit from the diffusion these knowledges.
Moreover, while most firms in Vietnam are small and medium size, they
could lack of resources for conducting innovation. To understand what could hinder
innovation at firm level means we could provide grounds for new industrial policies
and create social benefits for firms which pursuing innovation activities.
1.7. Limitation of Study
This study has some limitations that the author would like to highlight. First,
the data is based on information about innovation related activities of firms from 2013
to 2016. This issue cause difficulty to analyze firms’ innovativeness sustainability as
well as evaluate the prior innovation history.
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