Q4 2014 www.businessmonitor.com VIETNAM INFORMATION TECHNOLOGY REPORT INCLUDES 5-YEAR FORECASTS TO 2018 ISSN 2044-9631 Published by:Business Monitor International Vietnam Information Technology Report Q4 2014 INCLUDES 5-YEAR FORECASTS TO 2018 Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Copy deadline: September 2014 Business Monitor International Senator House 85 Queen Victoria Street London EC4V 4AB United Kingdom Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: subs@businessmonitor.com Web: http://www.businessmonitor.com © 2014 Business Monitor International All rights reserved. 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All information is provided without warranty, and Business Monitor International makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained. Vietnam Information Technology Report Q4 2014 CONTENTS BMI Industry View . SWOT IT SWOT Wireline . 11 Political . 13 Economic . 14 Business Environment 16 Industry Forecast 17 Table: IT Industry - Historical Data And Forecasts (Vietnam 2011-2018) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Macroeconomic Forecasts . 24 Economic Analysis . 24 Table: Economic Activity (Vietnam 2009-2018) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Industry Risk Reward Ratings 31 Table: APAC IT Risk/Reward Ratings - Q4 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Market Overview . 35 Hardware . 35 Software . 42 Services 50 Industry Trends And Developments 57 Regulatory Development 62 Table: Government Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Regulatory News 65 Competitive Landscape 68 International Companies . 68 Table: Samsung Electronics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Table: Intel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Table: LG Electronics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Table: Global CyberSoft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Local Companies . 72 Table: Sara Vietnam . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 Company Profile 73 FPT Software 73 Table: FPT Group Financials By Segment (VNDbn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Regional Overview 78 © Business Monitor International Page Vietnam Information Technology Report Q4 2014 Asia Pacific Overview 78 Demographic Forecast . 83 Table: Vietnam's Population By Age Group, 1990-2020 ('000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Table: Vietnam's Population By Age Group, 1990-2020 (% of total) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 Table: Vietnam's Key Population Ratios, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Table: Vietnam's Rural And Urban Population, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Methodology 87 Industry Forecast Methodology 87 Sources 88 Risk/Reward Ratings Methodology 89 Table: It Risk/Reward Ratings Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 Table: Weighting Of Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 © Business Monitor International Page Vietnam Information Technology Report Q4 2014 BMI Industry View BMI View: We maintain a positive outlook for the Vietnamese IT market in the Q4 update, but we highlight increased downside risk from a tightening of domestic credit conditions in H214 as a result of a build up of bad debt. Credit markets could cause short term disruption but our forecast for robust medium term growth in Vietnamese IT spending remains in place, with a forecast for a compound annual growth rate (CAGR) of 12.6% between 2014 and 2018. We expect growth will be driven by rising incomes, enterprise modernisation and the policy environment put in place by the government. We also highlight larger opportunities in the retail market where penetration of devices and services remains below the level in neighbouring markets, which vendors will be able to tap as incomes rise. 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: VND38.9trn in 2014 to VND58.3trn in 2018, CAGR of +11.3% in local currency terms. Rising incomes and declining device prices, along with PC subsidy schemes, will support demand growth across all three main device categories over the medium term. ■ Software Sales: VND10.1trn in 2014 to VND17.9trn in 2018, CAGR of +16.1% in local currency terms. There are considerable opportunities in business software and security solutions for vendors willing to accept narrow margins in a price-sensitive market. ■ IT Services Sales: VND14.2trn in 2013 to VND25.1trn in 2018, CAGR of +15.1% in local currency terms. Domestic demand for services remains weak, but we expect adoption to increase markedly as awareness levels increase, particularly with regard cloud computing and outsourcing services. Key Trends & Developments BMI has repeatedly highlighted the drag on IT market