MACROECONOMICS’s ASSASSIGNMENT DIGITAL ECONOMY INTERNATIONAL ECONOMIC HIGH QUALITY PROGRAM

PART A: DIGITAL ECONOMY AROUND THE WORLD 4II THE REAL STATE OF AFFAIRS OF DIGITAL ECONOMY IN THE WORLD 4 III EFFECTS OF DIGITAL ECONOMY AROUND THE WORLD 9 I THE REALITY OF DIGITAL ECONOM

FACULTY OF INTERNATIONAL ECONOMIC INTERNATIONAL ECONOMIC HIGH-QUALITY PROGRAM

===============

MACROECONOMICS’s ASSASSIGNMENT:

DIGITAL ECONOMY

INTERNATIONAL ECONOMIC HIGH-QUALITY PROGRAM

Group number: 09 Lecturer: Ph D Hoang Xuan Binh

No STUDENT

1 2013450047 Ph m H ng Phúc ạ ồ phucph19052002@gmail.com Anh 02

2 2013450057 Nguy n Th H ễ ị ươ ng Trà mikynguyen02@gmail.com Anh 03

3 2011450204 Tr n Công Minhầ tcminh.forworkonly@gmail.com Anh 04

4 2013450069 Ngô Quang Vinh quangvinhngo0509@gmail.com Anh 01

5 2012450023 Ph m Khánh Linh ạ linhpham150402@gmail.com Anh 02

6 2013450042 Tr n Nh t Minhầ ậ nhatminhtranworking@gmail.com Anh 02

7 2013450011 Ph m Ti n Đ tạ ế ạ datpt.ftuforum@gmail.com Anh 03

8 2013450058 Vũ Thanh Trà vuthanhtra02@gmail.com Anh 01GROUP 9

GROUP MEMBERS INFORMATION: (8 MEMBERS)

⮚ The presenters : Phạm Hồng Phúc, Nguyễn Thị Hương Trà, Trần Công Minh

TABLE OF CONTENTS

PART A: DIGITAL ECONOMY AROUND THE WORLD 4

II THE REAL STATE OF AFFAIRS OF DIGITAL ECONOMY IN THE WORLD 4 III EFFECTS OF DIGITAL ECONOMY AROUND THE WORLD 9

I THE REALITY OF DIGITAL ECONOMY IN VIETNAM 12

II CAUSES AND EFFECTS OF DIGITAL ECONOMY IN VIETNAM 16 III VIETNAM’S CURRENT POLICIES TO DEAL WITH DIGITAL ECONOMY 20 PART C: VIETNAM DIGITAL ECONOMY FUTURE SCENARIOS 30

PART A: DIGITAL ECONOMY AROUND THE WORLD

❖ Digital economy is one collective term for all economic transactions that occur onthe internet It is also known as the Web Economy or the Internet Economy Withthe advent of technology and the process of globalization, the digital andtraditional economies are merging into one

❖ Digital economy is defined as an economy that focuses on digital technologies, i.e

it is based on digital and computing technologies It essentially covers all business,

economic, social, cultural etc activities that are supported by the web and otherdigital communication technologies

❖ Digital economy refers to activities and transactions driven by the public andprivate sectors as well as the citizens to produce, adopt and innovate digitaltechnologies and services in relation to socio-economic functions for enhancedwealth creation, productivity and quality of life

WORLD

1 Overview

The world's digital economy is worth about $3 trillion, accounting for about 3.8% ofthe global economy's value In ASEAN countries, this value is about 150 billion USD,equivalent to 6% of the gross domestic product (GDP) of the member countries Despitethe challenging economic environment, Southeast Asia's digital sectors continue to growstrongly, reaching $100 billion in 2020 and on track to surpass $300 billion by 2025

(Pham Viet Dung, 2020).

