study on vietnam's development

1

Vietnam: Economic development and IT

Outline

As a country, Vietnam is certainly on the up, largely

thanks to openness policies implemented by the

government. Vietnam’s beauty is supported by the fact

that it is continuing to reveal its potential and its assets

are going from strength to strength.

So it comes as no surprise that foreign investment is

plentiful, particularly in the IT sector. Although these

investments do represent a development

opportunity, Vietnam should not simply settle for these

financial injections.

Officience | 2013 | 2

Significant efforts should be made, especially in terms of infrastructure and

regulations, to achieve the ambitious objectives that the country has set its sights on.

Becoming a central destination for global IT outsourcing will remain a distant goal without

a comprehensive policy to encourage research into and development of sectors which

will enable a high value-added economy. Focussing on meeting these goals will also help

Vietnam to differentiate itself from its other Asian neighbours.

Outline

The government has already launched several

initiatives to support these goals which strengthens the

credibility of their ambitions and the implementation of the

strategy. This is reinforced by Vietnam’s export profile

which is largely made up of High Tech products.

However, the government should not be the only leader of

Vietnamese development and we should expect to see an

increase in power of the local private sector in addition to

domestic market growth.

In conclusion, although Vietnam has been experiencing sustained growth for more

than a decade, it seems that it is still far from having reached its full economic

potential.

Developing the BPO-ITO sector will go hand in hand with an increasingly

sophisticated economy, which is moving towards Offshore services, and intensifying

policies to promote innovation and new technology.


I. Population and

economy in Vietnam

II. The IT sector and

Outsourcing in Vietnam

Summary

• Vietnam has a population of 89 million inhabitants who

enjoy an average life expectancy of 75 years.

• This population is still mostly rural, with just 32% of

inhabitants living in an urban area.

• The population is very young (28 years old on average)

and is increasingly adapting to western consumer habits.

A population in the midst of transition

On-going demographic transition has resulted in a very

young, mostly non-urban population

Population distribution by

age

Public spending in 2010 in

the education sector

(% GDP)

44%of the Vietnamese

population is under

25 years old

Vietnam: 6.6%

Thailand: 3.7%

Philippines: 2.7%

France: 6.1%


0-14 years25%

15-24 years19%

25-54 years44%

55-64 years7%

>655%

6

6.6%

Public spending on

education as a % of GDP

Vietnam’s population has benefited from this growth as a result of the positive

economic consequences

Vietnam’s growth benefits its population

• At 0.62 points on the HDI (human development

index), Vietnam lags behind its Philippine and

Thai neighbours. However, as outlined in a

United Nations report*, it is developing rapidly

thanks to policies on education and access to

care.

• Out of the 89 million inhabitants, there is now an

emerging ‘middle class’ of around 6 million

mostly urban people, who are significantly

boosting domestic consumption (+6.2% in 2012,

despite the crisis).

• Living standards have improved significantly

after 2 decades of economic progress.

Between 1995 and 2013, the GDP per capita

increased 6-fold to reach today’s figure of

$3500/inhabitant

• Minimum monthly salary: $80 to €110 depending

on region.

*Source: Report on Human Development 2013 published by

the United Nations Development Program (UNDP)

0.4

0.45

0.5

0.55

0.6

0.65

0.7

1990 1995 2000 2005 2010

HDI progression since

1990

A 6-fold increase in the GDP per capita between

1995 and 2013


8

41%HDI growth since 1995:

1986: Doi Moi (reformation policy)

1990: Legal recognition of private

enterprise

1995: Membership of ASEAN

2007: Joined WTO

2012: Exports at 90% of GDP0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

20052006200720082009201020112012

GDP Structure

Growth of GDP

• Over the last decade, Vietnam has experienced an

undeniable economic leap forward. GDP tripled between

2002 and 2010, supported by constant increases in

investment and exports.

