Q1 2016 www.bmiresearch.com VIETNAM INFORMATION TECHNOLOGY REPORT INCLUDES 5-YEAR FORECASTS TO 2019 Published by:BMI Research Vietnam Information Technology Report Q1 2016 INCLUDES 5-YEAR FORECASTS TO 2019 Part of BMI’s Industry Report & Forecasts Series Published by: BMI Research Copy deadline: December 2015 ISSN: 2044-9631 BMI Research Senator House 85 Queen Victoria Street London EC4V 4AB United Kingdom Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: subs@bmiresearch.com Web: http://www.bmiresearch.com © 2016 Business Monitor International Ltd All rights reserved All information contained in this publication is copyrighted in the name of Business Monitor International Ltd, and as such no part of this publication may be reproduced, repackaged, redistributed, resold in whole or in any part, or used in any form or by any means graphic, electronic or mechanical, including photocopying, recording, taping, or by information storage or retrieval, or by any other means, without the express written consent of the publisher DISCLAIMER All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor International Ltd accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication All information is provided without warranty, and Business Monitor International Ltd makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained Vietnam Information Technology Report Q1 2016 INCLUDES 5-YEAR FORECASTS TO 2019 Part of BMI’s Industry Report & Forecasts Series Published by: BMI Research Copy deadline: December 2015 ISSN: 2044-9631 BMI Research Senator House 85 Queen Victoria Street London EC4V 4AB United Kingdom Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: subs@bmiresearch.com Web: http://www.bmiresearch.com © 2016 Business Monitor International Ltd All rights reserved All information contained in this publication is copyrighted in the name of Business Monitor International Ltd, and as such no part of this publication may be reproduced, repackaged, redistributed, resold in whole or in any part, or used in any form or by any means graphic, electronic or mechanical, including photocopying, recording, taping, or by information storage or retrieval, or by any other means, without the express written consent of the publisher DISCLAIMER All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor International Ltd accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication All information is provided without warranty, and Business Monitor International Ltd makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained Vietnam Information Technology Report Q1 2016 CONTENTS BMI Industry View SWOT IT SWOT Industry Forecast 11 Latest Updates 11 Structural Trends 11 Table: IT Industry - Historical Data And Forecasts (Vietnam 2012-2019) 18 Industry Risk Reward Index 19 Table: Asia Pacific IT Risk/Reward Index - Q1 2016 21 Market Overview 22 Recent Developments Hardware Software Cloud Computing Services 22 22 28 35 39 Industry Trends And Developments 46 Regulatory Development 50 Table: Government Authority 50 Regulatory News 53 Competitive Landscape 55 International Companies 55 Table: Global CyberSoft 55 Table: Intel 56 Table: LG Electronics 57 Table: Samsung Electronics 58 Local Companies 59 Table: Sara Vietnam 59 Regional Overview 60 Asia - Local Vendors Leverage Emerging Lower-End Device Market 60 Demographic Forecast 63 Table: Population Headline Indicators (Vietnam 1990-2025) 64 Table: Key Population Ratios (Vietnam 1990-2025) 64 Table: Urban/Rural Population & Life Expectancy (Vietnam 1990-2025) 65 Table: Population By Age Group (Vietnam 1990-2025) 65 Table: Population By Age Group % (Vietnam 1990-2025) 66 © Business Monitor International Ltd Page Vietnam Information Technology Report Q1 2016 Methodology 68 Industry Forecast Methodology 68 Sources 70 Risk/Reward Index Methodology 70 Table: IT Risk/Reward Index Indicators 71 Table: Weighting Of Components 72 © Business Monitor International Ltd Page Vietnam Information Technology Report Q1 2016 BMI Industry View BMI View: We believe Vietnam's IT market will be a regional outperformer over 2016-2019 due to strong growth dynamics for retail and enterprise market demand Broad-based economic growth is expected to have a positive impact on the household income profile of Vietnam over the medium term, which will deepen the retail hardware market, as well as easing price sensitivity in the higher-value replacement market Meanwhile, Vietnam's broader economic development including the expansion of higher productivity verticals, and the modernisation of traditional sectors, will unlock demand for IT software and services solutions 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 