The strong development of the digital economy is clearly reflected in the change inthe dominant position of companies globally

10 largest companies in the world in 2018 and 2008

Billio

n USD

Ranke d

Company Establishe

d

Billion USD

Vietnam's digital economy has reached 3 billion USD in 2015, increased to 9 billionUSD in 2018 and reached a total value of 14 billion USD in 2020 The Southeast Asia(SEA) 2020 Digital Economy Report published by Google, Temasek and Bain &Company on November 10 said that the e-commerce industry in Vietnam grew by 46%and Vietnam is the country with highest percentage of new Internet users in SoutheastAsia

2 Digital economy’s trend

(McK insey & Company)

How Digital Economy control our life

(McKinsey & Company)

Size of the Digital Economy

3 Factors affect the digital economy

❖ Emerging digital technologies:

Emerging digital technologies such as blockchain, artificial intelligence, big dataanalytics and the Internet of Things can make a big leap in infrastructure upgradesindustrial layer, simplifying logistics and supply chains, and help businesses

operate more efficiently (Cameron A, 2019)

❖ Higher demand for cybersecurity and personal security:

The number of businesses and consumers participating in the digital economyincrease leads to a higher demand for cybersecurity and personal security,especially when critical areas such as financial systems and government areincreasingly digitized

❖ Modern digital infrastructure:

A developed digital economy requires quality digital and energy infrastructure –especially for energy-intensive technologies like the Internet of Things or ArtificialIntelligence Telecommunications network also needs to be set up to ensurebroadband Internet is available can process large amounts of digital data fortransportation launch new applications

❖ Demand for Smart Cities:

A country with rapid urbanization and population aging, smart cities willcontribute to the management and use of resources more efficiently, while solvingthe problem of waste, pollution, pollution, and traffic congestion

❖ The rise in digital skills, services, and businesses Digital and the freelanceeconomy:

Demand for the service industry and digital products and services increase, whichmeans investing more in higher education, digital literacy, start-up skills anddevelop a bright innovation ecosystem create Vietnam The decreasing trend ofjobs with safe, fixed, repetitive; increasing demand for the basis of labor andproducts to generate income and services move more creative industries in the

labor market (Cameron A, 2019)

❖ Changing consumer behavior:

Consumer behavior is changing with the rise of the middle classes Asia, towardsusing products and services with high value from the digital economy At the sametime, consumers also increasingly adapting to the digital economy, which

increases the influence of groups, celebrities/ influencers in the digital economy –

on supplier behavior and consumers

1 Advantages of the digital economy

❖ Saves time Before, if you needed office supplies, you would have to make ajourney into town and purchase Now, you can make an order over the internet and

it will arrive the next day

❖ Reduced costs for business Firms can save on renting expensive buildings byrunning most of their business through the internet A digital economy enablesfirms to cut out an aspect of the retail chain and send personalized goods directlyfrom factory or warehouse to people’s goods, rather than through shops This

enables lower costs and lower prices (Tejvan Pettinger, 2020).

❖ Lower barriers to entry In some markets, aspects of the digital economy make iteasier for new firms to enter If an entrepreneur has an innovative idea that catches

on, they can create a new product which challenges traditional firms The digitaleconomy has brought many new services which were inconceivable before, such

as online home deliveries for grocery to dating apps

❖ Big data usage The mass production of data can help inform governments andcharities about what is happening in the economy For example, in tracking ofCOVID-19 spread, the use of an app on mobile phones may indicate where local

hotspots emerge (Tejvan Pettinger, 2020).

❖ Benefits for developing world The digital economy is opening up opportunitiesfor the developing world For example, computer programmers in India can easilyunderbid western counterparts, leading to new job opportunities and higher

income in India (Tejvan Pettinger, 2020).

❖ Enables people to work from home The digital economy has been a huge assetduring the COVID lockdown Without digital technologies, the decline ineconomic activity would have been even greater The digital economy givesgreater scope for people working from home and having greater flexibility in theirhours (which may suit parents with children) Working from home can reducecontact and spread of a virus It can also help reduce traffic congestion andpollution

2 Problems of digital economy

❖ Monopoly power of tech giants Despite the potential for new start-ups, manyaspects of the digital economy have become dominated by firms with monopolypower For example, Amazon has cornered the market for online sales, meaningmany firms have to go through the Amazon market place to reach consumers who

go to Amazon out of habit Similarly, Google and Facebook have all developedvery strong brand loyalty and market share in their respective markets This hasmade a few tech giants very profitable With monopoly power, Google are able tocharge high prices for online advertising and Amazon have the market power to

undercut traditional booksellers (Tejvan Pettinger, 2020).

❖ Less community A traditional bookshop can act as a focal point for localcommunity It may holds events, book signings and individuals may enjoy theexperience of browsing physical books With the digital alternative undercuttingtraditional firms, old fashioned bookshops are forced out of business Althoughbooks may be cheaper, we have lost physical interaction between sellers andbuyers which was an important aspect of the buying experience

❖ Addictive nature of technology Whilst, in theory, the internet can save time, e.g.finding bus times is much easier with internet than paper copies, this time savedmay be outweighed by the time we waste checking Facebook, twitter, internetsearches Also, the sheer volume of information can cause us to drown ininformation and lose sight of what we actually need More choices do notnecessarily lead to better outcomes When faced with a bewildering range ofoutcomes, we can take time to decide and it becomes easier to procrastinate

❖ Privacy issues Harvesting and using data has become big business Facebookcollects a large range of data on its users and this has been bought by politicalinterests who can give very targeted political ads to its users

❖ Bypassing of labour laws The digital economy has created a trend towards usingself-employed freelancers, who are not protected by the same labour laws Forexample, delivery drivers for Deliveroo and Uber drivers have often beenemployed on zero-hour contracts This enables firms to cut labour costs, be moreflexible, but it can leave workers without sick pay or employment protections

❖ Social media has led to more graphic content The anonymous and distant nature

of social media has exacerbated trends to personal attacks and the posting ofconspiracy theories or posting of violent/sexual images The digital economy hasenabled the proliferation of content that is damaging to human well-being

❖ Disruption patterns The economy has always faced disruption from newtechnology – from the period of the Luddites to the assembly line However, thedigital economy is increasing the pace of change, causing many traditional firms(high street retailers) to go out of business The rise of AI may threaten jobs in awhole new range of service sector industries In theory, new technology will lead

to changing patterns of activity, but no increase in overall unemployment.However, the pace of digitalisation can lead to structural unemployment, withsome unskilled workers increasingly losing out to skilled workers Combined withthe monopoly power of big tech firms, it is causing an increased inequality insociety, which may lead to feelings of alienation and unfairness

❖ Environmental costs It is a mistake to think that the digital economy implies a

‘green solution.’ Data centres use electricity and cause CO2 emissions In the US,

data centres account for around two per cent of U.S electricity use in 2014 (Mark Kaufman, 2020) A bigger potential cost is how the digital economy encourages a

‘throw-away’ culture E.g the planned obsolescence of mobile phones andcomputers, encouraging consumers to buy new models, leading to greater use ofraw materials

PART B: DIGITAL ECONOMY IN VIETNAM

The year 2020 has marked a significant development of Vietnam’s e-commerce,even when COVID 19 spread terrors all over the world and affected the economynegatively This reversed economic growth might be harmful to other countries; but forVietnam, it was a great opportunity to enhance the digital economy, which redounded tothe highest ever level of GDP growth that we recorded – even higher than China andUSA

Digital economy, which is growing at double digits (USD 14 billion as of 2020 andpredicted for USD 52 billion by 2025), plays a contributory role to this economic success

In the span of 4 years between 2016 and 2020, online selling-related queries in Vietnamhave increased six-fold The country also sees seventy-three percent of YTD monthlyactive user growth for selected mobile banking apps and 46% YoY growth in the e-

commerce sector (Ousmane Dione, 2020).

With one of the fastest growing online population in the world, wide-ranging onlinesupply and remarkably supportive ecosystem, Vietnam’s internet economy is strongerthan ever and should be looked out for

From the start or 2019 up till now the year of 2021, consumers have been changingthere spending habits, with the peak in 2020 when the instruction of quarantine appeared

to be effective

When analyzing customer behavior, the researchers found that up to 45% ofVietnamese customers access e-commerce marketplaces by typing the website addressdirectly into their browsers, rather than searching for it on Google or clicking on ads This

number is much higher than the global average of only 27.49% (Vietnam Insider, 2020).

To have an overall vision, we shall see the changes in consumers spending habitsthroughout the years:

(Boxme Blog, 2020)

The number of users accessing to the Internet increases every year There also changes inthe paying method, from using cash into credit card or bank transfer According to BoxmeBlog in 2020, people using direct paying method (cash) only takes 17%, while the act ofusing credit card and bank transfer are much higher, respectively are 37% and 30%.