• Government policy, resolutely aiming for growth, has

liberalised trade and initiated a vast flow of

industrialisation (mainly High Tech) which is a predictor of

Vietnam’s future economic characteristics.

• Although this industrial development has mainly been

initiated by the public sector, the private sector is slowly

taking over (75% of GDP today against 65% in 2009).

An economy that has sustained growth for the

last 20 years

Vietnam’s economic ascent

Policies aimed at making the country more open

internationally have triggered economic growth

“In just a few years, the Vietnamese economy has undergone a remarkable economic ascent.”

French Treasury


Farming21.6%

Industry40.7%

Services37.7%

• Exports have risen by 20% (on average) a year since 2006 to reach $120 billion in 2012.

• Trade takes place with increasingly varied destinations with a growing focus on ASEAN and China.

• 2012 was a pivotal year:

• For the first time in 20 years, the trade balance was positive.

• Telephones and related accessories moved to the top of exported products, ahead of textiles/clothing and oil.

• The range of exports has grown considerably in the last 10 years. High Tech products are slowly

replacing agricultural products.

Trade: the essential driving force behind growth

20%of exports relate to High Tech

products or services

$18bnexpected revenue from

telephone and smartphone

exports in 2013

Rising exports are both a result of industrialisation and a source of economic

dynamism. IT products occupy an increasingly important position.

World Bank

figures

illustrate the

upmarket

movement of

exported

products


International aid still plays a major part in financing this economic activity

• Vietnam is the 2nd largest recipient of 0%

loans from the International Development

Association (IDA); a total of $10bn over 20

years.

• Today considered as a country out of poverty,

Vietnam has seen a reduction in available funds

coming from 0% loans.

• In terms of Public Development Aid (PDA),

Vietnam has received more than $3bn a year

since 2010.

• 40% of infrastructure projects in Vietnam are

financed by PDA.

• France is the 3rd largest bilateral donor of

funds for PDA in Vietnam. French financing

rose to €745 million for the period 2005-2010.

Development supported by external aid

0

500

1000

1500

2000

2500

3000

3500

4000

1980 1985 1990 1995 2000 2005 2010

Total amount of PDA in Vietnam,

in $ millions

Financial transfers from the Vietnamese

diaspora are breaking records each year:

$8bn in 2010, $10bn in 2012

3rd

France is the 3rd largest financial

donor of PDA in Vietnam


12

$29 billionNet total of PDA received by

Vietnam since 2000

The World Bank regularly invests significant sums to support development

projects in Vietnam

• The world bank has played an active role in

Vietnam’s boom, by granting up to $2.4bn of

loans in just one year (2011). Recent projects

include:

• $150 million to improve the management and quality

of higher education and to encourage enrolling

children at nursery before they begin primary school.

• $250 million for the reform of Vietnam’s economic

management. The objective is to improve

productivity and competitiveness in the period 2013-

2015.

• FIRST Project (see boxed text)

World Bank focus on Vietnam

The world bank has subsidised the FIRST project (Fostering Innovation through

Research, Science and Technology) to a value of $110 million over 6 years.

This project aims to promote a knowledge-based economy, to attract talent, develop

technological research institutes and support the creation of innovative enterprises.

The FIRST project was piloted by the Ministry of Science and Technology (MOST) which is in

charge of its operational deployment.

13number of new projects

supported by the World Bank for

2013

$2bntotal amount of loans given by

the World Bank for 2013


I. Population and

economy in Vietnam

II. The IT sector and

Outsourcing in Vietnam

Summary

Attractiveness of Vietnam and its IT sector

Vietnam is 8th in the AT Kearney 2011 Global Services

Location Index, moving up 2 places compared to 2010.

Scores:

• 24th in people skills and availability

• 1st in financial attractiveness

• 39th in business environment

Vietnam is the 5th most popular country for Offshore IT

according to a study carried out in 2010 by ‘Offshore

Development’.

