Digital transformation strategy for small and medium enterprises in Vietnam – Approaching Foresight (Part 1)

Small and medium enterprises (SMEs) have always been considered the foundation of the economy for both developed and developing countries. However, SMEs often do not have digital resources and are limited in finance, human resources and qualifications; therefore, they encounter some difficulties in the initial steps of implementing digital transformation. Facing this reality, the author from University of Economics Ho Chi Minh City (UEH) conducted a Delphi survey following the Foresight approach on more than 300 digital transformation experts in SMEs in Vietnam with the purpose of evaluating the characteristics, issues in digital transformation and business vision, future digital transformation in addition to forecasting the need for digital transformation and priority activities for implementing digital transformation in businesses.

Implementing the Foresight approach in building digital transformation strategies for SMEs in Vietnam

Digital transformation is considered one key and important factor to successfully approach the 4.0 Industrial Revolution and to avoid falling behind. The reality indicates that the developed countries around the world are growing strongly thanks to this transformation. In accordance with the research by Microsoft and IDG in the Asia-Pacific region (Microsoft, 2018), CDs can bring approximately 6% to GDP in 2017, 25% in 2019, and approximately 60% in 2021. In 2018, CDM had an impact on increasing productivity by approximately 15% and is expected to increase to 21% by 2020. At the same time, 85% of jobs will have to change and up to 27% of jobs will no longer exist due to the impact of CDS in the near future. However, implementing CD is not an easy job; organizations must develop and implement strategies to evaluate the impacts of CD. These strategies involve transforming key business activities affecting products and processes as well as the entire business models and management concepts (Matt et al., 2015). The following are the main reasons motivating the research:

Overview of the digital transformation situation of small and medium enterprises in Vietnam

The study conducted an overview of the current status of digital transformation in SMEs in Vietnam in order to evaluate the level of digital transformation readiness, the barriers and the motivations towards promoting the digital transformation process as well as the policies to support digital transformation from the government for SME enterprises.

Level of readiness in terms of digital transformation

According to survey results on the level of readiness for Industrial Revolution 4.0 on 2,659 industrial enterprises in Vietnam in 2018, the majority of industrial enterprises (85%) have not made any preparations for Industrial Revolution 4.0; A small number of businesses (13%) are at the ‘beginner’ level; Only 2% of businesses are considered to have basic qualifications and are learning; There are no enterprises rated at the leading level. If evaluated by scale, up to 91% of SMEs are at the outsider level with a score of only 0.51 out of 5 points, of which only 8% of enterprises are at the beginner level, and 1% of enterprises are at the basic level.

In addition, according to the survey results of the Vietnam Software and IT Services Association (VINASA) conducted on 350 businesses in 2019, 30.7% of businesses have learned about digital transformation but do not know what to do while 5.1% of businesses do not understand and have not taken any action on implementing digital transformation.

Therefore, it can be assessed that the level of digital transformation readiness of SMEs in Vietnam in the period before 2019 is rather low. However, after the COVID-19 pandemic, there have been bright spots in CDS readiness. The results of a survey of 1,000 businesses at the end of 2022 indicate that most businesses (mainly SMEs) are ready for the transition to the digital environment; All industries have a CD readiness score of over 2 points, of which 12 out of 16 industries have a readiness score above the average level (2.5 score).

Challenges and barriers to implementing digital transformation

According to a study by the Japan External Trade Organization (JETRO) in 2017, Vietnamese SMEs often encounter three main following obstacles upon implementing Digital transformation: (1) Lack of access to financial resources, (2) Difficulties to participate in domestic and international value chains, (3) Ineffective government support. The report on the Digital Development Index of SMEs in the Asia-Pacific region conducted on 1,340 businesses in the Asia-Pacific region in April 2020 demonstrates that SMEs in Vietnam often encounter problems. Difficulties in implementing digital transformation are as follows: Lack of digital skills and human resources (17%), “ack of a strong enough IT foundation (16.7%), Lack of digital thinking or digital culture in businesses (15.7%) and so on.

