Q3 2015 www.bmiresearch.com VIETNAM INFORMATION TECHNOLOGY REPORT INCLUDES 5-YEAR FORECASTS TO 2019 ISSN 2044-9631 Published by:BMI Research Vietnam Information Technology Report Q3 2015 INCLUDES 5-YEAR FORECASTS TO 2019 Part of BMI’s Industry Report & Forecasts Series Published by: BMI Research Copy deadline: June 2015 BMI Research 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@bmiresearch.com Web: http://www.bmiresearch.com © 2015 Business Monitor International Ltd All rights reserved. All information contained in this publication is copyrighted in the name of Business Monitor International Ltd, and as such no part of this publication may be reproduced, repackaged, redistributed, resold in whole or in any part, or used in any form or by any means graphic, electronic or mechanical, including photocopying, recording, taping, or by information storage or retrieval, or by any other means, without the express written consent of the publisher. DISCLAIMER All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor International Ltd accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication. All information is provided without warranty, and Business Monitor International Ltd makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained. Vietnam Information Technology Report Q3 2015 CONTENTS BMI Industry View . SWOT IT SWOT Political . 11 Economic . 12 Operational Risk . 14 Industry Forecast 16 Table: IT Industry - Historical Data And Forecasts (Vietnam 2012-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Macroeconomic Forecasts . 24 Economic Analysis . 24 Table: Economic Activity (Vietnam 2010-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Industry Risk Reward Index . 30 Table: Asia Pacific IT Risk/Reward Index - Q315 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Market Overview . 33 Hardware . Software . Cloud Computing . Services 33 40 47 51 Industry Trends And Developments 58 Regulatory Development 63 Table: Government Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Regulatory News 66 Competitive Landscape 69 International Companies . 69 Table: Samsung Electronics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Table: Intel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Table: LG Electronics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Table: Global CyberSoft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 Local Companies . 73 Table: Sara Vietnam . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Company Profile 74 FPT Software 74 Table: FPT Group Financials By Segment (VNDbn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Regional Overview 80 © Business Monitor International Ltd Page Vietnam Information Technology Report Q3 2015 Demographic Forecast . 83 Table: Population Headline Indicators (Vietnam 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Table: Key Population Ratios (Vietnam 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Table: Urban/Rural Population & Life Expectancy (Vietnam 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 Table: Population By Age Group (Vietnam 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 Table: Population By Age Group % (Vietnam 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Methodology 88 Industry Forecast Methodology 88 Sources 89 Risk/Reward Index Methodology . 90 Table: It Risk/Reward Index Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 Table: Weighting Of Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 © Business Monitor International Ltd Page Vietnam Information Technology Report Q3 2015 BMI Industry View BMI View: The key component for our forecast for Vietnamese IT market growth outperformance over the medium term is our view that broad based economic growth will substantially deepen the retail hardware market. This view is supported by the introduction of a household growth forecast for Vietnam in the forecast section of the Q315 update. We forecast a compound annual growth rate (CAGR) of 11.6% 2015-2019, with total spending expected to increase from 1.52% of GDP in 2014 to 1.57% in 2019. Meanwhile, Vietnam's development as an outsourcing destination is a significant medium-term factor, with the services segment expected to expand rapidly. There is also increasing momentum towards Vietnam becoming a global centre for electronics production as wages rise in China and manufacturers look to protect margins by moving to Vietnam, where wages are as little as a third of those in China. Headline Expenditure Projections: ■ Computer Hardware Sales: VND37.0trn in 2014 and VND40.8trn in 2015, rising to VND57.5trn in 2019, CAGR of +10.1% in local currency terms. Forecast upgraded in