Business
Local enterprises recognize need for greater knowledge
  • | vneconomictimes | November 17, 2018 05:21 PM
Greater attention now being paid to R&D investment by domestic enterprises, who are increasing the application of their scientific and technological products.

Anti-bacterial technology in water treatment introduced by Vietnamese water purifier manufacturer the Kangaroo Group was certificated by the Hanoi Department of Science and Technology in mid-September. This was a turning point in taking the Kangaroo brand to greater heights, as a private enterprise applying science and technology and developing products that meet the needs of local consumers, according to Mr. Le Xuan Hoan, Kangaroo’s General Director.

A private Vietnamese company, Kangaroo has established a reputation as a supplier of water purifiers for families and enterprises over the last 15 years. It has also found success in developing and expanding a new product category - personal air purifiers. Through investing in R&D, the company’s inventions have been successfully applied in health-related products as a solution for pressing issues relating to air, water and pollution.

Many other Vietnamese enterprises have recently set up or are in the process of establishing their own R&D centers. In the context of integration, Vietnamese enterprises simply must invest more into R&D in order to improve their competitive capacity.

Product development

With the establishment of the Kangaroo Research and Development Institute in 2014, the Kangaroo Group turned out inventions such as hydrogen water purifiers and anti-bacterial technology in products such as freezers, water tanks, and showers that meet needs in the market.

The group has announced that science and technology is a focus and its mission is to implement scientific research based on requirements in the market relating to health issues. Its R&D activities focus on three fields - bacteria, water and air - to identify solutions and application in daily life. Granted four utility patents along with making major efforts in science and technology activities, the group was recognized as a Science and Technology Enterprise by the Hanoi Department of Science and Technology. Importantly, much research has been applied to production and valuable products created for consumers.

The Rang Dong Lighting Source and Vacuum Flask JSC is another typical case. The company’s investment in R&D began early. Since 2005, it has focused on researching access to LED lighting products, which are expected to eventually replace traditional lighting products.

From 2008 to 2010, the company began producing LED products as the technology became common around the world. “This made lighting companies like us catch up with technology and R&D is an indispensable part of that,” Dr. Pham Hong Duong, Deputy Director of the Rang Dong Research and Development Center (LRDC), told VET.

Established in 2011, the LRDC was the first specialized and interdisciplinary research center in the lighting field. As the “science and technology brain” of the company, the center pursues its mission to research and develop new lighting sources and build green lighting systems and solutions to provide comfortable, energy-saving, and eco-friendly lighting. It spends 2 per cent of its annual revenue on modern technology and equipment and 20 per cent of its after-tax profit on R&D, in close cooperation with domestic and foreign experts in the field of lighting, to jointly research and design new products, improve the level of automation, apply information technology (IT), and develop e-commerce.

Investment in R&D and innovation has significantly contributed to Rang Dong’s business results. In the first six month of 2018 it recorded revenue of VND1.5 trillion ($63.8 million), with total profit of VND108 billion ($4.6 million). In the 2018-2020 period, it plans to put lighting products and vacuum flasks into G7 and G20 countries and maintain and develop its products in the domestic market.

Military telecommunications operator the Viettel Group has also greatly focused on R&D activities and building its manufacturing capacity for many years. It established the Viettel Research and Development Institute in 2011, with a team of high-quality engineers and researchers that will contribute to its aim of creating Made in Vietnam products and Made by Viettel products based on international standards with competitive prices. As at 2017, it owned 25 patents, triple the number in 2016 and the third-highest in the country. Production research brought in revenue of VND12.5 trillion ($536 million) out of total revenue of VND250.8 trillion ($10.7 billion).

In August, private multi-sector giant Vingroup officially launched VinTech, the Big Data Research Institute, the Vin Hi-Tech Institute (VHT), and a supporting fund for startups and scientific and technology research activities. It has also signed up with some 50 leading Vietnamese universities in the field of science and technology to prepare 100,000 engineers for the next decade. A representative from the group said it is striving to become an international technology - industry - service group in the next ten years, with technology the mainstream focus.

