Q2 2012 www.businessmonitor.com VIetNaM information technology Report INCLUDES BMI'S FORECASTS ISSN 2044-9631 Published by Business Monitor International Ltd. VIETNAM INFORMATION TECHNOLOGY REPORT Q2 2012 INCLUDES 5-YEAR FORECASTS TO 2016 Part of BMI's Industry Report & Forecasts Series Published by: Business Monitor International Copy deadline: April 2012 Business Monitor International 85 Queen Victoria Street London EC4V 4AB UK Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: subs@businessmonitor.com Web: http://www.businessmonitor.com © 2012 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 Q2 2012 © Business Monitor International Ltd Page Vietnam Information Technology Report Q2 2012 CONTENTS Executive Summary . SWOT Analysis . Vietnam IT SWOT . Vietnam Telecoms SWOT . Vietnam Political SWOT Vietnam Economic SWOT 10 Vietnam Business Environment SWOT . 11 Risk/Reward Ratings 12 Table: Asia IT Risk/Reward Ratings Q212 17 Asia IT Markets Overview 18 IT Penetration 18 IT Growth And Drivers 20 Sectors And Verticals . 21 Vietnam IT Markets Overview . 25 Government Authority 25 Hardware . 26 Software . 28 Services 32 Industry Developments 33 Industry Forecast . 37 Table: Vietnam IT Sector – Historical Data & Forecasts, 2009-2016 . 40 Industry Forecast Internet . 41 Table: Telecoms Sector – Internet – Historical Data And Forecasts, 2009-2016 41 Macroeconomic Forecast 43 Table: Vietnam – Economic Activity 45 Competitive Landscape . 46 Hardware . 46 Software . 47 IT Services . 51 Company Profiles . 55 FPT Software . 55 Country Snapshot: Vietnam Demographic Data . 56 Section 1: Population . 56 Table: Demographic Indicators, 2005-2030 56 Table: Rural/Urban Breakdown, 2005-2030 . 57 Section 2: Education And Healthcare 57 Table: Education, 2002-2005 57 Table: Vital Statistics, 2005-2030 57 Section 3: Labour Market And Spending Power 58 © Business Monitor International Ltd Page Vietnam Information Technology Report Q2 2012 Table: Employment Indicators, 1999-2004 58 Table: Consumer Expenditure, 2000-2012 (US$) 58 BMI Methodology . 59 How We Generate Our Industry Forecasts 59 Transport Industry . 59 Sources . 60 © Business Monitor International Ltd Page Vietnam Information Technology Report Q2 2012 Executive Summary BMI View: Vietnamese IT spending is expected to reach US$2.5bn in 2012, up 14%, with BMI upwardly revising its forecast after the PC market reported double-digit growth in H111. Factors such as rising PC penetration, economic growth, a range of government ICT initiatives and a drive to develop Vietnam's domestic IT industry will help to sustain continued expansion going forward. Vietnam's improving ICT infrastructure will also drive the development of the nation's IT market in a country with below 20% PC penetration. Headline Expenditure Projections Computer hardware sales: US$1.6bn in 2011 to US$1.8bn in 2012, +12% in US dollar terms. Forecast in US dollar terms upwardly revised due to stronger than expected retail sales growth in 2011. Software sales: US$187mn in 2011 to US$220mn in 2012, +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$396mn in 2011 to US$369mn in 2012, +19% in US dollar terms. Forecast in US dollar terms upwardly revised due to analyst modification with growing demand for digital infrastructure projects in segments such as banking, telecoms, energy and government. Risk/Reward Ratings: Vietnam's score was 33.2 out of 100.0. Vietnam ranks 11th in our latest Asia RRR table, ahead of Sri Lanka. The country ranked ninth for its IT market score of 36. Key Trends & Developments The Vietnam IT market is expected to grow around 12% in 2012. Government and business IT spending remain subject to fiscal restraints and external economic headwinds, and the devaluation of the dong will also inhibit demand. However the Vietnamese economy is expected to remain generally strong and drive growth in IT investments. In 2011, a number of government ministries and organisations, including the Ministry of Education and Training, started to promote the roll-out 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 Ltd Page Vietnam Information Technology Report Q2 2012 An ambitious government IT plan for 2010-2020 should shape many segments of the Vietnamese IT market.The government's increasing focus on encouraging ICT development and foreign investment in the tech 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 Ltd Page Vietnam Information Technology Report Q2 2012 SWOT Analysis Vietnam IT SWOT Strengths Weaknesses 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. 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. 