In the era of globalization, if Vietnamese enterprises do not pay attention to labor productivity and capital efficiency but only focus on cheap labor, they will no longer be able to compete with foreign companies. As a consequence, the economy will fall deep into the middle-income trap. Investment in technology is the inevitable solution to overcome that trap.
Challenges of the Vietnamese economy
According to the Global Competitiveness Report of World Economic Forum (WEF) in th period of 2016-2017, Vietnam’s Global Competitiveness Index (GCI) reached 4.31 points, ranking at 60/138 (down 4 levels compared to 2015-2016 period). The report objectively assesses the progress of each country in creating an environment for prosper development. Competitiveness index is the mix of the factors that affect economic growth.
Global GDP growth is declining (from 4.4% in 2010 to 2.5% in 2015). Many economies face the double challenge of slow productivity growth and increasing income inequality. However, a promising positive point for economic growth and social progress is the 4th industrial revolution. Based on digital platforms, the fourth industrial revolution covers every technology that is erasing boundaries among digital, physical and biological fields. Such technologies including artificial intelligence, biotechnology, robotics, Internet of Things and 3D printing will open a broad way for rapid growth and development of economy as well as our society.
An economy will not be able to growth steadily if businesses are limited in their competitiveness and the ability to create value added. The advantages of Vietnamese enterprises are mainly based on abundant labor force and low salary. However, it obstructs the development of high value added products and productivity growth. At the beginning of transition from an agricultural economy to an industrialized economy, input factors such as cheap labor and raw materials play an important role in promoting growth.
But once these critical inputs have been exploited, we need to use them more effectivly to continuously increase output. Total-factor Productivity (TFP) is an important indicator of the level of use of labor inputs and capital resources to generate growth in an economy, area or business. TFP is calculated by the amount of added value per unit of aggregate inputs: capital and labor. Thus, with a constant input, larger TFP shows higher labor and capital efficiency. There is a great contribution of technology application and management level to create high productivity and value added.
TFP contribution to Vietnam’s GDP growth was only 6% in the 2005-2010 period, while in other major economies in Asia this figure was over 40% (South Korea 63%, Taiwan 59%, Indonesia 42%, Philippines 41%). Since 2010, TFP has contributed more and plays an increasing role in Vietnam’s economic growth. According to the Vietnam Institute of Productivity, TFP’s contribution to GDP growth in 2011-2015 is more than 30%. Resolution 05-NQ / TW of the fourth conference of the Party Central Executive Board XII has set the target of contribution of TFP to average growth in the period 2016-2020 is 30-35%.
TFP can be considered as a measure of the competitiveness of businesses and countries. Investment in technology will directly impact TFP’s major sources of growth, including quality of labor and technical progress. The fourth industrial revolution is a good opportunity for enterprises to catch in order to remarkably increase their competitiveness.
The first industrial revolution was initiated by water and steam engines to mechanize production. The second revolution uses electrical power for mass production. The third revolution uses electronics and information technology to automate production. The fourth revolution was born on the basis of the digital revolution, which allowed the connection of all objects in the digital, real and biological worlds. This revolution is different from previous revolutions in terms of speed and scope of impact. It is affecting almost every industry in every country, and it foresees deep and wide change in the entire production, management and administration systems.
Technology and competitiveness of companies
The competitiveness of companies is related to the level of technological application in production and management. Technology helps businesses speed up, reduce errors and eliminate waste. Industrial Revolution 4.0 builds digital businesses based on connecting value chains inside and outside the firms, digitalizing production and service processes, and creating new business models.
Modern management application platforms operate on large networks, the Internet and cloud computing enable seamless integration of information across the entire organization, regardless of size. Data is integrated across all processes from planning, product development, procurement, manufacturing, logistics to sales and service. Data connectivity speeds up the execution of the process, minimizes errors caused by manual actions or entering information several times, and eliminates waste in labor, time, and opportunities. In addition, businesses can seamlessly integrate their data with their partners and customers. This enables the optimization of business transactions with partners, establishing ecosystem and consolidating the status of the business.
Using smart sensors, communication equipments and integrated management solutions, businesses can digitalize their entire operations from manufacturing, sale to management. Information from manufacturing process, through the sensor, is digitalized into real-time data and transmitted to the processing system and management system. As a result, centralized management systems such as ERP, BI always have complete, up-to-date and accurate data to help managers make timely and effective decisions. The more complete the digitization level, the more accurate and up-to-date the information is. Commercial enterprises always need updated information on inventory and value of goods in the market, consumer goods companies need updated information on raw materials and sales situation through distribution channels, manufacturing companies need information on the status of machines, raw materials consumption and semi-finished products through the production stages … Not updated information leads to inaccurate decision and waste in finance and opportunity.
