Vietnam information technology report q3 2010

This points to significant growth potential for the local PC market, with the most potential being in rural areas.. The country’s vast, under-penetrated rural market offers the most PC m

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INFORMATION TECHNOLOGY REPORT Q3 2010

INCLUDES 5-YEAR FORECASTS TO 2014

Part of BMI’s Industry Report & Forecasts Series

Published by: Business Monitor International

Publication date: June 2010

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

Vietnam Market Overview 13

Hardware 14

Software 16

Services 18

Industry Developments 19

Industry Forecast Scenario 23

Table: Vietnam IT Sector (US$mn Unless Otherwise Stated) 25

Internet 26

Table: Telecoms Sector – Internet – Historical Data And Forecasts 26

Macroeconomic Forecast 28

Table: Vietnam – Economic Activity 30

Competitive Landscape 31

Hardware 31

Software 32

IT Services 35

Internet 36

Company Profiles 38

FPT Software 38

Country Snapshot: Vietnam Demographic Data 39

Section 1: Population: 39

Table: Demographic Indicators 39

Table: Rural/Urban Breakdown 40

Section 2: Education & Healthcare 40

Table: Education 40

Table: Healthcare: Vital Statistics 40

Section 3: Labour Market And Spending Power 41

Table: Employment Indicators 41

Table: Consumer Expenditure 41

BMI Methodology 43

How We Generate Our Industry Forecasts 43

IT Industry 43

IT Ratings – Methodology 44

Table: IT Business Environment Indicators 45

Weighting 46 Table: Weighting Of Components 46 Sources 46

of traditional seasonal discounts

The addressable domestic market for IT products and services is projected by to reach US$2.9bn by 2014

An ambitious 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

Industry Developments

The government’s Strategy for IT Development covers the 2010-2020 period and focuses on four major areas: enhancing IT application, developing the local IT industry, developing ICT infrastructure and developing IT human resources A number of specific IT plans have been developed including one to modernise IT in government agencies, which was approved in March 2009 In an April 2010 cabinet meeting, Prime Minister Nguyen Tan Dung ordered all members of his cabinet to use computers while working

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 The discounts will be available through

VNPT’s 30 retail outlets and 200 agents in the city In August 2009, the Ministry of Education and Training launched a national programme to supply 1mn affordable computers to Vietnamese schools by

ASEAN free trade agreement offers both opportunities and challenges to vendors, especially given the

growing presence of low-cost Chinese vendors in the Vietnamese market

Competitive Landscape

Multinational brands dominate the Vietnamese PC market, with HP the top-selling PC brand in 2009, ahead of Acer HP’s sales have been boosted by government and education sector projects, as well as by its strategy to target the consumer segment Other multinational PC vendors including Dell, Toshiba and Asus have enjoyed strong recent growth in the booming market

Vietnamese software producers have a greater presence in their domestic market Local products

accounted for around 75% of market value in 2008 while foreign vendors have around 25% Local companies have a particularly strong position in the government and small and medium-sized enterprise (SME) segments, while larger Vietnamese corporations are more likely to consider more expensive software from multinationals

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

Computer Sales

BMI projects that sales in Vietnam’s computer hardware market will be worth around US$1.3bn in 2010,

up from an estimated US$1.2bn in 2009 The main growth driver will be affordable notebooks, with various models of the smaller form factor netbooks selling well in 2009

PC penetration in Vietnam was around 9.6% in 2007, according to World Bank figures, and in 2010 is

estimated by BMI at around 15% 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 2010, Vietnamese software sales are projected by BMI to grow to US$178mn, despite the uncertain

economic conditions, and software CAGR for 2010-2014 should be in the region of 12% Software spending comprises around 10% of total Vietnamese IT spending

The market is expected to reach a value of around US$312mn by 2014, with steady growth in demand for licensed software from government, enterprise and household segments However, some vendors and distributors saw a slowdown in 2009 due to global economic headwinds Vietnam’s software market is developing, despite the problem of software piracy, which still accounts for around 85% of software, compared with 76% in neighbor Thailand

Services

Vietnamese IT services spending is forecast to reach around US$343mn in 2010, up from US$297mn in

2009 The economic crisis had an impact in 2009, with projects being put on hold However, sectoral CAGR is projected at 11% over the forecast period, as the market approaches US$588mn by 2014

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

growing affordability driving projected double-digit growth of notebook computers

! 2010-2014 CAGR of 9% forecast as per capita IT spend reaches US$31 by 2014, from US$21 in 2009

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

! 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 ! IT spend per capita much lower than in neighbour Thailand, reflecting a much

lower GDP and GDP per capita

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

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

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

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

penetration rate of 15%

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

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

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

! One Teacher-One Computer programme aims to deliver 1mn computers to schools by 2011

