Vietnam – Information and Communications Technology

Vietnam Drives Forward the Interconnection of Production

Published: 11 June 2019

Digitization of manufacturing is crucial for economic growth

In the medium term, the digitization of Vietnam’s industry will point the way for the country’s further economic development. The government is aware of this and identified the Fourth Industrial Revolution as a core element of its development strategy in the 2018 industrial development paper. The interconnection of machines and systems, the use of cloud applications, data analysis, and artificial intelligence (AI) are being discussed nationwide in the media and in many high-ranking forums.

According to forecasts by the Central Institute for Economic Management (CIEM), a think tank of the Vietnamese Ministry of Planning and Investment, the economic benefits will be considerable. The institute estimates that the digitization of the local manufacturing industry alone will increase GDP by 3.6% until 2030, which translates into an absolute GDP growth between US$ 7 billion and 14 billion.

There is a broad consensus in politics and business that Vietnam must move ahead in digitizing its manufacturing industry. According to industry experts, if Vietnam does not succeed in anchoring 5G, Internet of Things (IoT) and Industry 4.0 during the next five to ten years, it is in danger of losing its industrial, technological and qualitative edge. The Vietnamese government fears the prospect of being caught in the so-called “Middle Income Trap”.

The government’s strategy for Industry 4.0

CIEM is currently drafting a digital strategy on behalf of the government to promote the sector. It identifies four core requirements as a prerequisite for the successful implementation of Industry 4.0. First, it is necessary to establish an environment that is strategically and legally adapted to the demands of a digitized industry. The overarching technical infrastructure must also be developed and expanded. This includes not only the digitization hardware, such as the introduction of 5G and the expansion of data centers but also the protection of data against cyber-attacks.

As a third element, the strategy envisages the training and further education of employees for the fourth industrial revolution and the retraining of those who lose their jobs as a result of increasing digitalization and automation. In a fourth key point, the strategy plans a comprehensive financial support program, especially for small and medium-sized enterprises (SMEs), which includes consulting services.

Business and government lay the foundation for Industry 4.0

The country’s ICT infrastructure is in relatively good shape. Mobile network operator Viettel started 5G trial runs in April 2019 in cooperation with Swedish company Ericsson. The nationwide introduction of 5G is scheduled for 2020.

Other large telecommunications companies such as VNPT, FPT, and CMC are setting up data centers countrywide. International providers, including Amazon Webservices, Microsoft, and SAP are offering their platforms, cloud services, and data analysis systems in Vietnam. The government and large private companies, including FPT and the Vingroup, are working on setting up innovation centers specifically designed to promote start-ups and R&D activity.

Large companies start to interconnect their production

Local companies such as the Vingroup, steel company Hoa Phat or major state-owned or semi-public companies such as Electricity of Vietnam (EVN) and Vinamilk are already adapting their production to Industry 4.0.

Vinfast, a subsidiary of Vingroup, is cooperating with Siemens to advance the company’s digital development. Hoa Phat’s state-of-the-art Dung Quat steel mill is using the SAP S/4HANA management system since early 2019, which digitally integrates and controls all production and management processes. Vinamilk, the country’s largest dairy and food company, has upgraded its production to Industry 4.0 standards with the Tetrapak Plant Master System.

Industry 4.0 plays a subordinate role among SMEs

Besides the large, internationally competitive companies, however, IoT and Industry 4.0 are still hardly developed. The interconnection of machines, preventive maintenance, decentralized process controlling, or big data are hardly an issue in the majority of Vietnamese SMEs. Quite a few companies work with obsolete systems using vast human resources.

According to the UNDP’s “Vietnam Industry 4.0 Readiness Report 2019” (http://www.vn.undp.org/content/vietnam/en/home/library/I40.html), 85% of all Vietnamese companies surveyed to date are IoT “outsiders” – meaning that they have neither dealt with the topic nor do they have any technical equipment compatible with Industry 4.0.

Among Vietnam’s micro and small enterprises in the manufacturing industry, 95% are qualified as Industry 4.0 outsiders. Also, 80% of this group plan no or only minimal adaptations to Industry 4.0 standards. Micro and small enterprises account for 93% of all companies in the manufacturing sector. For the government’s Industry 4.0 strategy to be effective, it is thus necessary to convince at least part of this group to adopt Industry 4.0.

According to CIEM representatives, the first step here is to provide advice which is specifically tailored to the needs of a specific company to determine the actual potential for increasing efficiency and profitability. Vietnamese companies will only invest in the interconnection of production if it results in monetary benefits.

Financially speaking, very few companies are in a position to completely replace production facilities or to purchase expensive, new equipment. It is therefore important to check the existing machinery for retrofitting with sensors and controls. Even business models such as “machine-as-a-service”, which are still barely known in the country, are likely to increase the acceptance of IoT solutions.

Conversion to Industry 4.0 boosts demand for imported machinery and sensors

A conversion of manufacturing production to Industry 4.0 will open up a multitude of business opportunities for foreign suppliers. According to CIEM, foreign industry experts will not only be in demand in the consulting sector.

Suitable IT software, hardware, and sensors are basic prerequisites for interconnected production processes. Especially in the field of sensors, however, the country is dependent on imports from abroad. If investments are made in new machinery and systems capable of 4.0 industrial applications, Vietnamese buyers will have to resort to foreign products due to a lack of domestic production.