Q4 2012 www.businessmonitor.com VIetNaM information technology Report INCLUDES BMI'S FORECASTS ISSN 2044-9631 Published by Business Monitor International Ltd. VIETNAM INFORMATION TECHNOLOGY REPORT Q4 2012 INCLUDES 5-YEAR FORECASTS TO 2016 Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Copy deadline: October 2012 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 © 2012 Business Monitor International. All rights reserved. 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All information is provided without warranty, and Business Monitor International makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained. Vietnam Information Technology Report Q4 2012 © Business Monitor International Ltd Page Vietnam Information Technology Report Q4 2012 CONTENTS Executive Summary . SWOT Analysis . Vietnam IT Sector SWOT . Vietnam Telecoms SWOT . Vietnam Political SWOT Vietnam Economic SWOT 10 Vietnam Business Environment SWOT . 11 Asia Pacific IT Risk/Reward Ratings 12 Table: Asia Risk/Reward Ratings Q412 . 15 Asia IT Markets Overview 16 IT Penetration . 16 IT Growth and Drivers 18 Sectors And Verticals 20 Market Overview . 24 Hardware 25 Software 27 Services . 31 Industry Developments 33 Industry Forecast . 37 Table: Vietnam IT Industry – Historical Data And Forecasts (US$mn unless otherwise stated), 20092016 40 Industry Forecast Internet . 41 Table: Telecoms Sector – Internet – Historical Data And Forecasts, 2009-2016 41 Macroeconomic Forecast 43 Table: Vietnam – Economic Activity, 2011-2016 . 45 Competitive Landscape . 46 Hardware 46 Software 48 IT Services 52 Company Profiles . 54 FPT Software . 54 Country Snapshot 55 Table: Vietnam's Population By Age Group, 1990-2020 ('000) . 56 Table: Vietnam's Population By Age Group, 1990-2020 (% of total) 57 Table: Vietnam's Key Population Ratios, 1990-2020 . 58 Table: Vietnam's Rural And Urban Population, 1990-2020 58 BMI Methodology . 59 How We Generate Our Industry Forecasts 59 IT Industry . 59 © Business Monitor International Ltd Page Vietnam Information Technology Report Q4 2012 IT Ratings – Methodology 60 Table: IT Business Environment Indicators . 61 Weighting . 62 Table: Weighting Of Components 62 Sources 62 © Business Monitor International Ltd Page Vietnam Information Technology Report Q4 2012 Executive Summary BMI View: Vietnamese IT spending is expected to reach US$2.53bn in 2012, up 15%, with BMI upwardly revising its forecast due to macroeconomic factors. The PC market slowed in Q112, but drivers including rising PC penetration, economic growth, a range of government ICT initiatives and a campaign to develop Vietnam's domestic IT industry will help to sustain continued expansion going forward. Vietnam's improving ICT infrastructure will also drive the development of the nation's IT market in a country with below 20% PC penetration. Meanwhile, there is strong demand for ERP solutions in 2012 and cloud computing revenues are expected to report at least 300% growth over the five-year forecast period to 2016. Headline Expenditure Projections Computer Hardware Sales: US$1.6bn in 2011 to US$1.8bn in 2012, +13% in US dollar terms. Forecast in US dollar terms unchanged; however, tablets are expected to provide a strong growth area in 2012 due to lower prices. Software Sales: US$187mn in 2011 to US$222mn in 2012, +22% in US dollar terms. Forecast in US dollar terms upwardly revised due to analyst modification, but will depend on the success in bringing down illegal software use. IT Services Sales: US$395mn in 2011 to US$474mn in 2012, +20% in US dollar terms. Forecast in US dollar terms upwardly revised due to analyst modification with growing demand for digital infrastructure projects in various sectors, such as banking, telecoms, energy and government. Risk/Reward Ratings: Vietnam scores 33.2 out of 100 in our Asia risk/reward ratings table. This places the country 11th, ahead of Sri Lanka. The country ranks only ninth for its IT market score, with 36.9. Key Trends & Developments. ƒ In H112, vendors reported continued robust sales of ERP solutions, despite the uncertain economic situation. There is still a lot of potential for Vietnamese enterprises to increase spending on basic solutions. A