5% of IT directors questioned cited it as a favourite

destination.

Vietnam receives varying amounts of FDI but

sums have exceeded $10bn a year since 2008.

According to the World Bank, Vietnam is receives

the 2nd largest amount of foreign investment in

ASEAN (in FDI/GDP).

FDI is now changing and is increasingly related to

the high tech industry, distribution and services.

HCMC and Hanoi are ranked 16th and 23rd

respectively in Tholons’ Top 100 Outsourcing

Destinations (2013).

Vietnam belongs to the ‘emerging’ market category

for IT and BPO, the same as the Philippines

5thmost popular

destination for IT directorsLarge western and Asian groups have invested

significant amounts to develop the BPO-ITO

industry in Vietnam:

• 2006: Intel invested $1bn for the assembly of computer

parts

• 2009: Cap Gemini bought IACP Asia (IT firm)

• 2011: NTT Docomo (Japanese giant) acquired 25% of

VMG Media (Vietnamese telecoms leader)

• 2013: Samsung invested $1.2bn in a microprocessor

factory


16thHo Chi Minh City’s ranking in

the TOP 100 Outsourcing destinations

• $3bn from the state in 2010 for infrastructure

development

• Development or creation of High Tech zones

in Hao Lac, An Giang, Quang Nam, Thua

Thiên-Huê and Vinh Phuc

• Improving infrastructure is currently one

of the greatest challenges for Vietnam

• VAT exemption for export of goods and

services

• Simplification of foreign investment

procedures

• IT development lies at the heart of the 2020

Strategic Plan

• State Objectives: Turnover of $15bn for

technology, software and IT services

industries for 2020

• FDI: $10.5bn in the first half of 2013

• Groups present in Vietnam:

Hitachi, Fujitsu, Samsung, NTT, Accenture, I

BM, Intel, Cap Gemini, Sony, Oracle etc.

• Creation of Joint Ventures between

Vietnamese and foreign firms in BPO

(e.g. F-Agrex in 2013)

• Software industry: more than 1000

businesses as of 2011, which generate $1bn

revenue

• The percentage of students in higher

education is increasing by 9% each year

• 260,000 students graduated from universities

and higher education establishments in 2012;

80% of these in the sciences

• Hubs of excellence collaborate with

international ones (HUST with French CNRS)

• Vietnam has 300 higher education

establishments which train IT engineers

(compared to 10 in 2000)

IT in Vietnam: cluster dynamics

Education Infrastructure

Public

Powers

Private

Sector


300Higher education establishments which train IT engineers

BPO-ITO sector in Vietnam: the stakeholders

• Trained in Eastern Europe

• Core work does not have an international

focus

• Product meets local quality standards

Examples: FPT Software, Lac Viet

• Often founded by Viet Kieu

• Trained in Western Europe

• Beneficial alliance of a local cost structure

and international quality standards

Examples: Global Cybersoft, Officience

• Local production centres

• No sales team on site: relationships take

place via head office

Examples: Capgemini, IBM

Pentalog, CapgeminiGlobal Cybersoft

1997 2000 2005 2008 2009

TMA Solutions IBM

Source: Vietnam Outsourcing Portal

Officience

Arrival of foreign IT firms in Vietnam

2006

Alcatel

2010

Cisco


Geographical dynamics of the cities

• Ho Chi Minh City (HCMC) was ranked 5th and Hanoi

10th in the Top 50 emerging outsourcing cities in

2009 and 16th and 23rd out of all countries in 2013*.

• Danang is gradually becoming the 3rd outsourcing

destination in Vietnam, in particular for software.

• HCMC is recognised as a specialist outsourcing

destination for product development and testing.

MarketTraditional

Involving industry and textiles

Hanoi

Moving towards innovation

IT, energy, biotechnology

Ho Chi Minh City

Type of company Domestic, with State enterprisesHighly international, with foreign

businesses present

Home Internet access 22% of the population 33% of the population

*Source : TOP 100 Outsourcing destinations, Tholons

The two largest cities are not home to the same types of industry. Ho Chi Minh City is

taking on the leadership for developing high-tech industries and IT services.


