IT SECTOR

RESEARCH REPORT This project is funded by the European Union

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Useful contacts

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Further reading: Information and Data on Information and Communication Technology (2013) - National Steering Committee on ICT (NSCICT), Ministry Of Information and Communications of Vietnam http://english.mic.gov.vn/

Vietnam E-commerce report 2013, Vietnam E-commerce and Information Technology agency http://www.vecita.gov.vn/

Vietnam Information Technology Report, Business Monitor International http://www.businessmonitor.com/

Vietnam Software Association (Vinasa) http://www.vinasa.org.vn/

Vietnam's 2014 White Book on Information and Communication Technologies (ICT), Ministry of Information and Communication of Vietnam http://english.mic.gov.vn/

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TABLE OF CONTENT 0.

INTRODUCTION

4

1.

HARDWARE

5

1.1. Hardware production and export

5

1.2. Hardware domestic sales

9

2.

SOFTWARE

10

2.1. Business Software

13

2.2. Security Software

14

2.3. Open Source

15

2.4. Piracy

16

3.

17

IT SERVICES AND E-COMMERCE

3.1. IT Services

17

3.2. Internet Development

18

3.3. E-commerce Sector

23

4.

GOVERNMENT REGULATION AND POLICIES

27

5.

BARRIERS AND REGULATIONS

29

3 EVBN IT Sector

00 INTRODUCTION The IT sector in Vietnam is an expanding industry with hardware and software markets, ecommerce, and IT services being supported by general economic growth as well as by governmental and foreign investments. Besides a strong electronics hard-ware production sector, estimated at US$34.7 billion exports in 2014, Vietnam’s IT industry is also driven by a strengthening e-commerce sector, in which sales to end-customers (B2C) are estimated at US$2.2bn in the past year. Furthermore, the positive development is fueled by IT services and the software sector (which account for US$660 million and US$470 million of sales in 2014, respectively). Showing a promising year-on-year increase, the IT industry is mostly driven by growing demand coming from other industries, escalating consumer spending and rapid Internet penetration. These reasons might have supported the establishment of some big corporations such as Samsung and Nokia alongside with reasonably labor costs and favorable taxation policies. On the other hand, various threats and drawbacks are inherent in the industry, such as a high level of pirated software, low credit card penetration, followed by pitfalls common to Vietnam’s economy in general frequently changing regulations, red tape etc. Furthermore, some significant differences on successful market entrance between big players and SMEs are worth investigating. The report will analyze all sectors based on its importance in Vietnam’s IT industry. Therefore it is divided into three main chapters: the hardware sector, the software sector as well as IT services and e-commerce. Moreover, the main industry trends and developments as well as major barriers and regulations are outlined providing SMEs with a broad overview of the Vietnamese IT market.

4 EVBN IT Sector

01 HARDWARE 1.1

Hardware production and export

The hardware industry grew substantially between 2008 and 2013 according to the 2014 White Book on Information and Communication Technology (ICT) in Vietnam, representing the largest sector out of the IT industry. Currently, Vietnam’s hardware-electronics exports are estimated at US$34.7 billion in 2013, representing a 52% year-on-year increase, while hardware-electronics imports accounts for US$26.4 billion, representing a 35.7% year-on-year increase. ICT (US$, bln)

2008

2009

2010

2011

2012

2013

Hardware-electronics Exports

2,8

3,4

5,7

10,9

22,8

34,7

Hardware-electronics Imports

5,7

6,5

7,6

10,4

19,4

26,4

Source: 2014 White Book on Information and Communication Technology (ICT) in Vietnam

The recent establishment of world-leading companies factories such as Samsung, Nokia and others has helped to promote Vietnam as a production location and has significantly increase export sales. According to the data from 2013, mobile phones accounted for a substantial 63% of total export value (US$21.86bn), followed by automatic data processing machines at 10%, printers with 7% and integrated circuits with 6%. The data reveals that Vietnam has become a promising mobile technology exporter. For example, China’s mobile phones exports were estimated at US$41.55bn in 2013.

