Vietnam information technology report q1 2013

Q1 2013 www.businessmonitor.com VIETNAM INFORMATION TECHNOLOGY REPORT INCLUDES 5-YEAR FORECASTS TO 2017 ISSN 2044-9631 Published by:Business Monitor International Vietnam Information Technology Report Q1 2013 INCLUDES 5-YEAR FORECASTS TO 2017 Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Copy deadline: February 2013 Business Monitor International Senator House 85 Queen Victoria Street London EC4V 4AB United Kingdom Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: subs@businessmonitor.com Web: http://www.businessmonitor.com © 2013 Business Monitor International All rights reserved. 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All information is provided without warranty, and Business Monitor International makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained. Vietnam Information Technology Report Q1 2013 CONTENTS BMI Industry View . SWOT Political . 11 Economic . 12 Business Environment 13 Industry Forecast 14 Table: Vietnam IT Industry - Historical Data And Forecasts (US$mn unless otherwise stated) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Broadband . 17 Table: Telecoms Sector - Internet - Historical Data And Forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Economic Analysis 20 Macroeconomic Forecast Ratings Downgrade Failed To Surprise Investors . Early Signs Of A Recovery . Threat Of Slower Growth Yet To Undermine Efforts For Reforms Expenditure Breakdown 20 21 23 23 23 Table: Vietnam - Economic Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Industry Risk Reward Ratings 25 Industry Risk/Reward Ratings 25 Table: Asia Pacific IT Risk/Reward Ratings, Q113 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Market Overview . 29 Asia Pacific Regional Market Overview . IT Penetration . IT Growth and Drivers Sectors And Verticals Vietnam . 29 29 31 33 37 Table: Vietnam . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Industry Trends And Developments 45 Regulatory Development 48 Competitive Landscape 50 Company Profile 57 FPT Software 57 Demographic Forecast . 59 Vietnam Demographic Forecast . 59 © Business Monitor International Page Vietnam Information Technology Report Q1 2013 Table: Vietnam's Population By Age Group, 1990-2020 ('000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Table: Vietnam's Population By Age Group, 1990-2020 (% of total) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Table: Vietnam's Key Population Ratios, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Table: Vietnam's Rural And Urban Population, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Methodology 63 How We Generate Our Industry Forecasts . 63 IT Industry 63 IT Ratings - Methodology 64 Table: IT Business Environment Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Weighting . 66 Table: Weighting Of Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Sources 66 © Business Monitor International Page Vietnam Information Technology Report Q1 2013 BMI Industry View BMI View: Vietnamese IT spending is expected to reach US$2.9bn in 2013, up 15%, with BMI upwardly revising its forecast due to macroeconomic factors. Drivers including rising PC penetration, economic growth, a range of government ICT initiatives and a campaign to develop Vietnam's domestic IT industry will help to sustain continued expansion. Vietnam's improving ICT infrastructure will also drive the development of the nation's IT market in a country with 20% PC penetration. Meanwhile, there is strong demand for ERP solutions and cloud computing revenues are expected to report at least 300% growth over the five-year forecast period to 2017. Headline Expenditure Projections Computer Hardware Sales: US$1.8bn in 2012 to US$2.1bn in 2013, +13% in US dollar terms. Forecast in US dollar terms unchanged; however, Windows tablets and notebooks are expected to provide a growth area in 2012. Software Sales: US$223mn in 2012 to US$264mn in 2013, +18% in US dollar terms. Forecast in US dollar terms upwardly revised due to analyst modification, but will depend on the success in bringing down illegal software use. IT Services Sales: US$477mn in 2012 to US$569mn in 2013, +19% in US dollar terms. Forecast in US dollar terms upwardly revised due to analyst modification with growing demand for digital infrastructure projects in various sectors, such as banking, telecoms, energy and government. Risk/Reward Ratings: Vietnam scores 33.2 out of 100 in our Asia Risk/Reward Ratings table. This places the country 11th, ahead of Sri Lanka. The country ranks only 11th for its industry rewards score, with 36.9. Key Trends & Developments. ■ In 2012, vendors reported continued robust sales of ERP solutions, despite the uncertain economic situation. There is still a lot of potential for Vietnamese enterprises to increase spending on basic solutions. A number of Vietnamese companies embarked on large-scale ERP implementations, including Hoang Anh Gia Lai Group (HAGL), which launched a VND100bn ERP system. However, while the ERP market is strong, it is estimated that only about 10% of Vietnamese businesses have used CRM. ■ A number of government ministries and organisations, including the Ministry of Education and Training, have started to promote the rollout of cloud services. 