Measuring 'Institutional Inputs', Examining 'Market Outputs': The New Step Forward of PCI 2025

PCI 2.0: When Reform Is Measured by Business Growth

VCCI releases the Vietnam Private Sector Report and the Provincial Competitiveness Index (PCI) for 2025.

Four Layers of Competitiveness

One of the notable findings from PCI 2.0 data is that a significant gap remains in the innovation capabilities and quality standards of Vietnamese businesses.

Only 8.8% of surveyed businesses reported having introduced product innovations. The proportion of businesses holding international quality certifications stood at just 6.8%, significantly lower than in Malaysia (17.8%) and Thailand (11.9%).

These figures suggest that institutional reform needs to be viewed beyond the reduction of compliance costs. Business competitiveness can be understood through four layers: institutions, productivity, innovation, and high-quality investment.

Institutions establish the business environment and the degree of policy predictability. Productivity determines a business’s ability to generate value from the same resources. Innovation enables businesses to upgrade their products, technologies, and business models. High-quality investment, meanwhile, determines their ability to develop new capabilities over the long term.

At present, businesses still face limitations in predicting policy changes. Only around 6–8% of businesses report that they can regularly anticipate policy changes. Meanwhile, 51.9% of businesses seek legal information through social media rather than official channels.

This demonstrates that transparency and access to information are not secondary concerns but integral components of competitiveness. When businesses cannot anticipate policy changes, making long-term investment decisions becomes more difficult.

From Business Capabilities to Economic Competitiveness

The story of Tan Hiep Phat provides an example of how capabilities can be accumulated over several decades.

Established in 1994, at a time when the private sector was beginning to gain greater room for development, Tan Hiep Phat gradually invested in technology, innovation, and management systems. After more than 30 years, the company has grown into one of Vietnam’s major beverage producers, with four factory clusters and 12 aseptic production lines.

PCI 2.0 comprises nine component indices and 98 indicators. Additionally, the Private Sector Economic Performance Index (BPI) has been introduced for the first time as an independent measure, consisting of 23 indicators.

Its products meet requirements in markets such as France, the Netherlands, Australia, and Canada, and are developed in accordance with standards and systems including FDA, Halal, ISO, and HACCP.

What stands out is not only the company’s current scale but also its transition from management based largely on experience to data-driven, system-based management; and from competing primarily on cost to placing greater emphasis on quality, technology, and innovation.

According to Nguyen Duy Hung, a member of Tan Hiep Phat’s Board of Directors, institutional reform creates opportunities. However, turning those opportunities into competitive capabilities requires businesses to maintain consistent investment in technology, innovation, quality, and people.

Aseptic cold-filling production line at the Tan Hiep Phat factory.

This is also why business competitiveness cannot be separated from the institutional environment. A business may want to make long-term investments, but if compliance costs are high, policies are unpredictable, or information lacks transparency, it will be more cautious in making investment decisions.

Businesses Are More Than Just Beneficiaries

Institutional reform, therefore, should not be viewed simply as a process in which the State creates favorable conditions while businesses merely benefit from them.

According to Associate Professor Nguyen Van Viet, Chairman of the Vietnam Beer, Alcohol, and Beverage Association, when large businesses proactively participate in national economic data systems, the value created extends beyond the boundaries of individual companies. Greater transparency in operations, improved governance, and a shared commitment to national goals are also ways to strengthen competitiveness.

Conversely, data from businesses helps regulatory authorities gain a clearer understanding of the bottlenecks within the economy. This provides a foundation for reforms to address the right problems, rather than focusing solely on procedural amendments.

From Reform to Competitiveness

An important aspect of PCI 2.0 is that governance quality data needs to be considered in relation to development outcomes in the private sector.

Assoc. Prof. Dr. Nguyen Van Viet: “Transparency and alignment with national goals are not merely responsibilities; they are a means to enhance one’s own competitiveness.”

There may be a “policy lag”: a reform implemented today cannot immediately produce larger businesses, higher productivity, or more innovative products. These outcomes require time to take shape through business investment and the accumulation of capital, technology, and human resources.

Therefore, combining PCI 2.0 with the Private Business Competitiveness Index (BPI) is significant not only for assessing governance quality but also for identifying the relationship between the business environment and the health of the private sector.

The ultimate goal of reform is not simply to make it easier for businesses to operate in the short term, but to create conditions that enable them to grow stronger over the long term.

When institutions build trust and predictability, businesses have a stronger foundation for investment. When investment is sustained, productivity, technology, and quality improve. These capabilities ultimately translate into greater competitiveness for both businesses and the economy as a whole.

Institutions create space, businesses build domestic capabilities, and those capabilities become competitive strength.