ICT to Vietnam
Trends and opportunities
The outlook for Vietnam’s information and communication technology (ICT) market is strong at an average growth rate of eight per cent during 2016-2020. The ICT industry (especially software and services where there is huge potential for increased adoption by enterprises and public sector) is expected to grow tremendously as Vietnam has emerged as a production centre for both IT hardware and services such as software development outsourcing.
The Vietnamese Governmen/p>t has identified ICT as a key sector contributing to the country’s development and has devised a Master Plan for Information Technology, which specifies targets for 2020 and aims at turning Vietnam into an advanced ICT country. The government has pledged to invest approximately US$415 million from the State Budget in the ICT sector by 2020 (Source: BMI Vietnam Information Technology Report 2016).
There are four major ICT focus areas, addressing supply as well as demand:
- improving policy environment
- developing IT human resources
- developing IT enterprises and trademarks, products and markets
- attracting investment into build IT zones and open source software.
Companies operating in the Vietnamese ICT market can enjoy support measures from the government such as tax incentives and simplified administration procedures. New hi-tech parks are set to be constructed between 2015 and 2030 through a combination of central government direction, local government funds and private capital. Enterprises located in software or hi-tech parks are offered further support and incentives. The growth of hi-tech parks is expected to generate demand for IT products and solutions directly while contributing to the broader dynamic of economic modernisation.
Computer hardware sales is projected to reach approximately US$1.8 billion in 2020 (from US$1.5 billion in 2016). Computer parts, electronic components, and mobile phones are the major product categories manufactured in Vietnam.
The hardware market is expected to grow at a modest rate over the medium term as incomes rise due to a very low PC penetration rate and functionality difference between smartphones and notebooks/ desktops (Source: BMI Vietnam Information Technology Report 2016). Supporting growth factors include rising incomes, declining device prices, enterprise modernisation and ongoing investments to upgrade telecoms. The expansion of network infrastructure, including fixed and wireless broadband, is considered a longer-term supporting trend of IT hardware market growth.
Telecommunications contributes about a quarter to the total revenue of the ICT sector and employs 15 per cent of people working in the ICT industry. Mobile telephony generates close to 90 per cent of the subsector’s revenue and plays a leading role in the rapid development of the telecom sector.
Vietnam telecom sector continues to boast strong growth potential in the near and long-term. Prospective privatisation of the leading service providers such as Mobifone continues to attract interests from key regional and global operators who are expected to play a role in steering the market towards faster adoption of advanced technology and higher value services.
The number of mobile users dropped 11.5 per cent to 120.3 million at the end of 2015 from 2014. The mobile market is highly saturated at 130 per cent penetration, large adoption of 3G technology and recent trial launch of 4G technology in 2015. Internet user penetration rate is expected to approach saturation in major cities, while rural Vietnam remains comparatively untapped as a result of consumers’ lower purchasing power. The number of fixed broadband users in 2015 reached 7.7 million in 2015 and is expected to grow at an average rate of 6.3 per cent to reach 10.3 million users in 2020 (Source: BMI Vietnam Information Technology Report 2016).
The software sector is growing at an average rate of 30 per cent per year with over 1000 companies operating within the sector, employing around 70,000 people. In recent years Vietnam has emerged as a destination for software outsourcing, competing with India, China and the Philippines. As a software outsourcing destination, Vietnam ranks eighth according to a research report from AT Kearney.
The Vietnamese software market is cost-sensitive, with around 75 per cent of the market served by lower-cost local software providers. Local software enterprises tend to serve the government and small and medium enterprises, while larger Vietnamese companies are more likely to rely on the higher-priced software offered by multinationals. Multinationals have a 25 per cent share of the local software market (Source: BMI Vietnam Information Technology Report 2016).
Areas of opportunities include CRM, business intelligence, ERP, human resource management, data analytic and database/datacentre software, especially in the banking and finance sector.
Cloud computing is on an increasing trend thanks to strong economic development momentum in Vietnam, including rising incomes and the growth of electronics manufacturing and outsourcing. Vietnamese cloud computing spending is forecasted to grow at an average rate of 20.7 per cent during 2016-20 to approximately US$150 million. The key growth driver is the lower cost of ownership and upfront investment as well as the flexibilities that cloud solutions offer.
The IT services market has strong growth potential driven by demands for digital infrastructure projects in sectors including banking/financial (fintech), telecoms, energy, smart agriculture and government.
