Q1 2014 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 2014 INCLUDES 5-YEAR FORECASTS TO 2017 Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Copy deadline: December 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 2014 CONTENTS BMI Industry View . SWOT IT SWOT Wireline SWOT . 11 Political . 13 Economic . 14 Business Environment 15 Industry Forecast 16 Table: Vietnam IT Industry - Historical Data And Forecasts (VNDbn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Broadband . 21 Table: Telecoms Sector - Broadband - Historical Data And Forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Macroeconomic Forecasts . 23 Economic Analysis . 23 Table: Vietnam - Economic Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Industry Risk Reward Ratings 27 Table: Asia Pacific IT Risk/Reward Ratings - Q1 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Market Overview . 31 Hardware . 31 Software . 38 Services 49 Industry Trends And Developments 55 Regulatory Development 59 Table: Government Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Regulatory News 62 Competitive Landscape 64 International Companies . 64 Table: Samsung Electronics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Table: Intel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Table: Global CyberSoft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Local Companies . 67 Table: Sara Vietnam . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Company Profile 68 FPT Software 68 Table: FPT Group Revenue By Segment (VNDbn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Table: Profit Before Tax Margin By Segment (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 © Business Monitor International Page Vietnam Information Technology Report Q1 2014 Regional Overview 72 Hardware Sales Opportunity Remains 74 Demographic Forecast . 76 Demographic Outlook 76 Table: Vietnam's Population By Age Group, 1990-2020 ('000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Table: Vietnam's Population By Age Group, 1990-2020 (% of total) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Table: Vietnam's Key Population Ratios, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Table: Vietnam's Rural And Urban Population, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Methodology 80 Industry Forecast Methodology 80 Sources 81 Risk/Reward Rating Methodology . 82 Table: It Risk Reward Rating Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 Table: Weighting Of Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 © Business Monitor International Page Vietnam Information Technology Report Q1 2014 BMI Industry View BMI View: Vietnam's IT market is a regional outperformer and we expect strong growth to continue over the medium term. We forecast IT spending will grow at a compound annual growth rate (CAGR) of 14.1% to 2017, driven by rising incomes, enterprise modernisation and the policy environment put in place by the government. Significant opportunities remain in the retail market due to relatively low penetration of devices and services, which vendors will be able to tap as incomes rise. The government is also a significant factor underpinning our bright outlook as it pursues a range of ICT initiatives and allocates funding to develop Vietnam's domestic IT industry. These policies include the promotion of Vietnam as an outsourcing destination, with the services segment expected to expand rapidly. There is also increasing momentum towards Vietnam becoming a global centre for electronics production as wages rise in China and manufacturers look to protect margins by moving to Vietnam, where wages are as little as a third of those in China. Headline Expenditure Projections ■ Computer Hardware Sales: VND44,389bn in 2013 to VND68,935bn in 2017, CAGR of +12.5% in local currency terms. Low penetration of devices and rising incomes will support strong sales growth, although access to credit continues to be a bottleneck despite partnerships between some retailers and banks. ■ Software Sales: VND5,610bn in 2013 to VND10,378bn in 2017, CAGR of +17.5% in local currency terms. Piracy continues to be a drag on the market, but there are large opportunities in business software and security solutions for vendors willing to accept narrow margins in a price sensitive market. ■ IT Services Sales: VND12,083bn in 2013 to VND22,812bn in 2017, CAGR of +18.2% in local currency terms. Services expected to be the outperforming segment of the IT market as demand grows in several verticals, including