Vietnam’s new role via Industry 4.0

The government is creating strategy to promote the rise of startups, as well as more research and development, Photo: Le Toan

Several astounding figures were presented at ABB’s Technology Day 2019 last week in Hanoi. The event, highlighting Vietnam’s digital transformation towards accelerating a sustainable future, was attended by 200 delegates including business leaders and policymakers.

Among the headlines, it was revealed that the Fourth Industrial Revolution could increase Vietnam’s GDP by between $28.5 billion and $62 billion in a decade, depending on the level of technological application in businesses. This increase is equivalent to a rise of 7-16 per cent of GDP by 2030.

Pham Hoang Mai, general director of the Department of Science, Education, Natural Resources and Environment under the Ministry of Planning and Investment (MPI), said at the event, “Industry 4.0 presents Vietnam with a once-in-a-generation opportunity to make the step up to the next level of economic development, and bring prosperity to Vietnamese through better jobs, higher productivity, and improved innovative capacity.”

Vietnam’s policymakers have been searching for an alternative industrial strategy that will allow the country to maintain its economic growth trajectory, but also make it more sustainable from a social, business, and environmental perspective.

“Industry 4.0 offers great opportunities for Vietnam to quickly improve competitiveness and growth quality, as well as escape from the danger of lagging behind other nations,” Mai said, pointing out that Vietnam has the potential to deploy Industry 4.0 technologies effectively despite limitations in infrastructure and technological capacity. Positive factors cited include a large population of nearly 100 million people, a high rate of mobile phone subscribers, and a young labour force with good training, especially in the IT sector.

“The Vietnamese government is working on many projects to move into the Industry 4.0 era,” Mai continued. “However, the most important thing is to have institutional reform of the domestic business climate to encourage innovation, especially in sectors with great potential for implementation such as manufacturing, processing, agriculture, finance, logistics, healthcare, and education.”

Innovation hubs

One such project requiring international-level funding, according to the MPI, is the National Innovation Centre (NIC) in Hanoi’s Hoa Lac Hi-tech Park. The centre would have five areas of focus to create competitive advantages for the Red River Delta region, including smart factories, digital media, cyber security, smart cities, and the environment.

The NIC is expected to become operational next year, and has been mandated to serve as a hub for business innovation in the country. During the operation, the NIC will offer the highest corporate tax incentives, with exemption from land use fees for 20 years and preferential credit. This would allow domestic and foreign enterprises operating in the same field to sublease grounds for the maximum term stated by the law, allowing guarantees for enterprises working on their premises to apply for work permits and long-term residence visas. The initiative aims to attract foreign and domestic large-scale technology corporations, startup ventures, and venture capital funds that can collaboratively push Vietnam’s IT efforts in both hardware and software development. The Vietnamese government’s desire is that the NIC will become the focus of a new and more sustainable industrial development strategy.

Vietnam has thus far attracted 26,500 foreign-invested projects from 129 countries and territories in the last 30 years, with the total ­committed capital of $350 billion. After luring $35.46 billion last year, foreign investment in Vietnam continued to hit a four-year record high in the first four months of 2019 with $14.59 billion, up 81 per cent on-year.

With the impressive results, buoyed by the country’s free trade agreements, close proximity to major global supply chains, and the government’s success in improving the investment environment, experts believed the country now needs to shift focus on quality instead of quantity.

According to Kyle Kelhofer, country manager for Vietnam, Laos, and Cambodia at the International Finance Corporation, most foreign-invested projects in Vietnam are still focused on manufacturing and should be shifted to high added-value sectors such as technology, and research and development (R&D).

Increasing R&D and tech

At an international conference last week on science, technology, and innovation in Vietnam, Prime Minister Nguyen Xuan Phuc stressed that the sectors are seen as a pillar for Vietnam’s socio-economic development. “Vietnam needs to have a strategic transition to promote creativeness, startups, and R&D, in combination with technology development in a number of new and key industries,” PM Phuc said. “There is a need to better boost co-ordination between the state and society in the development of science, technology, and innovation.”

R&D projects in the country have been increasing in both quantity and scale recently thanks to preferential policies granted by the government to foreign investors, such as tax incentives and land use rights. Vietnam has become a destination for many major manufacturers of technology products, and moving R&D closer to where manufacturing takes place is also cost-effective.

Key investors such as Panasonic, Bosch, Samsung, Yamaha, and Intel have invested into R&D projects and centres in Vietnam. Such investment creates jobs for thousands of people while also adding more value to products made in Vietnam and making manufacturing more cost-efficient. This in turn can make Vietnam more competitive and create opportunities to move up the global value chain.

Trent Davies, from Dezan Shira and Associates, said the ongoing trade war between the US and China is creating opportunities for Vietnam, as companies are looking to relocate production from China to the ASEAN bloc. “While the R&D foundations built by major companies will help Vietnam capture more investment, it will be vital that Vietnam increases spending on R&D to compete with its ASEAN peers,” Davies said.

Meanwhile, Brian Hull, country managing director at ABB in Vietnam, told VIR, “Customers nowadays increasingly demand higher-quality products and citizens want better living environments. Sustainable growth can only be achieved by the adoption of digital technologies and advanced manufacturing applications. Digitalisation and Industry 4.0 will be the growth drivers to strengthen Vietnam’s position in the region.”

A human resource base

According to business management consultant BDG Vietnam, for Vietnam, the rise of R&D investment further confirms and fosters the country’s attractiveness but also greatly challenges its human resources (HR) capacity. BDG said that the key factor of a competent workforce is still to be manifested, while the lack of scientific research at universities and enterprises, as well as ongoing poor investment in higher education, has led to a low number of experienced and trained researchers and technicians.

The solution, along with greater investment in education and R&D from the government, is to encourage R&D activities in local companies and to collaborate with foreign investors to educate employees and local communities. Without these steps, Vietnam could see a major shortage of HR talent for future R&D centres.

The US-based Dasan Zhone Solutions, a global leader in network access solutions for service provider and enterprise networks, has been co-operating with the Vietnam-South Korea Institute of Science and Technology to develop R&D activities in Vietnam, for example in chipset design. Meanwhile, in addition to accelerating investment in Vietnam, a raft of Japanese businesses is also considering transferring part of their R&D activities to the country.

In fields such as hi-tech, the quality of HR falls short of investor requirements, according to Yung Kim, CEO of Dasan Zhone Solutions. The company lacks qualified personnel because Vietnam’s IT ­universities do not offer ­training on chip programming. “Graduates are intelligent and possess sound knowledge, but many do not have skills and practical experience and so work at a slow pace and are ­ineffective,” Kim said, but he remains optimistic about Vietnam’s HR.

“With training, they have the capacity and expertise to work shoulder-to-shoulder with their international ­colleagues,” Kim said. “We have seen positive improvements over time, with proper training.”