low as a third of those in China We forecast a CAGR for the market of 13.5% over 2016-2019, with total spending expected to increase to VND99.1trn in 2019 Latest Updates And Industry Developments ■ Computer Hardware Sales: VND42.7trn in 2016 to VND55.6trn in 2019, a compound annual growth rate (CAGR) of +10.7% in local currency terms Significant growth potential exists due to low device penetration rates, which we expect to be unlocked due to the strength of potential income growth trends in Vietnam over 2016-2019 ■ Software Sales: VND10.9trn in 2016 to VND16.0trn in 2019, a CAGR of +15.7% in local currency terms Low enterprise software penetration is a major opportunity as firms modernise and become integrated into global supply chains, with lower cost cloud software also expected to deepen the market ■ IT Services Sales: VND17.2trn in 2016 to VND27.4trn in 2019, a CAGR of +18.9% in local currency terms IT services are forecast to outperform over 2016-2019 due to increased domestic demand for cloud computing and outsourcing services from the private and public sectors © Business Monitor International Ltd Page Vietnam Information Technology Report Q1 2016 Rising Incomes And Enteprise Modernisation Support Bright Outlook For IT Market IT Market Growth Rate By Segment 25 20 15 10 2013 2014 2015e 2016f 2017f 2018f 2019f Vietnam - Computer hardware sales, VNDmn, % y-o-y Vietnam - Software sales, VNDmn, % y-o-y Vietnam - Services sales, VNDmn, % y-o-y f = BMI forecast Source: BMI © Business Monitor International Ltd Page Vietnam Information Technology Report Q1 2016 SWOT IT SWOT SWOT Analysis Strengths ■ Supportive policy framework and funding in place to promote the development of the IT sector ■ Vietnam's gradual integration into the global trade network via its accession into trade organisations such as the Association of Southeast Asian Nations and WTO, as well as bilateral agreements with Japan and China ■ The domestic IT market is in a rapid growth phase, with trade liberalisation and growing affordability driving increased adoption among enterprises and consumers ■ Expanding local hardware production industry with major international players such as Samsung, Nokia, LG and Intel making large investments ■ Vietnam is a preeminent global outsourcing destination, with a particular strength in the software development industry Weaknesses ■ IT spend per capita is much lower than in neighbouring Thailand, reflecting a much lower GDP per capita ■ Highly price-sensitive market, putting pressure on vendor margins ■ High level of software piracy, with a stall in the reduction 2011 to 2013 ■ Cybersecurity measures by the government have been pushed through with state security measures, with potential human rights implications Opportunities ■ Broad-based economic growth forecast to drive retail hardware market growth as household incomes increase markedly 2016-2019 ■ Decision in July 2014 to enable state agencies to use outsourced information technology providers for the first time opens a new growth channel for vendors © Business Monitor International Ltd Page Vietnam Information Technology Report Q1 2016 Table: Samsung Electronics Address Yen Phong Industrial Zone, Long Chau Ward, Yen Phong District, Bac Ninh Province Company History Samsung Electronics is part of South Korea-based industrial conglomerate the Samsung Group and is one of the leading consumer electronics brands in the world As well as selling devices in Vietnam, Samsung also has a major production base in the country spread across several facilities with total staff of 25,000 In 2009 it opened a USD700mn production facility near Hanoi, with capacity of 100mn units per year and staff of 10,000 The facility is largely for export, with estimated revenues of USD5bn a year (approximately 6% of Vietnam's total export revenues) In 2012 Samsung began plans for a significant expansion of production in Vietnam as it shifts away from China to avoid rising labour costs, with wages in Vietnam as little as a third of those in China Samsung will also benefit from no tax for the first four years of operation, and half the full rate for the following 12 years The new USD2bn facility will produce 40% of Samsung Electronics global smartphones by 2015, about 120mn handsets, when full capacity is reached Services And Products As well as being an important production base Vietnam is also a market in which Samsung Electronics has seen great success Samsung operates in the PC market, with its share of the tablet market only exceeded by Apple However, despite the favourable reviews for its notebook products it remains a smaller player trailing the global leaders It has been the major beneficiary in the Google Android ecosystem of the smartphone and tablet boom in recent years, but it has also seen success in the low and middle income segment with a huge featurephone range However, in 2013 Samsung's range of tablets and smartphones faced increasing competitive pressure from low priced rivals from China that is putting pressure on units and margins ■ ■ ■ ■ Company Developments In December 2015 Samsung reported that the Samsung Vietnam Mobile Research and Development Centre in Hanoi contributed around 10% of software used on its smartphones and tablets globally in 2015 The centre has more than 1,500 employees, with just five foreign nationals, and Samsung plans to increase the total to 2,600 by 2018 Samsung has 25 R&D centres specialising in research for its phones worldwide In August 2015, Samsung Display, part of the Samsung Electronics Group of South Korea, announced an investment of an additional USD3bn to augment its display module production capabilities in Vietnam The investment will be spread over a fiveyear period ending in 2020 and the equipment manufactured by the facility will be used in a broad range of Samsung's consumer electronics devices, ranging from flat screen TV sets, to tablet computers and smartphones In June 2015, Samsung announced it had increased its target for handset sales from its Vietnam manufacturing facilities to USD36.8bn, up 40% from USD26.6bn in 2014 Samsung's Vietnam plants produce metal smartphones including the Galaxy S6 and S6 Edge and the low-end Galaxy A series In December 2014, Samsung offered to raise its investment in Vietnam to USD20bn in 2017 if their existing business in the country goes smoothly, according to a new government report According to a report prepared by the Ministry of Investment and Planning, the giant is considering a major role in Vietnam's infrastructure projects The company has signed a memorandum of understanding with the Ministry of Industry and Trade about building a 1,200-megawatt thermal power plant in the central province of Ha Tinh It is expected to release a final feasibility study on the USD2.45bn project in 2015 Source: BMI © Business Monitor International Ltd Page 58 Vietnam Information Technology Report Q1 2016 Local Companies Table: Sara Vietnam Address 182 Le Dai Hanh st., Ward 15, Dist 11, Ho Chi Minh City Company History Sara Vietnam was founded in 2002 as an information technology and foreign language skills training centre through the SARA Centre It has since expanded into new fields, but remains headquartered in Hanoi Sara Vietnam is a member of the Vietnam Software Association and the Vietnam Chamber of Commerce and Industry Sara Vietnam is also listed at the Hanoi Securities Trading Centre Sara Vietnam was the first recipient of Japanese investment in Vietnam, with 15% of its shares owned by Japanese CPR International Services And Products Sara Vietnam began as a training company but has expanded into a variety of information technology fields It offers IT research and software development services, particularly software development for data centres, e-commerce, e-portals, content management, online training software, accounting, procurement, human resources, customer service, industrial production technology and hospital management Sara also provides consultancy services for software systems It also has activities in non-IT related areas including television programming and real estate development and management, and is evaluating a move into the mobile marketing industry in Vietnam ■ Company Developments In October 2013, Sara Vietnam announced it was implementing the Japanese model 5s of managing operations to increase efficiency Sara stated that it does not expect significant expenditure in implementing the new work practices, but will generate efficiencies Source: BMI © Business Monitor International Ltd Page 59 Vietnam Information Technology Report Q1 2016 Regional Overview Asia - Local Vendors Leverage Emerging Lower-End Device Market BMI View: As the largest region by far, Asia remains a key target for consumer electronics vendors seeking to capture the household spending growth story However, major markets such as China and India offer a plethora of home-grown device manufacturers to appeal to new entrants to the ICT market, challenging the strong position of regional powerhouses Samsung, Sony and LG Key Features: ■ Asia is the largest addressable market globally, with over 1.05bn households in 2015, forecast to reach 1.1bn in 2019 ■ In China, and to a lesser extent India, huge numbers new global middle-class consumers are expected to emerge over the medium term ■ Bangladesh, India, Indonesia, Pakistan, the Philippines and Vietnam are characterised by large-scale migration of households upwards to the USD5,000-USD10,000 band In 2015, Asia Pacific markets will account for 56.3% of global households, a figure BMI expects to increase slightly to 57.8% in 2019 More significant however is the forecast for the continuation of the trend of households moving up the income scale across the most significant markets in the region The most significant trends for 2015-2019 are the growth in USD25,000-USD50,000 households, a trend dominated by China, and large numbers of new households in the low end of the IT and consumer electronics devices market in the USD5,000-USD10,000 income bracket The China growth story is of huge historical significance for the devices market, both as a consumer and producer In line with economy-wide macro trends, including rising wages and political impetus towards a more consumption-centric model, BMI forecasts China's significance will skew towards the consumption side during the 2015-2019 period We forecast a large migration of Chinese households up the income scale, with our forecast envisaging the addition of almost 64.6mn households in the USD25,000USD50,000 band between 2015 and 2019 This migration will see the number of USD1,000-USD5,000 and USD5,000-USD10,000 households decline markedly, but the pool of sub-USD1,000 households will increase slightly in China's more remote and undeveloped regions © Business Monitor International Ltd Page 60 Vietnam Information Technology Report Q1 2016 Strongest Gains In The Middle APAC Change In Households By Income Level ('000), 2015-2019 Source: BMI BMI considers these medium-term household income trends to be supportive of the strategies of leading Chinese brands such as Lenovo, Huawei, Xiaomi and a host of others, to focus on brand development and maximising market share in recent years This has allowed them to create a platform for capturing a share of higher value, and higher margin volume growth, over the medium term as vendors aim to become household fixtures in the smartphone, tablet, smart TV, notebook and wearables/home automation markets popularised by China's expanding middle class Beyond China (and the premium markets of Australia, South Korea and Japan), the medium-term outlook differs considerably In these markets, we expect households to have more in common with China's development pattern in the past decade as large numbers of consumers purchase their first devices as they reach the USD5,000-USD10,000 income level This can benefit local and global brands with targeted strategies for price-sensitive consumers, including investment in local production (see 'Lenovo Growth Plan Highlights Market Appeal', March 2015) - and investment in distribution and marketing capabilities However, there will be a huge challenge for local brands such as the Philippines' Cherry Mobile from lowcost Chinese handsets that have the advantage of scale after success in their domestic market, and have © Business Monitor International Ltd Page 61 Vietnam Information Technology Report Q1 2016 demonstrated capacity of improve quality Meanwhile, global leader Samsung Electronics faces a continued strategic squeeze as it is undercut in terms of price and specification by Chinese brands targeting market share Samsung's flexibility is hamstrung by the necessity of not undercutting its highly profitable flagship lines on price and specification We expect brands such as Samsung, but also other product leaders from the region such as LG, Sony and others, to become increasingly premium- and component-focused over the medium term One way of doing this is to develop brand- and device-specific services and applications, as Sony has been doing through leveraging its vast media empire However, the competition is only a few steps behind in this regard and Xiaomi stands out as a prime example of a new player emulating its global peers by tying its devices to a burgeoning service and content business © Business Monitor International Ltd Page 62 Vietnam Information Technology Report Q1 2016 Demographic Forecast Demographic analysis is a key pillar of BMI's macroeconomic and industry forecasting model Not only is the total population of a country a key variable in consumer demand, but an understanding of the demographic profile is essential to understanding issues ranging from future population trends to productivity growth and government spending requirements The accompanying charts detail the population pyramid for 2015, the change in the structure of the population between 2015 and 2050 and the total population between 1990 and 2050 The tables show