Trade digitalization will boost Vietnam's connection on global stage

By HSBC   December 13, 2023 | 08:00 pm PT
Digitalization offers opportunities for a country to engage in international trade, benefiting micro, small, and medium-sized enterprises, although there will be regulatory challenges, according to HSBC.

Critical leverage for trade

According to Surajit Rakshit, Country Head of Global Trade and Receivable Finance, HSBC Vietnam, digitalization provides opportunities for developing countries to engage in international trade, particularly for micro, small, and medium-sized enterprises, helping them overcome trade cost disadvantages and deliver their products to global markets.

Surajit Rakshit, Country Head of Global Trade and Receivable Finance, HSBC Vietnam. Photo courtesy of HSBC

Surajit Rakshit, Country Head of Global Trade and Receivable Finance, HSBC Vietnam. Photo courtesy of HSBC

Take the example ofan agribusiness company in Vietnam which has its processes automated via the HSBCnet platform where all their trade finance-related activities are handled. This gives the company a seamless, straight-through experience using a single platform for its end-to-end needs.

Another example is an international animal feed company operating out of Vietnam that is enjoying a host-to-host solution to integrate with their ERP. Their ecosystem of suppliers can also get access to working capital via a fully automated supply chain finance solution, which means the company has full visibility into cash flows and their day-to-day working capital needs.

Trade finance is a massive market with an aggregate annual volume of domestic and international trade credit of around US$35 trillion.

Today, much of the world's trade finance market remains trapped in paperwork that aggravates information mismatches between counterparties, inflates costs, and increases risk.

"These are barriers for smaller merchants trying to grow their market share. Therefore, digitizing trade finance means greater financial inclusion," Rakshit said.

He highlighted that trade is still incredibly reliant on paper, and that has remained unchanged for centuries.

It’s estimated that there are an average of 28.5 billion trade documents printed and flown around the world every day.

As those involved in trade may have experienced, in many cases, goods arrive at their destination before the documentation.

For example, while transit periods between Singapore and Vietnam might take 5 days, the legal documentation that acts as proof of ownership of those goods can take 10 days when financing or risk mitigation is needed.

"There are workarounds in place to authorize the release of the goods, but this is just a workaround; it’s cumbersome and involves additional cost. If there isn’t a workaround, then the goods just sit there until the paperwork arrives," Rakshit said.

Growth opportunity for Vietnam

To maintain Vietnam’s high growth rates enjoyed over the past decades, research has shown the country requires a transition to a productivity-driven growth trajectory.

The adoption of digital technologies will be a critical driver of such productivity benefits. Thanks in part to recent increases in Vietnam’s smartphone penetration and internet availability rates, the country is well positioned to harness these technologies to sustain its growth momentum.

Surajit Rakshit at Tay Ninh Business connection Forum, co-hosted by The Ministry of Agriculture and Rural Development, Vietnam Digital Agriculture Association and EuroCham. Photo courtesy of HSBC

Surajit Rakshit at Tay Ninh Business connection Forum, co-hosted by The Ministry of Agriculture and Rural Development, Vietnam Digital Agriculture Association and EuroCham. Photo courtesy of HSBC

Rakshit said that digital trade will be crucial for achieving the objective of maintaining fast growth. "Vietnam is heavily trade-dependent," being one of the world’s top 30 net exporters and amongst the top 5 markets by exports and imports relative to GDP.

Though trade was once dominated by tangible goods, growth in global goods trade has flattened while global data flows have surged, with the amount of cross-border bandwidth having grown 45 times since 2005.

"This is projected to increase by an additional nine times over the next five years as the flow of information, searches, communication, video, and transactions continues to rise," Rakshit said.

Digital trade is crucial not only to increase and diversify Vietnam’s export base but also to helping Vietnamese firms leverage digital technologies across every sector of the economy. It can also create a huge positive impact on Vietnam’s domestic economy, with some of the biggest beneficiaries coming from outside the digital sector.

On top of that, it enables Vietnamese firms to achieve cost efficiencies (from the storage of data), enter new markets, and generate richer insights from data.

It supports collaboration (particularly where Vietnam may have skill gaps), enables adoption of more efficient business practices (such as allowing consumers real-time access to their bank accounts even when abroad), and supports management of global supply chains (tracking of export containers).

Digital transformation plan

Vietnam recently approved the National Digital Transformation Program by 2025, with an orientation towards 2030.

The initiative will help accelerate digital transformation through changes in awareness, enterprise strategies, and incentives towards the digitalization of businesses, administration, and production activities.

The program will target businesses, cooperatives, and business households that want to adopt digital transformation to improve their production, business efficiency, and competitiveness.

Recent years have seen the government announce several supportive measures for tech startups, drawing interest from investors.

Fintech, retail, health care, and payment solutions were the most in-demand sectors for funding, according to a recent report by venture fund Do Ventures and the National Innovation Center.

Vietnam's tech startups are reaping the benefits as the country sets its sights on becoming a fully digital society by 2030.

According to the World Bank, if digital sectors expand by about 10% every year, the cumulated monetary gains for the economy will exceed US$200 billion over 2021–2045.

HSBC has a long history in Vietnam, spanning over 150 years. Photo courtesy of HSBC

HSBC has a long history in Vietnam, spanning over 150 years. Photo courtesy of HSBC

As a truly international bank and a leading trade finance bank, supporting Vietnam fits within their competitive advantage. HSBC completed Vietnam's first live pilot blockchain domestic letter-of-credit transaction in late 2020, implemented jointly with Vietcombank.

By using the Contour platform, which enables the end-to-end digitization of trade finance, a transaction that usually takes three to five working days was completed in 27 minutes.

This transaction marks another milestone for Vietnam’s trade capabilities in Industry 4.0. In addition to completing the first international blockchain transaction between two corporates in Vietnam and Korea in 2019, HSBC Vietnam was able to support its corporate clients with the ability to now undertake domestic letter-of-credit transactions faster and more safely on Contour’s blockchain platform.

Rakshit said that this opens even more opportunities for enabling Vietnam to become an active trade hub in Asia.

Trade digitalization prediction

The increase in adoption of digital technologies has led to unprecedented reductions in the costs of engaging in international trade, changing both what is traded and how, and contributing to growing competitiveness.

It has also helped open new opportunities for trade in the context of tackling some of the consequences of the pandemic and helping economic recovery.

Digitalization can also help countries draw greater benefits from their regional trade agreements. When combined with a regional trade agreement, a 10% increase in digital connectivity gives rise to an additional 2.3% growth in goods exports.

Digital trade offers new opportunities for individuals and firms of all sizes in both developed and developing economies.

However, governments are facing growing regulatory challenges in ensuring that these opportunities can be realized and shared more inclusively.

Predicting the future of digitalization, Rakshit emphasized that getting the policy mix right calls for greater dialogue among different stakeholders to fashion approaches that allow everyone to reap the benefits of the digital transformation of trade.

go to top