banking, telecoms, energy and government. Additionally, there is a potential boom in outsourcing from Japanese enterprises to drive outperformance of services segment. Key Trends & Developments Vietnam is rapidly emerging as an important location in global supply chains for both IT hardware and services. The government has created an attractive policy environment, including targets for training skilled employees from local universities and the use of tax incentives to persuade firms to locate offices in the country. These policies, combined with low wages and proximity to large markets, means the trend of firms investing is gathering momentum. The first major investment came from chip manufacturer Intel, announced in 2006, but other investments have followed from Samsung Electronics, which expects to produce as much of 40% of its global smartphone and tablets in Vietnam by 2015. Vietnam is also an © Business Monitor International Page Vietnam Information Technology Report Q1 2014 emerging destination for outsourcing, with multinationals increasingly turning away from China in favour of lower cost and higher security locations. While Samsung and Intel's production facilities are primarily geared towards export, there is also significant interest in the domestic retail hardware market where low PC penetration and forecasts for rising incomes means there is a solid platform for growth over the medium term. However, a lack of credit has restricted sales in the past as PCs remain big-ticket purchases for the majority of Vietnamese households. BMI believes this bottleneck will be less of a problem in the future as retailers such as Vien Thong A, Dienmay.com, Phong Vu, Hoan Long and Nguyen Kim cut prices and partnered with banks including HSBC, VietinBank, ANZ and Sacombank to directly offer interest free instalment payment plans from mid-2013. © Business Monitor International Page Vietnam Information Technology Report Q1 2014 SWOT IT SWOT SWOT Analysis Strengths ■ Government policies and funding in place to promote the development of the IT sector. ■ 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 increased adoption among enterprises and consumers. ■ Expanding local hardware production industry with major international players such as Samsung and Intel making large investments. Weaknesses ■ IT spend per capita is much lower than in neighbouring Thailand, reflecting a much lower GDP and GDP per capita. ■ Limited 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, although some progress has been made in recent years. ■ Low PC penetration means there is scope for vendors to tap first-time buyer market as well as the upgrade/replacement market. ■ Low-cost tablets are proving popular with consumers, with significant medium-term sales growth potential as incomes continue to rise. ■ Vietnam is becoming a popular destination for software development and IT services outsourcing, with particularly strong growth potential from Japanese enterprises that are turning away from Chinese based providers. © Business Monitor International Page Vietnam Information Technology Report Q1 2014 SWOT Analysis - Continued ■ 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 government's drive to create a significant IT services industry over the next 15-20 years - through incentives to create IT clusters - is expected to be a significant factor shaping the market. Threats ■ 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. ■ Low-cost tablets from own-brand Chinese vendors a particular threat to low- and mid-range notebook vendors. Falling prices may further undermine margins and profitability after steep discounting. ■ Cyber security issues could undermine confidence in IT solutions and services, with Big Data and cloud computing vulnerable. © Business Monitor International Page 10 Vietnam Information Technology Report Q1 2014 FPT recorded revenues of US$81.5mn in 2012 and is targeting revenue of US$100mn in 2013. It is also planning to expand its workforce by hiring an additional 1,500 engineers in 2013, to take its total to 5,600. Presence FPT is headquartered in Hanoi, and has offices in 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, the US, France and Germany. In March 2013 FPT opened its first R&D centre in the US in Silicon Valley. The centre will focus on development and innovation in mobility, cloud and big data. 