(Luận văn thạc sĩ) enhancement of innovation capacity important solutions to sustainable development of vietnamese businesses

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Enhancement of Innovation Capacity:
Important Solutions to Sustainable Development
of Vietnamese Businesses
DOAN THI HONG VAN
University of Economics HCMC -

BUI NHAT LE UYEN
HCMC University of Technology -

Abstract
Vietnam is one of the most vulnerable countries on the earth due to the climate change. Moreover, in the
previous time, Vietnam developed in width inclination which leads to an overheated economy, mainly based on
using of natural resources. This damages the environment and increases the impact of climate change. To be
able to continue its development, Vietnam must have strategic and appropriate solutions to switch to a model
that develops in depth inclination for sustainable development. Sustainable development must be perceived
insightfully and implemented in the whole society, including businesses and institutions. However, concerning
changing from the traditional development model to sustainable development model, Vietnamese businesses
must improve their innovation capacity continuously, which requires mastering the innovation capacity and
highlighting factors that affect the innovation capacity of Vietnamese enterprises. This article below will clarify
this issue, using the survey results of 380 Vietnamese enterprises in addition to such quantitative techniques
as Cronbach's Alpha reliability, EFA, CFA and SEM. Our findings indicate that Total Quality Management
(TQM), Internal human resources (IHC), Absorptive capacity (AC), Collaboration networks (CN) and
Government support (GS) positively impact on the Vietnamese businesses innovation capacity (IC).
Additionally, by carrying out the qualitative research and typically case study, this research explores another
factor that greatly affects Vietnamese enterprises’ innovation capacity in the current period, which is
technology acquisition and exploitation—TAE. On account of such we propose some solutions and
recommendations to help Vietnamese enterprises enhance the innovation capacity to survive and develop.

Keywords: innovation capacity; total quality management; human resources; absorbtive capacity;

collaboratione networks; Vietnamese businesses; sustainable development


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1. Introduction
At present, the sustainable development is a common trend of the entire humanity. Sustainable
development is the development to satisfy the current needs of the people but no damage to the
satisfaction of future generations need. Accordingly, sustainable economic growth is not only
increasing GDP or per capita income merely, but also must focus on three factors: economy, society
and environment. To maintain high growth rate in the long term, we should increase income that
associated with increasing the quality of life, social welfare and poverty alleviation. During 30 years
of innovation, Vietnam has more attention to sustainable development and achieved some successes
in this area. Typically, Mr. Sandeep Mahajan, the World Bank's Economic expert, remarked: from
1990 to present, Vietnam has a high growth rate in the world (behind China), successful poverty
reduction (in 1990 Vietnam has over 50% of population get under the poverty index, now only 3%),
or almost 100% population have the electricity power, if compared with Indonesia, currently only 66
% of population have access to electricity. However, beside these achievements, Vietnam's
sustainable development also revealed many weaknesses and shortcomings. The Vietnam economic
growth rate in the past time is unsustainable and tend to decrease, namely: in 2001-2005 period, the
average growth was 7.5%/year; in 2006 -2010 period this index fell to 6.9%/year; in 2011 was
6.24%/year; 5.25% (2012), 5.42% (2013), 5.98 % (2014), reaching 6.68% in 2015 and the first 6
months of 2016 was only 5,52%. Thus, the quality, productivity, efficiency and competitiveness of
the Vietnamese economy is still low; the economic growth still is based on the elements that develop
in width clination, turn to develop in depth slowly. Morever, the raising of resources and the use this
resources is ineffectively, natural resource extraction is irrational and wasteful use, much loss,
consumption of raw materials and energy is still large and low investment efficiency. The
macroeconomic balance is unsustainable, the public debt and government debt are forecasted in the
end of 2016 may exceed the proposed target and annual inflation may exceed 5% of the goal.
Ecological environment is severely polluted. The fields of culture, society are still inadequate, namely,

the social problems are increasing; congested traffic and traffic accidents are serious; corruption has
not been pushed back or the disparity in wealth and poverty is clear; the educational and medical
quality are weak and slow improvement... Especially Vietnamese enterprises are still facing many
difficulties. Most of them have old mindset and be afraid of innovation, therefore production activities
dọn’t improved and the profit per product unit decreases. In the first 6 months of 2016, Vietnam has
36.626 businesses have bankrupted or dissolved...Therefore, to surviving and developing in the
context of the fierce competition, Vietnamese enterprises have only one way: enhance innovation
capacity to improve the quality of goods and services to meet the customer need in the local and the
world.
There are numerous studies have demonstrated that the success of a business in the era of
knowledge-based economy depends on their innovation capacity (Azevedo et al., 2007). Innovation
capacity holds the key to resolve many urgent challenges in finding solutions to increase productivity
and improve quality of product, is the origin of all invention, creativity and new technologies. With


