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					                                                              Q3 2011
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VIetNaM
INforMatIoN techNoLogy rePort
INCLUDES BMI'S FORECASTS




ISSN 2044-9631
Published by Business Monitor International Ltd.
                         VIETNAM INFORMATION
                         TECHNOLOGY REPORT
                         Q3 2011
                         INCLUDES 5-YEAR FORECASTS TO 2015



Part of BMI’s Industry Report & Forecasts Series

Published by: Business Monitor International

Copy deadline: July 2011




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                                 Vietnam Information Technology Report Q3 2011




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                                                                 Vietnam Information Technology Report Q3 2011




CONTENTS

Executive Summary ......................................................................................................................................... 5
       Market Overview ................................................................................................................................................................................................... 5
       Industry Developments .......................................................................................................................................................................................... 5
       Competitive Landscape .......................................................................................................................................................................................... 6
       Computer Sales ...................................................................................................................................................................................................... 6

SWOT Analysis ................................................................................................................................................. 8
       Vietnam IT Sector SWOT ....................................................................................................................................................................................... 8
       Vietnam Telecoms SWOT....................................................................................................................................................................................... 9
       Vietnam Political SWOT ...................................................................................................................................................................................... 10
       Vietnam Economic SWOT .................................................................................................................................................................................... 11
       Vietnam Business Environment SWOT................................................................................................................................................................. 12

IT Business Environment Ratings ................................................................................................................ 13
       Asia ...................................................................................................................................................................................................................... 13
       Table: Regional IT Business Environment Ratings .............................................................................................................................................. 13

Asia IT Markets Overview .............................................................................................................................. 17
       IT Penetration ...................................................................................................................................................................................................... 17
       Sectors And Verticals ........................................................................................................................................................................................... 20

Vietnam Market Overview .............................................................................................................................. 24
       Government Authority.......................................................................................................................................................................................... 24
       Background.......................................................................................................................................................................................................... 24
       Hardware............................................................................................................................................................................................................. 25
       Software ............................................................................................................................................................................................................... 27
       Services................................................................................................................................................................................................................ 30
   Industry Developments.............................................................................................................................................................................................. 33

Industry Forecast Scenario ........................................................................................................................... 36
       Table: Vietnam IT Sector (US$mn unless otherwise stated), 2006-2015.............................................................................................................. 39
   Internet ..................................................................................................................................................................................................................... 40
       Table: Telecoms Sector –Internet – Historical Data And Forecasts .................................................................................................................... 40

Macroeconomic Forecast .............................................................................................................................. 42
       Table: Vietnam – Economic Activity .................................................................................................................................................................... 44

Competitive Landscape ................................................................................................................................. 45
       Hardware............................................................................................................................................................................................................. 45
       Software ............................................................................................................................................................................................................... 46
       Operating Systems ............................................................................................................................................................................................... 47
       IT Services ........................................................................................................................................................................................................... 50

Company Profiles ........................................................................................................................................... 53
       FPT Software ....................................................................................................................................................................................................... 53

BMI Methodology ........................................................................................................................................... 54
       How We Generate Our Industry Forecasts .......................................................................................................................................................... 54
       IT Industry ........................................................................................................................................................................................................... 54
       IT Ratings – Methodology .................................................................................................................................................................................... 55


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                                                            Vietnam Information Technology Report Q3 2011



    Table: IT Business Environment Indicators ......................................................................................................................................................... 56
    Weighting............................................................................................................................................................................................................. 57
    Table: Weighting Of Components ........................................................................................................................................................................ 57
    Sources ................................................................................................................................................................................................................ 57




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                                  Vietnam Information Technology Report Q3 2011




Executive Summary
Market Overview

             The Vietnamese IT market is estimated to grow at a CAGR of 14% over the 2011-2015 forecast
             period. IT spending bounced back in 2010, but economic cooling measures are forecast to mean a
             lower but still double-digit growth rate in 2011. Factors such as rising PC penetration, economic growth,
             a range of government ICT initiatives and a drive to develop Vietnam's domestic IT industry will help to
             sustain continued expansion going forward.