Vietnam Hardware Export Turnover 2013

Mobile phones

14%

Automatic Data Processing Machines

6%

Printers

7% 63% 10%

Intergrated Circuit Other

Source: Vietnam Information Technology Report 2014

5 EVBN IT Sector

Among all sectors, Vietnam’s hardware production sector showed the highest level of growth between 2008 and 2013. Fueled by strong global demand for hardware exports, leading manufacturers like abovementioned Samsung and Nokia are even looking to expand production further. For example, Microsoft considered to move its entire Nokia production from China to Vietnam, while Samsung has announced plans to spend up to US $3bn to create a new smartphone factory in Vietnam (alongside with another US$2bn plant the company already runs in the country).

Vietnam’s Hardware Sector – Total Revenue (2008 – 2012)

Source: 2013 White Book, Vietnam’s Ministry of Information and Communications

6 EVBN IT Sector

Despite the high level of sales, the hardware production sector accounts for only a minority of the total technology firms in the country. The reason is that the sector favors large companies, because they can achieve economies of scale in production. The software and digital content industries, on the other hand, contain countless market niches that can support a huge number of boutique businesses. Total number of registered enterprises in the IT industry sector (Enterprises)

2009

2010

2011

2012

2013

Hardware industry

992

1273

2763

2431

2485

Software industry

1756

2958

7044

7246

6832

Digital content industry

2844

2312

3289

3883

4498

Source: Viet Nam Information and Communication Technology 2014

Comprised of only few enterprises, the hardware production sector employs a large portion of the country’s technical workers. Many of these workers are unskilled or semi-skilled factory laborers whose average incomes fall roughly in line with those of other manufacturing sectors. Number of employees

2009

2010

2011

2012

2013

Information technology industry sector

226300

250290

306754

352742

441008

Hardware industry

121300

127548

167660

208680

284508

Software industry

64000

71814

78894

80820

88820

Digital content industry

41000

50928

60200

63242

67680

Source: Viet Nam Information and Communication Technology 2014

In 2013, total employment in the hardware industry reached over 208,680 employees, which accounted for 59% of the whole IT industry. Since the sector’s rapid growth, the latest rough estimation for hardware workers in Vietnam was around 440,000 (which presumably accounts for nearly 65% of the whole IT industry).

7 EVBN IT Sector

The rapid growth in the hardware sector started in 2010, when Intel built its US$1 bn chip manufacturing plant in Ho Chi Minh City. The latest data on the biggest hardware players in Vietnam shows how electronics factories grew substantially (dollar figures indicate the amount each company has committed to its Vietnamese factory):         

Samsung Electronics (South Korea), US$2.2 billion, November 2012 Nokia (Finland), US$300 million, early 2013 Fuji Xerox (Japan), US$120 million, November 2013 JBL (USA), US$100 million, June 2012 Terumo BCT (USA, Japan), US$94 million, May 2012 SOC Vietnam (Japan), US$62.5 million, November 2012 Nidec Seimitsu (Japan), US$40 million, July 2012 Brother Vietnam (Japan), US$25 million, December 2012 Bujeon Electronics (South Korea), US$10 million, October 2012

The most significant newcomers in this list are Samsung and Nokia. Nokia is still the dominant player in the Vietnamese mobile market and Samsung contributes a notable 10% of Vietnam’s whole hardware exports. Besides Nokia, most of the mentioned electronics manufacturers are from South Korea and Japan. Low labor costs are likely to be one main attraction point for companies. For example, wage levels between China and Vietnam differ remarkably: for China: US$ 2,472 annually, US$ 1,19 hourly; for Vietnam: US$ 614 annually, US$ 0,3 hourly.

Average of wage per employee in the IT industry sector (USD/person/year)

2009

2010

2011

2012

2013

Hardware industry

1809

2201

2279

2281

2301

Software industry

4093

5123

5034

5009

5025

Digital content industry

3505

4896

5267

5201

5268

Source: Viet Nam Information and Communication Technology 2014

Due to the low-skill works required in the hardware industry, the wage level is significantly lower than for the other sectors.

8 EVBN IT Sector

1.2

Hardware domestic sales

Hardware market (2011 – 2018)

e/f – BMI estimate / forecast Source: BMI

The hardware sales market in Vietnam remains buoyant, with demand growing in the retail sector since 2013, driven mostly by enterprises and the public sector. BMI forecasts Vietnam's computer hardware market value to increase at a Compound Annual Growth Rate (CAGR) of 11% in local currency terms from 2014 to 2018 to reach a value of VND 74.9trn (US$ 3,5bn). This fast rate of growth will be driven by rising incomes, economic confidence and trends within the IT market, with the main growth driver being the availability of affordable tablets and notebooks.

Government spending remains supportive of the IT hardware market through initiatives mostly in the education and healthcare sectors. Credit programs are provided to raise household PC penetration in rural areas, which is estimated to be still below 10%, compared to 50% in higher income urban areas. Currently Hanoi and Ho Chi Minh City account for around 85% of all notebook sales. While improved access to credit is a short-term factor in boosting sales, a longer-term trend is the spread of network infrastructure, including fixed and wireless broadband, which is boosting demand for devices for both productivity and content consumption. Telecommunication operators such as Viettel are also emerging as significant distribution channels for notebooks as vendors seek tie-ups. Thus Vietnam’s younger generation, growing economy and growing demand, together with lowcost labor, might allow the country to become not only a promising sales market, but a world renowned hardware manufacturer in a near future. With such prominent companies, as Samsung and Nokia making substantial impact into Vietnam’s high-tech export, supported by smaller local companies, Vietnams is considered to be on the cusp of hardware-oriented economy.

9 EVBN IT Sector

02 SOFTWARE In contrast to the sizable hardware electronics subsector, Vietnamese software sector is much smaller valued at only US$470mn of sales in 2014. With around 75% of the market consisting of local software vendors, the market is mostly dominated by low-cost software products.

Software market (2011 – 2018)

e/f – BMI estimate / forecast Source: BMI

Local software producers by and large provide their products to the government as well as small- and medium-sized companies (SMEs) while larger Vietnamese companies are more likely to buy higher-priced software from multinationals. The latter capture around 25% of the market. Regarding software supporting services, Vietnamese customers are said to become more demanding and thus expect higher levels of support for their software products compared with the past.

Despite its small size, the domestic software industry has witnessed significant growth over past years. According to Business Monitor’ latest data, software sales are estimated at VND 10.1trn in 2014 (US$470mn), and the number is expected to grow significantly to VND17.9trn in 2018 (US$832mn), CAGR of around +16% in local currency terms). The number of companies in the sector has also grown significantly in recent years, showing a stronger increase compared to the hardware and the digital content industry. Total number of registered enterprises in the IT industry sector (Enterprises)

2009

2010

2011

2012

2013

Hardware industry

992

1273

2763

2431

2485

Software industry

1756

2958

7044

7246

6832

Digital content industry

2844

2312

3289

3883

4498

Source: Viet Nam Information and Communication Technology 2014

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On the other hand, the number of employees in the software industry only surged by 39% from 2009 up to 2013, whereas the number of workers in other sectors increase more sharply by 135% and 65%, accordingly. Number of employees

2009

2010

2011

2012

2013

Information technology industry sector

226300

250290

306754

352742

441008

Hardware industry

121300

127548

167660

208680

284508

Software industry

64000

71814

78894

80820

88820

Digital content industry

41000

50928

60200

63242

67680

Source: Viet Nam Information and Communication Technology 2014

Banking and finance, oil and gas, aviation and telecoms, which are also growing rapidly in Vietnam, are forecasted to be the biggest spending software segments, thus creating the best opportunities for foreign vendors. These segments offer the biggest potential for both customized and off-the-shelf packaged software. Spending opportunities in the financial segment will be driven by regulatory compliance in governmental and business sectors, as well as potential new regulations introduced in the wake of the global financial crisis. Mobile operators are investing in new OSS (Operating Support Systems) to reduce costs and support delivery of new services. Growing PC penetration, as well as new technologies and business models, including 3G mobile and WIMAX, and industry-growing trends such as software-as-a-service (SaaS) and open source will provide areas for growth within the Vietnamese software market going forward. Most demand remains for on-premises subscription models, due to the greater perceived security and degree of control. However, as Internet infrastructure improves in Vietnam, more demand for alternative models such as SaaS and other cloud computing services is expected to occur. The government is a significant software-purchasing segment in Vietnam and accounts for about 30% of total IT spending. The 7,000 government agencies offer considerable opportunities at national provincial and municipal levels. A particular area of opportunity are tax agencies of all administrative tiers as governments look to increase the efficiency of tax collection. Vietnamese government's intention to implement e-government may become another driver in the segment.

