Drivers of digital transformation in Vietnam

Covid-19

The abrupt nature of the COVID lockdowns was one of the biggest driving forces of the quick expansion of Vietnam’s digitalization. At first, digital transformation came as a reaction to the social distancing regulations, and as a result, e-commerce flourished in the country. This partly made  Vietnam one of Asia’s best-performing economies in 2020 and 2021.

In response to the COVID-19 outbreak, Vietnam’s use of digital platforms such as cloud computing, e-commerce websites, social networks, and specialized applications has expanded significantly – from 41.1% in 2018 to 60.6% in 2022. The ratio of businesses spending in digital solutions, such as setting up hardware and software for corporate operations, has been soaring – as revealed by leading technology solution and software providers.

Moreover, the Vietnamese government has also increased its attempts to automate processes and offer citizens public services via digital means (usually web portals) As of June 2022, 45.8% of administrative services are conducted online, a 1.6-fold increase from the same time period in 2021. As for plans for the near future, Vietnam’s Prime Minister, Pham Minh Chinh, said that by the end of 2023, the proportion of individuals using online public services must increase from the current 18% to 50%.

On the other hand, despite support for the emerging trend of using digital technology in wake of the epidemic, the Vietnamese adoption of key industry 4.0 technologies is still in its very early stages. For now, digital platforms are mostly used to simplify straightforward commercial processes including sales, accounting, and payment methods or front-end banking (bank account opening, money transfers and payment).

Overall, Vietnam was one of the few nations that handled COVID-19 reasonably effectively thanks partly to the fact that the country’s digital push has been accelerated. Yet Vietnam still has a long way to go in order to establish the right conditions for domestic organizations to adapt to the newest global digital technology if the country wants to become a digital powerhouse in the future.

Free trade agreements notably EVFTA

Vietnam recently entered into several free trade agreement particularly EVFTA, effective from 1 Nov 2021. Through the EU-Vietnam Free Trade Agreement (EVFTA), the European Union has a major influence on the development of the digital economy. Indeed, the agreement establishes cross-sectoral initiatives covering increased investment, updating to EU regulations, adoption of non-legislative measures to improve quality of life, etc.

The EVFTA will help to boost Vietnam’s digital economy by encouraging the development of electronic commerce between EU and Vietnam by enhancing Vietnam’s regulatory environment for digital transformation. This will be accomplished through consistent and productive discussion of the regulatory concerns brought up by e-commerce and digitalization. The legal frameworks governing e-commerce in Vietnam will be gradually improved, advancing and enabling the country’s digital transformation, with the input from the EU leaders.

Moreover, under the opportunities created by the EVFTA, Vietnamese businesses will even undertake digital transformation in order to meet the standards of the EU markets. With that being said, Vietnamese manufacturers must invest in better technology to more effectively control the – product quality. As a result, their customer satisfaction will also be improved and their operating procedures optimized accordingly; all to be able to compete with EU e-commerce. For instance, as proof of origin for goods made in Vietnam and exported to the EU remains one of the biggest obstacles posed by the EVFTA, Vietnamese exporters are pushed to go digital such as using blockchain, for the tracking of their exported agriculture products’ origin.

Vietnam’s stategic goals and master plans

By the middle of this century, Vietnam wants to accomplish two major goals. One is to achieve net-zero carbon emissions by 2050 as pledged by Prime Minister Pham Minh Chinh at the COP26. And the other is to become a high-income country by 2045 in accordance with a resolution of the 13^th   Through alterations in perception, business strategies, and incentives for the digitalization of firms, administration, and industrial operations. The program will be directed towards cooperatives, businesses, and households that wish to reform their operations to be more productive, efficient, and competitive by digital means.

Additionally, the Ministry of Planning and Investment (MPI) has proactively released a program to assist companies with their digital transformation for the years 2021–2025, designating the Enterprise Development Department as the focal point and cooperating with the relevant ministries, sectors, localities, associations, and partners to implement.

Moreover, the 13th National Party Congress sets national digital transformation as of utmost importance, with digital society, economics, and governance as its three fundamental foundations. Vietnam has given the digital transformation a strong focus by introducing numerous initiatives and measures to generate innovations for Vietnam to become a successful nation. As an example, the National Digital Transformation Day is observed on October 10 with the goal of accelerating digital transformation tasks, increasing public awareness toward their importance and mobilizing the entire political system and populace to ensure the success of the work.

Key industry sectors impacted by digital transformation

The National Master Plan prioritises 8 different sectors for this digital transformation, including banking & financial services, healthcare, education, agriculture, logistics & transportation, energy, natural resources, environment and manufacturing. We are now going to focus on the 4 most promising sectors.

Banking & Financial Services

The new culture of digital banking and fintech is spreading across Vietnam, especially among the younger generations and more technologically adept population. Vietnamese citizens often register bank account opening and conduct online banking transactions using mobile applications, making the country’s banking and financial services sector great opportunities for digital transformation. Currently, digital platforms are used for 95% of payment services and deposits, enabling Vietnam to rank the 4^th country among Southeast Asia in terms of cashless payment adoption in 2021.

