Q1 2015 www.businessmonitor.com VIETNAM INFORMATION TECHNOLOGY REPORT INCLUDES 5-YEAR FORECASTS TO 2018 ISSN 2044-9631 Published by:Business Monitor International Vietnam Information Technology Report Q1 2015 INCLUDES 5-YEAR FORECASTS TO 2018 Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Copy deadline: December 2014 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 © 2015 Business Monitor International All rights reserved. All information contained in this publication is copyrighted in the name of Business Monitor International, and as such no part of this publication may be reproduced, repackaged, redistributed, resold in whole or in any part, or used in any form or by any means graphic, electronic or mechanical, including photocopying, recording, taping, or by information storage or retrieval, or by any other means, without the express written consent of the publisher. DISCLAIMER All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor International accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication. 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 2015 CONTENTS BMI Industry View . SWOT IT SWOT Wireline . 11 Political . 13 Economic . 14 Industry Forecast 16 Table: IT Industry - Historical Data & Forecasts (Vietnam 2011-2018) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Macroeconomic Forecasts . 23 Expecting Sustained Growth Momentum In 2015 . 23 Table: Economic Activity (Vietnam 2009-2018) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Industry Risk Reward Ratings 28 Asia Pacific Risk/Reward Index 28 Table: Asia Pacific IT Risk/Reward Index - Q1 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Market Overview . 32 Hardware . 32 Software . 39 Services 47 Industry Trends And Developments 54 Regulatory Development 60 Table: Government Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Regulatory News 63 Competitive Landscape 66 International Companies . 66 Table: Samsung Electronics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Table: Intel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Table: LG Electronics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Table: Global CyberSoft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Local Companies . 70 Table: Sara Vietnam . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Company Profile 71 FPT Software 71 Table: FPT Group Financials By Segment (VNDbn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Regional Overview 77 © Business Monitor International Page Vietnam Information Technology Report Q1 2015 Demographic Forecast . 81 Table: Population Headline Indicators (Vietnam 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 Table: Key Population Ratios (Vietnam 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 Table: Urban/Rural Population & Life Expectancy (Vietnam 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 Table: Population By Age Group (Vietnam 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 Table: Population By Age Group % (Vietnam 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Methodology 86 Industry Forecast Methodology 86 Sources 87 Risk/Reward Index Methodology . 88 Table: It Risk/Reward Index Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 Table: Weighting Of Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 © Business Monitor International Page Vietnam Information Technology Report Q1 2015 BMI Industry View BMI View: We maintain a positive outlook for the Vietnamese IT market in the latest update, but we highlight increased downside risk from a tightening of domestic credit conditions into 2015 as a result of a build up of bad debt. Credit markets could cause short-term disruption but our forecast for robust mediumterm growth in Vietnamese IT spending remains in place, with a forecast for a compound annual growth rate (CAGR) of 12.6% between 2014 and 2018. We expect growth will be driven by rising incomes, enterprise modernisation and the policy environment put in place by the government. We also highlight larger opportunities in the retail market where penetration of devices and services remains below the level in neighbouring markets, which vendors will be able to tap as incomes rise. Meanwhile, Vietnam's development as an outsourcing destination is a significant medium-term factor, 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: VND38.9trn in 2014 and VND43.0trn in 2015, rising to