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. © Business Monitor International Page Vietnam Information Technology Report Q1 2013 ■ An ambitious government IT plan for 2010-2020 should shape many segments of the Vietnamese IT market, with the government pledging to invest VND2.4tn (US4,115mn) from the State Budget in the ICT sector over this period. The government's increasing focus on encouraging ICT development and foreign investment in the technology sector will also create opportunities. Many of the government's ICT development plans and programmes are still in a nascent stage and their ultimate effectiveness is yet to be determined. © Business Monitor International Page Vietnam Information Technology Report Q1 2013 SWOT SWOT Analysis Strengths ■ 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. ■ The domestic IT market is in a rapid growth phase, with trade liberalisation and growing affordability driving projected double-digit growth of notebook computers. ■ Expanding ICT infrastructure and internet penetration will continue to drive demand for IT products and services. Weaknesses ■ IT spend per capita much lower than in neighbouring 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. Opportunities ■ High level of software piracy at 85%, although it has fallen in the last few years. ■ 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 such as e-government, etaxation and education. ■ SMEs have much potential to increase spending on basic solutions, including customer relationship management and security. ■ The banking and finance sector is a promising area for database software and one where foreign companies have done well. © Business Monitor International Page Vietnam Information Technology Report Q1 2013 SWOT Analysis - Continued ■ 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. © Business Monitor International Page 10 Vietnam Information Technology Report Q1 2013 Software ■ Government partnering with vendors to explore cloud computing opportunities. ■ Microsoft signs extension of licensing agreement with government. Local companies have a particularly strong position in the government and SME segments, while foreign and larger Vietnamese corporations are more likely to consider more expensive software from multinationals. Some larger Vietnamese software companies such as Hai Hoa have enjoyed some successes with foreign companies. However, other local companies have reported that it is sometimes a challenge for them to meet even government requirements. Software piracy is an issue for both domestic and multinational companies. Lac Viet Company, vendor of popular dictionary software, has estimated annual losses to piracy of around VND58bn. The government's plans to expand the local software industry, and develop a number of new software bases, as well as two new software businesses with revenues of more than US$200mn, could potentially have an impact on the local software competitive landscape. The Ministry of Information and Communications (MOCI), which developed the plans, has also called for the localisation of some open source software products for use in state agencies. Vietnam has about 150 domestic software companies, including 19 joint ventures, according to US Commercial Service data. Major IT spending verticals, such as banking and finance, oil and gas, aviation and telecoms, are among the best opportunities for foreign vendors. The government supports the development of a local software industry and the Vietnam Software Association has forecast growth for the software industry of around 20% in 2010, although this would be only 30% of that achieved in the preeconomic slowdown period of 2005-2008. Many local companies target export markets. The Vietnamese Corporation of Financing and Promoting Technologies (FPT Software), one of Vietnam's largest software exporters, said that it had set itself a growth target of 20% for 2010, thanks to the recovery of the American and Australian markets. Meanwhile, other local software firms such as VietSoftware International and Run Systems were targeting rates growth of 200-250% and 30-40% in 2010 respectively. Operating Systems In 2013 Microsoft will hope that sales of its Windows operating system will provide a boost to revenues. Microsoft has touted the flexibility and touchscreen capabilities of the new operating system. However, as © Business Monitor International Page 52 Vietnam Information Technology Report Q1 2013 many enterprises have recently completed a costly migration to Windows 7, the move to Windows is likely to be gradual. Windows XP is now getting old and, as many Vietnamese businesses still use that operating system, this should provide a favourable