Q315 after strong sales reported by local retailers in H115 for the Tet New Year holiday season. ■ Software Sales: VND9.0trn in 2014 and VND9.9trn in 2015, rising to VND16.1trn in 2019, CAGR of +12.4% in local currency terms. The enterprise software market as a whole set for strong growth, with security solutions a particularly strong sub-segment for vendors willing to accept narrow margins in a price-sensitive market. ■ IT Services Sales: VND13.7trn in 2014 and VND16.0trn in 2015, rising to VND29.8trn in 2019, CAGR of +16.8% in local currency terms. IT services forecast to outperform 2015-2019 as increased domestic demand for cloud computing and outsourcing services expected to drive strong growth. Key Trends And Developments: In addition to our positive outlook for IT market growth, BMI also has a bullish outlook for the development of Vietnam's IT industry - particularly electronics manufacturing and outsourcing provision. A key factor helping to attract significant inward investment to electronics manufacturing is the government's Hi-Tech Parks policy. In June 2015, the plan was extended - with new parks set to be constructed between 2015 and 2030 through a combination of central government direction, local government funds and private capital. In addition to creating new parks, it also plans to further develop existing facilities including Hoa Lac Hi-Tech Park in Hanoi City, Saigon Hi-Tech Park in Ho Chi Minh City and Danang Hi-Tech Park. The expansion is based on recent success in Vietnam's development goal of promoting high tech manufacturing as a source of higher productivity employment, as well as benefiting Vietnam through technological transfer. Meanwhile, the Vietnamese outsourcing industry was boosted in July 2014 when the prime minister of Vietnam enabled state agencies to use outsourced information technology providers for the first time, a © Business Monitor International Ltd Page Vietnam Information Technology Report Q3 2015 ruling that came into effect in February 2015. It enables IT firms to provide software and technology systems as service packages to the public sector. FPT Information Systems CEO Do Cao Bao stated that the main IT services in Vietnam are system management, cloud software leasing and maintenance services as the largest component at around VND4-5trn a year. It is these areas that are expected to generate the most demand in the public sector, which BMI believes represents a significant new area of growth for vendors. However, confidence remains a major impediment to adoption. Managers are unsure of the benefits of IT outsourcing, as well as having concerns about security and a loss of control over key processes. A report from Grant Thornton International stated that only 12% of enterprises in Vietnam are open to outsourcing. BMI expects outsourcing adoption to accelerate once awareness of the benefits is more widely spread, and vendors ease manager concerns. © Business Monitor International Ltd Page Vietnam Information Technology Report Q3 2015 SWOT IT SWOT SWOT Analysis Strengths ■ Supportive policy framework and funding in place to promote the development of the IT sector. ■ Vietnam's gradual integration into the global trade network via its accession into trade organisations such as the Association of Southeast Asian Nations (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. ■ Vietnam is a preeminent global outsourcing destination, with a particular strength in the software development industry. Weaknesses ■ IT spend per capita is much lower than in neighbouring Thailand, reflecting a much lower GDP per capita. ■ Highly price-sensitive market, putting pressure on vendor margins. ■ High level of software piracy, with a stall in the reduction 2011 to 2013. ■ Cybersecurity measures by the government have been pushed through with state security measures, with potential human rights implications. Opportunities ■ Broad based economic growth forecast to drive retail hardware market growth as household incomes increase markedly 2015-2019. ■ Decision in July 2014 to enable state agencies to use outsourced information technology providers for the first time opens a new growth channel for vendors. © Business Monitor International Ltd Page Vietnam Information Technology Report Q3 2015 SWOT Analysis - Continued ■ 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. ■ National IT Plan will drive sector development, as well as public spending on IT utilisation in areas such as e-government, e-taxation and education. ■ Small- and medium-sized enterprises have much potential to increase spending on basic solutions, including customer relationship management and security. ■ The government's drive to create an IT services industry over the next 15-20 years including the NATIF fund - is expected to be accelerate the development of local enterprises. ■ Cloud computing awareness has risen fast and adoption is expected to accelerate through 2014 and 2015, with virtualisation expected to be a significant growth trend in the short-to-medium term. 