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. Major clients include Deutsche Bank, Schroders, SoftBank, Omron, Hitachi and Unisys. Table: FPT Group Revenue By Segment (VNDbn) Q311 Q411 Q112 Q212 Q312 Q412 Q113 Q213 Telecommunication 599.2 607.7 657.7 675.0 708.2 709.5 767.9 818.6 Digital Content 443.7 283.2 380.2 520.0 423.8 488.3 207.4 223.3 Software Development 453.7 633.4 381.2 532.4 578.4 847.8 567.6 639.3 System Integration 734.2 1,349.4 488.4 524.2 453.6 1,453.1 326.9 897.5 Informatics services 126.3 156.5 119.6 190.5 166.4 203.5 151.4 171.3 Education 151.3 50.1 148.2 114.2 183.0 62.5 164.9 93.4 4,017.0 4,174.4 3,460.2 3,269.9 3,638.0 3,968.8 3,496.2 3,956.6 Revenue manufacture, distribution and retail Source: FPT, BMI © Business Monitor International Page 70 Vietnam Information Technology Report Q1 2014 Table: Profit Before Tax Margin By Segment (%) Q311 Q411 Q112 Q212 Q312 Q412 Q113 Q213 Telecommunication 23.0 22.6 28.3 26.1 24.0 22.5 26.7 28.2 Digital Content 16.4 24.6 15.8 11.2 13.4 5.7 15.4 22.8 Software Development 21.9 28.7 15.0 20.6 21.9 23.8 21.0 23.8 System Integration 14.5 13.0 11.6 8.1 9.1 12.5 2.4 11.7 Informatics services 16.2 -3.6 13.0 21.2 17.9 6.1 15.8 23.0 Education 31.4 27.7 35.5 27.1 29.1 15.0 29.1 20.2 3.2 2.7 4.0 4.0 1.7 1.7 3.3 2.4 manufacture, distribution and retail Source: FPT, BMI Financial Data ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Company Details ■ ■ Annual Revenue (2010): VND20.5bn Annual Revenue (2011): VND26.0bn Annual Revenue (2012): VND25.4bn EBITDA (2008): VND1.6bn EBITDA (2009): VND2.1bn EBITDA (2010): VND2.6bn EBITDA (2011): VND3.1bn EBITDA (2012): VND3.0bn Net Profit (2008): VND1.1bn Net Profit (2009): VND1.4bn Net Profit (2010): VND1.7bn Net Profit (2011): VND2.1bn Net Profit (2012): VND2.0bn FPT Software FPT Building Duy Tan Street Cau Giay District Hanoi Vietnam ■ Tel: +84/(4) 768 9048 ■ Fax: (4) 768 9049 ■ fsoft.contact@fsoft.com.vn ■ www.fpt-software.com © Business Monitor International Page 71 Vietnam Information Technology Report Q1 2014 Regional Overview Asia Pacific IT markets are on the whole developing rapidly, boosted by strong underlying economic growth and proactive government policy. However the region is diverse in terms of geography, levels of development and population, which is reflected in the makeup of IT markets and their medium term prospects. Cyber Security Could Derail Bright Outlook For Regional Leaders In terms of the contribution to GDP there is great diversity across APAC. The higher income markets generally have IT account for a greater share of GDP, as is the case at the global level. However a few lower income markets have carved a position out for themselves in global supply chains boosting the share of IT in GDP, for instance Thailand for production of semiconductors and the Philippines in outsourcing. Singapore is expected to have the largest IT sector relative to the size of its economy at 2.3% in 2014, slightly ahead of Hong Kong and Thailand at 2.1%. Singapore and Hong Kong share many similar characteristics, with both high-income city-states benefiting from domestic spending, as well as positioning themselves as regional hubs for IT services vendors in the wider APAC region. Hong Kong and Singapore are competing to become the leading regional cloud computing hub, with significant inward investment taking place from cloud vendors and telecoms providers such as NTT. The latest research from Rackspace shows that Hong Kong had the highest adoption rate for cloud services by mid-2013, boosted by demand from the financial services sector. However, it should be noted that Hong Kong and Singapore both trail leading global cloud markets in terms of the deployment of more complex cloud solutions such as hybrid clouds, disaster recovery, and testing and development. Singapore's government has put in place policies to close the gap with Hong Kong and global leaders by boosting local expertise in the emerging technology of Big Data applications. In August 2013 it was announced that the Infocomm Development Authority of Singapore (IDA) had partnered with Revolution Analytics, a commercial provider of software, services and support for the open source "R" project, to form a Business Analytics Centre of Excellence. The IDA's efforts will help Singaporean enterprises utilise Big Data, and tap into local demand. The outlook for Big Data is positive with 80% of enterprises surveyed by EMC stating that use of Big Data will lead to better decision making in their organisation. The survey, released in September 2013, questioned 130 respondents, of which 63% believed that Big Data will be a key factor determining winners and losers, while 37% stated they had