             An ambitious government IT plan for 2010-2020 should shape many segments of the Vietnamese IT
             market, while Vietnam's improving information and communication technology (ICT) infrastructure will
             also drive growth. Vietnam's gradual integration into global trade networks such as the Association of
             Southeast Asian Nations (ASEAN) and the WTO has helped to bring down prices and increase
             opportunities for importers.


             The Vietnamese IT market is estimated to grow at a CAGR of 16% over the 2011-2015 period. The
             addressable domestic market for IT products and services is projected by BMI to reach US$4.1bn by
             2015. An increasing number of Vietnamese companies have shown an interest in cloud services.


Industry Developments

             In November 2010, the government pledged to invest US$8.5bn in the ICT sector over the next ten years.
             Meanwhile, the government's campaign to attract more foreign IT companies to invest in Vietnam
             received a boost with the announcement that Hewlett-Packard (HP) would set up a wholly-owned firm
             in Vietnam in early 2011. The government hopes to attract US$5bn of foreign investment into the IT
             industry by 2015.


             The Vietnamese government has unveiled ambitious plans for developing the country's IT industry. The
             plans, which state a revenues target for the sector of between US$17bn and US$19bn in the next five
             years, include major investments to develop production centres in software, services, hardware and
             electronics. Revenues are projected at US$2bn from software sales, US$12.5bn from hardware, US$2bn
             from digital content, and US$1.5bn from IT services.


             In 2010 the Ministry of Education and Training continued to implement a national programme to supply
             1mn affordable computers to Vietnamese schools by 2011. In January 2010, the Vietnam Post and
             Telecoms Group (VNPT) in Ho Chi Minh City launched a local version of the Computers for Education
             programme, which will provide teachers and students in the city with low-priced laptops and DSL
             broadband connections.



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Competitive Landscape

             Vietnam's largest software company, FPT has unveiled a major new restructuring plan which will
             consolidate five technology subsidiaries in a search for higher growth. The company's five subsidiaries;
             FPT Information System; FPT Telecom Corp; FPT Software; FPT Online and FPT Trading Group; will
             be merged, with the company either buying out minority shareholders or facilitating a share swap. In May
             2011, FPT also announced a cloud-computing alliance with Microsoft.


             In 2010, several Vietnamese enterprises announced plans to produce tablet PCs, and the first local
             product, from Hanel, was launched in Vietnam in October 2010. However, local manufacturers are likely
             to find it hard to compete with the iPad and rival products from other vendors, such as Samsung with its
             Galaxy Tab.


             Taiwanese PC vendor Asus has launched a new partnership with local company FTP Distribution which
             has a nationwide network of 400 dealers. FTP, a member of FTP Trading Group, will distribute Asus
             products, with Asus planning to introduce the full range of its new products in Vietnam during
             Q211. Asus also plans to open between new service centres in Vietnam in 2011.


Computer Sales

             BMI projects that sales in Vietnam's computer hardware market will be worth around US$1.6bn in 2011,
             up from an estimated US$1.4bn in 2010. The main growth driver will be affordable notebooks. BMI
             projects growth of around 11% in the Vietnam PC market in 2011, after the market showed signs of a
             rebound in 2010.


             PC penetration in Vietnam was estimated by BMI at around 15% in 2010. Notebooks are owned by an
             estimated 7% of the Vietnamese population. This points to significant growth potential for the local PC
             market, with the most potential being in rural areas. Currently Hanoi and Ho Chi Minh City are thought to
             account for in the region of 85% of notebook sales.


             Software
             In 2011, Vietnam software sales are projected by BMI to grow to US$184mn, and software CAGR for
             2011-2015 should be in the region of 20%. Software spending comprises around 9% of total Vietnamese
             IT spending currently.


             The market is expected to reach a value of around US$378mn by 2015, with steady growth in demand for
             licensed software from government, enterprise and household segments. Vietnam's software market is
             developing, despite the problem of software piracy, which still accounts for around 85% of software,
             compared with 76% in neighbour Thailand.



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                                  Vietnam Information Technology Report Q3 2011



             Services
             Vietnamese IT services spending is forecast to reach around US$388mn in 2011, up from US$342mn in
             2010. The market showed signs of stabilisation in 2010 and sectoral CAGR is projected at 12% over the
             forecast period, as the market approaches US$726mn by 2015.