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. ■ Cybersecurity 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 Ltd Page 10 Vietnam Information Technology Report Q3 2015 Table: FPT Group Financials By Segment (VNDbn) 2011 2012 2013 2014 y-o-y Growth (%) Telecommunication 2,357 2,750 3,254 3,876 19.1 Digital Content 1,132 1,812 883 823 -6.7 Software Development 1,881 2,340 2,819 3,581 27.0 System Integration 3,297 2,919 2,959 2,663 -10.0 Informatics services 522 680 759 779 2.6 Education 398 508 557 590 6.0 16,309 14,337 17,417 23,730 36.3 Telecommunication 550.4 691.4 830.1 834 0.4 Digital Content 250.4 203.1 139.8 102 -26.9 Software Development 498.4 495.7 548 519 -5.3 System Integration 395.5 321.8 264.4 135 -49.0 Informatics services 57.5 98.1 104.2 85 -18.9 Education 134.4 146.2 132.9 171 28.6 manufacture, distribution and retail 520.7 397.5 404.2 589 45.7 Revenue (VNDbn) manufacture, distribution and retail Profit Before Tax (VNDbn) Operating Margin (%) y-o-y Change (pp) Telecommunication 23.3 25.1 25.5 21.5 -4.0 Digital Content 22.1 11.2 15.8 12.4 -3.4 Software Development 26.5 21.2 19.4 14.5 -4.9 System Integration 12.0 11.0 8.9 5.1 -3.9 Informatics services 11.0 14.4 13.7 10.9 -2.9 Education 33.7 28.8 23.9 28.9 5.1 3.2 2.8 2.3 2.5 0.2 manufacture, distribution and retail Source: FPT, BMI Financial Data ■ ■ ■ ■ ■ ■ ■ ■ ■ Annual Revenue (2010): VND20.5bn Annual Revenue (2011): VND26.0bn Annual Revenue (2012): VND25.4bn Annual Revenue (2013): VND27.1bn Annual Revenue (2014): VND35.1bn EBITDA (2010): VND2.6bn EBITDA (2011): VND3.1bn EBITDA (2012): VND3.0bn EBITDA (2013): VND3.0bn © Business Monitor International Ltd Page 78 Vietnam Information Technology Report Q3 2015 ■ ■ ■ ■ ■ Company Details ■ ■ Net Profit (2010): VND1.7bn Net Profit (2011): VND2.1bn Net Profit (2012): VND2.0bn Net Profit (2013): VND2.1bn Net Profit (2014): VND2.1bn FPT Software FPT Building Duy Tan Street Cau Giay District Hanoi Vietnam ■ Tel: +84/(4) 768 9048 ■ Fax: (4) 768 9049 ■ fsoft.contact@fsoft.com.vn ■ www.fpt-software.com © Business Monitor International Ltd Page 79 Vietnam Information Technology Report Q3 2015 Regional Overview BMI View: As the largest region by far, Asia remains a key target for consumer electronics vendors seeking to capture the household spending growth story. However, major markets such as China and India offer a plethora of home-grown device manufacturers to appeal to new entrants to the ICT market, challenging the strong position of regional powerhouses Samsung, Sony and LG. Key Features: ■ Asia is the largest addressable market globally, with over 1.05bn households in 2015, forecast to reach 1.1bn in 2019. ■ In China, and to a lesser extent India, huge numbers new global middle-class consumers are expected to emerge over the medium term. ■ Bangladesh, India, Indonesia, Pakistan, the Philippines and Vietnam are characterised by large-scale migration of households upwards to the USD5,000-USD10,000 band. In 2015, Asia Pacific markets will account for 56.3% of global households, a figure BMI expects to increase slightly to 57.8% in 2019. More significant however is the forecast for the continuation of the trend of households moving up the income scale across the most significant markets in the region. The most significant trends for 2015-2019 are the growth in USD25,000-USD50,000 households, a trend dominated by China, and large numbers of new households in the low end of the IT and consumer electronics devices market in the USD5,000-USD10,000 income bracket. The China growth story is of huge historical significance for the devices market, both as a consumer and producer. In line with economy-wide macro trends, including rising wages and political impetus towards a more consumption-centric model, BMI forecasts China's significance will skew towards the consumption side during the 2015-2019 period. We forecast a large migration of Chinese households up the income scale, with our forecast envisaging the addition of almost 64.6mn households in the USD25,000USD50,000 band between 2015 and 2019. This migration will see the number of USD1,000-USD5,000 and USD5,000-USD10,000 households decline markedly, but the pool of sub-USD1,000 households will increase slightly in China's more remote and undeveloped regions. © Business Monitor International