context for sales of Windows 8. Many businesses that declined to upgrade from XP to Vista or Windows may now go straight to Windows 8. Microsoft will still offer reduced support for XP until 2015, but hardware manufacturers will start to wind down their support in 2013. This will be a key factor that should drive business upgrade. In November 2011, Microsoft signed an extension of a deal with the Vietnamese government 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 over 50%. Microsoft also agreed to support the development of the government's ICT master plan and public policies for the ICT industry in the period through 2020. In spring 2012, Microsoft targeted the consumer segment with a major 'Buying Microsoft computers' campaign, which offered various gifts to customers purchasing computers with legitimate Windows versions installed. The promotion ran from February through April in big cities across Vietnam, including Hanoi, Ho Chi Minh City, Danang, Hailphong and Can Tho. Microsoft is dominant in the operating system segment but faces a challenge from Chinese vendor KingSoft. The economic downturn may have added to the forces driving interest in open source software. The economic downturn has led businesses and customers to look more closely at open office-type open source software, due to its perceived lower cost and access to codes, as well as free services, such as Google Docs, which are funded by advertising. However, a key issue and precondition for the more widespread adoption of open source will be the development of a support infrastructure. Given the current economic climate, IT directors will need to justify any upgrade in terms of cost savings. Business Software The Vietnamese enterprise software market is competitive with local companies having a significant share of the market. Major global players such as SAP, Oracle, IBM and Microsoft have a local presence but face competition from cheaper local rivals such as CMC Joint Stock Corporation (CMC), MISA, FAST and Exact Software, as well as from Chinese rivals. Similarly in the security software segment, US suppliers Symantec and McAfee have had successes, but face competition from popular Vietnamese anti-virus programs such as BKIS. © Business Monitor International Page 53 Vietnam Information Technology Report Q1 2013 German software leader SAP is the world's largest business software company and in July 2009 included Ho Chi Minh City on its world tour for the first time. SAP promoted its solutions as helping Vietnamese organisations adapt to the world market. Local clients include PetroVietnam Technology, the International Consumer Products Corporation and VinaCapital. SAP has formed a strategic partnership with leading Vietnamese software venture CMC. The two partners aim to develop the major enterprise market together with CMC becoming SAP's strategic partner for consulting and implementing SAP solutions. The main target will be large companies, including in the finance sector. CMC is one of Vietnam's largest software companies and is active in the IT, telecoms and ebusiness segments with an annual growth averaging at least 30%. SAP's biggest global rival, US vendor Oracle, has performed strongly in the Asia Pacific (excluding Japan) region during the recent financial crisis. According to the company, it managed to increase its market share in the region. In Vietnam, the company has made strong inroads into the banking sector, where it claims to have more than 15 customers, including banks such as Dong A Bank, Hubu Bank, Ocean Bank, Nam A Bank and Tien Phong Bank. Mid-sized bank Vietnam Asia Commercial (VietA) Bank, which is based in Ho Chi Minh City and has 15 main branches and 47 sub-branches, announced that it was migrating to an Oracle FLEXCUBE solution to cover all of its operations. Oracle has placed a particular focus on middleware and has increased the number of its middleware representatives in the Asia Pacific region in an attempt to boost its share. Other multinational vendors are also targeting promising enterprise sectors. In 2011, Norway-headquartered software company Conexus started the search for a partner to enter the Vietnam market, as a launching pad for the South East Asian region. Meanwhile, French software vendor Dassult Systemes has already entered into a strategy cooperation agreement with domestic sector player FPT. The two will develop products to target Vietnam's telecoms and banking sectors. Real Estate is another growth area, and Microsoft's wins in this sector have included a VDN3bn contract for its Dynamics CRM solution from Sacombank Real Estate, an affiliate of Saigon Thuong Tin Commercial Bank. While many foreign vendors have found richest pickings in the corporate sector, some are increasingly targeting Vietnamese SMEs. Epicor Software Corporation, a leading provider of ERP solutions in Asia, has set up a strategic alliance with the Vietnamese subsidiary of US-based DiCentral Group to expand its presence in