11 EVBN IT Sector

Vietnam is also known as an outsourcing destination for various IT projects and services, with an estimated 25% share of the whole software industry in Vietnam. Outsourcing companies in Vietnam provide its’ services mostly to the U.S., Japan and several European countries. The country has recently outplayed India to become the second-largest software outsourcer for Japan (following China), according to the Vietnam Software and IT Services Association. The Ho Chi Minh City-based company: FPT Software serves as a good example for the positive development of the software sector. The software outsourcing company with revenues topping US$100mn. in 2013 stated its annual revenue has expanded at a 30% rate over the last few years, while other local outsourcing companies collectively generated US$31.99 million in revenue, a 34% year-on-year increase, according to Quang Trung Software Park of HCMC. Both local software producers and exporters /outsourcers are showing steady growth. The given report will now elaborate on the most common subsectors to illustrate market opportunities and potential niches.

12 EVBN IT Sector

2.1

Business Software

In 2013 local vendors reported continued robust sales of business software, such as ERP (Enterprise Resource Planning), CRM (Customer Relationship Management) and others. The demand for EPR, CRM and business intelligence solutions is expected to grow rapidly due to untapped potential in various segments of the Vietnamese economy, such as banking and finance, HORECA (a sector of the food service industry, for establishments which prepare and serve food and beverages for Hotels, Restaurants & Caterers) and others. Data analytics and database software likely to be a growing area and account for a larger portion of software budgets. Despite the fact that majority of Vietnam’s corporations and some smaller local enterprises are looking forward using well-known software, there is a niche for smaller vendors and customized solutions.

13 EVBN IT Sector

2.2

Security Software

The government of Vietnam is strengthening its investments in security software due to frequent hacking attacks. The most recent announcement, an investment of US $42mn to create the National Centre for Network Security Technology, was made by the Ministry of Public Security, the Government Secrecy Committee and the Ministry of Industry and Trade. The Law on Information Security was also updated in order to improve the cyber security environment including combating attacks originating in Vietnam. Stronger support for domestic firms producing information security products is also expected in the near future, according to officials. The Vietnam Computer Emergency Response Team (VNCERT) stated that in order to ensure information security and protect national digital sovereignty, domestic products should achieve a 50% share of the market. VNCERT called for tax incentives for domestic firms to assist them in a competitive global marketplace against vendors such as Symioatec, Kaspesky, McAfee, Trend Micro, Bit Defender and Aviram. A survey by Internet security company BKAV revealed that the losses incurred by viruses ran to US$373mn annually in 2012. This was calculated by the disruption to work caused by the presence of viruses. The survey also highlighted an increase in attacks on company websites in Vietnam, with 425 in March 2013, nine originating in Vietnam and 416 from foreign countries. This level of disruption is generating renewed interest in security software and solutions. However, like elsewhere in the software market, vendors will face the same challenges of price sensitivity as well as piracy. BKAV, along with CMC, the most prominent domestic cyber security firm in Vietnam, reported that less than 50% of computers in Vietnam have anti-virus software installed. While the low penetration of security software creates opportunities for foreign players in the subsector, currently the market is less dynamic than 3-4 years ago when a large number of international vendors moved into it. Experts attribute this fact to general reluctance of local enterprises and consumers to spend on copyrighted software, preferring free software or no protection.

14 EVBN IT Sector

2.3

Open Source

The global economic downturn may have added to the interest towards open-source software due to its perceived lower cost and access to codes. Both governmental and businesses customers in Vietnam were looking more closely at open-office-type, open-source software, as well as free services such as Google Docs, which are funded by advertising. Ho Chi Minh City officials spent around US$1,4mn on open source software in 2013, primarily for the city's state agencies. To put this figure in context, there were around US$11mn spent on software licenses for state agencies and also on licenses for business and social organizations in 2013 in HCMC. In 2014 the development of open source software for the public sector was partly frozen, when Director of the Communist Party Central Committee Office's Informatics Center, stated that the government was stopping the adoption of open source software. He cited a lack of available technical maintenance staff, making the deployment of services impractical for the time being. The government has not permanently abandoned open source software deployments, but the trend of using proprietary software might provide an opportunity for foreign SMEs to fill existing niches.

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2.4

Piracy

While Vietnam's software market is considered to be a developing area, the piracy rate remains a drag on the market at 81% in 2013, according to a press release from the BSA (Business Software Alliance). Despite this, it leaves Vietnam off the list of the top 10 countries for software copyright infringement, the piracy rate remains extremely high and above neighboring markets such as India, Thailand and China.

