Vietnam information technology report q2 2011

Factors such as growing PC penetration, economic growth, a range of government ICT initiatives and a drive to develop Vietnam’s IT industry will help to underpin one of the fastest IT ma

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TECHNOLOGY REPORT Q2 2011

INCLUDES 5-YEAR FORECASTS TO 2015

Part of BMI’s Industry Report & Forecasts Series

Published by: Business Monitor International

Copy deadline : April 2011

CONTENTS

Executive Summary 5

SWOT Analysis 8

Vietnam IT Sector SWOT 8

Vietnam Telecoms SWOT 9

Vietnam Political SWOT 10

Vietnam Economic SWOT 11

Vietnam Business Environment SWOT 12

IT Business Environment Ratings 13

Asia 13

Table: Asia Pacific IT Business Environment Ratings 16

Asia IT Markets Overview 17

Vietnam Market Overview 23

Government Authority 23

Background 23

Hardware 24

Software 26

Services 29

Industry Developments 31

Industry Forecast Scenario 35

2011 Outlook 35

Drivers 36

Segments 37

Summary 38

Table: Vietnam IT Sector (US$mn unless otherwise stated), 2006-2015 38

Internet 39

Table: Telecoms Sector – Internet – Historical Data And Forecasts, 2008-2015 39

Macroeconomic Forecast 41

Table: Vietnam – Economic Activity, 2008-2015 43

Competitive Landscape 44

Hardware 44

Software 45

IT Services 49

Company Profiles 52

FPT Software 52

Country Snapshot: Vietnam Demographic Data 53

Section 1: Population 53

Table: Demographic Indicators, 2005-2030 53

Table: Rural/Urban Breakdown, 2005-2030 54

Section 2: Education And Healthcare 54

Table: Education, 2002-2005 54

Table: Vital Statistics, 2005-2030 54

Section 3: Labour Market And Spending Power 55

Table: Employment Indicators, 1999-2004 55

Table: Consumer Expenditure, 2000-2012 (US$) 55

BMI Methodology 56

How We Generate Our Industry Forecasts 56

IT Industry 56

IT Ratings – Methodology 57

Table: IT Business Environment Indicators 58

Weighting 59

Table: Weighting Of Components 59

Sources 59

Executive Summary

Market Overview

The Vietnamese IT market is estimated to grow at a CAGR of 16% over the 2011-2015 forecast

period IT spending bounced back in 2010, following a sluggish start to the year Factors such as growing

PC penetration, economic growth, a range of government ICT initiatives and a drive to develop

Vietnam’s IT industry will help to underpin one of the fastest IT market growth rates in the region

An ambitious government IT plan for 2010-2020 should shape many segments of the Vietnamese IT market, while Vietnam’s improving information and communication technology (ICT) infrastructure will also drive growth Vietnam’s gradual integration into global trade networks such as the Association of Southeast Asian Nations (ASEAN) and the WTO has helped to bring down prices and increase

opportunities for importers

The Vietnamese IT market is estimated to grow at a CAGR of 16% over the 2011-2015 period The

addressable domestic market for IT products and services is projected by BMI to reach US$4.1bn by

2015 An increasing number of Vietnamese companies have shown an interest in cloud services

Industry Developments

In November 2010, the government pledged to invest US$8.5bn in the ICT sector over the next ten years Meanwhile, the government’s campaign to attract more foreign IT companies to invest in Vietnam

received a boost with the announcement that Hewlett-Packard (HP) would set up a wholly-owned firm

in Vietnam in early 2011 The government hopes to attract US$5bn of foreign investment into the IT industry by 2015

The Vietnamese government has unveiled ambitious plans for developing the country’s IT industry The plans, which state a revenues target for the sector of between US$17bn and US$19bn in the next five years, include major investments to develop production centres in software, services, hardware and electronics Revenues are projected at US$2bn from software sales, US$12.5bn from hardware, US$2bn from digital content, and US$1.5bn from IT services

In 2010 the Ministry of Education and Training continued to implement a national programme to supply

1mn affordable computers to Vietnamese schools by 2011 In January 2010, the Vietnam Post and Telecoms Group (VNPT) in Ho Chi Minh City launched a local version of the Computers for Education

programme, which will provide teachers and students in the city with low-priced laptops and DSL

broadband connections

Competitive Landscape

In 2010, several Vietnamese enterprises announced plans to produce tablet PCs, and the first local

product, from Hanel, was launched in Vietnam in October 2010 However, local manufacturers are likely

to find it hard to compete with the iPad and rival products from other vendors, such as Samsung with its Galaxy Tab

Vietnam has around 10,000 firms currently licensed to provide IT services, but only one-third are actually operating The MOCI is currently developing a draft decree to map out policies to help the IT industry grow The decree will stipulate procedures and operational requirements for firms providing IT services

In 2010, the Vietnamese FPT (Corporation of Financing and Promoting Technologies) and Microsoft reached an agreement on cooperation to research opportunities for cloud computing in Vietnam The partners will also launch commercial pilots Meanwhile, IBM is promoting cloud computing as a cost-effective way for Vietnamese SMEs to realise efficiencies through IT utilisation

Computer Sales

BMI projects that sales in Vietnam’s computer hardware market will be worth around US$1.7bn in 2011,

up from an estimated US$1.5bn in 2010 BMI projects growth of around 13% in the Vietnam PC market

in 2011, after the market showed signs of a rebound in 2010

PC penetration in Vietnam was estimated by BMI at around 15% in 2010 Notebooks are owned by an

estimated 7% of the Vietnamese population This points to significant growth potential for the local PC market, with the most potential being in rural areas Currently Hanoi and Ho Chi Minh City are thought to account for in the region of 85% of notebook sales

Software

In 2011, Vietnam software sales are projected by BMI to grow to US$192mn, and software CAGR for

2011-2015 should be in the region of 15% Software spending comprises around 10% of total Vietnamese