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. High level of software piracy at 85%, although it has fallen in the last few years. Opportunities Threats High PC market growth potential particular in rural areas due to overall low PC penetration rate of 15%. Vast and relatively under-penetrated rural market presents a significant growth opportunity as the government rolls out measures to boost rural connectivity and incomes. National IT Plan will drive spending on IT utilisation in areas like e-government, e-taxation and education. SMEs have much potential to increase spending on basic solutions, including customer relationship management and security. One Teacher-One Computer programme aims to deliver 1mn computers to schools by 2011. The banking and finance sector is a promising area for database software and one where foreign companies have done well. Banking and finance, oil and gas, aviation and telecoms are projected to be some of the biggest opportunities for multinational vendors. Tax agencies at all levels of administration are looking to increase the efficiency of tax collection. The government's drive to create a significant IT services industry over the next 15-20 years is expected to be a significant factor shaping the IT market. 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 Ltd Page Vietnam Information Technology Report Q2 2012 Vietnam Telecoms SWOT Strengths Weaknesses Fixed-line penetration levels and internet user rates are high in major urban centres such as Ho Chi Minh City, Hanoi, Danang and Haiphong. Competition exists in fixed-line and internet access markets; VNPT faces competition from several other state-owned companies and two privately-owned operators. High levels of literacy and other demographic factors bode well for strong and continued demand for wireline services over the next few years. Vietnam's fixed-line and internet access markets are both dominated by state-controlled operators, VNPT and Viettel. Although alternative broadband infrastructures are currently being explored, broadband growth continues to be dependent on DSL. Low fixed-line penetration rates in rural regions limit the scope for DSL broadband growth. Internet user growth is slowing, despite the limited access to internet infrastructure in much of rural Vietnam. Broadband tariffs remain high, creating a barrier for low-income subscribers to access. Opportunities The privatisation of VNPT could help to bring about increased investment revenues and the arrival of new skills. On a national level, broadband penetration rates remain low; this means that the sector has considerable growth potential. VNPT plans to invest US$1bn in 2009, in order to upgrade its broadband networks and expand its international internet bandwidth. Significant opportunities exist to develop alternative broadband technologies, including WiMAX and fibre. WiMAX services are currently being trialled with a view to licensing a number of WiMAX service providers in the near future; WiMAX internet services have the potential to raise the level of internet user penetration in rural parts of Vietnam. Draft Bill of Law on Telecommunication has been put forward for discussion at the National Assembly Steering Committee. If passed, the bill will allow private companies to build network infrastructure for the first time and will open up the telecoms market to foreign investors. Fixed-line sector may enter a period of decline, with potentially negative consequences for ADSL growth. As the market for mobile data services grows, this could have potentially negative consequences for the growth of fixed broadband services. Slower economic growth in 2009 and 2010 could undermine wireline investment and expansion plans. Threats © Business Monitor International Ltd Page Vietnam Information Technology Report Q2 2012 Vietnam Political SWOT Strengths Weaknesses Opportunities Threats The Communist Party of Vietnam remains committed to market-oriented reforms and we not expect major shifts in policy direction over the next five years. The oneparty system is generally conducive to short-term political stability. Relations with the US have witnessed a marked improvement, and Washington sees Hanoi as a potential geopolitical ally in South East Asia. Corruption among government officials poses a major threat to the legitimacy of the ruling Communist Party. There is increasing (albeit still limited) public dissatisfaction with the leadership's tight control over political dissent. The government recognises the threat corruption poses to its legitimacy, and has acted to clamp down on graft among party officials. Vietnam has allowed legislators to become more vocal in criticising government policies. This is opening up opportunities for more checks and balances within the one-party