Digital transformation in Vietnam’s enterprises

Nội dung text: Digital transformation in Vietnam’s enterprises

1. DIGITAL TRANSFORMATION IN VIETNAM’S ENTERPRISES Ph.D Tran Thi Phuong Mai1 Abstracts: Vietnam is the country which has advantages in digital transformation. All reports show that the proportion of Vietnamese mobile phone users is higher than the average level in the world and the demand for the services related to mobiles and the internet is increasing rapidly. Businesses are under increased pressure to optimise their user experience and to create personalised service experiences for each customer. Digital transformation will help Vietnam’s enterprises do this more effectively. In this paper, the author will focus on some categories of the concept “Digital transformation” and the elements within, point out some limitation of digital transformation, and give some recommendations to speed up digital tranformation in Vietnam’s enterprises. Key words: Digital transformation, digital economy, E-government, e-economy and e-society. 1. INTRODUCTION The digital transformation was already a reality in Europe and Central Asia, as UNDP and many governments have begun to transfer legal, social and civil service delivery online. Accelerated digitalization can be expected to create new business models and opportunities for digital leapfrogging in traditional industries and governance. Moreover, the Covid–19 crisis has highlighted the need for significant support and investments on digital transformation and effective digital governance across all countries in the region, particularly to ensure the continuity and delivery of core government functions. Vietnam is one of the very few countries that dealt with Covid–19 relatively well. With 691 (as of November 7th 2020) cases of Covid–19 due to domestic infections and 35 deaths linked to the outbreak, Vietnam has stunned the world for beating the novel coronavirus. And despite gloomy projections for the global economy, Vietnam is confident it will achieve a GDP growth rate of 5 per cent for 2020. The Covid–19 pandemic showed the important role of digital transformation in prevention and control activities, bringing life to a “new normal” state. The Covid–19 pandemic is both an obstacle but also a motivation to promote comprehensive digital transformation in all fields, in each enterprise, each organisation and individual. 2. THE DEFINITION OF DIGITAL TRANSFORMATION Nowadays, digital transformation is a buzzword in an academic and business environment. Business, education, banking, government, manufacturing – almost every industry is being “digitally transformed” in the period of the fourth industrial revolution. The European Commission (EU) also priorrities digital transformation of business and soceity. Digital transformation Monitor and Digital transformation Scoreboard are among EU initiatives aimed to measure progress on digital transformation in EU coutries (European Commission, 2019). In 2017, the Organization of Economic Cooperation and Development (OECD) lauched a new global project– “Going Digital: Making the Transformation Work for Growth and Well–being”. Its goal is “to help policymakers better and understand the digital transformation that is taking place and 1 International Trade Faculty. School of trade and international economics. 98
2. create a policy environment that enables their economics and societies to prosper in a world that is increasingly digital and data–driven” (OECD, 2018). There are a number of definitions about digital transformation which are lauched by academicians, government authorities and business experts. According to the European Commission (2019): “Digital transformation is characterized by a fusion of advanced technologies and the integration of physical and digital systems, the predominance of innovative business models and new processes, and the creation of smart products and services” OECD (2018) considers that: “Digital transformation refers to the economic and soceital effects of digitization and digitalization. Digitization is the conversion of analog data and processes into a machine– readable format. Digitalization is the use of digital technologies and data as well as their interconnection which results in new or changes to existing activities”. Ismail Khater and Zaki (2017) define that: “Digital transformation is a process through which companies converge multiple new digital technologies, enhanced with uboquitous connectivity, with the intension of reaching superior performance and sustained competitive advantage, by transforming multiple business dimensions, including the business model, the customer experience (comprising digitally, enabled products and services), operations (comprising processes and decision–making), simultaneously impacting people (including skills talent and culture) and networks (including the entire value system)”. Deloitte (2018) considers that: “Digital transformation is the use of technology to radically improve the performance or reach of an organization. In a digitally transformed business, digital technologies enable improved processes, engaged talent, and new business models”. Peter C.Verhoef and his partners (2019) in their reserch on Journal of Business Research define digital transformation as a change in how a firm employs digital technologies, to develop a new digital business model that helps to create and appropriate more value for the firm. Table 1: Categories of the concept “Digital transformation” and the elements within Technologies Management/Processes People - Data - Business models - Customers - Big data - Operating models - Employees/workforce/people - Cloud - Operational processes - Managers - Mobile devices - Strategies - Executives - Social media - Business activities - Talents - Software - Organizational structure - Owners - Analytics - Organizational culture - Suppliers - Embedded devices - Coordination mechanism - Partners - Artificial intelligence - Products - Stakeholders - The Internet of Things - New services - Competencies - Cybersecurity - App marketplaces Source: Natalja VERINA, Jelena TITKO (2019), “Digital Transformation: Conceptual framework” 99
