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Vietnam innovation opportunities

by: Tatjana Guznajeva, Technopolis Group

Why should I read this document?

When confronted with the differences between your own market and the market of Vietnam you will likely feel that you have to adapt your product/service significantly to make it fit the preferences and expendable income of local people. While many may see this as a challenge this can also proof to be a great opportunity for your company! Adapting to a new market, like Vietnam, will allow your company to innovate. Not only will operating in Vietnam lead to new insights to be more successful in Vietnam, you will most likely also pick up on ideas to be more successful in your home market.

 

This document provides a short overview of innovation aspects, business opportunities and challenges in Vietnam. It will also give advice on best practices for starting and developing an innovative business venture, considering Vietnam’s country context. May it help you to explore Vietnam and lead you to innovation and success.

 

Opportunities and tips for innovation and doing business in Vietnam

  • Vietnam is one of the world’s fastest growing economies, as since 2000 the economy has been growing at 6.3% annually, on average. The country has introduced reforms towards a market economy, and underwent industrialisation since 1986. The population of Vietnam is fast-growing, reaching 96.8 mln. in 2018, and young, as almost 50% of people are under 30 years old.
  • The agricultural sector is in need of innovation and value chain development. Since Vietnam suffers from effects of climate change and depletion of natural resources, it is a good moment to offer sustainable and innovative technological solutions to farmers.
  • Over 55% of population in Vietam are internet users, therefore e-commerce has a large market potential. Currently, this sector is receiving increasing investment flows and it is estimated at over 4.4 bln. Euro. 
  • The service sector is the main economic driver in Vietnam; tourism and telecommunications companies are major contributors to the sector’s growth and have a large business potential. For example, tourism grew by 29.7% in 2018 compared to 2017.
  • Vietnam has a strong ICT industry. Ho Chi Minh City is hoping to become the Sillicon Valley of Asia. In addition, the Saigon Silicon City project (the 1.3 bln. Euro) offers a good ecosystem to start an ICT business venture, as in the past decade 14.000 IT startups have been launched there. Due to large cyber attacks in the country, there is a large demand in cybersecurity equipment and software.
  • At the moment, a large number of local manufacturing companies are searching for technologies that improve mechanisation and automatisation in production.
  • The quality of education in Vietnam is lower than in the EU, on average, and there is a high demand in education/training services for upskilling and reskilling of the local labour force in adjustment to economic modernisation.
  • Few local companies perform R&D in Vietnam. Hence, innovative companies that produce high value-added goods or companies that trade those goods are very competitive in the market.
  • Over 40 mln. Vietnamese citizens have emerged from living below the poverty-line in the past three decades, providing plenty of opportunities for meeting local consumption needs. Vietnamese consumers are attracted to discounts and small gifts. Currently, Western, safe and organic products, fashionable clothing and footwear, cosmetics and accessories are in high demand in the country.
  • The government in Vietnam is dedicated to providing a good business environment. At the moment, the government is heavily investing in education, public infrastructure and is looking for foreign investments.

This page will tell you about innovation ecosystem, major technology sectors, innovation and business practices in Vietnam.

 

Innovation ecosystem

To escape the middle-income trap of diminishing productivity growth, the government of Vietnam recognised the importance of science, technology and innovation (STI). Vietnam has updated the legal regulations for STI, formed new public institutions that guide investments and public funding for R&D. Nevertheless, the overall R&D expenditure in the country is low - only 0.4% of GDP. Private companies are not willing to invest in R&D, due to shortage of resources and unwillingness to take business risks.

 

The government of Vietnam aims to improve the innovation ecosystem and to support innovative companies through various public initiatives and institutions. A prime example is  the NATECD (National Agency for Technology, Entrepreneurship, and Commercialisation Development).The platform supports new businesses and start-ups in practical ways, such as with advisory services or connection to funding. The NATIF (National Technology Innovation Fund) was initiated to invest in science and technology research. Among other schemes are bilateral partnerships, such as the Finland-Vietnam Innovation Partnership Programme that provides funds and contributes to development of entrepreneurship. Realising that the lack of financial resources is a major barrier to innovation and technological development, the government of Vietnam signed the Trans-Pacific Partnership agreement (TPP), aiming to facilitate trade and to increase FDI in the country.

