Revitalizing the Heart of Domestic Manufacturing

Examining Vietnam’s economic machinery reveals a striking paradox. While exports have surged year after year, the bulk of the value lies in the hands of foreign direct investment (FDI) enterprises. Domestic businesses, expected to be the backbone of national strength, remain weak and struggle to grow. The question arises: Why, after two decades, have we failed to build a robust domestic enterprise force? And why isn’t domestic capital flowing into manufacturing, the heart of industrialization?

For years, we’ve attributed the weakness of domestic enterprises to familiar reasons: lack of capital, technology, and management; high logistics costs; expensive industrial land; and loose linkages with FDI firms. While these factors are true, they are mere symptoms. The deeper root lies in the misaligned incentives of our economic system, which have weakened domestic production capabilities.

The core issue is that the economy rewards asset speculation and holding rather than production. When profits from land and financial assets far exceed those from factories and technology, and when value is derived from price fluctuations rather than innovation, capital naturally abandons manufacturing. In an environment where production risks are high and speculation is safe and profitable, domestic enterprises’ failure to grow is not unusual but inevitable. Many profitable businesses reinvest not in technology or factory expansion but in land hoarding, further diverting capital from production. More alarmingly, this misalignment is disrupting the entire economic development order.

A glance at market profit structures reveals the distortion. Banks consistently rank among the most profitable, not due to technological innovation or productivity gains, but because of asset-friendly credit mechanisms. Vietnam’s wealthiest individuals are primarily landowners and real estate developers, while few have amassed wealth through industry, technology, or intellectual innovation. This reflects not market dynamism but a misaligned incentive system. In such an environment, domestic manufacturers weaken not due to incompetence but because economic incentives are stacked against them.

The consequences of this misalignment are pervasive and deeply embedded in the economic structure. As land becomes financialized, capital is drawn away from factories and technology, leaving the manufacturing sector without long-term accumulation. Rising costs for land, warehousing, and logistics exceed tolerable limits, eroding Vietnam’s manufacturing competitiveness. With production losing appeal, businesses invest less in research, development, or automation, stalling productivity and trapping the economy in a low-cost growth model. Unable to meet global supply chain standards, domestic firms are excluded from high-value segments, while FDI enterprises control critical links. The result is large exports but minimal retained value, and expanding industries but weakening domestic strength.

Most concerning is our underestimation of domestic enterprises’ true role. They are not just an economic component but the foundation of national production capacity, the engine of job creation, and the soul of Vietnamese innovation, where knowledge and technology accumulate across generations. In an era of technological competition, economic security, and growing self-reliance demands, domestic enterprises are pivotal in dual-use strategies, linking civilian and defense industries to foster technological autonomy and national resilience.

No nation achieves technological independence without domestic enterprises mastering core technologies. No dual-use strategy succeeds with a weak civilian sector lacking production capacity. And no economy achieves self-reliance when most of its value chain lies beyond domestic control.

To change this, we must overhaul the incentive system, compelling capital to return to manufacturing. When production becomes the most attractive option, land is no longer the easiest investment, banks prioritize innovation over collateral, and infrastructure, technology, and costs are optimized to support domestic businesses, national strength can emerge and thrive.

Domestic enterprises are not weak due to incompetence but because the system has not empowered them. When capital flows astray, the economy loses its intrinsic strength. Realigning the system to direct capital toward factories, technology, human resources, and R&D will set Vietnam on a path of industrialization driven by its own capabilities. This is the true foundation for sustainable growth, Vietnamese innovation, and a modern development strategy.