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VIETNAM ICT SECTOR BRIEFING 2016

BRITISH BUSINESS GROUP VIETNAM (BBGV)HO CHI MINH CITY OFFICE G/F, 25 Le Duan Boulevard, District 1, Ho Chi Minh City Tel: +84 (8) 3829 8430; Fax: +84 (8) 3822 5172Email: [email protected]

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Date: October 2016

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mailto:[email protected]

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OverviewIn the International Telecommunication Union, Global ICTDevelopment Index (IDI) 2015. Vietnam was ranked102nd(1) from 167 countries. This placed the country atthe 6th(2) position in ASEAN and the 17th(3) in Asia-Pacific.

The Global Information Technology Report 2015 byWorld Economic Forum showed that Vietnam’s NetworkReadiness Index (NRI) ranked 85th(4) among 143countries. Vietnam ranked 2nd(5) worldwide in terms ofnetwork affordability which consists of three variables(mobile cellular tariffs, fixed broadband Internet tariffsand the Internet and telephony sectors competitionindex). The index assesses the cost of accessing ICT,either via mobile telephony or fixed broadband internet,as well as the level of competition in the internet andtelephony sectors.

According to Cushman & Wakefield’s Business ProcessOutsourcing and Shared Service Location Index 2015, onesector that has witnessed remarkable levels of growthhas been the IT software industry. Vietnam is now hometo over 1,000 software companies(6) that employ over80,000 people(7). This makes Vietnam one of the world’slargest software exporters and the second largestsoftware outsourcer in Japan(8). Rankings of Ho Chi Minhcity and Hanoi in Tholons 2016 Top 100 OutsourcingDestinations are 18th(9) and 19th(10) respectively.

HardwareThe expansion of IT hardware has been thanks to thedevelopment of the network infrastructure, including fixedand wireless broadband, which in turn, has encouraged theuse of devices for both productivity and content.Governmental spending has remained supportive of the IThardware development especially through initiatives in theeducation and healthcare sectors.

The Vietnamese PC market is surprisingly competitive. Most ofthe major laptop vendor players having below 10%(11) localmarket share. According to IDC report in 2014, the leadingposition belongs to Dell, followed by ASUS. Lenovo and Acerwere the 3rd(12) and 4th(13) largest vendors. The cities of Hanoiand Ho Chi Minh city are reported to contribute approximately85%(14) of national notebook sales. Tablet volume growth in2015 increased with volumes up by 12.6%(15) to 1.34 million(16)

in large due to the popularity of lower-cost tablets. There isconsiderable potential for vendors of PC’s as ownership stillrelatively low in Vietnam and also there is also opportunity forhybrid notebook devices.

INFORMATION TECHNOLOGY




Source: BMI Research, Vietnam Information Technology Report Q1 2016

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ServicesIn 2015 Vietnam’s IT services segmentoutperformed hardware and softwaresales growth. Vietnam is becoming aninternational destination for outsourcedservice provision. Rising demand fordigital infrastructure projects inbanking, telecoms, energy, smartagriculture and government segmentshas gained attraction from global ITservices leaders to invest more inVietnam.Cybersecurity is an area that thegovernment is focussed on tostrengthen domestic infrastructure andprovide assurance to enterpriseslooking to outsource to Vietnamesecompanies.In order to facilitate the current fastgrowth in the development of ITservices, Vietnam must still address thegap in the IT workforce. The country islacking of well-trained IT workers and itis estimated that there would be amillion(21) IT engineers needed toachieve the government’s ambitions forthe domestic software and IT servicessector.




SoftwareThe software market in Vietnam ishighly cost-sensitive. Approximately75%(18) of the market is served bylower-cost local suppliers. Governmentand SMEs prefer local software whilelarger Vietnamese firms often chooseproducts from multinationals whichtake one-quarter(19) of the marketshare.In Vietnam, illegal pirated software isstill widely accessible for use byhouseholds and enterprises.The best opportunities for foreignsoftware vendors are within thebanking & finance, oil & gas, aviationand telecoms sectors.The government is a major purchaser ofsoftware which accounts for approx.30%(20) of total IT spending. Potentialareas for expansion include businessintelligence solutions such as ERP, SCM,CRM, HRM and security; data analytics,database software and datacentresoftware. Cybersecurity is becoming apressing issue in Vietnam due toincreased threats and growingawareness from the government,businesses and consumers.

