Vietnam aspires to be a global tech hub, as it becomes more industrialised. It has started to gain attention of international investments. Vietnam has transformed from one of the poorest countries and is now classified by World Bank as a middle income country. It has made a miraculous progress of reducing poverty since the Vietnam war.
It’s burgeoning IT sector is also growing and shows no signs of slowing down. The sector is driven by low-cost and high quality labour. Vietnam’s big advantage is that labor costs are only about half that of India, with Vietnam still entering the gold population.
Technology giants such as Samsung, Microsoft, LG, Intel are also investing heavily in Vietnam. According to Gartner, Vietnam is one of the most competitive options in the world for software outsourcing. It currently export services to Japan, North America and Europe.
The current trade war between US and China will benefit Vietnam. More multinationals are investing heavily and shifting into Vietnam from China. In our view, this will support economic and infrastructure development for Vietnam and consequently, its aim to become a global technology hub.
1) There is a high availability of IT resources
One of Vietnam's strengths is that it produces many top programmers, as compared to its neighbours in the South East Asia region. Based on 2019 estimate, more than 25,000 technical engineers graduate from Vietnam universities every year.
This is because Vietnam students plow a lot in math and science at a young age, which is why Vietnamese programmers are highly appreciated. High school students in Vietnam often achieve very high results in the Mathematical Olympiads and International Physics.
By Grade 4 (age 9-10), Vietnam students learn to start programming in Logo a multi-paradigm computer programming language commonly used in the education system. They start writing procedures containing loops calling procedures which contain loops by Grade 5 (age 10-11).
Sustained government investment in STEM education will continue the growth of IT resources in Vietnam, enabling it to rise to become a global technology hub. The Government is also placing emphasis on increasing fluency of English language and Japanese language among its students for it to compete on a global level.
2) Strong efforts from the Government to improve infrastructure and ecosystem
A smart city is generally defined as a city that leverages technology to manage and enhance quality of life, improve services, and use energy resources efficiently. The Government is deploying projects to build smart cities around the country.
In 2019, the Government approved a master plan for Vietnam’s smart and sustainable city development strategy in the 2018-2025 period, with a vision towards 2030. It plans for smart cities and integration based on sensor collection and the analysis of data that could drive economic, environmental, and social growth in the country. It intends for the country to do more than coding and start working more on innovation projects.
The Government is focusing on cloud computing infrastructure, big data, building data warehouses/ data centers and security-monitoring centers and developing an open data ecosystem. It has invested to build smart cities near Ho Chi Minh and Hanoi.
The following are examples. The Ho Chi Minh Department of Information and Communications has partnered with Microsoft on smart city initiatives, including building a cloud-based platform for real-time monitoring of city traffic, parking spaces and public bus routes in 2016.
High-resolution photos on land parcels is also collected through Satellite Imagery and Unmanned Aerial Vehicles and made available on the Internet. Zoning data now is just a click away either through mobile phone apps or home-based computers.
Sumitomo Corporation and BRG Group – a Vietnamese real estate company have recently announced that they will be the main investors in smart city project in Hanoi. The project cost is estimated at USD4.2 Bn. It will build homes, commercial offices and office buildings on a 272 hectare site. Project completion is expected in 2028.
The Vietnam Government is providing incentives for enterprises to be involved in big data, artificial intelligence, blockchain and Internet of Things. The country's IT infrastructure has significantly improved.
3) IT and Business process outsourcing is growing
Business process outsourcing ("BPO") is growing in Vietnam. It's BPO sector follows the same trajectory as India's and Philippines'. According to AT Kearney 2019 report, Vietnam is ranked 5 on its Global Services Location Index. And according to the Vietnam Software and IT Services Association, the software industry in Vietnam reached revenues of US$8.8 billion in 2018.
Japanese IT companies frequently use services in Vietnam for ITO and BPO. The report indicates that Vietnam currently has over 20,000 employees working for Japanese companies in both offshore software development and business process outsourcing. Also in Vietnam there is a large community of Chinese people.
Continued engagement in large markets such as Japan and China will bring significant foreign investment to boost development of high tech outsourcing in Vietnam. However, English and Japanese fluency needs to be improved to further expand in serving Japan and international markets. Further advancement in machine learning and artificial intelligence is also required to grow its strengths in the area.
While Vietnam is nominally a communist country, in practice the economy is far more capitalist than communist. It intends to move from a low-cost manufacturing to a service-oriented country. Vietnam is developing a more highly skilled workforce, and the country is dedicated to higher education and to fostering English proficiency. It has the potential to become a South East Asia innovation hub, as an alternative to Singapore.
In medium term, the country's outlook is positive, despite signs of cyclical moderation in growth. There is still much to be done to achieve its ambition of a global technology hub.
Let us know your thoughts on Vietnam becoming a global technology hub. If you require research and/ or strategy development on entering or expanding in Vietnam, contact us. We want to be an extension of our clients. Subscribe to our newsletter for regular feeds.
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References
AT Kearney, Digital Resonance: The New Factor Impacting Location Attractiveness, https://www.atkearney.com/digital-transformation/gsli/2019-full-report, published 2019
Mashable, Vietnam is Set to Build a USD$4.2 Billion Smart City near Hanoi, https://sea.mashable.com/culture/6683/vietnam-is-set-to-build-a-us42-billion-smart-city-near-hanoi-why-because-it-can, published October 2019
Medium, Why Does Vietnam Produce So Many Top Programmers Compared to Its Neighbours in South East Asia, https://medium.com/@adamodigital/why-does-vietnam-produce-so-many-top-programmers-compared-to-its-neighbors-in-south-east-asia-c078d913f0e7, published 2 May 2018
Vietnam Insider, Sumitomo Corporation Joins Hands with BRG Group to Build Smart City in Vietnam, https://vietnaminsider.vn/sumitomo-corporation-joins-hands-with-brg-group-to-build-smart-city-in-vietnam/, published 7 October 2019
Vietnam Investment Review, Smart City Drive in Full Swing, https://www.vir.com.vn/vietnam-smart-city-drive-in-full-swing-67768.html, published 16 May 2019
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