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Q3 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 Q3 2012 INCLUDES 5-YEAR FORECASTS TO 2016 Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Copy deadline: August 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 Q3 2012 © Business Monitor International Ltd Page Vietnam Information Technology Report Q3 2012 CONTENTS Executive Summary . SWOT Analysis . Vietnam IT Sector SWOT . Vietnam Telecom SWOT Vietnam Political SWOT Vietnam Economic SWOT 10 Vietnam Business Environment SWOT . 11 Asia Pacific IT Risk/Reward Ratings 12 Table: Asiapacific It Risk/Reward Ratings . 17 IT Markets Overview . 18 Market Overview . 26 Government Authority . 26 Industry Developments 35 Industry Forecast . 39 Table: Vietnam IT Industry – Historical Data And Forecasts (US$mn unless otherwise stated), 2008-2016 42 Industry Forecast Internet . 43 Table: Telecoms Sector – Internet – Historical Data And Forecasts, 2009-2016 43 Competitive Landscape . 45 Hardware . 45 Software . 47 Operating Systems . 48 IT Services . 51 Macroeconomic Forecast 53 Table: Vietnam – Economic Activity, 2011-2016 . 55 Company Profiles . 56 FPT Software . 56 Demographic Outlook 57 Table: Vietnam's Population By Age Group, 1990-2020 ('000) . 58 Table: Vietnam's Population By Age Group, 1990-2020 (% of total) 59 Table: Vietnam's Key Population Ratios, 1990-2020 . 60 Table: Vietnam's Rural And Urban Population, 1990-2020 60 BMI Methodology . 61 How We Generate Our Industry Forecasts 61 Transport Industry . 61 Sources . 62 © Business Monitor International Ltd Page Vietnam Information Technology Report Q3 2012 © Business Monitor International Ltd Page Vietnam Information Technology Report Q3 2012 Executive Summary BMI View: Vietnamese IT spending is expected to reach US$2.6bn in 2012, up 14%, with BMI upwardly revising its forecast due to macroeconomic factors. Drivers such as rising PC penetration, economic growth, a range of government ICT initiatives and a campaign to develop Vietnam's domestic IT industry will help to sustain continued expansion 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. Meanwhile, cloud computing revenues are expected to report at least 300% growth over the forecast period. Headline Expenditure Projections Computer hardware sales: US$1.60bn in 2011 to US$1.85bn in 2012, +12% in US dollar terms. Forecast in US dollar terms unchanged, but due to lower prices tablets are expected to provide a strong growth area in 2012. Software sales: US$191mn in 2011 to US$224mn in 2012, +17% 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$402mn in 2011 to US$478mn 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 various sectors, 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 only ninth for its IT market score of 36. Key Trends & Developments. The Vietnam IT market is expected to grow around 14% 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 Q3 2012 An ambitious government IT plan for 2010-2020 should shape many segments of the Vietnamese IT market, with the government pledging to invest VND2.4tn (US4,115mn) from the State Budget in the ICT sector over the next decade. 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 Q3 2012 SWOT Analysis Vietnam IT Sector SWOT Strengths Weaknesses Opportunities Threats 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. 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 Q3 2012 Vietnam Telecom SWOT Strengths Weaknesses Opportunities Threats 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 statecontrolled 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. 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. © Business Monitor International Ltd Page Vietnam Information Technology Report Q3 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 one-party 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 undemocratic rule. Although strong domestic control will ensure little change to Vietnam's political scene in the next few years, over the longer term, the one-party state will probably be unsustainable. Relations with China have deteriorated over 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 Q3 2012 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 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 © Business Monitor International Ltd Page 48 Vietnam Information Technology Report Q3 2012 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. 