system. Macroeconomic instabilities in 2012 are likely to weigh on public acceptance of the one-party system, and street demonstrations to protest economic conditions could develop into a full-on challenge of undemocractic rule. Although strong domestic control will ensure little change to Vietnam's political scene in the next few years, over the longer term, the one-party-state will probably be unsustainable. Relations with China have deteriorated over recent years due to Beijing's more assertive stance over disputed islands in the South China Sea and domestic criticism of a large Chinese investment into a bauxite mining project in the central highlands, which could potentially cause wide-scale environmental damage. © Business Monitor International Ltd Page Vietnam Information Technology Report Q2 2012 Competitive Landscape Hardware Vendors report successes with netbook products in Vietnam Vietnamese company announces tablet launch Multinational brands dominate the Vietnamese PC market, with Dell, HP and Asus among the top-selling brands. Other multinational vendors including Toshiba and Lenovo have enjoyed strong recent growth in the booming market. Meanwhile, Korean consumer electronics giant Samsung hoped to leverage its distribution network and strong brand recognition into a 10% share of the Vietnamese notebook PC market. The Vietnamese PC market is also surprisingly competitive, with most of the major laptop vendor players having below a 10% local market share. According to figures from market research firm IDC, Dell was the laptop segment leader in Q311 with a 14% share, with Asus second at around 12%. HP, Acer and Lenovo all had market shares of around 10% or below. Asus had targeted third place in the overall PC market in 2011, and its good performance was in part due to efforts to strengthen its distribution channel. In April 2011, Asus launched a new partnership with local company FTP Distribution which has a nationwide network of 400 dealers. FTP, a member of FTP Trading Group, will distribute Asus products, with Asus planning to introduce the full range of its new products in Vietnam during Q211. FTP also distributes a portfolio of other leading PC brands including Dell, Lenovo and Acer. Asus, which first entered the Vietnam market only three years ago, is also focusing on service as a competitive differentiator. FTP will provide warranty services for Asus laptops at its four new service centres in Hanoi, HCMC, Danang and Can Tho. Meanwhile Asus planned to open between 13 and 15 service centres in Vietnam in 2011. As in many other markets, telecoms carriers have also emerged as a significant channel option for PC vendors. Dell has launched a partnership with military-run telecoms company Viettel, which will distribute Dell PCs. Viettel has a substantial presence in rural areas, which have big PC market growth potential, as PC penetration is currently low. Meanwhile, Dell has also partnered with local retail giant Teh Gioi Di Dong to sell both online and through the company's 40 retail outlets. © Business Monitor International Ltd Page 46 Vietnam Information Technology Report Q2 2012 HP's Vietnam market sales have been boosted by government and education sector projects, as well as by its strategy to target the consumer segment. HP was ranked by market research firm AC Nielsen as the leading laptop and PC market brand in Vietnam in 2010. HP is also the leader in the printer segment. Vendors continued to roll out new models during the economic slowdown, with the popularity of the small form factor netbooks a significant focus. In May 2009, Intel said Vietnam was the leading consumer of its net-top product in the Asia Pacific region, with demand up some 400% compared with the last quarter of 2008. Intel expected total Vietnamese net-top sales of 120,000 this year. 2011 saw a steep decline in the popularity of netbooks, with former segment leader Sony withdrawing its products from the local market. Sony's P-series models, considered pioneers in the market, as well as the high-end Vaio W product, have both been withdrawn. Sony, like rival vendors Acer, Asus and Lenovo is now focusing on tablets and ultrabooks. 