APAC Piracy rate 2013 UNLICENSED SOFTWARE INSTALLATION RATES

COMMERCIAL VALUE OF UNLICENSED SOFTWARE ($M)

ASIA PACIFIC

2013

2011

2009

2007

2013

2011

2009

2007

Australia

21%

23%

25%

28%

$743

$763

$550

$492

Bangladesh

87%

90%

91%

92%

$197

$147

$127

$92

Brunei

66%

67%

67%

67%

$13

$25

$14

$13

China

74%

77%

79%

82%

$8767

$8902

$7583

$6664

Hong Kong

43%

43%

47%

51%

$316

$232

$218

$224

India

60%

63%

65%

69%

$2911

$2930

$2003

$2025

Indonesia

84%

86%

86%

84%

$1463

$1467

$886

$411

Japan

19%

21%

21%

23%

$1349

$1875

$1838

$1791

Malaysia

54%

55%

58%

59%

$616

$657

$453

$311

New Zealand

20%

22%

22%

22%

$78

$99

$63

$55

Pakistan

85%

86%

84%

84%

$344

$278

$166

$125

Philippines

69%

70%

69%

69%

$444

$338

$217

$147

Singapore

32%

33%

35%

37%

$344

$255

$197

$159

South Korea

38%

40%

41%

43%

$712

$815

$575

$549

Sri Lanka

83%

84%

89%

90%

$187

$86

$77

$93

Taiwan

38%

37%

38%

40%

$305

$293

$227

$215

Thailand

71%

72%

75%

78%

$869

$852

$694

$468

Vietnam

81%

81%

85%

85%

$620

$395

$353

$200

Other AP

91%

91%

90%

91%

$763

$589

$303

$56

TOTAL AP

62%

60%

59%

59%

$21041

$20998

$16544

$14090

Source: BSA Global Software Survey

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In 2013, the Copyright Office of Vietnam reported that software piracy continued to decline, but remains a serious issue. The software piracy rate has declined from 90% to 81% from 2014 to 2013. Currently Vietnam is aiming to reduce the software piracy rate to 55% in a few years. (55% is the regional average for South East Asia, according to US's Business Software Alliance, BSA). Despite a poor record with pirated software in Vietnam, a considerable part of the market, mostly big players from government and business sectors, are shifting towards using licensed software, which provides opportunities for software producers and services. While some companies and organizations are using well-known branded software, for others, the lower cost of solutions provided by smaller enterprises still remains the main point of attraction. Moreover, the growth, and therefore, diversification of various markets will support the niche of customized software, which gives opportunities for SMEs.

17 EVBN IT Sector

03 IT SERVICES AND E-COMMERCE 3.1

IT Services

Internet services market (2011 – 2018)

e/f – BMI estimate / forecast Source: BMI

Although still rather small, the IT services segment is expected to be the outperforming sector for the medium term. Spending is estimated to be US$660mn by the end of 2014, up 17.3% from US$563mn in 2013. Growth is forecasted to continue over the medium term with a sectorial CAGR of 16.5% from 2014 to2018, and value of the market expected to reach US$1.2bn in 2018. The growth of Vietnam as a destination for business processes and software development outsourcing is expected to be a strong driver over the medium term.

Research by the Ministry of Information and Communication (MIC) in 2013 found that the domestic IT services market had strong growth potential, while outsourcing demand is also projected to grow rapidly. The MIC identified the following areas as the most potential growth drivers: system integration and development and data services. Due to the sharp increase in available data and information, companies require enhanced services ranging from simple (migration to new systems) to more complex demands such as business intelligence. Looking further ahead, the MIC expects infrastructure leasing, training, consultancy, website development, e-commerce, app development and data services to be services in highest demand in the future Growing demand for digital infrastructure projects in segments such as banking, telecoms, energy and government attracts global IT service leaders such as IBM to invest in Vietnam. Large local organizations such as FPT have also targeted this opportunity and announced plans to compete with established multinational vendors and offer high quality outsourcing services. To conclude, it is possible to say that the demand for IT services is currently growing and generating opportunity for providers.