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the Vietnam businesses, this is no exception. However, to seeking solutions to boost the innovation
capacity, first, they need to identify the factors affect to innovation capacity, the next section of this
article will introduce the research results about the factors that impact the innovation capacity of
Vietnam enterprises.
2. Factors affecting innovation capacity of Vietnamese businesses
The research towards the following objectives: (1) Develop theoretical model of the factors
affecting innovation capacity of businesses, (2) Testing of theoretical models and assessing the
influence of these factors to Vietnam businesses innovation capacity.
2.1. Theoretical basis and research model
Innovation capacity (IC)
In order to understand the concept of "innovation capacity" we should insight innovation theory.
From the behavioral economy, competitive advantage analysis, the national economic system and
social regime analysis… (Greenacre et al., 2012), innovation theory was initiated by Joseph

Schumpeter (1911), then it has been continuously developed for over a century, with many authors
and many schools of study. Therefore around the concept of "innovation" exist different
interpretations. According to OECD (2005): "Innovation is the process of introducing the new
product/ process to the market, or has significantly improve in existing product/process, in addition
to including organization and technical Marketing innovation" (Oslo Manual, 2005, p.15). The project
"Strengthening the information systems of Science, Technology and Innovation of the North-South
American countries", innovation is a process of efforts to forming economic growth targets and
maintaining competition (Lugones, 2012). According to Fagerberg, innovation is concern with
combination of “knowledge, abilities, skills and resources” in the seeking for competitive advantage
through reducing production costs or developing new products or modify existing products
(Fagerberg, 2003)...
According to the classification system of Schumpeter (1934, 1939), there are 5 types of innovation:
new product, new production method, new resource, new market and new way to operate the
business. About the Lugones’s study (2012), innovation including product innovation, process
innovation, organisational innovation and commercial innovation. According to OECD (2005), there
are four types of innovation should be distinguished: product innovation, process innovation,
marketing innovation and Organisational innovation.
Thus, innovation holds a particularly important position in the modern economy, it improves
competitive advantage of businesses, industry and country. The successful innovation is considered
an effort to create the difference for organization and to maintain a sustainable competitive
advantage (Huizenga, 2000).


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Along with the development of innovation theory, the concept of "innovation capacity" is being
completed. According to the school of "core competencies", Gary Hamel and Prahalad C.K (1994) said
that innovation capacity is expressed in three aspects: value gives for customer; unique idea that
competitor is not easy to copy and create barriers to entry. While the school of "dynamic capabilities,
Teece and Pisano (1994) defines "innovation capability of an organization is the ability to integrate,

build and format the internal and external resources of the business to response the environmental
changes". Szeto (2000) defines innovation capacity is the continuous improvement of capabilities
and resources which owned by enterprises to explore and exploit opportunities for developing new
products to meet market demands. Thus, there are many different definitions of innovation capacity.
However, in this study: innovation capacity is the level or ability of a business, an industry or a
country use resources to carry out its innovation activities, these resources which can come from
internal or external business and towards product innovation, process innovation, organizational
innovation or Marketing innovation and has measured specifically.
About the importance of innovation capacity, the researchers has asserted with Higgins (1995)
when he said: "An organization can only survive and prosper in the 21st century if it enhances
innovation capacity and has strategic actions to improve it" (Higgins, 1995, pages 34-35).
The measurement methods for innovation capacity are always interested in by many researcher
(Tidd et al., 1993), The popular scale is R&D expenditures, the number of patents or the quality of
human resources…All this scale are considered as basic criteria to measure innovation capacity.
Beside, the result of the collaboration between the World Intellectual Property Organization (WIPO)
and INSEAD Network was formed "Global Innovation Index" (GII). GII includes 60 indicators. The
GII value is based on the assession of the prestigious organizations such as the World Bank, OECD,
the International Organization for Standardization (ISO), International Monetary Fund (IMF), World
Trade Organization (WTO), Asian development bank - ADB, Yale university and Columbia university
(USA).
In brief, enhancing innovation capacity is an important solution to strengthen the competitiveness
of businesses, products and country, is the "finality" solution to help Vietnam to capture the
opportunities and overcome challenges, in order to sustainable development.
The theories that relate to the research model
The relationship between innovation capacity and factors such as total quality management
(TQM), organization learning (OL), Government support (GS), cooperation networks (CN),
absorption capacity (AC), internal human resources (IHC), patent management, internationalization,
lean manufacturing...gradually discovered in many research. Specifically, since the 1972, Richardson
was the first researcher to recognize the enterprises innovation capacity can be achieved through
"network", may use expertise from other partners in the chain. Hakansson (1987); Lundvall (1995);

Hennart, 1988; Pisano, 1990; Romijn and Albaladejo (2002); Rothaermel and Deeds (2006)...also
emphasized the role of cooperation in promoting businesses innovation capacity. Related to the