2010-2011 saw the emergence of tablet PCs, spearheaded by Apple's iPad, which surveys indicate enjoys a high brand recognition in the Vietnamese market. Arouind 120,000 tablets were thought to have been sold in the Vietnam market last year. In 2010, several Vietnamese enterprises announced plans to tablet PCs, and the first such product, from Hanel, was launched in Vietnam in October 2010. However, local manufacturers have found it hard to compete with their multinational rivals, with their vendors, such as Samsung with its Galaxy Tab, following Apple in releasing tablet devices, The reduction of import tariffs from January 2009 encouraged multinational vendors to focus more imports of high-end devices. Sony announced that it was starting to sell its VAIO notebook in Vietnam, as it started to shift to importing for domestic sales. Sony already has 180 distributors nationwide. Meanwhile, working with its partner DigiWorld Corp, Dell launched a campaign to target the local consumer segment, which is fuelling much of current growth. Software Government partnering with vendors to explore cloud computing opportunities Microsoft signs extension of licensing agreement with government Vietnamese software producers have dominated the lower end of the domestic software market while making relatively little advances in higher-value market segments. Local products accounted for around 75% of market value in 2008 while foreign vendors have around 25% but foreign vendors share is thought to be increasing. 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 © Business Monitor International Ltd Page 47 Vietnam Information Technology Report Q2 2012 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 a popular dictionary software, has estimated annual losses to piracy of around VND58bn. The government 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 opensource 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 pre-economic 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 November 2011 Microsoft signed an extension of a deal with the Vietnam 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 more than 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. Meanwhile 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. Microsoft officially introduced its Windows operating system in Vietnam in early November, one month later than in many other markets. Microsoft will introduce a Vietnamese version of Windows Live and has © Business Monitor International Ltd Page 48 Vietnam Information Technology Report Q2 2012 announced a list of Vietnamese software programmes that are compatible with Windows including Vietnamese font programme Unikey and dictionaries from Lac Viet Company, as well as the popular BKIS anti-virus programme. Microsoft has a lot riding on the new operating release, given perceived problems with its previous operating system Windows Vista, and also because of the continuing global challenge from open source. 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. BMI projects that Windows will attract more support than Windows Vista, largely because Windows XP is now getting old. Many businesses that declined to upgrade from XP to Vista, due to reported problems with the latter, may now go straight to Windows 7. Microsoft will still offer reduced support for XP until 2015, but hardware manufacturers will start to wind down their support from about 2012. This will be a key factor that should drive business upgrades to Windows 7. Microsoft will also argue that Windows can help businesses to save costs, enabling IT departments to be run more efficiently. In particular, Windows is better-suited to virtualisation than either XP or Vista. Virtualisation look sets to become an important trend in IT spending in the next few years, as it allows businesses to simplify the management of desktop PCs by running desktop applications and storing user data within the data centre. Given the current economic climate however, IT directors will need to justify any upgrade in terms of cost savings. In September 2010, Intel announced a new drive to introduce its cloud computing to Vietnam over the next five years. 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 programmes like BKIS. German software giant 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. © Business Monitor International Ltd Page 49 Vietnam Information Technology Report Q2 2012 In April 2010, SAP announced that it had formed a strategic partnership with leading Vietnamese software venture CMC. The two partners will 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 e-business 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. Recently mid-sized bank Vietnam Asia Commercial (VietA) Bank, which is based out of 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 recently and has increased the number of its middleware representatives in the Asia Pacific region in an attempt to boost its share. In November 2009, Oracle Vietnam launched Oracle Middleware 11g and Oracle Database11g release in Vietnam. The new software is designed to lower IT costs, streamlining critical processes, secure corporate information and boost productivity. Other multinational vendors are also targeting promising enterprise sectors. In July 2011, Norwayheadquartered software company, Conexus, said it was looking 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 in 2010 Microsoft won 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 now starting to target Vietnamese SMEs. In 2009, Epicor Software Corporation, a leading provider of ERP solutions in Asia, 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. 