IT spending

The market is expected to reach a value of around US$391mn by 2015, with steady growth in demand for licensed software from government, enterprise and household segments Vietnam’s software market is developing, despite the problem of software piracy, which still accounts for around 85% of software, compared with 76% in neighbour Thailand

Services

Vietnamese IT services spending is forecast to reach around US$406mn in 2011, up from US$351mn in

2010 Sectoral CAGR is projected at 12% over the forecast period, as the market approaches US$752mn

by 2015

IT services now accounts for around 18% of total Vietnam IT spending Over the past few years, the size

of IT services deals has increased in key IT spending verticals Growing demand for digital infrastructure projects in segments such as banking, telecoms, energy and government has attracted global IT services providers to invest more in Vietnam

E-Readiness

Vietnam’s fixed-line infrastructure is unreliable and offers poor coverage However, Vietnam has an exceptionally high penetration rate in the mobile market, reaching 126% at the end of 2009, and

registering around 110.8mn subscribers This has been aided by mobile network operators reducing tariffs

to encourage growth of their respective subscriber bases, as well as increased investment in the expansion

of infrastructure to areas outside major towns and cities Demand for mobile broadband has also been accelerated by the changing lifestyles of consumers, who use the service for accessing the internet for work and leisure

SWOT Analysis

Vietnam IT Sector SWOT

Strengths ƒ The domestic IT market is in a rapid growth phase, with trade liberalisation and

growing affordability driving projected double-digit growth of notebook computers

ƒ Expanding ICT infrastructure and internet penetration will continue to drive demand for IT products and services

ƒ Vietnam’s gradual integration into the global trade network via its accession into trade organisations such as ASEAN and WTO, as well as bilateral agreements with Japan and China

Weaknesses ƒ IT spend per capita much lower than in neighbouring Thailand, reflecting a much

lower GDP and GDP per capita

ƒ Low levels of access to credit and budgets restrain spending by SMEs

ƒ Highly cost-sensitive market, with 75% of software provided by lower-cost local software vendors

ƒ High level of software piracy at 85%, although it has fallen in the last few years

Opportunities ƒ High PC market growth potential particular in rural areas due to overall low PC

penetration rate of 15%

ƒ Vast and relatively under-penetrated rural market presents a significant growth opportunity as the government rolls out measures to boost rural connectivity and incomes

ƒ National IT Plan will drive spending on IT utilisation in areas like government, taxation and education

e-ƒ SMEs have much potential to increase spending on basic solutions, including customer relationship management and security

ƒ One Teacher-One Computer programme aims to deliver 1mn computers to schools

ƒ The government’s drive to create a significant IT services industry over the next

15-20 years is expected to be a significant factor shaping the IT market

Threats ƒ Continued depreciation of the dong against the US dollar would increase the

pressure on Vietnamese distributors of foreign IT goods

ƒ Falling prices may further undermine margins and profitability after steep discounting

in 2009

ƒ The implementation of the China-ASEAN free trade agreement means that established multinationals will face a growing challenge from low-cost Chinese vendors in the Vietnamese market

Vietnam Telecoms SWOT

Strengths ƒ Fixed-line penetration levels and internet user rates are high in major urban centres

such as Ho Chi Minh City, Hanoi, Danang and Haiphong

ƒ Competition exists in fixed-line and internet access markets; VNPT faces competition from several other state-owned companies and two privately-owned operators

ƒ High levels of literacy and other demographic factors bode well for strong and continued demand for wireline services over the next few years

Weaknesses ƒ Vietnam’s fixed-line and internet access markets are both dominated by

state-controlled operators, VNPT and Viettel

ƒ Although alternative broadband infrastructures are currently being explored, broadband growth continues to be dependent on DSL

ƒ Low fixed-line penetration rates in rural regions limit the scope for DSL broadband growth

ƒ Internet user growth is slowing, despite the limited access to internet infrastructure in much of rural Vietnam

ƒ Broadband tariffs remain high, creating a barrier for low-income subscribers to access

Opportunities ƒ The privatisation of VNPT could help to bring about increased investment revenues

and the arrival of new skills

ƒ On a national level, broadband penetration rates remain low; this means that the sector has considerable growth potential

ƒ VNPT plans to invest US$1bn in 2009, in order to upgrade its broadband networks and expand its international internet bandwidth

ƒ Significant opportunities exist to develop alternative broadband technologies, including WiMAX and fibre

ƒ WiMAX services are currently being trialled with a view to licensing a number of WiMAX service providers in the near future; WiMAX internet services have the potential to raise the level of internet user penetration in rural parts of Vietnam

ƒ Draft Bill of Law on Telecommunication has been put forward for discussion at the National Assembly Steering Committee If passed, the bill will allow private companies to build network infrastructure for the first time and will open up the telecoms market to foreign investors

Threats ƒ Fixed-line sector may enter a period of decline, with potentially negative

consequences for ADSL growth

ƒ As the market for mobile data services grows, this could have potentially negative consequences for the growth of fixed broadband services

ƒ Slower economic growth in 2009 and 2010 could undermine wireline investment and expansion plans

Vietnam Political SWOT

Strengths ƒ The Communist Party government appears committed to market-oriented reforms,

although specific economic policies will undoubtedly be discussed at the 2011 National Congress The one-party system is generally conducive to short-term political stability

ƒ Relations with the US are generally improving, and Washington sees Hanoi as a potential geopolitical ally in South East Asia

Weaknesses ƒ Corruption among government officials poses a major threat to the legitimacy of the

ruling Communist Party

ƒ There is increasing (albeit still limited) public dissatisfaction with the leadership’s tight control over political dissent

Opportunities ƒ The government recognises the threat that corruption poses to its legitimacy, and

has acted to clamp down on graft among party officials

ƒ Vietnam has allowed legislators to become more vocal in criticising government policies This is opening up opportunities for more checks and balances within the one-party system

