Last updated: Wednesday, May 15, 2019


Challenges Emerge as Digital Economy Leveraged for Development

Posted: Friday, May 25, 2018

Digitisation, which is taking place in all aspect of life, is creating new opportunities for all Vietnamese businesses. In addition to new opportunities, they are also facing numerous challenges in changing business models to make more competitive products and services in the digital economy.

According to the Vietnam Business Annual Report 2017/2018 themed “Businesses in Digital Economy” released by the Vietnam Chamber of Commerce and Industry (VCCI), digital development will help SMEs in Vietnam join global supply chains more easily with lower costs. Disruptive technologies will enable supply chains to be better connected and distributed more efficiently while minimising logistics and transaction costs. With online communications, companies will have more opportunity to expand markets, reduce business costs and promote after-sale services while consumers will be able to shop globally. The digital economy will provide many opportunities for joining in global supply chains and value chains while bringing sustainable and equitable growth for SMEs. This is a dominant driving force in the Vietnamese business community, which does not have as much financial resource for advertisement or market expansion as big firms.

According to the report, if they manage to leverage technology, they can improve business performance, expand the market and market shares, and even step into new markets they seek out on their own. Technology products will generate more value and reduce production and labour costs. Not only technology companies but all Vietnamese companies will benefit from tools used to compete in ASEAN.

However, new business models and methods are also engendering considerable challenges to Vietnamese enterprises.

The VCCI’s report said that market challenges are huge since many foreign firms have dominated the domestic market and have been present in many economic sectors. The powerful impact and application of digital technology by world-leading firms like Facebook, Google and Microsoft in the society today is very enormous. This means that the competition in the market is changing inclusively, radically and becoming increasingly fierce. If they impossibly grasp and integrate into this trend, Vietnamese companies will be likely to lose out on the home market or regress to lower grades where profitability is thinner in global value chains and supply chains.

In addition, security challenges are a hard-nut-to-crack issue. Technical infrastructure and technological level are still inadequate while direct consequences are the internet-based digital economy pose a lot of cybersecurity, information security and data privacy risks. As digitisation becomes more common, businesses find it harder to prevent and deal with network attacks.

Furthermore, challenges come from in e-commerce deployment. Higher logistic costs put the brakes on e-commerce development in Vietnam. In addition, it is important to build up consumer confidence in online shopping. It is understandable that consumers are shy of online transactions because scams are quite commonplace. There is no immediate solution to this issue but it must rely on security solutions and a sense of respect for privacy. The next challenge lies in payment confidence. Cash on delivery is still a primary payment method for current online sales. Vietnam has about 100,000 accounts registered for online payment but payment value increases marginally. This not only shows low trust in this form of payment but also proves the underdevelopment of payment mechanism as a majority of 25-year-olds in Vietnam do not have bank accounts, especially in rural areas. “The government needs to create a more transparent and secure payment environment and this will in return help the government manage tax collection more efficiently,” the report said.

Particularly, the adaptability of Vietnamese enterprises, specially SMEs, to the digital economy is limited. Additionally, a lot of challenges come from customers. More than 60 per cent of Vietnam's population is in rural areas where access to the internet is difficult. A large number of people have no access to banking facilities and they thus can hardly conduct online shopping and this impedes the growth of technology. To achieve sustainable growth in the digitised economy, this must be addressed quickly. Even those who have access to banking services with credit or debit cards, they still feel reluctant to conduct online transactions or share information online.

The appropriate legal environment for the new economy is also a big challenge for the time being. This is an important element. A suitable legal framework will help accelerate and consolidate the transition of the economy into the digital one.

Vietnam has the Law on Electronic Documents, Law on Electronic Transaction and Law on Digital Signature to support electronic transactions. The report said that it is necessary to change perceptions to liken electronic documents to written documents. Procedures related to application, appraisal, licensing, ratification and registration need to be more effective and transparent. The Government can accelerate this process by improving regulations to ease restrictions on enterprises that want to utilise the internet for their business, eliminate uncertainties, and encourage the use of the internet for all enterprises. Authorities should cooperate more closely to ensure transparency and avert legal risks for investors.

The shortage of information technology human resources is a major challenge to Vietnam's digital economy. According to a report by VietnamWorks, the demand for IT personnel was the highest in history, with nearly 15,000 jobs recruited in 2016. However, the supply is forecast to fall short of 70,000 people by the end of 2018 and 500,000 people by 2020. Vietnam is at the early stage of developing human resources to meet the needs of digital economy, especially skills and knowledge most directly related to information management systems, processes, procedures and cyber resources use such clouding and online governance. Raising awareness, developing such knowledge and acquiring these skills should be included in national economic priorities. Online e-learning is an important area needed to be promoted.

Quynh Anh

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