Information Technology in Vietnam

Working for 5 years in Vietnam I was eyewitness to a remarkable development in the IT sector...

Some history

Based on contacts between Hanoi's Institute of Information Technology (IOIT) and the Coombs Computing Department at Australia's National University (ANU) in Canberra, in 1993 a first Vietnamese e-mail-account (hanoi@coombs.anu.edu.au) was set up in Australia for regular forwarding to Vietnam. Although not used at this time, in 1994 the ".vn" domain name was registered with the international Internet authorities. The next development was the creation of the first Vietnamese internal network, which was called VARENet (Vietnam Academic Research and Educational Network). Collected emails were sent several times a day from ANU to Hanoi using a UUCP connection. In Hanoi these mails were sorted and distributed by members of IOIT, sometimes they were even printed out and hand delivered by bicycle within the city. Finally, in Nov. 1997, Vietnam fully joined the internet. Vietnam Data Communications (VDC), a daughter of the state monopoly Vietnam Post & Telecom (VNPT), was given the only IAP license. Worried about possible negative effects of some Internet content on the Vietnamese population, the government installed an "Iron Curtain", a central firewall which restricts access to the Internet. Websites considered inappropriate or subversive are blocked and some Internet features like the news-protocol are not available. Another obstacle (some see it as an indirect way of censorship) is the high-price policy of the authorities. Although there are now a couple of ISPs competing (with VDC still being the sole IAP), internet connection fees are fixed and among the highest in the region. The largest proportion of the estimated 150.000 Internet accounts in 2001 was owned by government authorities, companies, foreign development organizations and the expatriate community, only a fraction by Vietnamese individuals. The price of the necessary equipment to connect to the internet (PC and modem) and the connection fee is still out of reach for most people.

The IT market today

Despite the above described weak IT infrastructure, Vietnam is home to an emerging IT industry. Although one should assume, that a developing country may have other, more pressing investment priorities than IT, a considerable amount of resources has been put into that sector. The Vietnamese government is aware that the information technology sector has a key role for the future economic development. Software development is regarded as an opportunity to create desperately needed jobs. Considering the young history of IT in Vietnam, there is now an amazing number of IT companies (estimations range from 300-500) and the fast growth-rate of cyber-caffee's allows Internet access even to people, who can't afford their own equipment. Foreign engagement in this sector is also on the rise, multinational companies like Compaq, Hewlett-Packard, IBM, Intel, Microsoft, Motorola, Oracle and Cisco have branches in Vietnam, some, of course, with limited success up to now. The hardware sector had a considerable development. In 1995 only about 25% off all PCs were locally assembled, this figure has risen to about 70-75 percent. There are now (2004) an estimated 800.000 - 1.000.000 PC's in Vietnam. The total turnover of the IT market is still low for a country of Vietnam's size: In 2000 it was an estimated 500 million US-Dollars for Hardware and 180 million US-Dollars for software and services. E-commerce, of course, is in the beginning stage. Credit card use in Vietnam is still minimal, which limits the chances for B2C e-commerce in the near future.

Government policy

The Vietnamese authorities have made the development of the IT sector one of their priorities. Already in 1991, the Ministry for Science, Technology and Environment (MOSTE) submitted a proposal for an information technology policy. In 1994 an IT Planning Bureau was created and in 1995 the first IT Master Plan was published (for the period 1996-2000). A second IT Master Plan was issued in 2000, setting the ambitious goals of having an additional 25.000 well-trained software developers and a turnover of 500 million US-dollars from the software sector by the year 2005. To achieve this, special software development zones were created and the whole sector was given considerable incentives, e.g. exemption from enterprise income tax for the first four years of operation and a reduced individual income tax. For the educational sector it is planned that by 2003 all universities and by 2005 75% of the upper secondary schools have Internet access. Furthermore 60% of Hospitals, 70% of enterprises, and 50% of villages shall have Internet access by 2005. For the hardware sector a market share of 90% locally assembled PCs is targeted. Several decrees and decisions have been issued recently for the promotion of the IT sector. Efforts to computerize the authorities have also been undertaken. Most ministries are now connected by WAN and there is even a discussion about steps towards an e-Government. Although the implementation of promotional measures is not always best, the commitment of the Vietnamese government to the development of this sector seems to be strong. The government is taking a sound, long-term approach to growth in the IT sector by investing in a way (e.g. software development zones) that may take several years to pay off, rather than putting out money into direct support for local IT businesses.

Education and technical skills

At present there are 47 technical universities and 100 technical schools focused on computer sciences in Vietnam. Since 1995, about 2.500 students have graduated annually from the IT departments of seven universities. The countries two largest institutions are the Hanoi National University and the HCM City University of Technology. As a result there is now a pool (estimated 10.000-20.000) of talented software developers available, some of them with skills covering up-to-date programming languages, architectures, operating systems, databases and Internet/Intranet structures. The enthusiam among the youth for information technology is great. Besides the universities there are also commercial training institutes which offer product- or vendor-based certifications (e.g. MCSD - Microsoft Certified Systems Developer). It must be noted that student graduating from universities still require additional training (on the job, product-based training, English language-training and others) because much of their know-how is theoretical. This is caused by the lack of up-do-date IT-curricula and equipment at most Vietnamese universities

Software Development Zones

The Saigon Software Park (SSP) is located in District 3, Ho Chi Minh City in a six-storey building. Officially opened on July 11, 2000, it was Vietnam's first dedicated software development zone. There are now 31 member companies which fully occupy the current SSP building, over 30 additional partners have been registered for the pending SSP physical expansion. SSP offers for their tenants high bandwidth Internet connection, Voice over IP, Video over IP, virtual offices and e-business services. There is also an Educational and Training Service and an IT Lab Service. At present, about 600 people are working at SSP.

