Q4 2010 www.businessmonitor.com VIetNaM information technology Report INCLUDES 5-YEAR FORECASTS TO 2014 ISSN 2044-9631 Published by Business Monitor International Ltd. VIETNAM INFORMATION TECHNOLOGY REPORT Q4 2010 INCLUDES 5-YEAR FORECASTS TO 2014 Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Publication Date: October 2010 Business Monitor International Mermaid House, Puddle Dock, London, EC4V 3DS, UK Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: subs@businessmonitor.com Web: http://www.businessmonitor.com © 2010 Business Monitor International. All rights reserved. All information contained in this publication is copyrighted in the name of Business Monitor International, and as such no part of this publication may be reproduced, repackaged, redistributed, resold in whole or in any part, or used in any form or by any means graphic, electronic or mechanical, including photocopying, recording, taping, or by information storage or retrieval, or by any other means, without the express written consent of the publisher. DISCLAIMER All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor International accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication. All information is provided without warranty, and Business Monitor International makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained. Vietnam Information Technology Report Q4 2010 © Business Monitor International Ltd Page Vietnam Information Technology Report Q4 2010 CONTENTS Executive Summary . SWOT Analysis . Vietnam IT Sector SWOT . Vietnam Telecoms SWOT . Vietnam Political SWOT 10 Vietnam Economic SWOT 11 Vietnam Business Environment SWOT . 12 IT Business Environment Ratings 13 Asia IT Business Environment Ratings 13 Table: Asia Pacific IT Business Environment Ratings . 13 Asia Regional IT Markets Overview 16 Vietnam Market Overview 23 Background 23 Hardware . 25 Software . 27 Services 29 Industry Developments 31 Industry Forecast Scenario . 34 Table: Vietnam IT Sector (US$mn unless otherwise stated) 36 Internet 37 Table: Telecoms Sector – Internet – Historical Data And Forecasts . 37 Macroeconomic Forecast 39 Vietnam – Economic Activity . 40 Competitive Landscape . 41 Hardware . 41 Software . 42 IT Services . 45 Internet 47 Company Profiles . 48 FPT Software . 48 BMI Methodology . 49 How We Generate Our Industry Forecasts 49 IT Industry . 49 IT Ratings – Methodology 50 Table: IT Business Environment Indicators . 51 Weighting . 52 Table: Weighting Of Components 52 Sources 52 © Business Monitor International Ltd Page Vietnam Information Technology Report Q4 2010 © Business Monitor International Ltd Page Vietnam Information Technology Report Q4 2010 Executive Summary Market Overview The Vietnamese IT market is estimated to grow at a CAGR of 12% over the 2010-2014 period. The addressable domestic market for IT products and services is projected by BMI to reach US$1.9bn in 2010 and US$2.9bn by 2014. The PC market rebounded in Q210 following a sluggish start to the year. Government and business IT spending remain subject to fiscal restraints and caution, and the devaluation of the dong will also inhibit demand. Going forward, however, factors such as growing PC penetration, economic growth, a range of government ICT initiatives and ambitious plans to grow Vietnam's IT industry will help to underpin market progress. The addressable domestic market for IT products and services is projected by to reach US$2.9bn by 2014. An ambitious IT plan for 2010-2020 should shape many segments of the Vietnamese IT market, while Vietnam's improving information and communication technology (ICT) infrastructure will also drive growth. Vietnam's gradual integration into global trade networks such as the Association of Southeast Asian Nations (ASEAN) and the WTO has helped to bring down prices and increase opportunities for importers. Industry Developments The Vietnamese government has unveiled ambitious plans for developing the country's IT industry over the next five years. The plans, which state of revenues target for the sector of between US$17bn and US$19bn in the next five years, include major investments to develop production centres in software, services, hardware and electronics. Revenues are projected at US$2bn from software sales, US$12.5bn from hardware, US$2bn from digital content, and US$1.5bn from IT services. In January 2010, the Vietnam Post and Telecoms Group (VNPT) in Ho Chi Minh City launched a local version of the Computers for Education programme, which will provide teachers and students in the city with low-priced laptops and DSL broadband connections. The discounts will be available through VNPT's 30 retail outlets and 200 agents in the city. In August 2009, the Ministry of Education and Training launched a national programme to supply 1mn affordable computers to Vietnamese schools by 2011. Competitive Landscape Multinational brands dominate the Vietnamese PC market, with HP the top-selling PC brand in 2009, ahead of Acer. HP's sales have been boosted by government and education sector projects, as well