In the wave of globalization, if Vietnamese enterprises do not emphasize on labor productivity and capital efficiency but only rely on cheap labor, they will no longer be able to compete with international firms. 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 Vietnam’s Economy
According to the World Economic Forum’s (WEF) 2016-2017 Global Competitiveness Report, the Global Competitiveness Index (GCI) of Vietnam reached 4.31 points, ranking at 60/138 (down 4 levels compared to period 2015- 2016). The report objectively assesses the progress of each country in creating an environment for prosperity, in which the GCI is the synthesis of the factors that affect economic growth.
Global GDP Growth is decelerating (from 4.4% in 2010 to 2.5% in 2015). Many economies are facing the double challenge of slow productivity growth and increasing income inequality. However, a promising signal for economic growth and social progress is the 4th Industrial Revolution. Based on digital platforms, the 4th Industrial Revolution converges the all the technologies that are blurring the boundaries between digital, physical and biological spaces. Such technologies including artificial intelligence, biotechnology, robotics, IoT and 3D printing will pave the way for rapid socio-economic development.
An economy will not be able to sustainably grow if businesses are limited in their competitiveness and the ability to create value added. The advantages of Vietnamese enterprises are mainly abundant labor force and low salary. This, on the other hand, hinders the development of high value-added products and prevents productivity growth. At the beginning of the transition from an agricultural economy to an industrialized economy, input factors including labors and cheap raw materials play an important role in promoting growth.
But once these input factors have been fully exploited, people need to promote their qualities to continue to enhance the 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, locality or business. TFP is calculated by the amount of added value per a unit of aggregate inputs: capital and labor. Thus, with a constant input, higher TFP shows better labor and capital efficiency, in which lies a great contribution of technology application level and management level to create productivity and high 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 has played a growing role in Vietnam’s economic growth. According to the Vietnam National Productivity Institute, TFP’s contribution to GDP growth in 2011-2015 is more than 30%. Resolution 05-NQ / TW of the Fourth Conference of the 12th Central Committee of the Communist Party of Vietnam has set the target of the contribution of TFP to average growth in the period 2016-2020 to be 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 growth catalyzers, including quality of work and technical progress. The 4th Industrial Revolution is a good opportunity for enterprises to make a breakthrough in their competitive edge.
The first Industrial Revolution was associated with water and steam engines to mechanize production. The second Revolution involved using electrical power for mass production. The third revolution used 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 realities in the digital, real and biological worlds. This revolution is different from previous revolutions in terms of speed and the scope of impact. It is affecting almost every industry in every country, foreseeing deep and wide changes in the entire production, management, and administration systems.
Technology and competitiveness of enterprises
The competitiveness of enterprises is associated with the level of technological application in production and management. Technology helps businesses to speed up, reduce errors and eliminate wastes. Industrial Revolution 4.0 established digital businesses based on linking value chains inside and outside the enterprise, digitizing production and service processes, and creating new business models.
Modern management application platforms that operate on computer networks, the Internet and cloud computing enable seamless integration of information across the entire organization, regardless of sizes. Data is integrated across all processes from planning, product development, shopping, manufacturing, logistics to sales and services. Data connectivity speeds up the execution of the process, minimizes errors caused by manual actions or information re-entering, and eliminates wasted labor, time and opportunities. In addition, businesses can integrate data with partners and customers. This enables the optimization of business transactions with partners, establishing the ecosystem and consolidating the status of the business.
Using smart sensors, telecommunications equipment, and integrated management solutions, businesses can digitize their entire operations from manufacturing, selling to management. Information from the manufacturing process, through the sensor, is digitized 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 level of digitization is, the more accurate and up-to-date the information is entered. 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 of distribution channels; manufacturing enterprises need information on the status of machines, raw material consumption and semi-finished products through the production stages, etc. Information lack of updating leads to inaccurate, accompanied by wastes of finances and opportunities.
The Supervisory Control and Data Acquisition (SCADA) plays a crucial role for companies with a high demand for automation of product management and operations, particularly in the energy, oil and gas, logistics, manufacturing, water supply/ drainage sectors… The term “SCADA” came into being in the early 1970s with the development of microprocessors and PLC (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 to the SCADA software. The software will then display and process the data, helping the operator to analyze and make the right decision.
The current increasingly popular ERP applications demand SCADA and ERP connectivity. ERP integrates people, processes, and data, forming the basis of enterprise governance. SCADA and ERP connection transmits data from enterprises’ devices, machines, and assets in the process of production straight to the management system. Thus, management procedures can be shortened, costs are saved and errors by manual input are avoided. And the ERP system always has enough data to make the planning process be carried out accurately and timely.
Connecting systems and integrating business procedures are the demands put forward for every ERP system. Integration capabilities are very well supported on large ERP solutions through electronic document protocols, business APIs, web services, etc. The Industrial Revolution 4.0 which spearheaded the IoT, Cloud Computing, Intelligent Sensors, Mobile Assistants, 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 the 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 than 100 earth. That allows all things in the real world to be digitized and managed on the computer network. Connectivity technologies help to capture real-time data from devices, machines, sensors, etc. and combine powerful data analysis capabilities to provide a comprehensive view of the business assets, production lines as well as their operation process.
Cloud computing provides businesses with a convenient and streamlined way to use information systems. Customers purchase the system in the form of subscription. This helps them to minimize management and operation of the system. Users exploit the system over the Internet and there is no need 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, as well as the 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 computing strategy, but they all share the same tendency to prioritize developing cloud products that can catch up with the traditional on-premise products.
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 prices are high compared to on-premise products’ price, considering a using period of 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 on whether cloud or on-premise is more economical. The best choice depends on specific cases of each business. At the time, consideration should be given to factors such as whether the solution meets the management requirements, whether the enterprise prioritizes the use of its own resources and IT infrastructure or outsources them. Anyway, Cloud Computing offers attractive selections for businesses. That is also a prevalent trend of modern technology.
Today, cloud computing is not just email, social networks or search engines. Many complex information management systems such as ERP, CRM, SCM, HCM, BI … have been provided in the cloud. For businesses, organizations, internal social networks such as Facebook Workplace, SAP Jam, Salesforce Chatter … have emerged, creating an integrated environment among employees in the organization and among business procedures. These solutions will help businesses to 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, localities, cloud computing can be provided in various forms: public cloud, private cloud, hybrid cloud (combination of on-premise and cloud), etc. In addition, cloud is offered in different levels: IaaS (Infrastructure as a Service), PaaS (Platform as a Service), and SaaS (Software as a Service). Diverse cloud architectures and forms provide customers with the maximum flexibility to choose the optimal solution for their information systems.
The industrial revolution creates smarter technology solutions with stronger processing ability. It gives administrators, everywhere, at all times, the information they need from capturing the entire picture of the business to tracking the smallest transactions, rather than asking multiple people or looking up from multiple sources. It improves labor productivity and efficiency of work processes. Today, the question for the leaders is no longer “How much does it cost for investing in technology?” But “How much do we waste if we delay doing it?”
Huu Van – FPT ISRelated posts: