Foreign tech multinationals have flocked to Vietnam in recent years, but the country is still a greenfield for investment, according to industry watchers. Domestic IT brands, especially in software and IT outsourcing, are also set to make a bigger presence in Southeast Asia, if not beyond.
In a phone interview with ZDNet Asia, IDC Vietnam's country director Lam Nguyen pointed out that the country's IT spend is set to grow at a compound annual growth rate (CAGR) of 10.5 percent between 2008 and 2013--" well ahead" of the 7. 6 percent CAGR forecast for the Asia-Pacific region excluding Japan, during the same period.
In absolute terms, however, Vietnam's contribution to the region's total IT expenditure is still not significant. The country's IT market is projected to be US$3.51 billion in 2013, or only about 1.4 percent of the overall region's US$255.6 billion. Nonetheless, its growth--congruent with that of GDP (gross domestic product) growth--is "one of the fastest", said Nguyen.
According to a May 2008 document by research analyst Gartner, Vietnam's real gross domestic product (GDP) will grow at between 7.3 percent and 8.3 percent from 2008 to 2012. GDP growth in the country has been bolstered by a significant increase in foreign direct investment (FDI)--about US$20.3 billion in 2007.
FDI in 2008 reached over US$47 billion, noted Narinder Kapoor, vice president and managing director of Hewlett-Packard South East Asia's technology solutions group.
Some factors, IDC's Nguyen pointed out, position Vietnam favorably: the country is geographically positioned somewhat in the center of Southeast Asia, its economy with a population of 87 million has the appetite to build up and improve infrastructure, and the government is stable and making moves to recruit foreign investment.
Multinational firms are interested in Vietnam not only for its significant market opportunity, but also because of the country's potential to host their global delivery centers, noted Nguyen. IBM is one such example, having set up a global delivery center each in Ho Chi Minh City and Hanoi, he said. Big Blue also has a cloud computing facility in Hanoi.
Another prominent player is Intel, which had committed over US$1 billion in an assembly and test facility in Ho Chi Minh City. The chipmaker had projected that production will begin this year, but reports indicate the site will only be ready by the end of 2009 with production slated for early next year.
HP's Kapoor said the company has enjoyed "significant growth" in the market over the last five years. It began operations in Vietnam in 1996, and also has a partnership with FPT Elead where HP-branded PCs are assembled and distributed locally from the local firm's lines.
"Specifically, we're seeing growth in the manufacturing and FSI (financial services and insurance) industries as many of HP's customers have [established] presence [here]," he noted in an e-mail. "We’ve seen increased interest in technologies like virtualization to ensure data center costs stay low and support increased demand for compute and storage capacity."
Government commitment in the form of ICT masterplans, he added, will help position Vietnam "to play an even greater role" in IT.
Nicolas Van Den Abeele, head of Alcatel-Lucent's South and Southeast Asia regional unit, said in an e-mail that Vietnam is "one of the major markets" for the company's business in Southeast Asia. The company counts among its customers, "all big fixed and mobile operators in the country", including VNPT (Vietnam Post and Telecommunication Group), VMS, Vinaphone and Viettel, he noted.
Alcatel-Lucent entered Vietnam in 1993 and subsequently formed a joint venture with VNPT known as Alcatel Networks System Vietnam, which is involved with the manufacturing of TDM (time-division multiplexing) switches and deployment of broadband access in the country.
"With a population of 86 million where the median age is 26.9 years, Vietnam is a fast developing nation where increasingly, technology savvy customers are demanding higher bandwidth and more advanced telecommunication services from the nation's service providers," said Van Den Abeele. "In addition to the continued 2G and 3G wireless growth, we expect a lot of innovation in broadband and applications in Vietnam in the next few years."
Future growth
IDC's Nguyen noted that ICT expenditure in the country still leans heavily toward hardware--computing and networking equipment. Telecommunications is also active due to the Vietnamese government having issued four 3G licenses to operators--3G services are expected to roll out next year and telcos and currently upgrading their networks.
"[Overall,] the market growth is still rather needs-based and somewhat fragmented with a strong focus on infrastructure build-out," he added.
However, there is now greater emphasis on software and services, said Nguyen. Software parks have been developed by the government in Hanoi and Ho Chi Minh City in the past year to draw software companies and foreign IT services companies into the country. Authorities throw in perks including attractive leasing rates and tax incentives for export-oriented operations.
Domestic Vietnamese IT companies, such as FPT are starting to articulate plans to expand regionally, he noted, adding that such plans are very much "work in progress". Other than FPT, major IT players in Vietnam include CMC, Global CyberSoft and TMA.
"The Vietnamese government is also [emphasizing] on building the local software industry, [as well as] positioning Vietnam as a leading IT outsourcing destination where local software and IT outsourcing companies…can attract offshore contracts to develop here," said Nguyen.
Vietnam occupied the 10th position in AT Kearney's 2009 Global Services Location Index, up from 19th in 2007.
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