3. To sum up, we can understand that Digital transformation is the process of using digital technologies to create new – or modify existing – business processes, corporate culture, and customer experiences to meet changing business and market requirements. This reimagining of business in the digital age is digital transformation. Enterprise digital transformation is the use of digital achievements and data to create new business models, digital products and services, to innovate production and business processes, and linking from production, trade to use that increasing labor productivity. Why so much attention is paid to digital transformation? First, digitalization is an integral part of the overwhelming development of society, economics and business. Digitalization and globalization – or vice versa – these processes determine our existence nowadays. According to the European Commission forecasts, a “transformative industrial and technological revolution” will be one of the key global trends to 2030. “All aspects of society – such as politics, governance, education, science, lifestyles, collective intelligence networks, the setting–up of open systems, and health, including the transformation of the human genome – will be transformed by technological breakthroughs” (ESPAS, 2015). As this paper look at what is happening during the current acute disruption caused by Covid–19, the author finds that many companies have accelerated their digital transformation efforts. The Covid–19 crisis is creating a stress test for the investments that organizations made in digital transformation and increasing the importance of certain areas (e.g., technologies that address health and safety concerns). The resurgence of the Covid–19 pandemic once again shows that digital transformation in business operations is of great importance in order to respond promptly to crises and minimize external impacts. 3. THE CURRENT STATUS OF DIGITAL TRANSFORMATION IN VIETNAM’S ENTERPRISES Vietnam was already committed to a significant digital transformation, even before the Covid–19 pandemic. It launched in December 2019 the National Public Services Portal, an electronic platform connecting the government, citizens, and businesses and providing information on public services and administrative procedures. At the time, it vowed to become the leading digital economy in ASEAN by 2030, with digital economic activities set to account for 30 per cent of its GDP. The pandemic only accelerated the trend. On June 3, 2020, Prime Minister Nguyen Xuan Phuc approved the National Digital Transformation Roadmap 2025 (with a vision toward 2030), which sets additional targets and guidelines to help Vietnam reaching its digital transformation goals with a focus on three pillars: e-government, e-economy and e-society. The National Digital Transformation Program until 2025 targets completion of a national database and putting 80% of online public services online at level 4, usable on most mobile phones, as well as 90% of documents at the ministerial level, and 80% of documents at the district level. It plans to handle 50% of state monitoring and management online to improve accountability and transparency and minimize corruption. According to Cisco’s the level of SMEs’ readiness in Asia–Pacific reseach in 2020, there is 72% of SMEs which are finding the way to digitalize in order to lauch new products and services, increased significantly in compared with 32% in 2019. Besides, 72% of SMEs realize that the competitiveness is changing and they must catch up, while 46% of them believe that the reason why they take digital transformation is customers’ requirement. Now, the digital transformation of enterprises focuses on 3 main areas which includings: IT hardware upgrade (18%), cloud technology (18%) and network 100
4. security (11%). In particular, digitalization of SMEs in Vietnam could contribute from 24 billion to 30 billion USD to the gross of national product in 2024 and the post Covid–19 economic recovery. According to a survey of VNR500 in November 2019, 59.60% of large enterprises intend to invest more for technology, 25.25% investing step by step, 9.06% preparing capital and human resources and only 6.06% does not intend to invest. In compare with another countries in Asia, Vietnam has many advantages in digitalization which includes: – A large market with the population of nearly 100 millions people encourges enterprises to implement new model which based on data, fundamental business models and to achieve economic scale targets soon. – Affordable, high–speed Internet is the backbone of any digital economy. Vietnam has made great strides in expanding the reach of the Internet from virtually zero in 2000, to 64% of the population today. The next challenge is to get the majority of people connected to 4G and, in the future, 5G mobile