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 Database 11g 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 © Business Monitor International Ltd Page 49 Vietnam Information Technology Report Q3 2012 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 costeffective 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 © Business Monitor International Ltd Page 50 Vietnam Information Technology Report Q3 2012 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 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. © Business Monitor International Ltd Page 51 Vietnam Information Technology Report Q3 2012 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 new company said that this was the first Japanese-founded call centre outsourcing company to be founded in Vietnam. © Business Monitor International Ltd Page 52 Vietnam Information Technology Report Q3 2012 Macroeconomic Forecast Deteriorating Economic Data Prompts Growth Downgrade BMI View: Recent economic data suggest that the outlook for Vietnam's economic growth has deteriorated significantly in recent months. Furthermore, the State Bank of Vietnam (SBV)'s indication that it will normalise interest rates only by Q412 (we were expecting that the monetary easing cycle would be fully completed by Q312), means that credit conditions will remain tight throughout the year. Consequently, we have downgraded our real GDP growth forecast from 5.8% to 5.2% for 2012. Recent data suggest that economic activity will continue to moderate over the coming quarters, presenting significant downside risks to our already below consensus forecast of 5.8% for real GDP growth in 2012. The State Bank of Vietnam (SBV)'s monetary easing cycle is also turning out to be less aggressive than we have anticipated. SBV governor Nguyen Van Binh announced during a press conference on April 11 that the central bank is planning to cut its policy rate (refinancing rate) by 100 basis points (bps) every quarter towards the end of the year. Although this is largely in line with our core view that the SBV will normalise interest rates by introducing 400bps of rate cuts in 2012 (the SBV has already introduced 200bps worth of rate cuts since the beginning of the year), we were previously expecting that the monetary easing cycle would be fully completed by Q312. Given the SBV's latest indication to gradually unwind its tight monetary policy and to normalise interest rates only by Q412, we are revising down our expectations for Vietnam's economic growth. We now expect real GDP growth to come in at a slightly more subdued 5.2% for 2012 (down from our previous forecast of 5.8%). Industrial Production And Manufacturing Sector Growth Slow Looking at industrial production data, we note that there is conclusive evidence of a sustained slowdown in production activity since the SBV introduced a wave of aggressive monetary policy measures aimed at cooling the economy in 2011. Industrial production expanded at just 6.5% year-on-year (y-o-y) in March, compared with an average 8.8% over the past six months and average 10.4% over the past 12 months. The slowdown in industrial activity since the beginning of the year has also been confirmed by a significant decline in manufacturing sector growth, which came in at a weak 4.9% y-o-y in Q112, compared to 10.0% in Q411. We believe that this is partly due to cooling external demand for new manufacturing orders, a trend that is also evident in neighbouring manufacturing export-oriented economies such as Thailand and Malaysia. Given that the manufacturing sector makes up a significant 21.7% share of Vietnam's GDP and that tight credit conditions (average lending rates remain exceptionally high at around 14-16%) will continue to be a major drag on manufacturing sector growth, we believe that headline growth will come in significantly below Bloomberg consensus of 6.0%. Outlook For Private Consumption Looking Weak Turning to other economic indicators, we note that latest retail sales and domestic vehicle sales data © Business Monitor International Ltd Page 53 Vietnam Information Technology Report Q3 2012 remain relatively weak. While retail sales grew at a 27-month low of 21.8% y-o-y in March, domestic vehicle sales contracted for the sixth consecutive month at -21.4% y-o-y. These figures reinforce our view that uncertainties over unemployment in the manufacturing sector and corporate earnings will prompt households and businesses to cut back on spending and investment, resulting in overall weak domestic demand growth over the coming months. We also note that according to figures published by the Ministry of Planning and Investment (MPI), around 12,000 enterprises in Vietnam have either declared bankruptcy or completely went out of business as of Q112. We expect this surge in bankruptcies to result in a higher unemployment rate over the coming months, which should put further downside pressure on household spending. Corporate Tax Cut Unlikely To Boost Investment In terms of our outlook on Gross Fixed Capital Formation (GFCF) growth, we believe that the government's plan to slash corporate income tax by 30% for small- and medium-sized enterprises (SMEs) is unlikely to have a significant impact on private sector investment. Given an abundant stock of spare capacity due to the large number of bankruptcies in recent months and a much more moderate outlook for economic growth ahead, we believe that large companies will delay investing in new projects over the coming months. Furthermore, the government's newly announced tax cut will only apply to SMEs, which tend to be more conservative towards expanding production during periods of economic uncertainties due to their relatively weak balance sheets and cash flows in comparison to multinational companies. Accordingly, we expect GFCF growth to remain at a relatively subdued 5.0% in 2012. Public Spending To Increase In Bid To Support Economy There is increasing evidence that total public expenditure will exceed the government's allocated budget this year. According to a statement published by the Ministry of Planning and Investment, the National Assembly is expected to approve an additional VND4.5trn (US$0.2bn) in funds to be spent on five new infrastructure projects including two bridges, a university dormitory and an oncology hospital. We note that that this will add to a healthy pipeline of infrastructure projects that already in the construction phase and are expected to be completed over the coming years. The government has also pledged to maintain welfare subsidies in response to a challenging economic outlook in 2012. These factors suggest to us that public spending will still grow at a robust pace of 5.6% this year, albeit lower in comparison with 5.9% in 2011. Nonetheless, this should provide some support for overall headline growth in 2012. Still Expecting A Trade Deficit The latest figures published by the General Statistics Office showed a mild trade surplus of US$0.4mn in March, compared with an average monthly trade deficit of US$0.7mn in 2011. We expect trade import growth to cool further in 2012 as Vietnamese manufacturers cut back on intermediate goods imports, in line with our outlook for subdued production activity and moderating economic growth throughout the year. However, we continue to see external demand remaining subdued in the months ahead and we expect new exports orders to remain stagnant in 2012. This should in turn lead to an overall slowdown in © Business Monitor International Ltd Page 54 Vietnam Information Technology Report Q3 2012 net exports. Accordingly, we see net exports growing at just 6.0% in 2012, significantly lower compared with 16.9% in 2011. Scope For Early Rate Cuts Recent economic data reinforce our core view of a moderation in Vietnam's real GDP growth from 5.9% in 2011 to 5.2% in 2012 and that inflationary pressure should continue to wane on the back of cooling economic activity. The recent round of weak economic data should, however, give the SBV more scope for early rate cuts in Q312 rather than taking its monetary easing cycle late into the final quarter. Nonetheless, given that it will take around six to eight months for the effects of the SBV's monetary policy to fully feed through to the economy, this means that we will only see a pickup in economic activity in H113. Accordingly, we would consider revising our real GDP growth for 2013 upwards should we see signs of a robust economic recovery taking place towards the end of the year. Over the longer term, we remain bullish on Vietnam's attractive growth story and we believe that the government's renewed focus on maintaining macroeconomic stability will be positive for investor confidence and economic growth. Table: Vietnam – Economic Activity, 2011-2016 2011e Nominal GDP, VNDbn Nominal GDP, US$bn Real GDP growth, % y-o-y GDP per capita, US$ Population, mn 2012f 2013f 2014f 2015f 2016f 2,487,631.9 2,847,455.0 3,192,260.2 3,609,813.5 4,068,807.3 4,588,126.0 Industrial production index, % y-o-y, 1,4 ave 120.4 135.4 153.5 175.5 200.1 228.3 5.9 5.2 6.5 7.2 7.3 7.4 1,357 1,509 1,693 1,917 2,165 2,447 88.8 89.7 90.7 91.6 92.4 93.3 10.9 8.0 12.0 14.0 13.0 12.0 4.5 5.0 4.8 4.7 4.6 4.5 Unemployment, % of labour force, eop e/f = BMI estimate/forecast. at 1994 prices. Source: Asian Development Bank, General Statistics Office. World Bank/UN/BMI; General Statistics Office. © Business Monitor International Ltd Page 55 Vietnam Information Technology Report Q3 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%. Strategy FTP is looking to stake a position in the small but emerging cloud computing opportunity and in May 2011 announced a cloud-computing alliance with Microsoft. Meanwhile, the company has said that it will continue to focus on an 'e-Citizens' strategy of concentrating on core business areas and trying to increase synergy among product and service introductions by FPT group companies. 