Analysis and Forecast

The impact of the fourth industrial revolution to Vietnam

Update at: 28/12/2016 09:32:00

1. Impact on economy

The fourth industrial revolution is only in the beginning step. However, this revolution is very important for all countries; especially developing countries as Vietnam. Therefore, monitoring, forecasting and evaluating impacts of the fourth industrial revolution to Vietnam's economy has great significance to support the Government ensuring economy in the right direction.

Firstly, the fourth industrial revolution is driving investment inwards to high-tech industries. In the near future, this trend will indirectly contribute to accelerate the process of industrialization and modernization in Vietnam. On the supply side, many industries in Vietnam are aggressively approaching new technologies to serve the current needs and will drastically change many operating industrial value chains. The cost of transportation and information will decrese; logistics will be more efficient and trade costs will reduce. All of these will promote economic growth in Vietnam.

However, new manufacturing revolution will also raise many challenges. When the world will go deeply and widely into the fourth revolution, cheap labor is no longer a factor that attracting foreign investors like it was. It is likely return to the developed economies. Therefore, the Government needs having changes in ways of attracting FDI. Moreover, with differences to developed capitalist countries with high level of technology, the adjustment process in Vietnam will face more challenges generated by new problems related to restructuring in the manufacturing sector. Currently, the fundamentals for Vietnam to take part in the fourht industrial revolution is rather limited: (i) Structure of the industry focused on manufacturing industries that depend highly on capital, labor and natural conditions; (ii) Innovation in business, research institutions are relatively are weak in terms of both quantity and quality; (iii) The quality of human resources, education and training do not meet the needs of high-tech industry; (iv) Information technology and communications are not applied widely in e-government and enterprise level; (v) there are still many administrative barriers to investors and entrepreneurship.

2. Impact on the political and security issues, inequality of income and wealth disparities

This revolution also poses challenges for Vietnam on political security and social inequality. Currently, besides the traditional security challenges, Vietnam is facing the risk of non-traditional security, particularly information security, network security, economic security, transnational crime, criminal using high technology and hostile forces. The information network system of nations and organizations still are targets of hackers. Risk of losing security and leaking secrets will increase if the government has no solution to prevent. Simultaneously with that, another impact of the fourth industrial revolution is increasing the gap between the rich and the poor because technology creates wealth difference between people who depend on capital and people who depends on labor. This will be a huge challenge for Vietnam's economy.

3. Impact on labor market

In this revolution, labor market face a serious of challenge between the quality of labor supply and quality of labor demand as well as labor structure. Many former works will be lost and replaced by others. The labor market in country will be strongly divergence between labor groups with low skills and groups with highly skilled. Moreover, abundant and cheap labor resource is no longer a factor that creating competitive advantage and attract foreign investment to Vietnam. Trends "repatriation" of the machining and assembly plant can become a popular trend in the coming time.

Under the impact of technological breakthroughs, the polarization of the labor market and unemployment is likely to increase with the unskilled, untrained and will become a major challenge in the development of Vietnam. Over 90% of workers in the processing and manufacturing industry are low skilled. This fact has become a huge challenge for Vietnam economic development policy when country goes into the fourth industrial revolution. Unemployment will also cause impact on social life and macroeconomic stability. If the government has no reasonable policies in the near future related to education, training, skills and knowledge for workers to meet the requirements of the revolution, the labor market will be volatile

4. Impact on enterprises

On the business side, the cost of transport, logistics and distribution will decrease; also the costs of trade will reduce. Since then enterprises have opportunity to expand markets, increase manufacturing capacity and improve productivity, quality, speed and lower price.

However, Vietnamese enterprises also have to cope with the competition from large corporations with great potential not only in international markets but also in the domestic market. To adapt with this situation, Vietnamese enterprises need to be well prepared for the financial resources, technology and people. It can be said that, there will many challenges for Vietnam enterprises because most Vietnamese companies are small or medium size; not involved in the value chain of global production; scientific & technological level and innovation capacity are still low.

Author: Tran Anh Son (Department of World Economy)
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