Ltd Page 80 Vietnam Information Technology Report Q3 2015 Strongest Gains In The Middle APAC Change In Households By Income Level ('000), 2015-2019 Source: BMI BMI considers these medium-term household income trends to be supportive of the strategies of leading Chinese brands such as Lenovo, Huawei, Xiaomi and a host of others, to focus on brand development and maximising market share in recent years. This has allowed them to create a platform for capturing a share of higher value, and higher margin volume growth, over the medium term as vendors aim to become household fixtures in the smartphone, tablet, smart TV, notebook and wearables/home automation markets popularised by China's expanding middle class. Beyond China (and the premium markets of Australia, South Korea and Japan), the medium-term outlook differs considerably. In these markets, we expect households to have more in common with China's development pattern in the past decade as large numbers of consumers purchase their first devices as they reach the USD5,000-USD10,000 income level. This can benefit local and global brands with targeted strategies for price-sensitive consumers, including investment in local production (see 'Lenovo Growth Plan Highlights Market Appeal', March 2015) - and investment in distribution and marketing capabilities. However, there will be a huge challenge for local brands such as the Philippines' Cherry Mobile from lowcost Chinese handsets that have the advantage of scale after success in their domestic market, and have demonstrated capacity of improve quality. Meanwhile, global leader Samsung Electronics faces a continued strategic squeeze as it is undercut in terms of price and specification by Chinese brands targeting © Business Monitor International Ltd Page 81 Vietnam Information Technology Report Q3 2015 market share. Samsung's flexibility is hamstrung by the necessity of not undercutting its highly profitable flagship lines on price and specification. We expect brands such as Samsung, but also other product leaders from the region such as LG, Sony and others, to become increasingly premium- and component-focused over the medium term. One way of doing this is to develop brand- and device-specific services and applications, as Sony has been doing through leveraging its vast media empire. However, the competition is only a few steps behind in this regard and Xiaomi stands out as a prime example of a new player emulating its global peers by tying its devices to a burgeoning service and content business. © Business Monitor International Ltd Page 82 Vietnam Information Technology Report Q3 2015 Demographic Forecast Demographic analysis is a key pillar of BMI's macroeconomic and industry forecasting model. Not only is the total population of a country a key variable in consumer demand, but an understanding of the demographic profile is essential to understanding issues ranging from future population trends to productivity growth and government spending requirements. The accompanying charts detail the population pyramid for 2015, the change in the structure of the population between 2015 and 2050 and the total population between 1990 and 2050. The tables show indicators from all of these charts, in addition to key metrics such as population ratios, the urban/rural split and life expectancy. Population (1990-2050) 150 100 50 2050f 2045f 2040f 2035f 2030f 2025f 2020f 2015f 2010 2005 2000 1990 Vietnam - Population, mn f = BMI forecast. Source: World Bank, UN, BMI © Business Monitor International Ltd Page 83 Vietnam Information Technology Report Q3 2015 Vietnam Population Pyramid 2015 (LHS) & 2015 Versus 2050 (RHS) Source: World Bank, UN, BMI Table: Population Headline Indicators (Vietnam 1990-2025) 1990 2000 2005 2010 2015f 2020f 2025f 68,909 80,887 84,947 89,047 93,386 97,057 99,811 na 1.1 0.9 1.0 0.9 0.7 0.5 Population, total, male, '000 33,892 39,827 41,830 43,970 46,158 47,980 49,302 Population, total, female, '000 35,017 41,060 43,117 45,077 47,228 49,076 50,508 Population ratio, male/female 0.97 0.97 0.97 0.98 0.98 0.98 0.98 Population, total, '000 Population, % y-o-y na = not available; f = BMI forecast. Source: World Bank, UN, BMI Table: Key Population Ratios (Vietnam 1990-2025) Active population, total, '000 Active population, % of total population Dependent population, total, '000 Dependent ratio, % of total working age © Business Monitor International Ltd 1990 2000 2005 2010 2015f 2020f 2025f 39,197 50,153 56,330 62,305 66,093 68,401 70,001 56.9 62.0 66.3 70.0 70.8 70.5 70.1 29,712 30,733 28,617 26,741 27,292 28,655 29,810 75.8 61.3 50.8 42.9 41.3 41.9 42.6 Page 84 Vietnam Information Technology Report Q3 2015 