! The banking and finance sector is a promising area for database software and one where foreign companies have done well

! Banking and finance, oil and gas, aviation and telecoms are projected to be some

of the biggest opportunities for multinational vendors

! Tax agencies at all levels of administration are looking to increase the efficiency of tax collection

! 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 ! Continued depreciation of the dong against the US dollar would increase the

pressure on Vietnamese distributors of foreign IT goods

! Falling prices may further undermine margins and profitability after steep discounting in 2009

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

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

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

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

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

state-controlled operators, VNPT and Viettel

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

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

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

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

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

and the arrival of new skills

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

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

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

! 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

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

consequences for ADSL growth

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

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

Vietnam Political SWOT

Strengths ! 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

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

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

the ruling Communist Party

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

Opportunities ! The government recognises the threat that corruption poses to its legitimacy

and has acted to clamp down on graft among party officials

! 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 ! 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 undemocratic rule

! 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

! 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 wide-scale environmental damage

Vietnam Economic SWOT

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

with GDP growth averaging 7.6% annually between 2000 and 2007

! 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 ! 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

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

Opportunities ! WTO membership has given Vietnam access to both foreign markets and

capital, while making Vietnamese enterprises stronger through increased competition

! 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

! 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 ! 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

! Prolonged macroeconomic instability could prompt the authorities to put reforms

on hold, as they struggle to stabilise the economy

Vietnam Business Environment SWOT

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

attractive to foreign investors

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

Weaknesses ! 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

! 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 and 120th worldwide

Opportunities ! 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 knowhow

! 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 ! Ongoing trade disputes with the US and the general threat of American

protectionism, which will remain a concern

! 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

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$1.7bn in 2009 Vietnam IT spend per capita, at around US$19 in 2009, is considerably lower than the US$178 estimated for ASEAN neighbour Thailand However, IT spend per capita is

expected to grow to US$31 by 2014

Computer hardware, including desktops, notebooks, and accessories, is the largest IT market segment in Vietnam, accounting for around 73% of spending in 2009 Packaged software was valued at US$155mn 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 2014 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

Government Authority Ministry of Information and Communications (MIC)

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

ICT Sector

The ICT sector is a key growth priority for the Vietnamese government, which has a plan to grow it Currently, the IT industry is relatively small and accounts for just 0.5% of the country’s GDP, according

to government figures IT industry revenues in 2009 were estimated at US$6.2bn, up 20% on 2008

Vietnam has around 150 software companies, many of which are focused on export markets

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$1.3bn in 2010,

up from an estimated US$1.2bn in 2009 The main growth driver will be affordable notebooks, with various models of the smaller form factor netbooks selling well in 2009

PC penetration in Vietnam was around 9.6% in 2007, according to World Bank figures, and in 2010 is

estimated by BMI at around 15% 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

In the first quarter of 2010, 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

In 2009, imports received a boost following cuts in import tariffs on finished electronic products Despite the effects of the global economic crisis, the long-term fundamentals should support strong growth Sales

of PCs are expected to pick up later in 2010 as new vendors enter the market while others roll out new models

Growth in 2009 was being driven by the consumer segment, with government and business spending having slowed due to the effects of the economic crisis In contrast, Vietnamese retail sales posted an impressive 21.5% year-on-year (y-o-y) growth in January-April 2009, with local consumers apparently more optimistic than their peers in many other Asian economies

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 Laptop prices were expected to fall by 10-15% in 2009, boosting sales In H109, the effects of recent cuts in duty were apparent in electronics retail stores, with leading brands of notebooks selling at notable discounts to their 2008 prices In 2008, value added tax (VAT) on electronic products was raised from 5% to 10%, but that hike has now been reversed and much of the benefits seemed to have been passed on to consumers At local electronics and home appliance retail centres,

prices for popular notebooks models by vendors such as HP, Sony and Dell had been reduced by 7-12%

The PC market had slowed to about 8% growth in 2008, with high interest and inflation rates and

currency instability meaning that consumers and SMEs cut back on spending to save money However, sales showed some signs of recovery in H208 and growth is expected to be about 18% in 2009

In H208, vendors turned the situation around with promotions for the back-to-school period and new models that were launched to capitalise on the traditionally higher demand in the second half of the year The biggest threat to continued growth was inflation, which peaked at around 27% in 2008 and made computer products less affordable An easing of inflation should see sales growth pick up again

The main driver of sales is notebooks, for which the addressable market was estimated at around 700,000 units in 2009 Vendors and retailers reported double-digit growth for notebooks in the first half of 2009 Notebooks were responsible for around 30% of PC sales, but 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, a segment that achieved triple-digit growth in 2008 However, this segment will face strong competition from low-end notebooks with more features