number of Vietnamese companies embarked on large-scale ERP implementations, including Hoang Anh Gia Lai Group (HAGL), which launched a VND100bn ERP system. However, while the ERP market is strong, it is estimated that only about 10% of Vietnamese businesses have used CRM. © Business Monitor International Ltd Page Vietnam Information Technology Report Q4 2012 ƒ In 2011, a number of government ministries and organisations, including the Ministry of Education and Training, started to promote the roll out of cloud services. Plans to modernise IT in government agencies and the customs department, as well as the Tax Administration Modernization Plan for 2008-2013 represent opportunities for vendors of IT products and services. ƒ An ambitious government IT plan for 2010-2020 should shape many segments of the Vietnamese IT market, with the government pledging to invest VND2.4tn (US4,115mn) from the State Budget in the ICT sector over this period. The government's increasing focus on encouraging ICT development and foreign investment in the technology sector will also create opportunities. Many of the government's ICT development plans and programmes are still in a nascent stage and their ultimate effectiveness is yet to be determined. © Business Monitor International Ltd Page Vietnam Information Technology Report Q4 2012 SWOT Analysis Vietnam IT Sector SWOT Strengths Weaknesses Opportunities Threats ƒ The 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, e-taxation 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 Q4 2012 Vietnam Telecoms SWOT Strengths Weaknesses Opportunities Threats ƒ Fixed-line penetration levels and internet user rates are high in major urban centres, such as Ho Chi Minh City, Hanoi, Danang and Haiphong. ƒ Competition exists in fixed-line and internet access markets; VNPT faces competition from several other state-owned companies and two privately-owned operators. ƒ High levels of literacy and other demographic factors bode well for strong and continued demand for wireline services over the next few years. ƒ Vietnam's fixed-line and internet access markets are both dominated by statecontrolled operators, VNPT and Viettel. ƒ Although alternative broadband infrastructures are currently being explored, broadband growth continues to be dependent on DSL. ƒ Low fixed-line penetration rates in rural regions limit the scope for DSL broadband growth. ƒ Internet user growth is slowing, despite the limited access to internet infrastructure in much of rural Vietnam. ƒ Broadband tariffs remain high, creating a barrier for low-income subscribers to access. ƒ The privatisation of VNPT could help to bring about increased investment revenues and the arrival of new skills. ƒ On a national level, broadband penetration rates remain low; this means that the sector has considerable growth potential. ƒ VNPT plans to invest US$1bn in 2009, in order to upgrade its broadband networks and expand its international internet bandwidth. ƒ Significant opportunities exist to develop alternative broadband technologies, including WiMAX and fibre. ƒ WiMAX services are currently being trialled with a view to licensing a number of WiMAX service providers in the near future; WiMAX internet services have the potential to raise the level of internet user penetration in rural parts of Vietnam. ƒ Draft Bill of Law on Telecommunication has been put forward for discussion at the National Assembly Steering Committee. If passed, the bill will allow private companies to build network infrastructure for the first time and will open up the telecoms market to foreign investors. ƒ Fixed-line sector may enter a period of decline, with potentially negative consequences for ADSL growth. ƒ As the market for mobile data services grows, this could have potentially negative consequences for the growth of fixed broadband services. © Business Monitor International Ltd Page Vietnam Information Technology Report Q4 2012 Vietnam Political SWOT Strengths Weaknesses Opportunities Threats ƒ The Communist Party of Vietnam remains committed to market-oriented reforms and we not expect major shifts in policy direction over the next five years. The one-party system is generally