18 EVBN IT Sector

3.2

Internet Development

One of the biggest supporting factors for the growth of all IT-related subsectors is Internet penetration, therefore it is important to highlight the status of the Internet in Vietnam. As per the latest data from the government, the Internet reach in Vietnam stands at 44% (about 63%-70% in urban areas and between 25-35% in rural areas) according to data of 2014). In comparison with other countries in SEA, Vietnam is considered to have high Internet penetration. For example, the latest data by August 2014 disclosed by US Census Bureau, InternetWorldStats, CNNIC, IAMAI shows the following figures for Vietnam’s neighboring countries: Thailand (35%). Malaysia (65%), Philippines (36%), Hong Kong (73%), Singapore (73%), China (44%). Among all of the countries mentioned, Vietnam is currently showing the fastest pace of Internet penetration’s growth.

44% INTERNET REACH AMONGST THE HIGHEST ANYWHERE Internet now represents a majority of the consuming population

National

Urban

Rural

44%

63%

30%

Source: Government Statistics, GroupM and Epinion Data

19 EVBN IT Sector

The age profile of Internet users is quite comparable to neighboring countries. It shows that in Vietnam mostly young people are engaged with Internet usage (15-34 years old, 74%), while senior citizens account only for around 26% of the whole population of “netizens”. The distribution reflects the general age profile of Vietnam as a relatively “young” country. Furthermore, senior citizens are generally more conservative when it comes to new technologies which holds also true for Vietnam.

Age profile of ASEAN netizens

% of Online Population by Age

Vietnam

42%

Thailand Singapore Philippines Malaysia Indonesia

32%

45%

24%

29%

27%

26%

43%

16%

22%

27%

25-34

35-44

45-54

7% 4%

17%

31%

37%

8% 5%

14%

25%

40%

15-24

14%

8%

9% 5%

10% 6%

19%

8% 4%

55+ Source: comScore

20 EVBN IT Sector

According to the latest surveys, 92% of all Internet users go online daily. Around 87% of Vietnamese “netizens” go online to update information, such as reading of news, 73% use social networks or forums, 71% access e-mail, 20% shop online.

Frequency of Internet using in Vietnam 92%

Daily

3%

2%

3%

Weekly

Monthly

Other

Source: Survey of E-commerce and Information Technology Agency 2013

Purposes of accessing Internet Update information

87%

Participate in forum or SNS

73%

Access email

71%

For work purpose

70%

Watch movies, photos, listen to music

66%

Research & study

58%

Play games Buy & sell online Others

37% 20% 60%

Source: Survey of E-commerce and Information Technology Agency 2013

21 EVBN IT Sector

Laptops and mobile phones continued to be the most popular devices to access Internet in big cities (60% and 50% respectively), while in rural areas hourly Internet-cafes are still popular seeing the lower PC penetration among those who earn less. On the other hand mobile Internet due to its affordability (a price for unlimited 3g package can be around US$2 per month) is quite popular among Vietnamese as well.

Devices to access Internet

60% 50%

46%

12%

Desktop

Laptop

Mobile phone

Other devices

Source: Survey of E-commerce and Information Technology Agency 2013

22 EVBN IT Sector

Vietnam is also considered to be an attractive market for online gaming in the region, currently dominated by Chinese and Korean online games. The country is becoming a more popular destination for investors in the online gaming industry. For gaming clients only (games installed on computers and played online), the market value for 2012 was estimated at approximately US$220mn which grew to US$291mn in 2014, illustrating a growth of 32%. Vietnam’ biggest online gaming provider – VNG Corporation – currently has around 30 million users on its gaming platform, social network, other services and mobile applications, which is roughly one third of the population. The company’s distribution network reaches the majority of the country’s 15,000 Internet cafés, which serve a gaming community by distributing VNG’s prepaid gaming cards. With its estimated revenue of around US $100mn in 2012, VNG’s market share of the Internet market in Vietnam was roughly 50%. All in all, the rapidly increasing Internet penetration in Vietnam, supported by growing interest in social networking, e-commerce, gaming and other online activities, makes Vietnam a country with considerable potential for new players in e-commerce and related segments.

23 EVBN IT Sector

3.3

E-Commerce Sector

Together with Vietnam’s growing economy, consumer spending in the e-commerce sector also increased. In 2013, VECITA, the Ministry of Industry and Trade collected data from the biggest ecommerce enterprises in Vietnam. The survey’s result revealed that the estimation of ecommerce sales per online buyer accounted for approximately US $120 in 2013.