Vietnam. Epicor provides DiCentral with technical and marketing assistance as the company promotes its ERP solutions to local firms, with a focus on solutions for plastics manufacturing and consumer packaged goods, as well as the hotel and property management segment. © Business Monitor International Page 54 Vietnam Information Technology Report Q1 2013 An increasing number of Vietnamese companies have shown an interest in and willingness to use cloud services, which are perceived by vendors as an emerging opportunity. In 2012, Microsoft launched its Office 365 Small Business Premium solution on the market, which is designed for small businesses. Microsoft said that it foresaw rapid development of cloud computing services in Vietnam, especially for SMEs and in 2012 the company also launched a Vietnamese website focused on cloud services for this segment. In 2010, FPT and Microsoft had 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. Key prospects are seen as being enterprises in the finance and banking, insurance and retail sectors. The main enterprise software vendors are increasingly focused on the SME segment, rolling out a succession of product lines and software packages previously only available to larger companies. New releases were tailored to SMEs' smaller budgets and particular organisational needs. Cost and access to credit remain big issues for smaller Vietnamese companies, leading to high levels of software piracy. In response, multinational vendors have had to experiment with innovative programmes. In September 2009, Microsoft Vietnam launched a programme called 'Microsoft Open Value', which was aimed at supporting SMEs in Vietnam to regularise their Microsoft software use through buying a licence at a suitable price and with a suitable payment method in line with the enterprise's budget. IT Services According to Vietnam's Ministry of Information and Communications (MIC), the country has around 10,000 firms licensed to provide IT services. However, only a third are actually operating. The MIC is developing a draft decree to map out policies to help the IT industry grow in the future. Measures to 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. The decree will also stipulate procedures and operational requirements for firms providing IT services. Local software producers are increasingly offering software development and outsourcing services as Vietnam's government targets a larger share of the global outsourcing opportunity. © Business Monitor International Page 55 Vietnam Information Technology Report Q1 2013 Vietnamese companies have a particularly strong Japanese client base for these types of services. According to the Vietnam-Japan IT cooperation club, Vietnam ranks third after China and India for IT and software outsourcing services to Japanese organisations, with a 0.5% market share. However, the major US IT vendors also have a solid presence in the market. In July 2012, IBM won a contract from Vietnam's Orient & Commercial Bank (OCB) to implement its analytics solutions. The OCB is looking to install a new customer-centric approach as it transitions from a multifunction to a retail bank. Growing demand from Vietnam's citizens for new banking products has created the need for the country's banks to process growing volumes of data. The largest Vietnamese software company, FPT, offers software custom development and outsourcing services to foreign companies and earns 56% of its revenues from Japan. In 2011, the company unveiled a major new restructuring plan that will consolidate five technology subsidiaries in a search for higher growth. The company's five subsidiaries - FPT Information System; FPT Telecom Corp; FPT Software; FPT Online and FPT Trading Group - will be merged, with the company either buying out minority shareholders or facilitating a share swap. FPT is looking to restore its growth rate, which has fallen below 20% in the past couple of years, after previously being around 30%. FPT is focused on expansion through adding to its network of partners. The company is looking to stake a position in the small, but emerging cloud computing opportunity and in May 2011 announced a cloud-computing alliance with Microsoft. FPT's wins in this area have included a US $2mn outsourcing contract to develop core retail and e-commerce software for Nissen Co. Japanese companies are also involved as players in Vietnam's developing outsourcing sector. In 2010, Japanese companies Mitsui and Co and Moshi Moshi Hotline Inc jointly established MOCAP Vietnam Joint Stock Company (MOCAP Vietnam) in Hanoi in partnership with a local company. The new company said that this was the first Japanese-founded call centre outsourcing company to be founded in Vietnam. © Business Monitor International Page 56 Vietnam Information Technology Report Q1 2013 Company Profile FPT Software SWOT Analysis Strengths ■ Based in fast-growing market for IT services provision. ■ International outlook including Japanese market that