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 2010, FPT and Microsoft reached an agreement on cooperation to research opportunities for cloud computing in Vietnam. The partners will also launch commercial pilots. Meanwhile IBM is promoting cloud computing as a cost- © Business Monitor International Ltd Page 50 Vietnam Information Technology Report Q2 2012 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. As a result of growing competition business software vendors have increasingly looked to expand through strategic acquisitions. This process also has also been driven by demand for more targeted applications, which has driven vendors to acquire expertise in particular industry verticals. In H109, SAP's biggest global rival Oracle purchased Sun Microsystems for US$7.4bn. Oracle's acquisition came after IBM dropped its own bid to buy one of the most famous names in IT. Although not Oracle's largest ever acquisition, it was certainly one of the most significant in strategic terms, as it was Oracle's first hardware acquisition. By adding hardware to the mix, the deal fits into Oracle's strategic plan to become a technology 'one stop shop' for its global customer base. However, Oracle can also get leverage from synchronicities with Sun software. Sun's Java platform, used to write platforms for websites and mobile phones, will be a major asset for Oracle. Sun's Solaris is major platform for Oracle's database software. The deal was just the latest in a string of recent acquisitions for Oracle that are estimated to have cost more than US$40bn. The acquisition will have an impact on the business software competitive landscape as rival vendors work out how they are affected. IBM, in particular, which many thought a natural fit for a Sun acquisition, will have to redefine its relationship with Oracle. European giant SAP, which still has the leading share of the global business software market, has insisted that its specialist software provider role still works and that clients not really want to buy all their IT from one provider. However, particularly following Oracle's acquisition of Sun, SAP may be forced to reconsider. 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 though buying a licence at a suitable price and with a suitable payment method in line with the enterprise's budget. IT Services MOC announced decree regulating IT Services market by end of 2010 © Business Monitor International Ltd Page 51 Vietnam Information Technology Report Q2 2012 IBM builds on new Innovation Centre with partnerships with local universities According to Vietnam's MIC, Vietnam has around 10,000 firms currently licensed to provide IT services. However, only a third are actually operating. The MIC is currently developing a draft decree to map out policies to help the IT industry grow in the future and this is due by the end of the year. 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. 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. This share is projected by the club to increase 10-fold within five years and the annual growth of IT and software outsourcing services offered by Vietnamese software companies has doubled every year according to the Japan IT Association. Indeed, many Vietnamese software companies earn 100% of their revenue from Japan. 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 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. 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. In January 2010, FPT revealed that it had launched 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 © Business Monitor International Ltd Page 52 Vietnam Information Technology Report Q2 2012 new company said that this was the first Japanese-founded call centre outsourcing company to be founded in Vietnam and it was due to start to provide call centre services for the Vietnam market from March 2010. Because of the potential of the Vietnamese market, many other foreign vendors have increased investment in the country. IBM has made a series of recent investments in Vietnam, many related to cloud computing. IBM has created a cloud computing lab facility, and has enjoyed successes in this field in China, including a contract to provide a cloud computing platform for the Ho Chi Minh City government. In May 2009, the US