Q3 2011 www.businessmonitor.com VIetNaM information technology Report INCLUDES BMI'S FORECASTS ISSN 2044-9631 Published by Business Monitor International Ltd. VIETNAM INFORMATION TECHNOLOGY REPORT Q3 2011 INCLUDES 5-YEAR FORECASTS TO 2015 Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Copy deadline: July 2011 Business Monitor International 85 Queen Victoria Street London, EC4V 4AB UK Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: subs@businessmonitor.com Web: http://www.businessmonitor.com © 2011 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 Q3 2011 INCLUDES 5-YEAR FORECASTS TO 2015 Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Copy deadline: July 2011 Business Monitor International 85 Queen Victoria Street London, EC4V 4AB UK Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: subs@businessmonitor.com Web: http://www.businessmonitor.com © 2011 Business Monitor International. All rights reserved. All information contained in this publication is copyrighted in the name of Business Monitor International, and as such no part of this publication may be reproduced, repackaged, redistributed, resold in whole or in any part, or used in any form or by any means graphic, electronic or mechanical, including photocopying, recording, taping, or by information storage or retrieval, or by any other means, without the express written consent of the publisher. DISCLAIMER All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor International accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication. All information is provided without warranty, and Business Monitor International makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained. Vietnam Information Technology Report Q3 2011 © Business Monitor International Ltd Page Vietnam Information Technology Report Q3 2011 CONTENTS Executive Summary . Market Overview . Industry Developments Competitive Landscape Computer Sales SWOT Analysis . Vietnam IT Sector SWOT . Vietnam Telecoms SWOT . Vietnam Political SWOT 10 Vietnam Economic SWOT 11 Vietnam Business Environment SWOT . 12 IT Business Environment Ratings 13 Asia 13 Table: Regional IT Business Environment Ratings 13 Asia IT Markets Overview 17 IT Penetration 17 Sectors And Verticals . 20 Vietnam Market Overview 24 Government Authority 24 Background 24 Hardware . 25 Software . 27 Services 30 Industry Developments 33 Industry Forecast Scenario . 36 Table: Vietnam IT Sector (US$mn unless otherwise stated), 2006-2015 39 Internet . 40 Table: Telecoms Sector –Internet – Historical Data And Forecasts 40 Macroeconomic Forecast 42 Table: Vietnam – Economic Activity 44 Competitive Landscape . 45 Hardware . 45 Software . 46 Operating Systems . 47 IT Services . 50 Company Profiles . 53 FPT Software . 53 BMI Methodology . 54 How We Generate Our Industry Forecasts 54 IT Industry . 54 IT Ratings – Methodology 55 © Business Monitor International Ltd Page Vietnam Information Technology Report Q3 2011 Table: IT Business Environment Indicators . 56 Weighting . 57 Table: Weighting Of Components 57 Sources 57 © Business Monitor International Ltd Page Vietnam Information Technology Report Q3 2011 Executive Summary Market Overview The Vietnamese IT market is estimated to grow at a CAGR of 14% over the 2011-2015 forecast period. IT spending bounced back in 2010, but economic cooling measures are forecast to mean a lower but still double-digit growth rate in 2011. Factors such as rising PC penetration, economic growth, a range of government ICT initiatives and a drive to develop Vietnam's domestic IT industry will help to sustain continued expansion going forward. An ambitious government IT plan for 2010-2020 should shape many segments of the Vietnamese IT market, while Vietnam's improving information and communication technology (ICT) infrastructure will also drive growth. Vietnam's gradual integration into global trade networks such as the Association of Southeast Asian Nations (ASEAN) and the WTO has helped to bring down prices and increase opportunities for importers. The Vietnamese IT market is estimated to grow at a CAGR of 16% over the 2011-2015 period. The addressable domestic market for IT products and services is projected by BMI to reach US$4.1bn by 2015. An increasing number of Vietnamese companies have shown an interest in cloud services. Industry Developments In November 2010, the government pledged to invest US$8.5bn in the ICT sector over the next ten years. Meanwhile, the government's campaign to attract more foreign IT companies to invest in Vietnam received a boost with the announcement that Hewlett-Packard (HP) would set up a wholly-owned firm in Vietnam in early 2011. The government hopes to attract US$5bn of foreign investment into the IT industry by 2015. The Vietnamese government has unveiled ambitious plans for developing the country's IT industry. The plans, which state a revenues target for the sector of between US$17bn and US$19bn in the next five years, include major investments to develop production centres in software, services, hardware and electronics. Revenues are projected at US$2bn from software sales, US$12.5bn from hardware, US$2bn from digital content, and US$1.5bn from IT services. In 2010 the Ministry of Education and Training continued to implement a national programme to supply 1mn affordable computers to Vietnamese schools by 2011. In January 2010, the Vietnam Post and Telecoms Group (VNPT) in Ho Chi Minh City launched a local version of the Computers for Education programme, which will provide teachers and students in the city with low-priced laptops and DSL broadband connections. © Business Monitor International Ltd Page Vietnam Information Technology Report Q3 2011 Competitive Landscape Vietnam's largest software company, FPT has unveiled a major new restructuring plan which will consolidate five technology subsidiaries in a search for higher growth. The company's five subsidiaries; FPT Information System; FPT Telecom Corp; FPT Software; FPT Online and FPT Trading Group; will be merged, with the company either buying out minority shareholders or facilitating a share swap. In May 2011, FPT also announced a cloud-computing alliance with Microsoft. In 2010, several Vietnamese enterprises announced plans to produce tablet PCs, and the first local product, from Hanel, was launched in Vietnam in October 2010. However, local manufacturers are likely to find it hard to compete with the iPad and rival products from other vendors, such as Samsung with its Galaxy Tab. Taiwanese PC vendor Asus has launched a new partnership with local company FTP Distribution which has a nationwide network of 400 dealers. FTP, a member of FTP Trading Group, will distribute Asus products, with Asus planning to introduce the full range of its new products in Vietnam during Q211. Asus also plans to open between new service centres in Vietnam in 2011. Computer Sales BMI projects that sales in Vietnam's computer hardware market will be worth