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organizational performance, some researchers argue that TQM is a useful tool in fostering learning
and increasing the competitive advantage of a business (Hendricks and Singhal, 2001; MartinezCosta and Jimenez-Jimenez, 2008; Martinez-Lorente, Dewhurst, Gallego-Rodriguez, 2000;
Terziovski and Samson, 2000; Walley, 2000) as well as positively effect to organizational
performance in which has innovation activities (Martinez-Costa and Jimenez Jimenez, 2008;
McAdam and Armstrong, 2001; Prajogo and Sohal, 2003). About absorptive capacity, Schumpeter's
theory state that the businesses need to accumulate knowledge and turn it into resources to serve for
innovation, while Cohen and Levinthal's theory (1990) suggests that: "absorptive capacity represents
the process of creating new knowledge''. Besides, we can not ignore the theory of organization
learning, it's a learning process, that process can integrate different kinds of knowledge and become
a base for innovation (Argyris and Schon; 1978).
The role of government is found in the theoretical background NIS (National innovation system),
is an interactive system among of the private enterprises, the state, the universities and government
departments…to produce science and technology within national border, in which the government
holds an important role in providing institutional incentives and policies for innovation and
creativity. In addition, human resources are also demonstrate that businesses innovate successfully
when they own the best workforce (Bantel and Jackson, 1989; Snell and Dean, 1992; Bontis, 1998;
Alpkan et al., 2010).
Here we will consider the factors that impact innovation capacity of business.
2.1.1. Total quality management (TQM)
TQM has been proven useful administrative solution in innovation and improving business’s
competitive advantage (Bolwijn and Kumpe, 1990; Hamel and Prahalad, 1994; Martinez Costa and
Jimenez Jimenez, 2008; McAdam and Armstrong, 2001; Prajogo and Sohal, 2003). Besides, Mahesh
(1993); Dean and Evans (1994); Kanji (1996); Tang (1998) and Roffe, (1999) show that if an
organization commits to apply the principles of TQM into its operating systems, the efforts for

innovation will bring unexpected results. This observation is also approved with Barrow (1993);
Conner and Prahalad (1996). Watkins and Marsick's (1993) pointed out that the main function of
TQM is to create an organizational culture that appreciate personal goals. It also contributes to
improve the quality, transfer knowledge and stimulate innovation capacity.
Customer-oriented principle of TQM (TQMCF) encourages organizations know the partners’s
needs and desires, thereby led to develop and introduce new products (Juran, 1998; Prajogo and
Sohal, 2003; Hung et al., 2010). Principle of continuous improvement (TQMCI) facilitates to apply
innovative thinking and continuously change to adapt to operating environment (Prajogo and Sohal,
2003; Hung et al., 2010). For the employee involvement principle (TQMEI), by increasing autonomy
for workforces means that developing innovative behavior (Amabile and Grykiewicz, 1989; Spreitzer,
1995; Prajogo and Sohal, 2003; Hung et al., 2010). Top management support (TQMTM) refers to
collaborative relationships between managers and employees in an organization, the mutual


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connection based on sharing belief and value (Hung et al., 2010). Thus from the point of view, this
study agree that TQM contributes to enhance innovation capacity.
H1: Total Quality Management positively affects the innovation capacity of Vietnam businesses
(H1 marked +)
2.1.2. Organization learning (OL)
According to the research of Argyris & Schon (1978); Bontis, Crossan and Hulland (2002); Nonaka
and Takeuchi (1995); Davenport and Prusak (1998); Rothaermel and Deeds (2004); Hung et al,
2010...learning efforts is the main resources to produce knowledge for innovation activities because
innovation originates from the absorption of knowledge in research and development process (R&D)
as well as learning from other businesses (Mansfield, 1983). Besides, the ability to learn of employees
represented by the acquisition and assimilation internal information (Cohen and Levinthal, 1990), it
contributes to improve the organization's innovation.
However, to develop a learning culture requires establishing a strategy with clear objectives
(Learning strategy - OLLS) and that strategy must be driven by a culture that encourages learning

and interchange (Learning culture -OLLC). Because a good learning strategy will create new ideas
(Davenport and Prusak, 1998) and a dynamic and studious environment always looking for
creativity. Therefore, this study expects that organization learning will positively impact to
innovation capacity in high-tech industries.
H2: The organization learning positvely affects the innovation capacity of Vietnam businesses (H2
marked +)
2.1.3. Government support (GS)
The Government policy facilitates to promote innovation capacity through regulating supported
mechanism such as subsidy, tax incentive, loan or R&D human resources...(Beugelsdijk and Cornet,
2002; Romijn and Albaladejo, 2002; Souitaris, 2002). According to Kang and Park (2011), the
Government policy in supporting R&D projects related to investment and human capital becomes
indispensable for innovation activities. The statement of Feldman and Kelley (2006) also
demonstrated the important role of Government in stimulating innovation and economic growth by
supporting potential R&D projects to get high profit. From these arguments about the Government’s
role, the study proposes:
H3: The Government support positvely affects the innovation capacity of Vietnam businesses (H3
marked +)
2.1.4. Collaboration network (CN)
Tether (2002) emphasized the collaboration in the value chain is a prerequisite for transferring
of knowledge and technical know-how. Cooperation also contributes to setting up standard in the
industry as well as improving the application of new techniques. Actually there’re many empirical