giant announced its establishment of the first IBM innovation centre in Vietnam. The new facility will provide support to digital infrastructure projects in banking, telecoms, energy and government industries. The centre, located in Ho Chi Minh City, will also provide entrepreneurs, IBM business partners and others from not only Vietnam but also Cambodia and Laos with access to training workshops, consulting services and technical infrastructure. IBM has also announced several planned joint projects with local universities in Vietnam. Among these initiatives, the University of Technology, Vietnam National University in Ho Chi Minh City will cooperate with IBM to establish a new university cloud computing centre and a cloud curriculum. Government is an important target sector for IT services vendors. In July 2009, the Ministry of Foreign Affairs and Microsoft Vietnam signed an agreement about cooperation on IT development. Microsoft will provide consultation to the ministry on its IT status and developing a roadmap for developing its IT applications through 2014. Microsoft will also provide training of the ministry's IT staff. Internet There were a total of 22.78mn internet Vietnam Internet User Growth users in Vietnam at the end of 2009, 2004-2008 according to the regulator, VNNIC. This represented an annual growth rate of 9.5% from 20.8mn in 2008, and down from the 12.3% y-o-y increase in 2008. This would indicate that demand for internet services is falling. The chart shows that the annual rate of growth, in terms of the number of new internet users, has become progressively lower over the past few years. In February 2010, the VNNIC stated that the internet user base had risen Source: VNNIC, BMI to 23.31mn, revealing some net additions of 0.53mn in the first two months of the year. © Business Monitor International Ltd Page 53 Vietnam Information Technology Report Q2 2012 Although the rate of internet user penetration among young people and in Vietnam's more affluent urban centres is already higher than the national average, it will be necessary to ensure that new demographic groups have internet access if internet user growth is to continue over the next few years. This in particular relates to providing internet services in rural areas of the country, where fixed-line infrastructure is particularly poor and in some cases non-existent. One phenomenon that bodes well for continued growth in the number of internet users is the high level of PC ownership that exists in Vietnam. According to a survey conducted by Alcatel-Lucent, some 95% of Vietnamese households now have access to a desktop PC, of which 16% are planning to purchase a laptop. Traditionally, affordability has been one of the main reasons behind the slow take-up of internet and broadband services in the market. However, access to PCs and laptops is growing as a number of cheaper models become available in the market. Meanwhile, growth in demand for broadband services is set to soar, as the Vietnamese government has been investing heavily in developing the broadband sector, announcing its commitment to inject VND100trn (US$6.3bn) in order to raise penetration rates significantly. Also, since joining the WTO, a number of high-profile global companies have relocated their operations to Vietnam and the employment of local staff has boosted incomes. The result has been that a significant number spend US$10-20 on their home internet bills, accessing multimedia content including games and downloads. Increased competition is also expected to encourage increased broadband usage. © Business Monitor International Ltd Page 54 Vietnam Information Technology Report Q2 2012 Company Profiles FPT Software Services 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. Recent 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. 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 more than half of FPT's revenues, grew by only 16%. Future Plans 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 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 ITspending verticals including banking and finance, telecoms, manufacturing, government, retail, infrastructure and utilities. © Business Monitor International Ltd Page 55 Vietnam Information Technology Report Q2 2012 Country Snapshot: Vietnam Demographic Data Section 1: Population Population By Age, 2005 (mn) Population By Age, 2005 And 2030 (mn, total) 70-74 70-74 60-64 60-64 50-54 50-54 40-44 40-44 30-34 30-34 20-24 20-24 10-14 10-14 0-4 0-4 -6.0 -4.0 -2.0 0.0 Male 2.0 4.0 6.0 -10.0 -5.0 0.0 2030 Female 5.0 10.0 2005 Source: UN Population Division Table: Demographic Indicators, 2005-2030 2005 2010 2020f 2030f Dependent population, % of