Q3 2014 www.businessmonitor.com VIETNAM INFORMATION TECHNOLOGY REPORT INCLUDES 5-YEAR FORECASTS TO 2018 ISSN 2044-9631 Published by:Business Monitor International Vietnam Information Technology Report Q3 2014 INCLUDES 5-YEAR FORECASTS TO 2018 Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Copy deadline: June 2014 Business Monitor International Senator House 85 Queen Victoria Street London EC4V 4AB United Kingdom Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: subs@businessmonitor.com Web: http://www.businessmonitor.com © 2014 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 2014 CONTENTS BMI Industry View . SWOT IT SWOT Wireline . 11 Political . 13 Economic . 14 Business Environment 15 Industry Forecast 16 Table: IT Industry - Historical Data And Forecasts (Vietnam 2011-2018) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Macroeconomic Forecasts . 22 Economic Analysis . 22 Table: Foreign Direct Investment By Country Of Origin (Top Five) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Table: Vietnam - Economic Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Industry Risk Reward Ratings 28 Table: Asia-Pacific Risk/Reward Ratings - Q3 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Market Overview . 31 Hardware . 31 Software . 36 Services 45 Industry Trends And Developments 51 Regulatory Development 56 Table: Government Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Regulatory News 59 Competitive Landscape 62 International Companies . 62 Table: Samsung Electronics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Table: Intel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Table: LG Electronics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Table: Global CyberSoft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Local Companies . 66 Table: Sara Vietnam . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Company Profile 67 FPT Software 67 Table: FPT Group Revenue By Segment (VNDbn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 © Business Monitor International Page Vietnam Information Technology Report Q3 2014 Regional Overview 72 Demographic Forecast . 76 Table: Vietnam's Population By Age Group, 1990-2020 ('000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Table: Vietnam's Population By Age Group, 1990-2020 (% of total) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Table: Vietnam's Key Population Ratios, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Table: Vietnam's Rural And Urban Population, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Methodology 80 Industry Forecast Methodology 80 Sources 81 Risk/Reward Ratings Methodology 82 Table: It Risk/Reward Ratings Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 Table: Weighting Of Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 © Business Monitor International Page Vietnam Information Technology Report Q3 2014 BMI Industry View BMI View: We forecast IT spending will grow at a compound annual growth rate (CAGR) of 12.6% between 2014 and 2018, with expansion underpinned by rising incomes, enterprise modernisation and the policy environment put in place by the government. We also highlight larger opportunities in the retail market where penetration of devices and services remains below the level in neighbouring markets, which vendors will be able to tap as incomes rise. The government is also a significant factor underpinning our bright outlook as it pursues a range of ICT initiatives and allocates funding to develop Vietnam's domestic IT industry. These policies include the promotion of Vietnam as an outsourcing destination, with the services segment expected to expand rapidly. There is also increasing momentum towards Vietnam becoming a global centre for electronics production as wages rise in China and manufacturers look to protect margins by moving to Vietnam, where wages are as little as a third of those in China. Headline Expenditure Projections ■ Computer Hardware Sales: VND38.2trn in 2014 to VND57.3trn in 2018, CAGR of +10.7% in local currency terms. Rising incomes, declining device prices and improved credit provision underpin demand growth across all three main device categories. ■ Software Sales: VND8.4trn in 2014 to VND14.6trn in 2018, CAGR of +15.0% in local currency terms. Piracy continues to be a drag on the market, but there are large opportunities in business software and security solutions for vendors willing to accept narrow margins in a price-sensitive market. ■ IT Services Sales: VND16.5trn in 2013 to VND29.4trn in 2018, CAGR of +15.7% in local currency terms. The services segment is forecast to outperform due to strong domestic demand for cloud computing, and a boom in investment for outsourcing provision to Japanese enterprises. Key Trends & Developments One opportunity that stands out in Vietnam is for tailored solutions for the agricultural