around US$1.6bn in 2011, up from an estimated US$1.4bn in 2010. The main growth driver will be affordable notebooks. BMI projects growth of around 11% in the Vietnam PC market in 2011, after the market showed signs of a rebound in 2010. PC penetration in Vietnam was estimated by BMI at around 15% in 2010. Notebooks are owned by an estimated 7% of the Vietnamese population. This points to significant growth potential for the local PC market, with the most potential being in rural areas. Currently Hanoi and Ho Chi Minh City are thought to account for in the region of 85% of notebook sales. Software In 2011, Vietnam software sales are projected by BMI to grow to US$184mn, and software CAGR for 2011-2015 should be in the region of 20%. Software spending comprises around 9% of total Vietnamese IT spending currently. The market is expected to reach a value of around US$378mn by 2015, with steady growth in demand for licensed software from government, enterprise and household segments. Vietnam's software market is developing, despite the problem of software piracy, which still accounts for around 85% of software, compared with 76% in neighbour Thailand. © Business Monitor International Ltd Page Vietnam Information Technology Report Q3 2011 Services Vietnamese IT services spending is forecast to reach around US$388mn in 2011, up from US$342mn in 2010. The market showed signs of stabilisation in 2010 and sectoral CAGR is projected at 12% over the forecast period, as the market approaches US$726mn by 2015. IT services now accounts for around 18% of total Vietnam IT spending. Over the past few years, the size of IT services deals has increased in key IT spending verticals. Growing demand for digital infrastructure projects in segments such as banking, telecoms, energy and government has attracted global IT services providers to invest more in Vietnam. E-Readiness Vietnam's fixed-line infrastructure is unreliable and offers poor coverage. However, Vietnam has an exceptionally high penetration rate in the mobile market, reaching 126% at the end of 2009, and registering around 110.8mn subscribers. This has been aided by mobile network operators reducing tariffs to encourage growth of their respective subscriber bases, as well as increased investment in the expansion of infrastructure to areas outside major towns and cities. Demand for mobile broadband has also been accelerated by the changing lifestyles of consumers, who use the service for accessing the internet for work and leisure. © Business Monitor International Ltd Page Vietnam Information Technology Report Q3 2011 SWOT Analysis Vietnam IT Sector SWOT Strengths Weaknesses Opportunities Threats ƒ he domestic IT market is in a rapid growth phase, with trade liberalisation and growing affordability driving projected double-digit growth of notebook computers. ƒ Expanding ICT infrastructure and internet penetration will continue to drive demand for IT products and services. ƒ 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. ƒ IT spend per capita much lower than in neighbouring Thailand, reflecting a much lower GDP and GDP per capita. ƒ Low levels of access to credit and budgets restrain spending by SMEs. ƒ Highly cost-sensitive market, with 75% of software provided by lower-cost local software vendors. ƒ High level of software piracy at 85%, although it has fallen in the last few years. ƒ High PC market growth potential particular in rural areas due to overall low PC penetration rate of 15%. ƒ Vast and relatively under-penetrated rural market presents a significant growth opportunity as the government rolls out measures to boost rural connectivity and incomes. ƒ National IT Plan will drive spending on IT utilisation in areas like e-government, etaxation and education. ƒ SMEs have much potential to increase spending on basic solutions, including customer relationship management and security. ƒ One Teacher-One Computer programme aims to deliver 1mn computers to schools by 2011. ƒ The banking and finance sector is a promising area for database software and one where foreign companies have done well. ƒ Banking and finance, oil and gas, aviation and telecoms are projected to be some of the biggest opportunities for multinational vendors. ƒ Tax agencies at all levels of administration are looking to increase the efficiency of tax collection. ƒ The government's drive to create a significant IT services industry over the next 15-20 years is expected to be a significant factor shaping the IT market. ƒ Continued depreciation of the dong against the US dollar would increase the pressure on Vietnamese distributors of foreign IT goods. ƒ Falling prices may further undermine margins and profitability after steep discounting in 2009. ƒ The implementation of the China-ASEAN free trade agreement means that established multinationals will face a growing challenge from low-cost Chinese vendors in the Vietnamese market. © Business Monitor International Ltd Page Vietnam Information Technology Report Q3 2011 Macroeconomic Forecast Public Spending Cuts To Keep Economic Growth Subdued BMI View: The Vietnamese government's shift in focus from driving economic growth towards fighting inflation and addressing macroeconomic imbalances is beginning to have a cooling effect on the economy. Vietnam's real GDP growth came in at a relatively subdued 5.4% year-on-year in Q111, compared with 7.2% in Q410. We expect public spending cuts and tighter credit conditions to keep economic activity depressed over the coming months. Accordingly, we are maintaining our forecast for real GDP growth to come in at a subdued 6.3% in 2011. Latest economic figures published by the General Statistics Office suggest a shift in the Vietnamese government's focus from driving economic growth towards fighting inflation and addressing macroeconomic imbalances is beginning to have a cooling effect on the economy. Vietnam's real GDP growth came in at a relatively subdued 5.4% year-on-year (y-o-y) in Q111, compared with 7.2% in Q410. We expect economic activity to moderate over the coming months as the full impact of fiscal and monetary tightening continues to feed through the economy. This is in line with our forecast that economic growth will slow from 6.8% in 2010 to 6.3% in 2011. From our perspective, attempts by the government to cool the overheating economy are a positive move that will help facilitate a more stable growth trajectory for Vietnam over the longer term. Public Spending A Key Drag On Growth Prime Minister Nguyen Tan Dung unveiled the government's latest measure to cool the economy on March 31, highlighting plans to slash the fiscal budget by 7.4% this year. According to the plan, public spending cuts will amount to around VND50trn (US$2.4bn) of investment in public projects. We see this as a strong indication that the government is serious about addressing mounting inflationary pressures and an overheating economy. However, given that the impact of fiscal