provides around half of the company's revenues. Weaknesses ■ Strong position on developed markets in Europe and US that have lower growth prospects. Opportunities ■ Growing regional market presents expansion opportunities. ■ Developing market for financial services in the region puts FPT in strong position to capitalise. Threats ■ Established players in India offer considerable competition for overseas clients. Company Overview FPT Software, one of Vietnam's largest software companies, was founded in 1998. FPT offers software custom development and outsourcing services to foreign companies. Specific services include software development and maintenance, ERP implementation, migration, embedded systems and quality testing. Strategy FTP is looking to stake a position in the small but emerging cloud computing opportunity and in May 2011 announced a cloud-computing alliance with Microsoft. Meanwhile, the company has said that it will continue to focus on an 'e-Citizens' strategy of concentrating on core business areas and trying to increase synergy among product and service introductions by FPT group companies. Developments In 2011 FPT unveiled a major new restructuring plan, which will consolidate five technology subsidiaries in a search for higher growth. The company's five subsidiaries FPT Information System, FPT Telecom Corp, FPT Software, FPT Online and FPT Trading Group - will be merged, with the company either buying out minority shareholders or facilitating a share swap. © Business Monitor International Page 57 Vietnam Information Technology Report Q1 2013 Among major developments in 2010, FPT revealed that it had launched a US$2mn outsourcing contract to develop core retail and e-commerce software for Nissen Co. The company's US$12mn revenues in Q110 exceeded planned projections by 9%, while profits were 46% higher than initially projected. The fastest growth compared with 2009 came in Vietnam, where revenues were up 90% y-o-y, while Asia Pacific (excluding Japan) grew 47%; Europe, 75%; and the US, 69%. However, the Japanese market, which accounts for over half of FPT's revenues, grew by only 16%. Performance FPT is looking to restore its growth rate, which has fallen below 20% in the past couple of years, after previously being around 30%. FPT is focused on expansion through adding to its network of partners. Presence FPT has a presence in Hanoi, Ho Chi Minh City and Da Nang in Vietnam. The company is also present in some major global IT markets, including Japan (Tokyo, Osaka), Australia, Singapore, Malaysia, Thailand, the Philippines, the US and France. Sectors FTP earns 56% of its revenues from Japan. The company focuses mainly on the largest IT-spending verticals including banking and finance, telecoms, manufacturing, government, retail, infrastructure and utilities. Company Details ■ ■ FPT Software FPT Building Duy Tan Street Cau Giay District Hanoi Vietnam (4) 768 9048 ■ +84/(4) 768 9048 ■ (4) 768 9049 ■ fsoft.contact@fsoft.com.vn ■ www.fpt-software.com © Business Monitor International Page 58 Vietnam Information Technology Report Q1 2013 Demographic Forecast Vietnam Demographic Forecast Demographic analysis is a key pillar of BMI's macroeconomic and industry forecasting model. Not only is the total population of a country a key variable in consumer demand, but an understanding of the demographic profile is key to understanding issues ranging from future population trends to productivity growth and government spending requirements. Source: World Bank, UN, BMI © Business Monitor International Page 59 Vietnam Information Technology Report Q1 2013 The accompanying charts detail Vietnam's population pyramid for 2011, the change in the structure of the population between 2011 and 2050 and the total population between 1990 and 2050, as well as life expectancy. The tables show key datapoints from all of these charts, in addition to important metrics including the dependency ratio and the urban/rural split. Table: Vietnam's Population By Age Group, 1990-2020 ('000) 1990 1995 2000 2005 2010 2012f 2015f 2020f 67,102 74,008 78,758 83,161 87,848 89,730 92,443 96,355 0-4 years 9,340 9,212 7,002 6,776 7,186 7,186 7,026 6,529 5-9 years 8,685 9,193 9,124 6,921 6,703 6,885 7,143 6,982 10-14 years 7,504 8,604 9,142 9,038 6,844 6,539 6,668 7,104 15-19 years 7,127 7,408 8,535 9,064 8,963 8,161 6,806 6,628 20-24 years 6,492 7,003 7,305 8,420 8,954 9,115 8,892 6,745 25-29 years 5,893 6,361 6,879 7,167 8,284 8,602 8,862 8,803 30-34 years 4,884 5,779 6,250 6,765 7,058 7,475 8,202 8,779 35-39 years 3,965 4,794 5,688 6,163 6,677 6,770 6,991 8,131 40-44 years 2,420 3,884 4,710 5,614 6,086 6,304 6,609 6,925 45-49 years 2,039 2,358 3,802 4,653 5,548 5,761 6,012 6,536 50-54 years 1,933 1,968 2,287 3,739 4,580 4,936 5,449 5,914 55-59 years 1,946 1,843 1,887 2,201 3,617 4,001 4,446 5,305 60-64 years 1,544 1,822 1,737 1,767 2,076 2,573 3,455 4,268 65-69 years 1,283 1,391 1,659 1,582 1,621 1,649 1,927 3,233 70-74 years 919 1,084 1,194 1,439 1,389 