development from Vietnam's exposure to cyber security risks, including cyber crime and state backed attacks. We therefore welcomed the September 2014 opening of the Department of Network Security in Hanoi, with the remit of securing Vietnam's internet traffic. The key focus is on comprehensively improving the standards of network security officials and officers. However the government has also bundled its own domestic security goals in with the remit for the new department. These elements have concerned political risk analysts, for instance the power to erase violated content on web portals and social networks under orders from the government, as well the use of information filtering mechanisms. The department will also be able to identify Vietnamese users on social © Business Monitor International Page Vietnam Information Technology Report Q4 2014 networks by linking the electronic databases to its own database of citizen identification cards. Social networks and web portals in Vietnam must store at least two years of their information activities and the same time span for the information of the users' accounts, log-ins, log-outs and IP addresses on social networks. We believe the bundling of functions could ultimately disrupt the agencies work on tackling cyber crime, with the danger that political objectives could take precedence. A more positive development related to the government came in July 2014 when the Prime Minister of Vietnam enabled state agencies to use outsourced information technology providers for the first time. It will enable IT firms to provide software and technology systems as service packages, which BMI believes represents a significant new area of growth for vendors. There is considerable scope for growth in domestic outsourcing sales over the medium term from the public, and private, sectors - 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 Page Vietnam Information Technology Report Q4 2014 SWOT IT SWOT SWOT Analysis Strengths ■ Supportive policy framework and funding in place to promote the development of the IT sector. ■ Vietnam's gradual integration into the global trade network via its accession into trade organisations such as ASEAN and WTO, as well as bilateral agreements with Japan and China. ■ The domestic IT market is in a rapid growth phase, with trade liberalisation and growing affordability driving increased adoption among enterprises and consumers. ■ Expanding local hardware production industry with major international players such as Samsung, Nokia, LG and Intel making large investments. Weaknesses ■ IT spend per capita is much lower than in neighbouring Thailand, reflecting a much lower GDP per capita. ■ Highly cost-sensitive market, with 75% of software provided by lower-cost local software vendors. ■ High level of software piracy, with a stall in the reduction 2011 to 2013. ■ Cyber security measures by the government have been pushed through with state security measures, with potential human rights implications. Opportunities ■ 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. ■ 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. © Business Monitor International Page Vietnam Information Technology Report Q4 2014 SWOT Analysis - Continued ■ 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 spending on IT utilisation in areas such as e-government, etaxation and education. ■ SMEs have much potential to increase spending on basic solutions, including customer relationship management and security. ■ The government's drive to create an IT services industry over the next 15-20 years through incentives to create IT clusters - is expected to be a significant factor shaping the market. ■ Cloud computing awareness has risen fast and adoption is expected to accelerate through 2014 and 2015. Threats ■ A domestic credit tightening in H214 could result in a growth slowdown, with negative implications for IT market growth. ■ Low-cost tablets from own-brand Chinese vendors a particular threat to low- and mid-range notebook vendors. Falling prices may further undermine margins and profitability after steep discounting. ■ Cyber security issues could undermine confidence in IT solutions and services, with big data and cloud computing vulnerable. ■ Yen depreciation has hit the software outsourcing market by making exports less competitive and eroding Vietnam's cost advantages. © Business Monitor International Page 10 Vietnam Information Technology Report Q4 2014 FPT Group Financials By Segment (VNDbn) - Continued Q312 Q412 Q113 Q213 Q313 Q413 Q114 Q214 Telecommunication 24.0 22.5 26.7 28.2 27.2 20.2 26.6 22.7 Digital Content 13.4 5.7 15.4 22.8 20.0 5.1 6.2 19.9 Software Development 21.9 23.8 21.0 23.8 15.8 18.1 16.6 19.7 System Integration 9.1 12.5 2.4 11.7 6.4 10.0 3.2 5.2 Informatics services 17.9 6.1 15.8 23.0 13.9 6.2 12.7 12.8 Education 29.1 15.0 29.1 20.2 25.3 19.5 30.6 27.9 1.7 1.7 3.3 2.4 2.1 1.9 2.6 2.6 manufacture, distribution and retail Source: FPT, BMI Financial Data ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Company Details ■ ■ Annual Revenue (2010): VND20.5bn Annual Revenue (2011): VND26.0bn Annual Revenue (2012): VND25.4bn Annual Revenue (2013): VND27.1bn Revenue (H114): VND17.9bn EBITDA (2010): VND2.6bn EBITDA (2011): VND3.1bn EBITDA (2012): VND3.0bn EBITDA (2013): VND3.0bn Net Profit (2010): VND1.7bn Net Profit (2011): VND2.1bn Net Profit (2012): VND2.0bn Net Profit (2013): VND2.1bn Net Profit (H114): VND1.1bn 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 Page 77 Vietnam Information Technology Report Q4 2014 Regional Overview Asia Pacific Overview BMI forecasts Asia Pacific will be the outperforming region in terms of IT market growth rates over the duration of our medium term forecast to 2018. This is in line with overall economic trends as the region has become an important engine of global growth. Asia is home to not only the two largest emerging markets in India and China, but also a host of rapidly developing frontier markets - making it a prime target for expansion by global vendors. The outlook is however far from homogeneous, there is a wide spread of development levels from Australia, Hong Kong and Singapore through to APAC Forecast To Outperform Annual IT Market Growth In USD (%) Indonesia, Pakistan and Sri Lanka. There is also intense competition between markets in the region vying to attract foreign expertise and investment - as well as promoting domestic industry. Low Hanging Fruit BMI forecasts outperformance for APAC over the medium term as emerging markets are in a sustained period of catch-up growth. The more developed markets in the region - Australia, Hong Kong, Singapore and South Korea - will not experience the e/f - BMI estimate/forecast. Source: BMI. same growth rates, underperforming emerging Asia. This is because in several key product categories these markets are already mature, including retail hardware (desktops, notebook and tablets), as well as enterprise software deployments. However, in emerging Asia there is scope for rapid medium term growth as incomes rise and device prices continue to decline. Whereas developed markets took several decades to reach high levels of IT product and solution penetration among consumers, enterprises and the public sector, in emerging markets this transition is expected to be much faster due to price erosion increasing affordability, and lessons learned from early developers in terms of policy and best practice. © Business Monitor International Page 78 Vietnam Information Technology Report Q4 2014 The area catch-up growth will be most visible is in the retail hardware market where the rapid decline in notebook prices over the past decade, and in tablets since 2012, has deepened the market considerably even before income growth is factored in. Looking ahead, with Microsoft reducing Windows licensing costs for low-end devices, and Android partner vendors competing aggressively on price, effectively commoditising the low-and-mid end of the tablet market, we see the foundation for a significant broadening of device ownership rates over the medium term. Less visible but equally important is the continued investment in IT solutions by enterprises and government. Enterprise modernisation through informatisation is being promoted by governments across the region in order to improve competitiveness, driving basic ERP deployments and other efficiency saving solutions. Meanwhile, in the public sector government's are utilising the latest e-government and service delivery enhancing solutions, leapfrogging the legacy infrastructure in more developed markets. A development that could drive spending growth even higher is the upgrade spending on operating systems as Microsoft withdraws support for XP from 2014. The magnitude of contribution to spending growth is uncertain, but with the latest Statcounter data showing 23.6% of APAC browsing traffic came from devices running XP there is certainly scope for a wave of upgrades in enterprises and public administration. Strong demand in emerging Asia Pacific markets from the retail, enterprise and public sectors will combine to ensure the region is the outperformer over the medium term. Competing Clouds Another area where Asia has an attractive outlook in part because of lower development levels is in cloud computing. The lower level of legacy on-site enterprise and infrastructure deployments makes the region fertile ground for rapid cloud adoption. Furthermore, the pricing models of cloud services are well suited to modernising enterprises that are likely to have less complex requirements and lack the resources for on-site deployments. © Business Monitor International Page 79 Vietnam Information Technology Report Q4 2014 APAC PC Browsing Traffic By OS (%) And Y-o-Y Change March 2014 Source: Statcounter. © Business Monitor International Page 80 Vietnam Information Technology Report Q4 2014 The cloud computing market in emerging Asia Pacific will continue to be weighted towards less complex services over the medium term, but adoption rates are forecast to increase markedly. Data Boom Driving Cloud Demand APAC Mobile Data Volume Forecast (TB per Month) This has attracted major international investment right across the region - for instance companies such as Google, NetSuite, Salesforce, RightNow, Oracle and Zoho have already established their presence in the Indonesian market primarily through channel partners. Meanwhile, international brand names that have entered the Thai market include Amazon Web Services, NTT Communications, Adobe and Google - facing local competition from TRUE Internet Data Centre, CAT, DTAC and TOT. Finally, in the Philippines local telecoms operators have made major investments in datacentre capacity, Source: Cisco VNI 2014 with PLDT announcing in March 2014 that it will spend PHP3bn on the construction of two new data centres, one in metropolitan Makati and a second, to be opened in 2015, in Paranaque. Its data centres business grew by 60% in 2013 and the new facilities will continue that growth momentum. While the focus in emerging Asia will be on low-level deployments, there is also a dynamic of competition between developed markets in the region vying to be regional centres for cloud services and other emerging technologies. The competition between Hong Kong and Singapore to become regional cloud computing hubs is well known, with large scale inward investment both to tap demand from the large and lucrative financial sectors and to serve as a base for service provision across the region. For instance, in Q114 Pacnet and Digital Ocean opened new data centre facilities in Singapore, with both firms stating that regional opportunities were behind the choice of Singapore as a location for data centres. Meanwhile, Hong Kong has attracted investment from global leaders such as NTT Communications, Savvis, IBM and Rackspace. There is however also competition in Asia to position as hubs for emerging technologies such as big data analytics. For instance In March 2014 the South Korean Science, ICT and Future Planning Ministry announced it would inject KRW4.9trn (US$4.6bn) in information infrastructure in 2014. The ministry will invest KRW3.9trn in 786 projects headed by government bodies, with a further KRW978bn invested in © Business Monitor International Page 81 Vietnam Information Technology Report Q4 2014 5,990 projects by provincial authorities. Key areas targeted for investment in 2014 include KRW302bn for cyber security, KRW68bn for mobile technologies and KRW243bn for Internet of Things (machine-tomachine communications). However, South Korea is some way behind Singapore. In August 2013, the Infocomm Development Authority of Singapore (IDA) partnered with Revolution Analytics, a commercial provider of software, services and support for the open source 'R' project, to form a business analytics centre of excellence. The centre will operate as a channel through which local companies can reach the expertise of global organisations to develop new solutions. The IDA's efforts are likely to help Singaporean enterprises use big data, and lay the foundations for expanding across the region. The opportunity in data analytics is huge, with 80% of enterprises surveyed by EMC stating that use of big data will lead to better decision making in their organisation. The survey, released in September 2013, questioned 130 respondents, of which 63% believed that big data will be a key factor determining winners and losers, while 37% stated they had already benefited from competitive advantage via the use of big data. The areas respondents believed big data will prove most beneficial were data centre automation (83%) and cyber security (64%). While the outperformance of Asia in terms of market growth will primarily be underpinned by low-hanging fruit and catch-up growth, there is also significant activity at the technological frontier that means emerging technologies are also expected to be an important component of the medium term growth story. © Business Monitor International Page 82 Vietnam Information Technology Report Q4 2014 Demographic Forecast Demographic analysis is a key pillar of BMI's macroeconomic and industry forecasting model. Not only is the total population of a country a key variable in consumer demand, but an understanding of the