as by © Business Monitor International Ltd Page Vietnam Information Technology Report Q4 2010 its strategy to target the consumer segment. Other multinational PC vendors including Dell, Toshiba and Asus have enjoyed strong recent growth in the booming market. Government plans to expand the local software industry, and develop a number of new software bases, as well as two new software businesses with revenues of more than US$200mn, could potentially have an impact on the local software competitive landscape. Vietnamese software producers have a greater presence in their domestic market. The Ministry of Information and Communications (MOCI), which developed the plans, has also called for the localisation of some open-source software products for use in state agencies. Vietnam has around 10,000 firms currently licensed to provide IT services, but only one-third are actually operating. The MOCI is currently developing a draft decree to map out policies to help the IT industry grow and this is due by the end of the year. The decree will stipulate procedures and operational requirements for firms providing IT services. Computer Sales BMI projects that sales in Vietnam's computer hardware market will be worth around US$1.3bn in 2010, up from an estimated US$1.4bn in 2009. The main growth driver will be affordable notebooks, with various models of the smaller form factor netbooks selling well in 2009. PC penetration in Vietnam was around 9.6% in 2007, according to World Bank figures, and in 2010 is estimated by BMI at around 15%. Notebooks are owned by an estimated 7% of the Vietnamese population. This points to significant growth potential for the local PC market, with the most potential being in rural areas. Currently Hanoi and Ho Chi Minh City are thought to account for in the region of 85% of notebook sales. Software In 2010, Vietnam software sales are projected by BMI to grow to US$178mn, despite the uncertain economic conditions, and software CAGR for 2010-2014 should be in the region of 15%. Software spending comprises around 10% of total Vietnamese IT spending. The market is expected to reach a value of around US$312mn by 2014, with steady growth in demand for licensed software from government, enterprise and household segments. However, some vendors and distributors saw a slowdown in 2009 due to global economic headwinds. Vietnam's software market is developing, despite the problem of software piracy, which still accounts for around 85% of software, compared with 76% in neighbor Thailand. © Business Monitor International Ltd Page Vietnam Information Technology Report Q4 2010 Services Vietnamese IT services spending is forecast to reach around US$306mn in 2010, up from US$297mn in 2009. The economic crisis had an impact in 2009, with projects being put on hold. However, sectoral CAGR is projected at 13% over the forecast period, as the market approaches US$501mn by 2014. IT services now accounts for around 18% of total Vietnam IT spending. Over the past few years, the size of IT services deals has increased in key IT spending verticals. Growing demand for digital infrastructure projects in segments such as banking, telecoms, energy and government has attracted global IT services providers to invest more in Vietnam. E-Readiness Vietnam's fixed-line infrastructure is unreliable and offers poor coverage. However, Vietnam has an exceptionally high penetration rate in the mobile market, reaching 126% at the end of 2009, and registering around 110.8mn subscribers. This has been aided by mobile network operators reducing tariffs to encourage growth of their respective subscriber bases, as well as increased investment in the expansion of infrastructure to areas outside major towns and cities. Demand for mobile broadband has also been accelerated by the changing lifestyles of consumers, who use the service for accessing the internet for work and leisure. © Business Monitor International Ltd Page Vietnam Information Technology Report Q4 2010 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. 2010-2014 CAGR of 12% forecast as per capita IT spend reaches US$31 by 2014, from US$21 in 2009. 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 neighbour 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, etaxation 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 Q4 2010 Vietnam Telecoms 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. Slower economic growth in 2009 and 2010 could undermine wireline investment and expansion plans. © Business Monitor International Ltd Page Vietnam Information Technology Report Q4 2010 2.967mn. In 2008, Vietnam's broadband subscriber base expanded by 58%. We continue to predict a relatively robust broadband subscriber growth over the next five years. We expect the growth rate to average at around 37.6% per year. By the end of 2010, we envisage a market of around 4.420mn broadband subscribers, equivalent to a penetration rate of 5%. By the end of our forecast in 2014, we now predict just over 14.5mn broadband customers and a penetration rate of