Key Population Ratios (Vietnam 1990-2025) - Continued Youth population, total, '000 1990 2000 2005 2010 2015f 2020f 2025f 25,778 25,543 23,038 20,918 20,950 20,690 19,395 65.8 50.9 40.9 33.6 31.7 30.2 27.7 3,934 5,190 5,578 5,823 6,342 7,964 10,414 10.0 10.3 9.9 9.3 9.6 11.6 14.9 Youth population, % of total working age Pensionable population, '000 Pensionable population, % of total working age f = BMI forecast. Source: World Bank, UN, BMI Table: Urban/Rural Population & Life Expectancy (Vietnam 1990-2025) 1990 Urban population, '000 2020f 2025f 13,957.7 19,715.6 23,174.6 27,064.2 31,383.5 35,771.3 40,027.3 Urban population, % of total Rural population, '000 2000 20.3 24.4 2005 27.3 2010 30.4 2015f 33.6 36.9 40.1 54,952.2 61,172.3 61,773.2 61,983.2 62,003.1 61,285.7 59,783.9 Rural population, % of total 79.7 75.6 72.7 69.6 66.4 63.1 59.9 Life expectancy at birth, male, years 66.1 69.0 69.9 70.7 71.7 72.7 73.7 Life expectancy at birth, female, years 75.1 78.5 79.6 80.2 80.7 81.2 81.7 Life expectancy at birth, average, years 70.6 73.8 74.8 75.5 76.2 77.0 77.8 f = BMI forecast. Source: World Bank, UN, BMI Table: Population By Age Group (Vietnam 1990-2025) 1990 2000 2005 2010 2015f 2020f 2025f Population, 0-4 yrs, total, '000 9,314 7,127 6,897 7,228 7,012 6,574 5,922 Population, 5-9 yrs, total, '000 8,606 9,253 7,023 6,790 7,180 6,968 6,535 Population, 10-14 yrs, total, '000 7,856 9,162 9,117 6,898 6,757 7,147 6,936 Population, 15-19 yrs, total, '000 7,359 8,492 9,050 9,011 6,865 6,725 7,116 Population, 20-24 yrs, total, '000 6,644 7,672 8,332 8,873 8,936 6,802 6,664 Population, 25-29 yrs, total, '000 6,005 7,065 7,470 8,111 8,772 8,837 6,717 Population, 30-34 yrs, total, '000 5,138 6,351 6,909 7,285 8,021 8,680 8,747 Population, 35-39 yrs, total, '000 3,888 5,803 6,241 6,763 7,207 7,939 8,596 Population, 40-44 yrs, total, '000 2,462 4,994 5,719 6,147 6,684 7,127 7,856 Population, 45-49 yrs, total, '000 2,016 3,753 4,935 5,647 6,054 6,588 7,031 © Business Monitor International Ltd Page 85 Vietnam Information Technology Report Q3 2015 Population By Age Group (Vietnam 1990-2025) - Continued 1990 2000 2005 2010 2015f 2020f 2025f Population, 50-54 yrs, total, '000 1,968 2,345 3,699 4,855 5,521 5,926 6,457 Population, 55-59 yrs, total, '000 2,045 1,885 2,237 3,541 4,677 5,330 5,733 Population, 60-64 yrs, total, '000 1,668 1,790 1,734 2,068 3,352 4,443 5,079 Population, 65-69 yrs, total, '000 1,411 1,770 1,609 1,562 1,906 3,104 4,134 Population, 70-74 yrs, total, '000 1,027 1,322 1,530 1,399 1,379 1,695 2,776 Population, 75-79 yrs, total, '000 752 984 1,080 1,263 1,166 1,159 1,437 Population, 80-84 yrs, total, '000 429 596 731 814 964 900 903 Population, 85-89 yrs, total, '000 223 336 385 482 545 653 617 Population, 90-94 yrs, total, '000 71 132 177 209 267 306 372 Population, 95-99 yrs, total, '000 15 40 52 74 89 115 133 Population, 100+ yrs, total, '000 11 16 23 30 38 f = BMI forecast. Source: World Bank, UN, BMI Table: Population By Age Group % (Vietnam 1990-2025) 1990 2000 2005 2010 2015f 2020f 2025f Population, 0-4 yrs, % total 13.52 8.81 8.12 8.12 7.51 6.77 5.93 Population, 5-9 yrs, % total 12.49 11.44 8.27 7.63 7.69 7.18 6.55 Population, 10-14 yrs, % total 11.40 11.33 10.73 7.75 7.24 7.36 6.95 Population, 15-19 yrs, % total 10.68 10.50 10.65 10.12 7.35 6.93 7.13 Population, 20-24 yrs, % total 9.64 9.49 9.81 9.97 9.57 7.01 6.68 Population, 25-29 yrs, % total 8.72 8.73 8.79 9.11 9.39 9.11 6.73 Population, 30-34 yrs, % total 7.46 7.85 8.13 8.18 8.59 8.94 8.76 Population, 35-39 yrs, % total 5.64 7.17 7.35 7.60 7.72 8.18 8.61 Population, 40-44 yrs, % total 3.57 6.17 6.73 6.90 7.16 7.34 7.87 Population, 45-49 yrs, % total 2.93 4.64 5.81 6.34 6.48 6.79 7.04 Population, 50-54 yrs, % total 2.86 2.90 4.36 5.45 5.91 6.11 6.47 Population, 55-59 yrs, % total 2.97 2.33 2.63 3.98 5.01 5.49 5.74 Population, 60-64 yrs, % total 2.42 2.21 2.04 2.32 3.59 4.58 5.09 Population, 65-69 yrs, % total 2.05 2.19 1.90 1.75 2.04 3.20 4.14 Population, 70-74 yrs, % total 1.49 1.63 1.80 1.57 1.48 1.75 2.78 Population, 75-79 yrs, % total 1.09 1.22 1.27 1.42 1.25 1.20 1.44 Population, 80-84 yrs, % total 0.62 0.74 0.86 0.92 1.03 0.93 0.91 © Business Monitor International Ltd Page 86 Vietnam Information Technology Report Q3 2015 Population By Age Group % (Vietnam 1990-2025) - Continued 1990 2000 2005 2010 2015f 2020f 2025f Population, 85-89 yrs, % total 0.32 0.42 0.45 0.54 0.58 0.67 0.62 Population, 90-94 yrs, % total 0.10 0.16 0.21 0.24 0.29 0.32 0.37 Population, 95-99 yrs, % total 0.02 0.05 0.06 0.08 0.10 0.12 0.13 Population, 100+ yrs, % total 0.00 0.01 0.01 0.02 0.03 0.03 0.04 f = BMI forecast. Source: World Bank, UN, BMI © Business Monitor