indicators from all of these charts, in addition to key metrics such as population ratios, the urban/rural split and life expectancy Population (1990-2050) 150 100 50 2050f 2045f 2040f 2035f 2030f 2025f 2020f 2015f 2010 2005 2000 1990 Vietnam - Population, mn f = BMI forecast Source: World Bank, UN, BMI © Business Monitor International Ltd Page 63 Vietnam Information Technology Report Q1 2016 Vietnam Population Pyramid 2015 (LHS) & 2015 Versus 2050 (RHS) Source: World Bank, UN, BMI Table: Population Headline Indicators (Vietnam 1990-2025) 1990 2000 2005 2010 2015f 2020f 2025f 68,209 80,285 84,203 88,357 93,447 98,156 102,092 na 1.1 0.9 1.0 1.1 0.9 0.7 Population, total, male, '000 33,583 39,551 41,469 43,626 46,224 48,590 50,510 Population, total, female, '000 34,625 40,734 42,734 44,730 47,223 49,566 51,581 Population ratio, male/female 0.97 0.97 0.97 0.98 0.98 0.98 0.98 Population, total, '000 Population, % y-o-y na = not available; f = BMI forecast Source: World Bank, UN, BMI Table: Key Population Ratios (Vietnam 1990-2025) Active population, total, '000 Active population, % of total population Dependent population, total, '000 Dependent ratio, % of total working age © Business Monitor International Ltd 1990 2000 2005 2010 2015f 2020f 2025f 38,808 49,712 55,795 61,655 65,572 67,775 69,459 56.9 61.9 66.3 69.8 70.2 69.0 68.0 29,401 30,573 28,408 26,702 27,875 30,381 32,633 75.8 61.5 50.9 43.3 42.5 44.8 47.0 Page 64 Vietnam Information Technology Report Q1 2016 Key Population Ratios (Vietnam 1990-2025) - Continued Youth population, total, '000 1990 2000 2005 2010 2015f 2020f 2025f 25,494 25,416 22,866 20,919 21,576 22,487 22,335 65.7 51.1 41.0 33.9 32.9 33.2 32.2 3,907 5,157 5,542 5,783 6,298 7,893 10,298 10.1 10.4 9.9 9.4 9.6 11.6 14.8 Youth population, % of total working age Pensionable population, '000 Pensionable population, % of total working age f = BMI forecast Source: World Bank, UN, BMI Table: Urban/Rural Population & Life Expectancy (Vietnam 1990-2025) 1990 Urban population, '000 2020f 2025f 13,815.9 19,568.8 22,971.6 26,853.7 31,391.9 36,120.7 40,780.9 Urban population, % of total Rural population, '000 2000 20.3 24.4 2005 27.3 2010 30.4 2015f 33.6 36.8 39.9 54,393.7 60,716.8 61,232.2 61,504.1 62,055.7 62,036.0 61,311.7 Rural population, % of total 79.7 75.6 72.7 69.6 66.4 63.2 60.1 Life expectancy at birth, male, years 66.0 68.4 69.3 70.2 71.2 72.1 73.1 Life expectancy at birth, female, years 75.1 78.1 79.2 80.0 80.6 81.1 81.6 Life expectancy at birth, average, years 70.5 73.3 74.3 75.1 75.9 76.7 77.4 f = BMI forecast Source: World Bank, UN, BMI Table: Population By Age Group (Vietnam 1990-2025) 1990 2000 2005 2010 2015f 2020f 2025f Population, 0-4 yrs, total, '000 9,211 7,244 6,751 7,265 7,740 7,601 7,108 Population, 5-9 yrs, total, '000 8,512 9,119 7,130 6,648 7,221 7,698 7,562 Population, 10-14 yrs, total, '000 7,769 9,052 8,983 7,005 6,614 7,187 7,664 Population, 15-19 yrs, total, '000 7,277 8,401 8,941 8,877 6,972 6,583 7,156 Population, 20-24 yrs, total, '000 6,570 7,610 8,242 8,764 8,803 6,908 6,522 Population, 25-29 yrs, total, '000 5,938 7,019 7,408 8,022 8,664 8,705 6,823 Population, 30-34 yrs, total, '000 5,079 6,300 6,863 7,223 7,932 8,572 8,616 Population, 35-39 yrs, total, '000 3,842 5,746 6,190 6,718 7,146 7,850 8,488 Population, 40-44 yrs, total, '000 2,447 4,938 5,663 6,096 6,640 7,065 7,766 Population, 45-49 yrs, total, '000 2,003 3,710 4,880 5,592 6,004 6,543 6,968 © Business Monitor International Ltd Page 65 Vietnam Information Technology Report Q1 2016 Population By Age Group (Vietnam 1990-2025) - Continued 1990 2000 2005 2010 2015f 2020f 2025f Population, 50-54 yrs, total, '000 1,956 2,331 3,658 4,801 5,467 5,875 6,410 Population, 55-59 yrs, total, '000 2,033 1,873 2,223 3,501 4,625 5,275 5,681 Population, 60-64 yrs, total, '000 1,658 1,779 1,723 2,055 3,314 4,392 5,023 Population, 65-69 yrs, total, '000 1,402 1,759 1,599 1,551 1,894 3,066 4,081 Population, 70-74 yrs, total, '000 1,021 1,313 1,520 1,390 1,369 1,682 2,739 Population, 75-79 yrs, total, '000 747 977 1,073 1,254 1,158 1,150 1,424 Population, 80-84 yrs, total, '000 426 593 726 809 957 893 895 Population, 85-89 yrs, total, '000 221 334 382 479 541 649 613 Population, 90-94 yrs, total, '000 70 131 176 208 265 305 370 Population, 95-99 yrs, total, '000 15 40 52 73 88 114 133 Population, 100+ yrs, total, '000 11 16 23 30 39 f = BMI forecast Source: World Bank, UN, BMI Table: Population By Age Group % (Vietnam 1990-2025) 1990 2000 2005 2010 2015f 2020f 2025f Population, 0-4 yrs, % total 13.50 9.02 8.02 8.22 8.28 7.74 6.96 Population, 5-9 yrs, % total 12.48 11.36 8.47 7.52 7.73 7.84 7.41 Population, 10-14 yrs, % total 