sector, which continues to be a large part of the Vietnamese economy accounting for an estimate 19.5% share of GVA in 2013 - a figure BMI expects to only decrease marginally to 19.3% in 2018 - and its share of labour is considerably higher. The large agricultural sector, and the potential for productivity increases, has understandably attracted the interest of ICT firms. Mobile operator Viettel is a world leader in pioneering smart agricultural products, including IT services such as information packages about produce prices, disease warning, weather reports and analysis of coffee and cashew nut markets. These products generated VND7bn a month in revenue - a far higher figure than that generated from the much hyped game application development market. The success of Viettel's model has attracted interest from IT services providers, for instance Hanel has stated its intention to develop smart agriculture products. © Business Monitor International Page Vietnam Information Technology Report Q3 2014 Another area of emerging opportunity is the cloud computing market in Vietnam. In June 2014 VMWare reported the results of its cloud adoption survey in Vietnam. It found that 80% of polled businesses considered cloud computing the number one priority for IT applications; while 67% were confident cloud computing would have a major effect on business activities. The large quantities of data generated by the surge in featurephone and smartphone ownership have boosted demand for enterprise cloud solutions, while the growing tendency for remote working is also generating demand. VMWare estimates that cloud adoption is growing faster in Vietnam than the wider region as a result of an absence of legacy on-premises systems due to Vietnam's late-developer status. While the survey showed growing interest, information security continues to be a barrier to adoption by enterprises. VMWare and Symantec were both quoted arguing that education levels must increase among enterprises so they realise the comparability of information security risks for cloud and on-premises IT solutions. © Business Monitor International Page Vietnam Information Technology Report Q3 2014 SWOT IT SWOT SWOT Analysis Strengths ■ Supportive policy framework and funding in place to promote the development of the IT sector. ■ Vietnam's gradual integration into the global trade network via its accession into trade organisations such as ASEAN and WTO, as well as bilateral agreements with Japan and China. ■ The domestic IT market is in a rapid growth phase, with trade liberalisation and growing affordability driving increased adoption among enterprises and consumers. ■ Expanding local hardware production industry with major international players such as Samsung, Nokia, LG and Intel making large investments. Weaknesses ■ IT spend per capita is much lower than in neighbouring Thailand, reflecting a much lower GDP per capita. ■ Highly cost-sensitive market, with 75% of software provided by lower-cost local software vendors. Opportunities ■ High level of software piracy, although some progress has been made in recent years. ■ Low PC penetration means there is scope for vendors to tap first-time buyer market as well as the upgrade/replacement market. Due to low penetration desktop and notebook sales continue to increase despite competition from tablets. ■ Low-cost tablets are proving popular with consumers, with significant medium-term sales growth potential as incomes continue to rise. ■ Vietnam is a popular destination for software development and IT services outsourcing, with particularly strong growth potential from Japanese enterprises that are turning away from Chinese based providers. © Business Monitor International Page Vietnam Information Technology Report Q3 2014 SWOT Analysis - Continued ■ National IT Plan will drive spending on IT utilisation in areas such as e-government, etaxation and education. ■ SMEs have much potential to increase spending on basic solutions, including customer relationship management and security. ■ The government's drive to create an IT services industry over the next 15-20 years through incentives to create IT clusters - is expected to be a significant factor shaping the market. ■ Cloud computing awareness has risen fast and adoption is expected to accelerate through 2014 and 2015. Threats ■ Low-cost tablets from own-brand Chinese vendors a particular threat to low- and mid-range notebook vendors. Falling prices may further undermine margins and profitability after steep discounting. ■ Cyber security issues could undermine confidence in IT solutions and services, with big data and cloud computing vulnerable. ■ Yen depreciation has hit the software outsourcing market by making exports less competitive and eroding Vietnam's cost advantages. © Business Monitor International Page 10 Vietnam Information Technology Report Q3 2014 