demographic profile is key to understanding issues ranging from future population trends to productivity growth and government spending requirements. The accompanying charts detail Vietnam's population pyramid for 2013, the change in the structure of the population between 2013 and 2050 and the total population between 1990 and 2050, as well as life expectancy. The tables show key datapoints from all of these charts, in addition to important metrics including the dependency ratio and the urban/rural split. Population Pyramid 2013 (LHS) And 2013 Versus 2050 (RHS) Source: World Bank, UN, BMI © Business Monitor International Page 83 Vietnam Information Technology Report Q4 2014 Population Indicators Population (mn, LHS) And Life Expectancy (years, RHS), 1990-2050 Source: World Bank, UN, BMI Table: Vietnam's Population By Age Group, 1990-2020 ('000) 1990 1995 2000 2005 2010 2013e 2015f 2020f 68,910 76,020 80,888 84,948 89,047 91,680 93,387 97,057 0-4 years 9,315 9,323 7,128 6,898 7,229 7,152 7,012 6,575 5-9 years 8,606 9,212 9,253 7,023 6,791 7,052 7,181 6,968 10-14 years 7,857 8,541 9,162 9,117 6,899 6,619 6,757 7,147 15-19 years 7,359 7,788 8,492 9,050 9,011 7,686 6,866 6,726 20-24 years 6,644 7,222 7,673 8,333 8,874 9,148 8,936 6,802 25-29 years 6,006 6,470 7,065 7,471 8,112 8,528 8,772 8,837 30-34 years 5,138 5,890 6,352 6,910 7,286 7,703 8,022 8,680 35-39 years 3,888 5,065 5,803 6,242 6,763 7,011 7,208 7,940 40-44 years 2,463 3,826 4,994 5,719 6,147 6,472 6,685 7,127 45-49 years 2,017 2,409 3,753 4,935 5,648 5,894 6,054 6,589 50-54 years 1,968 1,959 2,346 3,700 4,855 5,306 5,521 5,926 55-59 years 2,046 1,891 1,885 2,237 3,542 4,278 4,677 5,330 60-64 years 1,669 1,934 1,790 1,734 2,068 2,795 3,352 4,444 65-69 years 1,412 1,522 1,771 1,610 1,562 1,673 1,906 3,104 70-74 years 1,028 1,216 1,322 1,530 1,399 1,360 1,379 1,695 Total © Business Monitor International Page 84 Vietnam Information Technology Report Q4 2014 Vietnam's Population By Age Group, 1990-2020 ('000) - Continued 1990 1995 2000 2005 2010 2013e 2015f 2020f 75-79 years 752 819 984 1,080 1,263 1,219 1,167 1,160 80-84 years 430 536 597 732 815 919 964 900 85-89 years 224 261 336 385 483 517 546 654 90-94 years 71 108 132 177 210 245 268 306 95-99 years 16 25 41 53 74 83 89 115 100+ years 12 17 21 24 30 e/f = BMI estimate/forecast. Source: World Bank, UN, BMI Table: Vietnam's Population By Age Group, 1990-2020 (% of total) 1990 1995 2000 2005 2010 2013e 2015f 2020f 0-4 years 13.52 12.26 8.81 8.12 8.12 7.80 7.51 6.77 5-9 years 12.49 12.12 11.44 8.27 7.63 7.69 7.69 7.18 10-14 years 11.40 11.23 11.33 10.73 7.75 7.22 7.24 7.36 15-19 years 10.68 10.25 10.50 10.65 10.12 8.38 7.35 6.93 20-24 years 9.64 9.50 9.49 9.81 9.97 9.98 9.57 7.01 25-29 years 8.72 8.51 8.73 8.79 9.11 9.30 9.39 9.11 30-34 years 7.46 7.75 7.85 8.13 8.18 8.40 8.59 8.94 35-39 years 5.64 6.66 7.17 7.35 7.60 7.65 7.72 8.18 40-44 years 3.57 5.03 6.17 6.73 6.90 7.06 7.16 7.34 45-49 years 2.93 3.17 4.64 5.81 6.34 6.43 6.48 6.79 50-54 years 2.86 2.58 2.90 4.36 5.45 5.79 5.91 6.11 55-59 years 2.97 2.49 2.33 2.63 3.98 4.67 5.01 5.49 60-64 years 2.42 2.54 2.21 2.04 2.32 3.05 3.59 4.58 65-69 years 2.05 2.00 2.19 1.89 1.75 1.83 2.04 3.20 70-74 years 1.49 1.60 1.63 1.80 1.57 1.48 1.48 1.75 75-79 years 1.09 1.08 1.22 1.27 1.42 1.33 1.25 1.19 80-84 years 0.62 0.70 0.74 0.86 0.91 1.00 1.03 0.93 85-89 years 0.32 0.34 0.42 0.45 0.54 0.56 0.58 0.67 90-94 years 0.10 0.14 0.16 0.21 0.24 0.27 0.29 0.32 95-99 years 0.02 0.03 0.05 0.06 0.08 0.09 0.10 0.12 © Business Monitor International Page 85 Vietnam Information Technology Report Q4 2014 Vietnam's Population By Age Group, 1990-2020 (% of total) - Continued 100+ years 1990 1995 2000 2005 2010 2013e 2015f 2020f 0.00 0.00 0.01 0.01 0.02 0.02 0.03 0.03 e/f = BMI estimate/forecast. Source: World Bank, UN, BMI Table: Vietnam's Key Population Ratios, 1990-2020 Dependent ratio, % of total working age Dependent population, total, '000 1990 1995 2000 2005 2010 2013e 75.8 71.0 61.3 50.8 42.9 41.4 2015f 2020f 41.3 41.9 29,712 31,567 30,734 28,617 26,741 26,860 27,293 28,655 Active population, % of total 56.9 Active population, total, '000 58.5 62.0 66.3 70.0 70.7 70.8 70.5 39,198 44,453 50,154 56,331 62,306 64,820 66,094 68,402 Youth population, % of total working age 65.8 Youth population, total, '000 60.9 50.9 40.9 33.6 32.1 31.7 30.2 25,778 27,076 25,544 23,038 20,918 20,822 20,950 20,690 Pensionable population, % of total working age Pensionable population, total, '000 10.0 10.1 10.3 9.9 9.3 9.3 9.6 11.6 3,934 4,491 5,190 5,579 5,823 6,037 6,343 7,965 e/f = BMI estimate/forecast. Source: World Bank, UN, BMI Table: Vietnam's Rural And Urban Population, 1990-2020 1990 1995 2000 2005 2010 2013e 2015f 2020f Urban population, % of total 20.3 22.2 24.4 27.3 30.4 32.3 33.6 36.9 