Source: BMI Research, Vietnam InformationTechnology Report Q1 2016


Cloud ComputingThe value of the Vietnamese cloudmarket was approximately USD 46.6million – VND 1.01 trillion(22) in 2015. Thecountry’s strong economic development,which covered growing incomes and theincrease in higher productivity industriessuch as electronics manufacturing andoutsourcing, is expected to lead to ahigher demand for cloud computingsolutions among businesses.



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Opportunities• Broad-based economic growth

forecast to drive retail hardwaremarket growth as household incomesincrease markedly during 2016-2019.

• Decision in July 2014 to enable stateagencies to use outsourcedinformation technology providers forthe first time opens a new growthchannel for suppliers.

• E-government adoption deepening,with opportunities in governmentadministration, alongside sector-specific markets such as healthcare.

• Low PC penetration means there isscope for vendors to tap first-timebuyer market as well as theupgrade/replacement market. Due tolow penetration desktop andnotebook sales continue to increasedespite competition from tablets.

• Low-cost tablets are proving popularwith consumers, with significantmedium-term sales growth potentialas incomes continue to rise.

• Vietnam is a popular destination forsoftware development and IT servicesoutsourcing, with particularly stronggrowth potential from Japaneseenterprises that are turning awayfrom Chinese based providers.

• Small and medium-sized enterpriseshave potential to increase spendingon basic solutions, including customerrelationship management and securitysystems.

• The government's drive to create anIT services industry over the next15-20 years - including the NationalTechnology Innovation Fund - isexpected to accelerate thedevelopment of local enterprises.

• Cloud computing awareness hasrisen fast and adoption is expectedto accelerate in the short-to-medium term as networkinfrastructure improves andawareness levels increase.

Threats• Low-cost tablets made in China

pose a particular threat to low- andmid-range notebooks. Falling pricesmay further undermine margins andprofitability after steep discounting.

• Cybersecurity issues couldundermine confidence in ITsolutions and services, with big dataand cloud computing being themost vulnerable.

• Yen depreciation has hit thesoftware outsourcing market bymaking exports less competitive anderoding Vietnam's cost advantages.

Source: BMI Research, VietnamInformation Technology Report Q12016

Strengths• Supportive policy framework and

funding is in place to promote thedevelopment of the IT sector.Incentives for ICT investors include atax free period for the first 4 years ofoperation and a 5-years time with50% of enterprise tax reduced.

• Vietnam's gradual integration intothe global trade network via itsaccession into free trade agreementssuch as AEC and EUVN FTA, as well asbilateral agreements with Korea,Japan.

• The domestic IT market is in a rapidgrowth phase, with tradeliberalisation and growingaffordability driving increasedadoption among enterprises andconsumers.

• Expanding local hardware productionindustry with major internationalplayers such as Samsung, LG and Intelmaking large investments.

• Vietnam is a preeminent globaloutsourcing destination, with aparticular strength in the softwaredevelopment industry.

Weaknesses• IT spend per capita is much lower

than in some neighbouring countriessuch as Thailand.

• Highly price-sensitive market, puttingpressure on supplier’s margins.

• High level of software piracy.• Cybersecurity measures by the

government have been pushedthrough utilising state securitymeasures. (With potential humanrights implications.)





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OverviewAccording to the Ministry ofInformation and Communications,Vietnamese telecom corporations sawimpressive results in 2015. Totalrevenue of the sector was estimatedat VND 340 trillion (USD 15.1billion)(23) and profit at VND 56 trillion(USD 2.5 billion)(24).

Brand Finance listed threeVietnamese mobile phone operators,among the Top 20 Most ValuableASEAN Telecom Brands in 2016Viettel (7th)(25), MobiFone (15th)(26)

and Vinaphone (20th)(27). All haveimproved their positions in the GlobalTelecom Rankings.

Vietnam is an emerging market with ahigh mobile subscription rate in Asia -Pacific (152% of population in 2015)because of the aggressive price &promotion competition amongoperators in the domestic marketwhich is dominated by state-ownedenterprises.