conducive to short-term political stability. ƒ Relations with the US have witnessed a marked improvement, and Washington sees Hanoi as a potential geopolitical ally in South East Asia. ƒ Corruption among government officials poses a major threat to the legitimacy of the ruling Communist Party. ƒ There is increasing (albeit still limited) public dissatisfaction with the leadership's tight control over political dissent. ƒ The government recognises the threat corruption poses to its legitimacy, and has acted to clamp down on graft among party officials. ƒ Vietnam has allowed legislators to become more vocal in criticising government policies. This is opening up opportunities for more checks and balances within the one-party system. ƒ Macroeconomic instabilities in 2012 are likely to weigh on public acceptance of the one-party system, and street demonstrations to protest economic conditions could develop into a full-on challenge of undemocractic rule. ƒ Although strong domestic control will ensure little change to Vietnam's political scene in the next few years, over the longer term, the one-party-state will probably be unsustainable. ƒ Relations with China have deteriorated over recent years due to Beijing's more assertive stance over disputed islands in the South China Sea and domestic criticism of a large Chinese investment into a bauxite mining project in the central highlands, which could potentially cause wide-scale environmental damage. © Business Monitor International Ltd Page Vietnam Information Technology Report Q4 2012 Software ƒ Government partnering with vendors to explore cloud computing opportunities. ƒ Microsoft signs extension of licensing agreement with government. Local companies have a particularly strong position in the government and SME segments, while foreign and larger Vietnamese corporations are more likely to consider more expensive software from multinationals. Some larger Vietnamese software companies such as Hai Hoa have enjoyed some successes with foreign companies. However, other local companies have reported that it is sometimes a challenge for them to meet even government requirements. 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. The Vietnamese Corporation of Financing and Promoting Technologies (FPT Software), one of Vietnam's largest software exporters, said that it had set itself a growth target of 20% for 2010, thanks to the recovery of the American and Australian markets. Meanwhile, other local software firms such as VietSoftware International and Run Systems 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%. © Business Monitor International Ltd Page 48 Vietnam Information Technology Report Q4 2012 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. In spring 2012, Microsoft targeted the consumer segment with a major 'Buying Microsoft computers' campaign, which offered various gifts to customers purchasing computers with legitimate Windows versions installed. The promotion ran from February through April in big cities across Vietnam, including Hanoi, Ho Chi Minh City, Danang, Hailphong and Can Tho. Microsoft is dominant in the operating system segment but faces a challenge from Chinese vendor KingSoft. 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 following five years. Business Software The Vietnamese enterprise software market is competitive with local companies having a significant share of the market. Major global players such as SAP, Oracle, IBM and Microsoft have a local presence but face competition from cheaper local rivals such as CMC Joint Stock Corporation (CMC), MISA, FAST and Exact Software, as well as from Chinese rivals. Similarly in the security software segment, US suppliers Symantec and McAfee have had successes, but face competition from popular Vietnamese anti-virus programmes like BKIS. 