government, retail, infrastructure and utilities. Major clients include Deutsche Bank, Schroders, SoftBank, Omron, Hitachi and Unisys. Table: FPT Group Revenue By Segment (VNDbn) Q112 Q212 Q312 Q412 Q113 Q213 Q313 Q413 Telecommunication 658 675 708 710 768 819 822 845 Digital Content 380 520 424 488 207 223 227 225 Software Development 381 532 578 848 568 639 649 964 System Integration 488 524 454 1,453 327 898 605 1,129 Informatics services 120 191 166 204 151 171 178 258 Education 148 114 183 63 165 93 135 164 3,460 3,270 3,638 3,969 3,496 3,957 4,931 5,033 Manufacture, distribution and retail Source: FPT, BMI Financial Data ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Company Details ■ ■ Annual Revenue (2010): VND20.5bn Annual Revenue (2011): VND26.0bn Annual Revenue (2012): VND25.4bn Annual Revenue (2013): VND27.1bn EBITDA (2008): VND1.6bn EBITDA (2009): VND2.1bn EBITDA (2010): VND2.6bn EBITDA (2011): VND3.1bn EBITDA (2012): VND3.0bn EBITDA (2013): VND3.0bn Net Profit (2008): VND1.1bn Net Profit (2009): VND1.4bn Net Profit (2010): VND1.7bn Net Profit (2011): VND2.1bn Net Profit (2012): VND2.0bn Net Profit (2013): VND2.1bn FPT Software FPT Building Duy Tan Street Cau Giay District Hanoi Vietnam ■ Tel: +84/(4) 768 9048 © Business Monitor International Page 70 Vietnam Information Technology Report Q3 2014 ■ Fax: (4) 768 9049 ■ fsoft.contact@fsoft.com.vn ■ www.fpt-software.com © Business Monitor International Page 71 Vietnam Information Technology Report Q3 2014 Regional Overview BMI forecasts Asia Pacific will be the outperforming region in terms of IT market growth rates over the duration of our medium term forecast to 2018. This is in line with overall economic trends as the region has become an important engine of global growth. Asia is home to not only the two largest emerging markets in India and China, but also a host of rapidly developing frontier markets - making it a prime target for expansion by global vendors. The outlook is however far from homogeneous, there is a wide spread of development levels from Australia, Hong Kong and Singapore through to APAC Forecast To Outperform Annual IT Market Growth In USD (%) Indonesia, Pakistan and Sri Lanka. There is also intense competition between markets in the region vying to attract foreign expertise and investment - as well as promoting domestic industry. Low Hanging Fruit BMI forecasts outperformance for APAC over the medium term as emerging markets are in a sustained period of catch-up growth. The more developed markets in the region - Australia, Hong Kong, e/f - BMI estimate/forecast. Source: BMI. Singapore and South Korea - will not experience the same growth rates, underperforming emerging Asia. This is because in several key product categories these markets are already mature, including retail hardware (desktops, notebook and tablets), as well as enterprise software deployments. However, in emerging Asia there is scope for rapid medium term growth as incomes rise and device prices continue to decline. Whereas developed markets took several decades to reach high levels of IT product and solution penetration among consumers, enterprises and the public sector, in emerging markets this transition is expected to be much faster due to price erosion increasing affordability, and lessons learned from early developers in terms of policy and best practice. © Business Monitor International Page 72 Vietnam Information Technology Report Q3 2014 The area catch-up growth will be most visible is in the retail hardware market where the rapid decline in notebook prices over the past decade, and in tablets since 2012, has deepened the market considerably even before income growth is factored in. Looking ahead, with Microsoft reducing Windows licensing costs for low-end devices, and Android partner vendors competing aggressively on price, effectively commoditising the low-and-mid end of the tablet market, we see the foundation for a significant broadening of device ownership rates over the medium term. Less visible but equally important is the continued investment in IT solutions by enterprises and government. Enterprise modernisation through APAC PC Browsing Traffic By OS (%) And Y-o-Y Change March 2014 informatisation is being promoted by governments across the region in order to improve competitiveness, driving basic ERP deployments and other efficiency saving solutions. Meanwhile, in the public sector government's are utilising the latest e-government and service delivery enhancing solutions, leapfrogging the legacy infrastructure in more developed markets. A development that could drive spending growth even higher is the upgrade spending on operating systems as Microsoft withdraws support for XP from 2014. The magnitude of contribution to spending growth is uncertain, but with the latest Statcounter data Source: Statcounter. showing 23.6% of APAC browsing