             IT services now accounts for around 18% of total Vietnam IT spending. Over the past few years, the size
             of IT services deals has increased in key IT spending verticals. Growing demand for digital infrastructure
             projects in segments such as banking, telecoms, energy and government has attracted global IT services
             providers to invest more in Vietnam.


             E-Readiness
             Vietnam's fixed-line infrastructure is unreliable and offers poor coverage. However, Vietnam has an
             exceptionally high penetration rate in the mobile market, reaching 126% at the end of 2009, and
             registering around 110.8mn subscribers. This has been aided by mobile network operators reducing tariffs
             to encourage growth of their respective subscriber bases, as well as increased investment in the expansion
             of infrastructure to areas outside major towns and cities. Demand for mobile broadband has also been
             accelerated by the changing lifestyles of consumers, who use the service for accessing the internet for
             work and leisure.




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SWOT Analysis

Vietnam IT Sector SWOT


Strengths                he domestic IT market is in a rapid growth phase, with trade liberalisation and growing
                         affordability driving projected double-digit growth of notebook computers.
                         Expanding ICT infrastructure and internet penetration will continue to drive demand for
                         IT products and services.
                         Vietnam's gradual integration into the global trade network via its accession into trade
                         organisations such as ASEAN and WTO, as well as bilateral agreements with Japan
                         and China.


Weaknesses               IT spend per capita much lower than in neighbouring Thailand, reflecting a much
                         lower GDP and GDP per capita.
                         Low levels of access to credit and budgets restrain spending by SMEs.
                         Highly cost-sensitive market, with 75% of software provided by lower-cost local
                         software vendors.
                         High level of software piracy at 85%, although it has fallen in the last few years.


Opportunities            High PC market growth potential particular in rural areas due to overall low PC
                         penetration rate of 15%.
                         Vast and relatively under-penetrated rural market presents a significant growth
                         opportunity as the government rolls out measures to boost rural connectivity and
                         incomes.
                         National IT Plan will drive spending on IT utilisation in areas like e-government, e-
                         taxation and education.
                         SMEs have much potential to increase spending on basic solutions, including
                         customer relationship management and security.
                         One Teacher-One Computer programme aims to deliver 1mn computers to schools by
                         2011.
                         The banking and finance sector is a promising area for database software and one
                         where foreign companies have done well.
                         Banking and finance, oil and gas, aviation and telecoms are projected to be some of
                         the biggest opportunities for multinational vendors.
                         Tax agencies at all levels of administration are looking to increase the efficiency of tax
                         collection.
                         The government's drive to create a significant IT services industry over the next 15-20
                         years is expected to be a significant factor shaping the IT market.


Threats                  Continued depreciation of the dong against the US dollar would increase the pressure
                         on Vietnamese distributors of foreign IT goods.
                         Falling prices may further undermine margins and profitability after steep discounting
                         in 2009.
                         The implementation of the China-ASEAN free trade agreement means that
                         established multinationals will face a growing challenge from low-cost Chinese
                         vendors in the Vietnamese market.




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Vietnam Telecoms SWOT


Strengths             Fixed-line penetration levels and internet user rates are high in major urban centres
                      such as Ho Chi Minh City, Hanoi, Danang and Haiphong.
                      Competition exists in fixed-line and internet access markets; VNPT faces competition
                      from several other state-owned companies and two privately-owned operators.
                      High levels of literacy and other demographic factors bode well for strong and
                      continued demand for wireline services over the next few years.

Weaknesses            Vietnam's fixed-line and internet access markets are both dominated by state-
                      controlled operators, VNPT and Viettel.
                      Although alternative broadband infrastructures are currently being explored,
                      broadband growth continues to be dependent on DSL.
                      Low fixed-line penetration rates in rural regions limit the scope for DSL broadband
                      growth.
                      Internet user growth is slowing, despite the limited access to internet infrastructure in
                      much of rural Vietnam.
                      Broadband tariffs remain high, creating a barrier for low-income subscribers to access.