VND58.3trn in 2018, CAGR of +11.3% in local currency terms. Rising incomes and declining device prices, along with PC subsidy schemes, will support demand growth across all three main device categories over the medium term. ■ Software Sales: VND10.1trn in 2014 and VND11.7trn in 2015, rising to VND17.9trn in 2018, CAGR of +16.1% in local currency terms. There are considerable opportunities in business software and security solutions for vendors willing to accept narrow margins in a price-sensitive market. ■ IT Services Sales: VND14.2trn in 2014 and VND16.4trn in 2015, rising to VND25.1trn in 2018, CAGR of +15.1% in local currency terms. Domestic demand for services remains weak, but we expect adoption to increase markedly as awareness levels increase, particularly with regard cloud computing and outsourcing services. Key Trends & Developments BMI has repeatedly highlighted the drag on IT market development from Vietnam's exposure to cyber security risks, including cyber crime and state-backed attacks. We therefore welcomed the September 2014 opening of the Department of Network Security in Hanoi, with the remit of securing Vietnam's internet traffic. The key focus is on comprehensively improving the standards of network security officials and officers. However the government has also bundled its own domestic security goals in with the remit for the new department. These elements have concerned political risk analysts, for instance the power to erase © Business Monitor International Page Vietnam Information Technology Report Q1 2015 violated content on web portals and social networks under orders from the government, as well the use of information filtering mechanisms. The department will also be able to identify Vietnamese users on social networks by linking the electronic databases to its own database of citizen identification cards. Social networks and web portals in Vietnam must store at least two years of their information activities and the same time span for the information of the users' accounts, log-ins, log-outs and IP addresses on social networks. We believe the bundling of functions could ultimately disrupt the agencies work on tackling cyber crime, with the danger that political objectives could take precedence. A more positive development related to the government came in July 2014 when the prime minister of Vietnam enabled state agencies to use outsourced IT providers for the first time. It will enable IT firms to provide software and technology systems as service packages, which BMI believes represents a significant new area of growth for vendors. There is considerable scope for growth in domestic outsourcing sales over the medium term from the public and private sectors; however, confidence remains a major impediment to adoption. Managers are unsure of the benefits of IT outsourcing, as well as having concerns about security and a loss of control over key processes. A report from Grant Thornton International stated that only 12% of enterprises in Vietnam are open to outsourcing. BMI expects outsourcing adoption to accelerate once awareness of the benefits is more widely spread, and vendors ease manager concerns. © Business Monitor International Page Vietnam Information Technology Report Q1 2015 SWOT IT SWOT SWOT Analysis Strengths ■ Supportive policy framework 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, Nokia, LG and Intel making large investments. Weaknesses ■ IT spend per capita is much lower than in neighbouring Thailand, reflecting a much lower GDP per capita. ■ Highly cost-sensitive market, with 75% of software provided by lower-cost local software vendors. ■ High level of software piracy, with a stall in the reduction 2011 to 2013. ■ Cyber security measures by the government have been pushed through with state security measures, with potential human rights implications. Opportunities ■ Decision in July 2014 to enable state agencies to use outsourced information technology providers for the first time opens a new growth channel for vendors. ■ Low PC penetration means there is scope for vendors to tap first-time buyer market as well as the upgrade/replacement market. Due to low penetration desktop and notebook sales continue to increase despite competition from tablets. ■ Low-cost tablets are proving popular with consumers, with significant medium-term sales growth potential as incomes continue to rise. © Business Monitor