The Supervisory Control And Data Acquisition (SCADA) plays a crucial role for companies with a high demand for automation of production management and operations, particularly in energy, oil transport, processing, water supply/drainage sectors… The term “SCADA” came into being in the early 1970s with the development of microprocessors and PCL (programmable logic controllers). The SCADA system consists of computers connected to a variety of objects such as machines, sensors and terminal equipment, routing information collected from these objects in the SCADA software. After that the software displays and processes the data, helping the operator to analyze and make the right decision.
Increasingly popular ERP applications now demand connectivity between SCADA and ERP. ERP integrates human resource, processes, and data to form the basis of company administration. Connection of SCADA and ERP transfers data from company devices, machines and assets in the process of production, running straight to the management system. Management procedures can be shortened, cost-saving and avoid errors caused by manual input. And the ERP system has enough data to ensure that the planning process is carried out accurately and timely.
Connecting systems, integrating business processes are needed for every ERP system. Integration capability is very well supported on large ERP solutions through electronic document protocols, business APIs, web services, and so on. The fourth industrial revolution with important objects such as the Internet, cloud computing, Intelligent Sensors, Mobile applications, Big Data Analysis and Processing, etc., enhances the connectivity between ERP and information systems in general and SCADA in particular. The increase in address space in IPv6 Internet protocol is an important factor for developing the ability to connect managed entities. The address space of IPv6 can be assigned to every atom on the surface of the earth and enough for more 100 earths. That allows all things in the real world to be digitalized and managed on the computer network. Connectivity technologies help to collect real-time data from devices, machines, sensors, etc., and combine with big data analysis capabilities to provide a comprehensive insight of company assets, production lines as well as the operation process of them.
Cloud computing provides businesses with a convenient and streamlined way to use information system. Customers purchase the system in the form of subscription, which helps them to minimize the management and operation of the system. Users exploit the system over the Internet and do not have to worry about infrastructure to store data and install applications. Vietnamese people are familiar with many cloud applications such as Facebook, Google, Salesforce, Amazon … The convenience and development trend of technology makes cloud applications increasingly popular. The world’s leading ERP vendors such as SAP, Oracle, Microsoft … have put their products on the cloud. Each firm has its own cloud strategy, but they all share the same tendency to prioritize developing cloud product to catch up with traditional on-premise product.
Today’s ERP vendors will have the opportunity to choose between cloud and on-premise solutions. Currently, many customers in Vietnam feel that cloud software price is high compared to on-premise for a period of use about 3-5 years. However, if they use the cloud they will not have to worry about infrastructure costs and operating and maintenance resources. There is no common answer to every case whether cost of cloud or on-premise is lower. The best choice depends on the specific case of each business. At the same time, consideration should be given to factors such as whether the solution meets the administration requirements, whether the enterprise prioritizes the use of its resources and IT infrastructure or outsources it. In any casee, cloud computing brings many attractive choices for businesses. That is also a big trend of modern technology.
Today, cloud computing is not just email, social networking or search engines. Many complex management and information systems such as ERP, CRM, SCM, HCM, BI … have been provided on the cloud. Many businesses, organizations have been using internal social networking solutions such as Facebook Workplace, SAP Jam, Salesforce Chatter … to create an integrated environment between employees in the organization and between business processes. These solutions will help businesses replace many disparate information systems with a single system, integrating business systems together, thereby streamlining their overall IT architecture.
In order to meet the different requirements of customers as well as policies set by ministries and local government, cloud computing can be provided in various forms: public cloud, private cloud, hybrid cloud (combining on-premise and cloud)… In addition, cloud is provided in different levels: IaaS, PaaS, and SaaS. Diverse cloud architectures and forms provide customers with maximum flexibility to choose the optimal solution for their information systems.
The industrial revolution creates smarter and more effectve technology solutions. Everywhere, everytime, it gives administrators the information they need from capturing the big picture of the business to the smallest transaction, rather than asking multiple people or looking up from multiple sources. It improves labor productivity and efficiency of work processes. Today, the question for a leader is no longer “how much we should invest in technology” but “how much waste do we have if we delay doing it?”
Huu VanRelated posts: