The sustainable business models for industry 4 0 in vietnam

THE SUSTAINABLE BUSINESS MODELS FOR INDUSTRY 4 0 IN VIETNAM Huynh Ba Thuy Dieu, MBA Nguyen Thi Quynh Anh, MBA Korea Vietnam Friendship Information Technology College Abstract Managing the relationship[.]

THE SUSTAINABLE BUSINESS MODELS FOR INDUSTRY 4.0 IN

VIETNAM

Huynh Ba Thuy Dieu, MBA Nguyen Thi Quynh Anh, MBA Korea- Vietnam Friendship Information Technology College

Abstract

Managing the relationship between business and society has been one of the main topics in academic and business literature for a long time In the Industry 4.0 world that is digitalizing and automating, sustainable business models exist but have not become mainstream Sustainable business is the ideal business model but it is quite new in Vietnam, so it is necessary to learn the experiences of the world and the region in order to create the right model for Vietnamese enterprises

This paper focuses on the needed sustainable business model for industry 4.0 in Vietnam At the beginning, it gives the main theoretical points of view on sustainability, business model and industry 4.0 Then, it explains three sustainable business model for industry 4.0 in Vietnam: (1) backward integration model, (2) Unilever’s sustainable business model and (3) Corporate Social Responsibility (CSR) model Finally, it suggests six sustainable business models in the future in Vietnam: (1) The Real Value Model, (2)The Game-Changer Model, (3)The Bikini Model, (4)Open Innovation Models, (5) Service Design Models and (6) e-Residency Model

Keywords: sustainable business model, Industry 4.0, Vietnam.

I Introduction

Challenges for business models do not only come forward from business and customer needs While business has experienced unprecedented growth after the world-war era, it now faces major challenges in which there is a misbalance between available supply and expected demand; with a growth from 3 billion to over 7, 5 billion people from 1960 to 2017, the purchasing power of each individual tripled This has led to an enormous pressure on natural resources and our climate, and has and will result in social instability

Industry 4.0 – the fourth industrial revolution is changing how the world of business functions This new revolution of not only production, but also way of creation and design of products, processes and organizations, has come to existence because of the inclusion of various new actors into the way society and business function: artificial intelligence, machine learning, the combination of potential of hardware, software, and humans

In Viet Nam, sustainable business models exist but have not become mainstream Opportunities for sustainable offerings exist by designing products for longevity, repair and recycling, such that sustainability is not only focusing on being more efficient, but also on using less raw materials and recycling more products This changes the value proposition,

supply chain, relation with the customer and financial justification of a business model This paper discusses potential sustainable business scenarios, and proposes an agenda for research into how Industry 4.0 can be used to create sustainable business models

II Concept

1 What is Sustainable business

At its most general level, sustainability refers to the capacity to continue an activity or process indefinitely It can be related to any number of economic, social, or environmental activities and can have varied meanings within different disciplines Unsurprisingly, there is a multitude of definitions of sustainability and sustainable development

Sustainable Business is another way of referring to, and talking about, Corporate Social

Responsibility (CSR) But whether you call it Ethical Business, Corporate Social

Responsibility or Sustainable Business, you're talking about the same thing

All of these terms refer to systems and strategies for businesses to operate in a responsible manner that benefits their people, communities and environment

A sustainable business is any organization that participates in environmentally friendly or green activities to ensure that all processes, products, and manufacturing activities adequately address current environmental concerns while maintaining a profit In other words, it is a business that “meets the needs of the present [world] without compromising the ability of future generations to meet their own needs.” It is the process of assessing how to design products that will take advantage of the current environmental situation and how well a company’s products perform with renewable resources

Everyone affects the sustainability of the marketplace and the planet in some way Sustainable development within a business can create value for customers, investors, and the environment A sustainable business must meet customer needs while, at the same time, treating the environment well To succeed in such an approach, where stakeholder balancing and joint solutions are key, requires a structural approach One philosophy, that includes many different tools and methods, is the concept of Sustainable Enterprise Excellence

The different between Sustainable Business, Ethical Business and Corporate Social Responsibility

- Ethical Business

When businesses focus on their code of ethics or a code of conduct they may label their approach 'Ethical Business' Ethical Businesses often emphasize: The source of products and services, business conduct and quality and service standards

Consumer-led organizations often adopt an Ethical Business plan in order to demonstrate and reassure customers of their ethical credentials But it is equally important that those businesses also assess and report on all areas of their business activity, including social, economic and environmental impacts

- Corporate Social Responsibility: CSR is the process of assessing an organization’s

impact on society and evaluating their responsibilities CSR begins with an assessment of a business and their: Customers, Suppliers, Environment, Communities and Employees

- Sustainable Business

Sustainable Business essentially means being able to continue, or operating in a way that is conducive to ongoing trading

Sustainable Business is an important concept because it recognizes the importance of

businesses continuing, particularly in respect of providing jobs and custom for suppliers Recently, Sustainable Business has expanded to become a more holistic view of business

activity - reporting on impacts to people, the planet and profit People, planet, profit is also

known as the Triple Bottom Line

2 Elements of a sustainable business model

a Economic perspective

Within economic frameworks, sustainability is often thought to be achieved if the wellbeing

of society is maintained over time (Arrow et al 2004; Pezzey 1992; Solow 1993; Toman 1998) There are various formulations of this concept

Economists have interpreted sustainability in various ways Not all of these interpretations explicitly refer to sustainability but nonetheless embody similar ideas — that is, to achieve a non-declining level of wellbeing (sometimes referred to as utility or welfare) over time

Three seminal contributions to the economic theory of sustainability were provided by Dasgupta and Heal (1974), Solow (1974) and Stiglitz (1974) Their models represented wellbeing over time in terms of welfare maximization They showed the maximum level of utility that can be achieved over time with a finite level of natural resources Utility can be either constant (Solow 1974; Stiglitz 1974) or declining (Dasgupta and Heal 1974) over time depending on what is assumed about the capital stock, technological progress, and the rate at which future utility is discounted

In particular, Solow (1974) showed that, under certain conditions, constant wellbeing over time can be achieved by maintaining the total stock of capital That is, the depletion of natural capital can be off-set by investment in manufactured capital, or other types of capital By maintaining the level of productive capital the largest possible level of constant consumption per person can be achieved over time

As stated by Pezzey and Toman (2002, p 7), even though Solow did not explicitly discuss sustainability, ‘his was the first widely read paper to suggest in the context of formal economic growth theory, a sustainability-like objective for society’ and that this differed from the traditional economic approach of maximising the present-value of wellbeing Solow’s maintenance of the total capital stock is similar to a ‘rule’ proposed by Hartwick (1977) Hartwick’s rule is that if all rents from exhaustible resources are invested in

reproducible capital then non-declining consumption over time is achieved However, such

‘rules’ require that different forms of capital are close, if not perfect, substitutes

Sustainability has subsequently been interpreted by some economists to require a separate constraint on the conventional formulations of welfare maximization (Pezzey 1992; Arrow et

al 2004) However, there is disagreement as to whether concern about sustainability requires any explicit criterion or objective over and above welfare maximization per se (for example, Beckerman 1994)

Implicit in this interpretation of sustainability is the assumption that natural capital can be depleted, provided that society invests in other forms of capital (to offset this depletion) so the total capital stock does not decline over time This assumes that different forms of capital are substitutes For example, the stock of capital could be augmented by investment in produced capital to offset a loss of natural capital Similarly, human capital accumulation through educational attainment and skill acquisition can be a substitute for produced capital Technological advancement can also increase the ‘effective’ stock of capital, thereby enabling production with fewer physical capital inputs This assumption of substitutability lies at the core of the sustainability debate, and is discussed in detail below

b Social perspective

From a business perspective, social sustainability is about understanding the impacts of corporations on people and society

In corporations, social sustainability performance issues include human rights, fair labor practices, living conditions, health, safety, wellness, diversity, equity, work-life balance, empowerment, community engagement, philanthropy, volunteerism, and more Though social impact, or social sustainability, issues are not easily quantifiable or measurable, they are easier to identify

Adrian Henriques, Professor of Accountability and CSR at Middlesex University and author

of ‘Corporate Impact – Measuring and Managing your Social Footprint,’ states, “Social impact includes anything that affects company-stakeholder relationships: from how much and how reliably suppliers are paid, to how a product affects lives From how small shareholders may be treated to the impact of alcohol on health and communities.”

According to the UN Global Compact, social sustainability should be a critical part of any business because it affects the quality of a business’ relationships with stakeholders Social sustainability is a proactive way of managing and identifying business impacts on employees, workers in the value chain, customers, and local communities

Companies that raise the importance of social sustainability recognize the significance of their relationships with people, communities and society Social responsibility becomes part

of their core business strategy and they consider how their activities affect people There is a human cost to doing business A socially sustainable business will consider the safety of its workers in a particular location It will not allow its workers’ safety to be compromised by

Social sustainability mitigates risk Poor social sustainability is a risk to both brand and product quality Outsourcing to manufacturing sites with unsafe or poor working conditions can hurt a global corporation’s brand if a disaster happened or if word were to reach media and consumers Similarly, ignoring safety measures to protect public health can cost food manufacturers millions of dollars through government-backed recalls of products from market shelves

Providing safer working conditions, living wages and job security creates a more secure supply chain

Consumers want socially sustainable products Consumers are more informed and engaged They care about the impact (environmental or social) of the products they buy Companies who are more transparent about their supply chains have reaped the benefits from consumers who are willing to spend more for products that are more ethical

Social sustainability is attainable Companies are now partnering with social sustainability organizations to become more transparent, make their operations or supply chains more ethical, and understand the human cost of business

According to the UN Global Compact, aiming for social sustainability can help businesses in

a number of ways:

x Unlocking new markets

x Helping retain and attract business partners

x Becoming the source of innovation for new product or service lines

x Raising internal morale and employee engagement

x Improving risk management

x Improving company-community conflicts

c Environment perspective

Environmental sustainability is the ability to maintain the qualities that are valued in the physical environment For example, most people want to sustain (maintain):

• human life

• the capabilities that the natural environment has to maintain the living conditions for people and other species (e.g clean water and air, a suitable climate)

• the aspects of the environment that produce renewable resources such as water, timber, fish, solar energy • the functioning of society, despite non-renewable resource depletion

• the quality of life for all people, the livability and beauty of the environment

Threats to these aspects of the environment mean that there is a risk that these things will not

be maintained For example, the large-scale extraction of non-renewable resources (such as

minerals, coal and oil) or damage done to the natural environment can create threats of serious decline in quality or destruction or extinction

Traditionally, when environmental problems arise environmental managers work out how to reduce the damage or wastage But it is not always easy to work out exactly when and where threats will have their effects and often the impacts are hard to reverse So increasingly environmental managers adopt strategies aimed to prevent damage being done in the first place A full sustainability program needs to include actions to prevent threats and impacts from arising, actions to protect the environment from threats and damage, and restoration to reverse damage already done

Sustainability issues arise wherever there is a risk of difficult or irreversible loss of the things

or qualities of the environment that people value And whenever there are such risks there is a degree of urgency to take action

Environmental sustainability programs include actions to reduce the use of physical resources, the adoption of a ‘recycle everything/buy recycled’ approach, the use of renewable rather than depletable resources, the redesign of production processes and products to eliminate the production of toxic materials, and the protection and restoration of natural habitats and environments valued for their livability or beauty

These sustainability programs need to operate on an adequate scale and need to continue operating reliably for as long as the threats continue

Some of the issues that pose major environmental sustainability problems include:

• destruction of the living environments (habitats) of native species

• discharge of polluting chemicals and other materials into the environment

• emission of greenhouses gases into the atmosphere than can cause climate change

• depletion of low cost oil and other fossil fuels ii Some environmental issues are largely of local significance while others have regional or even global relevance

At the personal or household level, there are a host of actions that people can take to contribute to environmental sustainability at home, when travelling or accessing services or goods, at work, or when acting as a community member or citizen or as an investor of personal funds

Some useful examples are include living close to work where possible and walking, using a bike or using public transport These are good options to save energy and reduce greenhouse gases If these options are not possible then using an ultraefficient hybrid petrol/electric vehicle can cut greenhouse gases and petrol consumption by about 50% and cut other toxic pollutants by about 90%

Buying products made of recycled materials will generally save materials and energy, cut greenhouse gases and toxic pollution, and reduce impacts on living things in the wild Installing a water tank and low flow shower can save water

Building or renovating a house using environmental sound design and lower impact materials and 5+ star appliances can make a big impact on all environmental issues

Using food in season or from local sources and organically grown can cut impacts from chemicals, save energy and reduce greenhouse gases

Involvement in or donations to community environmental groups can help with practical projects like revegetation or by building support for effective government policies And investing savings in ethical investments can help accelerate the creation of an environmentally-sustainable economy

3 Industry 4.0

The first time the notion “Industry 4.0” (derived from the German term “Industrie 4.0”) was mentioned in public, was at the “Hannover trade fair” in 2011, Germany (Kagermann, Lukas,

& Wahlster 2016) The following initiative set by the Federal Ministry of Education and Research, Germany (BMBF, Bundesministerium für Bildung und Forschung), also called

“Industry 4.0”, intends to encourage the German manufacturing industry to prepare for the future of production (Bundesministerium für Bildung und Forschung 2016) In the meantime the term Industry 4.0 is also widely used across Europe Consequently the term Industry 4.0 describes nowadays in general the digital transformation of the manufacturing industry, which is accelerated by exponentially growing technologies, like for example intelligent robots, autonomous drones, sensors and 3D-printing (Bundesministerium für Bildung und Forschung 2016) Other terms appearing along with Industry 4.0 are the “digital transformation”, the “Internet of Things” or the “Industrial Internet (of Things)” These terms are also applied interchangeably with the notion Industry 4.0 and the last two are used more commonly in the United States and the English-speaking world (Deloitte 2015, p 3) Furthermore other companies like for example Cisco are using the term “Internet of Everything” (De Bernardini 2015) All these notions are referring to similar technologies and applications, but can have different origins and meanings Whereas Industry 4.0 is focused specifically on the manufacturing industry, terms like the Internet of Things, the Digital Revolution and the Internet of Everything are more focused on enabling and accelerating the adoption of internet-connected technologies across industries, both manufacturing and non-manufacturing Nevertheless, what all these terms and concepts have in common is the recognition that traditional manufacturing methods are run through a digital transformation (Deloitte 2015)

4 The nine pillars of industry 4.0

Industry 4.0 describes a future state of industry characterized by thorough digitization of economic and production flows It requires horizontal integration at every step in the production process, in interaction with machines In the globally interconnected world of Industry 4.0, machines also interact with one another

The Boston Consulting Group has identified Industry4.0’s nine technological pillars:

xAutonomous robots Long used to tackle complex tasks, robots provide an ever

wider range of services and are becoming more autonomous, flexible, and cooperative They will interact with one another and work safely with humans (the term “robotics” is used to describe robots helping operators perform their tasks) Eventually, they will be able to learn from humans

xSimulation 3D simulation of product development, material development and

production processes will become widespread It will leverage real-time data to mirror the physical world in a virtual model that will include machines, products, and humans Operators will be able, for example, to test and optimize the machine settings for the next product even before production starts, thereby reducing machine setup times and improving quality

xHorizontal and vertical system integration Today, information systems are not

fully integrated Companies are rarely connected with their suppliers and customers Engineering design departments are seldom linked directly to production within its own organization But with Industry 4.0, the entire organization will be interconnected, and companies will be connected with one another

xThe Industrial Internet of Things Few machines are currently fitted with sensors

and interconnected With the Industrial Internet of Things, an ever greater number of products will incorporate intelligence and be connected using standard protocols This will decentralize analytics and decision-making, enabling real-time responses

xCyber security The days of closed, unconnected operational management systems

are over Connectivity and communication protocols are becoming the norm Protecting information systems and manufacturing lines from cybercrime threats is becoming a critical issue Sophisticated identity and machine access management systems will be used to provide secure, reliable communications

xThe Cloud The operating processes of Industry 4.0 require more data sharing across

sites and companies The performance of cloud technologies will improve, achieving response times of mere milliseconds This will foster the development of an ever greater number of Manufacturing Execution Systems (MESs) based on cloud-stored machine data

xAdditive manufacturing Companies have just begun to adopt 3D printing for

prototyping and unit production With Industry 4.0, these technologies will be chosen for their very high performance in producing small batches of customized products Decentralized systems will reduce transportation and inventory management costs

xAugmented reality Augmented-reality tools are still in their infancy, but they are

paving the way for new services For example, they will provide operators with the real-time information they need for faster decision-making and for improving work processes

x Big data and analytics There are still massive sets of untapped data in the industrial

world Their analysis will optimize production quality, save energy, and improve services

Called “Industry 4.0” in Germany, this manufacturing revolution is elsewhere reflected in expressions such as “Made in China 2025” and “Manufacturing Renaissance” (US) This concept is the subject of widespread discussion but its impact in today’s industry remains relatively modest

German experts reckon that we are now at 3.8, and that it will take a decade or so before we arrive at 100% Industry 4.0 manufacturing No company will move from 3.0 to 4.0 in a single step Despite its speed, this migration will take place in stages

III Literature overview

In his value chain theory, Porter (1998) stressed the importance the specific profile of activities as a source for the long-term competitive advantage of a company and he used the term company activities synonyms with business processes comprising supply chain processes due to the cross-company character of value chains

Today’s value chains, often evolved over longer periods, tend to be relatively static and the supporting ICT systems exchange information along the value chain via a variety of interfaces but usually there is no global overview from the product perspective that has been manufactured and distributed (Brettel et al., 2014) M2M technology of Industry 4.0 together with internet–linked production facilities and networked manufacturing systems allow to identify and to trace single products during their entire life-cycle and even more because in industry 4.0 it becomes possible for products to organise and choose their own way through

the production and related logistics processes (Bauer et al 2014) The pilot project

“AMATRAK” at ISL Bremen showed that self–guided container transportation systems are feasible where the containers are able to choose and book suitable and optimal transportations means according to their own needs (ISL 2015) Thus Industry 4.0 leads to new supply chain paradigms based on complex and intertwined manufacturing networks with changed roles of designers, physical product suppliers, clients and logistics service providers

As a consequence, Dujin et al (2014) pointed out that Industry 4.0 value chain will undergo

the same fragmentation, which have emerged already before in other monolithic industries like music or the media and that this fragmentation comes along with low entry barriers for SMEs, i.e the “slicing up” of the aggregate value chains, as well as the entry of new countries bearing low labor costs (Belussi and Sedita 2010) Consequently, Industry 4.0 will deliver greater flexibility and robustness and Industry 4.0–related value chains will be built of flexible and adaptable business structures, which possess the permanent ability for internal evolutionary developments in order to cope with a changing business environment (Koether 2006) Suitable business structures have been coined by Warnecke (1997) already in the 1990’s in his concept of a fractal company A fractal enterprise is characterized by self-similarity, self-organization, self-optimization, goal-orientation, and dynamics as winning attributes of flexible and adaptable manufacturing organizations

Warnecke (1997) stressed also intrapreneurship as a success factor of fractals and pointed out that fractal organizations are linked via high performing ICT systems and they decide individually about the type and scope of access to their data These fractals enjoy the five

properties, which have been pointed out by Warnecke and these five properties are also compatible with the discussed characteristics of the Industry 4.0 The process of building a fractal structure is based on relations between material, personal and information whereby inside a fractal structure these relations are closer and more intensive than on the outside, so that fractal building is comparable to mathematical cluster process based on the relationship and weights of the resources In the context of Industry 4.0 due to the increasing importance

of information, internet, cross–company interconnectivity in operations and supply chain management the weight of information gains significant importance in the clustering process whereby the supply chain comprises the entire product life-cycle process including product design and development, operations management and logistics (Koether 2006)

Consequently, the internet access points within a supply chain as well as the cross–company information interfaces together with their surrounding form structures of high internal interaction and exchange of resources, which can be considered as fractals in the sense of Warnecke since they are built according to the principle “join the parts around an information access point of equal information level” and they represent timely, limited, stable, optimal structures that are changing their shape and structure according to their local needs (Prause 2015b)

Thus coherence between the fractal concept of Warnecke and sub–organizations in Industry 4.0 can be identified as well as another observation of Warnecke stating that the information intensity and complexity inside a fractal is higher than between fractals Consequently, also the workers in a fractal represent information processing individuals whose required skills and knowledge levels have to be relatively homogenous and strongly related to the used

information quality of the fractal (Spath et al., 2013; Kagermann et al 2013) Meanwhile

many scholars have been inspired by the fractal concept and developed extensions of the fractal model in the direction of flexible relationship networks built of autonomous and

interdependent manufacturing fragments (Canavesio, Martinez 2007; Shin et al 2009) Such

organizational expansions bring new responsibilities, new branches and growth, which gives room for the integration of information and manufacturing structures in the context of fractals, especially paving the way to the alliances of the fractals as they work together (Panetto, Molina 2008; Raye 2012) Canavesio and Martinez (2007) formulated another viewpoint on fractals by considering a fractal company as a multi-agent system, where each fractal has the ability to observe its environment and make decisions based on the feedback The case study of a very successful Estonian production company for functional maritime wear with global operations shall shortly illustrate the potential of a fractal approach and that already nowadays fractal concepts have captured the interest of business life The management headquarters of the company are located in a rural area in Western Estonia whereas the company operates in highly developed foreign markets like Germany, Sweden and UK The business operations are distributed all over the world comprising global sourcing mainly in Europe and Asia, German R&D activities, cutting and production of components in Estonia, sewing in Ukraine of the final products and sales activities outside