Existing barriers

Though many Vietnamese enterprises conduct R&D, local analysts believe that apart from some large enterprises, especially those in IT, most are still to pay due regard to the field.

Twenty-six per cent of the country’s large and medium-sized enterprises report investment in R&D, while only 9 per cent of small enterprises have done so, according to the “Strengthening Competitiveness and Linking Small and Medium Enterprises” study released by the World Bank (WB) in late 2017. “Refusing to pay for R&D, the capacity of Vietnamese enterprises to create new products is now lower than those in neighboring countries such as Cambodia,” the report noted.

Vietnamese businesses spend only 1.6 per cent of their annual revenue on R&D, according to the report, while the rate in Cambodia is 1.9 per cent. Laos businesses seem particularly interested in R&D and assign it 14.5 per cent of annual revenue. Enterprises in the Philippines and Malaysia, meanwhile, outlay 3.6 per cent and 2.6 per cent, respectively.

The WB pointed out that Vietnamese enterprises are striving to improve their products and production processes to the same extent as their counterparts in other countries in the region, but rarely introduce new products with new functions. Only about 23 per cent of local enterprises introduced a new product or service in the last three years that improved upon existing models. The ratio was higher than enterprises from Laos, Malaysia and Thailand but lower than those in Cambodia and the Philippines (30 per cent).

Economist Pham Chi Lan told local media that Vietnamese enterprises are not sufficiently active in R&D investment and the development of products, services, and innovative activities to improve productivity, quality and business efficiency. Most just focus on production and product pricing and don’t consider value creation such as R&D or marketing promotions. “Meanwhile, in developed countries, when R&D is invested effectively it can create up to 30-35 per cent of added value for goods and services,” she said. “If Vietnamese enterprises don’t invest in R&D they will scarcely be able to participate in value chains.”

R&D investment is still limited among Vietnamese enterprises due to the high opportunity cost, Mr. Hoan added. Kangaroo spent three years researching and successfully applying its hydrogen water purifier, which was a tremendously long time with huge outlays on research and marketing opportunities, and not all businesses can afford to wait that long. “However, once the core issue is identified, R&D brings value not only in business but also in the market and in society, so every business needs to promote its R&D activities,” he believes.

Government assistance

Local enterprises have received significant support from the government, with mechanisms and policies introduced to encourage them to invest in science and technology and bolster their competitiveness. Such efforts form part of the Science and Technology Development Strategy in the 2011-2020 period, approved by the Prime Minister.

Taking effect from July 1, the Law on Technology Transfer created a legal framework for financial support, loans, and preferential interest rates for investments in technical infrastructure and establishing R&D units. The law aims to increase research activities, especially in the agriculture sector, which is in need of high-tech expertise.

In the Law on Science and Technology 2013, the government requires enterprises invest from 3 to 10 per cent of pre-tax profits on scientific and technological development. If an enterprise’s science and technology development fund is not used, it goes to State funds to finance research at institutes, schools and enterprises. According to Dr. Nguyen Quan, Chairman of the Vietnam Automation Association (VAA), R&D investment under the law will be much larger than that from the State budget. “Similar to developed countries, we will have the budget to pay for R&D activities and create national products,” he said.

The “Vietnam Innovation Network” initiative launched in August by the Ministry of Planning and Investment (MPI), Ministry of Science and Technology (MoST), the Ministry of Foreign Affairs, and the Ministry of Education and Training aims to help the country stay abreast in terms of science and technology and economics. MPI is now coordinating with relevant ministries and agencies to develop a national strategy on Industry 4.0, including the creation of centers for innovation and the mobilization of talent and intellectuals in the field of science and technology.

At a meeting with the Ministry of Information and Communications in September, Prime Minister Nguyen Xuan Phuc said Vietnam needs to apply high technology to produce more IT products under the “Made in Vietnam” brand, turning the country into an IT powerhouse and effectively supporting intelligent development in the social and economic fields.

The government also creates the conditions for businesses to develop, such as removing business conditions and supporting them in science and transferring from R&D to application. “This transfer will be a great step forward, as businesses can bring a lot of benefits to consumers and society,” Mr. Hoan said.

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