Rural population, % of total 79.7 77.8 75.6 72.7 69.6 67.7 66.4 63.1 Urban population, total, '000 13,958 16,867 19,716 23,175 27,064 29,632 31,384 35,771 Rural population, total, '000 54,952 59,153 61,172 61,773 61,983 62,048 62,003 61,286 e/f = BMI estimate/forecast. Source: World Bank, UN, BMI © Business Monitor International Page 86 Vietnam Information Technology Report Q4 2014 Methodology Industry Forecast Methodology BMI's industry forecasts are generated using the best-practice techniques of time-series modelling and causal/econometric modelling. The precise form of model we use varies from industry to industry, in each case being determined, as per standard practice, by the prevailing features of the industry data being examined. Common to our analysis of every industry is the use of vector autoregressions. They allow us to forecast a variable using more than its own history as explanatory information. For example, when forecasting oil prices, we can include information about oil consumption, supply and capacity. When forecasting for some of our industry sub-component variables, however, using a variable's own history is often the most desirable method of analysis. Such single-variable analysis is called univariate modelling. We use the most common and versatile form of univariate models: the autoregressive moving average model (ARMA). In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality is poor. In such cases we use either traditional decomposition methods or smoothing methods as a basis for analysis and forecasting. We mainly use OLS estimators and in order to avoid relying on subjective views and encourage the use of objective views, BMI uses a 'general-to-specific' method. BMI mainly uses a linear model, but simple nonlinear models, such as the log-linear model, are used when necessary. During periods of 'industry shock', for example poor weather conditions impeding agricultural output, dummy variables are used to determine the level of impact. Effective forecasting depends on appropriately selected regression models. BMI selects the best model according to various different criteria and tests, including but not exclusive to: ■ R2 tests explanatory power; adjusted R2 takes degree of freedom into account; ■ Testing the directional movement and magnitude of coefficients; ■ Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value); ■ All results are assessed to alleviate issues related to auto-correlation and multi-collinearity;. © Business Monitor International Page 87 Vietnam Information Technology Report Q4 2014 BMI uses the selected best model to perform forecasting. Human intervention plays a necessary and desirable role in all of BMI's industry forecasting. Experience, expertise and knowledge of industry data and trends ensure analysts spot structural breaks, anomalous data, turning points and seasonal features where a purely mechanical forecasting process would not. Sector-Specific Methodology A number of criteria drive our forecasts for each IT variable. IT forecasting is complicated due to the fragmented nature of the market, with little transparency of vendor data and low apparent agreement between many sets of figures in terms of market definition, base and methodology. In addition, forecasts are affected by consideration of a variety of internal and external political and economic factors. Within best-practice techniques of time-series modelling, our quarterly updated forecasts are improved substantially by intimate knowledge of the prevailing features of each local market. Individual variables taken into account in creating each forecast include: ■ Overall economic context, and GDP and demographic trends; ■ Underlying 'information society' trends; ■ Projected GDP share of industry; ■ Maturity of market structure; ■ Regulatory developments and government policies; ■ Developments in key client sectors such as telecommunications, banking and e-government; ■ Technological developments and diffusion rates; ■ Exogenous events. Estimates are calculated using our own macroeconomic and demographic forecasts. Sources Additional sources used in IT reports include national ministries and ICT regulatory bodies, national industry associations, and international industry organisations such as the International Telecommunication © Business Monitor International Page 88 Vietnam Information Technology Report Q4 2014 Union (ITU), officially released company results and figures, and international and national industry news agencies. Risk/Reward Ratings Methodology BMI's Risk/Reward Ratings (RRR) provide a comparative regional ranking system evaluating the ease of doing business and the industry-specific opportunities and limitations for potential investors in a given market. The RRR system divides