tightening has yet to be reflected in Q111 data, we expect economic activity to continue to slow in Q211. Accordingly, we expect reduced public spending to be a key drag on growth over the coming months. Business investments could also come under pressure as public projects begin to be put on hold. Removing The Punch Bowl In line with the Vietnamese government's attempt to slash public spending to cool the economy, the State Bank of Vietnam (SBV) has also embarked on aggressive monetary tightening. Following a total of 300 basis points (bps) of rate hikes in February, the central introduced a further 100bps hike on April 1, bringing the policy rate from 9.00% at the beginning of the year to 13.00%. The SBV's move came after headline consumer price inflation (CPI) accelerated to a 25-month high of 13.9% y-o-y in March, suggesting that inflation is at major risk of exceeding the central bank's target of 7% this year. Accordingly, we have revised our policy rate forecast from 12.00% to 13.00% for end-2011, reflecting the SBV's latest rate hike. We expect the SBV to hold its policy rate at 13.00% as we see inflationary © Business Monitor International Ltd Page 42 Vietnam Information Technology Report Q3 2011 pressures moderating over the coming months. The multi-month high headline CPI reading in March could be due to one-off effects of a currency devaluation in February – which caused a spike in import prices – and electricity and fuel price adjustments in March (see our online service, March 29, 'Wait-AndSee For The SBV'). We acknowledge that the full impact of monetary tightening by the SBV, which was only introduced in late February, will take several months to feed through the economy. However, we note that lending rates, which have risen to 18.0-22.0% in recent weeks, are already beginning to have a cooling effect on economic activity. Industrial Production Growth Stagnates Industrial production growth remained stagnant at a moderate growth rate of 15.1% y-o-y in March. We believe tight credit conditions due to high lending rates, coupled with expectations for a slowdown in domestic demand will help keep industrial activity depressed in Q211. Private consumption should also start to cool as public spending and industrial activity continue to moderate over the coming months. That said, we believe private consumption will remain resilient as the government plans to provide financial support to lower-income households to help offset the impact of fiscal tightening. Moreover, a strong labour market should also help to provide support for private consumption in the coming months. Our long-held view that private consumption will remain a key driver of economic growth in 2011 will stay in play. Narrowing Trade Deficit Not Enough To Offset Tightening Measures Looking at the latest trade figures, we note that trade exports came in at a robust 26.0% y-o-y in March, an encouraging sign that Vietnamese exports could have benefited from an 8.5% currency devaluation in February. However, trade imports also registered a significant increase of 21.5% y-o-y in March, resulting in a trade deficit of US$1.2bn. We note that a devaluation in the Vietnamese dong, which will dampen demand for imports, should gradually translate into a smaller trade deficit in Q211. This in turn suggests that we could potentially see rising net exports acting as a cushion against an expected slowdown in domestic demand. Nonetheless, we believe that any increase in net exports will be overshadowed by the combined effect of fiscal and monetary tightening in the coming months. Therefore, we are happy to maintain our forecast for Vietnam's real GDP growth to come in at 6.3% in 2011. Our forecast is slightly lower compared to the government's growth target of 7.0-7.5% this year. However, given that the government has already reversed its pro-growth stance on the economy, we expect the government to revise its growth target accordingly in the coming months. © Business Monitor International Ltd Page 43 Vietnam Information Technology Report Q3 2011 Table: Vietnam – Economic Activity 2008 2009 2010 2011f 2012f 2013f 2014f 2015f Nominal GDP, VNDbn 1,485,038.0 1,658,389.0 1,953,223.3 2,326,853.6 2,641,667.1 2,985,462.7 3,358,614.4 3,761,091.7 Nominal GDP, US$bn 89.8 92.8 101.9 113.0 129.7 150.8 174.5 200.6 6.3 5.3 6.8 6.3 7.2 7.2 7.2 7.2 1,041 1,063 1,153 1,265 1,438 1,656 1,897 2,161 86.2 87.3 88.4 89.3 90.2 91.1 92.0 92.8 Industrial production index, % y-o-y, ave 1,2 13.6 6.7 14.1 10.0 15.0 16.0 17.0 16.0 Unemployment, % of labour force, eop 4.7 6.0 5.0 6.0 5.0 5.0 5.0 5.0 Real GDP growth, % change y-o-y GDP per capita, US$ Population, mn f = BMI forecast. at 1994 prices. Source: General Statistics Office. World Bank/BMI calculation/BMI. © Business Monitor International Ltd Page 44 Vietnam Information Technology Report Q3 2011 Competitive Landscape Hardware ƒ Vendors report successes with netbook products in Vietnam ƒ Vietnamese company announces tablet launch Multinational brands dominate the Vietnamese PC market, with HP and Acer the top-selling brands. Other multinational vendors including Dell, Toshiba and Asus have enjoyed strong recent growth in the booming market. Meanwhile, Korean consumer electronics giant Samsung has targeted a larger share of the Vietnamese notebook PC market. Samsung hoped to leverage its distribution network and strong brand recognition into a 10% share of the PC market in 2010. Fourth-placed PC market player Asus has targeted third place in 2011, and is working to strengthen its distribution channel. In April 2011, Asus launched a new partnership with local company FTP Distribution which has a nationwide network of 400 dealers. FTP, a member of FTP Trading Group, will distribute Asus products, with Asus planning to introduce the full range of its new products in Vietnam during Q211. FTP also distributes a portfolio of other leading PC brands including Dell, Lenovo and Acer. Asus, which first entered the Vietnam market only three years ago, is also focusing on service as a competitive differentiator. FTP will provide warranty services for Asus laptops at its four new service centres in Hanoi, HCMC, Danang and Can Tho. Meanwhile, Asus plans to open between 13 and 15 service centres in Vietnam in 2011. As in many other markets, telecoms carriers have also emerged as a significant channel option for PC vendors. Dell has launched a partnership with military-run telecoms company Viettel, which will distribute Dell PCs. Viettel has a substantial presence in rural areas, which have big PC market growth potential, as PC penetration is currently low. Meanwhile, Dell has also partnered with local retail giant Teh Gioi Di Dong to sell both online and through the company's 40 retail outlets. HP's Vietnam market sales have been boosted by government and education sector projects, as well as by its strategy to target the consumer segment. HP was ranked by market research firm AC Nielsen