Vietnam B2C E-Commerce sales estimates 2013 Vietnam population 2013

90 mil. people

Internet users penetration (% population)

E-commerce sales per online buyer (USD)

Online buyer penetration (% internet users)

B2C E-commerce sales (USD)

36%

$120

57%

$2.2 billion

Source: Survey of E-Commerce and Information Technology Agency

Despite the fact that the average spending is still very low, a survey among Internet individual users in Hanoi and Ho Chi Minh City revealed that in 2013 around 57% of them purchase items online at least once, which proves the interest among Vietnamese consumers for considerably new ways of shopping.

24 EVBN IT Sector

The most favorable items to purchase were fashion, cosmetics products, technology and electronic products, household products, air tickets and others.

Which of the following purchases are you planning to make online over the next six months? (November, 2014)

31%

16% 16% 13%

Source: Epinion Online Consumers Research 2014

25 EVBN IT Sector

5%

5%

Other

Online media (software, apps...)

Mobile phone, tablet

Household care

Groceries

3%

Health & Beauty

2%

Hardcopy books

2%

Event, cinema tickets

Computer, laptop

Clothing, shoes & accessories

Car, motorcycle & accessories

Cameras, camcorders

Baby goods & toys

`

Entertainment & hobbies

5%

4%

9%

7%

Travel reservation (flight, hotel...)

8%

7%

TV, DVD players, audio systems…

11%

Which method of payment do you prefer for online purchases? (November 2014)

3% 2%

In Vietnam, most online shoppers still prefer to pay in cash (56%), but the figure is becoming smaller year on year supported by a growing penetration of debit and credit cards.

20%

While Internet penetration grows rapidly along with the economy, the rate of Internet users purchasing items online is predicted to increase significantly by 2015.

56%

11%

32%

Cash on delivery Credit/Debit card Other

Bank transfer Mobile top-up I do not buy online

Source: Epinion Online Consumers Research 2014

Vietnam B2C E-Commerce sales forecasts 2015

Vietnam population 2015

93 mil. people

Internet users penetration (% population)

45%

E-commerce sales per online buyer (USD)

$150

Online buyer penetration (% internet users)

B2C Ecommerce sales (USD)

Growth level

Rate

High

70%

$4.3 billion

Moderate

65%

$4.08 billion

Low

60%

$3.7 billion

Source: Forecasts by E-Commerce and Information Technology Agency

The table shows that online sales are expected to increase in 2015 in comparison with 2013. Given that the estimations hold true, Vietnam’s B2C e-commerce sales will reach around $4 bn., which is almost twice as much as in 2013 ($2.2 billion) according to E-commerce and Information Technology Agency.

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Of the 20 most popular and well-known e-commerce websites in Vietnam (such as Lazada, Vatgia, 123mua, and others) as well as dozens of small enterprises, 78% of them were established out of their own budget, 14% from the state budget and 8% of them received foreign investment capital.

Investment capital for E-Commerce websites

Source: Survey of E-commerce and Information Technology Agency 2013

To summarize, despite the relatively low online sales, it is fair to assert that the e-commerce sector will continue to grow due to improvements in Vietnam’s economy, high rate and pace of Internet penetration, as well as consumers’ growing spending supported by interest towards online purchases.

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04 INDUSTRY TRENDS AND DEVELOPMENTS Government IT Strategy In 2012, the Vietnamese government unveiled ambitious plans for developing the country's IT industry. According to a draft plan released in 2012 by the Information Technology Department of Vietnam's Ministry of Information and Communications, the government pledged to invest US $111,6mn from the State Budget in the ICT sector by 2020. The government's strategy for IT development focuses on four major areas: enhancing IT application, developing the local IT industry, developing ICT infrastructure and improving employee recruitment strategies in the IT industry. The government also hopes to attract US$5mn of foreign investment into the IT industry by 2015, supported by a strategy of revising some tax policies in order to incentivize both foreign investors and local producers.

IT Education Standards Currently the government of Vietnam is considering setting up new IT skills standards to raise the skill level of IT engineers to international levels. While the lack of international-standard qualified engineers is seen as a bottleneck for the continuous development of the IT sector, Vietnam plans to have 1mn of qualified IT engineers working in the industry by 2020. Since the number of applicants for ICT specializations had dropped considerably (by around 1015% each year since 2009) due to the economic recession and the attraction of other disciplines like economics, banking and finance, the government is looking forward to improve IT training quality and the curriculum of many ICT training programs by narrowing the gap with improved educational programs. The strategy includes to import international training programs with the support of the “advanced programs” project of the Ministry of Education and Training, joining with foreign counterparts in various forms, like opening foreign training schools in Vietnam that provide international and regional IT training curricula (ACM, ASEAN, etc.), or franchising.