networks and further expand broadband fiber optic networks, particularly for businesses, schools, and large institutions. – Vietnamese people are also assessed to love math, creative, learning smartly. According to the results of the PISA education survey annoucement, Vietnam ranked 8th in science, 22nd in mathematics among 72 countries. This is the basic foundation that create developers, coderes who can catch up quickly with the new technology trend. – The ICT industry has seen dramatical growth in recent years which illustrated through high revenue and high export value. In 2018, total revenue of ICT industry is estimated at 98.9 billion USD. Many large enterprises shift to self–reseaching, self– manufacturing, self–producing. The pioneers are Viettel Group, Vietnam Posts and Telecommunications Group, Vingroup. – Many enterprises are technology – partners with big corporations all around the world. –Vietnam‘s telecommunications infrastructure ensures digital economy development with high– speed networks, wide bandwidth, large coverage areas (Vietnam's telecommunications network has nearly 1 million km of fiber optic cables to reach villages, hamlets and communes, and wards of 63/63 provinces/cities), 53% of households have access to fixed broadband Internet; mobile waves cover 99.7% of the population, the rate of changing from Internet to Ipv6 reach 25%, Vietnam is one of countries on the top of highest Ipv6 growth rate in Asia– Pacific region, 2nd in Asean region and 13th in around the world in IPv6 appilcation rate. 25%, Vietnam is in the top of the countries with the highest IPv6 growth rate in Asia–Pacific region, 2nd in ASEAN region and 13th in the world in IPv6 application rate. – Vietnam has the dynamism and creativity of young adults, successful startups, for example, Topica Fouder Institute has created more than 60 startups, raised more than 20 million USD from funds and has a total valuation of more than 100 million USD; WeFit – built on the principle of a shared economy between gymers and gyms with revenue of 700,000 USD in 2017 after only 1 year of operation. – In addition, due to the late digitization, Vietnam's economy is not tied to old technologies and has the potential to apply new technologies. For example, instead of making cashless transactions via payment cards, Vietnam can promote mobile money to quickly increase the scale and coverage of this service, boost e-commerce and digital economy. 101
5. 4. SOME LIMITATION OF DIGITAL TRANSFORMATION IN VIETNAM’S ENTERPRISEs In a 2020 study conducted by Harvard Business School, 80% of CEOs said that their organisations would need to undergo considerable changes to digitally transform, including significant evolution of the organisation’s business model over a three–year period in order to ensure success. Just like many coutries around the world, this is also no easy feat for businesses in Vietnam. According to a recent report released by the Vietnam Chamber of Commerce and Industry (VCCI) in 2020, most small and medium–sized enterprises (SMEs) still face many barriers in digital transformation as they lack awareness of the role of digital transformation. The report showed that, SMEs, though they account for nearly 98% of Vietnam's businesses, have a low level of technology and innovation. According to a survey by the Ministry of Industry and Trade, up to 16 out of 17 industries surveyed have a low level of readiness for engagement in digital transformation. Notably, over 80% of enterprises have just started to understand digital transformation. A representative from an import and export company said that it did not dare to make strong investment for digital transformation because it found it difficult right from the beginning and it was uncertain about mastering new technologies. A recent study of Vietnam–based businesses identified five common causes of digital transformation failure in businesses. Firstly, Lack of leadership ability to drive innovation. Digital transformation is more than a single change; it’s an entire structural shift. This endeavour requires ‘transformational leaders’ that are capable of promoting innovation. These leaders need to show determination, inspiration, leadership by example, empowerment and motivation. The research shows that many businesses ‘leave it all’ to their IT department to explore and make changes involving technology. The leaders of such businesses see digital transformation as part of the IT department’s responsibility. Meanwhile, many IT department heads think they can carry out transformation without much input from their leaders. This is one of the main reasons why the vast majority of digital transformation projects fail in business. Secondly, Missing or weak dynamic capabilities in the organisation. Dynamic capabilities are needed to integrate, build and restructure the internal and external competencies of a business to support rapidly changing environments. The three main types of dynamic capabilities are sensing capabilities, seizing capabilities and transforming capabilities. Advances in technology have enabled many businesses to perform miracles and some of them – such as Apple, Amazon, Microsoft and Alibaba – have quickly become the biggest companies in the stock market. Concurrently, many brands – like Sears, Kodak, Nokia, Yahoo and Blockbuster – have lagged behind in the race, with some even facing bankruptcy. Successful businesses need to be strong across all three dynamic capabilities, while failing businesses often partly or completely lack such capabilities. Thirdly, Lack of appropriate corporate culture as a foundation. Corporate culture plays a major role in promoting creativity and innovation in every business. This is considered a determining factor for the success of digital transformation. As with many major reforms or changes, there is often resistance from internal and external stakeholders which can increase the risks throughout the digital transformation process. This process 102