total 34.1 29.9 30.4 31.2 Dependent population, total, ‘000 28,318 26,225 30,950 34,499 Active population, % of total 65.8 70.0 69.5 68.7 Active population, total, ‘000 54,650 61,263 70,706 75,927 Youth population*, % of total 28.8 25.0 23.4 20.3 Youth population*, total, ‘000 23,972 21,887 23,807 22,508 Pensionable population, % of total 5.2 4.9 7.0 10.8 Pensionable population, total, ‘000 4,346 4,338 7,143 11,991 f = forecast. * Youth = under 15. Source: UN Population Division © Business Monitor International Ltd Page 56 Vietnam Information Technology Report Q2 2012 Table: Rural/Urban Breakdown, 2005-2030 2005 2010 2020f 2030f Urban population, % of total 26.7 29.4 34.7 41.8 Rural population, % of total 73.3 70.6 65.3 58.2 Urban population, total, ‘000 22,509 26,395 35230 46,123 Rural population, total, ‘000 61,729 63,323 66426 64,306 Total population, '000 84,238 89,718 101,656 110,429 f = forecast. Source: UN Population Division Section 2: Education And Healthcare Table: Education, 2002-2005 2002/03 2004/05 Gross enrolment, primary 98 93 Gross enrolment, secondary 73 75 Gross enrolment, tertiary 10 16 Adult literacy, male, % na 93.9 Adult literacy, female, % na 86.9 Gross enrolment is the number of pupils enrolled in a given level of education regardless of age expressed as a percentage of the population in the theoretical age group for that level of education. na = not available. Source: UNESCO Table: Vital Statistics, 2005-2030 2005 2010 2020f 2030f Life expectancy at birth, males (years) 68.4 69.9 74.2 75.8 Life expectancy at birth, females (years) 72.4 73.9 78.4 80.0 Life expectancy estimated at 2005. f = forecast. Source: UNESCO © Business Monitor International Ltd Page 57 Vietnam Information Technology Report Q2 2012 Section 3: Labour Market And Spending Power Table: Employment Indicators, 1999-2004 1999 2000 2001 2002 2003 2004 Employment, '000 38,120 38,368 39,000 40,162 41,176 42,316 – % change y-o-y 3.1 0.6 1.6 2.9 2.5 2.7 – male 19,029 19,292 19,744 20,356 20,959 21,649 – female 19,091 19,076 19,257 19,807 20,217 20,666 — female, % of total 50.0 49.7 49.3 49.3 49.1 48.8 Unemployment, '000 909 886 1,107 871 949 926 – male 439 468 458 398 402 410 – female 470 418 650 473 547 517 – unemployment rate, % 2.3 2.2 2.7 2.1 2.2 2.1 Source: ILO Table: Consumer Expenditure, 2000-2012 (US$) 2000 2007 2008 2009 2010 2012f 110 265 301 368 386 427 Poorest 20%, expenditure per capita 49 119 136 166 174 192 Richest 20%, expenditure per capita 243 587 668 815 855 946 Richest 10%, expenditure per capita 316 763 868 1,060 1,112 1,230 Middle 60%, expenditure per capita 85 206 235 286 301 332 Consumer expenditure per capita 556 1,196 1,297 na na na Poorest 20%, expenditure per capita 250 538 583 na na na Richest 20%, expenditure per capita 1,231 2,649 2,872 na na na Richest 10%, expenditure per capita 1,600 3,444 3,734 na na na 433 931 1,009 na na na Consumer expenditure per capita Purchasing power parity Middle 60%, expenditure per capita f = BMI forecast. na = not available. Source: World Bank, Country data; BMI calculation © Business Monitor International Ltd Page 58 Vietnam Information Technology Report Q2 2012 BMI 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, 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 of all 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. Transport Industry There are a number of principal criteria that drive our forecasts for each transport variable: GDP Growth As transport activity is heavily influenced by real GDP growth, this factor is examined to ascertain its relationship with overall trade volumes. Projected GDP growth is calculated using BMI’s own macroeconomic and demographic forecasts. © Business Monitor International Ltd Page 59 Vietnam Information Technology Report Q2 2012 Real Trade Volumes The sum of imports and exports plays a particularly important role in developing countries with a small domestic industrial sector. In particular, the focus is on goods, as services not employ transport. The volumes are forecast based on the following criteria: Trends manifested through historical data; The impact of future step changes to the economy (such as future membership of the EU or some other regional body). Port Traffic Port traffic levels act as a ‘second opinion’ on trade volumes. However, this check needs to be used with caution as trade values and volumes not always move over time in the same way. Market Share The market share of each mode (road, rail, inland waterway, coastal shipping) for future years is based upon: Trends in historical modal split data; Evidence of government policy favouring one or more modes over others; Government and or private sector investment plans in specific