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 © Business Monitor International Ltd Page 49 Vietnam Information Technology Report Q4 2012 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. Mid-sized bank Vietnam Asia Commercial (VietA) Bank, which is based in 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 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 Database 11g in Vietnam. The new software is designed to lower IT costs, streamlining critical processes, secure corporate information and boost productivity. Other multinational vendors are also targeting promising enterprise sectors. In July 2011, Norwayheadquartered software company, Conexus, said it was looking for a partner to enter the Vietnam market, as a launching pad for the South East Asian region. Meanwhile, French software vendor Dassult Systemes has already entered into a strategy cooperation agreement with domestic sector player FPT. The two will develop products to target Vietnam's telecoms and banking sectors. Real Estate is another growth area, 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 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. © Business Monitor International Ltd Page 50 Vietnam Information Technology Report Q4 2012 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 2012, Microsoft said that it would soon launch its Office 365 Small Business Premium solution on the market, which is designed for small businesses. Microsoft said that it foresaw rapid development of cloud computing services in Vietnam, especially for SMEs and in 2012 the company launched a VIetnamese website focused on cloud services for this segment. In 2010, FPT 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 acquisitions for Oracle that are estimated to have cost more than US$40bn. 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 51 Vietnam Information Technology Report Q4 2012 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, the country has around 10,000 firms licensed to provide IT services. However, only a third are actually operating. The MIC is developing a draft decree to map out policies to help the IT industry grow in the future. 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. However the major US IT vendors also have a solid presence in the market. In July 2012, IBM won a contract from Vietnam's Orient & Commercial Bank (OCB) to implement its analytics solutions. The OCB is looking to install a new customer-centric approach as it transitions from a multifunction to a retail bank. Growing demand from Vietnam's citiziens for new banking products has create the need for the country's banks to process growing volumes of data. 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 52 Vietnam Information Technology Report Q4 2012 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 2010, Japanese companies Mitsui and Co and Moshi Moshi Hotline Inc 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. © Business Monitor International Ltd Page 53 Vietnam Information Technology Report Q4 2012 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%. . Strategy 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 54 Vietnam Information Technology Report Q4 2012 Country Snapshot Demographic analysis is a key pillar of BMI's macroeconomic and industry forecasting model. Not only is the total population of a country a key variable in consumer demand, but an understanding of the demographic profile is key to understanding issues ranging from future population trends to productivity growth and government spending requirements. The accompanying charts detail Vietnam's population pyramid for 2011, the change in the structure of the population between 2011 and 2050 and the total population between 1990 and 2050, as well as life expectancy. The tables show key datapoints from all of these charts, in addition to important metrics including the dependency ratio and the urban/rural split. Source: World Bank, UN, BMI © Business Monitor International Ltd Page 55 Vietnam Information Technology Report Q4 2012 Table: Vietnam's Population By Age Group, 1990-2020 ('000) 1990 1995 2000 2005 2010 2012f 2015f 2020f 67,102 74,008 78,758 83,161 87,848 89,730 92,443 96,355 0-4 years 9,340 9,212 7,002 6,776 7,186 7,186 7,026 6,529 5-9 years 8,685 9,193 9,124 6,921 6,703 6,885 7,143 6,982 10-14 years 7,504 8,604 9,142 9,038 6,844 6,539 6,668 7,104 15-19 years 7,127 7,408 8,535 9,064 8,963 8,161 6,806 6,628 20-24 years 6,492 7,003 7,305 8,420 8,954 9,115 8,892 6,745 25-29 years 5,893 6,361 6,879 7,167 8,284 8,602 8,862 8,803 30-34 years 