around 15.4%. The strong broadband growth in the latter years of our forecast will be supported by a number of developments, including the considerable investment which is currently occurring in the broadband sector, largely relating to mobile broadband. Growth will also reflect the increased market competition, as well as the availability of new WiMAX-based services. © Business Monitor International Ltd Page 38 Vietnam Information Technology Report Q4 2010 Macroeconomic Forecast Private Consumption And Infrastructure Investment Cushion External Weakness BMI View: Economic indicators in July provided an optimistic outlook for Vietnam's economic growth in H210. We believe private consumption and investment in infrastructure development will continue to be the main drivers of economic growth going forward. However, we see external demand weakness leading to a widening of the trade deficit, which will be a drag on growth. Therefore, we are maintaining our real GDP growth forecast of 6.0% and 5.5% for 2010 and 2011 respectively. Vietnam recorded an impressive real GDP growth of 6.3% y-o-y in Q210 as the economy heads towards the government's growth target of 6.5% for 2010. Economic indicators in July also reinforced the government's aggressive target after industrial production came in at a better-than-expected 16.0% y-o-y in July. To a certain extent, the encouraging numbers helped to alleviate concerns that weakening external demand from the US and EU would be a drag on the economy. Industrial production accelerated after slowing down for three consecutive months, falling from 5.0% m-o-m in April to 3.3% and 2.2% in May and June respectively. This prompted the Vietnamese government and the State Bank Of Vietnam (SBV) to exert pressure on commercial banks to lower lending rates in June. However, we expect loan growth to remain weak on a historical basis in H210 due to the threat of higher inflation, which forces commercial banks to keep lending rates high at around 12-14%. Therefore, we not see business investments contributing significantly to industrial production growth going forward. Instead, we see private consumption and government-supported infrastructure investment as the main drivers of economic growth in H210. Retail Sales and Tourist Arrivals Point To Strong Domestic Demand Retail sales came in at 35.3% y-o-y in July, reflecting the strong momentum in consumer demand. We see retail sales as a relatively good indicator of consumer demand as private spending makes up 85.8% of the indicator. Given that retail sales tends to accelerate in the second half of the year largely due to the holiday season, we believe private consumption will play a more significant role in providing support for economic growth in H210. We note that the retail sector is heavily dependent on tourist arrivals. As the accompanying chart shows, the correlation between tourist arrivals and private consumption is strong. Tourist arrivals rose 47.5% y-o-y in July, in line with strengthening retail sales figures. The tourism industry's pace of growth also highlighted the industry's growing potential as a source of economic growth for Vietnam going forward. The government announced in July that it has set a target for Ho Chi Minh City to host million foreign visitors by 2015, raising the tourism industry's revenues from an expected US$2.1bn in 2010 to US$3.15bn by 2015 (see 'Infrastructure Development Key To Sustaining Growth', July 13 2010). We believe the government's tax policies aimed at promoting investment in the tourism sector will continue to provide support for the industry's growth in H210. © Business Monitor International Ltd Page 39 Vietnam Information Technology Report Q4 2010 Infrastructure Development To Support Construction Industry And Jobs Growth In a previous report (see 'Aggressive Government Policies Risk Overheating', July 2), we highlighted that infrastructure projects that are already initiated, such as the construction of a number of ports, roads and thermal power plants, will continue to provide support for the construction sector in H210 and 2011. We believe growth on this front will help to support demand for building materials such as cement and steel, which Vietnam produces domestically, thus having positive spillover effects. Indeed, looking at the breakdown of industrial production data in July, cement production increased by 27.4% y-o-y, while steel production remained stable at 1.5% y-o-y. External Demand Weakness Supports Forecast In line with our view that strong private consumption will drive domestic demand in H210, we expect the trade deficit to widen in 2010. The construction sector's need to import large quantities of materials and capital goods for ongoing infrastructure projects will also keep imports elevated over the coming month. Furthermore, with Vietnam's exports remaining concentrated on the US and EU, the country's trade deficit looks set to widen significantly based on our view of a slowdown in the US and EU in H210 (see chart). The widening trade deficit will no