already benefited from competitive © Business Monitor International Page 72 Vietnam Information Technology Report Q1 2014 advantage via the use of Big Data. The areas respondents believed Big Data will prove most beneficial were data centre automation (83%) and cyber security (64%). Other markets in APAC have also been able to carve out a position in global IT markets, for instance, Philippines and Vietnam are both growing centres for outsourcing. The Philippines has a more developed outsourcing industry and is now moving up the value chain to software and application development services, but Vietnam is developing rapidly and is well positioned to benefit from demand from Japanese enterprises. In January 2013 the Information Technology Promotion Agency survey of 1,100 Japanese IT firms showed Vietnam was the first choice outsourcing destination, with 31.5% of firms choosing it, ahead of India (20.6%), China (16.7%), Thailand (9.7%) and Philippines (7.4%). The Vietnamese government is developing policy to maximise the development of the outsourcing industry. In August 2013 a draft resolution from the Ministry of Information and Communications proposed allocating at least 2% of the state budget for boosting the IT sector each year. The fund will be used to help Vietnam catch up with regional rivals and move up the value chain in areas such as outsourcing and software development. Such a financial commitment from the government, combined with Vietnam's attractive cost profile, should see the IT market, and specifically outsourcing, continue on the recent trajectory of rapid development. The markets highlighted above are some of the regional outperformers, and cases where the industry is developing rapidly. However, there is a trend that BMI highlights as a major downside risk across the region - cyber security. Markets in Asia have among the highest incidences of cyber crime globally, and an additional factor is politically driven cyber attacks from North Korea. Many governments in the region updated cyber security policy and legislation in 2013, while also strengthening defensive capabilities, however these steps could prove insufficient. Even after state investment and policy reform we believe the potential for cyber security issues to slow IT market development exists, as the loss of confidence from a severely disruptive attack would be significant and long-lasting. It will be important over the medium term that governments pursue proactive rather than reactive cyber security policy to remain ahead of threats in terms of defensives and retaliatory capabilities. South Korea is the most exposed to this risk due to the activities of North Korea, as demonstrated by the number of attacks in 2013, and recent experience shows how state spending has had to be increased. In March 2013 South Korean banks -including Shinhan, Nonghyup and Jeju - and TV broadcasters were subject to an attack from North Korea which disrupted their operations. The attacks followed a February 2013 statement from North Korean leader Kim Jong-un, expressing confidence in the government's cyber © Business Monitor International Page 73 Vietnam Information Technology Report Q1 2014 warfare capabilities against South Korea. The government had set aside KRW240bn for information protection and less than KRW10bn for strengthening cyber warfare capabilities, but these plans came under pressure following another round of attacks. In late June and early July 2013 there were attacks during which 69 government offices, news outlets and other institutions, including the presidential office website were attacked. It was reported that 2.5 million members of the ruling Saenuri Party, 300,000 military personnel and 200,000 registered users of the presidential office's website had data stolen. The South Korean experience illustrates the scale of the potential threat, and the scope for spending increases. Hardware Sales Opportunity Remains The most advanced markets in APAC are geared towards IT software and services, deploying IT Market As % Of GDP emerging technologies and combating the associated 2014 risks of cyber security. However, in the two largest markets in the region - China and India - spending is still weighted towards hardware, and with low PC penetration a significant growth opportunity remains for vendors. Household PC penetration in Australia, Singapore, South Korea and Hong Kong at the end of 2011 was already high at around 80%. These mature markets are high income, and as such the upgrade/ replacement