New Models for a New World: Vietnam (2019)
The COVID-19 pandemic is challenging long-held beliefs in economics and business that people have held for decades. As economies pause and support systems come under strain, returning to "business as usual" looks less and less possible by the week.
In New Models for a New World, our new series of blog posts, we will return to some of our recent project outputs and the lessons they can provide for today regarding economic development, sustainability and business opportunities. The COVID-19 pandemic reveals new challenges, and GIFT's project outputs provide lessons on how to resolve them.
“Vietnam’s development over the past 30 years has been remarkable.” That was the judgment of the World Bank on one of the world’s fastest growing economies. Vietnam’s economy grows at an annual rate of about 6-7%, and 74% of its labour force is under 50 years of age: one of the world’s youngest workforces.
Vietnam’s excellent management of the COVID-19 pandemic shows its success at governance. The social contact and social solidarity, evidenced by people’s adherence to strict quarantine policies, has led to an enviable record, even compared to other “successes”. With only 325 confirmed cases and 0 deaths, Vietnam not only compares well to wealthier countries challenged by the virus (such as the United Kingdom), but even to other success stories, like South Korea (with 12,300 cases and 280 deaths).
Vietnam still has considerable room to develop. The World Bank reports that the country does not have enough workers match the demands of the job market. Vietnam’s IT, tourism, construction, infrastructure, manufacturing, and agribusiness sectors are expanding, and Vietnam is a potential beneficiary from trade tensions between the United States and China: foreign direct investment increased by 9.1% in 2018.
Yet only 21% of Vietnam’s workforce has had more than three months of training. Vietnam’s low unemployment rate at 2.2% masks the fact that many jobs are low-paying and rural. Current estimates suggest that the country needs 150,000 more IT workers to meet demand.
Time for a Rethink: The REACH Model
REACH, a fast-growing Vietnam-based non-profit, is helping Vietnam realise its economic potential. REACH trains over 1,000 students annually, often from vulnerable or under-privileged backgrounds and between the ages of 16 and 30. REACH has, to date, trained 17,000 students and placed 80% of them in jobs.
Despite their relative success, REACH’s attempts to expand the upskilling of the young, under-skilled Vietnamese workforce has been constrained by its funding and operational model. Since it was reliant on approximately $1 million USD annually from corporate donors, its reach and impact were limited. GIFT facilitated a programme in Hanoi aimed at producing business recommendations to ensure the NPO becomes more financially sustainable.
REACH Academy’s goal is to increase the enrolment of students, which would both grow their revenue and increase the population of skilled workers. Once employed, students can repay tuition over an extended period of time once they have found employment. The proposal estimated the potential for an intake of 12,500 students for the first two years, and 25,000 students from years 3-5. The Academy would also create an online platform called IMPACT, which would provide students with job-placement services and online training. It could also serve as a contractor marketplace. Part of the IMPACT platform is a “Tương Lai” card, which translates to “Future”. The card would hold a student’s academic, training, and work experience information in order to automatically generate an electronic CV.
GIFT worked with REACH on the 2019 Vietnam Global Leaders Programme, which aimed to create a new operational model to put the organisation on a more sustainable financial footing. The programme proposed a new approach to its funding with three revenue streams: REACH Academy, REACH Holdings, and an endowment fund.
In a previous attempt to increase revenue, REACH launched four separate social enterprises: a catering company, hair salon, photo-editing service, and a restaurant. Out of the four, only the photo-editing service was consistently profitable. The programme proposed that the commercial enterprises be restricted under a limited company — REACH Holdings — so that REACH can selectively expand profitable businesses. The model projects 20-30% annual revenue growth from the four social enterprises, with positive cashflow achieved by year 3.
Finally, an endowment fund would generate sustainable income and diversity REACH’s portfolio in order to promote growth. The fund will be comprised of a board of trustees, investment committee, and a fund manager. The proposal identified a need for the initial fund raise to be $10 million USD. It estimates 8% annual growth, with 5% to be withdrawn for operational use and 1% for fees. The proposed organisational structure places REACH NPO in an oversight role over REACH Holdings and REACH Academy, with the endowment fund providing additional income for the NPO.
This model seeks to leverage the impressive Vietnamese economic growth while also addressing issues that stunt its development. By diversifying its revenue sources, REACH will be able to generate more income, which will boost its efforts to upskill the Vietnamese workforce. There are risks involved: it is not a certainty that the endowment fund will reach a $10 million contribution, or that either REACH Academy or REACH Holdings will achieve their targets. Yet corporate donations alone would not allow REACH to achieve its potential.
By upskilling Vietnam’s workforce, REACH can expand its important contributions towards addressing the country’s challenges. It would increase the proportion of trained workers, and thus meet the demands of growing, but understaffed sectors.
One of Vietnam’s greatest assets in handling the COVID-19 pandemic is its social solidarity. The private sector has manufactured medical supplies, philanthropists have installed “rice ATM’s,” and there has been widespread compliance with the mandatory mask-wearing policy. This solidarity should support REACH as it upskills Vietnam’s workforce.