as the leading laptop and PC market brand in Vietnam in 2010. HP is also the leader in the printer segment. Vendors continued to roll out new models during the economic slowdown, with the popularity of the small form factor netbooks a significant focus. In May 2009, Intel said that Vietnam was the leading consumer of its net-top product in the Asia Pacific region, with demand up some 400% compared with the last quarter of 2008. Intel expected total Vietnamese net-top sales of 120,000 this year. © Business Monitor International Ltd Page 45 Vietnam Information Technology Report Q3 2011 2010 saw the emergence of tablet PCs, spearheaded by Apple's iPad, which surveys indicate enjoys a high brand recognition in the Vietnamese market. In 2010, several Vietnamese enterprises announced plans to tablet PCs, and the first such product, from Hanel, was launched in Vietnam in October 2010. However, local manufacturers are likely to find it hard to compete with their multinational rivals, with vendors, such as Samsung with its Galaxy Tab, following Apple in releasing tablet devices, The reduction of import tariffs from January 2009 encouraged multinational vendors to focus more imports of high-end devices. Sony announced that it was starting to sell its VAIO notebook in Vietnam, as it started to shift to importing for domestic sales. Sony already has 180 distributors nationwide. Meanwhile, working with its partner DigiWorld Corp, Dell launched a campaign to target the local consumer segment, which is fuelling much of current growth. Software ƒ Government partnering with vendors to explore cloud computing opportunities ƒ Microsoft signs extension of licensing agreement with government Vietnamese software producers dominate their domestic software market. Local products accounted for around 75% of market value in 2008 while foreign vendors have around 25%. Local companies have a particularly strong position in the government and SME segments, while larger Vietnamese corporations are more likely to consider more expensive software from multinationals. However software piracy is an issue for both domestic and multinational companies. Lac VIet Company, vendor of a popular dictionary software, has estimated annual losses to piracy of around VND58bn. The government plans to expand the local software industry, and develop a number of new software bases, as well as two new software businesses with revenues of more than US$200mn, could potentially have an impact on the local software competitive landscape. The Ministry of Information and Communications (MOCI), which developed the plans, has also called for the localisation of some opensource software products for use in state agencies. Vietnam has about 150 domestic software companies, including 19 joint ventures according to US Commercial Service data. Major IT spending verticals such as banking and finance, oil and gas, aviation and telecoms are among the best opportunities for foreign vendors. The government supports the development of a local software industry and the Vietnam Software Association has forecast growth for the software industry of around 20% in 2010, although this would be only 30% of that achieved in the pre-economic slowdown period of 2005-2008. Many local companies target export markets. FPT Software, one of Vietnam's largest software exporters, said that it had set itself a growth target of 20% for 2010, thanks to the recovery of the American and © Business Monitor International Ltd Page 46 Vietnam Information Technology Report Q3 2011 Australian markets. Meanwhile, other local software firms such as VietSoftware International and Run Systems Co were targeting rates growth of 200-250% and 30%40% in 2010 respectively. Operating Systems In November 2011 Microsoft signed an extension of a deal with the Vietnam government to purchase licensed software for government organisations. The original 2007 agreement had covered all 63 provincial authorities, 24 ministries and enterprises where the state has a stake of more than 50%. Microsoft also agreed to support the development of the government's ICT master plan and public policies for the ICT industry in the period through 2020. Microsoft is dominant in the operating system segment but faces a challenge from Chinese vendor KingSoft. Microsoft officially introduced its Windows operating system in Vietnam in early November, one month later than in many other markets. Microsoft will introduce a Vietnamese version of Windows Live and has announced a list of Vietnamese software programmes that are compatible with Windows including Vietnamese font programme Unikey and dictionaries from Lac Viet Company, as well as the popular BKIS anti-virus programme. Microsoft has a lot riding on the new operating release, given perceived problems with its previous operating system Windows Vista, and also because of the continuing global challenge from open source. The economic downturn may have added to the forces driving interest in open-source software. The economic downturn has led businesses and customers to look more closely at open-office type open source software, due to its perceived lower cost and access to codes, as well as free services such as Google Docs, which are funded by advertising. However, a key issue and precondition for the more widespread adoption of open source will be the development of a support infrastructure. BMI projects that Windows will attract more support than Windows Vista, largely because Windows XP is now getting old. Many businesses that declined to upgrade from XP to Vista, due to reported problems with the latter, may now go straight to Windows 7. Microsoft will still offer reduced support for XP until 2015, but hardware manufacturers will start to wind down their support from about 2012. This will be a key factor that should drive business upgrades to Windows 7. Microsoft will also argue that Windows can help businesses to save costs, enabling IT departments to be run more efficiently. In particular, Windows is better-suited to virtualisation than either XP or Vista. Virtualisation look sets to become an important trend in IT spending in the next few years, as it allows businesses to simplify the management of desktop PCs by running desktop applications and storing user data within the data centre. Given the current economic climate however, IT directors will need to justify any upgrade in terms of cost savings. In September 2010, Intel announced a new drive to introduce its cloud computing to Vietnam over the next five years. © Business Monitor International Ltd Page 47 Vietnam Information Technology Report Q3 2011 Business Software The Vietnamese enterprise software market is competitive with local companies having a significant share of the market. Major global players such as SAP, Oracle, IBM and Microsoft have a local presence but face competition from cheaper local rivals such as CMC Joint Stock Corporation (CMC), MISA, FAST and Exact