International Page Vietnam Information Technology Report Q1 2015 SWOT Analysis - Continued ■ Vietnam is 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. ■ National IT Plan will drive spending on IT utilisation in areas such as e-government, etaxation and education. ■ Small- and medium-sized enterprises have much potential to increase spending on basic solutions, including customer relationship management and security. ■ The government's drive to create an 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. ■ Cloud computing awareness has risen fast and adoption is expected to accelerate through 2014 and 2015. Threats ■ A domestic credit tightening in H214 could result in a growth slowdown, with negative implications for IT market growth. ■ 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. ■ Yen depreciation has hit the software outsourcing market by making exports less competitive and eroding Vietnam's cost advantages. © Business Monitor International Page 10 Vietnam Information Technology Report Q1 2015 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Company Details ■ ■ Revenue (H114): VND17.9bn EBITDA (2010): VND2.6bn EBITDA (2011): VND3.1bn EBITDA (2012): VND3.0bn EBITDA (2013): VND3.0bn Net Profit (2010): VND1.7bn Net Profit (2011): VND2.1bn Net Profit (2012): VND2.0bn Net Profit (2013): VND2.1bn Net Profit (H114): VND1.1bn 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 76 Vietnam Information Technology Report Q1 2015 Regional Overview BMI View: Asia Pacific has been the outperforming region in the global IT market over recent years, with IT market growth considerably faster than developed regions, as well as other emerging markets. BMI expects continued strong growth over the medium term as favourable economic trends and policy initiatives drive market expansion. However, we also point to potential spill over to the IT market from regional and global data security trends that could yet stymie growth. Outperformance Set To Continue Asia Pacific has become a major global engine of IT market expansion in the past decade, as is the case for the wider global economy. BMI data show that the region registered the fastest IT market value growth of any region in 2011-2014, and our outlook going into 2015 is for it again to be the fastest growing region in each year except 2018, when we expect it to be narrowly outperformed by Latin America. The booming Asia Pacific IT market is driven by a range of factors including the clustering of hardware production in the region, the contribution of China as the outperforming global economy of the past decade and rapid economic development across the region. Governments in the region have in general shown a high capacity to deploy IT market-promoting policies aimed at increasing domestic demand and expanding the base of local enterprises and expertise. BMI believes the economic environment will remain supportive of IT market expansion in most markets in the region, but there is significant downside risk to this outlook in the event of a hard landing in China. This is not however our core scenario, but would have such far reaching regional impact that it must be considered as part of the medium-term outlook. © Business Monitor International Page 77 Vietnam Information Technology Report Q1 2015 Regional IT Market Growth 2011-2018 (USD, % change y-o-y) e/f = estimate/forecast. Source: BMI However, in our core scenario of strong economic growth, the increasing maturity of regional IT markets is of greater significance. Emerging Asia Pacific markets have undergone a period of rapid catch-up growth, with IT adoption spurred by declining device and solution prices at a global level, after vendors gain scale through demand from early adopters in the US, Western Europe and other developed states. For more advanced, but still emerging, regional markets such as China and Malaysia, BMI believes growth will slow as a result of diminished opportunities for relatively cheap and easy adoptions of IT products and solutions in the public and private sectors. Growth rates will begin to resemble the slower, though still robust, rates seen in regional leaders such as South Korea, Singapore, Australia and Hong Kong. China is demonstrating strong credentials for transition from emerging market catch-up growth to technological leadership. It is home to world leading firms in the PC (Lenovo), server (Lenovo, Inspur, Huawei), and