The paper focuses on the starch industry in Vietnam. That industry is mainly composed of small firms that adapted to rapid change over the past decade. There are also large firms and multinationals in the industry. Based on 1998 field survey data, an analysis of microefficiency and transaction costs suggests that small and medium firms can survive and prosper in the industry. A policy strategy that promotes small and medium firms increases rural incomes, important in a country that is still mainly rural and where the income gap between urban and rural areas is growing.