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research demonstrated close relationship between business innovation capacity and the value chain
interaction (Baum et al, 2000; Belussi et al, 2010; George et al, 2002; Hagedoorn, 1993; Romijn and
Albaladejo, 2002; Rothaermel and Deeds, 2006; Shan et al, 1994; Kang and Park, 2011...). According
to Stuart et al. (2007), Kang and Park, (2011): a collaboration network should distinguish into
upstream and downstream. Upstream collaboration is the linkage between enterprises and

universities or institutional research. Downstream collaboration refers to the connection of
businesses in the same field. Therefore, the study absolutely confident in positive relationship
between collaboration network and innovation capacity.
H4: The collaboration network positvely affects to the innovation capacity of Vietnam businesses
(H4 marked +)
2.1.5. Absorptive capacity (AC)
Cohen and Levinthal, 1990; Dosi, 1988, Nelson and Winter, 1982; Giuliani and Bell, 2005 ... stated
that absorptive capacity is an essential factor affecting the technological innovation ability. In other
words, absorptive capacity is ability of business to develop or improve its new product through the
adaptation and application of external sources of knowledge (Cohen and Levinthal, 1990). Therefore
the higher absorptive capacity is, the more it promotes R&D capability and then increasing
innovation performance. However absorptive capacity is a predictor index, so every business will
have a capacity to absorb, assimilate and use the knowledge for innovation activities totally different,
Thus, only business achieves a certain absorptive capacity, it has opportunities to take advantage of
external technology sources.
According Lichtenthaler (2009): "Absorptive capacity is the ability of an enterprise to use external
sources of knowledge through a sequential process of exploration, transformation and exploitation"
(Lichtenthaler, 2009, page 822), so that, in this study, the theoretical model has 3 components of
absorptive capacity: knowledge acquisition (ACKA), knowledge dissemination (ACKD) and
knowledge utilization (ACKU). Since then, this study proposes:
H5: The absorptive capacity positvely affects the innovation capacity of Vietnam businesses (H5
marked +)
2.1.6. Internal human resources (IHC)
Empirical evidences have consistently demonstrated the relationship between human capital and
innovation capacity. Typically, Bantel and Jackson (1989) revealed that behind the success of an
organization, operated process is managed by knowledgeable and expert personnel. Or Anker (2006)
pointed out the importance of cultivating the skills and knowledge of employees will increase
innovation capabilities. On the other hand, human resources is very precious, by accumulating
knowledge and capacity, it can promote the role of coordinating in efforts to adapt market, enhance
innovation and improve organization performance (Hayton and Kelley, 2006). Also, Alpkan et al.,

(2010) suggested that the origin of all ideas or creativity comes from human thinking and experience,


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so professional human resources is the start for any innovation process, it symbolizes learning and
absorbing knowledge selectively. In contrast, uneven and restricted level human resources will lead
to decrease managed ability and knowledge transference, while the knowledge is basic for innovation
activities. From the point of view, the study hope that if an organization possesses high quality
workforce, have a good educational background, skills, flexibility and resolving job thoroughly, will
bring the strength for innovation capacity.
H6: Internal human resources positvely affects to the innovation capacity of Vietnam businesses
(H6 marked +)
Proposed research model

Figure 1. Model of factors affecting to the innovation capacity of Vietnam businesses

2.2. Research methodology and data
2.2.1. Methods
The study used mixed methods, including qualitative research and quantitative research to adjust,
supplement, modify and testing scale, testing research model and hypotheses:
Qualitative research is conducted with 02 techniques: In-depth interview and focus group
discussion in order to adjust the content of observed variables to suit the characteristics of Vietnam
businesses and to explore new observed variables for the concept has incomplete scale.
In-depth interview is carried out with 5 experts who are extensive experienced researchers to
explore the factors that influence innovation capacity. Promoting the advantages of semi-structured
interviews, the study explores and collect information maximally on research topics, especially the
concepts need to rebuild the scale. Based on that work, study will adjust or supplement observed
variables and then gradually perfecting the scale for these factors that appropriate for the nature of

