Industrial Production and Digital Transformation: Path to Prosperity and Sustainability for Vietnam and ASEAN

Despite going on a rough road ahead, ASEAN today has become an important international integration model in the region and the world. In 2020, Vietnam is celebrating the 25th anniversary of ASEAN membership and holding the ASEAN Chairmanship. Vietnam is leading ASEAN in an ever-changing world with intertwined challenges and opportunities. We need to clearly affirm ASEAN's role in comprehensive foreign policy, strengthen ASEAN centrality in multilateral cooperation, and develop business cooperation in the new era toward prosperity and sustainability for the country and for the ASEAN region as well.

1. ASEAN - Vietnam’s landmark international economic cooperation strategy

Figure 1: ASEAN centrality

With a population of about 650 million and a total GDP of more than US$3 trillion, which expanded by 4.7% a year before the COVID-19 pandemic outbreak, the ASEAN market is challenging but attractive to businesspeople and reformers. ASEAN is currently the third largest market in Asia after China and India and its per capita income is increasing. ASEAN's centrality has always been affirmed in strategic cooperation programs in the region and the world.

2020 marks the 70th anniversaries of many traditional relations and 25th special anniversary of relations established in the doi moi era: Normalizing diplomatic relations with the United States on July 11, 1995; joining ASEAN on July 28, 1995 and officially joining the ASEAN Free Trade Area (AFTA) on January 1, 1996. This process has helped us to get rid of obsolete thinking and skeptics in foreign policy and have a more holistic view of a diverse world. These are also considered breakthroughs in action in the bilateral economic integration process (expanding trade relations, exporting goods to over 230 countries and territories) and multilateral integration (Vietnam currently has 16 FTAs with 60 economies). ASEAN is considered a particularly important market for Vietnam and the first market for Vietnamese products to test their competitiveness before entering the world market. Data from the Ministry of Industry and Trade shows that, in 2019, Vietnam’s trade value with ASEAN countries reached US$57.6 billion, accounting for 12% of its total trade value with the world. In trade relations with ASEAN, Vietnam always takes a deficit, with the import value accounting for 55% of the total trade value.

2. ASEAN cooperative expansion

In a changing world, along with the opportunity for international economic integration and technological development, there are still epidemic challenges, trade tensions and national protectionism trends. In this process, improving competitiveness and cooperation are two parallel solutions. This is also the case for ASEAN, especially to promote ASEAN cooperation development.

Figure 2: ASEAN and the East Sea

ASEAN's importance is always linked to the East Sea when a majority of ASEAN countries are on the East Sea. The East Sea is part of ​​the Pacific Ocean, stretching from the Malacca Strait to the Taiwan Strait, covering 3.5 million square kilometers. The sea lies on artery maritime traffic routes connecting the Pacific Ocean and the Indian Ocean, Europe and Asia, and the Middle East and Asia. This is considered the second busiest international transport route of the world. The East Sea is of great strategic importance: More than 90% of the world's commercial transport is seaborne, 45% of which is carried across the East Sea with a trade value of nearly US$5.5 trillion a year. Economies of many East Asian countries and territories are heavily dependent on this sea route, including Japan, South Korea, Taiwan, Singapore and even China. This essential traffic route carries oil and commercial resources from the Middle East and Southeast Asia to Japan, South Korea and China. Maritime resources are critical to the food security of hundreds of millions of people in Southeast Asia. Huge oil and gas reserves are believed to be on the seabed (According to China, oil and gas reserves in the East Sea are estimated at 213 billion barrels, of which oil reserves in the Spratly Islands may be up to 105 billion barrels).

Figure 3: ASEAN and Indo-Pacific

ASEAN is in global economic cooperation strategies such as Asia-Pacific and Indo-Pacific, with the focus shifted toward the Indo-Pacific region.

ASEAN always focuses on regional business cooperation, with industrial production considered the engine of the economy and also the subject of industrial revolutions. ASEAN launched cooperation and development programs for 12 priority sectors: 1. Agricultural products; 2. Air travel; 3. Automotive; 4. e-ASEAN; 5. Electronics; 6. Fisheries; 7. Healthcare; 8. Rubber-based products; 9. Textiles and apparels; 10. Tourism; 11. Wood-based products and; 12. Logistics services.