1,384 1,438 1,729 1,127 1,305 1,559 1,852 2,264 2,388 2,516 2,743 Total 75+ years Table: Vietnam's Population By Age Group, 1990-2020 (% of total) 1990 1995 2000 2005 2010 2012f 2015f 2020f 0-4 years 13.92 12.45 8.89 8.15 8.18 8.01 7.60 6.78 5-9 years 12.94 12.42 11.58 8.32 7.63 7.67 7.73 7.25 10-14 years 11.18 11.63 11.61 10.87 7.79 7.29 7.21 7.37 15-19 years 10.62 10.01 10.84 10.90 10.20 9.10 7.36 6.88 20-24 years 9.68 9.46 9.27 10.13 10.19 10.16 9.62 7.00 © Business Monitor International Page 60 Vietnam Information Technology Report Q1 2013 Vietnam's Population By Age Group, 1990-2020 (% of total) - Continued 1990 1995 2000 2005 2010 2012f 2015f 2020f 25-29 years 8.78 8.60 8.73 8.62 9.43 9.59 9.59 9.14 30-34 years 7.28 7.81 7.94 8.14 8.03 8.33 8.87 9.11 35-39 years 5.91 6.48 7.22 7.41 7.60 7.55 7.56 8.44 40-44 years 3.61 5.25 5.98 6.75 6.93 7.03 7.15 7.19 45-49 years 3.04 3.19 4.83 5.59 6.32 6.42 6.50 6.78 50-54 years 2.88 2.66 2.90 4.50 5.21 5.50 5.89 6.14 55-59 years 2.90 2.49 2.40 2.65 4.12 4.46 4.81 5.51 60-64 years 2.30 2.46 2.21 2.12 2.36 2.87 3.74 4.43 65-69 years 1.91 1.88 2.11 1.90 1.85 1.84 2.08 3.36 70-74 years 1.37 1.46 1.52 1.73 1.58 1.54 1.56 1.79 75+ years 1.68 1.76 1.98 2.23 2.58 2.66 2.72 2.85 Table: Vietnam's Key Population Ratios, 1990-2020 Dependent ratio, % of total working age Dependent population, total, '000 Active population, % of total Active population, total, '000 Youth population, % of total working age Youth population, total, '000 Pensionable population, % of total working age Pensionable population, '000 1990 1995 2000 2005 2010 2012f 2015f 2020f 75.5 71.2 60.5 49.7 42.1 40.9 40.6 41.6 28,859 30,790 29,679 27,609 26,006 26,031 26,717 28,321 57.0 58.4 62.3 66.8 70.4 71.0 71.1 70.6 38,243 43,218 49,079 55,552 61,842 63,699 65,725 68,034 66.8 62.5 51.5 40.9 33.5 32.4 31.7 30.3 25,529 27,009 25,268 22,735 20,732 20,610 20,837 20,615 8.7 8.7 9.0 8.8 8.5 8.5 8.9 11.3 3,330 3,780 4,411 4,874 5,274 5,421 5,881 7,706 f = BMI forecast; 0>15 plus 65+, as % of total working age population; 0>15 plus 65+; 15-64, as % of total population; 15-64; 0>15, % of total working age population; 0>15; 65+, % of total working age population; 65+. Source: World Bank, UN, BMI © Business Monitor International Page 61 Vietnam Information Technology Report Q1 2013 Table: Vietnam's Rural And Urban Population, 1990-2020 1990 1995 2000 2005 2010 2012f 2015f 2020f Urban population, % of total 20.3 22.2 24.3 26.4 28.7 29.7 31.2 33.9 Rural population, % of total 79.7 77.8 75.7 73.6 71.3 70.3 68.8 66.1 Urban population, '000 13,438.6 16,201.6 18,865.4 21,940.1 25,212.5 26,649.9 28,842.1 32,664.4 Rural population, '000 52,761.4 56,778.4 58,770.0 61,166.2 62,635.9 63,080.4 63,600.5 63,690.7 © Business Monitor International Page 62 Vietnam Information Technology Report Q1 2013 Methodology How We Generate Our Industry Forecasts BMI's industry forecasts are generated using the best-practice techniques of time-series modelling. The precise form of time-series model we use varies from industry to industry, in each case being determined, as per standard practice, by the prevailing features of the industry data being examined. For example, data for some industries may be particularly prone to seasonality, i.e. seasonal trends. In other industries, there may be pronounced non-linearity, whereby large recessions, for example, may occur more frequently than cyclical booms. Our approach varies from industry to industry. Common to our analysis of every industry, however, is the use of vector autoregressions. Vector autoregressions allow us to forecast a variable using more than the variable's own history as explanatory information. For example, when forecasting oil prices, we can include information about oil consumption, supply and capacity. When forecasting for some of our industry sub-component variables, however, using a variable's own history is often the most desirable method of analysis. Such single-variable analysis is called univariate modelling. We use the most common and versatile form of univariate models: the autoregressive moving average model (ARMA). In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality is poor. In such cases, we use either traditional decomposition methods or smoothing methods as a basis for analysis and forecasting. It must be remembered that human intervention plays a necessary and desirable part in all of our industry forecasting techniques. Intimate knowledge of the data and industry ensures we spot structural breaks, anomalous data, turning points and seasonal features where a purely mechanical forecasting process would not. IT Industry Forecasts There are a number of criteria that drive our forecasts for each IT variable. IT forecasting is complicated due to the fragmented nature of the market, with little transparency of vendor data and low apparent agreement between many sets of figures in terms of market definition, base and © Business Monitor International Page 63 Vietnam Information Technology