network equipment (Huawei) industries. However it is expected to face challenges in the development of a vibrant software and IT services ecosystem owing to the trust issues from end-users with respect to the relationship between vendors and the Chinese state. © Business Monitor International Page 78 Vietnam Information Technology Report Q1 2015 Late developing markets in the region are in a strong position for rapid IT market development. Not only is strong economic growth deepening markets for retail hardware as incomes rise, but there is potential for countries such as Vietnam, the Philippines and Indonesia to benefit from a restructuring of regional supply chain networks as upward pressure on labour costs continues in China. There have been several major regional investments in 2014, primarily in the handset production industry, but we see similar medium-term potential for a diversification of computer hardware manufacture and assembly. AEC: Adding To The Positive Outlook With a few notable exceptions, namely India and Sri Lanka, most of Asia Pacific's fast-growth emerging markets are in South East Asia, and we consider the push for the creation of the ASEAN Economic Community (AEC) as a welcome boost to market development. Although the deadline of December 31 2015 for the official creation of the AEC is unlikely to be met, there has been strong progress towards achieving this goal in a variety of sectors. In the ICT space we have seen tariffs on hardware and software products reduced to 0% across virtually all ASEAN countries. ASEAN is also working towards the elimination of non-tariff barriers by 2015. The elimination of tariffs and free flow of products and investment makes South East Asia, with a market of 600mn people, more attractive for vendors. As noted already, the region has attracted significant investment for relocation of production from global giants, including Foxconn Technology Group, Samsung Electronics, Intel, Nokia and LG. Another important trend arising from increased IT market integration in South East Asia has been the rapid expansion of e-commerce vendors across the region. BMI expects it will become a battleground for global e-commerce brands. Chinese e-commerce superpower Alibaba, Japanese retailer Rakuten as well as Lazada, the South East Asian e-commerce unit of Rocket Internet, are among those already staking a claim in a region where internet penetration is rising rapidly. © Business Monitor International Page 79 Vietnam Information Technology Report Q1 2015 Top Four Regional Markets For Internet Growth Internet User Net Additions, 2013-2018 ('000) Source: BMI E-commerce firms will face different challenges in ASEAN countries than in their domestic markets, with logistics and supply chain problems, such as unreliable postal services. Furthermore, payments are largely made in cash upon delivery, rather than the credit/debit cards common in the US and Japan. The region still has a long way to go in terms of development but e-commerce will not be put off by these risks: the opportunities are far too enticing. © Business Monitor International Page 80 Vietnam Information Technology Report Q1 2015 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 essential to understanding issues ranging from future population trends to productivity growth and government spending requirements. The accompanying charts detail the population pyramid for 2015, the change in the structure of the population between 2015 and 2050 and the total population between 1990 and 2050. The tables show indicators from all of these charts, in addition to key metrics such as population ratios, the urban/rural split and life expectancy. Population (1990-2050) 150 100 50 2050f 2045f 2040f 2035f 2030f 2025f 2020f 2015f 2010 2005 2000 1990 Vietnam - Population, mn f = BMI forecast. Source: World Bank, UN, BMI © Business Monitor International Page 81 Vietnam Information Technology Report Q1 2015 Vietnam Population Pyramid 2015 (LHS) & 2015 Versus 2050 (RHS) Source: World Bank, UN, BMI Table: Population Headline Indicators (Vietnam 1990-2025) 1990 2000 2005 2010 2015f 2020f 2025f 68,909 80,887 84,947 89,047 93,386 97,057 99,811 na 1.1 0.9 1.0 0.9 0.7 0.5 Population, total, male, '000 33,892 39,827 41,830 43,970 46,158 47,980 49,302 Population, total, female, '000 35,017 41,060 43,117 45,077 47,228 49,076 50,508 Population ratio, male/female 0.97 0.97 0.97 