traffic came from devices running XP there is certainly scope for a wave of upgrades in enterprises and public administration. Strong demand in emerging Asia Pacific markets from the retail, enterprise and public sectors will combine to ensure the region is the outperformer over the medium term. Competing Clouds Another area where Asia has an attractive outlook in part because of lower development levels is in cloud computing. The lower level of legacy on-site enterprise and infrastructure deployments makes the region fertile ground for rapid cloud adoption. Furthermore, the pricing models of cloud services are well suited to © Business Monitor International Page 73 Vietnam Information Technology Report Q3 2014 modernising enterprises that are likely to have less complex requirements and lack the resources for on-site deployments. The cloud computing market in emerging Asia Pacific will continue to be weighted towards less complex services over the medium term, but adoption rates are forecast to increase markedly. Data Boom Driving Cloud Demand APAC Mobile Data Volume Forecast (TB per Month) This has attracted major international investment right across the region - for instance companies such as Google, NetSuite, Salesforce, RightNow, Oracle and Zoho have already established their presence in the Indonesian market primarily through channel partners. Meanwhile, international brand names that have entered the Thai market include Amazon Web Services, NTT Communications, Adobe and Google - facing local competition from TRUE Internet Data Centre, CAT, DTAC and TOT. Finally, in the Philippines local telecoms operators have made major investments in datacentre capacity, Source: Cisco VNI 2014 with PLDT announcing in March 2014 that it will spend PHP3bn on the construction of two new data centres, one in metropolitan Makati and a second, to be opened in 2015, in Paranaque. Its data centres business grew by 60% in 2013 and the new facilities will continue that growth momentum. While the focus in emerging Asia will be on low-level deployments, there is also a dynamic of competition between developed markets in the region vying to be regional centres for cloud services and other emerging technologies. The competition between Hong Kong and Singapore to become regional cloud computing hubs is well known, with large scale inward investment both to tap demand from the large and lucrative financial sectors and to serve as a base for service provision across the region. For instance, in Q114 Pacnet and Digital Ocean opened new data centre facilities in Singapore, with both firms stating that regional opportunities were behind the choice of Singapore as a location for data centres. Meanwhile, Hong Kong has attracted investment from global leaders such as NTT Communications, Savvis, IBM and Rackspace. There is however also competition in Asia to position as hubs for emerging technologies such as big data analytics. For instance In March 2014 the South Korean Science, ICT and Future Planning Ministry © Business Monitor International Page 74 Vietnam Information Technology Report Q3 2014 announced it would inject KRW4.9trn (US$4.6bn) in information infrastructure in 2014. The ministry will invest KRW3.9trn in 786 projects headed by government bodies, with a further KRW978bn invested in 5,990 projects by provincial authorities. Key areas targeted for investment in 2014 include KRW302bn for cyber security, KRW68bn for mobile technologies and KRW243bn for Internet of Things (machine-tomachine communications). However, South Korea is some way behind Singapore. In August 2013, the Infocomm Development Authority of Singapore (IDA) partnered with Revolution Analytics, a commercial provider of software, services and support for the open source 'R' project, to form a business analytics centre of excellence. The centre will operate as a channel through which local companies can reach the expertise of global organisations to develop new solutions. The IDA's efforts are likely to help Singaporean enterprises use big data, and lay the foundations for expanding across the region. The opportunity in data analytics is huge, with 80% of enterprises surveyed by EMC stating that use of big data will lead to better decision making in their organisation. The survey, released in September 2013, questioned 130 respondents, of which 63% believed that big data will be a key factor determining winners and losers, while 37% stated they had already benefited from competitive advantage via the use of big data. The areas respondents believed big data will prove most beneficial were data centre automation (83%) and cyber security (64%). While the outperformance of Asia in terms of market growth will primarily be underpinned by low-hanging fruit and catch-up growth, there is also significant activity at the technological frontier that means emerging