Threats

ƒ The slowdown in growth in 2009 and 2010 is likely to weigh on public acceptance

of the one-party system, and street demonstrations to protest economic conditions could develop into a full-on challenge of undemocractic rule

ƒ Although strong domestic control will ensure little change to Vietnam’s political scene in the next few years, over the longer term, the one-party-state will probably

be unsustainable

ƒ Relations with China have deteriorated over the past year due to Beijing’s more assertive stance over disputed islands in the South China Sea and domestic criticism of a large Chinese investment into a bauxite mining project in the central highlands, which could potentially cause widescale environmental damage

Vietnam Economic SWOT

Strengths ƒ Vietnam has been one of the fastest-growing economies in Asia in recent years,

with GDP growth averaging 7.6% annually between 2000 and 2009

ƒ The economic boom has lifted many Vietnamese out of poverty, with the official poverty rate in the country falling from 58% in 1993 to 20% in 2004

Weaknesses ƒ Vietnam still suffers from substantial trade, current account and fiscal deficits,

leaving the economy vulnerable as the global economy continues to suffer in 2010 The fiscal picture is clouded by considerable ‘off-the-books’ spending

ƒ The heavily managed and weak dong currency reduces incentives to improve quality of exports, and also serves to keep import costs high, thus contributing to inflationary pressures

Opportunities ƒ WTO membership has given Vietnam access to both foreign markets and capital,

while making Vietnamese enterprises stronger through increased competition

ƒ The government will, in spite of the current macroeconomic woes, continue to move forward with market reforms, including privatisation of state-owned enterprises, and liberalising the banking sector

ƒ Urbanisation will continue to be a long-term growth driver The UN forecasts the urban population to rise from 29% of the population to more than 50% by the early 2040s

Threats ƒ Inflation and deficit concerns have caused some investors to re-assess their

hitherto upbeat view of Vietnam If the government focuses too much on stimulating growth and fails to root out inflationary pressure, it risks prolonging macroeconomic instability, which could lead to a potential crisis

ƒ Prolonged macroeconomic instability could prompt the authorities to put reforms on hold, as they struggle to stabilise the economy

Vietnam Business Environment SWOT

Strengths ƒ Vietnam has a large, skilled and low-cost workforce that has made the country

attractive to foreign investors

ƒ Vietnam’s location – its proximity to China and South East Asia, and its good sea links – makes it a good base for foreign companies to export to the rest of Asia, and beyond

Weaknesses ƒ Vietnam’s infrastructure is still weak Roads, railways and ports are inadequate to

cope with the country’s economic growth and links with the outside world

ƒ Vietnam remains one of the world’s most corrupt countries Its score in Transparency International’s 2009 Corruption Perceptions Index was 2.7, placing it in 22nd place in the Asia Pacific region

Opportunities ƒ Vietnam is increasingly attracting investment from key Asian economies, such as

Japan, South Korea and Taiwan This offers the possibility of the transfer of high-tech skills and know-how

ƒ Vietnam is pressing ahead with the privatisation of state-owned enterprises and the liberalisation of the banking sector This should offer foreign investors new entry points

Threats ƒ Ongoing trade disputes with the US, and the general threat of American

protectionism, which will remain a concern

ƒ Labour unrest remains a lingering threat A failure by the authorities to boost skills levels could leave Vietnam a second-rate economy for an indefinite period

IT Business Environment Ratings

Asia

BMI’s Asia IT Business Environment Ratings compare the potential of a selection of the region’s

markets over our forecast period through to 2015 Our Q211 ratings reflect our consideration of the political and economic risks, as well as risks associated specifically with IT intellectual property (IP) rights protection and the implementation of state spending projects

In our updated Asia Q211 ratings, country rankings are unchanged, reflecting stabilisation in most

markets after the impact of the global economic downturn in 2008-2009 Across the Asia Pacific region, global economic recovery and improved consumer confidence resulted in improved trading conditions for

IT vendors, and a stronger than expected rebound in PC sales

Australia retains its top regional rating this quarter The market was boosted following confirmation that the new government will continue to implement the National Broadband Network project, which will drive the development of Australia’s digital economy and feed demand for PCs Sectors such as

government, telecoms, healthcare and banking should continue to supply demand for implementation, consulting and managed services in future

One area of opportunity should be growing demand for cloud computing services In 2010 a wide range

of leading Australian private and public sector organisations launched cloud initiatives, including many of the country’s leading banks Meanwhile, the government unveiled a six-year cloud computing strategy

The smaller, but mature IT markets of Singapore and Hong Kong take second and third positions

respectively in our ratings table, due primarily to their high Country Structure scores Key sectors of the Hong Kong economy such as financial services are investing in modernisation as Hong Kong strives to maintain its regional hub status in the face of competition from rivals such as Shanghai Hong Kong also continues to offer IT investors opportunities associated with its growing links to the vast Chinese market

Singapore benefits from high broadband penetration and initiatives such as the government’s ambitious Intelligent Nation 2015 plan, and the standard operating environment Spending on IT services will be boosted by the continuing boom in IT-enabled services such as call centres and back-office financial services Other promising sectors for IT services include healthcare, as the government launches a series

of initiatives to develop health technology Hong Kong and Singapore are expected to emerge as cloud computing hubs due to growing interest in cloud computing across the region

On the downside, the continued restructuring of both economies, towards a more service-oriented model, may limit long-term growth prospects However, this also brings opportunities in sectors such as financial services and banking Businesses will probably remain cautious and value-focused over the short term

BMI forecasts per capita IT spending in South Korea, in fourth place in the table, will rise by one-third to