Report Q1 2013 methodology. In addition, forecasts are naturally affected by consideration of a variety of internal and external political and economic factors. Within best-practice techniques of time-series modelling, BMI's quarterly updated forecasts are improved substantially by intimate knowledge of the prevailing features of each local market. Individual variables taken into account in creating each forecast include: ■ Overall economic context, and GDP and demographic trends; ■ Underlying 'information society' trends; ■ Projected GDP share of industry; ■ Maturity of market structure; ■ Regulatory developments and government policies; ■ Developments in key client sectors such as telecommunications, banking and e-government; ■ Technological developments, and diffusion rates; ■ Exogenous events. Estimates are calculated using BMI's own macroeconomic and demographic forecasts. IT Ratings - Methodology Our approach in BMI's IT Business Environment Ratings is threefold. First, we seek accurately to capture the operational dangers to companies operating in this industry globally. Second, we attempt, where possible, to identify objective indicators that may serve as proxies for indicators that were traditionally evaluated on a subjective basis. Finally, we include aspects of BMI's proprietary Country Risk Ratings (CRR) that are relevant to the IT industry. Overall, the ratings system, which integrates with those of all 16 industries covered by BMI, offers an industry-leading insight into the prospects/risks for companies across the globe. Ratings System Conceptually, the ratings system divides into two distinct areas:Limits of potential returns: Evaluation of sector's size and growth potential in each state, and also broader industry/state characteristics that may inhibit its development. Risks to realisation of those returns: Evaluation of industry-specific dangers and those emanating from the state's political/economic profile that call into question the likelihood of anticipated returns being realised over the assessed time period. © Business Monitor International Page 64 Vietnam Information Technology Report Q1 2013 Indicators The following indicators have been used. Overall, the rating uses three subjectively measured indicators, and 41 separate indicators/datasets. Table: IT Business Environment Indicators Indicator Rationale Limits to potential returns Market structure IT market value, US$bn Denotes breadth of IT market. Large markets score higher than smaller ones Sector value growth, % year-on-year Denotes sector dynamism. Scores based on annual average growth over five-year (y-o-y) forecast period Denotes spending boost provided by public sector, which can be a crucial Government initiatives and spending determinant of sector development Hardware, % of total sales Denotes maturity of market. A high proportion of hardware sales - compared to services/software - indicates that the overall IT market is immature Country structure Urban-rural split Urbanisation is used as a proxy for development. Predominantly rural states therefore score lower GDP per capita, US$ A high GDP per capita supports long-term industry prospects. Overall score for country structure is also affected by the coverage of the power transmission network across the state Risks to potential returns Market risks Intellectual property (IP) laws Markets with fair and enforced IP regulations score higher than those with endemic counterfeiting ICT policy Subjective evaluation of official policy towards IT development, as enshrined in statute and tax code Country risk Short-term external risk Rating from CRR evaluates the vulnerability to external shock, which is the principal cause of economic crises. Such a crisis would cut investment Short-term financial risk Rating from BMI's CRR, to denote risk of currency crisis and stability of banking sector. The former would hit revenues in hard currency, while the latter would curtail investment funding Trade bureaucracy Rating from CRR to denote ease of trading with the state Legal framework Rating from CRR denotes the strength of legal institutions in each state - security of investment can be a key risk in some emerging markets Bureaucracy Rating from CRR denotes ease of conducting business in the state © Business Monitor International Page 65 Vietnam Information Technology Report Q1 2013 IT Business Environment Indicators - Continued Indicator Rationale Corruption Rating from CRR denotes the risk of additional illegal costs/possibility of opacity in tendering/business operations affecting companies' ability to compete Source: BMI Weighting Given the number of indicators/datasets used, it would be wholly inappropriate to give all sub-components equal weight. Consequently, the following weight has been adopted. Table: Weighting Of Components Component Weighting Limits of potential returns 70% - IT market 65% - Country structure 35% Risks to realisation of potential returns 30% - Industry risks 40% - Country risk 60% Source: BMI Sources Additional sources used in IT reports include national ministries and ICT regulatory bodies, national industry associations, and international industry organisations such as the International Telecommunication Union (ITU), officially released company results and figures, and international and national industry news agencies. © Business Monitor International Page 66 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...]