Software, as well as from Chinese rivals. Similarly in the security software segment, US suppliers Symantec and McAfee have had successes, but face competition from popular Vietnamese anti-virus programmes such as BKIS. German software giant SAP is the world's largest business software company and in July 2009 included Ho Chi Minh City on its world tour for the first time. SAP promoted its solutions as helping Vietnamese organisations adapt to the world market. Local clients include PetroVietnam Technology, the International Consumer Products Corporation and VinaCapital. In April 2010, SAP announced that it had formed a strategic partnership with leading Vietnamese software venture CMC. The two partners will develop the major enterprise market together with CMC becoming SAP's strategic partner for consulting and implementing SAP solutions. The main target will be large companies, including in the finance sector. CMC is one of Vietnam's largest software companies and is active in the IT, telecoms and e-business with an annual growth averaging at least 30%. SAP's biggest global rival, US vendor Oracle, has performed strongly in the Asia Pacific (excluding Japan) region during the recent financial crisis. According to the company, it managed to increase its market share in the region. In Vietnam the company has made strong inroads into the banking sector, where it claims to have more than 15 customers, including banks such as Dong A Bank, Hubu Bank, Ocean Bank, Nam A Bank, and Tien Phong Bank. Recently mid-sized bank Vietnam Asia Commercial (VietA) Bank, which is based out of Ho Chi Minh City and has 15 main branches and 47 sub-branches, announced that it was migrating to an Oracle FLEXCUBE solution to cover all of its operations. Oracle has placed a particular focus on middleware recently and has increased the number of its middleware representatives in the Asia Pacific region in an attempt to boost its share. In November 2009, Oracle Vietnam launched Oracle Middleware 11g and Oracle Database11g release in Vietnam. The new software is designed to lower IT costs, streamlining critical processes, secure corporate information and boost productivity. Other multinational vendors like Microsoft are also targeting promising enterprise sectors, and in 2010 Microsoft won a VDN3bn contract for its Dynamics CRM solution from Sacombank Real Estate, an affiliate of Saigon Thuong Tin Commercial Bank. While many foreign vendors have found richest pickings in the corporate sector, some are now starting to target Vietnamese SMEs. In 2009, Epicor Software Corporation, a leading provider of ERP solutions in © Business Monitor International Ltd Page 48 Vietnam Information Technology Report Q3 2011 Asia, set up a strategic alliance with the Vietnamese subsidiary of US-based DiCentral Group to expand its presence in Vietnam. Epicor provides DiCentral with technical and marketing assistance as the company promotes its ERP solutions to local firms, with a focus on solutions for plastics manufacturing and consumer packaged goods, as well as the hotel and property management segment. An increasing number of Vietnamese companies have shown an interest in and willingness to use cloud services, which are perceived by vendors as an emerging opportunity. In 2010, the Vietnamese FPT (Corporation of Financing and Promoting Technologies) and Microsoft reached an agreement on cooperation to research opportunities for cloud computing in Vietnam. The partners will also launch commercial pilots. Meanwhile IBM is promoting cloud computing as a cost-effective way for Vietnamese SMEs to realise efficiencies through IT utilisation. Key prospects are seen as being enterprises in the finance and banking, insurance and retail sectors. As a result of growing competition business software vendors have increasingly looked to expand through strategic acquisitions. This process also has also been driven by demand for more targeted applications, which has driven vendors to acquire expertise in particular industry verticals. In H109, SAP's biggest global rival Oracle purchased Sun Microsystems for US$7.4bn. Oracle's acquisition came after IBM dropped its own bid to buy one of the most famous names in IT. Although not Oracle's largest ever acquisition, it was certainly one of the most significant in strategic terms, as it was Oracle's first hardware acquisition. By adding hardware to the mix, the deal fits into Oracle's strategic plan to become a technology 'one stop shop' for its global customer base. However, Oracle can also get leverage from synchronicities with Sun software. Sun's Java platform, used to write platforms for websites and mobile phones, will be a major asset for Oracle. Sun's Solaris is major platform for Oracle's database software. The deal was just the latest in a string of recent acquisitions for Oracle that are estimated to have cost more than US$40 bn. The acquisition will have an impact on the business software competitive landscape as rival vendors work out how they are affected. IBM, in particular, which many thought a natural fit for a Sun acquisition, will have to redefine its relationship with Oracle. European giant SAP, which still has the leading share of the global business software market, has insisted that its specialist software provider role still works and that clients not really want to buy all their IT from one provider. However, particularly following Oracle's acquisition of Sun, SAP may be forced to reconsider. The main enterprise software vendors are increasingly focused on the SME segment, rolling out a succession of product lines and software packages previously only available to larger companies. New releases were tailored to SMEs' smaller budgets and particular organisational needs. © Business Monitor International Ltd Page 49 Vietnam Information Technology Report Q3 2011 Cost and access to credit remain big issues for smaller Vietnamese companies, leading to high levels of software piracy. In response, multinational vendors have had to experiment with innovative programmes. In September 2009, Microsoft Vietnam launched a programme called 'Microsoft Open Value', which was aimed at supporting SMEs in Vietnam to regularise their Microsoft software use though buying a licence at a suitable price and with a suitable payment method in line with the enterprise's budget. IT Services ƒ MOC announced decree regulating IT Services market by end of 2010 ƒ IBM builds on new Innovation Centre with partnerships with local universities According to Vietnam's MIC, Vietnam has around 10,000 firms currently licensed to provide IT services. However, only a third are actually operating. The MIC is currently developing a draft decree to map out policies to help the IT industry grow in the future and this is due by the end of the year. Measures to eliminate firms that had been previously licensed to provide IT services, but were for whatever reason not actually doing so will be included in