Software

In 2010, Vietnam software sales are projected by BMI to grow to US$178mn, despite the uncertain

economic conditions, and software CAGR for 2010-2014 should be in the region of 12% Software spending comprises around 10% of total Vietnamese IT spending

The market is expected to reach a value of around US$312mn by 2014, with steady growth in demand for licensed software from government, enterprise and household segments However, some vendors and distributors saw a slowdown in 2009 due to global economic headwinds

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 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 cloud

computing

In 2010, sales of Microsoft’s new Windows 7 operating system should 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 delayed from

2009

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 Over BMI’s five-year forecast period, 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

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

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 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$343mn in 2010, up from US$297mn in

2009 The economic crisis had an impact in 2009, with projects being put on hold However, sectoral CAGR is projected at 11% over the forecast period, as the market approaches US$588mn by 2014

IT services now account for around 18% of total Vietnamese 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 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

The MIC said in early 2010 that it would draft a decree to regulate operational requirements and

procedures for firms providing IT services, and pointed to a lack of regulations currently for businesses providing IT services, consulting or security services The draft decree is to focus on mapping out policies

to help the IT industry grow in the future and is due by the end of 2010 Significantly for vendors,

however, the decree is also to suggest measures to boost the usage of IT services in state-owned bodies

Measures to gradually eliminate firms that had been previously licensed to provide IT services but were for whatever reason not actually doing so will be included in the decree According to the ministry, Vietnam has around 10,000 firms currently licensed to provide IT services However, only one-third are operating

The three major IT services categories currently are be hardware deployment, hardware support and systems integration (SI) Much IT services work remains add-ons to hardware deployments, with local

resellers of IT vendors such as Dell, HP and Oracle offering support and implementation

Although the provision of IT services is still typically built around hardware sales, the consulting element has been growing, along with a focus on return on investment Enterprises increasingly seek external advice in prescribing an IT strategy, particularly for informatisation, networking and identifying vendors ERP systems are a key focus and security is also a fast-growing area, with SI expanding into security consulting, implementation, support and training services, which require high expertise in networks and anti-virus applications

Meanwhile, outsourcing is a future growth area due to improving ICT infrastructure and international bandwidth as well as government targets for growth of the domestic IT services and software sector The government’s drive to create a significant IT services industry in Vietnam over the next 15-20 years is expected to be a significant factor shaping this opportunity Vietnam hopes to leverage its competitive prices to claim a larger share of the global outsourcing market According to market research firm

Gartner, the number of companies embarking on outsourcing negotiations last year had increased to

36%, up 10% over the previous year

More investment in local call centres will generate spending on IT hardware, software and services and be

another source of opportunities for IT vendors In 2010, Japanese company Moshi Moshi established MOCAP Vietnam Joint Stock Company, in partnership with a Vietnamese company, to provide call

centre services for the Vietnamese market MOCAP Vietnam was claimed to be the first outsourcing company established with Japanese backing in Vietnam However, economic growth and rising spending power should attract new entrants to this segment going forward

Industry Developments

Government IT Strategy

The government’s IT policies are governed by a Strategy for IT Development approved in 2005 The plan covers the 2010-2020 period and focuses on four major areas: enhancing IT application, developing the local IT industry, developing ICT infrastructure and developing IT HR Key opportunities for IT vendors

involve the development utilisation of IT applications Major threads here include building and

developing citizens, building government and business, as well as developing transactions and commerce

e-A number of specific IT plans have been developed, including one to modernise IT in government

agencies, which was approved in March 2009 In an April 2010 cabinet meeting, Prime Minister Nguyen Tan Dung ordered all members of his cabinet to use computers while working New government

departments continue to go online in 2010, with the Ministry of Agriculture and Rural Development launching its e-portal in February 2010

Other government ICT projects include a plan to modernise the customs department in 2050-2010 and a Tax Administration Modernisation Plan for the 2008-2013 period Other plans include developing the internet in rural communities (2008-2013) and developing the Vietnamese IT industry The plans all have regional versions, focused on the central, south and northern regions

In January 2010, VNPT in Ho Chi Minh City launched a local version of the programme that will provide teachers and students in the city with low-priced laptops and DSL broadband connections The discounts will be available through VNPT’s 30 retail outlets and 200 agents in the city

Meanwhile, the roll-out of e-government infrastructure and services should also be a driver of PC sales

during BMI’s forecast period In September 2009, the government launched an e-procurement pilot system The system will be used by the Hanoi People’s Committee, the Electricity Group of Vietnam and the Telecommunications Post Group in the initial trail phase from 2009-2011 In the second phase,

for 2011-2015, the system will be gradually expanded to all public agencies and state-owned enterprises across all economic sectors