markets are still lucrative for vendors. However it is in the middle income markets that Source: BMI greater potential exists. China and India, with their huge populations and respective PC penetrations of 38% and 6.9% at the end of 2011 grab the attention, but Indonesia, Philippines, Vietnam and Sri Lanka are also notable opportunities. As incomes increase in these markets BMI expects the same pattern of rising PC penetration to occur. Increases in PC penetration will not be uniform as rising incomes are not the only driver of spending on PCs, with factors such as government policy ie PCs for students programmes and financial assistance for low-income families, also determinants. However, there is a strong relationship between higher incomes and PC penetration. We forecast strong growth in GDP per capita for all the catch-up markets to 2017, but the outlook for Vietnam, Sri Lanka and China are particularly strong. Vietnam and China are also markets © Business Monitor International Page 74 Vietnam Information Technology Report Q1 2014 where the government is promoting PC ownership, so we expect them to outperform. Despite the Akash2 initiative we expect India will continue to lag behind its regional peers over the medium term. The medium-term opportunities for hardware vendors in the large catch-up markets of APAC is in stark contrast to the recent experience in their core markets in North America and Europe where maturity, economic weakness and tablet cannibalisation have resulted in market declines. Consumers in APAC may also opt for tablets instead of traditional notebooks and desktops, but we believe the threat is less pronounced in the first time buyer market where productivity features will be important. So far tablet sales have predominantly been to existing PC owners, whereas to tap the emerging market opportunity in the first-time buyer market, BMI believes a mix of mobility and productivity could underpin outperformance, for instance via hybrids/convertibles or tablets with greater functionality. Rising Incomes Deepen The Market Household PC Penetration Vs GDP Source: BMI, national regulators, WEF © Business Monitor International Page 75 Vietnam Information Technology Report Q1 2014 Demographic Forecast Demographic Outlook 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. The accompanying charts detail Vietnam's population pyramid for 2013, the change in the structure of the population between 2013 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. Population Pyramid 2013 (LHS) And 2013 Versus 2050 (RHS) Source: World Bank, UN, BMI © Business Monitor International Page 76 Vietnam Information Technology Report Q1 2014 Population Indicators Population (mn, LHS) And Life Expectancy (years, RHS), 1990-2050 Source: World Bank, UN, BMI Table: Vietnam's Population By Age Group, 1990-2020 ('000) 1990 1995 2000 2005 2010 2013e 2015f 2020f 68,910 76,020 80,888 84,948 89,047 91,680 93,387 97,057 0-4 years 9,315 9,323 7,128 6,898 7,229 7,152 7,012 6,575 5-9 years 8,606 9,212 9,253 7,023 6,791 7,052 7,181 6,968 10-14 years 7,857 8,541 9,162 9,117 6,899 6,619 6,757 7,147 15-19 years 7,359 7,788 8,492 9,050 9,011 7,686 6,866 6,726 20-24 years 6,644 7,222 7,673 8,333 8,874 9,148 8,936 6,802 25-29 years 6,006 6,470 7,065 7,471 8,112 8,528 8,772 8,837 30-34 years 5,138 5,890 6,352 6,910 7,286 7,703 8,022 8,680 35-39 years 3,888 5,065 5,803 6,242 6,763 7,011 7,208 7,940 40-44 years 2,463 3,826 4,994 5,719 6,147 6,472 6,685 7,127 45-49 years 2,017 2,409 3,753 4,935 5,648 5,894 6,054 6,589 50-54 years 1,968 1,959 2,346 3,700 4,855 5,306 5,521 5,926 55-59 years 2,046 1,891 1,885 2,237 3,542 4,278 4,677 5,330 60-64 years 1,669 1,934 1,790 1,734 2,068 2,795 3,352 4,444 65-69 years 1,412 1,522 1,771 1,610 1,562 1,673 1,906 3,104 70-74 years 1,028 1,216 1,322 1,530 1,399 1,360 1,379 1,695 Total © Business Monitor International Page 77 Vietnam Information Technology Report Q1 2014 Vietnam's Population By Age Group, 1990-2020 ('000) - Continued 1990 1995 2000 2005 2010 2013e 2015f 2020f 75-79 years 752 819 984 1,080 1,263 1,219 1,167 1,160 80-84 years 430 536 597 732 815 919 964 900 85-89 years 224 261 336 385 483 517 546 654 90-94 years 71 108 132 177 210 245 268 306 95-99 years 16 25 41 53 74 83 89 115 100+ years 12 17 21 24 30 e/f = BMI estimate/forecast. Source: World Bank, UN, BMI Table: Vietnam's Population By Age Group, 1990-2020 (% of total) 1990 1995 2000 2005 2010 2013e 2015f 2020f 0-4 years 13.52 12.26 8.81 8.12 8.12 7.80 7.51 6.77 5-9 years 12.49 12.12 11.44 8.27 7.63 7.69 