Vietnam Business Channel

Special Report - Vietnam’s IT Sector: 5 Industries to Watch

 

Written by Pritesh Samuel, Vietnam Briefing

Vietnam’s information technology sector is experiencing high growth, driven by low costs and high-quality labor.

Vietnam has now become the eighth largest provider of IT services globally.

The IT industry is supported by the government with tax and labor incentives, further propelling its growth.

As Vietnam moves from low-tech manufacturing to a service-oriented economy, the country’s information technology (IT) market is increasingly gaining traction, giving competition to IT firms in China and India. This has partly been encouraged by the growth of Vietnam as a regional market for domestic enterprises and global technology vendors.

As Vietnam adopts Industry 4.0 across all industries, investors should consider the benefits of locating their IT business to the country.

Most of the industry is foreign-invested, with multinationals funding projects to build electronic components in the country. At least 86 percent of total IT revenues in 2017 were derived from hardware. Due to strong growth trajectories, strategic advisory firm and global outsourcing firm Tholons has rated Vietnam as the eighth leading provider of IT services globally.

A good example of this success can be found in Samsung’s recent decision to build eight factories and one R&D center – Intel Corporation also recently opened a chip assembly plant and testing facility in Ho Chi Minh City.

Five IT industries that are currently trending

To understand such strong growth, and what is contributing to it, we examine five sub-sectors that show potential and are currently trending in Vietnam’s IT sector.

Fintech
Vietnam’s fintech industry is expected to reach US$7.8 billion in revenue by 2020. A rising middle class, growing internet usage, and a young population present a great combination for the fintech sector to thrive. An estimated 120 companies and brands cover a wide range of services, from digital payments to wealth management and blockchain.

1 – Fintech


5IndustriesITSector2


Vietnam’s fintech industry is expected to reach US$7.8 billion in revenue by 2020. A rising middle class, growing internet usage, and a young population present a great combination for the fintech sector to thrive. An estimated 120 companies and brands cover a wide range of services, from digital payments to wealth management and blockchain.

Digital payments are the most popular segment, with mobile payment apps MoMo, Moca, and Zalo Pay leading the way. Peer-to-peer lending (P2P) is also becoming increasingly popular, with Tima, Growth Wealth, and Trust Circle among the most popular.

Blockchain and cryptocurrency is the third segment in this sector that is increasingly gaining traction. Several companies like TomoChain and Kyber Network deal in cryptocurrency, allowing consumers faster and cheaper transactions. In 2018, Vietnam held its first-ever international conference on blockchain and its potential for development in the country.

2 – Artificial Intelligence


5IndustriesITSector3


The artificial intelligence sector (AI) industry in Vietnam shows strong potential. While still developing, AI in the country has followed global trends in application to human resources, education, healthcare, agriculture, transport, and e-commerce.

A good example of how AI is being used domestically can be found in Vietnamese conglomerate FPT Corporation, which has used AI for smart traffic in Ho Chi Minh City. Viettel Group has used AI in endoscopy for their operations in Vietnam. Viettel is also using AI to fight cyberattacks and help businesses deal with internal IT security.

In August, the government issued Resolution No.50-NQ-TW, encouraging FDI by increasing the number of businesses to 50 percent by 2025 in advanced technology and Industry 4.0 – this could help develop AI further.

3 – E-commerce


5IndustriesITSector4


Vietnam’s e-commerce market could be ranked third after Indonesia and Thailand by 2025, according to the E-Business Index 2019 report by the Vietnam E-Commerce Association.

Vietnam’s e-commerce activity is most active in Hanoi and Ho Chi Minh City. Sales from these cities account for 70 percent of the country’s total. This represents a significant opportunity to penetrate rural markets – rural internet connectivity is strong, and a majority of the population lives there.

Domestic e-commerce firms such as Shopee, Sendo, and Tiki operate websites that compete with regional players like Lazada and Shopee. Consumers also use social media like Instagram and Facebook for e-commerce.

Over the last four years, Vietnam’s internet economy has attracted over US$1 billion in funding, but customer trust, high competition, and logistics costs remain challenges for e-commerce companies in the country.

4 – Software Outsourcing


5IndustriesITSector5


Software outsourcing has gained traction over the last decade in Vietnam. According to a survey by US-based software vendor BetterCloud, 73 percent of organizations will use software outsourcing.

Vietnam has emerged as a cheaper outsourcing destination compared to traditional markets, such as China and India. This helped the software industry reach revenues of US$8.8 billion in 2018, according to the Vietnam Software and IT Services Association.

The government is developing high-tech parks and is also offering several incentives to further the industry. For example, Da Nang has developed as a software outsourcing center, particularly for Japanese businesses.

Still, challenges exist, and Vietnam needs to develop large scale IT outsourcing to compete with global players. In addition, more attention will be needed to improve English speaking skills to cater to global firms.

5 – Education Technology


5IndustriesITSector6


Vietnam’s education technology (Edtech) has received investments worth US$55 million in 2018. This investment is largely driven by Edtech centers’ ability to bridge the gap between traditional education environments and learning needs inspired by the private sector.

Most recently, Vietnamese startup Everest Education secured a US$4 million investment by a Hong Kong-based equity firm. Organizations like Everest Education provide tech-enabled personal learning through a network of centers and partner schools.

Vietnam’s kindergarten through grade 12 population is a large market with locals spending up to 40 percent of their disposable income on education. Edtech firms like Violen.vn, Hocmai.vn and Topical have found success in this space. It’s no surprise that foreign investors from Japan, Singapore, South Korea, and Australia are showing interest.

Strong growth trajectory, supported by government

The government prioritizes investment in IT and incentivizes investment in this space. IT companies are eligible for a corporate income tax exemption for up to four years, followed by a 50 percent tax reduction for up to nine years. Subsequently, this is followed by a 10 percent CIT rate (compared to the traditional 20 percent for a period of 15 years). The government unveiled similar CIT incentives for computer programming activities as well, including a value-added tax of zero percent.

Resolution No 41/NQ-CP lays out specific preferential policies for the IT sector, including a 50 percent reduction in personal income tax for workers employed in the IT sector.

The government is also increasingly setting up high-tech parks around the country. In addition, these parks allow additional incentives such as land rent exemption for IT businesses inside the parks. For example, the Da Nang High-tech Park offers CIT incentives, import duty exemptions, as well as one-stop administrative procedures for investors located in the park.

Vietnam’s IT growth is expected to remain intact growing approximately 30 percent a year. The government is keen to promote the application and development of IT and this is shown in its embracing of Industry 4.0 and the ASEAN Smart City Network.

Universities are also churning out highly skilled graduates coming a long way from a decade ago when investors complained of re-training newly recruited staff. The government wants to develop one million IT workers by 2020. Right now, more than 25,000 technical engineers graduate from universities every year.

Nevertheless, both the government and the private sector will need to continue to develop the local industry. Its development to date shows a promising growth trajectory for regional players.

 

 

 

 


 Editors Note:

 This report was written by Pritesh Samuel and first appeared on Vietnam Briefing, a wholly owned subsidiary of
 Dezan Shira & Associates, Asia's largest independent foreign direct investment practice and is republished here
 with their permission. Vietnam Briefing provides business intelligence to foreign investors interested in, or
 operating in these markets. For more information, visit them on the web at: https://www.vietnam-briefing.com



 

 

 

 

Read 478