technologies are also expected to be an important component of the medium term growth story. © Business Monitor International Page 75 Vietnam Information Technology Report Q3 2014 Demographic Forecast Demographic analysis is a key pillar of BMI's macroeconomic and industry forecasting model. Not only is the total population of a country a key variable in consumer demand, but an understanding of the demographic profile is key to understanding issues ranging from future population trends to productivity growth and government spending requirements. The accompanying charts detail Vietnam's population pyramid for 2013, the change in the structure of the population between 2013 and 2050 and the total population between 1990 and 2050, as well as life expectancy. The tables show key datapoints from all of these charts, in addition to important metrics including the dependency ratio and the urban/rural split. Population Pyramid 2013 (LHS) And 2013 Versus 2050 (RHS) Source: World Bank, UN, BMI © Business Monitor International Page 76 Vietnam Information Technology Report Q3 2014 Population Indicators Population (mn, LHS) And Life Expectancy (years, RHS), 1990-2050 Source: World Bank, UN, BMI Table: Vietnam's Population By Age Group, 1990-2020 ('000) 1990 1995 2000 2005 2010 2013e 2015f 2020f 68,910 76,020 80,888 84,948 89,047 91,680 93,387 97,057 0-4 years 9,315 9,323 7,128 6,898 7,229 7,152 7,012 6,575 5-9 years 8,606 9,212 9,253 7,023 6,791 7,052 7,181 6,968 10-14 years 7,857 8,541 9,162 9,117 6,899 6,619 6,757 7,147 15-19 years 7,359 7,788 8,492 9,050 9,011 7,686 6,866 6,726 20-24 years 6,644 7,222 7,673 8,333 8,874 9,148 8,936 6,802 25-29 years 6,006 6,470 7,065 7,471 8,112 8,528 8,772 8,837 30-34 years 5,138 5,890 6,352 6,910 7,286 7,703 8,022 8,680 35-39 years 3,888 5,065 5,803 6,242 6,763 7,011 7,208 7,940 40-44 years 2,463 3,826 4,994 5,719 6,147 6,472 6,685 7,127 45-49 years 2,017 2,409 3,753 4,935 5,648 5,894 6,054 6,589 50-54 years 1,968 1,959 2,346 3,700 4,855 5,306 5,521 5,926 55-59 years 2,046 1,891 1,885 2,237 3,542 4,278 4,677 5,330 60-64 years 1,669 1,934 1,790 1,734 2,068 2,795 3,352 4,444 65-69 years 1,412 1,522 1,771 1,610 1,562 1,673 1,906 3,104 70-74 years 1,028 1,216 1,322 1,530 1,399 1,360 1,379 1,695 Total © Business Monitor International Page 77 Vietnam Information Technology Report Q3 2014 Vietnam's Population By Age Group, 1990-2020 ('000) - Continued 1990 1995 2000 2005 2010 2013e 2015f 2020f 75-79 years 752 819 984 1,080 1,263 1,219 1,167 1,160 80-84 years 430 536 597 732 815 919 964 900 85-89 years 224 261 336 385 483 517 546 654 90-94 years 71 108 132 177 210 245 268 306 95-99 years 16 25 41 53 74 83 89 115 100+ years 12 17 21 24 30 e/f = BMI estimate/forecast. Source: World Bank, UN, BMI Table: Vietnam's Population By Age Group, 1990-2020 (% of total) 1990 1995 2000 2005 2010 2013e 2015f 2020f 0-4 years 13.52 12.26 8.81 8.12 8.12 7.80 7.51 6.77 5-9 years 12.49 12.12 11.44 8.27 7.63 7.69 7.69 7.18 10-14 years 11.40 11.23 11.33 10.73 7.75 7.22 7.24 7.36 15-19 years 10.68 10.25 10.50 10.65 10.12 8.38 7.35 6.93 20-24 years 9.64 9.50 9.49 9.81 9.97 9.98 9.57 7.01 25-29 years 8.72 8.51 8.73 8.79 9.11 9.30 9.39 9.11 30-34 years 7.46 7.75 7.85 8.13 8.18 8.40 8.59 8.94 35-39 years 5.64 6.66 7.17 7.35 7.60 7.65 7.72 8.18 40-44 years 3.57 5.03 6.17 6.73 6.90 7.06 7.16 7.34 45-49 years 2.93 3.17 4.64 5.81 6.34 6.43 6.48 6.79 50-54 years 2.86 2.58 2.90 4.36 5.45 5.79 5.91 6.11 55-59 years 2.97 2.49 2.33 2.63 3.98 4.67 5.01 5.49 60-64 years 2.42 2.54 2.21 2.04 2.32 3.05 3.59 4.58 65-69 years 2.05 2.00 2.19 1.89 1.75 1.83 2.04 3.20 70-74 years 1.49 1.60 1.63 1.80 1.57 1.48 1.48 1.75 75-79 years 1.09 1.08 1.22 1.27 1.42 1.33 1.25 1.19 80-84 years 0.62 0.70 0.74 0.86 0.91 1.00 1.03 0.93 85-89 years 0.32 0.34 0.42 0.45 0.54 0.56 0.58 0.67 90-94 years 0.10 0.14 0.16 0.21 0.24 0.27 0.29 0.32 95-99 years 0.02 0.03 0.05 0.06 0.08 0.09 0.10 0.12 © Business Monitor International Page 78 Vietnam Information Technology Report Q3 2014 Vietnam's Population By Age Group, 1990-2020 (% of total) - Continued 100+ years 1990 1995 2000 2005 2010 2013e 2015f 2020f 0.00 0.00 0.01 0.01 0.02 0.02 0.03 0.03 e/f = BMI estimate/forecast. Source: World Bank, UN, BMI Table: Vietnam's Key Population Ratios, 1990-2020 Dependent ratio, % of total working age Dependent population, total, '000 1990 1995 2000 2005 2010 2013e 75.8 71.0 61.3 50.8 42.9 41.4 2015f 2020f 41.3 41.9 29,712 31,567 30,734 28,617 26,741 26,860 27,293 28,655 Active population, % of total 56.9 Active population, total, '000 58.5 62.0 66.3 70.0 70.7 70.8 70.5 39,198 44,453 50,154 56,331 62,306 64,820 66,094 68,402 Youth population, % of total working age 65.8 Youth population, total, '000 60.9 50.9 40.9 33.6 32.1 31.7 30.2 25,778 27,076 25,544 23,038 20,918 20,822 20,950 20,690 Pensionable population, % of total working age Pensionable population, total, '000 