4,884 5,779 6,250 6,765 7,058 7,475 8,202 8,779 35-39 years 3,965 4,794 5,688 6,163 6,677 6,770 6,991 8,131 40-44 years 2,420 3,884 4,710 5,614 6,086 6,304 6,609 6,925 45-49 years 2,039 2,358 3,802 4,653 5,548 5,761 6,012 6,536 50-54 years 1,933 1,968 2,287 3,739 4,580 4,936 5,449 5,914 55-59 years 1,946 1,843 1,887 2,201 3,617 4,001 4,446 5,305 60-64 years 1,544 1,822 1,737 1,767 2,076 2,573 3,455 4,268 65-69 years 1,283 1,391 1,659 1,582 1,621 1,649 1,927 3,233 70-74 years 919 1,084 1,194 1,439 1,389 1,384 1,438 1,729 1,127 1,305 1,559 1,852 2,264 2,388 2,516 2,743 Total 75+ years f = BMI forecast. Source: World Bank, UN, BMI © Business Monitor International Ltd Page 56 Vietnam Information Technology Report Q4 2012 Table: Vietnam's Population By Age Group, 1990-2020 (% of total) 1990 1995 2000 2005 2010 2012f 2015f 2020f 0-4 years 13.92 12.45 8.89 8.15 8.18 8.01 7.60 6.78 5-9 years 12.94 12.42 11.58 8.32 7.63 7.67 7.73 7.25 10-14 years 11.18 11.63 11.61 10.87 7.79 7.29 7.21 7.37 15-19 years 10.62 10.01 10.84 10.90 10.20 9.10 7.36 6.88 20-24 years 9.68 9.46 9.27 10.13 10.19 10.16 9.62 7.00 25-29 years 8.78 8.60 8.73 8.62 9.43 9.59 9.59 9.14 30-34 years 7.28 7.81 7.94 8.14 8.03 8.33 8.87 9.11 35-39 years 5.91 6.48 7.22 7.41 7.60 7.55 7.56 8.44 40-44 years 3.61 5.25 5.98 6.75 6.93 7.03 7.15 7.19 45-49 years 3.04 3.19 4.83 5.59 6.32 6.42 6.50 6.78 50-54 years 2.88 2.66 2.90 4.50 5.21 5.50 5.89 6.14 55-59 years 2.90 2.49 2.40 2.65 4.12 4.46 4.81 5.51 60-64 years 2.30 2.46 2.21 2.12 2.36 2.87 3.74 4.43 65-69 years 1.91 1.88 2.11 1.90 1.85 1.84 2.08 3.36 70-74 years 1.37 1.46 1.52 1.73 1.58 1.54 1.56 1.79 75+ years 1.68 1.76 1.98 2.23 2.58 2.66 2.72 2.85 f = BMI forecast. Source: World Bank, UN, BMI © Business Monitor International Ltd Page 57 Vietnam Information Technology Report Q4 2012 Table: Vietnam's Key Population Ratios, 1990-2020 1990 1995 2000 2005 2010 2012f 2015f 2020f 75.5 71.2 60.5 49.7 42.1 40.9 40.6 41.6 Dependent population, total, '000 28,859 30,790 29,679 27,609 26,006 26,031 26,717 28,321 Active population, % of total 57.0 58.4 62.3 66.8 70.4 71.0 71.1 70.6 Active population, total, '000 38,243 43,218 49,079 55,552 61,842 63,699 65,725 68,034 Youth population, % of total working age 66.8 62.5 51.5 40.9 33.5 32.4 31.7 30.3 Youth population, total, '000 25,529 27,009 25,268 22,735 20,732 20,610 20,837 20,615 Pensionable population, % of total working age 8.7 8.7 9.0 8.8 8.5 8.5 8.9 11.3 Pensionable population, '000 3,330 3,780 4,411 4,874 5,274 5,421 5,881 7,706 Dependent ratio, % of total working age f = BMI forecast; 0>15 plus 65+, as % of total working age population; 0>15 plus 65+; 15-64, as % of total population; 15-64; 0>15, % of total working age population; 0>15; 65+, % of total working age population; 65+. Source: World Bank, UN, BMI Table: Vietnam's Rural And Urban Population, 1990-2020 1990 1995 2000 2005 2010 2012f 2015f 2020f Urban population, % of total 20.3 22.2 24.3 26.4 28.7 29.7 31.2 33.9 Rural population, % of total 79.7 77.8 75.7 73.6 71.3 70.3 68.8 66.1 Urban population, '000 13,438.6 16,201.6 18,865.4 21,940.1 25,212.5 26,649.9 28,842.1 32,664.4 Rural population, '000 52,761.4 56,778.4 58,770.0 61,166.2 62,635.9 63,080.4 63,600.5 63,690.7 f = BMI forecast. Source: World Bank, UN, BMI © Business Monitor International Ltd Page 58 Vietnam Information Technology Report Q4 2012 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 59 Vietnam Information Technology Report Q4 2012 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 60 Vietnam Information Technology Report Q4 2012 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 61 Vietnam Information Technology Report Q4 2012 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 62 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...].. .Vietnam Information Technology Report Q4 2012 Vietnam Economic SWOT Strengths Vietnam has been one of the fastest-growing economies in Asia in recent years, with GDP growth averaging 7.1% annually between 2000 and 2011 The economic boom has lifted many Vietnamese out of poverty, with the official poverty rate in the country falling from 58% in 1993 to 14.0% in 2010 Weaknesses Vietnam still... This has at least enabled