the decree. The decree will also stipulate procedures and operational requirements for firms providing IT services. Local software producers are increasingly offering software development and outsourcing services as Vietnam's government targets a larger share of the global outsourcing opportunity. Vietnamese companies have a particularly strong Japanese client base for these types of services. According to the Vietnam-Japan IT cooperation club, Vietnam ranks third after China and India for IT and software outsourcing services to Japanese organisations with a 0.5% market share. This share is projected by the club to increase 10-fold within five years and the annual growth of IT and software outsourcing services offered by Vietnamese software companies has doubled every year according to the Japan IT Association. Indeed, many Vietnamese software companies earn 100% of their revenue from Japan. The largest Vietnamese software company, FPT, offers software custom development and outsourcing services to foreign companies and earns 56% of its revenues from Japan. In 2011, the company unveiled a major new restructuring plan which will consolidate five technology subsidiaries in a search for higher growth. The company's five subsidiaries; FPT Information System; FPT Telecom Corp; FPT Software; FPT Online and FPT Trading Group; will be merged, with the company either buying out minority shareholders or facilitating a share swap. © Business Monitor International Ltd Page 50 Vietnam Information Technology Report Q3 2011 FPT is looking to restore its growth rate, which has fallen below 20% in the past couple of years, after previously being around 30%. FPT is focused on expansion through adding to its network of partners. The company is looking to stake a position in the small but emerging cloud computing opportunity and in May 2011 announced a cloud-computing alliance with Microsoft. In January 2010, FPT revealed that it had launched a US$2mn outsourcing contract to develop core retail and e-commerce software for Nissen Co. Japanese companies are also involved as players in Vietnam's developing outsourcing sector. In March 2010, Japanese companies Mitsui and Co and Moshi Moshi Hotline Inc announced that they had jointly established MOCAP Vietnam Joint Stock Company (MOCAP Vietnam) in Hanoi in partnership with a local company. The new company said that this was the first Japanese-founded call centre outsourcing company to be founded in Vietnam and it was due to start to provide call centre services for the Vietnam market from March 2010. Because of the potential of the Vietnamese market, many other foreign vendors have increased investment in the country. IBM has made a series of recent investments in Vietnam. In May 2009, the US giant announced its establishment of the first IBM innovation centre in Vietnam. The new facility will provide support to digital infrastructure projects in banking, telecoms, energy and government industries. The centre, located in Ho Chi Minh City, will also provide entrepreneurs, IBM business partners and others from not only Vietnam but also Cambodia and Laos with access to training workshops, consulting services and technical infrastructure. IBM has also announced a number of cooperations with local universities in Vietnam. Among these initiatives, the University of Technology, Vietnam National University in Ho Chi Minh City will cooperate with IBM to establish a new university cloud computing centre and a cloud curriculum. Government is an important target sector for IT services vendors. In July 2009, the Ministry of Foreign Affairs and Microsoft Vietnam signed an agreement about cooperation on IT development. Microsoft will provide consultation to the ministry on its IT status and developing a roadmap for developing its IT applications through 2014. Microsoft will also provide training of the ministry's IT staff. © Business Monitor International Ltd Page 51 Vietnam Information Technology Report Q3 2011 Internet Vietnam Internet User Growth There were a total of 22.78mn internet 2004-2008 users in Vietnam at the end of 2009, according to the regulator, VNNIC. This represented an annual growth rate of 9.5% from 20.8mn in 2008, and down from the 12.3% y-o-y increase in 2008. This would indicate that demand for internet services is falling. The chart shows that the annual rate of growth, in terms of the number of new internet users, has become progressively lower over the past few years. As of February 2010 (latest data), the VNNIC stated that the internet Source: VNNIC, BMI user base had risen to 23.31mn, revealing some net additions of 0.53mn in the first two months of the year. Although the rate of internet user penetration among young people and in Vietnam's more affluent urban centres is already higher than the national average, it will be necessary to ensure that new demographic groups have internet access if internet user growth is to continue over the next few years. This in particular relates to providing internet services in rural areas of the country, where fixed-line infrastructure is particularly poor and in some cases non-existent. One phenomenon that bodes well for continued growth in the number of internet users is the high level of PC ownership that exists in Vietnam. According to a survey conducted by Alcatel-Lucent, some 95% of Vietnamese households now have access to a desktop PC, of which 16% are planning to purchase a laptop. Traditionally, affordability has been one of the main reasons behind the slow take-up of internet and broadband services in the market. However, access to PCs and laptops is growing as a number of cheaper models become available in the market. Meanwhile, growth in demand for broadband services is set to soar, as the Vietnamese government has been investing heavily in developing the broadband sector, announcing its commitment to inject VND100trn (US$6.3bn) in order to raise penetration rates significantly. Also, since joining the WTO, a number of high-profile global companies have relocated their operations to Vietnam and the employment of local staff has boosted incomes. The result has been that a significant number spend US$10-20 on their home internet bills, accessing multimedia content including games and downloads. Increased competition is also expected to encourage increased broadband usage. © Business Monitor International Ltd Page 52 Vietnam Information Technology Report Q3 2011 Company Profiles FPT Software Services FPT Software, one of Vietnam's largest software companies, was founded in 1998. FPT offers software custom development and outsourcing services to foreign companies. Specific services include software development and maintenance, ERP implementation, migration, embedded systems and quality testing. Recent Developments In 2011, FPT unveiled a major new restructuring plan which will consolidate five technology subsidiaries in a search for higher growth. The company's five subsidiaries; FPT