Opportunities         The privatisation of VNPT could help to bring about increased investment revenues
                      and the arrival of new skills.
                      On a national level, broadband penetration rates remain low; this means that the
                      sector has considerable growth potential.
                      VNPT plans to invest US$1bn in 2009, in order to upgrade its broadband networks
                      and expand its international internet bandwidth.
                      Significant opportunities exist to develop alternative broadband technologies, including
                      WiMAX and fibre.
                      WiMAX services are currently being trialled with a view to licensing a number of
                      WiMAX service providers in the near future; WiMAX internet services have the
                      potential to raise the level of internet user penetration in rural parts of Vietnam.
                      Draft Bill of Law on Telecommunication has been put forward for discussion at the
                      National Assembly Steering Committee. If passed, the bill will allow private companies
                      to build network infrastructure for the first time and will open up the telecoms market to
                      foreign investors.


Threats               Fixed-line sector may enter a period of decline, with potentially negative
                      consequences for ADSL growth.
                      As the market for mobile data services grows, this could have potentially negative
                      consequences for the growth of fixed broadband services.
                      Slower economic growth in 2009 and 2010 could undermine wireline investment and
                      expansion plans.




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Vietnam Political SWOT


Strengths                The Communist Party of Vietnam remains committed to market-oriented reforms and
                         we do not expect major shifts in policy direction over the next five years. The one-
                         party system is generally conducive to short-term political stability.
                         Relations with the US have witnessed a marked improvement, and Washington sees
                         Hanoi as a potential geopolitical ally in South East Asia.

Weaknesses               Corruption among government officials poses a major threat to the legitimacy of the
                         ruling Communist Party.
                         There is increasing (albeit still limited) public dissatisfaction with the leadership's tight
                         control over political dissent.


Opportunities            The government recognises the threat that corruption poses to its legitimacy, and has
                         acted to clamp down on graft among party officials.
                         Vietnam has allowed legislators to become more vocal in criticising government
                         policies. This is opening up opportunities for more checks and balances within the
                         one-party system.


Threats                  Macroeconomic instabilities in 2010 and 2011 are likely to weigh on public acceptance
                         of the one-party system, and street demonstrations to protest economic conditions
                         could develop into a full-on challenge of undemocractic rule.
                         Although strong domestic control will ensure little change to Vietnam's political scene
                         in the next few years, over the longer term, the one-party-state will probably be
                         unsustainable.
                         Relations with China have deteriorated over recent years due to Beijing's more
                         assertive stance over disputed islands in the South China Sea and domestic criticism
                         of a large Chinese investment into a bauxite mining project in the central highlands,
                         which could potentially cause widescale environmental damage.




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Vietnam Economic SWOT


Strengths             Vietnam has been one of the fastest-growing economies in Asia in recent years, with
                      GDP growth averaging 7.2% annually between 2000 and 2010.
                      The economic boom has lifted many Vietnamese out of poverty, with the official
                      poverty rate in the country falling from 58% in 1993 to 20% in 2004.

Weaknesses            Vietnam still suffers from substantial trade, current account and fiscal deficits, leaving
                      the economy vulnerable to global economic uncertainties in 2011. The fiscal deficit is
                      dominated by substantial spending on social subsidies that could be difficult to
                      withdraw.
                      The heavily managed and weak dong currency reduces incentives to improve quality
                      of exports, and also serves to keep import costs high, thus contributing to inflationary
                      pressures.


Opportunities         WTO membership has given Vietnam access to both foreign markets and capital,
                      while making Vietnamese enterprises stronger through increased competition.
                      The government will, in spite of the current macroeconomic woes, continue to move
                      forward with market reforms, including privatisation of state-owned enterprises, and
                      liberalising the banking sector.
                      Urbanisation will continue to be a long-term growth driver. The UN forecasts the urban
                      population to rise from 29% of the population to more than 50% by the early 2040s.


Threats               Inflation and deficit concerns have caused some investors to re-assess their hitherto
                      upbeat view of Vietnam. If the government focuses too much on stimulating growth
                      and fails to root out inflationary pressure, it risks prolonging macroeconomic instability,
                      which could lead to a potential crisis.
                      Prolonged macroeconomic instability could prompt the authorities to put reforms on
                      hold, as they struggle to stabilise the economy.