US$1,000 by 2015 South Koreans will increasingly choose to spend money on IT products due to a substantial increase in disposable incomes Consumers appear willing to upgrade their PCs and there is also a trend for households to own more than one computer New cloud computing offerings and

increased competition in this segment are expected to fuel growing demand from end-users, to utilise this technology There will be many key growth areas and IT outsourcing is expected to show a strong

demand trajectory

Malaysia remains in fifth position in our Q211 regional ratings IT spending growth will be driven by the government’s drive for greater broadband penetration It has set an optimistic target of 75% by 2015 The roll-out of a high-speed broadband network will boost IT spending outside the Klang Valley Other projected growth IT market drivers include a rise in the PC penetration level from about 35%, tax

exemptions for notebooks, and growth in disposable incomes There are increasingly attractive

opportunities in the IT services area as the government implements measures to make Malaysia a growing regional services and outsourcing hub

In China, factors such as the vast potential rural market and a commitment to modernisation in sectors such as education, healthcare and manufacturing will help sustain market growth Over the forecast period, government spending, an expansion of consumer credit and expectations about China’s long-term economic growth will also drive IT investments In the services segment, growing interest in cloud computing will be stimulated by the establishment of government pilot programmes in five cities

However, there are still market risks associated with IP rights protection in China, as well as piracy and a lack of business transparency Pressure on hardware prices is also a risk in the current environment

Vietnamese IT demand, although with a rather smaller market than its leading neighbor to the north, is expected to have several long-term drivers Vietnam’s improving ICT infrastructure will facilitate the development of the nation’s IT market in a country with just 15% PC penetration Government digital divide programmes to boost internet and digital utility in rural areas will help addressable market growth and open PC ownership to a growing number of rural inhabitants Vietnam’s gradual integration into global trade networks such as ASEAN and the WTO has helped reduce tariff barriers and prices, and has increased opportunities

In the Philippines, the IT market will be driven by further growth in the local IT and business process outsourcing (BPO) sector The Philippines has a lower PC penetration than many other Asian countries

and the IT market offers corresponding high growth potential over the forecast period However, there are challenges such as labour shortages and rising wages

India also recorded impressive double-digit y-o-y computer sales growth in 2010 The potential is clear, with less than 2% of the population owning a computer, which is about 20% of the level in China It was estimated that 5% of India’s 7.5mn SMEs could implement a technology solution in 2010 and there is increasing interest in cloud solutions Realisation of this growth potential depends on fundamental drivers such as increasing India’s low computer penetration, rising incomes, falling computer prices and the government’s ambitions to connect the country’s vast rural areas to the rest of the world

The last three markets in our regional ratings have low scores due primarily to business environment factors, despite considerable growth potential In Thailand, the fundamentals of growing affordability and low PC penetration should keep the market in positive territory during the forecast period A number of factors should also support momentum, including the government’s PC for Education programme and 3G mobile and WiMAX broadband service roll-outs

Similarly, with ICT penetration of only about 20% and development restricted to richer areas such as

Java, the Indonesian IT market has much growth potential BMI expects the Indonesian market to be one

of the fastest growing in the region over the five-year forecast period The SME sector will drive demand for basic hardware and applications as enterprises focus on enhanced productivity

Sri Lanka’s IT market has benefited from the restoration of peace and improvements in the security situation, which helped release pent-up demand for IT solutions The country has felt the effects of instability over the years, from disruption of distribution channels and a flourishing grey market to the underdeveloped telecoms infrastructure However, the market will feature on IT vendors’ radars as one of the best potential growth prospects in South Asia Computerisation has only started in government services Major public and private sector organisations remain largely underpenetrated in terms of basic enterprise software

Table: Asia Pacific IT Business Environment Ratings

Limits of potential returns Risks to realisation of returns

IT market

Country structure Limits

Market risks

Country risk Risks

IT BE rating

Regional rank

Asia IT Markets Overview

IT Penetration

Across Asia, government ICT initiatives and growing affordability will drive increases in PC penetration

during BMI’s five-year forecast period While some cities and regions stand out, there is an unbalanced

pattern of regional development, with PC penetration in countries such as Singapore being above 50%, while in other countries such as Indonesia, it is less than 2%

The two Asian leaders, China and India, embody the region’s growth potential, as computer ownership remains the preserve of a minority in both countries In China, PC penetration was only around 18% in

2008 – although it was far higher in cities such as Shanghai and Beijing – and is projected to pass 30% overall by 2014 In India, less than 2% of people own a computer However, some 45% of the population

is under 25, which provides a promising demographic context for increased PC ownership

Lower prices will help to drive higher PC penetration in developing markets The average price of a PC in India has nearly halved over the past few years, and rising incomes and greater credit availability will continue to bring computers within reach of lower-income demographics

Around the region, affordable computer programmes continue to find favour with governments In 2009, China launched a subsidised PC initiative aimed at rural residents Australia’s computers for schools programme had provided almost AUD260mn of computers by the end of 2009 In Indonesia, penetration

of around 2% could double by 2013 if government initiatives are followed through The Indonesian government is also rolling out new e-learning initiatives, with a target of raising the current 1:3,200 ratio

of PCs to students in public schools to 1:20

A similarly broad range is found with respect to internet penetration The highest levels of internet penetration are found in South Korea, Hong Kong and Australia, with estimated 2010 narrowband

penetration rates of 74.3%, 73% and 67.7% respectively Singapore has by far the highest rate of

broadband penetration, which was estimated at 154% in 2010 Meanwhile, the Philippines has the lowest level of internet usage, with just 6.6% narrowband and 4.9% broadband penetration estimated in 2010

The fastest growth is expected in Indonesia, where narrowband penetration is projected to leap from 30%

in 2010 to 61.2% by 2014 India is now above 20% narrowband penetration despite a lack of fixed-line infrastructure, and this should reach 30% by 2014 Fast growth is also projected for Sri Lanka, where penetration is projected to increase from 10.9% to 21.6% by 2014

Some 48.3% of Malaysians had internet access in 2010 Across the region, government programmes are

an important driver of ICT penetration The Chinese government has a five-year plan to make the internet available in every administrative village in central and eastern China and every township in the west

