COMPLETION REPORT
Innovation capabilities and firm performance:
Case study from Japan-invested companies and Lessons Learned for Vietnam
Ms. Le Thi Thu Ha (+2)
Lecturer
Faculty of Economics and International Business,
Foreign Trade University
In such an internationalized and fiercely competitive business environment, innovation has become the key toeconomic and societal development for every nation, as well as a strategic tool to ensure enterprises’ survival andsustainable progress in the market (Keller, 1996; Eaton and Kortum, 1999; Griffith et al., 2004; Fagerberg et al.,2010). The relation between innovation capabilities and firm performance has been widely discussed in economic
and strategic management literature (Schumpeter, 1994; David, 1997). However, empirical tests on developing
countries are still limited.
In Vietnam, innovation has recently become the topic of concerns and attention. Most Vietnamese enterprises do
not invest in R&D activities and only 20-30% of them have such activities (Vietnam 2035 Report, 2015). Insteadof investing in technology, they mainly rely on the advantages of cheap labor and raw materials exploitation. In
contrast, Japan Investment Enterprises (JIEs) in Vietnam, have a tradition of doing continuous improvement(kaizen) and innovation. This research will discuss the effects of innovation capabilities on firm performance ofJIEs in Vietnam.
By collecting and evaluating the theoretical and experimental studies relating to innovation capabilities and therelationship between the innovation capabilities and business performance, we identified seven groups ofinnovation capabilities containing 20 dimensions, including: (1) Capabilities for knowledge exploitation, (2)Entrepreneurial capabilities, (3) Risk management capabilities, (4) Networking capabilities, (5) Developmentcapabilities, (6) Change management capabilities, (7) Market and customer knowledge. In addition, a Balanced
Scorecard (BSC) with 17 dimensions is employed to measure firm performance of JIEs in Vietnam. We
conducted a survey of Japanese companies doing business in Vietnam in various fields to quantify the impact ofinnovation capacity on business outcomes. Survey results were collected with 144 valid responses for the finalanalysis.
By using the method of multi-variable data analysis (Cronbach's Alpha test, factor analysis, correlation analysis,regression analysis, variance analysis and data description by mean, standard deviation and 95% confidenceintervals) we identified that there are five factors of innovation capabilities which have a clear impact on theperformance of Japanese firm doing business in Vietnam, including: Change management capabilities,
Networking capabilities, Capabilities for knowledge exploitation,management capabilities.

Entrepreneurial capabilities and Risk

In particular, these factors have an impact on financial results including capability to take opportunities, capability
for the market and customers, capability for change management. Factors which have effects on customers status
relating to the capability for change management, the capability for networking and capability for riskmanagement; affecting on internal processes will be counted on the networking, recognize and exploiting theknowledge and capability to change management; Affecting on learning and growth will include the capability torecognize and exploitation of knowledge, the capability to seize the opportunities and changes management.
The study results also show that the innovation capabilities of JIEs in Vietnam is still low on average so that urgent
improvements should be made in the near future. From the analysis of the results, five suggestions are made toenhance innovation capabilities and firm performance, including: (1) focusing on improving the capability ofchange management; (2) improving the capability to identify and exploit knowledge; (3) enhancing the capabilityof networking; (4) improving the capability to exploit opportunities and (5) improving the capability for riskmanagement. In addition, we also discuss the contributions, limitations and future research directions for the sameresearch.

Publication of the Results of Research Project:
Thesis (Name of Journal and its Date, Title and Author of Thesis, etc.)
Le Thi Thu Ha & Ho Thi Thu Quynh, Relationship between the product differentiation and firm performance ofJapanese invested enterprises in Vietnam, Journal of External Economics, 2016, (in peer review process)
Le Thi Thu Ha et al, The relationship between innovation capabilities and firm performance of Japanese
invested enterprises in Vietnam, (Forthcoming)