6. greatly improves when companies create a corporate culture that encourages employees to take risks and accepts failure, so people can learn how to adapt quickly. In many small Vietnamese businesses, building this kind of culture is not yet big on the leadership agenda. The reason are limited resources, and leaders are afraid of failure and even punish mistakes. In addition, it is very common for leaders to enact a culture of blame so employees are reluctant to step out of their comfort zones, making the implementation of the digital transformation strategy even more unstable and difficult. Fourthly, Misconception about digital capabilities. The digital capabilities of a business comprise not only the ICT infrastructure but a combination of many competencies. These include technology infrastructure, data collection and management process, data analytics, the ability to offer solutions based on data analysis and technology, and security capabilities. Most small and medium enterprises do not have a strategy to apply digital technologies and be more proactive in response to the market, or have a digital strategy to innovate. This makes Vietnamese small and medium enterprises behind the Philippines and Indonesia in digital transformation. In Vietnam, many of SMEs misunderstood or did not fully grasp what digital capabilities were. Those businesses only focused on the ICT infrastructure – so they invested in high–cost technology projects – but the solutions provided did not meet the expectations of their customers and employees due to the remaining capabilities being weak. Fifthly, Mistakes in the digital transformation strategy. Businesses often commit the following errors in their overall digital transformation strategy: Becoming overly technology–oriented and forgetting that the people – employees, shareholders, customers and suppliers – are the true owners of the transformation. Good corporate governance should be a priority, along with the above–mentioned factors. Becoming delusional about success by setting unrealistic goals against a short execution timeline. When the goals are not met or when the implementation encounters too many challenges, any next step or potential project will be affected. Becoming overly cautious and trying to be perfect in deployment. Nothing is absolute and being too cautious is as bad as being careless. When a business leader has a perfectionist mindset, the digital transformation process will often drag and eventually incur high costs. Lack of focus, preparation and dedicated resources for digital transformation. This mistake is often due to a poor understanding of the nature of ‘transformation’. Depending on the area of activity and the size of each business, costs and resources can vary, but digital transformation often targets fundamental changes in operations, communications, and even the business model. 5. RECOMMENDATIONS TO SPEED UP DIGITAL TRANFORMATION IN VIETNAM’S ENTERPRISES By 2025, 80% of online administrative procedures should be available on smart phones and other devices in Vietnam. A national database which makes up the foundation of e–Government, including Population, Land, Business Registration, Finance, and Insurance, will be completed and accessible from localities across Vietnam. A database of public agencies will be created, allowing each Vietnamese citizen or company to fill out registration forms just once for all services. Vietnam 103
7. intends to climb to the top 70 on the E–Government Development Index (EGDI). The digital economy is projected to make up some 20% of Vietnam’s GDP in the near future, with the proportion of the digital economy in each economic sector reaching at least 10%. Labor productivity will likely increase at least 7% a year. Within the next five years, Vietnam is set to be one of the top 50 countries on the information and communication technology development index (IDI), one of the top 50 countries on the global competitiveness index (GCI), and one of the top 35 countries on the global innovation index (GII). According to some researches, if Vietnam takes advantages of digital opportunities, it can boost GDP by 28.5 – 62.1 billion USD, equivalent to 7–16% increase of GDP in 2030, which is depend on each scenario (high, low, medium). GDP per capita will increase from 315 – 640 USD/person in 2030 by increasing productivity and increasing employment. Production growth creates new jobs with an estimated of 1.3 – 3.1 million jobs increase, some jobs will decrease, while many new jobs will be created. According to forecasts, by 2030, digital technologies will help new industries appear in Vietnam and bring in "super" revenue such as e-commerce to reach about 40 billion USD; artificial intelligence (AI) reaches 420 million USD, cloud computing reaches 2.2 billion USD; smart agriculture with 1.7 billion USD; Fintech is about 1.5 billion USD. Suceess or failure of digital transformation does not only depend on technologies, but also on political determination and national institutions. On the Government