doubt be a drag on Vietnam's economic growth in H210. Therefore we are maintaining our real GDP growth forecast for 2010 at 6.0%, slightly lower than the government's target of 6.5%. Vietnam – Economic Activity 2007 2008e 2009e 2010f 2011f 2012f 2013f 2014f Nominal GDP, VNDbn 1144014.6 1478695.0 1645481.0 1869502.9 2103348.3 2344535.7 2625877.9 2926496.6 Nominal GDP, US$bn 71.1 89.8 92.4 95.9 107.9 117.2 131.3 146.3 Real GDP growth, % change y-o-y 8.5 6.2 5.3 6.0 5.5 6.0 6.8 6.9 GDP per capita, US$ 835 1,042 1,058 1,085 1,208 1,300 1,442 1,591 Population, mn 85.2 86.2 87.3 88.4 89.3 90.2 91.1 92.0 Industrial production index, % y-o-y, 1,4 ave 16.7 14.6 7.6 10.0 12.0 14.0 14.0 14.0 Unemployment, % of labour force, eop 4.6 5.0 5.5 5.5 5.0 4.5 4.0 4.0 e f Notes: BMI estimates. BMI forecasts. at 1994 prices; Sources: IMF (General Statistics Office). World Bank/BMI; General Statistics Office. © Business Monitor International Ltd Page 40 Vietnam Information Technology Report Q4 2010 Competitive Landscape Hardware Vendors report successes with netbook products in Vietnam in H109 Reduction of import tariffs from January 2009 has resulted in vendors like Sony switching to a more import-based strategy for the Vietnamese market Multinational brands dominate the Vietnamese PC market, with HP the top selling PC brand in 2009, ahead of Acer. Other multinational vendors including Dell, Toshiba and Asus have enjoyed strong recent growth in the booming market. HP's sales have been boosted by government and education sector projects, as well as by its strategy to target the consumer segment. HP is also the leader in the printer segment, while Acer has a strong position in notebooks. Vendors continued to roll out new models in 2009 in an attempt to stimulate the market. The popularity of the small form factor netbooks was a significant focus. In May 2009, Intel said that Vietnam was the leading consumer of its net-top product in the Asia Pacific region so far this year, with demand up some 400% compared with the last quarter of 2008. Intel expected total Vietnamese nettop sales of 120,000 this year. The reduction of import tariffs from January 2009 offered a boost to sales of high-end notebooks. Sony announced that it was starting to sell its VAIO notebook in Vietnam, as it started to shift to importing for domestic sales. Sony already has 180 distributors nationwide. Meanwhile, working with its partner DigiWorld Corp, Dell has launched a campaign to target the local consumer segment, which is fuelling much of current growth. As in many other markets, telecoms carriers are emerging as a significant channel option for PC vendors. Dell has launched a partnership with military-run telecoms company Viettel, which will distribute Dell PCs. Viettel has a substantial presence in rural areas, which have big PC market growth potential, as PC penetration is currently low. Meanwhile, Dell has also partnered with local retail giant Teh Gioi Di Dong to sell both online and through the company's 40 retail outlets. Meanwhile, Korean consumer electronics giant Samsung has targeted a larger share of the Vietnamese notebook PC market. Samsung hopes to leverage its distribution network and strong brand recognition into a 10% share of the PC market in 2010. © Business Monitor International Ltd Page 41 Vietnam Information Technology Report Q4 2010 Software Domestic software producers claim around 75% of the Vietnam market SAP launches new strategic partnership with leading Vietnamese software venture CMC Joint Stock Corporation Vietnamese software producers dominate their domestic software market. Local products accounted for around 75% of market value in 2008 while foreign vendors have around 25%. Local companies have a particularly strong position in the government and SME segments, while larger Vietnamese corporations are more likely to consider more expensive software from multinationals. Government plans to expand the local software industry, and develop a number of new software bases, as well as two new software businesses with revenues of more than US$200mn, could potentially have an impact on the local software competitive landscape. The Ministry of Information and Communications (MOCI), which developed the plans, has also called for the localisation of some open-source software products for use in state agencies. Vietnam has about 150 domestic software companies, including 19 joint ventures according to US Commercial Service data. Major IT spending verticals such as banking and finance, oil and gas, aviation and telecoms are among the best opportunities for foreign vendors. The government supports the development of a local software industry and the Vietnam Software Association has forecast growth for the software industry of around 20% in 2010, although this would be only 30% of that achieved in the pre-economic slowdown period of 2005-2008. Many local companies target export markets. FPT Software, one of Vietnam's largest software exporters, said that it had set itself a growth target of 20% for 2010, thanks to the recovery of the American and Australian markets. Meanwhile, other local software firms such as VietSoftware International and Run Systems Co were targeting rates growth of 200-250% and 30%40% in 2010 respectively. 