... leave Vietnam a second-rate economy for an indefinite period © Business Monitor International Page 13 Vietnam Information Technology Report Q1 2013 Industry Forecast The Vietnamese IT market is estimated to grow at a compound annual growth rate (CAGR) of 15% over the 2013- 2017 forecast period The addressable domestic market for IT products and services is projected by BMI to reach US$2.9bn in 2013 and... Page 11 Vietnam Information Technology Report Q1 2013 Economic SWOT Analysis Strengths ■ Vietnam has been one of the fastest-growing economies in Asia in recent years, with GDP growth averaging 7.1% annually between 2000 and 2011 ■ The economic boom has lifted many Vietnamese out of poverty, with the official poverty rate in the country falling from 58% in 1993 to 14.0% in 2010 Weaknesses ■ Vietnam. .. Government support should also drive Vietnam' s emergence as an alternative and cheaper outsourcing destination to India and China Cloud computing is another growth area © Business Monitor International Page 14 Vietnam Information Technology Report Q1 2013 Drivers The Vietnamese IT market is expected to have a number of long-term drivers The government's ambitious plan for Vietnam' s IT society and IT market... 2012e 2013f 2014f 2015f 2016f 2017f 26,905 31,159 31,782 32,418 33,066 33,727 34,402 35,090 30.6 35.1 35.4 35.8 36.1 36.5 36.9 37.3 3,644 4,085 4,452 4,719 4,955 5,154 5,308 5,467 4.1 4.6 5.0 5.2 5.4 5.6 5.7 5.8 e/f = BMI estimate/forecast Source: BMI, VNNIC © Business Monitor International Page 17 Vietnam Information Technology Report Q1 2013 According to data provided by the Vietnam Internet Network Information. .. the Vietnamese broadband market to decline in the next few years as consumers opt for mobile alternatives That said, declining prices of products and services should help the sector to grow by an average of 4.2% between 2013 to 2017 to bring the total number of fixed broadband subscribers in Vietnam to 5.5mn from 4.7mn © Business Monitor International Page 19 Vietnam Information Technology Report Q1 2013. .. Business Monitor International Page 21 Vietnam Information Technology Report Q1 2013 Muted Response To Credit Downgrade Vietnam - Two-Year & 10-Year Government Bond Yields, % & Spread, bps Source: BMI, Bloomberg Indeed, judging from the muted response in the bond markets following the ratings downgrade, it appears that the risks of a potential bailout of ailing banks by the Vietnamese government have long... 2007 and 58.3% in 2008, but the higher growth momentum could be attributed to a low-base effect Vietnam' s broadband industry hit a rocky patch in the first 10 months of 2011 The market contracted in three of the months, most © Business Monitor International Page 18 Vietnam Information Technology Report Q1 2013 notably 5.2% month-on-month in June 2011, but rebounded sharply in August 2011 by growing... software market Although high, the © Business Monitor International Page 15 Vietnam Information Technology Report Q1 2013 piracy rate has fallen from around 95% in the last few years as the government has implemented stricter regulations Segments Government remains a key IT spending segment and accounts for around 30% of total Vietnamese IT spending In 2010 the prime minister ordered all cabinet ministers.. .Vietnam Information Technology Report Q1 2013 Political SWOT Analysis Strengths ■ The Communist Party of Vietnam remains committed to market-oriented reforms and we do not expect major shifts in policy direction over the next five years The oneparty system... the accompanying chart shows, 10-year Vietnamese sovereign bond yields have remained largely stable within a narrow trading range of 10.25-10.50% in recent months Yields on two-year sovereign bonds have begun to tick up in recent weeks, following a higher-than-expected reading on © Business Monitor International Page 22 Vietnam Information Technology Report Q1 2013 inflation in September (headline . Q1 2013 www.businessmonitor.com VIETNAM INFORMATION TECHNOLOGY REPORT INCLUDES 5-YEAR FORECASTS TO 2017 ISSN 204 4-9 631 Published by:Business Monitor International Vietnam Information Technology Report. VNNIC Vietnam Information Technology Report Q1 2013 © Business Monitor International Page 18 notably 5.2% month-on-month in June 2011, but rebounded sharply in August 2011 by growing by 8.1% m- o-m wide-scale environmental damage. Vietnam Information Technology Report Q1 2013 © Business Monitor International Page 11 Economic SWOT Analysis Strengths ■ Vietnam has been one of the fastest-growing