11.39 11.28 10.67 7.93 7.08 7.32 7.51 Population, 15-19 yrs, % total 10.67 10.46 10.62 10.05 7.46 6.71 7.01 Population, 20-24 yrs, % total 9.63 9.48 9.79 9.92 9.42 7.04 6.39 Population, 25-29 yrs, % total 8.71 8.74 8.80 9.08 9.27 8.87 6.68 Population, 30-34 yrs, % total 7.45 7.85 8.15 8.18 8.49 8.73 8.44 Population, 35-39 yrs, % total 5.63 7.16 7.35 7.60 7.65 8.00 8.31 Population, 40-44 yrs, % total 3.59 6.15 6.73 6.90 7.11 7.20 7.61 Population, 45-49 yrs, % total 2.94 4.62 5.80 6.33 6.43 6.67 6.83 Population, 50-54 yrs, % total 2.87 2.90 4.34 5.43 5.85 5.99 6.28 Population, 55-59 yrs, % total 2.98 2.33 2.64 3.96 4.95 5.37 5.57 Population, 60-64 yrs, % total 2.43 2.22 2.05 2.33 3.55 4.47 4.92 Population, 65-69 yrs, % total 2.06 2.19 1.90 1.76 2.03 3.12 4.00 Population, 70-74 yrs, % total 1.50 1.64 1.81 1.57 1.47 1.71 2.68 Population, 75-79 yrs, % total 1.10 1.22 1.27 1.42 1.24 1.17 1.40 Population, 80-84 yrs, % total 0.63 0.74 0.86 0.92 1.02 0.91 0.88 © Business Monitor International Ltd Page 66 Vietnam Information Technology Report Q1 2016 Population By Age Group % (Vietnam 1990-2025) - Continued 1990 2000 2005 2010 2015f 2020f 2025f Population, 85-89 yrs, % total 0.33 0.42 0.45 0.54 0.58 0.66 0.60 Population, 90-94 yrs, % total 0.10 0.16 0.21 0.24 0.28 0.31 0.36 Population, 95-99 yrs, % total 0.02 0.05 0.06 0.08 0.09 0.12 0.13 Population, 100+ yrs, % total 0.00 0.01 0.01 0.02 0.03 0.03 0.04 f = BMI forecast Source: World Bank, UN, BMI © Business Monitor International Ltd Page 67 Vietnam Information Technology Report Q1 2016 Methodology Industry Forecast Methodology BMI's industry forecasts are generated using the best-practice techniques of time-series modelling and causal/econometric modelling The precise form of model we use varies from industry to industry, in each case being determined, as per standard practice, by the prevailing features of the industry data being examined Common to our analysis of every industry is the use of vector autoregressions They allow us to forecast a variable using more than its own history as explanatory information For example, when forecasting oil prices, we can include information about oil consumption, supply and capacity When forecasting for some of our industry sub-component variables, however, using a variable's own history is often the most desirable method of analysis Such single-variable analysis is called univariate modelling We use the most common and versatile form of univariate models: the autoregressive moving average model (ARMA) In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality is poor In such cases we use either traditional decomposition methods or smoothing methods as a basis for analysis and forecasting We mainly use OLS estimators, and in order to avoid relying on subjective views and encourage the use of objective views, BMI uses a 'general-to-specific' method BMI mainly uses a linear model, but simple nonlinear models, such as the log-linear model, are used when necessary During periods of 'industry shock' (for example, poor weather conditions impeding agricultural output), dummy variables are used to determine the level of impact Effective forecasting depends on appropriately selected regression models BMI selects the best model according to various different criteria and tests, including but not exclusive to: ■ R2 tests explanatory power; adjusted R2 takes degree of freedom into account ■ Testing the directional movement and magnitude of coefficients ■ Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value) ■ All results are assessed to alleviate issues related to auto-correlation and multi-collinearity © Business Monitor International Ltd Page 68 Vietnam Information Technology Report Q1 2016 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 © Business Monitor International Ltd Page 69 Vietnam Information Technology Report Q1 2016 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 Risk/Reward Index Methodology BMI's Risk/Reward Index (RRI) provides a comparative regional ranking system evaluating the ease of doing business and the industry-specific opportunities and limitations for potential investors in a given market The RRI system divides into two distinct areas: Rewards: Evaluation of sector's size and growth potential in each state, and also broader industry/state characteristics that may inhibit its development This is further broken down into two sub-categories: ■ Industry Rewards (an industry-specific category taking into account current industry size and growth forecasts, the openness of market to new entrants and foreign investors, to provide an overall score for potential returns for investors) • Country Rewards (a country-specific category, factoring in favourable political and economic conditions for the industry) Risks: Evaluation of industry-specific dangers and those emanating from the state's political/economic profile that call into question the likelihood of anticipated returns being realised over the assessed time period This is broken down into two sub categories: ■ Industry Risks (an industry-specific category whose score covers potential operational risks to investors, regulatory issues inhibiting the industry and the relative maturity of a market) • Country Risks (a country-specific category in which political and economic instability, unfavourable legislation and a poor overall business environment are evaluated to provide an overall score) We take a weighted average, combining industry and country risks, or industry and country rewards These two results in turn provide an overall Risk/Reward Score, which is used to create our regional ranking system for the risks and rewards of involvement in a specific industry in a particular country For each category and sub-category, each state is scored out of 100 (100 being the best), with the overall Risk/Reward Score a weighted average of the total score As most of the countries and territories evaluated are considered by BMI to be 'emerging markets', our score is revised on a quarterly basis This ensures the © Business Monitor International Ltd Page 70 Vietnam Information Technology Report Q1 2016 score draws on the latest information and data across our broad range of sources, and the expertise of our analysts Sector-Specific Methodology In constructing these indices, the following indicators have been used Almost all indicators are objectively based Table: IT Risk/Reward Index Indicators Rationale Rewards Industry IT market value, USDbn Denotes breadth of IT market Large markets score higher than smaller ones Sector value growth, % y-o-y Denotes sector dynamism Scores based on annual average growth over five-year forecast period Government initiatives and spending Denotes spending boost provided by public sector, which can be a crucial determinant of sector development Hardware, % of total sales Denotes maturity of market A high proportion of hardware sales, compared to services/ software, indicates that the overall IT market is immature Country Urban-rural split Urbanisation is used as a proxy for development Mainly rural states score lower GDP per capita, USD A high GDP per capita supports long-term industry prospects Overall score for Country Rewards is also affected by the coverage of the power transmission network across the state Risks Industry Intellectual property (IP) laws Markets with fair and enforced IP regulations score higher than those with endemic counterfeiting ICT policy Subjective evaluation of official policy towards IT development, as enshrined in statute and tax code Country Short-term external risk Score from BMI's Country Risk Index (CRI) It evaluates the vulnerability to external shock, which is the principal cause of economic crises Such a crisis would cut investment Short-term financial risk Score from CRI, to denote risk of currency crisis and stability of banking sector The former would hit revenues in hard currency, while the latter would curtail investment funding Trade bureaucracy Score from CRI to denote ease of trading with the state Legal framework Score from CRI denotes the strength of legal institutions in each state - security of investment can be a key risk in some emerging markets Bureaucracy Score from CRI denotes ease of conducting business in the state © Business Monitor International Ltd Page 71 Vietnam Information Technology Report Q1 2016 IT Risk/Reward Index Indicators - Continued Rationale Corruption Score from CRI denotes the risk of additional illegal costs/possibility of opacity in tendering/ business operations affecting companies' ability to compete Source: BMI 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 30, of which - Industry 40 - Country 60 Source: BMI © Business Monitor International Ltd Page 72 ... Ltd Page 46 Vietnam Information Technology Report Q1 2016 Vietnam Is Asia''s New Tech Manufacturing Hub The Ministry of Information and Communications (MIC) reported in June 2014 that Vietnam'' s... 41 Vietnam Information Technology Report Q1 2016 In March 2013, Nguyen Trong Duong, the director of the Information Technology Department of the MIC, stated that only around 3% companies in Vietnam. .. 26 Vietnam Information Technology Report Q1 2016 PC Volume Forecast (2012-2019) 2,500 2,000 1,500 1,000 500 2012 2013 2014 2015f Vietnam - Desktop sales, ''000 Vietnam - Notebook sales, ''000 2016f