Dial-up technology is still the dominant access method in many states However, even in developing markets, the number of broadband subscribers continues to gain ground steadily In China, broadband penetration is on course to reach 34.3% by 2015, surpassing narrowband penetration of 33.6% In India, where the government designated 2007 as ‘the year of broadband’, penetration should increase eightfold

to reach 8% by 2013 from around 1% currently This is, however, a long way below government targets Singapore will also see continued strong growth in broadband penetration, which is projected to reach 202% by 2015

Meanwhile, the growth of Wi-Fi coverage will be

one driver of notebook sales in places such as

Hong Kong, where the government has committed

another HKD200mn to the deployment of a Wi-Fi

network covering more than 200 public venues

IT Growth And Drivers

Most Asian IT markets were expected to report

stronger growth in 2010 Across the region, IT

spending should have been boosted by systems

upgrades deferred from the previous year,

although much will have depended on business

confidence In some cases, companies had IT

budgets that were not spent due to economic uncertainty, and in H110 vendors reported a pick-up in project flows

Strong fundamental demand drivers of IT spending mean that there will be continued opportunities Key factors common to most markets include cheaper PCs and reform in sectors such as telecommunications and finance, as well as government initiatives

In the largest market, China, an expansion in consumer credit, as well as a commitment to modernisation

in sectors such as education, healthcare and manufacturing, will help to sustain market growth BMI

expects China’s IT market growth to be maintained by an expansion into the western region, rural areas and lower-tier cities, as well as growing demand from small and medium-sized enterprises (SMEs) IT spending will also receive a boost from government spending and IT projects associated with the

Shanghai World Expo in 2010

2010 IT Market Sizes

US$mn*

* estimate Source: BMI

The long-term potential of India’s IT market is plain: less than 3% of people in India own a computer (about one-fifth of the level in China), meaning there is real potential in the lower-end product range India’s IT market appeared to be positioned for a strong recovery in 2010 thanks to an improving

economy and stronger consumer sentiment as well as government support for modernisation in lagging sectors It is estimated that around 5% of India’s 7.5mn SMEs may have implemented a technology solution in 2010 Meanwhile, India’s business process outsourcing industry is growing at around 40% per annum and will continue to generate opportunities for vendors of IT products and services

The Philippines is one of the countries currently

benefiting from low-priced PC programmes

(PC4ALL), which provide opportunities for

vendors to penetrate the low-income segments

Other regional computer sale drivers over the

forecast period include education, lower prices,

IP telephony, cheaper processors as well as

notebook entertainment and wireless networking

features Meanwhile, in Indonesia, the basic

demographics of rising computer penetration

and growing affordability should drive growth

SMEs represent a growth opportunity, as

currently only around 20% of Indonesian SMEs

are estimated to make use of IT Compliance

with government and international regulations will be a driver in financial, manufacturing and other sectors

In more developed markets such as Hong Kong and Singapore, robust retail sales led the way in early

2010 as spending recorded positive growth following a contraction in 2009 In Hong Kong, consumer

spending was expected to remain strong in 2010, as evidenced by the positive early reception of Apple’s

iPad IT market growth will be driven by government IT spending as well as cross-border trade and operation

co-The largest IT market in the region is, unsurprisingly, China, estimated at US$92.5bn in 2010, trailed distantly by Australia (US$19.4bn), India (US$16.1bn) and South Korea (US$16.1bn) Singapore’s IT market (including communications) is the largest as a proportion of national GDP (2.66%), followed by Hong Kong (2.07%)

The fastest-growing IT markets over the forecast period look set to be Sri Lanka and India, with

2010-2014 compound growth of 109% and 104% respectively, driven by increasing PC penetration China is

third, with the IT market growing by an estimated 64% over BMI’s five-year forecast period

IT Market Sizes As % Of National GDPs

2010-2014

Source: BMI

Sectors And Verticals

Regional IT markets remain hardware-centric, with hardware accounting for 42-71% of total spending in all markets in 2010 However, spending on software and services will grow faster Notebook sales are growing much faster than the PC market as a whole, with growth driven by falling prices and more features

BMI expects a trend of rising hardware

investment to establish itself over the next few

quarters The PC market contracted in many

markets in H109, following a slowdown towards

the end of 2008 However, growth had returned in

most markets by the end of 2009 Sales of

Microsoft’s Windows 7 operating system and new

Intel core technology also had the potential to help

trigger a new cycle of hardware upgrades in 2010

and beyond, although much will depend on

business confidence

In mature markets such as Australia and

Singapore, PC sales are dominated by replacement sales In the former, upgrades are estimated to account for at least 80% of business purchases and more than 50% in the case of households More than 90% of Australian households now have a PC, but consumers have appeared willing to spend on upgrading their notebook computers, and it is also becoming more popular to purchase a second household PC Indeed, around 30% of households have more than one PC

In less developed markets, demand from under-penetrated rural areas, affordable computer programmes and growing broadband penetration should generally drive growth In much of emerging Asia, demand from smaller towns and rural areas will provide the main source of growth, along with replacement of desktops with notebooks SMEs will be one of the strong growth segments over the forecast period, with SME demand for servers and networking equipment providing significant growth opportunities

In both emerging and more mature markets, the growing popularity of broadband will help to support

computer sales China Telecom is among regional telecoms companies to have rolled out PC bundling

offers as part of its broadband packages The Australian government’s National Broadband Network plan should drive the development of Australia’s digital economy and the growth of services such as online banking and shopping

Meanwhile, a wave of 3G launches across the region should also provide a stimulus to sales of notebooks,

with Vodafone Hong Kong among service providers offering 3G/HSPA USB modems bundled with

IT Markets Compound Growth

2010-2014f, %

f = forecast Source: BMI

their 3G services However, netbooks and notebooks face competition from other form factors such as

smartphones – from Palm, Research In Motion, Apple and other vendors – and tablet notebooks,

spearheaded by Apple’s iPad

Due in part to high levels of piracy, software’s share of IT spending is relatively low, ranging from