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. © Business Monitor International Ltd Page 42 Vietnam Information Technology Report Q4 2010 The economic downturn may have added to the forces driving interest in open-source software. The economic downturn has led businesses and customers to look more closely at open-office type open source software, due to its perceived lower cost and access to codes, as well as free services such as Google Docs, which are funded by advertising. However, a key issue and precondition for the more widespread adoption of open source will be the development of a support infrastructure. BMI projects that Windows will attract more support than Windows Vista, largely because Windows XP is now getting old. Many businesses that declined to upgrade from XP to Vista, due to reported problems with the latter, may now go straight to Windows 7. Microsoft will still offer reduced support for XP until 2015, but hardware manufacturers will start to wind down their support from about 2012. This will be a key factor that should drive business upgrades to Windows 7. Microsoft will also argue that Windows can help businesses to save costs, enabling IT departments to be run more efficiently. In particular, Windows is better-suited to virtualisation than either XP or Vista. Virtualisation look sets to become an important trend in IT spending in the next few years, as it allows businesses to simplify the management of desktop PCs by running desktop applications and storing user data within the data centre. Given the current economic climate however, IT directors will need to justify any upgrade in terms of cost savings. 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. While many foreign vendors have found richest pickings in the corporate sector, some are now starting to target Vietnamese SMEs. In August 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 will provide DiCentral with technical and marketing assistance as the company promotes its ERP solutions to local firms. The main focus of the alliance will be business solutions for plastics manufacturing and consumer packaged goods, as well as the hotel and property management segment. German software giant SAP is the world's largest business software company and in July 2009 included Ho Chi Minh City on its world tour for the first time. SAP promoted its solutions as helping Vietnamese organisations adapt to the world market. Local clients include PetroVietnam Technology, the International Consumer Products Corporation and VinaCapital. © Business Monitor International Ltd Page 43 Vietnam Information Technology Report Q4 2010 In April 2010, SAP announced that it had formed a strategic partnership with leading Vietnamese software venture CMC. The two partners will develop the major enterprise market together with CMC becoming SAP's strategic partner for consulting and implementing SAP solutions. The main target will be large companies, including in the finance sector. CMC is one of Vietnam's largest software companies and is active in the IT, telecoms and e-business with an annual growth averaging at least 30%. SAP's biggest global rival, US vendor Oracle, has performed strongly in the Asia Pacific (excluding Japan) region during the recent financial crisis. According to the company, it managed to increase its market share in the region. In Vietnam the company has made strong inroads into the banking sector, where it claims to have more than 15 customers, including banks such as Dong A Bank, Hubu Bank, Ocean Bank, Nam A Bank, and Tien Phong Bank. Recently mid-sized bank Vietnam Asia Commercial (VietA) Bank, which is based out of Ho Chi Minh City and has 15 main branches and 47 sub-branches, announced that it was migrating to an Oracle FLEXCUBE solution to cover all of its operations. Oracle has placed a particular focus on middleware recently and has increased the number of its middleware representatives in the Asia Pacific region in an attempt to boost its share. In November 2009, Oracle Vietnam launched Oracle Middleware 11g and Oracle Database11g release in Vietnam. The new software is designed to lower IT costs, streamlining critical processes, secure corporate information and boost productivity. 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$40 bn. 