Following suit of many of its Southeast Asian neighbours, Vietnam has demonstrated that it has major potential for economic growth, particularly in the realm of small and medium-sized enterprises (SMEs) – including startups – that are focused on technology. Vietnam’s eCommerce value climbed to $4 billion USD in 2016, dubbing the nation as one of the fastest-growing markets in the world. This is projected to more than double by 2020–reaching a peak of $10 billion USD. However, in order for this growth to be sustainable and solidify Vietnamese SMEs within the global value chain, certain challenges must first be addressed.
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Let’s delve into Vietnam’s current SME climate and the subsequent challenges that it faces in more depth. We will explore the initiatives that are looking to shape the nation’s enterprises over the coming years.
The current SME and startup landscape
The ASEAN SME Transformation Study was conducted by the United Overseas Bank in Singapore at the end of 2018. It surveyed 1,235 SMEs in Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam. The objective of the study was to understand how the six largest ASEAN countries are preparing for economic growth and adapting to upcoming changes.
The study highlighted these key facts regarding Vietnam’s current SME climate:
- Of the currently established Vietnamese businesses, 71% prefer investments in digital technologies rather than conventional areas such as factories or machinery.
- A total of 86% of Vietnamese SMEs favour technology, as they believe it will manage overall cost by reducing expenses, simplifying banking needs, and provide sourcing from cheaper suppliers.
- Four in five Vietnamese SMEs note that they would prefer online access to products and services, such as applications for financial services, including bank mortgages and loans.
- Two in three Vietnamese SMEs predicted their revenue would grow in 2019, and one in three SMEs anticipate that it will increase by double digits.
Ultimately, these insights from the study show that Vietnamese SMEs appreciate the critical role that technology plays–and will continue to play–in growing their businesses in a sustainable, competitive way. This is largely due to the fact that software, such as mobile applications and digital marketing platforms, are a primary interest among investors. Vietnamese SMEs also understand technology’s capacity to enhance customer experiences and, subsequently, build customer loyalty.
The study concluded, however, that while it’s important that SMEs focus on technology investments over traditional asset spending, there is another crucial element to consider: tailoring their business to participate in regional and global production value chains.
Vietnam’s potential in global value chains
Statistics from the Ministry of Planning and Investment (MPI) show that only 21% of Vietnamese SMEs currently participate in regional and global value chains. To put this level of participation into perspective, 30% of Thai and 46% of Malaysian SMEs are currently participating in these chains. However, the MPI aims to raise this rate by 2030, to a level that is on par with leading countries in the ASEAN. Although this goal is ambitious, Vietnam has real potential to become a leading choice for multinational corporations looking for a production base.
One of the reasons for the MPI’s recognition of Vietnam’s growing potential in global value chains is recent market changes throughout the ASEAN. China is already shifting from a manufacturing centre to a consumer market, and in light of the ongoing China-USA trade war and other trade conflicts, Vietnam could benefit and prosper. However, for Vietnamese SMEs to realise the MPI goal to become a leader in the ASEAN, businesses will need support from the government.
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The government acknowledges a number of challenges that Vietnam must overcome before reaching this potential, including upgrading production capacity and restructuring the economy towards industrialisation. Unlike other Asian countries, Vietnam participates in the assembling stage, the lowest part of the value chain and labour costs are currently increasing–which as it stands is not a competitive advantage.
However, the government is already looking to address these issues and aiming to promote business links and support entrepreneurs in their participation in global value chains.
Initiatives to promote participation in global value chains
According to a draft plan submitted by MPI in 2018 looking at sustainable development of SMEs, a support programme will be piloted over the 10 year period between 2020-2030. This initiative will focus directly on ways in which SMEs can be integrated into global value chains and foster links between businesses, demonstrating the state’s commitment to sustainable growth.
Further to this, Vietnam’s Ministry of Industry and Trade (MIT) is already in the process of producing a draft plan to promote sustainable development of SME’s between 2020- 2025, which will require combined input from multiple industries. One example of a proposed initiative by MIT is that the Ministry of Agriculture and Rural Development will take the reins to encourage improvements in productivity and processes of SMEs in agricultural products. This will directly aid SMEs in this sector to become more integrated and competitive within global value chains.
Finally, on 23 February, it was announced by the Department of Trade Promotion (VIETRADE) that Amazon Global Selling will select 100 small and medium-sized enterprises (SMEs) out of over 700,000 Vietnamese businesses to support, by boosting exports and building brands with its worldwide export solutions and logistics infrastructure. Amazon’s 175 fulfilment centres worldwide and its presence in 185 countries means this initiative will be critical to Vietnam’s move into establishing a global digital presence.
Looking ahead
Although there are a number of challenges currently facing Vietnam’s SMEs in achieving the MPI’s goal, the government is making all necessary efforts to encourage these businesses to participate in e-commerce and improve their processes.
Taking into account the draft plans already submitted, MIT’s proposed policies and Amazon’s recent announcement, 2019 is already shaping up to be a major year for SMEs in Vietnam. With many of the proposed government initiatives looking to be enforced from 2020 onwards, it is likely we will see Vietnamese businesses making a measured mark in global value chains over the coming years.
This article first appeared on TECH COLLECTIVE.