Wireline Voice & BroadbandDue to former monopoly status as aState-owned entity and its continuedinvestment to expand its nationalfixed-line infrastructure, the VietnamPosts and Telecommunications Group(VNPT) remains the dominant operatorin spite of the large number ofoperators in the sector and the risingcompetition encouraged by the MIC.According to World Bank, Vietnam’sfixed broadband subscriptions (per 100people) in 2015 was 8.14(31). Thecountry has a plan in place to boostnationwide broadband coverage by2020. The objective is to reach 90%(32)

by 2015 and 100%(33) by 2020.

Pay TVState-owned Vietnam Television(VTV)’s brands VCTV, SaigontouristCable Television Company (SCTV) andK+ held more than 70%(34) of themarket.The Vietnamese pay TV market hasseen strong competition in the pasttwo years. According to the Ministry ofInformation and Communications, asof the end of 2015, there were 31(35)

providers on the market, using fourdifferent technologies, namely cableTV (including IPTV), digital terrestrialtelevision, satellite television, andmobile television.The number of pay TV subscribers isabout 9.9 million(36), of which cable TVsubscribers account for 80.8 percent(37). The total revenue of pay TVproviders in 2015 was VND 9.624trillion ($431.5 million)(38) .

TELECOMMUNICATION




Source: BMI Research, Vietnam TelecommunicationsReport Q1 2016

MobileAccording to VietnamTelecommunications Authority (VNTA)- Ministry of Information andCommunication (MIC), the number ofmobile subscribers nationwide was120.3 million(28) in 2015. According toWorld Bank and National Institute ofInformation and CommunicationsStrategy (NIICS) at the end of 2015, themobile subscriptions per 100 people inVietnam was 131(29) and the number of3G subscribers was 35.78 million(30),respectively.Vietnam has delayed 4G licensing until2017 and the rollout of trial 4G serviceshas been limited to selected cities dueto the low quality of the 3G network.Wireless technology is developing asan important platform for fixedbroadband services due to the weakand unreliable fixed-line infrastructure.

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Opportunities• Government approach to liberalise the telecoms industry

could see the entrance of more foreign investors.• Divestiture of MobiFone from Viet Nam Posts and

Telecommunications (VNPT), and the former's subsequentplanned Initial Public Offering (IPO) by 2016 could provide theimpetus for operators to launch better quality services.

Threats• Geographical challenges to network deployments; nearly one-

third of Vietnam's villages lie in mountainous areas withoutaccess to telecommunications services. The total number ofinactive mobile subscribers is unknown in the market thatlacks transparency and reliable data.

• The Ministry of Information and Communication (MIC) willhold off 4G licensing until 2017; delayed introduction of 4Gcould cause Vietnam to trail behind its peers.

Source: BMI Research, Vietnam Telecommunications ReportQ1 2016

Strengths• Highly competitive mobile sector• Fixed-line penetration levels and internet user rates are

high in major urban centres such as Ho Chi Minh City,Hanoi, Danang and Haiphong.

Weaknesses• Dependency on prepaid services exerts strong downward

pressures on average revenue per user (ARPU) levels.• Broadband growth continues to be highly dependent on

digital subscriber line (DSL), considered to be an old-fashioned transmission technology compared to fiber andsatellite.

• Digital divide: many rural areas have little or no access totelecommunications services despite advanced networksbeing rolled out in larger cities.

TELECOMMUNICATIONS




Source: BMI Research, Vietnam Telecommunications Report Q1 2016 Source: BMI Research, Vietnam Telecommunications Report Q1 2016

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SOURCE OF INFORMATION




(22) BMI Research, 2016. Vietnam Information TechnologyReport Q1 2016. Market Overview, Cloud Computing, p. 35.

(23), (24) Viet Nam News, 2016. Telecom Firms Net USD 15 b in2015. [online] Available at:http://vietnamnews.vn/economy/280707/telecom-firms-net-15b-in-2015.html#WC22E4GWiQw5qyRf.97

(25), (26), (27) Vietnam Breaking News, 2016. Vietnam Phonefirms top ASEAN list. [online] Available at:https://www.vietnambreakingnews.com/2016/04/vietnam-phone-firms-top-asean-list/

(28) Vietnam Telecommunications Authority, 2016. StatisticsDatabase. [online] Available at:http://vnta.gov.vn/thongke/Trang/dulieuthongke.aspx#