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Vietnam Business Environment SWOT


Strengths             Vietnam has a large, skilled and low-cost workforce that has made the country
                      attractive to foreign investors.
                      Vietnam's location – its proximity to China and South East Asia, and its good sea links
                      – makes it a good base for foreign companies to export to the rest of Asia, and
                      beyond.


Weaknesses            Vietnam's infrastructure is still weak. Roads, railways and ports are inadequate to
                      cope with the country's economic growth and links with the outside world.
                      Vietnam remains one of the world's most corrupt countries. Its score in Transparency
                      International's 2010 Corruption Perceptions Index was 2.7, placing it in 22nd place in
                      the Asia Pacific region.


Opportunities         Vietnam is increasingly attracting investment from key Asian economies, such as
                      Japan, South Korea and Taiwan. This offers the possibility of the transfer of high-tech
                      skills and knowhow.
                      Vietnam is pressing ahead with the privatisation of state-owned enterprises and the
                      liberalisation of the banking sector. This should offer foreign investors new entry
                      points.


Threats               Ongoing trade disputes with the US, and the general threat of American protectionism,
                      which will remain a concern.
                      Labour unrest remains a lingering threat. A failure by the authorities to boost skills
                      levels could leave Vietnam a second-rate economy for an indefinite period.




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IT Business Environment Ratings
Asia

Table: Regional IT Business Environment Ratings


                      Limits Of Potential                  Risks To Realisation
                                 Return                             Of Returns

                                  Country                     Market      Country                     IT BE     Regional
                   IT Market     Structure        Limits       Risks         Risk        Risks       Rating     Ranking

Australia                  56          100           71           80           71           75          72.2              1

Singapore                  53          100           69           70           85           79          72.1              2

Hong Kong                  48           95           65           70           87           80          69.4              3

South Korea                52           75           60           75           71           73          63.9              4

Malaysia                   41           50           44           35           77           60          49.1              5

China                      52           35           46           35           68           55          48.7              6

Vietnam                    36           60           44           35           44           41          43.1              7

Philippines                37           45           40           43           52           48          42.2              8

India                      49           15           37           45           56           51          41.4              9

Thailand                   40           20           33           35           73           58          40.4              10

Indonesia                  38           35           37           35           52           45          39.1              11

Sri Lanka                  30           10           23           35           44           41          28.3              12


Scores out of 100, with 100 highest. The IT BE Rating is the principal rating. It comprises two sub-ratings, 'Limits Of
Potential Returns' and 'Risks To Realisation Of Returns', which have a 70% and 30% weighting respectively. In turn,
the 'Limits' rating comprises Market and Country Structure, which have a 70% and 30% weighting respectively and are
based upon growth/size/maturity/govt policy of IT industry (Market) and the broader economic/socio-demographic
environment (Country). The 'Risks' rating comprises Market Risks and Country Risk, which have a 40% and 60%
weighting respectively and are based on a subjective evaluation of industry regulatory and IP regulations (Market) and
the industry's broader Country Risk exposure (Country), which is based on BMI's proprietary Country Risk ratings. The
ratings structure is aligned across the 14 industries for which BMI provides Business Environment Ratings
methodology and is designed to enable clients to consider each rating individually or as a composite, which the choice
depending on their exposure to the industry in each particular state. For a list of the data/indicators used, please
consult the appendix at the back of the report. Source: BMI




              BMI's Asia IT Business Environment Ratings (BER) compare the potential of a selection of the region's
              markets over our forecast period through to 2015. Our Q311 ratings reflect our consideration of the
              political and economic risks, as well as risks associated specifically with IT intellectual property (IP)
              rights protection and the implementation of state spending projects.




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             There are no changes in country rankings in our updated Asia Q311 BER ratings. Across the Asia Pacific
             region in 2010, global economic recovery and improved consumer confidence resulted in improved
             trading conditions for IT vendors, and a stronger than expected rebound in PC sales.


             Australia therefore retains its top regional rating this quarter. One area of opportunity in 2011 is growing
             demand for cloud computing services. A wide range of leading Australian private and public sector
             organisations have launched cloud initiatives, including many of the country's leading banks. Meanwhile,
             the government has unveiled a six-year cloud computing strategy.


             IT verticals such as government, telecoms, healthcare and banking should continue to supply demand for
             implementation, consulting and managed services in future. The government's commitment to continue to
             implement the National Broadband Network project will drive the development of Australia's digital
             economy and feed demand for PCs.


