Vietnam’s Businesses Increasingly Interested in Automation and Digital Technologies

11:22:17 AM | 20/5/2020

The PCI 2019 Report gives a significant analysis of the behavior and interest of foreign and domestic investors in automation and digital technologies, and the potential impact these investments will have on employment size and composition.

Dr. Edmund J. Malesky, Head of Research - Duke University, said, according to the PCI 2019 survey, the extent of current and planned automation in Vietnam is higher than expected.  Within the past three years, 67% of both foreign and domestic investors have automated some operations, while 75% plan to automate new tasks during the next three years over the next three years. Domestic firms claim to have already automated about 10% of their operational tasks over the past three years and plan to automate over 25% of their work in the near future. Automation among foreign firms is only slightly more advanced (10.6% and 28% of current and planned tasks respectively).

Notably, labor cost reductions and global integration efforts are the official drivers of automation. The PCI 2019 survey has found two main factors that motivate enterprises to carry out automation: First, firms seek automation to reduce the costs of recruiting and training new employees, especially when qualified technical workers in a business sector are hard to find. Second, both foreign and domestic firms see automation as a way to better connect with global supply chains. For domestic firms, the highest levels of current automation are found among firms whose primary customers are FIEs based in Vietnam. However, those selling to third-party buyers have the greatest plans for automating technologies.
Foreign firms that are part of multinational corporations (MNCs) or sell to third-party buyers have been the most ambitious automators. For foreign firms, we identify an important third correlate of investment in automation - labor unrest. Firms that have observed labor strikes among competitors in similarly situated provinces and industries are significantly more likely to adopt automation than those where strikes have been less prominent.

Automation is surprisingly influencing their personnel decisions. According to Dr. Edmund J. Malesky, automation impacts on personnel decisions of companies in the present and long term are diverse and dual-edged. Only 12.6% of domestic businesses have increased employment as a result of automation, compared to 35% who plan to maintain employment at current levels and 27% of domestic businesses who intend to reduce employment. Of this latter group, over half (15%) plan to do the same activities but with a smaller number of people. By sharp contrast, 17.8% of FIEs expressed their intention to increase employment. This is positive news. Although 33% do still plan to reduce employment, in contrast to domestic investors, a significant share (8.5%) intend to increase the sophistication of their smaller labor forces.

Automation is quite diverse across sectors, revealing the dual-edged nature of automated technologies. In some cases, they will lead to redundancies and decreased employment.

However, automation impacts are two-sided: Some occupations will need to recruit more workers, especially more skilled workers, while career opportunities will decrease in unskilled or low-skilled occupations. In some cases, automation will lead to labor redundancy and downsizing. In other cases, automation will result in improved employment quality and increase career opportunities for next generation workers.

According to the Vietnam Chamber of Commerce and Industry (VCCI), to minimize adverse impacts of automation and digitalization, Vietnamese policymakers should make more efforts to improve education quality and raise labor relations. Education Law 43/2019/QH14 and related national education program reforms are aimed at enhancing the quality of general education and vocational training to develop skills of Vietnamese workers to act successfully in an ever-growing economy.

Labor Code 2021 (No. 45/2019/QH14) has breakthrough regulations on working conditions and labor relations. These are milestones of Vietnam's institutional achievements. However, the full enforcement of these two laws still needs some guiding documents which are currently being drafted.

The successful enforcement of the two laws will be a long step towards minimizing negative impacts of automation in enterprises by improving skills of Vietnamese workers and enhancing mutual understanding between employees and employers.

By Quynh Chi, Vietnam Business Forum