7.69 7.18 10-14 years 11.40 11.23 11.33 10.73 7.75 7.22 7.24 7.36 15-19 years 10.68 10.25 10.50 10.65 10.12 8.38 7.35 6.93 20-24 years 9.64 9.50 9.49 9.81 9.97 9.98 9.57 7.01 25-29 years 8.72 8.51 8.73 8.79 9.11 9.30 9.39 9.11 30-34 years 7.46 7.75 7.85 8.13 8.18 8.40 8.59 8.94 35-39 years 5.64 6.66 7.17 7.35 7.60 7.65 7.72 8.18 40-44 years 3.57 5.03 6.17 6.73 6.90 7.06 7.16 7.34 45-49 years 2.93 3.17 4.64 5.81 6.34 6.43 6.48 6.79 50-54 years 2.86 2.58 2.90 4.36 5.45 5.79 5.91 6.11 55-59 years 2.97 2.49 2.33 2.63 3.98 4.67 5.01 5.49 60-64 years 2.42 2.54 2.21 2.04 2.32 3.05 3.59 4.58 65-69 years 2.05 2.00 2.19 1.89 1.75 1.83 2.04 3.20 70-74 years 1.49 1.60 1.63 1.80 1.57 1.48 1.48 1.75 75-79 years 1.09 1.08 1.22 1.27 1.42 1.33 1.25 1.19 80-84 years 0.62 0.70 0.74 0.86 0.91 1.00 1.03 0.93 85-89 years 0.32 0.34 0.42 0.45 0.54 0.56 0.58 0.67 90-94 years 0.10 0.14 0.16 0.21 0.24 0.27 0.29 0.32 95-99 years 0.02 0.03 0.05 0.06 0.08 0.09 0.10 0.12 © Business Monitor International Page 78 Vietnam Information Technology Report Q1 2014 Vietnam's Population By Age Group, 1990-2020 (% of total) - Continued 100+ years 1990 1995 2000 2005 2010 2013e 2015f 2020f 0.00 0.00 0.01 0.01 0.02 0.02 0.03 0.03 e/f = BMI estimate/forecast. Source: World Bank, UN, BMI Table: Vietnam's Key Population Ratios, 1990-2020 Dependent ratio, % of total working age Dependent population, total, '000 1990 1995 2000 2005 2010 2013e 75.8 71.0 61.3 50.8 42.9 41.4 2015f 2020f 41.3 41.9 29,712 31,567 30,734 28,617 26,741 26,860 27,293 28,655 Active population, % of total 56.9 Active population, total, '000 58.5 62.0 66.3 70.0 70.7 70.8 70.5 39,198 44,453 50,154 56,331 62,306 64,820 66,094 68,402 Youth population, % of total working age 65.8 Youth population, total, '000 60.9 50.9 40.9 33.6 32.1 31.7 30.2 25,778 27,076 25,544 23,038 20,918 20,822 20,950 20,690 Pensionable population, % of total working age Pensionable population, total, '000 10.0 10.1 10.3 9.9 9.3 9.3 9.6 11.6 3,934 4,491 5,190 5,579 5,823 6,037 6,343 7,965 e/f = BMI estimate/forecast. Source: World Bank, UN, BMI Table: Vietnam's Rural And Urban Population, 1990-2020 1990 1995 2000 2005 2010 2013e 2015f 2020f Urban population, % of total 20.3 22.2 24.4 27.3 30.4 32.3 33.6 36.9 Rural population, % of total 79.7 77.8 75.6 72.7 69.6 67.7 66.4 63.1 Urban population, total, '000 13,958 16,867 19,716 23,175 27,064 29,632 31,384 35,771 Rural population, total, '000 54,952 59,153 61,172 61,773 61,983 62,048 62,003 61,286 e/f = BMI estimate/forecast. Source: World Bank, UN, BMI © Business Monitor International Page 79 Vietnam Information Technology Report Q1 2014 Methodology Industry Forecast Methodology BMI's industry forecasts are generated using the best-practice techniques of time-series modelling and causal/econometric modelling. The precise form of 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. Common to our analysis of every industry, 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. BMI mainly uses OLS estimators and in order to avoid relying on subjective views and encourage the use of objective views, BMI uses a 'general-to-specific' method. BMI mainly uses a linear model, but simple nonlinear models, such as the log-linear model, are used when necessary. During periods of 'industry shock', for example poor weather conditions impeding agricultural output, dummy variables are used to determine the level of impact. Effective forecasting depends on appropriately selected regression models. BMI selects the best model according to various different criteria and tests, including but not exclusive to: ■ R2 tests explanatory power; adjusted R2 takes degree of freedom into account ■ Testing the directional movement and magnitude of coefficients ■ Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value) ■ All results are assessed to alleviate issues related to auto-correlation and multi-collinearity © Business Monitor International Page 80 Vietnam Information Technology Report Q1 2014 BMI uses the selected best model to perform forecasting. It must be remembered that human intervention plays a necessary and desirable role in all of BMI's industry forecasting. Experience, expertise and knowledge of industry data and trends ensure that analysts spot structural breaks, anomalous data, turning points and seasonal features where a purely mechanical forecasting process would not. Sector-Specific Methodology A number of criteria 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 methodology. In addition, forecasts are 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. 