The State Bank of Vietnam (the central bank) sets out digital transformation as a goal for 2025 to have 50% digitized banking and 70% client transactions made via digital channels. In order to digitalize, modernize, and provide better digital services, 95% of Vietnamese banks have formulated strategies and plans of digital transformation and have continued to actively integrate digital technologies typically cloud computing and big data. There are three basic approaches to the digital transformation of banking in Vietnam: i) digitalization of front-end channels; (account opening; money transfers, online payments) ii) digital transformation in the internal processes, and iii) a combination of the two. along with the development of standalone, digital-only banks. Going along with these trends, branch-based expansion has no longer been a target strategy of most banks. Bank branches or outlets are now more targeted as cornerstone locations served mostly for marketing and advertising purposes.

Vietnam’s fintech market is expanding, and at an impressive pace for such a nascent sector. Digital payments accounted for 93% of the venture capital invested in Vietnam in 2021. The country’s strong internet penetration, high percentage of smarter phone users, and fast expanding e-commerce all attributable to fintech’s robust growth.

Additionally, the government implements a certain number of actions to encourage the cashless society with a pilot program for mobile money services (MMS) in 2021. This pilot program will last for two years from the time the first company is given permission to test the MMS, and authorities will utilize the results of the experiment to create specific regulations.

Retail

Digital transformation has made e-commerce an important element of retail that has kept expanding even in post-Covid context.  The nation’s e-commerce market is expanding by 35% annually, which is 2.5 times faster than Japan, according to the Vietnam E-commerce and Information Technology Agency (VECITA). Vietnam’s e-commerce was estimated to generate revenues of US$16.4bn in 2022 (equivalent to 7.5% of the country’s total retail sales of goods and services), up 20% from the previous year.

In 2022, foreign direct investments will still be flooding Vietnam’s e-commerce market. On regional e-commerce platforms, businesses from China, Japan, South Korea, and the United States have started increasing their online presence. Lazada, Shopee, Tiki, Sendo, and The Gioi Di Dong are five of Southeast Asia’s most popular e-commerce platforms, and Vietnam is one of their strongest markets.

Currently, the number of people participating in online shopping in Vietnam has grown steadily, reaching 57.6 million people in 2022 (or about 58% of the population). This industry is expected to continually grow, expecting to gain 70 million users by 2025.

Logistics

The logistics industry having growing rapidly, Vietnam was ranked #11 among 50 countries worldwide in the volume of logistics and transportation in 2022. In recent years, Vietnam’s logistics sector has entered an unprecedented boom, with 14–17% growth rate and over US$bn 40–42 in annual sales. The Vietnamese government aims to achieve a 20% yearly growth of the logistics sector in 2025. There has been a rise in infrastructure, technology, and investment attraction from foreign investors to support the expansion of logistics.

Many logistics firms are transforming digitally to be more competitive and empower themselves in entering new markets, especially international markets. Digital transformation of the logistics industry requires the equipment to be equipped with software for order management (OMS – Order management system), warehouse management system (WMS), transportation management system (TMS), planning resources to connect information infrastructure, provide real-time dat, look up order information anytime, anywhere.  Data from the Vietnam Logistics Business Association shows that in recent years, the proportion of businesses adopting technology in their operations increased from 15–20% in 2017 to 40–50% in 2022.

At the local government level, a national strategy for the digital transformation of the local logistics sector in the years 2022–2025 and with visions to 2030 has been released by the Ho Chi Minh City People’s Committee. The creation of a digital logistics map, a centralized data warehouse, and digital platforms linking multimodal transport services will all be finished by 2025 in the city – the nation’s largest logistics hub.

Manufacturing

Vietnam’s manufacturing sector is a critical attribute of the economy, contributing to 25.1% of the nation’s GDP in 2021.

It is a significant sector that is primed and prepared for digital transformation, as 85% of the manufacturing enterprises have access to digital technologies. The production-related technologies are mostly appreciated since most of the businesses are involved in the assembling and outsourcing phases. These technologies include monitoring and control, robotics and automation technology. Most investments in digital technology done by Vietnamese businesses are on purposed to save costs, boost productivity, and improve management. In the upcoming years, nearly a 1/4 of manufacturing companies aim to invest in Industry 4.0 technology.

Final remarks

With a sharp growth in the creation of new businesses, the digital economy has made significant contributions to the economy. The key to development has been a digital society that places its citizens at its core.

The development of domestic digital technology items has been continuously aided by the government during the past several years. This is due to its awareness of the home market, consumer demands, local culture, and creativity, as such Vietnam offers a lot of potential to find innovative digital transformation solutions for sectors, locales, and organisations.

Despite significant progress, there is still a lot to be done to close the gap in the development of digital skills in Vietnam. This is to guarantee that everyone has an equal chance at achieving the successes of the country’s digital economy. Vietnam is moreover well prepared for its digital transformation.