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Vietnam businesses. Thus, in line with the basis theory and empirical background, in-depth interview
results help develop the first draft scale that will be used in focus group discussion.
The specialists take part in the focus group including 8 managers who understand businesses
development process and determinate innovation capability as an indispensable objective. In this
stage, the main objective focus to assess the first draft scale’s content and form to build the second
draft scales for quantitative research in the next stage. The study chooses the focus group method
because it’s suitable with exploitation information and exchange of views between the members in
the group. The author show that the opposition and similarity in discussion to realize latent aspects
of research.
Quantitative research is conducted with 2 main steps: the preliminary research has 89 samples
to assess concept scale and the official research of 380 samples to test research model and hypothesis.
The data is cleaned and processed in software SPSS20 and Amos20 with Cronbach's alpha technique,
Exploratory Factor Analysis (EFA), Confirmatory factor analysis (CFA) and Structural Equation
Modelling (SEM).
2.2.2. Data
Based on the preliminary result has total of 38 observed variables, so the minimum sample size
that should determine based on Hair et al. (2006) research is n = 380 (10x38). However, to eliminate
invalid samples (not reply or not enough information), the author conducted a survey of 400
samples.
This survey’s subject is the senior managers of Vietnam southern businesses (Ho Chi Minh city,
Dong Nai province, Binh Duong province, Vung Tau city).
Sampling process is conducted as follows: from the crowd (N = 800), caculate the hops k = N/n
= 800/400 = 2. Select the first sample unit between 1 and 2 by a random method (drawn). Then
selecting the next sample unit by adding k with the first sample until make sure the number of
samples need to be surveyed. In the case of the sample in the selected location will not interview,
next object is choosen.
Accessed form of research is done by interviewed techniques through surveys (the official scale)

after has been guided.
2.3. Results and dicusssions
2.3.1. Testing the concept scale
The concept scales ensure reliability coefficient in Cronbach’s alpha analysis (Table 1) - a condition
for conducting EFA.


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Table 1
Cronbach’s Alpha results
Scale

Observed variables

Cronbach’s Alpha

TQMTM (Top management support)

6

0.885

TQMCI (Continuous improvement)

4

0.898

TQMCF (Customer focus)

4

0.768

OLLS (Learning strategy)

4

0.686

OLLC (Learning culture)

2

0.642

GS (Government support)

3

0.689

CN (Collaboration network)

2

0.653

ACKA (Knowledge acquisition)

3

0.764

ACKD (Knowledge dissemination)

3

0.735

IHC (Internal human resources)

7

0.809

IC (Innovation capacity)

5

0.845

Source: Study’s official research results

EFA results in Eigenvalue = 1.143, the total variance extracted is 53.684% > 50%, KMO coefficient
= 0.789> 0.5 and Barlett’s test has sig = 0.000 <0.005, therefore ensuring EFA sufficient conditions,
the factor loading ranging from 0.542 to 0.885, all of them are greater than 0.5 and the difference of
factor loading in each variable are greater than 0.3, so the components scale is approved. There are
10 components extracted from EFA results as table 2

Table 2
EFA results
Variable

Components
1

TQMTM2

.862

TQMTM1

.861

TQMTM4

.843

TQMEI1

.674

TQMEI2

.668

TQMTM3

.659

2

3

4

5

6

7

8

9

10

-.244

TQMCI3

.885

TQMEI4

.859

TQMCI2

.832

TQMCI4

.796

IHC2

.842

IHC3

.768

IHC4

.693

IHC1

.671

-.209


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Variable

Components
1

2

3

4

5

6

7

8

9

10
-.210

IHC5

.584

.231

IHC6

.542

.230

TQMCF3

.787

TQMCF2

.669

TQMCF1

.626

TQMCF4

.585

ACKA2

.878

ACKA1

.694

ACKA3

.652

ACKD2

.796

ACKD1

.677

ACKD3

.609

GS3

.742

GS1

.635

GS2

.617

OLLS1

.658

OLLS2

.606

OLLC5

.592

.276

CN4

.714

CN2

.579

OLLC4

.695

OLLC3

.582

Cronbach’s Alpha

.885

.898

.811

.768

.764

.735

.689

.671

.653

.642

As for innovation capability scale, EFA result in Eigenvalue = 3.219, the total variance extracted is
59.438% > 50%, KMO coefficient = 0.842> 0.5 and Barlett’s test has sig = 0.000 < 0.005, fit to EFA
conditions and one component is extracted.
Confirmatory factor analysis (CFA) is very important in official research, the CFA results
demonstrate that model fits market data, in other words the scale achives unidimesionality (Chisquare = 976.582, df= 547, P= 0.000, Chi-square/df= 1.765 (≤ 2, in any case maybe ≤ 3 (Carmines
và McIver, 1981)), GFI= 0.901, TLI= 0.905, CFI= 0.918 > 0.9 và RMSEA= 0.045 (RMSEA ≤ 0.08, but
if ≤ 0.05 is very good (Steiger, 1990)).
The standardized regression weights (λ) are greater than 0.5, the regression weights are statistical
significance (p= 0.000 <0.05), so the scale achieves convergent validity.
Assess the reliability of the scale through composite reliability (pc ≥ 0.5); variance extracted (pvc
≥ 0.5) and Cronbach's alpha coefficient (≥ 0.6) (Table 3)