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 © Business Monitor International Page 81 Vietnam Information Technology Report Q1 2014 Union (ITU), officially released company results and figures, and international and national industry news agencies. Risk/Reward Rating Methodology BMI's Risk/Reward Ratings (RRR) provide a comparative regional ranking system evaluating the ease of doing business and the industry-specific opportunities and limitations for potential investors in a given market. The RRR system divides into two distinct areas: Rewards: Evaluation of sector's size and growth potential in each state, and also broader industry/state characteristics that may inhibit its development. This is further broken down into two sub categories: ■ Industry Rewards (this is an industry specific category taking into account current industry size and growth forecasts, the openness of market to new entrants and foreign investors, to provide an overall score for potential returns for investors) • Country Rewards (this is a country specific category, and the score factors in favourable political and economic conditions for the industry) Risks: 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. This is further broken down into two sub categories: ■ Industry Risks (this is an industry specific category whose score covers potential operational risks to investors, regulatory issues inhibiting the industry, and the relative maturity of a market) • Country Risks (this is a country specific category in which political and economic instability, unfavourable legislation and a poor overall business environment are evaluated to provide an overall score). We take a weighted average, combining industry and country risks, or industry and country rewards. These two results in turn provide an overall Risk/Reward Rating, which is used to create our regional ranking system for the risks and rewards of involvement in a specific industry in a particular country. For each category and sub-category, each state is scored out of 100 (100 being the best), with the overall Risk/Reward Rating a weighted average of the total score. Importantly, as most of the countries and territories evaluated are considered by BMI to be 'emerging markets', our rating is revised on a quarterly basis. This ensures that the rating draws on the latest information and data across our broad range of sources, and the expertise of our analysts. © Business Monitor International Page 82 Vietnam Information Technology Report Q1 2014 BMI's approach in assessing the risk/reward balance for infrastructure industry investors globally is fourfold: ■ First, we identify factors (in terms of current industry/country trends and forecast industry/country growth) that represent opportunities to would-be investors. ■ Second, we identify country and industry-specific traits that pose or could pose operational risks to would-be investors. ■ Third, we attempt, where possible, to identify objective indicators that may serve as proxies for issues/ trends to avoid subjectivity. ■ Finally, we use BMI's proprietary Country Risk Ratings (CRR) in a nuanced manner to ensure that only the aspects most relevant to the infrastructure industry are incorporated. Overall, the system offers an industry-leading, comparative insight into the opportunities/risks for companies across the globe. Sector-Specific Methodology In constructing these ratings, the following indicators have been used. Almost all indicators are objectively based. Table: It Risk Reward Rating Indicators Indicator Rationale Rewards Industry IT market value, US$bn Denotes breadth of IT market. Large markets score higher than smaller ones. Sector value growth, % year-on-year (y-o-y) Denotes sector dynamism. Scores based on annual average growth over five-year forecast period. Government initiatives and Denotes spending boost provided by public sector, which can be a crucial determinant of spending 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 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 rewards is also affected by the coverage of the power transmission network across the state. Risks Industry 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. © Business Monitor International Page 83 Vietnam Information Technology Report Q1 2014 It Risk Reward Rating Indicators - Continued Indicator Rationale Country 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. 