10.0 10.1 10.3 9.9 9.3 9.3 9.6 11.6 3,934 4,491 5,190 5,579 5,823 6,037 6,343 7,965 e/f = BMI estimate/forecast. Source: World Bank, UN, BMI Table: Vietnam's Rural And Urban Population, 1990-2020 1990 1995 2000 2005 2010 2013e 2015f 2020f Urban population, % of total 20.3 22.2 24.4 27.3 30.4 32.3 33.6 36.9 Rural population, % of total 79.7 77.8 75.6 72.7 69.6 67.7 66.4 63.1 Urban population, total, '000 13,958 16,867 19,716 23,175 27,064 29,632 31,384 35,771 Rural population, total, '000 54,952 59,153 61,172 61,773 61,983 62,048 62,003 61,286 e/f = BMI estimate/forecast. Source: World Bank, UN, BMI © Business Monitor International Page 79 Vietnam Information Technology Report Q3 2014 Methodology Industry Forecast Methodology BMI's industry forecasts are generated using the best-practice techniques of time-series modelling and causal/econometric modelling. The precise form of model we use varies from industry to industry, in each case being determined, as per standard practice, by the prevailing features of the industry data being examined. Common to our analysis of every industry is the use of vector autoregressions. They allow us to forecast a variable using more than its own history as explanatory information. For example, when forecasting oil prices, we can include information about oil consumption, supply and capacity. When forecasting for some of our industry sub-component variables, however, using a variable's own history is often the most desirable method of analysis. Such single-variable analysis is called univariate modelling. We use the most common and versatile form of univariate models: the autoregressive moving average model (ARMA). In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality is poor. In such cases we use either traditional decomposition methods or smoothing methods as a basis for analysis and forecasting. We mainly use OLS estimators and in order to avoid relying on subjective views and encourage the use of objective views, BMI uses a 'general-to-specific' method. BMI mainly uses a linear model, but simple nonlinear models, such as the log-linear model, are used when necessary. During periods of 'industry shock', for example poor weather conditions impeding agricultural output, dummy variables are used to determine the level of impact. Effective forecasting depends on appropriately selected regression models. BMI selects the best model according to various different criteria and tests, including but not exclusive to: ■ R2 tests explanatory power; adjusted R2 takes degree of freedom into account; ■ Testing the directional movement and magnitude of coefficients; ■ Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value); ■ All results are assessed to alleviate issues related to auto-correlation and multi-collinearity;. © Business Monitor International Page 80 Vietnam Information Technology Report Q3 2014 BMI uses the selected best model to perform forecasting. Human intervention plays a necessary and desirable role in all of BMI's industry forecasting. Experience, expertise and knowledge of industry data and trends ensure analysts spot structural breaks, anomalous data, turning points and seasonal features where a purely mechanical forecasting process would not. Sector-Specific Methodology A number of criteria drive our forecasts for each IT variable. IT forecasting is complicated due to the fragmented nature of the market, with little transparency of vendor data and low apparent agreement between many sets of figures in terms of market definition, base and methodology. In addition, forecasts are affected by consideration of a variety of internal and external political and economic factors. Within best-practice techniques of time-series modelling, our quarterly updated forecasts are improved substantially by intimate knowledge of the prevailing features of each local market. Individual variables taken into account in creating each forecast include: ■ Overall economic context, and GDP and demographic trends; ■ Underlying 'information society' trends; ■ Projected GDP share of industry; ■ Maturity of market structure; ■ Regulatory developments and government policies; ■ Developments in key client sectors such as telecommunications, banking and e-government; ■ Technological developments and diffusion rates; ■ Exogenous events. Estimates are calculated using our own macroeconomic and demographic forecasts. Sources Additional sources used in IT reports include national ministries and ICT regulatory bodies, national industry associations, and international industry organisations such as the International Telecommunication © Business Monitor International Page 81 Vietnam Information Technology Report Q3 2014 Union (ITU), officially released company results and figures, and international and national industry news agencies. Risk/Reward Ratings Methodology BMI's Risk/Reward Ratings (RRR) provide a comparative regional ranking system evaluating the ease of doing business and the industry-specific opportunities and limitations for potential investors in a given market. The RRR system divides into two distinct areas: Rewards: Evaluation of sector's size and growth potential in each state, and also broader industry/state characteristics that may inhibit its development. This is further broken down into two sub categories: ■ Industry Rewards (an industry-specific category taking into account current industry size and growth forecasts, the openness of market to new entrants and foreign investors, to provide an overall score for potential returns for investors). • Country Rewards (a country-specific category, factoring in favourable political and economic conditions for the industry). Risks: Evaluation of industry-specific dangers and those emanating from the state's political/economic profile that call into question the likelihood of anticipated returns being realised over the assessed time period. This is broken down into two sub categories: ■ Industry Risks (an industry-specific category whose score covers potential operational risks to investors, regulatory issues inhibiting the industry and the relative maturity of a market). • Country Risks (a country-specific category in which political and economic instability, unfavourable legislation and a poor overall business environment are evaluated to provide an overall score). We take a weighted average, combining industry and country risks, or industry and country rewards. These two results in turn provide an overall Risk/Reward Rating, which is used to create our regional ranking system for the risks and rewards of involvement in a specific industry in a particular country. For each category and sub-category, each state is scored out of 100 (100 being the best), with the overall Risk/Reward Rating a weighted average of the total score. As most of the countries and territories evaluated are considered by BMI to be 'emerging markets', our rating is revised on a quarterly basis. This ensures the rating draws on the latest information and data across our broad range of sources, and the expertise of our analysts. © Business Monitor International Page 82 Vietnam Information Technology Report Q3 2014 Sector-Specific Methodology In constructing these ratings, the following indicators have been used. Almost all indicators are objectively based. Table: It Risk/Reward Ratings Indicators Rationale Rewards Industry IT market value, US$bn Denotes breadth of IT market. Large markets score higher than smaller ones. Sector value growth, % year-on-year (y-o-y) Denotes sector dynamism. Scores based on annual average growth over five-year forecast period. Government initiatives and spending Denotes spending boost provided by public sector, which can be a crucial determinant of sector development. Hardware, % of total sales Denotes maturity of market. A high proportion of hardware sales, compared to services/ software, indicates that the overall IT market is immature. Country Urban-rural split Urbanisation is used as a proxy for development. Mainly rural states score lower. GDP per capita, US$ A high GDP per capita supports long-term industry prospects. Overall score for Country Rewards is also affected by the coverage of the power transmission network across the state. Risks Industry Intellectual property (IP) laws Markets with fair and enforced IP regulations score higher than those with endemic counterfeiting. ICT policy Subjective evaluation of official policy towards IT development, as enshrined in statute and tax code. Country Short-term external risk Rating from BMI's Country Risk Ratings (CRR). It evaluates the vulnerability to external shock, which is the principal cause of economic crises. Such a crisis would cut investment. Short-term financial risk Rating from CRR, to denote risk of currency crisis and stability of banking sector. The former would hit revenues in hard currency, while the latter would curtail investment funding. Trade bureaucracy Rating from CRR to denote ease of trading with the state. Legal framework Rating from CRR denotes the strength of legal institutions in each state - security of investment can be a key risk in some emerging markets. Bureaucracy Rating from CRR denotes ease of conducting business in the state. Corruption Rating from CRR denotes the risk of additional illegal costs/possibility of opacity in tendering/business operations affecting companies' ability to compete. Source: BMI © Business Monitor International Page 83 Vietnam Information Technology Report Q3 2014 Weighting Given the number of indicators/datasets used, it would be wholly inappropriate to give all sub-components equal weight. The following weighting has been adopted: Table: Weighting Of Components Component Rewards Weighting, % 70, of which - Industry 65 - Country 35 Risks to 30, of which - Industry 40 - Country 60 Source: BMI © Business Monitor International Page 84 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...]