0.98 0.98 0.98 0.98 Population, total, '000 Population, % y-o-y na = not available; f = BMI forecast. Source: World Bank, UN, BMI Table: Key Population Ratios (Vietnam 1990-2025) Active population, total, '000 Active population, % of total population Dependent population, total, '000 Dependent ratio, % of total working age © Business Monitor International 1990 2000 2005 2010 2015f 2020f 2025f 39,197 50,153 56,330 62,305 66,093 68,401 70,001 56.9 62.0 66.3 70.0 70.8 70.5 70.1 29,712 30,733 28,617 26,741 27,292 28,655 29,810 75.8 61.3 50.8 42.9 41.3 41.9 42.6 Page 82 Vietnam Information Technology Report Q1 2015 Key Population Ratios (Vietnam 1990-2025) - Continued Youth population, total, '000 1990 2000 2005 2010 2015f 2020f 2025f 25,778 25,543 23,038 20,918 20,950 20,690 19,395 65.8 50.9 40.9 33.6 31.7 30.2 27.7 3,934 5,190 5,578 5,823 6,342 7,964 10,414 10.0 10.3 9.9 9.3 9.6 11.6 14.9 Youth population, % of total working age Pensionable population, '000 Pensionable population, % of total working age f = BMI forecast. Source: World Bank, UN, BMI Table: Urban/Rural Population & Life Expectancy (Vietnam 1990-2025) 1990 Urban population, '000 2020f 2025f 13,957.7 19,715.6 23,174.6 27,064.2 31,383.5 35,771.3 40,027.3 Urban population, % of total Rural population, '000 2000 20.3 24.4 2005 27.3 2010 30.4 2015f 33.6 36.9 40.1 54,952.2 61,172.3 61,773.2 61,983.2 62,003.1 61,285.7 59,783.9 Rural population, % of total 79.7 75.6 72.7 69.6 66.4 63.1 59.9 Life expectancy at birth, male, years 66.1 69.0 69.9 70.7 71.7 72.7 73.7 Life expectancy at birth, female, years 75.1 78.5 79.6 80.2 80.7 81.2 81.7 Life expectancy at birth, average, years 70.6 73.8 74.8 75.5 76.2 77.0 77.8 f = BMI forecast. Source: World Bank, UN, BMI Table: Population By Age Group (Vietnam 1990-2025) 1990 2000 2005 2010 2015f 2020f 2025f Population, 0-4 yrs, total, '000 9,314 7,127 6,897 7,228 7,012 6,574 5,922 Population, 5-9 yrs, total, '000 8,606 9,253 7,023 6,790 7,180 6,968 6,535 Population, 10-14 yrs, total, '000 7,856 9,162 9,117 6,898 6,757 7,147 6,936 Population, 15-19 yrs, total, '000 7,359 8,492 9,050 9,011 6,865 6,725 7,116 Population, 20-24 yrs, total, '000 6,644 7,672 8,332 8,873 8,936 6,802 6,664 Population, 25-29 yrs, total, '000 6,005 7,065 7,470 8,111 8,772 8,837 6,717 Population, 30-34 yrs, total, '000 5,138 6,351 6,909 7,285 8,021 8,680 8,747 Population, 35-39 yrs, total, '000 3,888 5,803 6,241 6,763 7,207 7,939 8,596 Population, 40-44 yrs, total, '000 2,462 4,994 5,719 6,147 6,684 7,127 7,856 Population, 45-49 yrs, total, '000 2,016 3,753 4,935 5,647 6,054 6,588 7,031 © Business Monitor International Page 83 Vietnam Information Technology Report Q1 2015 Population By Age Group (Vietnam 1990-2025) - Continued 1990 2000 2005 2010 2015f 2020f 2025f Population, 50-54 yrs, total, '000 1,968 2,345 3,699 4,855 5,521 5,926 6,457 Population, 55-59 yrs, total, '000 2,045 1,885 2,237 3,541 4,677 5,330 5,733 Population, 60-64 yrs, total, '000 1,668 1,790 1,734 2,068 3,352 4,443 5,079 Population, 65-69 yrs, total, '000 1,411 1,770 1,609 1,562 1,906 3,104 4,134 Population, 70-74 yrs, total, '000 1,027 1,322 1,530 1,399 1,379 1,695 2,776 Population, 75-79 yrs, total, '000 752 984 1,080 1,263 1,166 1,159 1,437 Population, 80-84 yrs, total, '000 429 596 731 814 964 900 903 Population, 85-89 yrs, total, '000 223 336 385 482 545 653 617 Population, 90-94 yrs, total, '000 71 132 177 209 267 306 372 Population, 95-99 yrs, total, '000 15 40 52 74 89 115 133 Population, 100+ yrs, total, '000 11 16 23 30 38 f = BMI forecast. Source: World Bank, UN, BMI Table: Population By Age Group % (Vietnam 1990-2025) 1990 2000 2005 2010 2015f 2020f 2025f Population, 0-4 yrs, % total 13.52 8.81 8.12 8.12 7.51 6.77 5.93 Population, 5-9 yrs, % total 12.49 11.44 8.27 7.63 7.69 7.18 6.55 Population, 10-14 yrs, % total 11.40 11.33 10.73 7.75 7.24 7.36 6.95 Population, 15-19 yrs, % total 10.68 10.50 10.65 10.12 7.35 6.93 7.13 Population, 20-24 yrs, % total 9.64 9.49 9.81 9.97 9.57 7.01 6.68 Population, 25-29 yrs, % total 8.72 8.73 8.79 9.11 9.39 9.11 6.73 Population, 30-34 yrs, % total 7.46 7.85 8.13 8.18 8.59 8.94 8.76 Population, 35-39 yrs, % total 5.64 7.17 7.35 7.60 7.72 8.18 8.61 Population, 40-44 yrs, % total 3.57 6.17 6.73 6.90 7.16 7.34 7.87 Population, 45-49 yrs, % total 2.93 4.64 5.81 6.34 6.48 6.79 7.04 Population, 50-54 yrs, % total 2.86 2.90 4.36 5.45 5.91 6.11 6.47 Population, 55-59 yrs, % total 2.97 2.33 