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. The following weighting has been adopted: Table: Weighting Of Components Component Rewards Weighting (%) 70 of which - Industry 65 - Country 35 Risks to 30 of which - Industry 40 - Country 60 Source: BMI © Business Monitor International Page 84 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...]... Page 13 Vietnam Information Technology Report Q1 2014 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 2012 ■ The economic boom has lifted many Vietnamese out of poverty, with the official poverty rate in the country falling from 58% in 1993 to 20.7% in 2012 Weaknesses ■ Vietnam. .. lingering threat A failure by the authorities to boost skills levels could leave Vietnam a second-rate economy for an indefinite period © Business Monitor International Page 15 Vietnam Information Technology Report Q1 2014 Industry Forecast Table: Vietnam IT Industry - Historical Data And Forecasts (VNDbn) 2010 2011 2012 2013f 2014f 2015f 2016f 2017f IT Market Value 36,898 45,404 52,773 62,082 70,836 80,399... Domestic Demand Vietnam - Unrequited Transfers, US$mn Source: BMI, Asian Development Bank © Business Monitor International Page 23 Vietnam Information Technology Report Q1 2014 Remittances: According to estimates published by the World Bank, the Vietnamese economy is on track to record a bumper year for remittance inflows The country is expected to receive US$10.6bn in remittances from Vietnamese citizens... This development bodes well for the IT sector, which should see sustained demand for corporate and consumer IT solutions throughout 2014 © Business Monitor International Page 29 Vietnam Information Technology Report Q1 2014 Table: Asia Pacific IT Risk/Reward Ratings - Q1 2014 Risks Rewards Country Industry rewards Country rewards Industry risks Country risks IT rating Rank Previous rank South Korea 70.0... 32.1mn internet subscribers in Vietnam at the end of 2013, a penetration rate of 35.4% We expect this number to increase to 34.7mn by end-2017, a 36.9% penetration rate © Business Monitor International Page 21 Vietnam Information Technology Report Q1 2014 Although the internet user penetration rate is expected to be approaching saturation in major cities and towns, rural Vietnam remains comparatively... 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 2.0% between 2013 to 2017 to bring the total number of fixed broadband subscribers in Vietnam to 5.8mn by 2017 © Business Monitor International Page 22 Vietnam Information Technology Report Q1 2014. .. headwinds presenting a risk, Vietnam' s software development and outsourcing services firms are positioned to benefit from large foreign enterprises seeking lower cost locations over the medium term © Business Monitor International Page 16 Vietnam Information Technology Report Q1 2014 2013 Outlook Despite a small downward revision by BMI to its macroeconomic outlook for Vietnam in 2013 Industry Trends... the Vietnam Automobile Manufacturers Association (VAMA), September vehicle sales of its members surged by 20.6% year-on-year (y-o-y), exceeding our already bullish forecast of 12.5% for the year (see 'Bullish On CV Sales In The Medium To Long Term', October 14 2013) © Business Monitor International Page 24 Vietnam Information Technology Report Q1 2014 Developers Eyeing Property Market Rebound Vietnam. .. for Network Security Technology The government is also updating the Law on Information Security, which closed for public comment in July 2013, as it looks to improve the cyber security environment including combating attacks originating in Vietnam © Business Monitor International Page 18 Vietnam Information Technology Report Q1 2014 Improvements to supporting infrastructure are also driving IT market... anticipated returns Source: BMI © Business Monitor International Page 30 Vietnam Information Technology Report Q1 2014 Market Overview Hardware The hardware market in Vietnam remained buoyant as demand strengthened in the retail sector in mid-2013, supplementing strong demand from the enterprise and public sectors BMI forecasts Vietnam' s computer hardware market value will increase by 16% in local currency . Q1 2014 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. leave Vietnam a second-rate economy for an indefinite period. Vietnam Information Technology Report Q1 2014 © Business Monitor International Page 15 Industry Forecast Table: Vietnam IT Industry -. wide-scale environmental damage. Vietnam Information Technology Report Q1 2014 © Business Monitor International Page 13 Economic SWOT Analysis Strengths ■ Vietnam has been one of the fastest-growing