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Table 3
Results of testing the reliability of concept component scale
Component

Composite Reliability (pc)

Variance extracted (pvc)

Cronbach’s alpha

TQMTM

0.890

0.581

0.885

TQMCI

0.906

0.708

0.898

TQMCF

0.813

0.525

0.768

IHC

0.862

0.514

0.811

ACKA

0.783

0.548

0.764

ACKD

0.790

0.557

0.735

GS

0.758

0.511

0.689

OLLS

0.706

0.456

0.671

OLLC

0.648

0.482

0.642

CN

0.746

0.595

0.653

Source: Study’s official research results

Table 3 shows the composite reliability and cronbach's alpha coefficient of these scale satisfy
condition, however the variance extracted of some scale is low, below 0.5. The study admits this is
one of the limitations of the study, it can be derived from the number of observed variables is not
guaranteed in a scale and not reflect concept value.
Testing results about discriminant validity show that the correlation coefficient (r) estimates
associated with the standard error (SE) of the pairs of scale correlation get value p = 0.000 <0.05,
so the scale achieves discriminant validity.
For the innovation capacity, CFA results show that the model has Chi-square = 9.611, df = 4, P =
0.046, Chi-square / df = 2.018 <3 (Carmines and McIver, 1981), GFI = 0.992, TLI = 0.976, CFI =
0.983> 0.9 and RMSEA = 0.051 <0.08 (Steiger, 1990). Thus this can be concluded model fits market
data, means that the scale achieves unidimesionality. The standardized regression weights (λ) greater
than 0.5 and the regression weights are statistical significance (p= 0.000 <0.05), so the scale off
innovation capacity achieves convergent validity. Otherwise, this scale also gets reliability validity
when composite reliability (pc) = 0.878 ≥ 0.5, variance extracted (pvc) = 0.597 ≥ 0.5 and Cronbach's
alpha coefficient = 0.845 ≥ 0.6.
In brief, all scales achive unidimesionality, composite reliability, variance extracted (some scales
accepted), Cronbach's alpha, convergent validity and discriminant validity.
2.3.2. Testing of models and hypotheses
Testing research model
Structural Equation Modeling (SEM) is final analysis technique to test the relationships between
factors. Research model has 7 concepts and 6 hypothesis. These assumptions are developed based
on the theoretical basis and qualitative research. SEM analysis result is as follow:


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- Model has Chi-square = 952.008, df= 480 (P = 0.000), Chi-square / df = 1.932 (according to
Carmines and McIver, (1981), in some cases CMIN/df can be ≤ 3), RMSEA = 0.048, TLI = 0.901 and
CFI = 0.912 > 0.9, thus the model fits with market data.
- In addition, the regression weights have demonstrated the relationship between the concepts of
total quality management (TQM), internal human resources (IHC), absorptive capacity (AC),
collaboration network (CN), Government support (GS) with innovation capacity (IC), because p
values <0.1, has statistical significance at 90% level of reliability. The regression weights marked
“+”, confirmed that TQM, IHC, AC, CN, GS positively impact to the innovation capacity (Table 4).
- The standardized regression weights are positive and also show the degree of influence between
them (Table 5), in which, collaboration network (CN) strongly impact to innovation capacity because
absolute value of standardized weight is highest 0.395. The next important role is total quality
management (TQM), this concept has standardized weight is 0.276, internal human resources (IHC)
ranked 3rd with standardized weight is 0.234, the 4th important belongs the government support
has standardized weight 0.172 and absorptive capacity (AC) has the lowest standardized weight is
0.107
Table 4
The relationship between the concepts in research model
Relationship

Estimate

S.E.

C.R.

P

Label

IC

<---

TQM

14.205

6.014

2.370

.018

par_31

IC

<---

AC

18.276

9.216

1.874

.059

par_32

IC

<---

IHC

5.744

2.491

2.305

.025

par_33

IC

<---

CN

7.825

1.678

4.854

***

par_34

IC

<---

GS

15.329

8.257

1.876

.036

par_35

Table 5
The relationship between the concepts in research model
Relationship

Estimate

IC

<---

TQM

.276

IC

<---

AC

.107

IC

<---

IHC

.234

IC

<---

CN

.395

IC

<---

GS

.172

Although 5 concepts as TQM, AC, IHC, GS and CN only explain 51.5% of the variations of
innovation capacity, but this is a new study of Vietnam businesses’s innovation capacity, therefore
the study does not put too expectations on this value. The next research in the future will explore
and explain better.