 

Ho Chi Minh City is the center of innovation, technological and scientific development in the country, due to relatively good infrastructure, smart technologies and various business communities. However, despite efforts of the government of Vietnam, the innovation and scientific base in the country are relatively weak. The lack of qualified engineers, researchers and management skills, as well as, the lack of research-industry collaboration are significant challenges in Vietnam.  Currently, the government of Vietnam tries to foster links between academic/research institutions and business/industry groups through organisation of events, support of cross-sectoral associations and business incubators. Lastly, according to the World Bank, one of major issues that limits the capacity of the government of Vietnam to design effective innovation policies is the lack of data for innovation policy-making.  

Innovation sectors and technology

The dominant and most innovative sector in Vietnam is the ICT sector. Technologies in telecommunications industry are rapidly developing in the country, in addition, many novel technologies are imported from the West. Due to rapid urbanisation (3.4% per year since 2010), the government is stimulating smart city innovations, improvement of basic city services, IT infrastructure, public transportation, water delivery and waste management systems. A greater number of environmentally-friendly solutions are needed in Vietnam.

Innovation culture and practices

Due to communism and a lack of financial resources, the older generation of Vietnamese is predominantly risk-averse and lacks an entrepreneurial mindset. However, Vietnam’s young and rapidly urbanising population is embracing innovation and it is enthusiastic about entrepreneurship and business opportunities, particularly in the ICT sector. The new generation has grown up in a rapidly Westernised environment, many young people have been studying abroad and/or developing their skills in multinational companies.

 

Traditional values, influenced by Confucianism, also emphasise sustainability. Hence, it is not surprising that many Vietnamese startups have a good business and investment planning, in contrast to other Asian countries. Among other characteristic phenomena that impedes the development of private sector and innovation in the country is the sceptical attitude towards government policies, bureaucratic processes and institutions.

This page highlights major economic sectors and iconic products, shows business trends and explains how easy it is to do business in Vietnam. In addition, you will find the list of websites, which provide some hands-on information.

 

What is the country known for?

 

Sectors

The biggest sectors: petroleum, electrical machinery and equipment, footwear, clothing, furniture and bedding, optical, technical and medical apparatus, fish, and coffee, tea and spices.

 

The service sector represents 41.3% of GDP in 2017, while industry accounts for 33.3% and the agricultural sector for 15.5% of GDP.

 

Iconic products

Petroleum, garments, footwear, food processing, coal, steel, cement, tires, fertilizer, glass, phones, coffee, rice, rubber, cashews, pork, poultry, seafood.

How easy is it to do business in Vietnam?

 

Based on the World Bank ranking:

 

Vietnam

EU average

Emerging markets average

Overall – ease of doing business

68

30

83

 

Vietnam ranks higher in the World Bank ranking on ease of doing business, in contrast to other emerging markets. Doing business in the country is easier, due to a smaller number of regulatory procedures for opening a business, obtaining construction permits or registering property, and due to lower business tax rates.

 

Despite liberalised investment laws, starting a business can be a challenge due to changing regulations in Vietnam. The country has a very burdensome process of tax payments, for example, there are 32 different corporate tax payments. Getting electricity is another challenge in the country, due to lengthy bureaucratic procedures. Among other difficulties for entrepreneurs that increase business costs are corruption, inadequate infrastructure in some regions of the country, and the effects of natural disasters, such as typhoons, earthquakes and floods.

Business trends in Vietnam

The current energy consumption and production models in the country are not energy efficient. Existing natural resources are at risk of depletion, due to past and potential natural disasters. The government tries to attract investments into the sustainable energy sector, therefore a gradual shift towards renewable energy sources is expected.

 

In the first decade of the 21st century, Vietnam started to undergo the process of pre-mature de-industrialisation at the expense of a growing service sector. However, in the last few years, the positive developments in the manufacturing sector resulted in its expansion, adding around 1.5 mln. jobs between 2014 and 2016.

 

Vietnam continues to invest in infrastructure – in development of road networks, electricity coverage, ports and airports. This increases Vietnam’s connection with the rest of the world and stimulates international trade.

 

More hands-on info

 

Bibliography

 

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Level 2:

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Level 3:

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