Mastering technology for Vietnam’s growth

Science and technology firms will play an important role in Vietnam’s future plans

The new slogan – Make in Vietnam – has been announced by the Vietnamese government as part of the efforts to show support to all businesses in Vietnam and turn the country into a regional technology hub.

The announcement was made at last week’s national forum on developing Vietnamese technology companies in the presence of more than 1,000 delegates, including government officials, experts, and leaders of leading technology firms like FPT Group, Bkav and VCCorp.

The event aimed to disseminate the government’s directions in developing technology companies and gather policy feedback.

In recent years, Vietnam has seen breakthroughs in technology thanks to giants like Vingroup which last year gained global publicity by developing its own VinFast automobiles and VinSmart smartphone brand, and Viettel Group which is planning to roll out its 5G network next year.

Within less than six months, VinSmart has launched four smartphones and plans to offer 12 more devices in 2019. The company is constructing a manufacturing facility in the northern city of Haiphong with the annual capacity of 100 million devices and has partnered up with a US partner to develop 5G-ready phones.

Le Thi Thu Thuy, chairwoman of VinFast said, “About 10 years ago, there was only one tech company (Microsoft) among the 10 most successful companies in the world, but now only one of the 10 largest companies does not deal in technology.”

Vingroup is the biggest Vietnamese company to incorporate technology as one of the three pillars of its operation, next to industry and trade services, with the goal of becoming the region’s leading technology corporation within 10 years.

Vingroup has already developed factories that sport capacities and levels of automation that turn corporations over the world green with envy, while Viettel is developing 5G equipment, making Vietnam the fifth in the world to develop such capabilities.

These Vietnamese companies not only caught up to the region and the globe in technology, but are actually leaving many a step behind. However, such companies are a miniscule portion of nearly 400 local tech businesses and 15,000 startups.

Potential still to be reached

The latest data from the Ministry of Information and Communications (MIC) showed that last year, the local IT sector reached $98.9 billion in revenue, up 8 per cent on-year, including $88 billion from hardware, $4.3 billion from software, $5.7 billion from technology services, and $800 million from digital content. The industry also contributed nearly VND50 trillion ($2.17 billion) to the state budget and created more than one million jobs.

The Ministry of Science and Technology (MoST), estimated the value of Vietnam’s digital economy at $9 billion in 2018, forecasting it to reach $30 billion by 2025. Accordingly, Vietnam’s GDP will increase by $162 billion in 20 years if the digital transformation is successful.

Recognising the role of tech firms, over the past few years, the government has provided capital and come up with many supporting policies to nurture them. Specifically, Decree No.13/2019/ND-CP providing new incentives for science and technology companies took effect on March 20. It gives sci-tech firms exemption from corporate income tax for the first four years and a 50 per cent exemption for the next nine years. The decree also stipulated that sci-tech companies are eligible for exemption or reduction of land and water surface rental fees.

In addition, the MoST in 2015 also launched the National Technology Innovation Fund (NATIF) with a budget of VND1 trillion ($43.48 million) to support sci-tech firms.

Despite the government’s efforts, these firms still have limited access to support, according to Nguyen The Tan, CEO of VCCorp.

Speaking at the forum, Tan said that while China actually has negative tax rates for Alibaba, Tencent, and Baidu, and in the US, Amazon is subject to 0 per cent tax, established Vietnamese firms like VCCorp often pay 15-20 per cent on tax. “Value-added and corporate income taxes are very high,” Tan added.

He said that the digital economy should be considered a key economic sector, with taxes aimed to incentivise development, not milk firms dry. The government should appreciate Vietnamese technology companies and enable them to export products and services to international markets.

Prime Minister Nguyen Xuan Phuc Technology is the foundation of economic growth, escaping the middle-income trap, and enabling Vietnam to become a developed country. Vietnam targets to become a prosperous industrial country with more than half of the population in the middle class by 2045. In my opinion, taking advantage of Industry 4.0, technological and scientific achievements, and developing technology corporations will help us reach the target. In the time coming, Vietnam will not only absorb and master technology, but also strengthen innovation and creativity. This is the only way we can become a prosperous country. We will use technology from over the world to resolve Vietnam’s problems, and then local technology companies will provide solutions for the globe. We consider technology companies the key for the country to become a “dragon” by 2045. With the exciting trends of Industry 4.0 and digital economy, they will play an important role in the country’s socio-economic development. Natural resources and cheap labour are no longer advantages, so innovation is vital for the businesses and the economy. For example, e-commerce has contributed around $3.5 billion to the economy, equivalent to 1.7 per cent of the GDP, which is expected to grow to $42 billion by 2030 thanks to boosting digital technology in order to increase labour productivity and reduce production costs. These figures should increase multiple times in the decades after. There are nearly 50,000 active businesses in the ICT sector now, making a total revenue of $100 billion. We target to have 100,000 businesses by 2030, as well as transfer from outsourcing to making Vietnamese products. Industry 4.0 is a good opportunity for innovative ideas to change the way of doing business. Economies will shift from a model whose growth is driven by traditional inputs such as low-cost labour, land, and natural resources to another model whose growth created by high technology and innovation. Thereby, labour-intensive industries will lose their competitive advantage and narrow production scale. But there will be opportunities from the efforts of Vietnamese businesses trying to overcome the challenge, while maximising the advantage of Vietnam in the digital era.

Breaking limitations

Pham Hai Van, director of Haravan Technology JSC in north Vietnam, told VIR that Vietnamese firms have yet to acquire the financial strength of global firms and cannot afford producing new technology and train human resources. Therefore, in addition to tax incentives, policies resolving capital shortage should also be issued.

Nguyen Xuan Thanh, lecturer in public policy at Fulbright University, also told VIR, “It is necessary to create open policies for all sides playing a part in the development of local tech firms.”

According to Thanh, schools should be free in selecting curricula instead of being limited to the one prescribed by the Ministry of Education and Training. Besides, private businesses should be involved deeper in developing technology parks for domestic players and startups because they know better what those companies need.

In addition, it is essential to extend loans to startups. The most difficult times for startups and sci-tech firms are the ones directly after establishment when they commonly accept losses in hopes of future gain. Therefore, they need a certain amount of capital to support them before they grow up.

Eric Sidgwick, the Asian Development Bank’s country director for Vietnam, said that Vietnam should harness the digital economy to rapidly raise productivity, and a key task for this will be fostering tech startups. He advised the government to develop technology parks focusing on regional and global markets, as well as promote innovation and entrepreneurship in higher education.

Vietnam still needs to adapt to the technology era and work out suitable policies. There are not only problems with governance, but also with startups and tech firms, which also need time to grow up, according to Van from Haravan Technology. “Piloting new policies on a small scale could help the government to avoid risks. They can be extended if they work and there is little harm if they do not hit the mark,” Van said.