21

“Danang is gradually becoming the 3rd outsourcing destination in Vietnam”

• Outside these 2 cities, suburban zones are emerging

and developing into technology parks. Hoa Lac, in the

north, is an expanding High Tech Zone and by 2017 will

be home to the brand new aerospace research centre.

• In Vietnam, technology development is decided

according to location, where the state allocates certain

regions the status of favoured developer for specific

technological areas. The network is set out in this way:

• North Vietnam: IT, electro-mechanics, automation, new

materials and biotechnology.

• Central Vietnam: IT, clean technologies, automation,

petrochemicals and naval construction.

• South Vietnam: IT, precision mechanics, chemical

products, rubber processing, biotechnology, electro-

mechanics, energy and petrochemicals.

The arrival of active suburban zones

Technology development is no longer just the privilege of the two largest cities in the

country. IT activity in the suburbs is leading to a new geography.

“By 2017, Hoa Lac will be home to the new Aerospace Research

Centre.”

IT will be developed in all 3 areas of the

territorial network


BPO-ITO perspectives in Vietnam (1/2)

• Developing the IT sector is one of the objectives set out in the 2011-2015 Plan and in the 2020 Strategy. It

sets out 5 operational priorities which predict a huge leap forward:

• BPO & ITO sector in Vietnam in 2012:

• $1.5bn of revenue annually

• More than 100,000 people directly or indirectly employed

• According to McKinsey Global Institute, the market for

Offshore Services will be a major source of growth for

Vietnam over the next ten years.

• The sector benefits from a pool of young, cheap

graduates. But to profit from this, Vietnam needs to

differentiate itself via better talent and infrastructure

management.

Vietnam has ambitions to become a world leader in IT by 2020

Attract service

providers and

multinationals to

stimulate demand

Construct a stable pool

of talent, oriented

towards quality and

availability

Create a network of

infrastructure

conforming to

international standards

Implement an

enabling regulatory

framework

Virally promote the

‘Vietnam brand’ in

international forums

BPO-ITO: an expanding sector which is set to

continue growing 100,000employees in the BPO-ITO sector


24

“Vietnam has the potential to become one of the top ten locations in the world for offshore services.”

McKinsey Global Institute

► Vietnam benefits from certain defining characteristics in the outsourcing market, such as the

joint language skills of both French and English

► It is experiencing sustained growth in the niches of BPO or ITO, as evidenced by Officience’s

success.

The increased range of skills and infrastructure development should strengthen Vietnam’s

position on this specialist market segment.

Niches

► Vietnam is searching for new partners in eastern countries or Japan.

► To meet partners’ expectations, Vietnam must, like it’s neighbours, reduce the impact of

bottlenecks (infrastructure) which can hinder expansion.

Regional links already exist between Indonesia and Thailand to reduce these

bottlenecks. These could be extended to include Vietnam and create synergies which

would strengthen the global attractiveness of the region.

Developing

regional

coordination

► In many countries (USA, Israel, Norway etc), public purchase has stimulated growth in the

software industry and innovation in the local economy.

► This leads to an increase in domestic demand, a driving force for growth in the abovementioned

countries.

Vietnam, where the IT economy benefits little from domestic demand, could adopt a similar

scheme and stimulate the market via orders for local industries.