According to the results of a survey by Luong Minh Huan (2020) on over 400 businesses in assessing the impact of the COVID-19 pandemic and the trend of applying digital technology among businesses, the majority of SMEs face the following barriers in applying the digital transformation tool than other large enterprises: High cost of applying digital tools (59.8%), Lack of infrastructure (37.5%), Lack of information regarding digital technology (35.9%), Lack of internal human resources (35.3%) and so on.

In order to prepare for the activities of the CDS Enterprise Support Program for the 2021-2025 period, the Enterprise Development Department – Ministry of Planning and Investment (2021) conducted a survey of more than 1,300 enterprises, of which 72% are for SMEs. The survey results present that up to 60.1% of businesses have difficulties in investment costs and application of digital technology; 52.3% of businesses have difficulty changing business habits and practices whlie 52.3% of businesses do not have enough internal human resources to apply digital technology.

The driving forces behind the digital transformation process

Upon implementing digital transformation, in accordance with Hung (2019), businesses can get the following benefits: (1) Increased profit margin, (2) Increased productivity, (3) Reduced costs, (4) Increased revenue, (5) Increased customer engagement (Hung, 2019). The driving forces for digital transformation of Vietnamese SMEs, in accordance with IDC & Cisco (2020), are as follows: Market growth and expansion (18%), Providing better customer experience (16%), Launching new products/services services or improvements to the existing products/services (15%) and so on.

With the impact and the influence from the COVID-19 pandemic, Vietnamese SMEs have realized the great benefits of CDs to help businesses overcome the pandemic and develop sustainably in the future. Vietnamese SMEs, in accordance with survey results by Luong Minh Huan (2020), expect digital transformation will help: Reduced costs (67.1%), Reduced paperwork (56.8%), Reduced direct contact (52.1 %) and Effective business administration (51.4%).

Policies to support digital transformation from the Government

Currently, the Politburo, the Government and other relevant Ministries have issued diverse policies to support SMEs, especially the process of approaching Industrial Revolution 4.0 and implementing digital transformation. Specifically as follows:

• On June 3, 2020, according to Decision No. 749/QD-TTg, the Prime Minister approved the “National Digital Transformation Program until 2025, orientation to 2030”.
• On January 7, 2021, the Ministry of Planning and Investment approved the “Program to support community-based enterprises in the period 2021-2025” to support the promotion of digital community in SMEs. After one-year implementation, nearly 200,000 users have accessed guidance documents to raise awareness regarding digital transformation, more than 500 businesses have assessed the level of digital transformation readiness besides approxiamately100 businesses are receiving consulting support.
• On March 26, 2021, the Ministry of Information and Communications approved the “Support Program for Digital Transformation SMEs” focusing on accelerating digital transformation in SMEs through the application of the best digital platforms. After more-than-11-month implementation, the program has selected 23 excellent “Make in Vietnam” digital platforms to announce and to introduce to businesses through the Smedx.vn website.
• On August 26, 2021, Decree No. 80/2021/ND-CP was issued by the Government to detail and to guide the implementation of a number of articles of the Law on Support for SMEs.
• On December 13, 2021, the Ministry of Information and Communications issued Decision 1970/QD-BTTTT approving the “Project to determine the index to evaluate the level of digital transformation of enterprises and to support the promotion of digital transformation enterprises”.
• On May 10, 2022, the Ministry of Planning and Investment issued Circular No. 06/2022/TT-BKHDT clearly regulating details and implementation instructions related to supporting SMEs in technology and human resource development, consulting and so on.

Please refer to the full research titled Digital transformation strategy for small and medium enterprises in Vietnam – Approaching Foresight TẠI ĐÂY.

Author: Nguyễn Mạnh Tuấn & Lê Ngọc Thạnh – University of Economics Ho Chi Minh City (UEH), Trương Văn Tú & Nguyễn Trung Tuấn – National Economics University (NEU).

This is an article in the series of articles spreading research and applied knowledge from UEH with the “Research Contribution For All – Nghiên Cứu Vì Cộng Đồng” message, UEH cordially invites dear readers to look forward to the upcoming Knowledge Newsletter ECONOMY No. #94.

News & photos: Author, UEH Department of Marketing & Communication