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 56 Vietnam Information Technology Report Q3 2012 Demographic Outlook Demographic analysis is a key pillar of BMI's macroeconomic and industry forecasting model. Not only is the total population of a country a key variable in consumer demand, but an understanding of the demographic profile is key to understanding issues ranging from future population trends to productivity growth and government spending requirements. The accompanying charts detail Vietnam's population pyramid for 2011, the change in the structure of the population between 2011 and 2050 and the total population between 1990 and 2050, as well as life expectancy. The tables show key datapoints from all of these charts, in addition to important metrics including the dependency ratio and the urban/rural split. Source: World Bank, UN, BMI © Business Monitor International Ltd Page 57 Vietnam Information Technology Report Q3 2012 Table: Vietnam's Population By Age Group, 1990-2020 ('000) 1990 1995 2000 2005 2010 2012f 2015f 2020f 67,102 74,008 78,758 83,161 87,848 89,730 92,443 96,355 0-4 years 9,340 9,212 7,002 6,776 7,186 7,186 7,026 6,529 5-9 years 8,685 9,193 9,124 6,921 6,703 6,885 7,143 6,982 10-14 years 7,504 8,604 9,142 9,038 6,844 6,539 6,668 7,104 15-19 years 7,127 7,408 8,535 9,064 8,963 8,161 6,806 6,628 20-24 years 6,492 7,003 7,305 8,420 8,954 9,115 8,892 6,745 25-29 years 5,893 6,361 6,879 7,167 8,284 8,602 8,862 8,803 30-34 years 4,884 5,779 6,250 6,765 7,058 7,475 8,202 8,779 35-39 years 3,965 4,794 5,688 6,163 6,677 6,770 6,991 8,131 40-44 years 2,420 3,884 4,710 5,614 6,086 6,304 6,609 6,925 45-49 years 2,039 2,358 3,802 4,653 5,548 5,761 6,012 6,536 50-54 years 1,933 1,968 2,287 3,739 4,580 4,936 5,449 5,914 55-59 years 1,946 1,843 1,887 2,201 3,617 4,001 4,446 5,305 60-64 years 1,544 1,822 1,737 1,767 2,076 2,573 3,455 4,268 65-69 years 1,283 1,391 1,659 1,582 1,621 1,649 1,927 3,233 70-74 years 919 1,084 1,194 1,439 1,389 1,384 1,438 1,729 1,127 1,305 1,559 1,852 2,264 2,388 2,516 2,743 Total 75+ years f = BMI forecast. Source: World Bank, UN, BMI © Business Monitor International Ltd Page 58 Vietnam Information Technology Report Q3 2012 Table: Vietnam's Population By Age Group, 1990-2020 (% of total) 1990 1995 2000 2005 2010 2012f 2015f 2020f 0-4 years 13.92 12.45 8.89 8.15 8.18 8.01 7.60 6.78 5-9 years 12.94 12.42 11.58 8.32 7.63 7.67 7.73 7.25 10-14 years 11.18 11.63 11.61 10.87 7.79 7.29 7.21 7.37 15-19 years 10.62 10.01 10.84 10.90 10.20 9.10 7.36 6.88 20-24 years 9.68 9.46 9.27 10.13 10.19 10.16 9.62 7.00 25-29 years 8.78 8.60 8.73 8.62 9.43 9.59 9.59 9.14 30-34 years 7.28 7.81 7.94 8.14 8.03 8.33 8.87 9.11 35-39 years 5.91 6.48 7.22 7.41 7.60 7.55 7.56 8.44 40-44 years 3.61 5.25 5.98 6.75 6.93 7.03 7.15 7.19 45-49 years 3.04 3.19 4.83 5.59 6.32 6.42 6.50 6.78 50-54 years 2.88 2.66 2.90 4.50 5.21 5.50 5.89 6.14 55-59 years 2.90 2.49 2.40 2.65 4.12 4.46 4.81 5.51 60-64 years 2.30 2.46 2.21 2.12 2.36 2.87 3.74 4.43 65-69 years 1.91 1.88 2.11 1.90 1.85 1.84 2.08 3.36 70-74 years 1.37 1.46 1.52 1.73 1.58 1.54 1.56 1.79 75+ years 1.68 1.76 1.98 2.23 2.58 2.66 2.72 2.85 f = BMI forecast. Source: World Bank, UN, BMI © Business Monitor International Ltd Page 59 Vietnam Information Technology Report Q3 2012 Table: Vietnam's Key Population Ratios, 1990-2020 1990 1995 2000 2005 2010 2012f 2015f 2020f 75.5 71.2 60.5 49.7 42.1 40.9 40.6 41.6 Dependent population, total, '000 28,859 30,790 29,679 27,609 26,006 26,031 26,717 28,321 Active population, % of total 57.0 58.4 62.3 66.8 70.4 71.0 71.1 70.6 Active population, total, '000 38,243 43,218 49,079 55,552 61,842 63,699 65,725 68,034 Youth population, % of total working age 66.8 62.5 51.5 40.9 33.5 32.4 31.7 30.3 Youth population, total, '000 25,529 27,009 25,268 22,735 20,732 20,610 20,837 20,615 Pensionable population, % of total working age 8.7 8.7 9.0 8.8 8.5 8.5 8.9 11.3 Pensionable population, '000 3,330 3,780 4,411 4,874 5,274 5,421 5,881 7,706 Dependent ratio, % of total working age f = BMI forecast; 0>15 plus 65+, as % of total working age population; 0>15 plus 65+; 15-64, as % of total population; 15-64; 0>15, % of total working age population; 0>15; 65+, % of total working age population; 65+. Source: World Bank, UN, BMI Table: Vietnam's Rural And Urban Population, 1990-2020 1990 1995 2000 2005 2010 2012f 2015f 2020f Urban population, % of total 20.3 22.2 24.3 26.4 28.7 29.7 31.2 33.9 Rural population, % of total 79.7 77.8 75.7 73.6 71.3 70.3 68.8 66.1 Urban population, '000 13,438.6 16,201.6 18,865.4 21,940.1 25,212.5 26,649.9 