The fintech sector in Vietnam is still in its infancy, with most companies providing services in the area of payments. The regulatory framework that would support the rise of more FinTech companies is still immature. Internet connectivity is improving, but the big data centre service providers are not yet on shore.
On the demand side, there is a lot of interests in fintech – banks as well as fund providers want to capture the growing market and service the clients better. Vietnam is one of the hotbeds of growth for the new ‘mass-affluent’ class. This emerging class needs better financial services and in the second stage better financial advice. Banks are now catching up with improved digital services, and financial product providers like fund companies are seeking improved distribution (Source: ‘Fostering Fintech in Vietnam’ – Startup bootcamp, October 2016).
According to the White Book on Vietnam’s Information Technology and Communication, digital content has shown significant growth over the past 10 years. The newly emerging sector continues to grow and mature showing no signs of slowing down. While computers still account for a significant percentage of the internet access in Vietnam, that share is declining as mobile internet access and mobile social media access is rapidly increasing. Social interaction is a critically important online activity for the Vietnamese and Facebook is holding strong as the leading platform for social media (Source: Vietnam Digital Assessment 2016).
The key areas of this sector include providing content for mobile networks and for the internet, online games, online entertainment, e-commerce, e-libraries, digital television and electronic newspapers.
The increasing privatisation of state-owned enterprises, including the telecommunications and banking sectors, present opportunities for foreign investors.
The biggest opportunities for foreign companies are software segments in banking and finance, oil and gas, as well as aviation and telecoms, which are the biggest spenders and present the most potential for both customised solutions and off-the-shelf software (Source: BMI Vietnam Information Technology Report 2016).
Other areas with potential include customer relationship management (CRM), enterprise risk management (ERP) and human resource management. While there is a large market for ERP, the market for CRM software remains limited to date (only about 10 per cent of Vietnamese businesses use CRM). Data analytics and database software is likely to emerge as a growing area and accounts for a larger portion of software budgets.
Broadband IT, telecommunication and broadcasting
Opportunities exist for Australian exporters in providing equipment and infrastructure and value added services, such as developing wireless and alternative broadband technologies (including WiMAX4G and fiber optic) and partnering with established network operators to provide 3G services, Pay TV infrastructure and media broadcasting services.
As more people use mobile phones to access the internet, marketing activities tailored to mobile devices become essential for businesses. E-commerce and e-payment, digital content production, applications, e-learning and online training systems, animation, mobile games as well as value-added services for interactive mobile, internet and television are all areas with opportunities.
Following the global trend for cloud technology, there is growing interest and demand from Vietnamese companies for cloud services.
Expertise in the IT security area, is becoming more essential as local awareness of internet fraud and computer crimes is increasing.
Opportunities for Australian providers within IT services include IT technical training and IT consulting, management, software/enterprise applications (ERP and CRM system, finance and accounting software), data centres and data storage as well as web services.
Opportunities for Australian companies exist in the banking and financial services sector (such as software platforms for banking processes and online trading platforms with high security needs), healthcare services (e-Health), government functions (e-Government and e-Tax), oil and gas, and aviation.
Given the massive growth potential of the sector, Vietnam has proved an attractive destination for foreign investment in the ICT sector. It is increasingly attracting investment particularly from Japan, South Korea and Taiwan.
Vietnam faces a number of challenges in terms of regulatory framework and intellectual property protection, quality and availability of labour skills and ICT education and investment strategy, which are barriers to the development of the industry. Potential investors should be aware of the following:
- lack of a comprehensive and transparent legal system for businesses providing IT services
- inadequate labour skills for ICT in terms of technology and language skills
- public and private research efforts are limited
- Weak enforcement of all forms of intellectual property rights (but is improving). Copyright issues remain a threat to the sector and Vietnam maintains its position among the countries with the highest rate of software piracy.
Multinational brands have seen strong growth in their revenues. Although local manufacturers have a dominant role in the desktop market, foreign vendors dominate the market for notebooks. China, given its low production costs, is a major competitor in hardware products and given the close proximity many Vietnamese brands produce in China, using their designs. Key competitors in the hardware market include suppliers from Japan, Taiwan, China and the United States (US).
Leading global players are present in the market. However, they face competition from lower cost local players as well as Chinese rivals. Major players in the software market include suppliers from the US, Germany, China, Russia and Vietnam.
Vietnam’s fixed line and internet access markets are both largely dominated by state-controlled operators including Vietnam National Post & Telecommunications Corp. (VNPT) and Viettel, as well as major international competitors in this market. Competitive factors include high product quality, training and after-sales service, as well as recognised brand names.
