In 2013, Vietnam ranked 101st out of 166 countries on the ICT development Index. Nonetheless, tech organizations such as PC Magazine call Vietnam “Southeast Asia’s Silicone Valley.” And for a good reason: the Vietnamese IT sector is one of the fastest growing industries in the country, with many IT businesses, among which Enablecode, springing up in all major cities. Nonetheless, there are several challenges limiting this growth.
The internet only became available in Vietnam in 1997, but since then, has spread around the country very quickly. Throughout the last ten years, Vietnam’s IT sector has continuously had an annual growth rate of 25-30% and the country is now home to nearly 14.000 IT companies. The country has also become an attractive place for many international IT companies to do business. Reasons for the significant growth in the IT industry include Vietnam’s large and young workforce and government efforts to create a favorable environment for IT businesses.
The Vietnamese government considers the IT sector as a key contributor to economic growth in Vietnam and has implemented several measures to enable expansion of this industry. The government has, among other things, devised a Master Plan on Information Technology, which specifies several targets aimed at turning Vietnam into an advanced country in ICT by 2020. These targets concern human resources, local industry and infrastructure.
Today, Vietnam has a population of nearly 95 million, nearly 70% of whom are of working age. With a median age of 29.5, Vietnam is full of young students and professionals, among whom engineers, programmers and entrepreneurs, many of whom are well-educated. These are indeed the ones who are driving the country’s development. Moreover, Vietnam is still relatively competitive with regard to wages as compared to other countries, making Vietnam an attractive place for foreign IT companies to do business.
The Vietnamese government is aiming to get its human resources in the IT sector up to international standards by 2020. The main objective here is to get the number of ICT graduates who are professionally qualified and have good command of foreign languages up to 80%. Additionally, the government aims to increase the number of internet users to 70% of the population. They are well on their way to achieving the latter. The current rate of internet users is 48.3% of the population, which is very close to the 2015 interim target of 50% and much higher than 5 years ago, when only 30% of people was using the internet. One reason for the rapid increase in internet users is the very low broadband prices in Vietnam, approximately 2.90 USD.
In order for Vietnam to become an advanced ICT country, the country’s industrial capabilities need to be significantly improved. The country therefore is placing emphasis on setting up ICT research and development organizations, enabling a shift to high-tech product development and is aiming to be among the top 10 software and digital content exporters by 2020.
As part of the 2020 Master Plan, seven software parks have been established, most of them in the country’s three largest cities, Ho Chi Minh City, Hanoi and Danang. According to the Ministry of Science and Technology, these parks house more than 700 companies, nearly a third of which are international companies. Together, these parks account for 25% of people employed in the software industry.
The software sector is indeed developing quickly. According to Ho Chi Minh City’s Computer Association, the average growth rate for local software and IT companies was 30% in 2013 and according to the Vietnam Software and IT Services association, Vietnam is already among the top 10 software exporters in the world. Moreover, Vietnam is now the second-largest software exporter to Japan, where only China still outranks Vietnam. For U.S. software and IT firms, there are three main reasons to do business in Vietnam: tariffs are low, there is a positive investment climate and the regulatory environment is improving.
Even though Vietnam is becoming an increasingly important player in the field of information technology, there are still a number of challenges limiting further growth of the country’s IT sector. First of all, the number of adequately trained and skilled IT workers is still relatively small. The quality of Vietnam’s education programs, IT programs in particular, is improving, but is not yet up to par with that of most countries with advanced software and IT sectors. On the ICT Development Index, Vietnam ranks only 107th out of 166 countries in terms of ICT skills. Moreover, there is a lack of IT graduates who possess the foreign language skills, particularly professional English skills, necessary to succeed in the IT industry.
Additionally, there is a lack of digital infrastructure in Vietnam, which poses a major obstacle to growth of the IT sector. Most of the IT industry is located in the seven software parks and digital activity is restricted to the country’s major cities. In rural areas, the number of broadband connections is still very low. However, the government does have plans to expand internet coverage outside of the cities, which is expected to enhance competitiveness and should aid the development of the IT industry.
Finally, there are serious flaws in regulations, which are negatively affecting the business environment in Vietnam. Startups, for instance, face many legal limitations, which makes doing business difficult. Furthermore, violations of intellectual property rights is widespread in Vietnam. The government has implemented several laws and regulations to better enforce intellectual property rights, but it still remains a major concern for foreign enterprises wanting to do business in Vietnam. Vietnam’s piracy rate in 2011 was as high as 81%, compared to only 42% worldwide.
Despite these challenges, Vietnam’s IT sector is growing quickly and has great potential. Ho Chi Minh city currently ranks number 17 on Tholons Global Services’ list of the top 100 outsourcing destinations and Hanoi ranks number 20. In order to sustain long-term growth, business conditions will need to improved, however. This can only be done if the government adequately addresses the key challenges facing the IT industry right now. In any case, looking at the current situation, Vietnam’s software and information technology sectors can be expected to remain very important to the country’s overall economic development.
Enablecode is a social enterprise based in Ho Chi Minh City in Vietnam, which employs programmers and designers with physical disabilities. Do you want to help Enablecode spread awareness about people with disabilities in the developing world or do you want to receive more information about what we do? Register to our website here.