28,842.1 32,664.4 Rural population, '000 52,761.4 56,778.4 58,770.0 61,166.2 62,635.9 63,080.4 63,600.5 63,690.7 f = BMI forecast. Source: World Bank, UN, BMI © Business Monitor International Ltd Page 60 Vietnam Information Technology Report Q3 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 61 Vietnam Information Technology Report Q3 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 62 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...].. .Vietnam Information Technology Report Q3 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 14.0% in 2010 Weaknesses Vietnam still... the short term to below 10% of sales © Business Monitor International Ltd Page 29 Vietnam Information Technology Report Q3 2012 Software In 2012, Vietnam software sales are projected by BMI to grow to US$224mn, and software CAGR for 2012- 2016 should be in the region of 18% Software spending comprises around 9% of total Vietnamese IT spending currently The market is expected to reach a value of around... three quarters of the year, a deceleration was expected in Q412 The Thai floods led to reports of shortages of HDD supplies, © Business Monitor International Ltd Page 27 Vietnam Information Technology Report Q3 2012 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... financial, manufacturing and other sectors © Business Monitor International Ltd Page 21 Vietnam Information Technology Report Q3 2012 In more developed markets, such as Hong Kong and Singapore, robust retail sales led the way in 2011, as evidenced by the strong IT Markets Compound Growth advance sales of Apple's iPad2 In 2012 2012-2016 forecast (%) vendors hope that the iPad 3 and ultrabooks will provide new... strategy over the next few years In 2012 more leading Australian private and public sector organisations are expected to launched cloud initiatives and the government has adopted a six-year cloud computing strategy © Business Monitor International Ltd Page 25 Vietnam Information Technology Report Q3 2012 Market Overview Government Authority Government Authority Ministry of Information and Communications... boost skills levels could leave Vietnam a second-rate economy for an indefinite period © Business Monitor International Ltd Page 11 Vietnam Information Technology Report Q3 2012 Asia Pacific IT Risk/Reward Ratings BMI's Asia Pacific IT Risk/Reward Ratings (RRR) compares the potential of a selection of the region's markets over our forecast period through to 2016 Our Q31 2 ratings reflect our consideration... attractive to companies and foreign investors © Business Monitor International Ltd Page 15 Vietnam Information Technology Report Q3 2012 Vietnam remains in 11th position with an IT Rating of 33.5 While the sizeable population, growing affluence and increasing middle class present long-term potential for IT demand, like India, Vietnam' s poor Country Structure score has negatively affected the country's attractiveness... the greater perceived security and degree of control However, as internet infrastructure improves in Vietnam, there should be more demand for alternative models such as SaaS and other cloud computing services © Business Monitor International Ltd Page 30 Vietnam Information Technology Report Q3 2012 In 2012, migrations to Microsoft's new Windows 7 operating system should continue to have a positive impact... more advanced and flexible platforms for core banking processes The mid-sized Vietnam Asia Commercial Bank was among those to implement a new core-banking solution in H110, having designated technology as a core pillar of its growth strategy © Business Monitor International Ltd Page 32 Vietnam Information Technology Report Q3 2012 Spending opportunities in the finance segment will be driven by regulatory... spending segment, where an industry restructuring with the advent of 3G mobile services has led to more competition Meanwhile, © Business Monitor International Ltd Page 24 Vietnam Information Technology Report Q3 2012 expanding technology adoption in the logistics industry and public transport will be a source of IT services projects Sectors such as hospitals and real estate will also provide opportunities . Copy deadline: August 2012 Vietnam Information Technology Report Q3 2012 © Business Monitor International Ltd Page 2 Vietnam Information Technology Report Q3 2012 © Business. Industry 61 Sources 62 Vietnam Information Technology Report Q3 2012 © Business Monitor International Ltd Page 4 Vietnam Information Technology Report Q3 2012 © Business Monitor. low-cost Chinese vendors in the Vietnamese market. Vietnam Information Technology Report Q3 2012 © Business Monitor International Ltd Page 8 Vietnam Telecom SWOT Strengths
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