2.63 3.98 5.01 5.49 5.74 Population, 60-64 yrs, % total 2.42 2.21 2.04 2.32 3.59 4.58 5.09 Population, 65-69 yrs, % total 2.05 2.19 1.90 1.75 2.04 3.20 4.14 Population, 70-74 yrs, % total 1.49 1.63 1.80 1.57 1.48 1.75 2.78 Population, 75-79 yrs, % total 1.09 1.22 1.27 1.42 1.25 1.20 1.44 Population, 80-84 yrs, % total 0.62 0.74 0.86 0.92 1.03 0.93 0.91 © Business Monitor International Page 84 Vietnam Information Technology Report Q1 2015 Population By Age Group % (Vietnam 1990-2025) - Continued 1990 2000 2005 2010 2015f 2020f 2025f Population, 85-89 yrs, % total 0.32 0.42 0.45 0.54 0.58 0.67 0.62 Population, 90-94 yrs, % total 0.10 0.16 0.21 0.24 0.29 0.32 0.37 Population, 95-99 yrs, % total 0.02 0.05 0.06 0.08 0.10 0.12 0.13 Population, 100+ yrs, % total 0.00 0.01 0.01 0.02 0.03 0.03 0.04 f = BMI forecast. Source: World Bank, UN, BMI © Business Monitor International Page 85 Vietnam Information Technology Report Q1 2015 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. They allow us to forecast a variable using more than its 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. We mainly use 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 86 Vietnam Information Technology Report Q1 2015 BMI uses the selected best model to perform forecasting. 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 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, our 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 our 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 87 Vietnam Information Technology Report Q1 2015 Union (ITU), officially released company results and figures, and international and national industry news agencies. Risk/Reward Index Methodology BMI's Risk/Reward Index (RRI) 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 RRI 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 (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 (a country-specific category, factoring 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 broken down into two sub categories: ■ Industry Risks (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 (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 Score, 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 Score a weighted average of the total score. As most of the countries and territories evaluated are considered by BMI to be 'emerging markets', our score is revised on a quarterly basis. This ensures the score draws on the latest information and data across our broad range of sources, and the expertise of our analysts. © Business Monitor International Page 88 Vietnam Information Technology Report Q1 2015 Sector-Specific Methodology In constructing these indices, the following indicators have been used. Almost all indicators are objectively based. Table: It Risk/Reward Index Indicators 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 spending Denotes spending boost provided by public sector, which can be a crucial 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 Urban-rural split Urbanisation is used as a proxy for development. Mainly rural states score lower. GDP per capita, USD 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. Country Short-term external risk Score from BMI's Country Risk Index (CRI). It evaluates the vulnerability to external shock, which is the principal cause of economic crises. Such a crisis would cut investment. Short-term financial risk Score from CRI, 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 Score from CRI to denote ease of trading with the state. Legal framework Score from CRI denotes the strength of legal institutions in each state - security of investment can be a key risk in some emerging markets. Bureaucracy Score from CRI denotes ease of conducting business in the state. Corruption Score from CRI denotes the risk of additional illegal costs/possibility of opacity in tendering/ business operations affecting companies' ability to compete. Source: BMI © Business Monitor International Page 89 Vietnam Information Technology Report Q1 2015 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 90 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...]