This article aims to analyze factors affecting the probability that a firm choose to diversify its investment in R&D. Recently, industry policy in developing countries tends to spur SMEs in terms of Research & Development (R&D), considering them as a main driver of innovation and growth. Departing from an extensive sample of the Vietnam Technology and Competitiveness Survey in combination with the Vietnam Enterprise Survey in 2011-2013, we try to determine: (1) those factors that cause young firms to invest in in-house R&D or in outsourced R&D or both (in-house R&D and in outsourced R&D), and (2) what is the difference in the impact of those factors when taking supply-chain foreign direct investment (FDI) linkage, and technology transfer into account. The analysis results highlight the importance of direct linkages, technology transfer between FDI firms and young SMEs, economic obstacles, and the interactions between them that cause SMEs to conduct R&D strategies in the supply chain (obtained through direct transfer of technology between linked firms). Concerning policies must be aware that incentives along supply-chain may better reach the R&D outcomes for SMEs. Important equally, policy-makers must consider a broader range of economic and financial constraint that may influence R&D behavior, apart from export orientation, competitiveness, and market power.