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Cyber Security Vietnam faces serious cyber security threats, which could become a real issue as it seeks to promote the outsourcing and software development industries. In 2013 it was reported that the government was investing US$42mn in the creation of the National Centre for Network Security Technology. The center will be managed by the Ministry of Public Security, the Government Secrecy Committee and the Ministry of Industry and Trade. The government also updated the Law on Information Security, which closed for public comment in 2013. It is likely to improve the cyber security environment including combating attacks originating in Vietnam.

Government Cloud Various government departments have started to utilize cloud services by implementing new standards and policies, with a major objective being to make cost savings and enhance resource efficiency. Since 2011 the MOET instructed local education and training departments to shift to cloud computing. The ministry views the cloud model as suitable for the education sector and with the potential to have significant cost benefits. The Ministry of Natural Resources and the Environment claimed to have made 20% investment cost savings after an initial period of virtualizing the IT infrastructure. The ministry has now put in place a strategy to further utilize cloud computing in IT applications and is putting in place standards and policies to enable this.

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05 BARRIERS AND REGULATIONS Taxation policies in IT Software businesses are offered exemption from corporate income tax for four years, and there are preferential personal income tax policies for those who directly participate in software production, as well as value added tax (VAT) discounts on software products. These tax exemptions apply to all companies regardless of their ownership type. However, it is important to keep in mind, that the aforementioned taxation policies do not imply that a small or medium company can directly benefit from them. This is because the actual practice and application of these policies can be timely due to excessive red tape and inherent corruption issues, both of which are common in Vietnam. Moreover, regulations can change fast in Vietnam.

Software Security Certification In 2013, the Director of the Information Technology Department of the Ministry of Information and Communication, stated that only around 1.5% of software companies in Vietnam have ISO/IEC 27001:2005 certificates for information security. The certificates are important for IT firms, business and institutions applying IT solutions. So far only banks, finance and data centers have focused on information security certificates. The primary barrier to achieving information security certificates is the fee required, as well as the requirement that all software must have licenses, to be eligible. The government is offering a total disbursement of VND 20bn for firms obtaining ISO27001 certificates for information security. The government has also moved to tighten enforcement of copyright regulations. Decree 47.2007.NP-CP, which became effective in 2009, allows for a penalty of up to VND 500mn for instances of software piracy.

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Labor shortage in the industry Despite the fact that Vietnam is considered to be a country with one of the cheapest labor costs among the region, experts in the industry are stating some negative changes. Currently, there are two main trends regarding labor in the IT industry: IT specialists’ wage expectations are growing, coupled with an increasing desire to work in a world-renown company. On the other hand, decline in the quality of IT personnel has been noted along with a drop in students choosing IT-related fields of study. Manpower shortages are becoming a challenge for domestic software businesses. They lack experienced engineers who are capable of mastering modern technologies as well as having good foreign language skills. For example, FPT Corporation plans to recruit more than 1,000 new employees annually, but in fact it usually falls short by about 300 IT workers a year.

Governmental preferences towards local IT enterprises In 2013 a draft resolution from the Ministry of Information and Communications proposed allocating at least 2% of the state budget towards boosting the IT sector each year. The fund will be used to help Vietnam catch up with regional rivals and move up the value chain in areas such as outsourcing and software development. The MIC claims that the development of the IT sector will make a positive contribution to Vietnam’s economy overall through the modernization of various industries, and thereby improve international competitiveness.

Vietnamese players are boosting their businesses There are opportunities in Vietnam to reduce outsourcing in the IT industry and focus on made-inVietnam software products, supported by the government and local companies’ business strategies. Some domestic software businesses are boosting investments in research and development to create new products and technologies.. Creating their own products will obviously yield higher earnings and drive the companies up the value chain.

Local clients’ preferences The preference of local clients for large and well-known brands and companies, the process of convincing Vietnamese clients to contract a SME can be a challenging on might pose challenges to new and relatively small companies In spite of this, expertise in niche areas or services may help a small or medium company to succeed in this market.

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