             The smaller, but mature IT markets of Singapore and Hong Kong take second and third positions
             respectively in our ratings table, due primarily to their high Country Structure scores. Hong Kong and
             Singapore are expected to emerge as cloud computing hubs due to growing interest in cloud computing
             across the region.


             Key sectors of the Hong Kong economy such as financial services are investing in modernisation as Hong
             Kong strives to maintain its regional hub status in the face of competition from rivals such as Shanghai.
             Hong Kong also continues to offer IT investors opportunities associated with its growing links to the vast
             Chinese market.


             Singapore benefits from high broadband penetration and initiatives such as the government's ambitious
             Intelligent Nation 2015 plan, and the standard operating environment. Spending on IT services will be
             boosted by the continuing boom in IT-enabled services such as call centres and back-office financial
             services. Other promising sectors for IT services include healthcare, as the government launches a series
             of initiatives to develop health technology.


             On the downside, the continued restructuring of both economies, towards a more service-oriented model,
             may limit long-term growth prospects. However, this also brings opportunities in sectors such as financial
             services and banking. Businesses will probably remain cautious and value-focused over the short term.


             BMI forecasts that South Koreans will increasingly choose to spend money on IT products due to a
             substantial increase in disposable incomes. Consumers appear willing to upgrade their PCs, and there is
             also a trend for households to own more than one computer.




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             Meanwhile, South Korea's government is encouraging the utilisation of cloud computing by small
             businesses. New cloud computing offerings and increased competition in this segment are expected to
             fuel growing demand to utilise this technology. IT outsourcing is also expected to show a strong demand
             trajectory.


             Malaysia remains in fifth position in our Q311 regional ratings. IT spending growth will be driven by the
             government's drive for greater broadband penetration. It has set an optimistic target of 75% by 2015. The
             rollout of a high-speed broadband network will boost IT spending outside the Klang Valley. Other
             projected growth and PC market drivers include a rise in the PC penetration level from about 35%, tax
             exemptions for notebooks and growth in disposable incomes.


             There are increasingly attractive opportunities in the IT services area as the government implements
             measures to make Malaysia a growing regional services and outsourcing hub. Cloud computing will also
             be a growth area and the government has named cloud computing as one of its top 10 strategic technology
             priorities.


             In China, factors such as the vast potential rural market and a commitment to modernisation in sectors
             such as education, healthcare and manufacturing will help sustain market growth. Over the forecast
             period, government spending, an expansion of consumer credit and expectations about China's long-term
             economic growth will also drive IT investments.


             In the Chinese IT services segment, growing interest in cloud computing will be stimulated by the
             establishment of government pilot programmes in five cities. However, there are still market risks
             associated with IP rights protection in China, as well as piracy and a lack of business transparency.
             Pressure on hardware prices is also a risk in the current environment.


             Vietnamese IT demand, although with a rather smaller market than its leading neighbor to the north, is
             expected to have several long-term drivers. Vietnam's improving ICT infrastructure will facilitate the
             development of the nation's IT market in a country with just 15% PC penetration.


             Vietnamese government digital divide programmes to boost internet and digital utility in rural areas will
             help addressable market growth and open PC ownership to a growing number of rural inhabitants.
             Vietnam's gradual integration into global trade networks such as ASEAN and the WTO has helped reduce
             tariff barriers and prices, and has increased opportunities.


             In the Philippines, the IT market will be driven by the local IT and business process outsourcing (BPO)
             sector. The BPO industry, which accounts for around 30% of IT spending, continues to grow. The
             Philippines has a lower PC penetration than many other Asian countries and the IT market offers
             corresponding high growth potential over the forecast period.


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             However, the Philippines faces challenges such as labour shortages and rising wages. In the enterprise
             segment, surveys suggest that many enterprises including small and medium-sized enterprises (SMEs)
             plan to increase IT spending again in 2011.


             India also recorded impressive double-digit year-on-year (y-o-y) computer sales growth in 2010. The
             potential is clear, with less than 2% of the population owning a computer, which is about 20% of the level
             in China. It was estimated that 5% of India's 7.5mn SMEs could implement a technology solution in
             2010. Significant opportunities will be created by demand from Indian businesses and government
             agencies for help to utilise cloud computing.