(29) World Bank, 2015. Mobile Cellular Subscriptions (per 100people), Vietnam. [online] Available at:http://data.worldbank.org/indicator/IT.CEL.SETS.P2?locations=VN

(30) National Institute of Information and CommunicationsStrategy, 2016. ICT Indicators Statistics in Vietnam OverviewReport, p. 2. Available at:http://www.itu.int/en/ITU-D/Regional-Presence/AsiaPacific/Documents/Events/2016/Mar-ICTStats/Presentations/ICT%20Indicators%20Statistics%20in%20Vietnam.pptx

(31) World Bank, 2015. Fixed Broadband SubscriptionsSubscriptions (per 100 people), Vietnam. [online] Available at:http://data.worldbank.org/indicator/IT.NET.BBND.P2?locations=VN

(32), (33) BMI Research, 2016. Vietnam TelecommunicationsReport Q1 2016. Market Overview, Wireline Voice &Broadband, p. 29.

(34) BMI Research, 2016. Vietnam Telecommunications ReportQ1 2016. Market Overview, Pay TV, p. 29.

(35), (36), (37), (38) Vietnamnet Bridge, 2016. Two Major CableTV Provides To Go Public. [online] Available at:http://english.vietnamnet.vn/fms/science-it/151768/two-major-cable-tv-providers-to-go-public.html

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(1), (2), (3) International Telecommunication Union, 2015.Global ICT Development Index 2015. [online] Available at:http://www.itu.int/net4/ITU-D/idi/2015/index.html#idi2015countrycard-tab&VNM

(4), (5) World Economic Forum, 2015. Global InformationTechnology Report 2015, Vietnam. [online] Available at:http://reports.weforum.org/global-information-technology-report-2015/economies/#economy=VNM

(6), (7), (8) Cushman & Wakefield, 2015. Where In TheWorld? Business Process Outsourcing and Shared ServiceLocation Index, p. 17. Available at:http://www.cushmanwakefield.com/en/research-and-insight/2015/business-process-outsourcing-location-index-2015/

(9), (10) Tholons, 2016. Top 100 Outsourcing Destinations –Rankings & Executive Summary, p. 2. [online] Available at:http://www.tholons.com/TholonsTop100/pdf/Tholons_Top_100_2016_Executive_Summary_and_Rankings.pdf

(11), (12), (13) BMI Research, 2016. Vietnam InformationTechnology Report Q1 2016. Market Overview, Hardware, p.27.

(14) BMI Research, 2016. Vietnam Information TechnologyReport Q1 2016. Market Overview, Hardware, p. 22.

(15), (16) BMI Research, 2016. Vietnam InformationTechnology Report Q1 2016. Market Overview, Hardware, p.23.

(17) BMI Research, 2016. Vietnam Information TechnologyReport Q1 2016. Market Overview, Hardware, p. 24.

(18), (19), (20) BMI Research, 2016. Vietnam InformationTechnology Report Q1 2016. Market Overview, Software, p.28.

(21) BMI Research, 2016. Vietnam Information TechnologyReport Q1 2016. Market Overview, Services, p. 42.



http://vietnamnews.vn/economy/280707/telecom-firms-net-15b-in-2015.html#WC22E4GWiQw5qyRf.97

https://www.vietnambreakingnews.com/2016/04/vietnam-phone-firms-top-asean-list/

http://vnta.gov.vn/thongke/Trang/dulieuthongke.aspx

http://data.worldbank.org/indicator/IT.CEL.SETS.P2?locations=VN

http://www.itu.int/en/ITU-D/Regional-Presence/AsiaPacific/Documents/Events/2016/Mar-ICTStats/Presentations/ICT Indicators Statistics in Vietnam.pptx

http://data.worldbank.org/indicator/IT.NET.BBND.P2?locations=VN

http://english.vietnamnet.vn/fms/science-it/151768/two-major-cable-tv-providers-to-go-public.html

http://www.itu.int/net4/ITU-D/idi/2015/index.html#idi2015countrycard-tab&VNM

http://reports.weforum.org/global-information-technology-report-2015/economies/#economy=VNM

http://www.cushmanwakefield.com/en/research-and-insight/2015/business-process-outsourcing-location-index-2015/

http://www.tholons.com/TholonsTop100/pdf/Tholons_Top_100_2016_Executive_Summary_and_Rankings.pdf