Growth of e-commerce expenditure among internet users in Vietnam in 2020

compared to 2019, by category

(Statista Research Department, 2021)

According to the following bar chart, the e-commerce expenditure rose incrediblyamong all aspects of economy, with the peak of 45,9% in food and personal care.However, it saw a foreseen drop in the percentage of travel, mobility andaccommodation, of -40,5%, due to the negative impacts of COVID 19 Traveling is themost popular merchant segment, accounting for 44 percent of sales in 2019.Unfortunately, this segment in 2020 and 2021 is affected badly by the movement

restriction to the pandemic (Statista Research Department, 2021)

The Vietnam Government has implemented numerous laws and regulations inrecent years with the goal of turning Vietnam into a full-fledged digital economy duringthe Fourth Industrial Revolution, such as Law on Cyber Security No 86/2015/WH13 orDecision 749/QD-TTG dated 30 June 2020 on National Digital Transformation Program

to 2025 The policies focus on the establishment of e-government to enhancetransparency and speed up licensing works for enterprises, the legalization of e-

At the same time, stricter measures in information management have been introduced,with the notable Decree 15/2020/ND-CP dated 3 February 2020 allowing policeauthorities to investigate and sanction individuals and entities distributing false ordefaming information on social networks

For investors interested in the e-Commerce sector of Vietnam, it is crucial to knowthat the government recognizes e-commerce transactions (except those conducted viasocial networks) as having the same degree of legal effectiveness and enforceability aswritten contracts There are three categories of e-Commerce:

(a) Business to customer (“B2C”) website which is created for commerce activities of the

website’s owner only (Oliver Massmann, 2021)

(b) Business to business (“B2B”) website (like Tiki, Lazada, Shopee) which is created for

commerce activities of other individuals or organizations (Oliver Massmann, 2021)

(c) Digital Application (“Apps”) which is installed on electronic devices and connected

to a network for commerce transactions (Oliver Massmann, 2021)

The Vietnam Government’s continuous and visible effort in attracting foreigninvestment as well as transforming the country into a digital economy, if not to say, adeveloped one comparable to Singapore, should serve as a green flag to investorsinterested in developing digital services in Vietnam

Vietnam’s on-going regulatory focus on digital transformation is expected to result

in a 16 percent growth in the digital economy in 2020 By 2025, Vietnam’s digital

economy could reach US$52 billion (Atharva Deshmukh, 2020)

Sub-sectors of the digital economy such as e-commerce, digital financial services,online gaming, and Industry 4.0 are likely to benefit from an increasing number of firmsand consumers opting for digital products and services

Many regulations that govern the digital economy are nascent and investors shouldtherefore study the regulations carefully before entering the market

Vietnam’s digital economy is expected to reach US$14 billion in 2020, a year increase of 16 percent, and will likely reach US$52 billion in 2025, re-accelerating

year-on-to nearly 29 percent in compound annual growth rate (CAGR) (Atharva Deshmukh, 2020)

This rapid growth is underpinned by a broader digital transformation in thecountry Vietnam’s National Program for Digital Transformation is aimed at ensuring

more than 80 percent of households have access to fiber-optic infrastructure by 2025 Theprogram also entails that the digital economy forms 10 percent of every sector which

could result in annual productivity increases of 7 percent (Statista Research Department, 2021)

The COVID-19 pandemic has helped this transformation through a permanent andsignificant digital adoption spurt, with more than one in three Southeast Asian digitalservice consumers (36 percent of digital consumption in Southeast Asia) new to theservice

Vietnam Briefing discusses this shift and opportunities for investors in Vietnam’sdigital economy

1 Sub-sectors in Vietnam’s digital economy

a E-commerce

A study found that Vietnam’s e-commerce market is likely to reach US$15 billion

by 2025, up from 2.8 billion in 2018 This growth is motivated by increasing internetaccess, a relatively young population, and an expanding number of local businessesopting for e-commerce as a distribution channel COVID-19 has accelerated the adoption

of e-commerce solutions for businesses and consumers alike

According to a recent market survey, online shopping frequency increased by 14percent in 2020, indicating that a growing number of consumers are shifting theirconsumption patterns The rise in the proportion of online consumption is highest in foodand beverage, cosmetics, sports goods, fashion, and stationery Popular e-commercechannels include Shopee, Lazada, and Tiki Regional foreign-owned platforms dominatethe Vietnamese e-commerce market Lazada and Shopee for instance are owned byAlibaba (China) and SEA Ltd (Singapore) However, local firms such as Tiki havesignaled expansion plans during the pandemic The e-commerce market is also of policyrelevance in the quest for a digital transformation; the National Digital Transformation