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. © Business Monitor International Ltd Page 44 Vietnam Information Technology Report Q4 2010 European giant SAP, which still has the leading share of the global business software market, has insisted that its specialist software provider role still works and that clients not really want to buy all their IT from one provider. However, particularly following Oracle's acquisition of Sun, SAP may be forced to reconsider. The main enterprise software vendors are increasingly focused on the SME segment, rolling out a succession of product lines and software packages previously only available to larger companies. New releases were tailored to SMEs' smaller budgets and particular organisational needs. Cost and access to credit remain big issues for smaller Vietnamese companies, leading to high levels of software piracy. In response, multinational vendors have had to experiment with innovative programmes. In September 2009, Microsoft Vietnam launched a programme called 'Microsoft Open Value', which was aimed at supporting SMEs in Vietnam to regularise their Microsoft software use though buying a licence at a suitable price and with a suitable payment method in line with the enterprise's budget. IT Services MOC to issue 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 45 Vietnam Information Technology Report Q4 2010 The largest Vietnamese software company, FTP, offers software custom development and outsourcing services to foreign companies and earns 56% of its revenues from Japan. In January 2010, the company 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 March 2010, Japanese companies Mitsui and Co and Moshi Moshi Hotline Inc announced that they had 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 and it was due to start to provide call centre services for the Vietnam market from March 2010. Because of the potential of the Vietnamese market, many other foreign vendors have increased investment in the country. IBM has made a series of recent investments in Vietnam. In May 2009, the US giant announced its establishment of the first IBM innovation centre in Vietnam. The new facility will provide support to digital infrastructure projects in banking, telecoms, energy and government industries. The centre, located in Ho Chi Minh City, will also provide entrepreneurs, IBM business partners and others from not only Vietnam but also Cambodia and Laos with access to training workshops, consulting services and technical infrastructure. IBM has also announced a number of cooperations with local universities in Vietnam. Among these initiatives, the University of Technology, Vietnam National University in Ho Chi Minh City will cooperate with IBM to establish a new university cloud computing centre and a cloud curriculum. Government is an important target sector for IT services vendors. In July 2009, the Ministry of Foreign Affairs and Microsoft Vietnam signed an agreement about cooperation on IT development. Microsoft will provide consultation to the ministry on its IT status and developing a roadmap for developing its IT applications through 2014. Microsoft will also provide training of the ministry's IT staff. © Business Monitor International Ltd Page 46 Vietnam Information Technology Report Q4 2010 Internet Vietnam Internet User Growth There were a total of 22.78mn internet 2004-2008 users in Vietnam at the end of 2009, according to the regulator, VNNIC. This represented an annual growth rate of 9.5% from 20.8mn in 2008, and down from the 12.3% y-o-y increase in 2008. This would indicate that demand for internet services is falling. The chart shows that the annual rate of growth, in terms of the number of new internet users, has become progressively lower over the past few years. As of February 2010 (latest data), the VNNIC stated that the internet user base had risen to 23.31mn, revealing Source: VNNIC, BMI some net additions of 0.53mn in the first two months of the year. Although the rate of internet user penetration among young people and in Vietnam's more affluent urban centres is already higher than the national average, it will be necessary to ensure that new demographic groups have internet access if internet user growth is to continue over the next few years. This in particular relates to providing internet services in rural areas of the country, where fixed-line infrastructure is particularly poor and in some cases non-existent. One phenomenon that bodes well for continued growth in the number of internet users is the high level of PC ownership that exists in Vietnam. According to a survey conducted by Alcatel-Lucent, some 95% of Vietnamese households now have access to a desktop PC, of which 16% are planning to purchase a laptop. Traditionally, affordability has been one of the main reasons behind the slow take-up of internet and broadband services in the market. However, access to PCs and laptops is growing as a number of cheaper models become available in the market. Meanwhile, growth in demand for broadband services is set to soar, as the Vietnamese government has been investing heavily in developing the broadband sector, announcing its commitment to inject VND100trn (US$6.3bn) in order to raise penetration rates significantly. Also, since joining the WTO, a number of high-profile global companies have relocated their operations to Vietnam and the employment of local staff has boosted incomes. The result has been that a significant number spend US$10-$20 on their home internet bills, accessing multimedia content including games and downloads. Increased