Digital Transformation for Vietnamese SMEs

9:58:58 AM | 22/5/2020

The boom of the Fourth Industrial Revolution or simply Industry 4.0 and the urgent need for optimizing all operating processes at agencies, organizations and enterprises in recent years, has highlighted the need to digitize the entire economy across all enterprises. That process marked many steps in digital transformation, from the formation of a digital government to the shift to digitized enterprises.

Covid-19 accelerates digital transformation in Vietnam

On March 25, 2020, Mr. Nguyen Manh Hung, Minister of Information and Communications, issued a directive appealing to the entire Vietnamese technology community to unite, join hands, be faster and be more creative to carry out digital transformation, start digital life and create new impetus for the country’s socioeconomic development. Vietnamese companies need to accelerate digital transformation, create digital applications, and bring all production and business activities to the digital environment. However, according to a recent report released by the Vietnam Chamber of Commerce and Industry (VCCI), most small and medium-sized enterprises (SMEs) still face many barriers in digital transformation as they lack awareness of the role of digital transformation.

The report showed that, SMEs, though they account for nearly 98% of Vietnam's businesses, have a low level of technology and innovation. According to a survey by the Ministry of Industry and Trade, up to 16 out of 17 industries surveyed have a low level of readiness for engagement in digital transformation. Notably, over 80% of enterprises have just started to understand digital transformation. A representative from an import and export company said that it did not dare to make strong investment for digital transformation because it found it difficult right from the beginning and it was uncertain about mastering new technologies.

Beside limited experience and knowledge of digital transformation, finding human resources to operate a new digital technology platform is also a challenge for businesses, he added. Recently, the concepts of ‘digital economy’ and ‘digital transformation’ are mentioned a lot, but many SMEs do not actually understand and apply these matters in practice.

When Vietnam joins the global digital economy, it will have a very huge opportunity. But the pillar of the economy lies in the business sector where 98% are small and medium in scale with limited awareness of digital transformation, this is the very first thing that needs to be addressed.

According to economic experts, a digital platform is based on three components: Digital infrastructure (computers, the internet, social networks and fast media), mechanism and process to operate this infrastructure, and digital-based business model (e-commerce). With these three components, businesses need to understand where Vietnam is on the level of infrastructure scale, how well the institution is complete and where the business model is to be positioned to make investment and work out transformation strategies. In addition, corporate executives must be determined to gradually give up their traditional business model for a digital-based business model in order to have a specific investment strategy for technology and personnel and lead their businesses into a new development stage.

Enterprises actively approach new technological trends

Despite being at the onset of digital transformation, the positive signal, according to the latest PCI 2019 report, is the current higher-than-expected level of automation in Vietnam. 67% of businesses say they have partially automated jobs over the past three years and 75% have planned to automate new jobs in the next three years. Domestic private enterprises and FDI enterprises are expected to automate from a quarter to a third of the current work done by man.

“The fragility of supply chains before trade wars and before epidemics such as Covid-19 or unpredictable climate change is strongly promoting automation and digitalization trends. This is good because Vietnamese enterprises have actively, quickly approached new technology trends. Employment is still a worry when a majority of workers in Vietnam are still at low workmanship skill levels,” said VCCI President Vu Tien Loc.

International trade and investment flows are reversing and global supply chains will be reshaped more reliably and sustainably. Businesses will have to be creative and be more responsible. In particular, when global events such as natural disasters and epidemics occur, e-commerce and digital economic foundation are the ultimate solution for the vital development of enterprises.

In 2020, in addition to improving workers’ skills, a national program on entrepreneurship training is needed to upgrade, standardize and internationalize enterprises, especially SMEs, to access and control the digital economy. At the same time, the approach to responsible and sustainable development must be one of the most important constituents of the national program that restarts and restores the economy.

Dr. Hoang Cao Cuong, Department of Business Administration, University of Commerce