modes. Sources Sources used in transport reports include local transport ministries, officially released company results and figures, established think tanks and institutes and donor agencies such as the World Bank and the Asian Development Bank. © Business Monitor International Ltd Page 60 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...].. .Vietnam Information Technology Report Q2 2012 Vietnam Economic SWOT 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 9.5% in 2010 Weaknesses Vietnam still... estimate/forecast Source: BMI © Business Monitor International Ltd Page 24 Vietnam Information Technology Report Q2 2012 Vietnam IT Markets Overview Government Authority Ministry of Information and Communications (MIC) Minister Le Doan Hop Government Authority The Ministry of Information and Communications (MIC) is the main Vietnamese policymaking and regulatory body in the fields of IT, although its... strategic technology priorities © Business Monitor International Ltd Page 14 Vietnam Information Technology Report Q2 2012 One of BMI's key macro themes for Asia Pacific in 2012 is a growth slowdown across the board with recession risks highest in countries such as Australia, Hong Kong and Singapore due to factors such as a slowdown in the US and Europe as well as a Chinese hard landing 2012 may be... expected in Q412 The Thai floods led to reports of shortages of HDD supplies, while seasonal promotions placed further pressure on prices and margins According to information from the Vietnam Government Statistics Office, in the first eight months of 2011, the country spent US$3.91bn © Business Monitor International Ltd Page 26 Vietnam Information Technology Report Q2 2012 on imports in the category of... system Meanwhile Microsoft has introduced a Vietnamese version of Windows Live and has announced a list of Vietnamese software programmes that are compatible with Windows 7 including Vietnamese font programmes, dictionaries and accounts software There should also be a boost from © Business Monitor International Ltd Page 29 Vietnam Information Technology Report Q2 2012 systems upgrades previously delayed... Monitor International Ltd Page 28 Vietnam Information Technology Report Q2 2012 Vietnam' s software market is developing, despite the problem of software piracy, which still accounts for around 83% of software, compared with around 76% in neighbouring Thailand While high, the 83% rate represented a drop in 2010 of 2% from 85% in 2009, and 95% as recently as 2007 The Vietnamese government has gradually... to boost skills levels could leave Vietnam a second-rate economy for an indefinite period © Business Monitor International Ltd Page 11 Vietnam Information Technology Report Q2 2012 Risk/Reward Ratings BMI's Asia Pacific IT Risk/Reward Ratings (RRR) compares the potential of a Developed Countries Have Their Heads Above The Rest Asia Pacific IT Risk/Reward Ratings Q21 2 selection of the region's markets... in new OSS (operating support systems) to reduce costs and support delivery of new services © Business Monitor International Ltd Page 31 Vietnam Information Technology Report Q2 2012 Services Vietnamese IT services spending is forecast to reach around US$469mn in 2012, up from US$395mn in 2011 The market has recovered after the economic crisis had an impact in 2009, with projects being put on hold... spending, with the main products being PCs, fibre optic cables and copper cables Foreign-produced products accounted for most of the spend on information systems © Business Monitor International Ltd Page 33 Vietnam Information Technology Report Q2 2012 New IT Plan The Vietnamese government has unveiled ambitious plans for developing the country's IT industry over the next five years In November 2010, the... World Bank Group) to boost adoption of IT services cloud help the country to close the gap with its regional peers © Business Monitor International Ltd Page 16 Vietnam Information Technology Report Q2 2012 Table: Asia IT Risk/Reward Ratings Q21 2 Limits Of Potential Returns Risks To Realisation Of Potential Returns IT Market Country Structure Limits Market Risks Country Risk Risks IT Rating Regional . Copy deadline: April 2012 Vietnam Information Technology Report Q2 2012 © Business Monitor International Ltd Page 2 Vietnam Information Technology Report Q2 2012 © Business. its top 10 strategic technology priorities. Country Structure A Letdown Asia Pacific IT Risk/Reward Ratings Q21 2 Source: Q21 2 Vietnam Information Technology Report Q2 2012 © Business. from low-cost Chinese vendors in the Vietnamese market. Vietnam Information Technology Report Q2 2012 © Business Monitor International Ltd Page 8 Vietnam Telecoms SWOT Strengths