International Ltd Page 87 Vietnam Information Technology Report Q3 2015 Methodology Industry Forecast Methodology BMI's industry forecasts are generated using the best-practice techniques of time-series modelling and causal/econometric modelling. The precise form of model we use varies from industry to industry, in each case being determined, as per standard practice, by the prevailing features of the industry data being examined. Common to our analysis of every industry is the use of vector autoregressions. They allow us to forecast a variable using more than its own history as explanatory information. For example, when forecasting oil prices, we can include information about oil consumption, supply and capacity. When forecasting for some of our industry sub-component variables, however, using a variable's own history is often the most desirable method of analysis. Such single-variable analysis is called univariate modelling. We use the most common and versatile form of univariate models: the autoregressive moving average model (ARMA). In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality is poor. In such cases we use either traditional decomposition methods or smoothing methods as a basis for analysis and forecasting. We mainly use OLS estimators and in order to avoid relying on subjective views and encourage the use of objective views, BMI uses a 'general-to-specific' method. BMI mainly uses a linear model, but simple nonlinear models, such as the log-linear model, are used when necessary. During periods of 'industry shock', for example poor weather conditions impeding agricultural output, dummy variables are used to determine the level of impact. Effective forecasting depends on appropriately selected regression models. BMI selects the best model according to various different criteria and tests, including but not exclusive to: ■ R2 tests explanatory power; adjusted R2 takes degree of freedom into account; ■ Testing the directional movement and magnitude of coefficients; ■ Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value); ■ All results are assessed to alleviate issues related to auto-correlation and multi-collinearity;. © Business Monitor International Ltd Page 88 Vietnam Information Technology Report Q3 2015 BMI uses the selected best model to perform forecasting. Human intervention plays a necessary and desirable role in all of BMI's industry forecasting. Experience, expertise and knowledge of industry data and trends ensure analysts spot structural breaks, anomalous data, turning points and seasonal features where a purely mechanical forecasting process would not. Sector-Specific Methodology A number of criteria drive our forecasts for each IT variable. IT forecasting is complicated due to the fragmented nature of the market, with little transparency of vendor data and low apparent agreement between many sets of figures in terms of market definition, base and methodology. In addition, forecasts are affected by consideration of a variety of internal and external political and economic factors. Within best-practice techniques of time-series modelling, our quarterly updated forecasts are improved substantially by intimate knowledge of the prevailing features of each local market. Individual variables taken into account in creating each forecast include: ■ Overall economic context, and GDP and demographic trends; ■ Underlying 'information society' trends; ■ Projected GDP share of industry; ■ Maturity of market structure; ■ Regulatory developments and government policies; ■ Developments in key client sectors such as telecommunications, banking and e-government; ■ Technological developments and diffusion rates; ■ Exogenous events. Estimates are calculated using our own macroeconomic and demographic forecasts. Sources Additional sources used in IT reports include national ministries and ICT regulatory bodies, national industry associations, and international industry organisations such as the International Telecommunication © Business Monitor International Ltd Page 89 Vietnam Information Technology Report Q3 2015 Union (ITU), officially released company results and figures, and international and national industry news agencies. Risk/Reward Index Methodology BMI's Risk/Reward Index (RRI) provide a comparative regional ranking system evaluating the ease of doing business and the industry-specific opportunities and limitations for potential investors in a given market. The RRI system divides into two distinct areas: Rewards: Evaluation of sector's size and growth potential in each state, and also broader industry/state characteristics that may inhibit its development. This is further broken down into