“Low productivity in Vietnamese private firms could be due to overwhelmingly small size, which prevents specialization and economies of scale,” said Eckhardt at a conference in Hanoi on November 19.

Meanwhile, high-growth firms in emerging economies, including Vietnam, account for more than 50% of all new jobs and sales despite making up less than 20% of all firms in manufacturing and services, Eckhardt added. 

By the definition of OECD, high-growth firm would have an annual average growth rate of 20% in employment or revenue over three years. These firm create a domino effect on others through increased demand and offering improved access to output, he said.

Nguyen Dinh Cung, director of the Central Institute for Economic Management (CIEM), stressed that Vietnam has restructured its economy successfully in the past. However, the past success could not be a guarantee for the future, which must be based on a strong domestic private sector. 

“This would lay a solid foundation for Vietnam’s economy to growth,” Cung said.

Arti Grover, the World Bank’s senior economist, said that large competitive firms propel outperforming countries, while capital accumulation and total factor productivity (TFP) are major drivers of growth of these firms. Moreover, outperforming economies are more connected to foreign markets. 

In nearly all cases, the net change in employment and output would have been negative without the positive contribution of these firms, Grover continued. 

“In aggregate, non-high growth firms destroy more jobs than they create, and decline rather than grow in terms of sales. High-growth firms are nearly everything when it comes to determining an economy’s overall performance,” she said.

In addition to their critical role in job and output growth, high-growth firms create positive spillovers around them. This could be done through transferring knowledge or creating networks, at the same time raising competition and pushing down prices, added Grover.

However, high growth episodes are tough to sustain and difficult to predict, policies designed to improve firm dynamism and support job creation need to steer away from a selective focus on potential winners, but to enable the most efficient firm to sustain development, Grover continued.

According to the World Bank’s latest report, most high-growth firms in developing countries are spread across a variety of sectors and regions and the majority began as a medium or large company. Therefore, it is recommended that public polices aimed at facilitating firm dynamism and growth do not overemphasize size, sector, technology content or location as selection criteria for policy intervention. 

“It is important to improve the quality and accessibility of firm-level data, expanding the use and scope of policy evaluation, while strengthening institutional capabilities to support entrepreneurship; all of which are key priorities for the effective implementation of high-growth policies,” Grover added.

Phan Duc Hieu, CIEM’s vice director, said the institutional reform should not be limited to improving the overall business environment, but should also address the key impact component, namely high growth firms. 

“They should be the focus of development policy,” Hieu said.