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Testing research hypotheses
Rsearch has 6 hypotheses about relationships between concepts. The SEM results verify this
relationship by following:
H1: Total Quality Management positvely affects to the innovation capacity of Vietnam businesses
Testing result show that p value = 0.018 < 0.1, achieve statistical significance, at level of reliability
90% (Table 4). Thus the hypothesis H1 is accepted. This means that TQM principles contribute to
improve innovation capacity of Vietnam businesses. It also reinforces the assertion from the previous
experimental studies of Bolwijn and Kumpe, (1990); Hamel and Prahalad, (1994); Martinez-Costa
and Jimenez Jimenez, (2008); McAdam and Armstrong, (2001); Prajogo and Sohal, (2003); Mahesh
(1993); Dean and Evans (1994); Kanji (1996); Tang (1998), Roffe, (1999)...The standardized
regression weights of this relationship is 0.276 (Table 5), ranked at No.2. So that, one of the key
solutions to stimulate innovation capacity by enhancing to operate TQM principles. In this study,
those principles are: Top management support (TQMTM), customer focus (TQMCF) and continuous
improvement (TQMCI).
H2: The Organization learning positvely affects to the innovation capacity of Vietnam businesses
The result does not reach statistical significance when p-value = 0.382> 0.1, at level of reliability

90%. Hence, the hypothesis H2 is not approved. This can not be argued that the Organization
learning concept is not an important factor in boosting innovation capacity, which may stem from
the of study’s research limitation, the sample size only to ensure for research but not large enough.
Otherwise, organization learning is a broad concept so the study can not explore fully through the
theory and qualitative research, the study inheritances and adjust from international experimental
studies. Therefore the study will continue study this concept insightfully.
H3: The Government support positvely affects to the innovation capacity of Vietnam businesses
Vietnam is transformation economy so all support from the government has an important role in
regulating economic activities. In addition, the high-tech industry is a key sector but developing
belatedly so that Government is external resources to support enterprises in many aspects such as
subsidies, tax incentives, loan encouragement or facilitate to increase internal R&D
resources...(Beugelsdijk and Cornet, 2002; Romijn and Albaladejo, 2002; Souitaris, 2002), especially
in the context integrate into the world economy as well as to face fierce competition from the external
environment, even in the domestic market, local high-tech enterprises are also groggy by the strong
growth of the joint venture or FDI businesses. Maybe, the study’s results clearly reflect reality when
the Government support concept has p-value = 0.036 < 0.1, achieve statistical significance at 90%
reliability (Table 4) and standard weight in relationship with innovation capacity reach 0.172 (table
5). Therefore hypothesis H3 is accepted.
H4: The collaboration network positvely affects to the innovation capacity of Vietnam businesses


Policies and Sustainable Economic Development | 285

Testing results show the p value = *** <0.001, has statistical significance at level of reliability
90% (Table 4). Thus the hypothesis H4 is accepted. The standardized regression weights of this
relationship is 0.395 (Table 5), to assert the importance of international collaboration network in
business’s perception. This result is similar to the exploration of Kang and Park (2011). The study
argues as follow: Vietnam businesses is in integrated process and continuous effort to learning new
knowledge to promote innovation capacity, while domestic relationships are not stable enough to set
up a knowledge network as well as exploit or take advantage capacity mutually, then international

cooperation is an indispensable landmark in formatting business innovation. So one of the essential
measures improve innovation capability by enhancing international collaboration network,
especially is associated with international business.
H5: The absorptive capacity positvely affects to the innovation capacity of Vietnam businesses
Testing results show p value = 0.059 <0.1, has statistical significance at level of reliability 90%
(Table 4). The standardized regression weights of this relationship is 0.107 (Table 5). So hypothesis
H5 is accepted. This result is also confirmed from the previous studies by Cohen and Levinthal,
(1990); Dosi, (1988), Nelson and Winter, (1982)...that the absorptive capacity is a resource for
developing economy and implementing business innovation. Therefore possible solutions to boost
innovation capacity through this factors by increasing the exchange, sharing and analysis of
information in the form of knowledge, experiences...at all levels in the enterprise.
H6: Internal human resources positvely affects to the innovation capacity of Vietnam businesses
Testing results show p value = 0.025 <0.1, has statistical significance at level of reliability 90%
(Table 4). Thus hypothesis H6 is accepted. Internal human resources is a concept that the study
explores two new observed variables through qualitative research. The relationship between IHC and
IC is proved, the standardized regression weights is 0.234 (Table 5), this exploration confirms the
study's expectations as well as many international empirical researchs. Thus, to improve innovation
capability, high-quality human resources is the indispensable solution, because high intellectual
capital is the potential for creative activities.
As mention above, 5 factors TQM, AC, IHC, CN and GS only explain 51.5% of the variations of
innovation capacity, however, then by using typical case study method, research has explored that
technology acquisition and exploitation – TAE is also a very important factor, it significantly impact
on innovation capacity of Vietnam enterprises.
3. Conclution and some recommendations for Vietnamese businesses to
sustainable development
3.1. Conclusion
Study have explored the relationship between total quality management (TQM), collaboration
network (CN), absorptive capacity (AC), internal human resources (IHC), Government support (GS),

