Study on Vietnam's development


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This study, drafted by the ITO company Officience, describes and analyses recent evolutions in the Vietnam's development, then focuses on ITsector. Actually, this growing country has emerged two decades ago and since it has known a huge leap forward. Thanks to this growth, Vietnam received more and more investings from foreign companies. This study brings out some macroeconomic and social specificities, espacially regarding the education field.

Dealing with IT issues, the Officience company underlines in this study levers used by Vietnam to promote and develop that IT sector. Indeed, this sector will go on growing and Vietnam is already perceived as a future leader of worldwide outsourcing services.

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Study on Vietnam's development

  1. 1. 1 Vietnam: Economic development and IT
  2. 2. 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.
  3. 3. 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. Officience | 2013 | 3
  4. 4. I. Population and economy in Vietnam II. The IT sector and Outsourcing in Vietnam Summary
  5. 5. • 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% Officience | 2013 | 5 0-14 years 25% 15-24 years 19% 25-54 years 44% 55-64 years 7% >65 5%
  6. 6. 6 6.6% Public spending on education as a % of GDP
  7. 7. 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 Officience | 2013 | 7
  8. 8. 8 41% HDI growth since 1995:
  9. 9. 1986: Doi Moi (reformation policy) 1990: Legal recognition of private enterprise 1995: Membership of ASEAN 2007: Joined WTO 2012: Exports at 90% of GDP 0% 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 Officience | 2013 | 9 Farming 21.6% Industry 40.7% Services 37.7%
  10. 10. • 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 Officience | 2013 | 10
  11. 11. 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 Officience | 2013 | 11
  12. 12. 12 $29 billion Net total of PDA received by Vietnam since 2000
  13. 13. 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 Officience | 2013 | 13
  14. 14. I. Population and economy in Vietnam II. The IT sector and Outsourcing in Vietnam Summary
  15. 15. 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 5th most 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 Officience | 2013 | 15
  16. 16. 16th Ho Chi Minh City’s ranking in the TOP 100 Outsourcing destinations
  17. 17. • $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 Officience | 2013 | 17
  18. 18. 300 Higher education establishments which train IT engineers
  19. 19. 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 Officience | 2013 | 19
  20. 20. 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. Market Traditional Involving industry and textiles Hanoi Moving towards innovation IT, energy, biotechnology Ho Chi Minh City Type of company Domestic, with State enterprises Highly 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. Officience | 2013 | 20
  21. 21. 21 “Danang is gradually becoming the 3rd outsourcing destination in Vietnam”
  22. 22. • 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 Officience | 2013 | 22
  23. 23. 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 Officience | 2013 | 23
  24. 24. 24 “Vietnam has the potential to become one of the top ten locations in the world for offshore services.” McKinsey Global Institute
  25. 25. ► 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 Officience | 2013 | 25
  26. 26. 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 Officience | 2013 | 26
  27. 27. Appendices Summary
  28. 28. About Officience Officience | 2013 | 28 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.
  29. 29. Talk to us about Vietnam Officience | 2013 | 29 Julie DUVERGÉ Shared Value Maven Huy Canh Duong Positive Globalization Maven Ngoc Anh VU Vietnam Development Maven
  30. 30. References Ambassade de France au Vietnam, Fiche Vietnam sur l’enseignement supérieur AT Kearney, Global Services Location Index™, 2011 BPO Outcomes, Données statistiques de la Banque Mondiale, Fiche pays du Vietnam publiée par la Direction Générale du Trésor, Le courrier du Vietnam, McKinsey Global Institue, Sustaining Vietnam’s growth: The productivity challenge, Février 2012 Portail Offshore Developpement, Etude de Juin 2012 sur les services IT, 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, VOV 5, Officience | 2013 | 30