11-25% among countries covered by BMI Efforts are being made to tackle the issue of piracy, but despite

government crackdowns in China and the Philippines, software piracy remains above 70% in most of emerging Asia

Across the region, there is a growing trend for smaller companies to seek greater efficiency by using IT to improve productivity and reduce costs (including labour costs) In general, ERP and other e-business products still dominate the enterprise software market, but vendors are also looking to other areas such as CRM and business intelligence, where faster growth is possible

The economic slowdown may have encouraged companies to consider cloud computing solutions such as software-as-a-service (SaaS) The hosted application model may already account for between one-fifth and one-quarter of China’s software revenues SaaS has also enjoyed steady growth in the Hong Kong market over the past three years with, according to vendor estimates, around 8% of local enterprises now use a SaaS security solution Improved broadband infrastructure will assist the popularisation of the rented software model in markets such as Indonesia

Market Structure (% Of Total IT Market)

f = forecast Scores out of 100 Source: BMI

New platforms and services in the telecoms field are drivers for that key IT spending segment, where an industry restructuring with the advent of 3G mobile services has led to more competition Meanwhile, expanding technology adoption in the logistics industry and public transport will be a source of IT

services projects Sectors such as hospitals and real estate will also provide opportunities

The IT services segment accounts for 17-40% of spending in the Asian markets covered by BMI The

global economic slowdown and credit tightening had an impact on projects in some verticals, but in 2010,

a brightening business climate should have led to more opportunities in key IT-spending verticals such as financial services, telecoms, government, healthcare and logistics

Government spending will account for a larger share of spending in many markets In China, government stimulus packages should have helped to drive IT-related investments, while in Singapore, government ICT projects such as SOE2 provide significant opportunities, with the government planning to invest around SGD1.73bn in ICT projects in its last fiscal year through March 2010 Australia’s National E-Health Transition Authority has targeted the creation of a ‘paperless environment’ for the health sector and was also expected to launch a standardised reporting system scheme in 2010 Meanwhile, the Hong Kong government’s Digital 21 initiative will continue to generate spending

Regionally, hardware deployment services remains the largest IT services category, with other

fundamental services including system integration, support systems, training, professional services, outsourcing and internet services Main spenders across the region include banks and financial institutions

as well as governments Even in emerging markets such as India, IT vendors are having to pay more attention to value-added services such as technical support and product troubleshooting, or basic IT and hardware consulting

In many countries, the number and size of local outsourcing deals are increasing Outsourcing could account for as much as 30% of China’s IT services spending by 2013, while in India there have been

some large contracts such as that awarded by Idea Cellular to IBM Singapore – where the government

was to tender a major outsourcing contract in 2008 – and Hong Kong have both seen a trend towards larger outsourcing projects in the public and private sectors

Vietnam Market Overview

Government Authority

The Ministry of Information and Communications (MIC) is the main Vietnamese policymaking and regulatory body in the fields of IT, although its brief also covers a number of other areas such as

telecommunications, broadcasting and publishing

The MIC’s major functions include proposing and drafting laws, regulations and development plans related to IT and other policy areas The current national framework for IT is the Strategy for IT

Development, which was approved in 2005 and covers the 2010-2020 period

Background

The Vietnamese IT market, including computer hardware, packaged software and IT services, was valued

at US$2.0bn in 2010 Vietnam IT spend per capita, at around US$25 in 2011, is considerably lower than the US$178 estimated for ASEAN neighbour Thailand However, IT spend per capita is expected to grow

to US$43 by 2015

Computer hardware, including desktops, notebooks, and accessories, is the largest IT market segment in Vietnam, accounting for around 73% of spending in 2010 Packaged software was valued at US$164mn that year, equivalent to around 9% of spending IT services and outsourcing comprised 18% of spending

Tariff reform, expanding internet infrastructure, a growing economy and government programmes will all play a part in driving Vietnamese IT market growth over our five-year forecast period Vietnam has a relatively good IT and telecommunications infrastructure, with particularly high mobile telecoms

penetration However, with PC penetration at just 15%, there is still a large portion of the population that

do not participate in the digital society and are unable to afford the latest IT products

The household sector, which accounts for only around 10% of the IT market currently, should increase its share by 2015 The country’s vast, under-penetrated rural market offers the most PC market growth potential, with Hanoi and Ho Chi Minh City accounting for most sales currently, also presents a

significant growth opportunity as the government rolls out measures to boost rural incomes

The government sector is a key segment of the Vietnamese IT market and comprises about 30% of national IT spending Public IT spending by around 7,000 government organisations at national,

provincial and municipal levels will provide important opportunities to vendors A number of

programmes exist to increase IT utilisation in areas like e-government, e-taxation and education The national IT plan has regional components, focused on northern, eastern and southern regions

The private sector accounts for around 60% of IT demand and both domestic and foreign enterprises are investing in IT to boost performance Large corporations are more likely to buy software from top-tier vendors, but SMEs account for the majority of Vietnam’s 400,000 enterprises and are increasingly a target for multinationals There is a lot of potential for Vietnamese enterprises of all sizes to increase spending on basic solutions, including customer relationship management (CRM) and security

The Vietnamese IT market remains constrained by high levels of grey market activity, and particularly by software piracy, which accounts for around 85% of installed software However, the rate has come down from 95% in the last two years due to a more proactive government approach to the problem

The government has set an ambitious target of 14% annual growth for the ICT sector, with total turnover

to reach US$50bn by 2014 US$14bn is to come from hardware and US$5bn from software

Telecommunications is projected to account for half the total, or US$25bn

Hardware

BMI projects that sales in Vietnam’s computer hardware market will be worth around US$1.7bn in 2011,

up from an estimated US$1.5bn in 2010 The main growth driver will be affordable notebooks BMI

projects growth of around 13% in the Vietnam PC market this year, slightly down on the nearly

20% estimated in 2010 when the market bounced back from the effects of the economic slowdown