Lower Import Tariffs

Import taxes on electronic products and components were lowered from January 2009, in accordance with the government’s commitments under the AFTA, which Vietnam entered in 2006 As of January 2009, duty on complete build unit (CBU) electronic products from ASEAN countries was reduced to 0-5% Eligible products must have an ASEAN content of at least 40% Meanwhile, the average import tax on components was reduced from 9.41% to 6.36%

Vietnam’s admission into the WTO in January 2007 provided additional momentum for market

liberalisation As Vietnam implements its WTO commitments, more than 300 IT products will enjoy a zero tariff in three to seven year’s time, compared with previous tariffs of 2-8% Meanwhile, another development set to reduce tariffs on some high-end electronic products was the Vietnam-Japan economic partnership agreement, which came into effect at the beginning of 2009 Under the agreement, import taxes on electronics goods imported directly from Japan have been reduced by 2.5-4.5% The lower tariffs for AV products such as TV sets, laptops and cameras will be in force in five to 10 years, with the tax reductions gradually being lowered year by year Impact is likely to be limited as only around 1% of Japanese electronics products sold on the Vietnamese market are directly imported from Japan The majority are imported from Thailand, Malaysia and Singapore

The China-ASEAN free trade agreement offers both opportunities and challenges to vendors, especially

given the growing presence of low-cost Chinese vendors in the Vietnamese market

Impact On Local Manufacturing

The tariff reductions are likely to have a significant effect on the development of the local market and Vietnam’s electronics industry Foreign manufactures have already signalled their intentions to roll back

or cease their assembly operations in Vietnam and to rely on imports from neighbouring ASEAN

countries Meanwhile, due to a lack of a large-scale parts and components industry in Vietnam, it is very difficult for local producers to compete on price with foreign manufacturers Import taxes on components and other expenses continue to add to the problem The government must decide how to react in this situation to promote the development of Vietnam’s electronics industry which, after a history of about 20 years, is still mainly concerned with assembly

Government Electronics Industry Plan

Within the framework of the government’s IT plan, in early 2010 the Ministry of Industry and Trade was preparing a report that will outline a strategy to raise the technology level of Vietnam’s manufacturing The report will focus on six high-tech industries, with the first being electronics IT The government reportedly plans to set a target of increasing investment in scientific research for these industries to 3.5-5.0% of revenues by 2015 and 8-10% by 2020 The current level is 0.2-0.3% of revenues Meanwhile, investment in technological upgrades will be raised from the current 8-10% to 10-15% by 2015 and 20%

by 2020

The government will also prioritise technology skills and training The aim of the plan is to enable the high-tech sector to meet domestic demand while at the same time integrating Vietnam into the global electronics industry chain The government has identified a number of barriers to high-tech development These include slow progress in building high-tech industrial zones

Another government policy that may boost demand for computers is a two-year plan to enhance IT use by government agencies The plan, outlined by Prime Minister Nguyen Tan Dung, requires basic public services such as information exchange, sending and receiving documents as well as making payments online to be provided to citizens and enterprises By 2010, about 50% of directives from central,

municipal and province governments are to be published online, according to the target

Industry Forecast Scenario

The Vietnamese IT market is estimated to grow at a CAGR of 9% over the 2010-2014 period The

addressable domestic market for IT products and services is projected by BMI to reach US$1.9bn in 2010

2010 Outlook

The overall Vietnamese IT market outlook for 2010 is one of a broad recovery that gathers pace in the second half of the year PC sales were slower than expected during the Lunar New Year peak shopping season in Q110, partly because steep price discounting in 2009 had weakened the attraction to consumers

of traditional seasonal discounts However, retail PC sales are expected to pick up later in 2010 as new

vendors enter the market and others release new models

PC subsidy programmes will also support the PC market this year as the government continues to roll out the One Teacher-One Computer programme The plan is to supply 1mn computers to Vietnamese schools

by 2011 A Ho Chi Minh City version of the programme was launched in January 2010

Meanwhile, software revenues could receive a boost from sales of Microsoft’s Windows 7 operating

system, launched in Vietnam in November 2009 Microsoft has worked on ensuring the programme’s compatibility with popular Vietnamese software programmes in application areas like security and accounting

Drivers

The Vietnamese IT market is expected to have a number of drivers going forward The government’s ambitious plan for Vietnam’s IT society and IT market covers the 2010-2020 period and should shape many segments of the IT market Plans to modernise IT in government agencies and the customs

department as well as the Tax Administration Modernization Plan for 2008-2013 represent opportunities

for vendors of IT products and services

Vietnam’s improving ICT infrastructure will also drive 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 underpin addressable market growth and open PC ownership to a growing number of rural