Digital transformation and digital applications are now trends within economic development. In particular, the digital platform business is a new business model, developed based on digital technology, data, and appropriate support, improving efficiency and reducing costs. Its development has therefore become a priority of governments around the world, including in Vietnam.

At the “Developing the Platform Business: A Driving Force for Vietnam’s Digital Economic Growth” workshop, held by the Central Institute for Economic Management (CIEM) on February 19 in Hanoi, Dr. Nguyen Thi Minh Thao, Head of the Business Environment and Competitiveness Research Department at CIEM, said many platform businesses have appeared in Vietnam in recent times. “The development of platform businesses will lead to the growth of supply industries, and at the same time this is also an important industry as a source of products and services for the economy,” she added.

Irreversible trend

CIEM research shows that the platform business model has grown strongly over the past decade and deeply penetrated into many industries and fields in Vietnam, especially transportation, retail, healthcare, education, and banking and finance. It contributes approximately 10 per cent of GDP. Specifically, platform businesses in the transportation sector account for 16.8 per cent of the added value of the platform industry, equivalent to 1.7 per cent of the economy’s GDP.

Every $1 billion worth of final products in the platform business industry will stimulate the total output of the entire economy by $2.754 billion. Considering the spillover effects, every $1 billion worth of final products in this industry will contribute more than $1.191 billion in added value to the economy, create 93,734 job opportunities, and increase worker incomes by $732.6 million.

“Thus, the platform business sector not only stimulates added value, income, and employment opportunities for workers in that sector but also stimulates added value, income, and employment opportunities for workers in other sectors of the economy,” Ms. Thao said. “It has created new opportunities and developed in parallel with traditional production and business methods.”

The CIEM report also analyzed specific cases of platform business development, such as Grab in the transportation sector. This is a pioneering model in technology application and has found favor in Vietnam, promoting the growth of the transportation industry as well as other business sectors based on the platform, thereby making a meaningful contribution to Vietnam’s economic development.

In addition, research has found that the rapid development of platforms has created incentives for traditional businesses to innovate their thinking, improve their internal capacity to boost competitiveness, and adapt to new trends. At the same time, the emergence of platform businesses has prompted policy-making agencies to study and quickly complete the legal framework for flexible and timely management while still encouraging creativity in new development trends and new business models, thereby effectively exploiting the benefits from such trends and business models.

Mr. Tran Quoc Khanh, former Deputy Minister of Industry and Trade, said consumers are willing to spend more with the convenience brought by the digital economy and platform businesses. “As consumer demand increases, it will continue to contribute to GDP growth,” he added. “The platform business also creates many job opportunities because it has the ability to connect supply and demand infinitely, without restrictions on customer size, geography, and low marginal costs. It therefore plays an important role in economic development.”

Continued growth

Based on digital technology and data, the platform business has a lot of space to grow because of Vietnam’s rapidly-expanding digital economy and increasing internet penetration.

A report from Google, Temasek, and Bain & Company assessed that Vietnam’s digital economy has posted the fastest growth in Southeast Asia for two consecutive years. The Vietnam E-commerce White Book 2023 from the Ministry of Industry and Trade predicted that, in the 2022-2025 period, Vietnam’s internet economy would see the highest growth in the region, of some 31 per cent each year. Vietnam is regularly anticipated to post the strongest digital economy growth in the region.

In addition, its population of more than 100 million people is a large market for nurturing and developing digital technology businesses. According to the Ministry of Information and Communications, there are currently 50,350 digital technology businesses in operation around Vietnam; higher than the target of 48,000 set by the government. Their rapid growth creates a foundation for expanding and developing digital business services, including platform services in the country.

There is a big difference between economic regions in terms of the contribution to added value the platform industry makes. The Red River Delta (including Hanoi) and the southern region (including Ho Chi Minh City) are the two making the largest contributions. “Thus, it is clear that there is much room for the development of the platform industry and platform services in the other economic regions of Vietnam,” Ms. Thao said.

With the solid foundation created over the past decade and with technological advantages, the digital economy in general and the platform business in particular will continue to be key sectors contributing to Vietnam achieving its GDP growth target of 8 per cent this year and double-digit annual growth in subsequent years.

For further development

CIEM’s research also highlighted several challenges in developing platform businesses, including mindsets and perceptions within State management that remain conservative regarding new issues; the rapid evolution of platform business models and the digital economy, which has outpaced legal regulations and institutional frameworks; limited digital infrastructure, particularly in data management; and challenges in risk management for platform business activities.

Notably, the research emphasized the difficulties in proposing and establishing a controlled testing institutional framework, or sandbox, in Vietnam.

Ms. Thao pointed out the process of developing sandboxes follows the same complex steps as drafting regular legal documents, making it time-consuming and bureaucratic. Additionally, policy-making agencies remain cautious about the risks of sandboxes, leading to a lack of support for such policies.

Mr. Khanh agreed that the mechanisms and policies to encourage and promote the development of the digital and platform economy have not kept pace with the rapid evolution of these business models.

To create a strong driving force for the development of platform business services and the digital economy, CIEM recommended that the policy and legal system on the digital economy, including e-commerce, should aim to support businesses, reduce administrative procedures, and shorten licensing times for new technology products and services. A regulatory sandbox for new products, services, and business models applying digital technology is among the key solutions. “The establishment of a sandbox requires breaking away from old management mindsets and issuing policy measures in a timely manner to take advantage of technological opportunities,” Ms. Thao said. “The drafting and approval of a sandbox should therefore follow a simplified process instead of the current complicated and time-consuming process.”