In H110, overall PC sales were reported to have achieved double-digit growth, compared with 2009 The growth was driven mainly by imported laptops, with shipments up by around one-third in H110, both sequentially and y-o-y Desktop sales, however, remained in negative growth territory A return to growth

in Q210 followed a disappointing first quarter of 2010, when notebook sales were slower than expected The relatively sluggish sales were attributed in part to price cuts in 2009 These meant that traditional Lunar New Year holiday season price discounting had less appeal to consumers than previously

Going into H210, growth received a boost in August with back-to-school sales, and summer retail

promotions Sales of PCs picked up as new vendors entered the market while others rolled out new models, allowing for double-digit growth for FY10 In 2011, public sector procurements across a wide range of sectors, including education, healthcare and transport, and growing demand from businesses in rural areas, will help maintain momentum

However, a number of factors could potentially act as a check on the PC market, including government cutbacks and continued caution in the business segment, despite growing awareness of the strategic value

of IT investments The depreciation of the dong has also restrained demand by leading to higher prices for imported laptops Vendors reported in 2010 that the number of first-time buyers in the market

was relatively limited, with most sales coming from purchases of typically lower-priced second

computers

PC penetration in Vietnam was estimated by BMI at around 15% in 2010 Notebooks are owned by an

estimated 7% of the Vietnamese population, which points to significant growth potential for the local PC market, with the most potential being in rural areas Currently, Hanoi and Ho Chi Minh City are thought

to account for around 85% of notebook sales The spread of fixed and mobile broadband services will

spur purchases of mobile PCs as connectivity devices As elsewhere, telecoms operators such as Viettel

are emerging as significant distribution channels for notebooks as vendors seek tie-ups

Going forward, government programmes are expected to make a significant contribution to computer sales In August 2009, the Vietnamese government announced a national programme to supply 1mn

computers at favourable prices to Vietnamese schools by 2011 Multinational IT vendors such as Acer, Intel and Microsoft were all participating in the programme Desktops will retail under the programme at

around US$161, or about half the usual price The computers will come loaded with educational software and with broadband connections

The programme received reinforcement with the launch in Ho Chi Minh City in January 2010 of a

programme entitled One Teacher-One Computer The programme, which has support from the VNPT and

the Ministry of Education and Training, will provide laptops at a price that is VND800,000 below the market price Discounts of up to 80% for schools and 30% for teachers will also be offered on VNPT’s broadband service packages

The main driver of sales is notebooks, for which the addressable market was estimated at more than 1mn units in 2010 Vendors and retailers reported double-digit growth for notebooks in the first half of 2010 Notebooks were responsible for around 40% of PC sales, but this share should pass 50% within the forecast period In particular, LCD-screen notebooks are forecast to grow at an almost triple-digit rate over the next year Vendors are promoting small form factor netbooks, but, this segment will face strong

competition from low-end notebooks with more features, as well as from smartphones, tablet notebooks, and specialist devices such as e-readers

In 2010, several Vietnamese enterprises announced plans to tablet PCs, and the first such product, from Hanel, was introduced on the market in October 2010 Tablets are being designed to appeal to consumers who find a smartphone inconvenient for consuming video media or surfing the web, but for whom a netbook is still too big or heavy Tablets are generally significantly more expensive than smartphones but, despite a previous mixed record with this form factor, are seen as a growth area in 2011

However, local products are expected to find it hard to compete in this segment with tablets from

multinational brands, like Apple’s iPad, which enjoyed growing recognition in Vietnam in 2010 Other vendors, such as Samsung with its Galaxy Tab, are expected to follow Apple in releasing tablet devices, which have a form factor between the size of a smartphone and a netbook

Software

In 2011, Vietnam software sales are projected by BMI to grow to US$192mn, and software CAGR for

2011-2015 should be in the region of 159 Software spending comprises around 9% of total Vietnamese

IT spending currently The market is expected to reach a value of around US$360mn by 2015, with steady growth in demand for licensed software from government, enterprise and household segments

Vietnam’s software market is developing, despite the problem of software piracy, which still accounts for around 85% of software, compared with around 76% in neighbouring Thailand While high, the 85% rate represents a drop from 95% in 2007, as the government has gradually implemented a stricter regulatory framework As usual, the problem is more one of enforcement rather than a lack of legal provisions In November 2011 the government provided a boost to legal software usage by signing an extension of a deal with Microsoft to purchase licensed software for government organisations The original 2007 agreement had covered all 63 provincial authorities, 24 ministries and enterprises where the state has a stake of more than 50%

In the past year, the government has appeared to take a more active stance towards enforcement of copyright regulations Decree 47.2007.NP-CP, which became effective in June 2009, allows for a penalty

of up to VND500mn (around US$28,000) for instances of software piracy In April 2010, it was

announced that Bach Khoa Internet Security Centre (or BKIS) and Lac Viet Computer Joint Stock

Co had become the first Vietnamese firms to join the Business Software Alliance, a global software

industry association that focuses on copyright issues

The Vietnamese software market remains highly cost-sensitive, with around 75% of the market served by lower-cost local software vendors Local software dominates the market for government and SME

segments However, larger Vietnamese companies are more likely to buy higher-priced software from multinationals, which have around 25% of the market Vietnamese customers are demanding a higher level of support for software compared with a few years before

Growing PC penetration, as well as new technologies and business models including 3G mobile and WiMAX, and industry trends such as software-as-a-service (SaaS) and open source will provide areas of Vietnamese software market growth going forward Most demand remains for on-premises subscription models, due to the greater perceived security and degree of control However, as internet infrastructure improves in Vietnam, there should be more demand for alternative models such as SaaS and other cloud computing services

In 2011, migrations to Microsoft’s new Windows 7 operating system should continue to have a positive impact on software revenues, although much will depend on consumer and business confidence

Microsoft officially introduced Windows 7 in Vietnam in early November 2009, with the programme

being installed in PCs sold at leading electronics distributors such as Nguyen Kim, Tran Anh, Phong

