How Big Corps & SMEs are shaping Vietnam’s digital economy
Published 8 March 2021
Micro, small, and medium enterprises (MSMEs) constitute 96 per cent of Vietnam’s business activities.
Meanwhile, big corporations, including multinational enterprises (MNEs), have impacted the ecosystem with their high capacity in technologies, finance, as well as their overall knowledge.
Add to the mix – government – which is still leading the digital transformation, urges businesses to step up the game and push forward the current estimated $14 billion worth digital economy of Vietnam.
First movers are big corporations and MNEs
Geopolitical issues can be added to the digitalisation push. In Vietnam, the European Union–Vietnam Free Trade Agreement (EVFTA) and the trade war between China and the U.S. are bringing new businesses coming to the country, said Tanguy Le Barber, founder of strategic consulting company Roadenn, at 2021 SEA Digital Week.
A positive effect is that when foreign companies come, they invest in local talent instead of using staff from their home countries.
Take South Korean multinational conglomerate Samsung as an example. In 2017, the company launched the Samsung Talent Program, which offered VND 8.5 billion (approximately $ 369,350) in the types of scholarships, specialised courses, and research and career opportunities for Vietnam’s information technology and electronics-telecommunications talent.
The company also has started constructing a new $220 million research and development (R&D) centre in Vietnam since 2020, increasing its research workforce in the country from 2,200 to 3,000 by 2022.
That is because it is an economic model at work, stated Bryan Carroll, CEO of TNEX, a Vietnam-based digital bank. “It’s positive, not just on GDP. This is an opportunity.”
Over the past years, capital has been pouring into the Vietnamese market. In January, foreign direct investment (FDI) capital in Vietnam reached $1.51 billion, representing a rise of 4.1 per cent year-on-year, as per a report of the Foreign Investment Agency (FIA) under the Ministry of Planning and Investment.
“It is driving the push for the digital transformation of the country,” Barber said.
According to the e-Conomy Southeast Asia 2020 report by Google, Temasek and Bain & Company, analysts estimate Vietnam’s digital economy to reach $43 billion by 2025. But for the country to become competitive and be a major player in the region, or even worldwide, the government and local companies should understand the need for radical changes, Barber underlined.
Some prominent local corporations are taking the lead and eager to optimise their activities to regional levels. FPT Group, for example, is working with multiple partners and vendors to find options to reduce energy consumption at data centres, which then minimises negative impacts on the local environment.
“We applied a lot of new technologies to make sure that how we can reduce the PUE [Power Usage Effectiveness] down as much as we can,” said Khoa Doan, executive vice president of FPT Smart Cloud.
The same story goes with Vinfast, the first local car brand in the country, which has deployed a recognised world-leading production plant in Vietnam with automation and robotic processes.
SMEs can play alongside big players
When Internet users in Vietnam account for nearly 70 per cent of the population and spend an average of 6 hours 30 minutes online every day, SMEs in Vietnam are still not ready for digital transformation and the digital economy.
Among all small and micro-enterprises, which account for 96 per cent of firms and 40 per cent of national income (GDP), more than 45 per cent has not engaged well with technology, informed Ralf Matthaes, founder and managing director at Infocus Mekong research.
“SMEs have barriers to join this digital revolution which is happening in Vietnam,” said Carroll.In the case of cloud adoption, insiders found that most business people in Vietnam thought that adopting cloud computing means giving their data to cloud providers. The recent MaturityScape benchmark study of IDC ASEAN in 2018 also noted that 85 per cent of enterprises polled in eleven countries in Asia-Pacific, excluding Japan, are only rated at two out of five in IDC’s cloud maturity model.
“But now they are starting to understand that moving to cloud should be thought from a long-term investment point of view, which is the best solution for smaller business in Vietnam,” said Robert Tran, cybersecurity and technology risk leader at consulting company Ernst & Young Vietnam.
As the situation is changing exponentially due to the acceleration caused by the pandemic, Anthony Lim, regional principal consultant at Fortinet, said that cloud computing services availability could increase the efficiency and innovation capacity of small businesses in Vietnam.
“It will actually help a lot of small businesses get up to speed and play alongside big players,” Lim commented.
Digital Economy in Vietnam: From Government to Private Sector
As businesses are still approaching cloud computing cautiously, experts reach a consensus on the government’s role in the digital transformation stories, not only in Vietnam, but also in previous cases in the U.S., the Middle East, or Singapore.
“I don’t see so far the possibility of the transformation emanating from companies to the government. It has to be the other way around,” said Barber in a discussion at Digital Week.
In Vietnam, the Prime Minister has approved the national digital transformation programme to 2025 and orientation to 2030, which states various objectives, including developing a digital government, boosting the Vietnamese digital economy to account for 20% of GDP, and narrowing the digital gap by universalising fibre-optic Internet services, 5G mobile network, and electronic payment.
But while Singapore and Hong Kong are small city and states, most key digital infrastructure in the region, say data centres, are implemented there. Vietnam is still trailing behind with only 3.5 per cent of the total number of data centres in ASEAN, according to Frost & Sullivan’s “ASEAN and Taiwan Data Center Services Market, Forecast to 2025.”
“The reason is that their regulations [Singapore and Hongkong] are very clear and protect customer and data privacy,” said Tran. “Vietnam technically becoming a powerhouse is not a problem, but regulation could be a problem.”
Last year, in an effort to improve digital safety, the Ministry of Information and Communications of Vietnam provided guidelines on cloud computing for e-government, which Doan commented, could act as a critical reference for businesses in Vietnam in terms of understanding the requirements and standards of technical and information securities.
“How can they [organisations and companies] react and implement this direction from the government?,” said Carroll. “That comes down to the fact that digitalisation is more about people than technology.”