Technology and innovation are the answers to the question about how Vietnam can to escape from doing only outsourcing for foreign partners.
“If we dare not make investment in science and technology and innovation, we will get stuck in the low-productivity, low-added value and middle-income trap,” former Prime Minister Nguyen Xuan Phuc said at the groundbreaking ceremony of the Hoa Lac Hi-tech Park in Hanoi.
Investing in technology and innovation will bring Vietnamese products to a new height, helping the country escape the status of doing primarily outsourcing, which it has done for decades now. This is not only true for technology firms, but for all enterprises.
Using new technologies or inventing new technologies will help enterprises increase turnover and improve their business positions. Electric cars and smartphones bearing Vietnamese brands are products that show the strong capability of Vietnamese enterprises in the 4.0 era.
TP Bank, established in 2008, is one of the youngest banks in Vietnam. In the first four years of operation, it ranked at the bottom of commercial banks. However, the bank has applied digital transformation and technology application in recent years.
“Going digitized to become a technology-based digital bank is a must for us, because we cannot compete with powerful traditional banks which have existed for many years,” a representative of the bank said at the Vietnam digital technology firm development forum in 2020.
The military telecom carrier Viettel is also building a digital culture with flexibility, creativity, customer orientation, and open culture. It is stepping up digital transformation in internal governance, applying modern technology with international standards.
All of its documents have been digitized, while 50 percent of manual work has been liberalized, and 30-40 percent of task operations have been automated.
Its digital ecosystem provides B2C and B2B services, spanning a wide range of fields, from finance (Viettelpay), digital banking, and OTT (Mocha, Keng), to customer care (MyViettel, Viettel++), e-government, Smartcity, medicine and vaccination.
The “Make in Vietnam”message put forward by the Ministry of Information and Communication has created vitality and excitement among the startup community. The fact that Vietnam has become the fifth country in the world mastering 5G technology, producing 5G infrastructure equipment and manufacturing 5G smartphones was inspired by Make in Vietnam.
More than 13,000 technology firms were set up after only one year, raising the number of technology firms to 58,000, which is a new record and proof showing that Make in Vietnam has been brought to life.
Wage earners or owners?
Nguyen Minh Quy, CEO of Novaon, commented that if Vietnam’s enterprises continue doing outsourcing for foreign companies, they will earn little in the value chain.
One iPhone can sell for $1,000 and the biggest value of the smartphone production chain belongs to the first phase — learning about customers’ needs, researching and designing products to satisfy customers’ needs, and the last phase – distribution and marketing. Those who make the phones pocket a very small value.
“We need to think carefully to answer the questions: What will happen if we don’t innovate, and where will we go if we innovate,” he said.
Closing the national forum on digital technology firm development in Vietnam, Minister of Information and Communication Nguyen Manh Hung mentioned some statistics worth thinking about.
In every revolution, only five or six developing countries can become developed countries. And so too in the 4.0 industrial revolution. The opportunities will be grabbed by several countries and they will be reserved only for the pioneers. In the 4.0 era, Vietnam and developed countries are at the same starting line.
“If Vietnam pioneers in the revolution, other countries will come to Vietnam, and Vietnam’s products will reach out all over the globe,” Hung said.
Becoming a pioneer is the aspiration of the entire nation and every Vietnamese. It is difficult but not impossible.
Vietnam has lagged behind many countries and has missed a lot of opportunities in the development process, but this does not mean that it should accept a low position.
In fact, Vietnam is among the top countries in the region and the world in many fields, including telecommunication and electricity. In the last 20 years, Vietnam has been one of the countries with the highest economic growth rates.
Nowadays, empowered by the 4.0 era, digital transformation, and Make in Vietnam, Vietnam’s growth will have an important boost, with the aim of becoming a high-income country by 2045.
Le Xuan Sang, deputy head of the Vietnam Economics Institute, thinks that Vietnam has a “golden opportunity” to make a breakthrough and speed up thanks to the development of science and technology.
