Vietnam’s Twin Tech Challenge: Spearheading While Catching Up
Vietnam is becoming a new digital powerhouse in Southeast Asia. The Google, Temasek, and Bain e-Conomy SEA 2021 report dubbed the 2020s the “Trillion Twenties” for Southeast Asia, as the region’s digital economy will pass the trillion-dollar valuation mark. Within the region, Vietnam has emerged as a center for dynamic growth. Although the gross merchandise value of Vietnam’s internet economy currently lags behind a number of its neighbors at an estimated $21 billion in 2021, that figure is expected to reach $150–$220 billion by 2030.
Vietnam has a 70.3 percent internet penetration rate (ranked fourth in Southeast Asia)—which is remarkable given the relatively low proportion of its urban population (38 percent in 2021, outranking only Cambodia, Laos, and Brunei in the region). But Vietnam’s youth demographic is a strong asset driving a nationwide embrace of technology significantly greater than the global average. The 2021 PwC Vietnam Digital Readiness Report found that 42 percent of Vietnamese respondents expressed excitement about including technology in their work, compared to the global average of 16 percent.
But for Vietnam, tech adoption is not only a result of bottom-up spontaneous embrace. The digital economy is but one aspect of the country’s overall ambitions for an Industrial Revolution 4.0. Under this plan, Vietnam expects to be named among the 40 top performers in the Global Innovation Index, the top 30 in the International Telecommunication Union’s Global Cybersecurity Index, and the top 50 in the United Nations’ e-Government Development Index by 2030. The Vietnamese government wants the digital economy to contribute to some 30 percent of GDP and productivity to expand 7.5 percent annually on average. It also aims to complete and establish smart cities in key economic zones across the country.
Vietnam’s policies are designed to position it as a regional hub for tech and semiconductor manufacturing. As U.S.-China decoupling continues, tech giants like Apple, Samsung, LG, and Foxconn, among others, have a strong presence in the country. The trend of moving companies and production from China is likely to make Vietnam an even more attractive destination. The government's ambitions are supported by policies that create a more conducive environment for tech investments, including tax incentives. Despite the pandemic, foreign direct investment (FDI) in the tech sector continues to flow in for development and manufacturing by companies like Microsoft, Sony, Pegatron, Nokia, Panasonic, Intel, and Canon. Vietnam is now also a regional hub for research and development (R&D) outsourcing for Cisco, Alcatel-Lucent, Toshiba, Hitachi, and Jupiter Networks, among others. Vietnam is on its way to becoming a key semiconductor player in the region and an increasingly critical link in the global supply chain.
The widespread adoption of frontier technologies in developed countries will reduce the labor-cost competitiveness of today’s less industrialized economies. As developed countries make advances in frontier technologies, developing countries like Vietnam are still developing the basic infrastructure for their adoption. Technological competition requires a large-scale R&D budget—not something that developing countries have easily at their disposal. Vietnam’s R&D budget is still dwarfed by those of its significant regional neighbors, and much of its tech embrace is driven by FDI rather than domestic investments in high-tech industries.
Technology advancement speeds up development but will likely fuel greater inequality. Just before the outbreak of the pandemic, the World Bank estimated that nearly 56 percent of all jobs in Vietnam, along with Cambodia, Indonesia, the Philippines, and Thailand, were at high risk of being displaced by technology and automation in the next two decades. The pandemic has brought about a massive digital adoption in the region—it has stimulated e-commerce, online delivery, and e-services, accelerating the digital economy. It has also sped up the process of job displacement: it has seen a reduction in manufacturing and medium-skill jobs in developing countries and an increase in services and higher-skill jobs. But up-skilling and re-skilling are incomplete if they are not inclusive and sustainable. Vietnam, like many of its neighbors, still lags behind when it comes to national policies that address female digital inclusion, specifically internet access, female-focused digital skills training, and STEM education.
For many in the region, the digital economy has become a remedy for pandemic-induced economic stagnation. But it has also entrenched inequality, making the post-Covid world even more polarized. The transition to the internet as a way around the Covid-19 pandemic becomes a viable option only for those who have access to the necessary infrastructure. As such, digital transformation also carries a risk of becoming a vector perpetuating inequality. Online learning has been a solution for schooling during the pandemic. But it is a solution that is not available to everyone. This includes individuals who live in remote areas with poor connectivity and underprivileged communities that have limited access to the internet or lack ownership of personal computers. Education has been the traditional enabler of social mobility for these groups, and their opportunities will be constrained if it becomes out of reach.
Rapid adoption of online services in retail, education, and health has also exposed more users to cybersecurity and online safety risks in an environment where practices of cyber hygiene are generally poor. Vietnam has made rapid improvements in cybersecurity resilience. In 2018 it ranked 50th in the Global Cybersecurity Index, jumping up 50 places compared with the previous year. But there is still room for improvement, and the government has committed to ranking among the world’s top 30 by 2030.
Vietnam’s potential and ambitions will be tested by its ability to adopt frontier technologies, boost innovation, and successfully navigate the complex cyber world and its underdeveloped regulatory framework. It can harness its demographic dividend to foster a competitive tech future. But to ensure that the future is resilient, it needs to bridge the ever-growing digital divide within society and leave no one behind in the digital sphere. As a developing economy, Vietnam’s digital market has a huge and credible potential, but if the country wants to reach beyond the low-hanging fruit of service apps and e-commerce, it needs to break through the digital value chain and spearhead development of future critical tech.
Huong Le Thu is a non-resident adjunct fellow with the Southeast Asia Program at the Center for Strategic and International Studies in Washington, D.C.
Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
© 2022 by the Center for Strategic and International Studies. All rights reserved.