competition is also expected to encourage increased broadband usage. © Business Monitor International Ltd Page 47 Vietnam Information Technology Report Q4 2010 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 January 2010, FPT revealed that it had launched a US$2mn outsourcing contract to develop core retail and e-commerce software for Nissen Co. The company's US$12mn revenues in Q110 exceeded planned projections by 9%, while profits were 46% higher than initially projected. The fastest growth compared with 2009 came in Vietnam, where revenues were up 90% y-o-y, while Asia Pacific (excluding Japan) grew 47%, Europe 75% and the US 69%. However, the Japanese market, which accounts for more than half of FPT's revenues, grew by only 16%. Future Plans FPT Software has set itself a growth target of 20% for 2010, thanks to the recovery of the American and Australian markets. The company has said that it will continue to focus on an 'eCitizens' strategy of concentrating on core business areas and trying to increase synergy among product and service introductions by FPT group companies. FPT's stronger-thanexpected Q110 performance was attributed to improvements in software exports, distribution, training, telecoms and integrated system services Performance In Q110, FPT Software revenues were reported at around US$12mn, representing growth of 30% in comparison with the same period of 2009. 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 48 Vietnam Information Technology Report Q4 2010 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, however, 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 in all of 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. IT Industry Forecasts There are a number of criteria that 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 naturally affected by consideration of a variety of internal and external political and economic factors. © Business Monitor International Ltd Page 49 Vietnam Information Technology Report Q4 2010 Within best-practice techniques of time-series modelling, BMI’s 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 BMI’s own macroeconomic and demographic forecasts. IT Ratings – Methodology Our approach in BMI’s IT Business Environment Ratings is threefold. First, we seek accurately to capture the operational dangers to companies operating in this industry globally. Second, we attempt, where possible, to identify objective indicators that may serve as proxies for indicators that were traditionally evaluated on a subjective basis. Finally, we include aspects of BMI’s proprietary Country Risk Ratings (CRR) that are relevant to the IT industry. Overall, the ratings system, which integrates with those of all 16 industries covered by BMI, offers an industry-leading insight into the prospects/risks for companies across the globe. Ratings System Conceptually, the ratings system divides into two distinct areas: Limits of potential returns: Evaluation of sector’s size and growth potential in each state, and also broader industry/state characteristics that may inhibit its development. Risks to realisation of those returns: 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. Indicators The following indicators have been used. Overall, the rating uses three subjectively-measured indicators, and 41 separate indicators/datasets. © Business Monitor International Ltd Page 50 Vietnam Information Technology Report Q4 2010 Table: IT Business Environment Indicators Indicator Rationale Limits to potential returns Market structure IT market value, US$bn Sector value growth, % year-onyear (y-o-y) Denotes breadth of IT market. Large markets score higher than smaller ones 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 structure Urban-rural split GDP per capita, US$ Urbanisation is used as a proxy for development. Predominantly rural states therefore score lower A high GDP per capita supports long-term industry prospects. Overall score for country structure is also affected by the coverage of the power transmission network across the state Risks to potential returns Market risks Intellectual property (IP) laws ICT policy Markets with fair and enforced IP regulations score higher than those with endemic counterfeiting Subjective evaluation of official policy towards IT development, as enshrined in statute and tax code Country risk Short-term external risk Rating from CRR 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 BMI’s 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 Legal framework Bureaucracy Corruption Rating from CRR to denote ease of trading with the state Rating from CRR denotes the strength of legal institutions in each state – security of investment can be a key risk in some emerging markets Rating from CRR denotes ease of conducting business in the state 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 Ltd Page 51 Vietnam Information Technology Report Q4 2010 Weighting Given the number of indicators/datasets used, it would be wholly inappropriate to give all subcomponents equal weight. Consequently, the following weight has been adopted. Table: Weighting Of Components Component Weighting Limits of potential returns 70% – IT market 65% – Country structure 35% Risks to realisation of potential returns 30% – Industry risks 40% – Country risk 60% Source: BMI 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 Union (ITU), officially-released company results and figures, and international and national industry news agencies. © Business Monitor International Ltd Page 52 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...]