In order to reach these goals, space for creativity needs to be expanded and managerial thinking must also be enhanced so that creativity is not hindered by rigid documents and the bureaucracy of many state officials.
Phuc Long tea chain to open first US store
Phuc Long beverage chain will open its first store in the U.S. next month, following in the footsteps of other Vietnamese coffee brands that have branched out to other markets.
The store will be located in Garden Grove, California, the company said in a Facebook post.
Phuc Long has over 80 stores in Vietnam. It had recently signed a deal with conglomerate Masan Group to establish Phuc Long kiosks in over 2,200 VinMart+ conveniences stores.
Last month, TNI King Coffee chain opened its first store inside a mall in California.
Other Vietnamese coffee chains that have branched out to foreign markets include Cong Ca Phe with six stores in South Korea and two in Malaysia, and Trung Nguyen E-Coffee with a store in Laos.
Private enterprises lack internal strength and driving force to develop
How will Vietnam overcome challenges to realize its development plans? Nguyen Dinh Cung, former head of Central Institute for Economic Management (CIEM), shares his perspective with VietNamNet.
One of the great successes of economic reform in Vietnam since doi moi (renovation) is the establishment of a community of businesses from different economic sectors with many ownership modes. Vietnamese enterprises are operating under similar legal forms as in other market economies.
High in quantity, small in scale
In terms of quantity, enterprises in the private sector account for the overwhelming proportion, 97 percent, while SOEs (state owned enterprises) account for 0.38 percent and FIEs the remaining.
The enterprises employ 16 million workers. The workers in SOEs account for 7 percent, private enterprises nearly 60 percent and 33 percent in FIEs (foreign invested enterprises).
In terms of total assets, SOEs account for 28 percent, private enterprises 53 percent and FIEs 29 percent.
In terms of stockholder equity, SOEs account for 20 percent, non-state owned enterprises 56 percent and FIEs 24 percent.
In terms of net revenue, SOEs account for 14.5 percent, non-state owned 57 percent and FIEs 28.5 percent.
In terms of pre-tax profit, SOEs account for 21 percent. The figures are 36 percent for non-state owned enterprises and 43 percent for FIEs.
If considering financial efficiency, the ROE (return on equity) is 9 percent for SOEs, 4.5 percent for non-state owned enterprises and 15 percent for FIEs. Meanwhile, the profit to sale ratio is 5.6 percent for SOEs and FIEs, while it is just 2.4 percent for non-state enterprises.
The figures show that while private enterprises account for the overwhelming proportion, they mostly have small and micro scale, with very few enterprises having medium scale. They have low technology and low competitiveness.
Lacking inner strength and driving force to develop
This is attributed to several reasons:
First, the ratio of profit to revenue and to assets is too low. Stockholder equity is not high enough for re-investment and development. Therefore, most private enterprises have to rely on working capital from relatives and friends. Only a small part of the enterprises can access bank loans.
Most private enterprises lack capability to innovate and receive technology transfer, and lack the driving force to research, develop and renovate technology. In other words, private enterprises lack inner strength and motivation for development.
Second, one part of private enterprises doesn’t want to expand investment to become large enterprises.
This is attributed to unclear and overlapping laws which can be understood and implemented in different ways by different state management agencies. The bigger that enterprises become and the more business fields they cover, the higher legal risks they face, which may cause big losses or loss of all of their assets that had been created over decades.
|While private enterprises account for the overwhelming proportion, they mostly have small and micro scale, with very few enterprises having medium scale. They have low technology and low competitiveness.|
In this situation, there is no reliable and effective tool and institution, especially independent courts, capable of protecting their rights and benefits.
Third, another part of private enterprises wants to grow but cannot, because they cannot access resources for investment and development. Surveys have found that capital costs are too high. The inability to get enough capital and access land are the big barriers for private enterprises in this group.