two sub categories: ■ Industry Rewards (an industry-specific category taking into account current industry size and growth forecasts, the openness of market to new entrants and foreign investors, to provide an overall score for potential returns for investors). • Country Rewards (a country-specific category, factoring in favourable political and economic conditions for the industry). Risks: Evaluation of industry-specific dangers and those emanating from the state's political/economic profile that call into question the likelihood of anticipated returns being realised over the assessed time period. This is broken down into two sub categories: ■ Industry Risks (an industry-specific category whose score covers potential operational risks to investors, regulatory issues inhibiting the industry and the relative maturity of a market). • Country Risks (a country-specific category in which political and economic instability, unfavourable legislation and a poor overall business environment are evaluated to provide an overall score). We take a weighted average, combining industry and country risks, or industry and country rewards. These two results in turn provide an overall Risk/Reward Score, which is used to create our regional ranking system for the risks and rewards of involvement in a specific industry in a particular country. For each category and sub-category, each state is scored out of 100 (100 being the best), with the overall Risk/Reward Score a weighted average of the total score. As most of the countries and territories evaluated are considered by BMI to be 'emerging markets', our score is revised on a quarterly basis. This ensures the score draws on the latest information and data across our broad range of sources, and the expertise of our analysts. © Business Monitor International Ltd Page 90 Vietnam Information Technology Report Q3 2015 Sector-Specific Methodology In constructing these indices, the following indicators have been used. Almost all indicators are objectively based. Table: It Risk/Reward Index Indicators Rationale Rewards Industry IT market value, US$bn Denotes breadth of IT market. Large markets score higher than smaller ones. Sector value growth, % year-on-year (y-o-y) Denotes sector dynamism. Scores based on annual average growth over five-year forecast period. Government initiatives and spending Denotes spending boost provided by public sector, which can be a crucial determinant of sector development. Hardware, % of total sales Denotes maturity of market. A high proportion of hardware sales, compared to services/ software, indicates that the overall IT market is immature. Country Urban-rural split Urbanisation is used as a proxy for development. Mainly rural states score lower. GDP per capita, USD A high GDP per capita supports long-term industry prospects. Overall score for Country Rewards is also affected by the coverage of the power transmission network across the state. Risks Industry Intellectual property (IP) laws Markets with fair and enforced IP regulations score higher than those with endemic counterfeiting. ICT policy Subjective evaluation of official policy towards IT development, as enshrined in statute and tax code. Country Short-term external risk Score from BMI's Country Risk Index (CRI). It evaluates the vulnerability to external shock, which is the principal cause of economic crises. Such a crisis would cut investment. Short-term financial risk Score from CRI, to denote risk of currency crisis and stability of banking sector. The former would hit revenues in hard currency, while the latter would curtail investment funding. Trade bureaucracy Score from CRI to denote ease of trading with the state. Legal framework Score from CRI denotes the strength of legal institutions in each state - security of investment can be a key risk in some emerging markets. Bureaucracy Score from CRI denotes ease of conducting business in the state. Corruption Score from CRI denotes the risk of additional illegal costs/possibility of opacity in tendering/ business operations affecting companies' ability to compete. Source: BMI © Business Monitor International Ltd Page 91 Vietnam Information Technology Report Q3 2015 Weighting Given the number of indicators/datasets used, it would be wholly inappropriate to give all sub-components equal weight. The following weighting has been adopted: Table: Weighting Of Components Component Rewards Weighting, % 70, of which - Industry 65 - Country 35 Risks to 30, of which - Industry 40 - Country 60 Source: BMI © Business Monitor International Ltd Page 92 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...]