... Ltd Page 10 Vietnam Information Technology Report Q4 2010 Vietnam Economic SWOT Strengths Vietnam has been one of the fastest-growing economies in Asia in recent years, with GDP growth averaging 7.6% annually between 2000 and 2007 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% in 2004 Weaknesses Vietnam still... in the public and private sectors © Business Monitor International Ltd Page 22 Vietnam Information Technology Report Q4 2010 Vietnam Market Overview Government Authority Ministry of Information and Communications (MIC) Minister Le Doan Hop Government Authority The Ministry of Information and Communications (MIC) is the main Vietnamese policymaking and regulatory body in the fields of IT, although its... such as e-readers © Business Monitor International Ltd Page 26 Vietnam Information Technology Report Q4 2010 Software In 2010, Vietnam software sales are projected by BMI to grow to US$178mn, despite the uncertain economic conditions, and software CAGR for 2010- 2014 should be in the region of 15% Software spending comprises around 10% of total Vietnamese IT spending The market is expected to reach a value... Monitor International Ltd Page 24 Vietnam Information Technology Report Q4 2010 Hardware BMI projects that sales in Vietnam' s computer hardware market will be worth around US$1.3bn in 2010, up from an estimated US$1.4bn in 2009 The main growth driver will be affordable notebooks, with various models of the smaller form factor netbooks selling well in 2009 PC penetration in Vietnam was around 9.6% in 2007,... estimated 2010 narrowband penetration rates of 74.3%, 73% and 67.7% respectively Singapore has by far the highest rate of broadband penetration, which was estimated at 134% in 2010 Meanwhile, the Philippines has the lowest level of internet usage, with just 6.6% narrowband and 8.1% broadband penetration estimated in 2010 © Business Monitor International Ltd Page 16 Vietnam Information Technology Report Q4 2010. .. introduced Windows 7 in Vietnam in early November 2009, with the programme being installed in PCs sold at leading electronics distributors such as Nguyen Kim, Tran Anh, Phong Vu and Dang Khoa Microsoft will introduce a Vietnamese version of Windows Live and has announced a list of Vietnamese © Business Monitor International Ltd Page 27 Vietnam Information Technology Report Q4 2010 software programmes... such as information exchange, sending and receiving documents as well as making payments online to be provided to citizens and enterprises By 2010, about 50% of directives from central, municipal and province governments are to be published online, according to the target © Business Monitor International Ltd Page 33 Vietnam Information Technology Report Q4 2010 Industry Forecast Scenario The Vietnamese... other sectors © Business Monitor International Ltd Page 18 Vietnam Information Technology Report Q4 2010 In more developed markets such as Hong Kong and Singapore, robust retail sales led the way in early 2010 as spending recorded positive growth following a contraction in 2009 In Hong Kong, consumer spending is expected to remain strong in 2010, as evidenced by the positive early reception for Apple’s... International Ltd Page 20 Vietnam Information Technology Report Q4 2010 Market Structure (% Of Total IT Market) 2010f 2014f f = forecast Scores out of 100 Source: BMI New platforms and services in the telecoms field is a driver for that key IT spending segment, where an industry restructuring with the advent of 3G mobile services has led to more competition Meanwhile, expanding technology adoption in... plans include developing the internet in rural communities (2008-2013) and developing the Vietnamese IT industry The plans all have regional versions, focused on the central, south and northern regions © Business Monitor International Ltd Page 31 Vietnam Information Technology Report Q4 2010 Government PC Programmes Vietnam' s government ICT programmes are expected to boost PC sales In August 2009, the . Publication Date: October 2010 Vietnam Information Technology Report Q4 2010 © Business Monitor International Ltd Page 2 Vietnam Information Technology Report Q4 2010 © Business. Components 52 Sources 52 Vietnam Information Technology Report Q4 2010 © Business Monitor International Ltd Page 4 Vietnam Information Technology Report Q4 2010 © Business Monitor. from low-cost Chinese vendors in the Vietnamese market. Vietnam Information Technology Report Q4 2010 © Business Monitor International Ltd Page 9 Vietnam Telecoms SWOT Strengths