side, there are some recommendations as the followings: The Government needs to create a modern institutional system with appropriate legal regulations, synchronous infrastructure, and supply of abundant skilled human resources to create ecosystem for e-commerce, e-economy, e-soceity. The policies and regulations to protect and thereby promote trust among Internet users in the digital space must be established. The cross–cutting legal and regulatory framework should cover electronic transactions, cross–border data flows, cybersecurity, data privacy, and consumer protection. Vietnam has enacted a cybersecurity law and drafted legislation on data privacy. In this area, Vietnam and other countries will benefit from regional cooperation and harmonization (i.e., through APEC and ASEAN frameworks). Expanding the coverage and improving the efficiency of connective infrastructure in Vietnam would be impossible without market–based regulatory reforms. To bring broadband Internet to every citizen, for example, Vietnam needs to promote further competition along the broadband value chain and facilitate infrastructure sharing within and across sectors. Further modernization of the regulatory framework for logistics also enables faster, cheaper and more reliable shipping services. The Government should invest heavily to prepare citizens in various stages of their careers to adapt to new challenges of the digital age. This is where the private sector should be engaged closely given the rapid pace of change for relevant skillsets. While Vietnam already has developed a master plan for the digital economy, it should consider broadening the scope and coverage to go beyond the development of e-commerce sector towards the whole economy. There is also a need to translate the plan into detailed, time–bound action plans, with adequate oversight over implementation and effective intersectoral coordination. The Government can lead by example by becoming more digital itself. Vietnam is on the right track by launching numerous initiatives towards building a digital government. The rollout of an 104
8. E-Cabinet to streamline government business processes and a national E-Services portal for public service delivery in 2019 are encouraging moves in this direction. On the business side, there are some recommendation as the followings: Firstly, building sucessful digital transformation strategy is one of key factors, but it is not a simple task. Whether large or small businesses need to understand digital transformation is not only a tool but also working culture transformation, management methods transformation, operation transformation. Therefore, building digital transformation strategy needs the direction from the most senior leaders. Secondly, enterprises can not digitalize 100% immediately, so it must be divided to different stages. Accordingly, the best way is beginning from departments, staffs. This is suitable tactic because if enterprises digitalize right away, it is both dificult, risky, vulnerable. Thirdly, enterprises should choose partners to implement digital transformation smartly. In order to digitalize successfully, enterprises have to understand the core of digitalization, because if they misunderstood, they would get the consequences after 3 or 5 years. Therefore, enterprises have to evaluate and select the suppliers carefully, focus on some important factors such as the reputation of suppliers, or their products can connect with others or not. Fourthly, in terms of payment. While more people are embracing cashless payment methods, the majority of transactions are still cash–based. Access to cashless payment methods is particularly limited among the population living outside cities. According to the World Bank’s financial inclusion survey in 2018, only 22% of Vietnamese made or received digital payments in the previous year. And in 2019, only 41% of adults had a bank account. While usage of digital payments is growing, including through non–traditional providers, the limited usage of digital payments indicates that people still need to gain more trust in these options. Banks and regulators will need to work together to develop this enabling environment, including regulations on consumer protection, interoperability of different digital payment systems, and using secure digital payments for government services. Fifthly, in terms of labor. The study by the International Labor Organization estimated that about 56% of all employment in five ASEAN countries including Vietnam is at a high risk of displacement by technology over the next decade. How Vietnam prepares its workforce now is absolutely crucial for its next stage of growth. Skills development is needed on multiple levels: advanced technical skills, “soft skills”, and generalized computer literacy. This will require a better understanding by policymakers of the dynamics of the digital skills labor market, and closer collaboration between the private and public sectors for lifelong learning. 6. CONCLUSION The trend of switching from traditional business to digital platforms is becoming increasingly popular. Digital transformation is considered an effective solution to help businesses penetrate and expand export markets, in the context that Vietnam is increasingly integrating deeply into the world economy. Moreover, technologies involved in the digital transformation have been instrumental in Vietnam’s ability to adapt to the new Covid–19 reality. 105
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