3. Industrial production and digital transformation - The path to prosperity and sustainability for Vietnam and ASEAN

In a world that is both collaborative and competitive, improving internal capacities is prerequisite. Capacity building requires breakthroughs in production, services, and finance. However, it is necessary to select priority industries that can result in breakthrough development and exert ripple effects on all three factors with a synergized combination of scale, speed and optimization. For example, 40 years ago when doi moi was initiated in Vietnam, Directive 100 dated January 13, 1981 of the Party Central Secretariat on products contracted to groups of workers and workers in agricultural cooperatives, created a great development step in agricultural production and the first step of forming a market economy in our country. The breakthrough and success of the agricultural sector stimulated and spread to other industrial sectors.

The organic relationship between production and industry with industrial revolutions (Figure 4) is aimed for a superior mode of production.

Figure 4: Industrial revolutions

The first Industrial Revolution began in England in the late 18th century, with the mechanization of the textile industry. Laborious manual work done by hundreds of weaving households was replaced in a single cotton mill. The factory was born. The second Industrial Revolution took place in the early 20th century when Henry Ford set up an automatic assembly line, ushering in the era of mass production. The first two industrial revolutions made people richer and accelerated urbanization. In the third Industrial Revolution, production was digitized. This process changed not only business operations but many other things. Production digitization changed the way goods were produced. For example, a quarter of the labor force worked in the manufacturing sector in the 1950s, compared to just 9% now. This also explains why the COVID-19 pandemic virus, transmitted from human to human, has helped accelerate digital industrial revolution.

The Fourth Industrial Revolution (or Industry 4.0) is about applying automation to traditional industrial and production activities, using modern smart technology. Machine-to-machine (M2M) communication and internet of things (IoT) are integrated to enhance automation, improve communication and self-monitoring, and produce smart machines that can analyze and diagnose problems without human intervention. Industrial revolutions always met three factors of improving manufacturing capacity: speed, scale and optimization.

For the economy, the manufacturing sector is an engine of growth. However, to seize opportunities of the Fourth Industrial Revolution (4IR) and deal with environmental and social emergencies, with increasing trade tensions, supply chain shifts and economic uncertainty, manufacturers must develop new and adaptive capacities. Furthermore, international integration programs, including ASEAN, require domestic production of goods to enjoy preferential tariffs through regulations on processing content and origin of inputs.

Industrial manufacturers can develop strongly and lead a sustainable revolution in the digital world. They are best positioned to successfully navigate this storm by utilizing advanced manufacturing technologies and solutions in their factories and supply chains to create value, improve operations and increase sustainability. To be successful in the rapidly changing 4IR landscape, their factories must operate in a new way. That requires a strong focus on identifying problems and then creating solutions, not just adding tools to existing processes. Factories create new operating systems incorporated with technology in an agile approach and maintain continuity to create new ways to enhance performance and scale up new solutions in business. These businesses can offer valuable lessons for those at risk of lagging behind.

The manufacturing industry needs a clear vision and leadership: Identifying and gathering most advanced domestic and regional firms that are demonstrating leadership in applying advanced manufacturing technologies, including, IoT, big data analysis to drive large-scale operational and financial impact and end-to-end value chain transformation.

Production policymakers need to utilize 4IR to promote structural transformation of industrial production, otherwise it will be difficult to rapidly grow GDP and create jobs. Industrial production development can also ensure better national security and defense.

Digital transformation trends will give ASEAN, with a young population (60% under 35 years old), many opportunities to enhance industrial production capacity in the current wave of supply chain transformation in the world. According to economists, for the time being, ASEAN should focus on cooperation on four programs:

1/ ASEAN common data policy: In engineering technology, standards are No. 1 priority. So, it is necessary to develop a common regional data policy (this is also one of the main activities of ASEAN Manufacturing Network, recently established under the auspices of ASEAN BAC)

2/ ASEAN digital skills training: Any technological solution must take into account impact on workers and place people at the center. A common commitment should be created to provide digital skills training for the ASEAN workforce.

Figure 5: Cohesive and Responsive ASEAN 2020

3/ Application in business: Industrial production: Robot, IoT, AI, Big Data; Commerce: E-commerce; Finance and banking: Fintech (ASEAN electronic payment: Building a common ASEAN electronic payment framework)

4/ ASEAN cybersecurity: Strengthening cooperation and capacity building in ASEAN cybersecurity

By 2030, ASEAN will be the fourth largest economy in the world, with a forecasted population of 720 million and an expected GDP of US$7 trillion. Certainly, digital transformation is one of the best trends for ASEAN and Vietnam to prosper and grow sustainably. The leading role of Vietnam in the ASEAN Chairmanship Year will help realize the ASEAN digital economy, advancing towards a truly cohesive and responsive ASEAN 2020.

Dr. Doan Duy Khuong

VCCI Vice President, 

Chairman of ASEAN BAC

Source: Vietnam Business Forum