into two distinct areas: Rewards: Evaluation of sector's size and growth potential in each state, and also broader industry/state characteristics that may inhibit its development. This is further broken down into two sub categories: ■ Industry Rewards (an industry-specific category taking into account current industry size and growth forecasts, the openness of market to new entrants and foreign investors, to provide an overall score for potential returns for investors). • Country Rewards (a country-specific category, factoring in favourable political and economic conditions for the industry). Risks: Evaluation of industry-specific dangers and those emanating from the state's political/economic profile that call into question the likelihood of anticipated returns being realised over the assessed time period. This is broken down into two sub categories: ■ Industry Risks (an industry-specific category whose score covers potential operational risks to investors, regulatory issues inhibiting the industry and the relative maturity of a market). • Country Risks (a country-specific category in which political and economic instability, unfavourable legislation and a poor overall business environment are evaluated to provide an overall score). We take a weighted average, combining industry and country risks, or industry and country rewards. These two results in turn provide an overall Risk/Reward Rating, which is used to create our regional ranking system for the risks and rewards of involvement in a specific industry in a particular country. For each category and sub-category, each state is scored out of 100 (100 being the best), with the overall Risk/Reward Rating a weighted average of the total score. As most of the countries and territories evaluated are considered by BMI to be 'emerging markets', our rating is revised on a quarterly basis. This ensures the rating draws on the latest information and data across our broad range of sources, and the expertise of our analysts. © Business Monitor International Page 89 Vietnam Information Technology Report Q4 2014 Sector-Specific Methodology In constructing these ratings, the following indicators have been used. Almost all indicators are objectively based. Table: It Risk/Reward Ratings Indicators Rationale Rewards Industry IT market value, US$bn Denotes breadth of IT market. Large markets score higher than smaller ones. Sector value growth, % year-on-year (y-o-y) Denotes sector dynamism. Scores based on annual average growth over five-year forecast period. Government initiatives and spending Denotes spending boost provided by public sector, which can be a crucial determinant of sector development. Hardware, % of total sales Denotes maturity of market. A high proportion of hardware sales, compared to services/ software, indicates that the overall IT market is immature. Country Urban-rural split Urbanisation is used as a proxy for development. Mainly rural states score lower. GDP per capita, US$ A high GDP per capita supports long-term industry prospects. Overall score for Country Rewards is also affected by the coverage of the power transmission network across the state. Risks Industry Intellectual property (IP) laws Markets with fair and enforced IP regulations score higher than those with endemic counterfeiting. ICT policy Subjective evaluation of official policy towards IT development, as enshrined in statute and tax code. Country Short-term external risk Rating from BMI's Country Risk Ratings (CRR). It evaluates the vulnerability to external shock, which is the principal cause of economic crises. Such a crisis would cut investment. Short-term financial risk Rating from CRR, to denote risk of currency crisis and stability of banking sector. The former would hit revenues in hard currency, while the latter would curtail investment funding. Trade bureaucracy Rating from CRR to denote ease of trading with the state. Legal framework Rating from CRR denotes the strength of legal institutions in each state - security of investment can be a key risk in some emerging markets. Bureaucracy Rating from CRR denotes ease of conducting business in the state. Corruption Rating from CRR denotes the risk of additional illegal costs/possibility of opacity in tendering/business operations affecting companies' ability to compete. Source: BMI © Business Monitor International Page 90 Vietnam Information Technology Report Q4 2014 Weighting Given the number of indicators/datasets used, it would be wholly inappropriate to give all sub-components equal weight. The following weighting has been adopted: Table: Weighting Of Components Component Rewards Weighting, % 70, of which - Industry 65 - Country 35 Risks to 30, of which - Industry 40 - Country 60 Source: BMI © Business Monitor International Page 91 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...]