Fourth, some of the hundreds of thousands of private enterprises are crony enterprises. The number of these enterprises is not high if compared with the total number of operating enterprises, but they appropriate significant resources and deprive business opportunities from authentic investors and businesses.
The enterprises of this kind contribute to creating an unfair business environment which lacks transparency; distort the allocation of national resources; and distort the value and constrict the business motivation of genuine businesses.
It is the enterprises of this kind that make it difficult for other enterprises to access resources and business opportunities. This is a major obstacle for the development of private enterprises.
Large private groups vulnerable
Vietnam now has some large-scale private enterprises, called economic groups. There are some similarities and differences between the economic groups and groups in some Asian economies prior to 1979 as follows:
The similarities include investment in multi business fields; reliance on bank loans; lack of transparency in administration and business; and relatively friendly relations with the government. They are big if compared with the size of the economies, and so they are not allowed to collapse.
Regarding differences, some foreign economic groups specialized in manufacturing, developed strong R&D (research and development), and expanded their business across the region and the world. They have had specific products and strong brands. Meanwhile, Vietnamese private economic groups mostly target the domestic market, focusing on real estate and consumer services. They still cannot develop and master technologies in their fields and don’t have global competitiveness.
It is obvious that Vietnam’s private economic groups are not as powerful as Asian private economic groups before 1979, and they are vulnerable. If the businesses collapse, it will take a longer time to recover them and the collapse may cause bigger losses to the national economy.
Therefore, developing the private sector, including economic groups, in a balanced, effective and sustainable manner must be a top priority task in the coming time.
It is necessary to amend unreasonable policies to help private enterprises increase their strength and overcome obstacles so they can feel secure to expand investment for development.
The 13th Party Congress Resolution has set specific goals for Vietnam’s socio-economic development.
By 2025, Vietnam would become a developing country with industry going towards modernization and income surpassing the lower average level.
By 2030, Vietnam would become a developing country with a modern industry and higher than average income.
By 2045, it would become a developed country with high income.
Nguyen Dinh Cung
Excited but anxious: Hanoi business owners reopen
Though they eagerly reopen after being closed for 27 days due to the Covid-19 outbreak, many Hanoi businesses are also worried about changing consumer behaviors.
Closed restaurants inside a shopping mall in Ha Dong District, Hanoi, June 20. Photo by VnExpress/Duc Minh.
After Hanoi authorities announced that indoor dining and hairdressing can resume on Tuesday, Bui Quang Hung, co-founder of barber shop chain 30Shine, showed his excitement with a post on social media saying, “see you Hanoians on Tuesday morning.”
He said the shops would open from 7.30 a.m. until late night to clear a backlog of almost a month.
“Men have to visit the barber once every three weeks on average because they feel irritated if their hair is one to two centimeters too long.”
There would be two or three times the usual number of customers for two weeks, he said based on his experience from previous waves.
But some other businesses are less hopeful.
Trieu Nguyen Quan, owner of the Goofoo Gelato chain of ice cream shops, does not expect many customers for 10 days after reopening since people are afraid of the pandemic.
Hoang Tung, CEO of fast-food restaurant chain Pizza Home, said the outbreak could cause him to lose a number of customers since people have adopted a new habit of eating at home.
To survive the stop-start nature of their business amid the pandemic, many have sought to improve their business model. Tung said Pizza Home has closed some stores that were not doing well but has expanded into home delivery and apps.
“The restaurants have to operate both online and offline, and must be prepared for the worst, which is closure, amid the pandemic.”
Goofoo Gelato too has managed to pull on thanks to online sales.
Quan said he plans to increase the number of outlets but only after vaccination. He said vaccination is the only way to make him feel secure and the ultimate solution for businesses to open and the economy to revive.
Around 2 percent of the population has received the first shot, and 0.1 percent has received both.
Vietnam has received delivery of around three million vaccine doses so far, and is expected to get over 120 million this year.
It seeks around 150 million in all to cover 70 percent of its population.
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