This study investigates the impact of subcontracting activities on the innovativeness of Vietnamese subcontractors in Small and Medium-Sized Enterprise (SME) sector. The study approached two main theories of transaction cost (TCE) and knowledge-based theory. The data was drawn from the rich data set of Vietnamese SMEs in 2015. The empirical test used the probit model to examine 271 subcontractors to give the evidence that subcontracting activities with the foreign-invested contractor are likely to innovate rather than with domestic contractors. In addition, the results have suggested that the absorptive capacity is very important for innovation of a small firm. In this thesis, based on the paper of Cohen and Levinthal (1990), the formation of the absorptive capacity is generated by skilled staffs and training activities in the firm. The findings showed that the innovative probability of subcontractors is positively affected by subcontracting activities in foreign-invested sectors and the absorptive capacity.
University of Economics Ho Chi Minh City; VNP (Vietnam – The Netherlands Programme for M.A. in Development Economics)