... International Page 13 Vietnam Information Technology Report Q4 2014 Economic SWOT Analysis Strengths ■ Vietnam has been one of the fastest-growing economies in Asia in recent years, with GDP growth averaging 7.1% annually between 2000 and 2012 ■ The economic boom has lifted many Vietnamese out of poverty, with the official poverty rate in the country falling from 58% in 1993 to 20.7% in 2012 ■ Vietnam has been... 15 Vietnam Information Technology Report Q4 2014 Business Environment SWOT Analysis Strengths ■ Vietnam has a large, skilled and low-cost workforce, which has made the country attractive to foreign investors ■ Vietnam' s location - its proximity to China and South East Asia, and its good sea links - makes it a good base for foreign companies to export to the rest of Asia, and beyond Weaknesses ■ Vietnam' s... levels could leave Vietnam a second-rate economy for an indefinite period ■ The dispute with China in Q214 in the South China Sea suggests the potential for renewed political tensions going forward © Business Monitor International Page 16 Vietnam Information Technology Report Q4 2014 Industry Forecast Table: IT Industry - Historical Data And Forecasts (Vietnam 2011-2018) 2011 2012 2013e 2014f 2015f 2016f... cloud computing market In June 2014 VMWare reported the results of its cloud adoption survey in Vietnam It found that 80% of polled businesses considered cloud computing the number one priority for IT applications; while 67% were confident cloud computing would have a major effect on business © Business Monitor International Page 19 Vietnam Information Technology Report Q4 2014 activities VMWare estimates... out 1,012 projects with a total spend of VND665bn © Business Monitor International Page 22 Vietnam Information Technology Report Q4 2014 Vietnam GVA By Vertical (%) 2014f f - BMI forecast Source: BMI, National Statistics, World Bank, UN Summary Overall, the hardware market is anticipated to grow from VND38.9trn in 2014 to VND58.3trn in 2018, with computer sales rising from VND38.9trn to VND46.9trn over... chain into higher value sectors such as Information and Communications Technology (ICT) The retail sector expanded by 12.2% y-o-y in H114, with accommodation and catering services growing by 13.1% and travel services by a whopping 20.5% over the period © Business Monitor International Page 26 Vietnam Information Technology Report Q4 2014 Manufacturing To Remain Strong Vietnam - Industrial Production, %... cloud portfolio in Sri Lanka in April 2014, following the launch of Amazon Web Services the leading global cloud hosting provider - in December 2013 A continuation of this trend could see Sri Lanka's score improve over the medium term © Business Monitor International Page 33 Vietnam Information Technology Report Q4 2014 Table: APAC IT Risk/Reward Ratings - Q4 2014 Rewards Country Risks Industry Rewards... the US dollar has hit the competitiveness of Vietnamese providers, and will be a drag on expansion This weakens the outlook, but with a well developed outsourcing industry in Vietnam and several clusters, and underlying cost advantages, BMI expects demand will continue to expand © Business Monitor International Page 18 Vietnam Information Technology Report Q4 2014 Drivers Industry Trends - IT Market 2011-2018... VND17.9trn and IT services from VND14.2trn to VND25.1trn over the forecast period © Business Monitor International Page 23 Vietnam Information Technology Report Q4 2014 Macroeconomic Forecasts Economic Analysis BMI View: We have downgraded Vietnam' s growth forecast from 5.9% to 5.7% in 2014 on the back of weaker-than-expected H114 growth numbers, combined with the risk of an economic backlash from China... Growth', June 10) That said, we have kept our 2015 real GDP growth forecast unchanged at 6.4% © Business Monitor International Page 24 Vietnam Information Technology Report Q4 2014 Slight Downgrade, But Powering Along Vietnam - Real GDP Growth, % chg y-o-y Source: GSO, SBV The Vietnamese government will continue to promote pro-growth policies, by running a fiscal deficit albeit a declining one - maintaining . Q4 2014 www.businessmonitor.com VIETNAM INFORMATION TECHNOLOGY REPORT INCLUDES 5-YEAR FORECASTS TO 2018 ISSN 2044-9631 Published by:Business Monitor International Vietnam Information Technology Report. Components 91 Vietnam Information Technology Report Q4 2014 © Business Monitor International Page 5 BMI Industry View BMI View: We maintain a positive outlook for the Vietnamese IT market in the Q4 update,. government, as well the use of information filtering mechanisms. The department will also be able to identify Vietnamese users on social Vietnam Information Technology Report Q4 2014 © Business Monitor