             Realisation of India's growth potential depends on fundamental drivers such as increasing India's low
             computer penetration, rising incomes, falling computer prices and the government's ambitions to connect
             the country's vast rural areas to the rest of the world.


             The last three markets in our regional ratings have low scores due primarily to business environment
             factors, despite considerable growth potential. In Thailand, the fundamentals of growing affordability and
             low PC penetration should keep the market in positive territory during the forecast period. A number of
             factors should also support momentum, including the government's PC for Education programme and 3G
             mobile and WiMAX broadband service rollouts.


             Similarly, with ICT penetration of only about 20% and development restricted to richer areas such as
             Java, the Indonesian IT market has much growth potential. BMI expects the Indonesian market to be one
             of the fastest growing in the region over the five-year forecast period. The SME sector will drive demand
             for basic hardware and applications as enterprises focus on enhanced productivity.


             Sri Lanka's IT market has benefited from the restoration of peace and improvements in the security
             situation, which helped release pent-up demand for IT solutions. The country has felt the effects of
             instability over the years, from disruption of distribution channels and a flourishing grey market to the
             underdeveloped telecoms infrastructure. However, the Sri Lanka will feature on IT vendors' radars as one
             of the best potential growth prospects in South Asia. Computerisation has only started in government
             services. Major public and private sector organisations remain largely underpenetrated in terms of basic
             enterprise software.




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Asia IT Markets Overview
IT Penetration

             Across Asia, government ICT initiatives and                    Narrowband Penetration
             growing affordability will help to drive increases                  Per 100 Population
             in PC penetration during BMI's five-year forecast
             period. While some cities and regions stand out,
             there is an unbalanced pattern of regional
             development, with PC penetration in countries
             such as Singapore above 50%, while in other
             countries, such as Indonesia, it is below 5%.


             The two Asian leaders, China and India, embody
             the region's growth potential, as in both countries
             computer ownership remains the preserve of a
             minority. In China, PC penetration was only
                                                                   e/f = estimate/forecast. Source: BMI
             around 25% in 2010 - although it was far higher in
             cities such as Shanghai and Beijing and urban PC penetration is projected to pass 60% by 2015. In India,
             less than 5% of people own a computer. However, some 45% of the population is under 25, which
             provides a promising demographic context for increased PC ownership. PC penetration in Vietnam was
             estimated by BMI at around 15% in 2010. Notebooks are owned by an estimated 7% of the Vietnamese
             population, which points to significant growth
             potential for the local PC market.
                                                                             Broadband Penetration
             Lower prices will help to drive higher PC                           Per 100 Population
             penetration in developing markets. The average
             price of a PC in the Indian market has nearly
             halved over the past few years, and rising incomes
             and greater credit availability will continue to
             bring computers within the reach of lower-income
             demographics. Even in more mature markets, there
             is room for development, however, with official
             data suggesting that as many as 25% of Hong
             Kong households do not have a computer at home.


             Around the region, affordable computer
                                                                   e/f = estimate/forecast. Source: BMI
             programmes continue to find favour with
             governments. In China, a subsidised household electronics products initiative aimed at rural residents has


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             helped to boost PC sales in areas where penetration was low. In Australia in 2010, national and state
             governments continued to roll out new initiatives, with the Victoria government investing more than
             US$150mn in IT in schools.


             In Indonesia, PC penetration of around 2% could double by 2013 if government initiatives are followed
             through. The Indonesian government is also rolling out new e-learning initiatives, with a target of raising
             the current 1:3,200 ratio of PCs to students in public schools to 1:20. Meanwhile, in 2010, the Vietnamese
             government launched a programme entitled One Teacher-One Computer, which offered discounts on PCs
             for teachers and students.


             A similarly broad range is found with respect to internet penetration. The highest levels of internet
             penetration are found in Singapore, South Korea, Hong Kong and Australia, with estimated 2011
             penetration rates of 78.5%, 76.4% and 75.5% and 67.4% respectively. Singapore has by far the highest
             rate of broadband penetration, which was estimated at 160.2% in 2011. Meanwhile, the Philippines has
             the one of lowest levels of internet usage, with just 7.1% narrowband and 6.1% broadband penetration
             estimated in 2011.