Program actively promotes e-commerce adoption by local enterprises (Atharva Deshmukh, 2020)

b Digital financial services

Cash payments remain the mode of choice in Vietnam In 2019, just 41 percent ofadults in the country had bank accounts, with a majority of them located in cities.However, there are indicators that the demand for digital financial services is likely torise According to World Bank data, only 45 percent of the Vietnamese population had

access to the internet This figure rose to 68.7 percent in 2019 (Atharva Deshmukh,

The combined effects of rising internet access and a booming e-commerce marketare likely to create opportunities in digital banking, payments, savings, and otherfinancial services.

In August 2020, Timo Plus, Vietnam’s first ‘digital bank’ announced that it wouldinvest in digital financial services through credit and savings products in a bid to attractdepositors who wish to shift away from traditional banking services Demand forpayments also increased in response to COVID-19 with a 76 percent increase in digitalpayments in the first quarter of 2020

(Atharva Deshmukh, 2020)

These changes in financial services consumption have prompted an interest inVietnamese fintech firms Fvndit, Kim An Group, Timo, and NextPay are among thosethat have secured new capital injections from domestic and foreign investors in 2020

Fintech revenues in 2020 are expected to reach US$7.8 billion (Atharva Deshmukh, 2020)

Regulatory trends have also favored FDI in fintech Earlier this year, theVietnamese central bank to discard the 49 percent ownership limits for fintech inintermediary payment services The regulatory conviction here is that growth in fintechcould be accelerated by expanding access to capital, both domestic and foreign

c Online Gaming

Vietnam’s gaming industry has witnessed a surge in demand in 2020 The e-sportmarket for instance has grown at 28 percent in a five-year compound annual growth rate(CAGR) since 2015 and online gaming revenues crossed US$10 million Key drivers ofthe online gaming industry include Vietnam’s digital transformation and demographics.The country is home to 3.9 million gamers and more than 50 percent of the population

has access to a mobile device (Atharva Deshmukh, 2020)

Online gaming, like e-commerce, is dominated by foreign-owned firms with most

of them being Chinese These firms have leveraged not only Vietnam’s demand but alsothe country’s supply of low-cost skilled labor and a network of local publishing firms

d IT-enabled services and Industry 4.0

Vietnam’s internet economy could witness a 29 percent growth over the next fiveyears The central pillar underpinning this trend is a digital ecosystem of firms andconsumers Thus, firms that provide IT services to businesses will be key to a successfuldigital transformation in Vietnam and the digital transformation in turn will createopportunities in IT-enabled services and Industry 4.0

For instance, the cloud services market in Vietnam is projected to grow to US$291million by 2024, a five-year CAGR of above 10 percent Much of this growth isconcentrated in the Northern region and foreign firms such as Microsoft, Amazon Web

Services, IBM and SAP Asia are key players in the cloud services business (Atharva Deshmukh, 2020)

Vietnamese policymakers have emphasized a focus on Industry 4.0 The goal ofimproving Vietnam’s ranking in the Global Innovation Index through productivity growth

in production processes has sparked policy reform in recent years A national strategy onIndustry 4.0 was released in 2019, which focused on R&D investments, connectivityinfrastructure, and digital governance. (Ousmane Dione, 2020)

Growth in the Vietnamese market for technologies such as big data, cloudservices, IoT is therefore contingent on the expansion of a skilled workforce and theprovision of high-quality connectivity infrastructure

In addition, Vietnam’s push for Industry 4.0 has urged foreign firms to locate R&Dactivities in the country For instance, Samsung, Panasonic, Bosch, GE, and Piaggio havelocal R&D activities This implies that the country’s FDI appeal could undergo astructural shift with investors seeking innovation and a skilled workforce increasinglylooking at Vietnam for investment prospects