Tariffs, regulations and customs
The Ministry of Information and Communication (MIC) devises standards and recommendations for enterprises to follow and issues licences.
Since joining the World Trade Organisation (WTO), the MIC has granted licenses for joint ventures between Vietnamese and foreign partners in communications services (ranging from fixed voice telephony to private leased circuit services).
All telecommunication equipment imported into Vietnam must be handled by a company that holds a telecommunication equipment import/export license, even when the importer is a domestic company. Each shipment also requires an import permit from the Ministry of Trade in order to clear customs.
Exports of software products and software related services are subject to a zero per cent value added tax (VAT) and not subject to export duty (Source: The Ministry of Finance, Tax rates and incentives applicable to newly established software enterprise, 19 December 2014). There is also an import duty exemption on materials used in software production that are not domestically produced. The reduced tariff rates are conditional on Australian exporters having a certificate of origin.
Refer to the Department of Foreign Affairs and Trade’s (DFAT) Free Trade Agreement Portal for tariff rates on specific IT related products.
Investment and tax guidelines
Decree No. 108/2006/ND-CP details the implementation of a number of articles regarding the Investment Law and the manufacture of software products and digital contents. The decision includes special incentives to attract investment, such as a preferential tax rate of 10 per cent tax rate over 15 years, as well as a tax exemption for four years and a 50 per cent discount in the following nine years.
Telecommunication operator ownership guidelines
Decree No. 25/2011/ND-CP specifies regulations governing enterprises in the field of telecommunication. The decree includes guidelines for the execution of several articles regarding the Telecommunication Law involving ownership ratios, foreign investment, fees and authorised capital. The ownership ratio stipulates that an organisation or individual (applicable to both foreign and local) who owns over 20 per cent of the charter capital or stake in one telecommunication company will not be allowed to hold more than 20 per cent of the charter capital or stake in other enterprise providing the same services. Although full foreign ownership of an operator in the Vietnamese telecom sector is not allowed, overseas investors can enter into business cooperation contracts or joint ventures with licensed Vietnamese operators.
Services provided through ICT infrastructure are regulated along with their physical counterparts, examples of services with separate regulation include: online gaming, distance learning, banking and e-commerce transactions, etc. Online gaming services are managed carefully regarding content and technical conditions to ensure that they are not addictive. Content that contains potential cultural or other sensitive information must be assessed by Vietnam’s Ministry of Culture and Information (Source: Office of Technology and Electronic Commerce, Vietnam: Customs, Taxes and Documentation Requirements for IT Products and Services Imports, 16 November 2014).
Marketing your products and services
Bureaucratic difficulties are not uncommon, including when dealing with customs, requiring patience, persistence and sound business advice. Establishing contacts and networks often requires introduction through an existing contact or an official channel such as Austrade as ‘cold calling’ is usually not appreciated and it is important to invest time in understanding the Vietnamese working culture and business practices.
- Small or medium sized Australian suppliers should look for sub-contractor opportunities in larger projects, which will be negotiated directly by larger corporations.
- Partner with a local company to provide solutions, including equipment and services and leverage its connections and clients in Vietnam.
- Arrange promotional events (product launch or technical seminars) to extend to a wider audience.
Australian companies should have a long-term strategy, which requires developing market intelligence, promoting products and services and developing business contacts in Vietnam.
Most imported telecom equipment is sold directly to local service providers or their subsidiaries. These state-owned enterprises and local private companies have flat distribution channels, implying that they sell directly to end users. Domestic telecoms operators are evolving as significant distribution channels for notebooks as vendors look for tie-ups.
Hardware and IT manufacturing
Electronics and appliance specialist retailers dominate the distribution of consumer electronics. A low 30 per cent of mobile phones, are sold by network operators with the majority from retailers. Leading players rely heavily on promotions and are moving towards more internet based retailing. They have a strong presence in urban centres, where they are more popular than the alternatives (smaller stores or grocery retailers) due to their wide selection and the available advice from trained sales staff. However, large specialised electronics retailers are nearly absent in rural areas.
Software, Digital Content and IT services
The Vietnamese software market is cost-sensitive with about 75 per cent of the market dominated by local lower-cost software vendors (Source: BMI Research, Vietnam Information Technology Report, November 2016). Foreign software providers with corporate clients tend to use local distributors.
Links and industry contacts
Ministry of Industry and Trade
Ministry of Information and Communications
Ministry of Planning and Investment of Vietnam
Ministry of Science and Technology
Vietnam Software Association
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