The Quang Trung Software City (QTSC) is the largest undertaking of this kind in Vietnam, the plans were already developed in 1998. QTSC is located in District 12, Ho Chi Minh City and was officially inaugurated on March 16, 2001, at that time with 6 buildings with a total floor space of 7,800 square meters. Future planning is made for a total land area of 37 hectares. Latest figures from Feb. 2002 showed 38 tenants (8 of them foreign-invested companies) with a total of nearly 1000 software experts and learners. The park is equipped with Internet transmission facilities of 2 Mb/second. The ambitious goal is to have around 10.000 software developers by the year 2005, by then the park should be equipped with homes, apartments, recreation and training facilities. Trying to achieve this goal, the QTSC offering a lengthy list of incentives for local and foreign companies willing to settle there: Reductions in income tax, revenue tax, land use and rental fees and many others. Cooperation Partners are the Mekong Project Development Facility (MPDF) and the National University of Ho Chi Minh City.

In August 2001, the Hoa Lac High-Tech Park opened it's doors with a complex of four storeys and a total area of 5,200 sq.m. The park is located about 30 km west of Hanoi in Ha Tay Province, massive future expansion is planned. Further software development zones are either planned or already under construction in Danang, Hue and Hanoi.

Strengths

• For outsourcing projects, Vietnam is considered to be one of the most stable locations in the region, rating higher than major outsourcing destinations such as India and the Philippines.
• Commitment - The government of Vietnam has over the past few years made IT a national priority. They have developed a master plan for IT and have sought outside help in developing the plans.
• Vietnam has applied for entry into the World Trade Organization. The desire to join has accelerated some key policies and decisions which Vietnam is making about their technology infrastructure.
• Vietnam has a talented workforce, literacy rate is high and people are eager to learn.
• Foreign investors can take advantage of the low cost of labour in the Vietnamese IT market.

Weaknesses

Besides the widespread enthusiasm about the development of the IT sector in Vietnam it must also be mentioned that there are still some obstacles which hamper the current development:

• The country's IT infrastructure is still poor by South East Asian standards.
• Copyright laws are rarely enforced, Vietnam has one of the highest software piracy rates in the world.
• Foreign investors planning to set up their own operation in Vietnam should note that labour laws are still extremely focused on the employees rights, it is very difficult for an employer to sack in-efficient staff.
• While the government has made IT a priority, they still demand an overwhelming amount of control. This control often prohibits the implementation of new ideas and the market is still not liberalized. Most notable example is the fact that there is still only one state-controlled Internet Access Provider, although this will most likely change in future.
• The banking sector and the legal system are still under-developed.

Outsourcing to Vietnam

Vietnam has a pool of talented software developers, low labour costs and a government policy, which is fully committed to the development of this sector. Investment in this sector is heavily promoted by initiatives in the educational sector, the construction of software development zones and is subject to many incentives. Dozens of companies based in North America, Western Europe and Asia Pacific are already outsourcing to Vietnam. The type of companies offering professional software outsourcing services ranges from state-owned to private-owned, Joint-Ventures and foreign-owned. The technical know-how of the Vietnamese software developers covers modern programming languages (Java, C++,...), database systems (Oracle, SQL-Server,...) and architectures (COM+, CORBA, ...). Examples of outsourcing companies, which are already operating with success:

• FPT-Soft was Vietnam's first ISO 9001:2000 certified IT company, they are now planning to get a CMM certification. Being a unit of the FPT Corporation, Vietnam's biggest, state-owned IT company, FPT-Soft has about 350 IT experts and operates in Hanoi and Ho Chi Minh City. They also have offices in India and the United States. The company has a partnership with Harvey Nash Plc and has done projects for Winsoft, Citibank, HP and other international clients.
• TMA Solutions, a Ho Chi Minh based company, claims to be the largest private Vietnamese software development company. They already have American, Japanese, Australian and Canadian (Nortel networks) companies on their list of clients.
• FCG Vietnam is a 100% foreign-invested company, a wholly owned subsidiary of the First Consulting Group (FCG). They are operating in Vietnam since 1995 and employ more than 100 people. They were also the first software company in Vietnam to achieve SEI-CMMI maturity level 5.

Vietnam offers an extremly cost competitive environment for software development. The salaries of Vietnamese IT specialists are way below those of their Indian collegues, costs of software development are at least 50% lower than in India. For smaller projects the service levels are usually much higher because the market is still emerging and loacl IT companies are desperate for any overseas contract. Moreover, IT companies in Vietnam retain key staff, the rate of staff fluctuation is usually around 5% (estimated 25% in Indian companies), which ensures continuity.

A fair share of the local IT experts are technically up-to-date, but the lack of international experience, limited language capabilities, project management skills and quality control can sometimes still be a problem. At present foreign companies planning to outsource to Vietnam should try to deal with international consultants functioning as intermediates or with local companies which have some experienced key expatriate personnel and experience in dealing with overseas clients. Despite the obstacles which still exist, Vietnam can become a major stronghold of software outsourcing in the near future.

• Vietnam News, 25th March. 2007: Outsourcing opens opportunities, pdf-file, 3 pages, 100 kb