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technology acquisition and exploitation (TAE) and innovation capacity (IC) of Vietnam businesses.
The study hope these findings will contribute in researching innovation capacity as well as support
Vietnam enterprises to implement sustainable development in the future.
3.2. Solutions and recommendations
From the above research results, we propose a number of solutions and recommendations to help
Vietnam businesses overcome difficulties and challenges to develop stably.
Increase to connect, establish and develop sustainable supply chain between producers /suppliers
- distribution system - consumer
Research results prove collaborative network or affiliated relationship greatly affect innovation
capacity, but this is the biggest weakness of the Vietnam businesses. Therefore, businesses need to
cooperate together via different forms: vertical integration (to establish the supply chain between
producers/suppliers - distribution systems - consumers; to link between the producers and
distributors; between wholesalers - retailers...), horizontal integration (regions linkage; mutual
linkage of distributors; the relationship of businesses in the same field...). In addition, set up research
activities among of institutes, universities and businesses, in order to erase the fault in the R&D
activities, shorten research - applications cycle, apply research results quickly. In this context, we
should regain the customers confidence, to survive and develop stably. Thus, cooperating closely,
developing supply chain, improving quality of product and service…are effective solutions to help
Vietnam businesses change situation at present.
Applying Total quality management (TQM)
TQM is one of the important factors that affecting innovation capacity of Vietnam businesses. To
successfully apply TQM, first, businesses need to change traditional governance thinking, TQM is a
process to improve the quality, not only related to technology but also operating skills to adapt
changes of enviroment, responsibility for quality primarily depends on the competence of managers.
Otherwise, the propaganda, and training need to deploy to all members of the organization.
Developing human resources
Developing human resources is elementary measure to promote innovation capacity, to support
Vietnam businesses to boost competitive advantage for survive and toward sustainable development.

The innovation capacity of Vietnam can only be developed when "Vietnamese is initiative and
creative". Therefore, the study assert that training human resources that has the active, creative and
autonomous spirit, dare to think, dare to do, dare to be innovative is the throughout solutions which
to implement. From the experiences of the US and Germany, from kindergarten education to
university have taught essential skills in stimulate thinking for students. At the university and higher
levels, through strategic management and other management courses have inspired professional
knowledge about daring innovation. Along with the training younger generation, Vietnam need to


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develop plans and training programs, to re-train manager from central to local, entrepreneurs,
parents...about initiative, creativity.
Enhaning business’s absorptive capacity
Improve the absorptive capacity is also a important solution to boost the Vietnam businesses
innovation capacity. The top managers must understand the urgency of innovation and how to
manage innovative operations effectively in the current period. To do this, in the programs or
training course disseminate knowledge about integration, innovation management. From the
awareness about the important role of innovation, the top managers will have the right decision in
determining the level of spending on scientific research. Moreover, the managers also facilitate for
employing expert to instruct of process of transfering technology. Work environment need to
encourage the exchange and sharing of information, teamwork and continuous learning...
Cultivating the government supports
Enhance the government role in innovation activities, put Vietnam businesses in center in the
national innovation system (NIS), in which government take oriented role for developing economy
and society in long-term. Government need quickly complete the legal basis for the field of science,
technology and innovation, including facilitate businesses to access R&D activities and favourable
policies in invesment, technology nursery. Government also attract foreign investment has a high
knowledge content...
Regarding the solution about technology acquisition and exploitation

In the context of integration and globalization has increased extensively, a developing country like
Vietnam always face to many challenges, thus, Vietnam businesses can utilize external resources to
enhance innovation capacity is essential. Therefore, technology acquisition and exploitation is an
important factor, which affects the innovation capacity of Vietnamese enterprises as well as other
developing countries. However, this factor positively impact innovation capability of enterprises, the
selection decision process to buy technology will be particularly important. Only a small mistake in
this stage will can lead to serious consequences. Formosa is a typical example. Because of an unwise
decision when permitting Formosa put the technology react with sustainable development in
Vietnam has led to 4 Middle provinces polluted seriously, fishermen lost their jobs fall into poverty
hardly, pulling back the development of the local, negatively impact on the sustainable development
of Vietnam. The projects chosen the wrong technology, wrong other partners also have tragic
outcomes, such as: Project of Ninh Binh fertilizer plant with investment amount of 12.000 billion
VND, but the last 4 years of operation has lost 2,000 billion per year. Dinh Vu fiber manufaturing
factory with investment amount of 7,000 billion VND had dissolved. Dung Quat Biofuel Plant (BioEthanol) with an investment amount of 2.200 billion VND were also shut down. The project of
expanding Thai Nguyen steel plant for second period with an investment amount of over 8,000
billion VND, but after 10 years has not been operated yet...After choosing the right technology, the
next step is to preparing competent human resources for deploying. Beside, selecting the form and


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location to transfer technology is also important. We can hire expert to guide in the process of
receiving technology or send staffs take part in the training course in foreign.
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