... International Ltd Page 32 Vietnam Information Technology Report Q3 2015 Market Overview Hardware BMI upgraded the IT hardware spending growth outlook for Vietnam in 2015 to 10.1% annual growth in the Q31 5 update after local retailers reported very strong sales growth in H115, particularly around the Tet Vietnamese New Year holidays This has helped to strengthen our view that the Vietnamese hardware market... International Ltd Page 19 Vietnam Information Technology Report Q3 2015 Vietnam Household Income Distribution (%) LHS And Change ('000) RHS 2015f (LHS) & 2015- 2019f (RHS) f = BMI forecast Source: National sources, BMI Investment in networking infrastructure, including international connectivity, will catalyse faster adoption of cloud computing services over the medium term In March 2015, VMWare reported the results... Information Technology Report Q3 2015 SWOT Analysis - Continued • Vietnam' s reliance on imported oil poses risks in the form of energy and fuel shortages • Corruption and inefficiency in the legal system • Anti-Chinese violence, as seen in May 2014, could be a harbinger of wider political and social unrest © Business Monitor International Ltd Page 15 Vietnam Information Technology Report Q3 2015 Industry... undoubtedly reinforced our bullish view of the Vietnamese economy, we maintain our forecast for the country's real GDP growth to accelerate to 6.4% in 2015 from 6.0% in 2014 © Business Monitor International Ltd Page 24 Vietnam Information Technology Report Q3 2015 Strong Growth Trajectory Vietnam - Real GDP Growth, % 8 6 4 2 0 2007 2008 2009 2010 2011 2012 2013 2014 2015f e/f = BMI estimate/forecast Sources:... support to the Vietnamese dong The confluence of these factors will restore and shore up investor confidence, enhancing Vietnam' s attractiveness as a place to invest and do business in © Business Monitor International Ltd Page 27 Vietnam Information Technology Report Q3 2015 Improving Macroeconomic Fundamentals To Lend Support Vietnam - Exchange Rate, VND/USD Source: Bloomberg, BMI Vietnam' s Rising... International Ltd Page 16 Vietnam Information Technology Report Q3 2015 the IT market in Vietnam will expand at a compound annual growth rate (CAGR) of 11.6% forecast for 2015- 2019 and the market expected to reach a value of almost VND103.4trn in 2019 IT Market Growth (2012-2019) 125,000,000 100,000,000 75,000,000 50,000,000 25,000,000 0 2012 2013 2014e 2015f 2016f 2017f 2018f 2019f Vietnam - IT market value,... broad based complexion of economic growth in Vietnam We forecast the PC market trend from 2014 will continue into 2015, with growth forecast for desktop, notebook and tablet shipments as rising incomes and declining device prices promote first-time buyer and © Business Monitor International Ltd Page 17 Vietnam Information Technology Report Q3 2015 upgrade sales Reports from retailers in H115 indicate sales... International Ltd Page 11 Vietnam Information Technology Report Q3 2015 Economic SWOT Analysis Strengths ■ Vietnam has been one of the fastest-growing economies in Asia in recent years, with GDP growth averaging 6.5% annually between 2000 and 2014 ■ The economic boom has lifted many Vietnamese out of poverty, with the official poverty rate in the country falling from 58% in 1993 to 17.2% in 2012 ■ Vietnam has been... both countries host numerous technology- dependent multinational businesses and pro -technology governments © Business Monitor International Ltd Page 31 Vietnam Information Technology Report Q3 2015 Japan's Country Risks score is lower than those for Singapore and Hong Kong, and this is linked to its less attractive economic growth outlook Our Country Risk team has a bearish 2015 real GDP growth forecast... and outsourcing services Meanwhile, the Vietnamese government launched the National Innovation Foundation © Business Monitor International Ltd Page 20 Vietnam Information Technology Report Q3 2015 (NATIF) in early 2015, with VND1trn (USD50mn) of registered capital The government has set NATIF the goal of fostering innovation and promoting commercialisation in the technology sector The areas that will . Q3 2015 www.bmiresearch.com VIETNAM INFORMATION TECHNOLOGY REPORT INCLUDES 5-YEAR FORECASTS TO 2019 ISSN 2044-9631 Published by:BMI Research Vietnam Information Technology Report Q3 2015 INCLUDES. vendors. Vietnam Information Technology Report Q3 2015 © Business Monitor International Ltd Page 19 Vietnam Household Income Distribution (%) LHS And Change ('000) RHS 2015f (LHS) & 2015- 2019f. forecasts Vietnam Information Technology Report Q3 2015 © Business Monitor International Ltd Page 16 the IT market in Vietnam will expand at a compound annual growth rate (CAGR) of 11.6% forecast for 2015- 2019