... the value of the market is set to reach VND101.3trn in 2018 © Business Monitor International Page 16 Vietnam Information Technology Report Q3 2014 2014 Outlook Our outlook for 2014 is unchanged in the Q3 2014 update, as we continue to forecast another year of strong growth for Vietnam' s IT market in 2014 Industry Trends - IT Market 2011-2018 Growth is expected to slow slightly from 2013 as a result... lingering threat A failure by the authorities to boost skills levels could leave Vietnam a second-rate economy for an indefinite period © Business Monitor International Page 15 Vietnam Information Technology Report Q3 2014 Industry Forecast Table: IT Industry - Historical Data And Forecasts (Vietnam 2011-2018) 2011 2012 2013e 2014f 2015f 2016f 2017f 2018f 40,863,664 47,495,837 55,874,102 63,193,610 71,092,811... Page 13 Vietnam Information Technology Report Q3 2014 Economic SWOT Analysis Strengths ■ Vietnam has been one of the fastest-growing economies in Asia in recent years, with GDP growth averaging 7.1% annually between 2000 and 2012 ■ The economic boom has lifted many Vietnamese out of poverty, with the official poverty rate in the country falling from 58% in 1993 to 20.7% in 2012 Weaknesses ■ Vietnam. .. International Page 30 Vietnam Information Technology Report Q3 2014 Market Overview Hardware The hardware market in Vietnam is forecast to stay on a strong growth trajectory over the medium term as rising incomes, declining device prices, enterprise modernisation and ongoing investments to upgrade telecoms networks BMI forecasts growth of 11.3% to VND38.2trn in 2014 Over the medium term BMI forecasts Vietnam' s... unit sales increased 25.5% to 3.4mn in 2014, and we forecast growth of 20.4% in 2014 We forecast unit growth in all device categories, but it is tablets that are forecast to outperform with © Business Monitor International Page 31 Vietnam Information Technology Report Q3 2014 over 50% growth to 988,000 units However, hybrid notebooks are forecast to grow strongly in 2014 as prices decline, which will challenge... be crucial to sustaining economic growth in 2014 and beyond Failure by the government to restructure SOE's and provide a framework for foreign investors to participate in the equitisation of these companies in a timely manner could weigh on investment and growth © Business Monitor International Page 26 Vietnam Information Technology Report Q3 2014 Table: Vietnam - Economic Activity 2009 Nominal GDP,... four © Business Monitor International Page 29 Vietnam Information Technology Report Q3 2014 categories in our table Hong Kong has the highest score of 77.7, followed by Singapore on 74.4 Hong Kong's score is boosted by its strong legal framework, transparent and efficient trade policies and a strong corruption score Table: Asia-Pacific Risk/Reward Ratings - Q3 2014 Industry rewards Country rewards Industry... 18 Vietnam Information Technology Report Q3 2014 The government is a major supporter of the development of the IT market in Vietnam through policy initiatives and financing Policies include promoting the use of IT by government agencies, citizens and enterprises - as well as promoting the development of local industry, particularly in software and outsourcing services For instance, in November 2014. .. the end of 2014 Moreover, Vietnam has been forging very strong trade and investment ties with Japan in order to attract funding and expertise to invest and develop the country's infrastructure and manufacturing sectors © Business Monitor International Page 25 Vietnam Information Technology Report Q3 2014 Table: Foreign Direct Investment By Country Of Origin (Top Five) Jan-Mar 2014 Origin Jan-Mar 2013... functionality required for a sole household device Press reports from Vietnam in H114 indicate there was a surge in demand for lower-priced hybrid notebooks, as price sensitive consumers are aware of the productivity trade-off from owning tablets as a sole device © Business Monitor International Page 32 Vietnam Information Technology Report Q3 2014 In 2013 sales in the retail market continued to increase . reach VND101.3trn in 2018. Vietnam Information Technology Report Q3 2014 © Business Monitor International Page 16 2014 Outlook Our outlook for 2014 is unchanged in the Q3 2014 update, as we continue. products. Vietnam Information Technology Report Q3 2014 © Business Monitor International Page 7 Another area of emerging opportunity is the cloud computing market in Vietnam. In June 2014 VMWare reported. Q3 2014 www.businessmonitor.com VIETNAM INFORMATION TECHNOLOGY REPORT INCLUDES 5-YEAR FORECASTS TO 2018 ISSN 2044-9631 Published by:Business Monitor International Vietnam Information Technology Report