... which received 17.3% of total Vietnamese outbound shipments in 2013, a recovering US economy will lend strength to Vietnam' s exports © Business Monitor International Page 25 Vietnam Information Technology Report Q1 2015 Robust Export Performance Vietnam - Exports, % chg y-o-y (3mma) Source: BMI, GSO Risk To Outlook The largest risk to our constructive outlook for the Vietnamese economy comes from the... forecast Indeed, China contributed a significant 21.3% of foreign investment to Vietnam in 2013, while accounting for 11.6% of Vietnamese exports © Business Monitor International Page 26 Vietnam Information Technology Report Q1 2015 Table: Economic Activity (Vietnam 2009-2018) 2009 Nominal GDP, USDbn 2011 2012 2013e 2014f 2015f 2016f 2017f 2018f 101.6 112.9 134.6 155.5 Real GDP growth, % y-o-y GDP per... services from VND16.4trn to VND25.1trn over the forecast period © Business Monitor International Page 22 Vietnam Information Technology Report Q1 2015 Macroeconomic Forecasts Expecting Sustained Growth Momentum In 2015 BMI View: We expect solid growth momentum in the Vietnamese economy to be carried over to 2015, on the back of continued foreign direct investment (FDI) inflows, strong performance in the manufacturing... International Page 13 Vietnam Information Technology Report Q1 2015 Economic SWOT Analysis Strengths ■ Vietnam has been one of the fastest-growing economies in Asia in recent years, with GDP growth averaging 6.6% annually between 2000 and 2013 ■ The economic boom has lifted many Vietnamese out of poverty, with the official poverty rate in the country falling from 58% in 1993 to 17.2% in 2012 ■ Vietnam has been... Vietnam Information Technology Report Q1 2015 growth rate (CAGR) of 12.6% forecast for 2014-2018 and the market expected to reach a value of VND101.3trn in 2018 2015 Outlook Although BMI highlights the downside from tightening credit conditions in Vietnam in H214, with government attempts to resolve the bad debts held by local banks so far not proving effective, and the issue could drag over into 2015. .. out 1,012 projects with a total spend of VND665bn © Business Monitor International Page 21 Vietnam Information Technology Report Q1 2015 Vietnam GVA By Vertical (%) 2014f f = BMI forecast Source: BMI, National statistics, World Bank, UN Summary Overall, the hardware market is anticipated to grow from VND43.0trn in 2015 to VND58.3trn in 2018, with computer sales rising from VND34.6trn to VND46.9trn over... slower pace as the government remains cautious about ceding ownership to foreign investors © Business Monitor International Page 15 Vietnam Information Technology Report Q1 2015 Industry Forecast Table: IT Industry - Historical Data & Forecasts (Vietnam 2011-2018) 2012 2013 2014f 2015f 2016f 2017f 2018f IT market value, VNDmn 47,495,836.8 55,874,102.4 63,193,609.8 71,092,811.1 80,242,455.8 90,304,859.8 101,331,083.2... stronger expansion to 6.4% in 2015 Efforts by the government to tackle structural issues in the banking sector, strong foreign direct investment (FDI) inflows to the country, and a continued expansion in the manufacturing and export sectors should sustain solid growth momentum going into 2015 © Business Monitor International Page 24 Vietnam Information Technology Report Q1 2015 Taking Positive Steps To... computing market In June 2014 VMWare reported the results of its cloud adoption survey in Vietnam It found that 80% of polled businesses considered cloud computing the number one priority for IT applications; while 67% were confident cloud computing would have a major effect on business © Business Monitor International Page 18 Vietnam Information Technology Report Q1 2015 activities VMWare estimates that... stated its intention to develop smart agriculture products BMI expects the © Business Monitor International Page 20 Vietnam Information Technology Report Q1 2015 agriculture vertical in Vietnam has medium-term growth potential as vendors innovate real-time updates for producers Large Vietnamese companies are the most likely to buy packaged software from multinationals, which have only around 25% of . Q1 2015 www.businessmonitor.com VIETNAM INFORMATION TECHNOLOGY REPORT INCLUDES 5-YEAR FORECASTS TO 2018 ISSN 204 4-9 631 Published by:Business Monitor International Vietnam Information Technology Report. wide-scale environmental damage. Vietnam Information Technology Report Q1 2015 © Business Monitor International Page 13 Economic SWOT Analysis Strengths ■ Vietnam has been one of the fastest-growing. investors. Vietnam Information Technology Report Q1 2015 © Business Monitor International Page 15 Industry Forecast Table: IT Industry - Historical Data & Forecasts (Vietnam 201 1-2 018) 2012