Investing

in the

domestic

market

• The current situation of the ITO industry in Vietnam

and recent policy direction have led to potential

development opportunities in 3 areas:

BPO-ITO perspectives in Vietnam (2/2)

Niches Coordination

Internal Market


The IT environment in Vietnam – SWOT Analysis

STRENGTHS

► Ultra competitive salary costs

► Stable GDP and export growth

► Good levels of education, education system

produces graduates qualified in technology

► Government support for the ICT sector

► Geopolitical stability

WEAKNESSES

► Young and relatively inexperienced working

population

► Reputation of the local business environment

► Opaque regulatory practices

► Little protection of intellectual property

► Telecom and IT infrastructures still insufficiently

developed

OPPORTUNITIES

► Costs which remain among the lowest, low

salary inflation

► Explosion of IT outsourcing in emerging

countries, in particular SE Asia

► Fall of European countries carrying out BPO

► An domestic market as yet untapped

► Simplification of investment procedures

THREATS

► Regional competition from other BPO rising

stars (language skills, reliability, ability…)

► High rate of cyber crime

► Lack of local private finance (PDA supports

40% of infrastructure financing)

► Risk of compartmentalising to certain activities

with low added-value


Appendices

Summary

About Officience


Officience is a pioneer in the global outsourcing of services in Vietnam

• Business Process Outsourcing (BPO) and

Process Optimization

• IT Outsourcing (ITO)

• Multimedia content management

• Consulting

• Founded in 2005

• 300 employees

• Multicultural management

• Headquarters in Paris and HCMC

• Client portfolio from start-ups to

multinationals

4 core competencies Key information

Guided by the Shared Value principle, we aim to sustainably develop Vietnam to the benefit of our clients, by designing and implementing

tailor-made outsourcing solutions.

Talk to us about Vietnam


www.officience.com

Julie DUVERGÉ

Shared Value Maven

[email protected]

Huy Canh Duong

Positive Globalization Maven

[email protected]

Ngoc Anh VU

Vietnam Development Maven

[email protected]

http://www.linkedin.com/company/officience

https://twitter.com/Officience

https://plus.google.com/u/0/112021668429700755590/posts

https://www.facebook.com/pages/Officience/152907784758417?fref=ts

http://www.viadeo.com/fr/company/officience

https://twitter.com/SharingTheValue

https://twitter.com/GloballyFlat

https://twitter.com/ngocanh_vu

http://www.linkedin.com/in/julieduverge

http://www.linkedin.com/in/vungocanh

http://www.linkedin.com/pub/huy-canh-duong/2/734/462

References

Ambassade de France au Vietnam, Fiche Vietnam sur l’enseignement supérieur

AT Kearney, Global Services Location Index™, 2011

BPO Outcomes, http://bpooutcomes.com/vietnam-bpo-destination/

Données statistiques de la Banque Mondiale, http://donnees.banquemondiale.org/pays/viet-nam

Fiche pays du Vietnam publiée par la Direction Générale du Trésor, http://www.tresor.economie.gouv.fr/pays/vietnam

Le courrier du Vietnam, http://lecourrier.vn/lecourrier/fr-fr/home/default.aspx

McKinsey Global Institue, Sustaining Vietnam’s growth: The productivity challenge, Février 2012

Portail Offshore Developpement, Etude de Juin 2012 sur les services

IT, http://www.journaldunet.com/solutions/dsi/externalisation-informatique-offshore.shtml

Publications de la Chambre de Commerce et d’Industrie française au Vietnam :

Brèves économiques et réglementaires du Vietnam - Mai-Juin 2013

Le secteur High-Tech au Vietnam, Nov 2010

Le Vietnam attire plus de 8,5 milliards de dollars d'IDE depuis janvier, Mai 2013

Investissement : de grands projets prévus au Vietnam, Mai 2013

The World Bank, Taking stock an update on Vietnam’s recent economic developments, Juillet 2013

Tholons, Top 100 Outsourcing Destinations 2013

Vietnam Outsourcing Portal, http://www.vietnamoutsourcing.org

VOV 5, http://vovworld.vn/


http://bpooutcomes.com/vietnam-bpo-destination/































http://lecourrier.vn/lecourrier/fr-fr/home/default.aspx















http://www.vietnamoutsourcing.org/

http://vovworld.vn/


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