Grappling with digital evolution

08:00 | 05/06/2020

Amid the pandemic, with countries imposing social distancing and lockdown orders, digital transformation has become quite the buzzword, being mentioned more often than ever as people and businesses find themselves more reliant on technology. Improvements in telecommunication infrastructure like 4G and 5G increased internet access and smartphone penetration, and growing income levels from the burgeoning middle-class are enabling factors to create new opportunities for Vietnam’s digital transformation.

1494p4 grappling with digital evolution
Lam Nguyen - Head of enterprise engagement, ASEAN, Industry Platform

According to a report by Google, smartphone penetration in Vietnam has doubled since 2014 and there are now 51 million smartphones, representing over 80 per cent of the population aged 15 years old and above. In their continuous efforts to promote digital transformation in Vietnam, the country’s leaders have been working to create a favourable institutional environment for digital transformation to take off. While the Ministry of Information and Communications is working on the National Digital Transformation Project draft, the Ministry of Planning and Investment is awaiting the prime minister’s approval for the National Industry 4.0 plan, which follows closely the Politburo’s Resolution No.52-NQ/TW dated September 27 on a number of guidelines and policies to proactively participate in Industry 4.0 to ensure active participation in Industry 4.0. These strategic moves align with the country’s vision in strengthening its digital economy which is expected to top $43 billion by 2025. Moreover, last year the Government Office launched the National e-Document Exchange Platform, a move towards building a foundation for integration and sharing of national digital data. Vietnam’s provincial governments are also ramping up efforts with new action plans to realise their smart city dreams. While this trend is heartening and signals a stronger and more robust Internet of Things (IoT) and ICT market in Vietnam, it begs the question of whether these cities are ready to embark on projects that require not only crucial infrastructure to be in place but also expertise to see them through from the conception to maintenance.

Private sector involvement

Within the private sector, Vietnam’s banking industry has been at the forefront of the Fourth Industrial Revolution. Specifically, local commercial banks have quickly adapted to and applied fintech to banking operations, such as mobile and QR code payments, electronic wallets, tokenisation, and payments via chip cards for domestic cards. Those strong transformations have helped Vietnam’s banking sector improve competitiveness and increase access to banking services for all, especially those in rural and remote areas.

Still, Vietnamese enterprises, especially small- and medium-sized enterprises (SMEs), are still struggling with the concept of digital transformation. According to a 2019 survey conducted by Asia IoT Business Platform, 13.2 per cent of local enterprises surveyed claimed that digital transformation is not present within the organisation, as compared to only 8.4 per cent and 8.8 per cent of those in Indonesia and Thailand respectively. Furthermore, a report by the Vietnam Chamber of Commerce (VCCI) states that SMEs account for 97 per cent of the total number of enterprises in Vietnam. Around 80-90 per cent of the machines used in their operations are imported and nearly 80 per cent are obsolete technologies from the 1980s and 1990s.

Even the biggest players in the manufacturing industry are still considering automation, which is the most rudimentary form of digitalisation in smart factories, as the priority focus in their digitalisation pipeline.

There are a few reasons that could possibly account for the slow rate of digital transformation in Vietnam. These are also challenges enterprise end-users and technology solution providers have to work collaboratively to overcome to derive the best win-win situation for both parties.

Ingrained culture

Why do companies cling on to old systems and ways of working five, or even ten years back? A reluctance to change, and therefore unwillingness to take the tech leap, is an oft-cited reason. It is also worth noting that companies with long-established history find it more difficult to apply technologies into their existing systems.

For example, some big manufacturing firms in Vietnam find it challenging to implement new technologies in their existing factories which have been in operation for a long time. Two of their biggest concerns are the incompatibility between new and old systems and the operational disruptions caused by the change. They further claim that technology or IoT adoption is something they would consider for smart factories being built from scratch.

Lack of understanding

Though IoT technologies, including big data, AI, and blockchain, and their capabilities have been hyped in recent years, local enterprises can little know nor grasp what digital transformation actually entails. In the same report by the VCCI, 86 per cent of enterprises surveyed did not know how they can go about embarking on digital transformation. Local enterprises should carefully navigate digital adoption and not just aimlessly jump onto the bandwagon. Setting clear business goals could help filter the solutions that they can adopt, allowing them to achieve more concrete and valuable returns for their investments. For smaller operations, they can start with implementing less complex digital tools that deliver immediate and observable efficiencies.

High investment costs

Companies in Vietnam are grappling with the initial cost pressure of investment and implementation. Those looking to introduce digital transformation measures are often put off by the perceived associated costs.

It is pivotal that solution providers sit down and have conversations with these companies to understand their pain points and budgetary constraints. Interestingly, this issue is being resolved by the evolution of partnerships between connectivity providers, technology vendors, and enterprises.

Security issues

Security (both physical and virtual) continues to be a major concern for enterprises looking to adopt digital solutions. However, security policy issues like data retention are not on the top of the mind of these business leaders yet. The biggest concern to them is still the ability of competitors to glean valuable insights into their operations if a security breach is allowed.

Catching up with ASEAN counterparts

It is undeniable that Vietnam is trying to leapfrog and close the gap with other ASEAN countries by leveraging on advanced technologies to boost its economy.

As mentioned above, a foundation for a favourable institutional environment created by the government is a good start, which is comparable with “Industry4WRD” of Malaysia, Inclusive Industrial Strategy (i3s) in the Philippines or the roadmap of Thailand 4.0 by the Thai government.

Hopefully, a more detailed action plan for the Fourth Industrial Revolution will follow while local enterprises can grasp the biggest opportunity created by the COVID-19 pandemic to bring business activities into the digital space, accelerating digital transformation and making their way into the new normal.

Lam Nguyen

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