Digital transformation "unlocks" global competitive capabilities

To understand this issue from an international perspective, the Business Forum Magazine had a discussion with Mr. Dennis Quennet, Director Sustainable Economic Development at GIZ Viet Nam.

What do you think about the capacity of Vietnamese SMEs for digital transformation? What challenges are they facing?

Regarding the capacity of Vietnamese SMEs in digital transformation, I think there are four key areas to address, and GIZ is contributing to this process.

First, it is the motivation for transformation. Many Vietnamese businesses are not ready for digital transformation because they perceive their operations as stable and are resistant to change due to the potential disruptions it may cause. Some businesses only recognize the risk when external pressure is imminent. For instance, in the textile or electronics industry, as the EU Green Deal exerts significant pressure on Vietnamese enterprises, they realize that digital and green transformation is an inevitable trend to maintain competitiveness. Failing to seize this opportunity could lead them to lag behind other countries in the region.

Second, it is about having a long-term vision. In working with Vietnamese businesses in digital transformation, we observed that many would need a long-term digital transformation strategy aligned with their business goals. In practice, many businesses only implement isolated digital solutions to address current challenges without shaping a comprehensive path towards full-scale digital transformation. Preparing well for changes with a long-term vision would make businesses more resilient to change.

Third, it is about resources, encompassing both human and financial resources. In digital businesses, human relations do not lose its importance, but may become even more important as they operate more in networks of startups, SMEs, and larger businesses. Access to finance is seen as a challenge for SMEs in Vietnam, to invest in business growth, despite the fact that Vietnam is currently enjoying a rather ‘comfortable’ condition with its young, innovative workforce with an entrepreneurial mindset.

Fourth, it is about digital technologies. Although the Vietnamese market has numerous providers of digital software solutions, these solutions often lack customization to meet the specific needs of individual businesses or sectors. I think it is important for Vietnam to not only import ‘overseas’ technologies but also to develop their own digital solutions, and there is a role for SMEs to play in this area.  To seize this opportunity, SMEs need to address capacity challenges.

In collaborative projects related to Industry 4.0 in Vietnam, which economic sectors does GIZ focus on, and why?

In Vietnam, we are currently focusing on the manufacturing sector, such as textile or agricultural processing. These sectors have high export potential and are among the priorities of the Vietnamese Government. Being energy and labour intensive, both textile or agricultural processing industries present high potential for digital and green transformation that can generate a significant impact on Vietnam’s economy.

As Vietnam is increasingly linked to international markets, it is important to look at how Industry 4.0 advancements can be used to improve Vietnam’s position in export markets. There is good potential to boost green and digital business models in agriculture and textiles because there is a strong base in export markets where we can share relevant knowledge and experience with Vietnam’s SMEs.

The German Cooperation pays special attention to forestry, in which the wood industry offers a great deal for digital applications in identifying wood types, so as to create stronger links between this industry and the global supply chains.

Another area relevant to green and digital green development that we work in is energy transition. There is high potential to apply resource-efficient and digital technologies to developing energy-efficient solutions and enforcing the use of renewable energy sources.

Our future plan is to build a stronger linkage between the digital and green transformation of the economy, with a focus on mitigation areas and the circular economy, and we are working with Vietnam’s government and private sector partners to make this happen.

In your opinion, what impact does improving digital transformation capacity for SMEs have on Vietnam’s role in implementing EVFTA and bilateral trade with Germany?

Generally, I see more opportunities than challenges for Vietnam’s SMEs in adapting to changing value chains, making use of free trade agreements like the EVFTA, and getting access to the EU and ASEAN markets. Requirements from the EU are changing in the context of the European Green Deal, thereby environmental criteria are becoming more and more important to enter and stay in the market.

My advice for SMEs would be to start now preparing for the fact that frameworks related to climate change and digital transformation are impacting trade relations. One way SMEs can do is to explore digital business models that can generate positive adaptation and mitigation impact, or being more resource efficient.

In this regard, I would recommend that SMEs find a niche, develop a unique selling point, get into networks with other companies, and find alliances domestically and internationally. It may not be easy for any business to make this change, but from our experience, SMEs have the highest potential to achieve it because they are more flexible and have innovation potential. But they will need to invest in their business models, in digital technologies and human resources to be successfully integrated into international value chains and contribute to green growth.

GIZ works to assist Vietnams’ SMEs unlock their potential by supporting the development of a positive framework and sharing German, European and international experiences.

Sincerely thank you!