Vu and Dang Khoa Microsoft will introduce a Vietnamese version of Windows Live and has announced

a list of Vietnamese software programmes that are compatible with Windows 7 including Vietnamese font programmes, dictionaries and accounts software There should also be a boost from systems

upgrades previously delayed as a result of the economic situation

2010 saw a pick-up in demand for software with investments in sectors such as government, banking, telecoms and real estate Some vendors and distributors saw a slowdown in 2009 due to global economic headwinds The economic downturn may have added to the forces driving interest in open-source

software due to its perceived lower cost and access to codes The economic downturn has led businesses and customers to look more closely at open-office-type open-source software, as well as free services such as Google Docs, which are funded by advertising Once again, a key issue and precondition for the more widespread adoption of open source will be the development of a support infrastructure

There is still a lot of potential for Vietnamese enterprises to increase spending on basic solutions,

including CRM and security According to estimates by the Ho Chi Minh Computer Association, the local market for ERP software was forecast to grow to VND700bn (US$46.3mn) in 2010, from

VND700bn (US$46.3mn) in 2010 Government support for ICT development should provide a

framework for growing utilisation of software in both public and private sectors

Over BMI’s five-year forecast period to 2015, the Vietnamese enterprise software market should offer

opportunities in many sectors While management software remains at less than 10% of the total software market, basic applications such as enterprise resource planning (ERP) and accounting are finding

increasing popularity with the business market There is a growing emphasis on cost efficiency as

enterprises look to enhance productivity through automating these and other functions

An increasing number of Vietnamese companies have shown an interest in and willingness to use cloud services The government has also got involved in encouraging the development of this business model in Vietnam, and in 2010 reached an agreement with Microsoft to cooperate on research Given the current focus on many businesses of controlling costs, the pay-on-demand SaaS model should grow in popularity and spread beyond the initial core application area of CRM

Meanwhile, new cloud computing offerings and increased competition in this segment should fuel further demand from end-users to utilise this technology In addition to cost savings, businesses will look to boost efficiency and increase flexibility of response to customer needs Large businesses are most likely

to put IT applications such as mail, phone systems and document management into the cloud However, enterprise applications that require a high level of customisation, or which are subject to regulatory or data-sensitivity constraints, are more likely to stay on premise

The economic slowdown, and fall in demand for manufactured goods, represented a challenge for

vendors as enterprises were tempted to focus more on the bottom line Many companies, particularly trading companies, cut back on non-essential systems upgrades in the face of cash-flow shortages

Smaller enterprises will be a growth opportunity due to growing awareness Companies are looking for software that will help boost performance and operational efficiency Promising segments include discrete manufacturing, consumer packaged goods and hotels and property management

Security software such as anti-virus and internet security applications is one segment that should grow in line with increased awareness among Vietnamese organisations of the benefits Vendors should also look

to areas such as CRM and business intelligence, where faster growth is possible, due to untapped

potential in key segments such as CRM, ERP and human resource management (HR) Data analytics and database software is likely to be a growing area and account for a larger portion of software budgets The banking and finance sector is a promising area for database software and one where foreign companies have done well

The internet service provider (ISP) sector is a promising segment for software and services vendors, as a government campaign to boost internet usage is set to cause an increase in the number of ISPs To date, only 17 ISPs have been licensed ISPs are also expected to move towards offering more IT services and hosted software themselves Web analytics is one promising area, as firms look to assess the effectiveness

of their online presence and advertising in more detail

The government is a significant software-purchasing segment in Vietnam and accounts for about 30% of total IT spending The 7,000 government agencies offer considerable opportunities at national provincial and municipal levels A particular area of opportunity is tax agencies of all administrative tiers as

governments look to increase the efficiency of tax collection Meanwhile, the Vietnamese government’s drive to implement e-government will be another driver in this segment

Banking and finance, oil and gas, aviation and telecoms are forecast to be some of the biggest spending

software segments over BMI’s five-year forecast horizon and among the best opportunities for foreign

vendors These segments offer the most potential for customised solutions as well as off-the-shelf

packaged software Banks are looking to take their services to the next level in response to the demands

of a rapidly growing economy, and are investing in more advanced and flexible platforms for core

banking processes The mid-sized Vietnam Asia Commercial Bank (VietA) was among those to

implement a new core-banking solution in H110, having designated technology as a core pillar of its growth strategy

Spending opportunities in the finance segment will be driven by regulatory compliance, due to regulations such as Basel II, HIPPA and the Sarbanes-Oxley Act, as well as potential new regulations introduced in the wake of the global financial crisis Mobile operators are investing in new OSS (operating support systems) to reduce costs and support delivery of new services

Services

Vietnamese IT services spending is forecast to reach around US$406mn in 2011, up from US$351mn in

2010 The market showed signs of stabilisation in 2010 after the economic crisis had an impact in 2009, with projects being put on hold Sectoral CAGR is projected at 12% over the forecast period, as the market approaches US$752mn by 2015

IT services now account for around 18% of total Vietnamese IT spending, and is forecast to be the fastest growing IT market segment Over the past few years, the size of IT services deals has increased in key IT spending verticals The government has launched a number of major projects in cities like Ho Chi-Minh City, Hanoi and Danang, which will boost public sector spending Growing broadband penetration in rural and remote areas will also fuel the market’s development

Growing demand for digital infrastructure projects in segments such as banking, telecoms, energy and

government has attracted global IT services giants such as IBM to invest more in Vietnam Large local organisations such as the Corporation for Financing and Promoting Technology (FPT) have also

targeted this opportunity and announced plans to compete with established multinational vendors and offer high-quality outsourcing services

Vietnam suffers from a shortage of trained IT workers, however, with some estimating that Vietnam would need an additional 1mn IT engineers in order to achieve the government’s ambitious targets for the domestic software and IT services sector Lack of language skills and patchy ICT infrastructure are other barriers, and this situation represent an opportunity for external service providers and trainers