Information System; FPT Telecom Corp; FPT Software; FPT Online and FPT Trading Group; will be merged, with the company either buying out minority shareholders or facilitating a share swap. Among major developments in 2010, FPT revealed that it had launched a US$2mn outsourcing contract to develop core retail and e-commerce software for Nissen Co. The company's US$12mn revenues in Q110 exceeded planned projections by 9%, while profits were 46% higher than initially projected. The fastest growth compared with 2009 came in Vietnam, where revenues were up 90% y-o-y, while Asia Pacific (excluding Japan) grew 47%, Europe 75% and the US 69%. However, the Japanese market, which accounts for more than half of FPT's revenues, grew by only 16%. Future Plans FTP is looking to stake a position in the small but emerging cloud computing opportunity and in May 2011 announced a cloud-computing alliance with Microsoft. Meanwhile the company has said that it will continue to focus on an 'e-Citizens' strategy of concentrating on core business areas and trying to increase synergy among product and service introductions by FPT group companies. Performance FPT is looking to restore its growth rate, which has fallen below 20% in the past couple of years, after previously being around 30%. FPT is focused on expansion through adding to its network of partners. Presence FPT has a presence in Hanoi, Ho Chi Minh City and Da Nang in Vietnam. The company is also present in some major global IT markets including Japan (Tokyo, Osaka), Australia, Singapore, Malaysia, Thailand, the Philippines, the US and France. Sectors FTP earns 56% of its revenues from Japan. The company focuses mainly on the largest ITspending verticals including banking and finance, telecoms, manufacturing, government, retail, infrastructure and utilities. © Business Monitor International Ltd Page 53 Vietnam Information Technology Report Q3 2011 BMI Methodology How We Generate Our Industry Forecasts BMI’s industry forecasts are generated using the best-practice techniques of time-series modelling. The precise form of time-series model we use varies from industry to industry, in each case being determined, as per standard practice, by the prevailing features of the industry data being examined. For example, data for some industries may be particularly prone to seasonality, i.e. seasonal trends. In other industries, there may be pronounced non-linearity, whereby large recessions, for example, may occur more frequently than cyclical booms. Our approach varies from industry to industry. Common to our analysis of every industry, however, is the use of vector autoregressions. Vector autoregressions allow us to forecast a variable using more than the variable’s own history as explanatory information. For example, when forecasting oil prices, we can include information about oil consumption, supply and capacity. When forecasting for some of our industry sub-component variables, however, using a variable’s own history is often the most desirable method of analysis. Such single-variable analysis is called univariate modelling. We use the most common and versatile form of univariate models: the autoregressive moving average model (ARMA). In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality is poor. In such cases, we use either traditional decomposition methods or smoothing methods as a basis for analysis and forecasting. It must be remembered that human intervention plays a necessary and desirable part in all of our industry forecasting techniques. Intimate knowledge of the data and industry ensures we spot structural breaks, anomalous data, turning points and seasonal features where a purely mechanical forecasting process would not. IT Industry Forecasts There are a number of criteria that drive our forecasts for each IT variable. IT forecasting is complicated due to the fragmented nature of the market, with little transparency of vendor data and low apparent agreement between many sets of figures in terms of market definition, base and methodology. In addition, forecasts are naturally affected by consideration of a variety of internal and external political and economic factors. © Business Monitor International Ltd Page 54 Vietnam Information Technology Report Q3 2011 Within best-practice techniques of time-series modelling, BMI’s quarterly updated forecasts are improved substantially by intimate knowledge of the prevailing features of each local market. Individual variables taken into account in creating each forecast include: ƒ Overall economic context, and GDP and demographic trends; ƒ Underlying ‘information society’ trends; ƒ Projected GDP share of industry; ƒ Maturity of market structure; ƒ Regulatory developments and government policies; ƒ Developments in key client sectors such as telecommunications, banking and e-government; ƒ Technological developments, and diffusion rates; ƒ Exogenous events. Estimates are calculated using BMI’s own macroeconomic and demographic forecasts. IT Ratings – Methodology Our approach in BMI’s IT Business Environment Ratings is threefold. First, we seek accurately to capture the operational dangers to companies operating in this industry globally. Second, we attempt, where possible, to identify objective indicators that may serve as proxies for indicators that were traditionally evaluated on a subjective basis. Finally, we include aspects of BMI’s proprietary Country Risk Ratings (CRR) that are relevant to the IT industry. Overall, the ratings system, which integrates with those of all 16 industries covered by BMI, offers an industry-leading insight into the prospects/risks for companies across the globe. Ratings System Conceptually, the ratings system divides into two distinct areas: Limits of potential returns: Evaluation of sector’s size and growth potential in each state, and also broader industry/state characteristics that may inhibit its development. Risks to realisation of those returns: Evaluation of industry-specific dangers and those emanating from the state’s political/economic profile that call into question the likelihood of anticipated returns being realised over the assessed time period. Indicators The following indicators have been used. Overall, the rating uses three subjectively measured indicators, and 41 separate indicators/datasets. © Business Monitor International Ltd Page 55 Vietnam Information Technology Report Q3 2011 Table: IT Business Environment Indicators Indicator Rationale Limits to potential returns Market structure IT market value, US$bn Sector value growth, % year-onyear (y-o-y) Denotes breadth of IT market. Large markets score higher than smaller ones Denotes sector dynamism. Scores based on annual average growth over five-year forecast period Government initiatives and spending Denotes spending boost provided by public sector, which can be a crucial determinant of sector development Hardware, % of total sales Denotes maturity of market. A