Vietnam to escape the list of the top 10 countries for software copyright infringement The Vietnamese government has gradually taken a tougher stance, with the problem is more one of enforcement rather than a lack of legal provisions In 2012, inspectors discovered 10 © Business Monitor International Ltd Page 27 Vietnam Information Technology Report Q4 2012 computer sales agents... International Ltd Page 17 Vietnam Information Technology Report Q4 2012 Meanwhile, the growth of Wi-Fi coverage will be one driver of notebook sales in places such as Hong Kong, where the government has committed another HKD200mn to the deployment of a Wi-Fi network covering more than 200 public venues IT Growth and Drivers Across Asia in 2012, IT spending should benefit from improved economic 2012 IT Market... cloud strategy over the next few years In 2012 more leading Australian private and public sector organisations are expected to launched cloud initiatives and the government has adopted a six-year cloud computing strategy © Business Monitor International Ltd Page 23 Vietnam Information Technology Report Q4 2012 Market Overview Government Authority Ministry of Information and Communications (MIC) Minister... the import of used PCs and tablets for 'R&D' purposes in 2012 © Business Monitor International Ltd Page 25 Vietnam Information Technology Report Q4 2012 In H112, PC sales stagnated, even as overall retail sales surged 17.9% over the same period of 2011, to VND1,517tn (US$72.3bn) according to the General Statistics Office (GSO) Sales in Q112 reported a sharp drop sequentially from the Q111 Both commercial... boost skills levels could leave Vietnam a second-rate economy for an indefinite period © Business Monitor International Ltd Page 11 Vietnam Information Technology Report Q4 2012 Asia Pacific IT Risk/Reward Ratings BMI's Asia Pacific IT Risk/Reward Ratings (RRR) compares the potential of a selection of the region's markets over our forecast period through to 2016 Our Q41 2 ratings reflect our consideration... investing in more advanced and flexible platforms for core banking © Business Monitor International Ltd Page 30 Vietnam Information Technology Report Q4 2012 processes The mid-sized Vietnam Asia Commercial Bank was among those to implement a new corebanking solution in H110, having designated technology as a core pillar of its growth strategy Spending opportunities in the finance segment will be driven... Monitor International Ltd Page 32 Vietnam Information Technology Report Q4 2012 Industry Developments New Import Restrictions on Used PCs In 2012, the Vietnamese government introduced a new regulation restricting the import of several categories of used consumer electronics products, including tablets Under the Circular No 11 /2012 of the Ministry of Information and Communication (MIC), enterprises can... International Ltd Page 18 Vietnam Information Technology Report Q4 2012 In Thailand, demand will be bolstered by IT Market Sizes market expansion in the relatively underpenetrated rural areas SIS As % Of National GDP estimates that market growth in upcountry areas should be 30% in 2011, double that it has forecast for the country as a whole A similar situation pertains in India where in 2012 there are expected... of monetary f = BMI forecast Source: BMI tightening would quickly spread to both markets © Business Monitor International Ltd Page 19 Vietnam Information Technology Report Q4 2012 The largest IT market in the region is, unsurprisingly, China, estimated at US$124.4bn in 2012, trailed distantly by Australia (US$22.0bn), India (US$20.7bn) and South Korea (US$18.5bn) Singapore's IT market (including communications) . Copy deadline: October 2012 Vietnam Information Technology Report Q4 2012 © Business Monitor International Ltd Page 2 Vietnam Information Technology Report Q4 2012 © Business. Vietnam Information Technology Report Q4 2012 © Business Monitor International Ltd Page 5 Executive Summary BMI View: Vietnamese IT spending is expected to reach US$2.53bn in 2012, . low-cost Chinese vendors in the Vietnamese market. Vietnam Information Technology Report Q4 2012 © Business Monitor International Ltd Page 8 Vietnam Telecoms SWOT Strengths 