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26 September, 2019
Vietnam has established itself as one of the most attractive investment markets in the region. According to the Vietnam E-commerce Association, e-commerce grew more than 30 per cent in 2018 with market value reaching $7.8 billion. Vietnam’s internet economy in 2018 is expected to reach $9 billion in gross merchandise value, accounting for around 4 per cent of GDP, according to a regional economic study.
It is against this backdrop that the Vietnamese government has outlined its draft strategy to realise its Industry 4.0 ambitions. The Asia Internet Coalition (AIC) believes this will secure Vietnam’s strong competitive regional position in coming decades. According to Vietnam’s Central Institute for Economic Management, which compiled the draft strategy, further economic reforms with the application of Industry 4.0 solutions will likely raise Vietnam’s GDP by $28.5 billion to $62.1 billion, equivalent to a rise of 7 to 16 per cent, from now to 2030.
The impact of a strong digital economy in driving growth and transformation in the Vietnamese economy cannot be overstated. Speaking at the recent ASEAN Digital Conference, Vietnamese Minister of Information and Communications Nguyen Manh Hung highlighted this, stating, “The digital economy will play a key role in increasing labour productivity, promoting economic growth, and the country’s competitiveness.”
Leading global technology companies have traditionally chosen Vietnam as a place to build major manufacturing facilities that supply equipment and products to the world, creating more jobs and developing human capital.
Today, we are seeing a shift higher up the technology value chain, to software development and digital application-based services. These foreign investments are critical to Vietnam, especially for the transfer of knowledge and international practices, which will support the development of a local ICT industry that is globally competitive.
In recent years, Vietnam has taken steps to attract local talent back home. This has enabled a burgeoning entrepreneurial scene, where startups and small businesses that leverage technology have emerged.
With the ongoing trade war between the United States and China, Vietnam is well poised to meet demand if companies shift production capacities out of China into Southeast Asia.
The opportunities from these developments are enormous, as the availability of local technology talent will create a foundation upon which global tech companies can invest and develop innovative products and services. Grab, which opened a research and development centre in Ho Chi Minh City in 2017, is a prime example.
The right policies in place
Vietnam’s attractiveness to the global technology industry in the long term, as well as its ability to deliver against its Industry 4.0 ambitions, largely depend on whether the right policies are in place. A supportive ecosystem is a prerequisite for the digital economy to flourish.
A recent report by The Economist Intelligence Unit, commissioned by the AIC, noted that more needs to be done to improve the ease of doing business in this region, including addressing regulatory barriers that restrict trade.
The report, which incorporates input from government and private sector experts, states that data localisation policies can affect innovation and growth by limiting economies of scale for global providers and domestic companies.
This makes it harder and more expensive, especially for local small- and medium-sized enterprises, to scale across borders.
Businesses across the economy today rely on free cross-border data flows and cloud infrastructure to deliver reliable, safe and secure products and services, enabling economic scale and growth in this globalised age.
Mandating local data storage not only creates additional compliance costs. Local data storage in fact is likely to increase data vulnerability, as malicious actors are easily drawn to a single point of breach, as opposed to cloud services that secure data across several global locations and invest heavily to protect their client’s data.
It is also important to remember that cybersecurity is the result of significant investment in highly skilled people and sophisticated processes and systems.
According to a recent report by consulting firm A.T. Kearney, Southeast Asia is popular both as a launchpad and target for cyber-attacks. Yet, many ASEAN countries, like Vietnam, are dedicating only a small percentage of spendings towards cybersecurity.
As global companies seek neighbouring countries with more favourable regulatory environments to seed their investments, local businesses in Vietnam could be at the losing end in terms of exposure, knowledge and skills development.
The harmful effects of protectionist data policies cannot be understated. Brookings Institution estimates that data localisation in Vietnam may wipe out the significant economic impact of the digital economy, which includes, by 2020: 146,000 more jobs, $10 billion in business-to-customer sales and a $5.1 billion increase in GDP from mobile internet.
Recommendations
If Vietnam wants to capitalise on the tremendous economic, cultural and social benefits that a robust digital economy brings, it is necessary to have sound policies that will maximise economic potential.
The recent announcement by Prime Minister Nguyen Xuan Phuc on Vietnam’s scheme to support the sharing economy is evidence that the country is moving in the right direction to secure its digital economy and Industry 4.0 ambitions.
Strong, cross-ministry co-ordination and close industry collaboration are essential to ensure that supportive policy frameworks are co-developed to enable innovation and deliver on growth.
The AIC is proposing several recommendations as Vietnam navigates this new economic reality.
First, it is necessary to look to larger and more developed economies for advice on how to develop their digital ecosystem. Policies should be consistent and predictable, in order to spur both innovation as well as investor confidence to promote foreign direct investment
Second, platforms should be created to encourage regular public and private sector engagement, as a means to openly discuss and address current and emerging issues in the fast-paced digital economy.
Policies that are the outcome of industry consultation and dialogue will be better equipped to ensure risk is managed collaboratively, and opportunities are captured as technology advances.
Third, increased private and public sector collaboration and partnerships must be prioritised, to enhance digital training and education and to ensure workforce preparedness, as well as to deliver economic and societal benefits across the board.
The recent strategic partnership between Google and the Ministry of Industry and Trade to expand the Accelerate Vietnam Digital 4.0 programme is a good start.
Vietnam’s Industry 4.0 strategy, if supported by the right policies, will further advance the strength of the country’s digital economy, leading to significant growth in GDP, trade, job creation, and innovation.
For further information, please contact:
Dang The Duc, Partner, Indochine Counsel
duc.dang@indochinecounsel.com