high proportion of hardware sales – compared to services/software – indicates that the overall IT market is immature Country structure Urban-rural split GDP per capita, US$ Urbanisation is used as a proxy for development. Predominantly rural states therefore score lower A high GDP per capita supports long-term industry prospects. Overall score for country structure is also affected by the coverage of the power transmission network across the state Risks to potential returns Market risks Intellectual property (IP) laws ICT policy Markets with fair and enforced IP regulations score higher than those with endemic counterfeiting Subjective evaluation of official policy towards IT development, as enshrined in statute and tax code Country risk Short-term external risk Rating from CRR evaluates the vulnerability to external shock, which is the principal cause of economic crises. Such a crisis would cut investment Short-term financial risk Rating from BMI’s CRR, to denote risk of currency crisis and stability of banking sector. The former would hit revenues in hard currency, while the latter would curtail investment funding Trade bureaucracy Legal framework Bureaucracy Corruption Rating from CRR to denote ease of trading with the state Rating from CRR denotes the strength of legal institutions in each state – security of investment can be a key risk in some emerging markets Rating from CRR denotes ease of conducting business in the state Rating from CRR denotes the risk of additional illegal costs/possibility of opacity in tendering/business operations affecting companies’ ability to compete Source: BMI © Business Monitor International Ltd Page 56 Vietnam Information Technology Report Q3 2011 Weighting Given the number of indicators/datasets used, it would be wholly inappropriate to give all subcomponents equal weight. Consequently, the following weight has been adopted. Table: Weighting Of Components Component Weighting Limits of potential returns 70% – IT market 65% – Country structure 35% Risks to realisation of potential returns 30% – Industry risks 40% – Country risk 60% Source: BMI Sources Additional sources used in IT reports include national ministries and ICT regulatory bodies, national industry associations, and international industry organisations such as the International Telecommunication Union (ITU), officially released company results and figures, and international and national industry news agencies. © Business Monitor International Ltd Page 57 [...]... Structure (% Of Total IT Market) 2011e 2015f e/f = estimate/forecast Source: BMI © Business Monitor International Ltd Page 23 Vietnam Information Technology Report Q3 2011 Vietnam Market Overview Government authority Ministry of Information and Communications (MIC) Minister Le Doan Hop Government Authority The Ministry of Information and Communications (MIC) is the main Vietnamese policymaking and regulatory... Ltd Page 10 Vietnam Information Technology Report Q3 2011 Vietnam Economic SWOT Strengths Vietnam has been one of the fastest-growing economies in Asia in recent years, with GDP growth averaging 7.2% annually between 2000 and 2010 The economic boom has lifted many Vietnamese out of poverty, with the official poverty rate in the country falling from 58% in 1993 to 20% in 2004 Weaknesses Vietnam still... Page 31 Vietnam Information Technology Report Q3 2011 More investment in local call centres will generate spending on IT hardware, software and services and be another source of opportunities for IT vendors In 2010, Japanese company Moshi Moshi established MOCAP Vietnam Joint Stock Company, in partnership with a Vietnamese company, to provide call centre services for the Vietnamese market MOCAP Vietnam. .. HKD200mn to the deployment of a Wi-Fi network covering more than 200 public venues © Business Monitor International Ltd Page 18 Vietnam Information Technology Report Q3 2011 IT Growth and Drivers Across the region in 2011, IT spending should benefit from improved economic circumstances 2011e IT Market Sizes US$mn and tenders, previously deferred as a result of the economic situation, although much will depend... tackle the issue of piracy, but despite © Business Monitor International Ltd Page 21 Vietnam Information Technology Report Q3 2011 government crackdowns in China and the Philippines, software piracy remains above 70% in most of emerging Asia In 2011, sales of Microsoft's Windows 7 operating system and new Intel core technology retain the potential to help trigger hardware upgrades, although much will.. .Vietnam Information Technology Report Q3 2011 Vietnam Political SWOT Strengths The Communist Party of Vietnam remains committed to market-oriented reforms and we do not expect major shifts in policy direction over the next five years The oneparty system... Internet Security Centre (or BKIS) and Lac Viet Computer Joint Stock Co had become the first Vietnamese firms to join the Business Software Alliance, a global software industry association that focuses on copyright issues © Business Monitor International Ltd Page 27 Vietnam Information Technology Report Q3 2011 The Vietnamese software market remains highly cost-sensitive, with around 75% of the market served... 14 Vietnam Information Technology Report Q3 2011 Meanwhile, South Korea's government is encouraging the utilisation of cloud computing by small businesses New cloud computing offerings and increased competition in this segment are expected to fuel growing demand to utilise this technology IT outsourcing is also expected to show a strong demand trajectory Malaysia remains in fifth position in our Q31 1... claimed to be the first outsourcing company established with Japanese backing in Vietnam However, economic growth and rising spending power should attract new entrants to this segment going forward © Business Monitor International Ltd Page 32 Vietnam Information Technology Report Q3 2011 Industry Developments New IT Plan The Vietnamese government has unveiled ambitious plans for developing the country's... with IT intellectual property (IP) rights protection and the implementation of state spending projects © Business Monitor International Ltd Page 13 Vietnam Information Technology Report Q3 2011 There are no changes in country rankings in our updated Asia Q31 1 BER ratings Across the Asia Pacific region in 2010, global economic recovery and improved consumer confidence resulted in improved trading conditions . Copy deadline: July 2011 Vietnam Information Technology Report Q3 2011 © Business Monitor International Ltd Page 2 Vietnam Information Technology Report Q3 2011 © Business. low-cost Chinese vendors in the Vietnamese market. Vietnam Information Technology Report Q3 2011 © Business Monitor International Ltd Page 9 Vietnam Telecoms SWOT Strengths. expansion plans. Vietnam Information Technology Report Q3 2011 © Business Monitor International Ltd Page 10 Vietnam Political SWOT Strengths  The Communist Party of Vietnam remains