             The fastest growth is expected in Indonesia, where internet penetration is projected to leap from 36% in
             2011 to 67.4% by 2015. India is now at above 28% internet penetration despite a lack of fixed-line
             infrastructure, and this should reach 36% by 2015. Steady growth is also projected for Sri Lanka, where
             penetration is projected to increase from 14.1% to 19.4% by 2015. Some 60.4% of Malaysians had
             internet access in 2010.


             Dial-up technology is still the dominant access method in many states. However, even in developing
             markets, the number of broadband subscribers continues to gain ground steadily. Broadband penetration
             has been boosted by growing numbers of mobile broadband users, as 3G mobile services are expanded
             across the region. In China, broadband penetration is on course to reach 33.1% by 2015. In India,
             penetration should increase sixfold to reach 9.4% by 2015 from around 1.5% currently, although this
             remains below government targets. Singapore will also see continued strong growth in broadband
             penetration, which is projected to reach 186% by 2015.


             Across the region, government programmes are an important driver of ICT penetration. The Chinese
             government has a five-year plan to make the internet available in every administrative village in central
             and eastern China and every township in the west. In Australia, the government's commitment to develop
             the National Broadband Network should further the development of Australia's digital economy.


             Meanwhile, the growth of Wi-Fi coverage will be one driver of notebook sales in places such as Hong
             Kong, where the government has committed another HKD200mn to the deployment of a Wi-Fi network
             covering more than 200 public venues.


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              IT Growth and Drivers
                                                                              2011e IT Market Sizes
             Across the region in 2011, IT spending should
                                                                                         US$mn
             benefit from improved economic circumstances
             and tenders, previously deferred as a result of the
             economic situation, although much will depend on
             business confidence. Strong fundamental demand
             drivers of IT spending mean that there will be
             continued opportunities. Key factors common to
             most markets include cheaper PCs and reform in
             sectors such as telecommunications and finance,
             as well as government initiatives.


             In some of the region's largest markets, such as
             China, lower-tier cities and towns will be among      e = estimate. Source: BMI

             the fastest growing segment of the IT market. BMI expects China's IT market growth to be driven by an
             expansion into western China and rural areas well as growing demand from small and medium-sized
             enterprises (SMEs). The Chinese IT market will also receive a boost in 2011 from a 50% increase in
             import tariffs on some electronics products, such
             as laptops.
                                                                                   IT Market Sizes
             In Thailand in 2011, demand will be bolstered by                   As % Of National GDPs


             market expansion in the relatively underpenetrated
             rural areas. SIS forecasts that market growth in
             upcountry areas will be 30% in 2011, double that
             forecast for the country as a whole. A similar
             situation pertains to India where in 2011 there are
             expected to be strong growth opportunities in
             smaller cities.


             The long-term potential of India's IT market is
             plain: less than 3% of people in India own a          e/f = estimate/forecast. Source: BMI
             computer (about one-fifth of the level in China),
             meaning particular potential in the lower-end product range. India's IT market appears to be positioned
             for strong growth thanks to an improving economy and consumer sentiment, and government support for
             modernisation in lagging sectors. Meanwhile, India's business process outsourcing industry is growing at
             around 40% per annum and will continue to generate opportunities for vendors of IT products and
             services.




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             The Philippines is one of the countries currently
                                                                         IT Markets Compound Growth
             benefiting from low-priced PC programmes
                                                                                   2011e-2015f (%)
             (PC4ALL), which provide opportunities for
             vendors to penetrate the low-income segments.
             Other regional computer sale drivers over the
             forecast period include education, lower prices, IP
             telephony, cheaper processors as well as notebook
             entertainment and wireless networking features.
             Meanwhile, in Indonesia, the basic demographics
             of rising computer penetration and growing
             affordability should drive growth. SMEs represent
             a growth opportunity, as currently only around
             20% of Indonesian SMEs are estimated to make
             use of IT. Compliance with government and             e/f = estimate/forecast. Source: BMI

             international regulations will be a driver in financial, manufacturing and other sectors.


             In more developed markets, such as Hong Kong and Singapore, robust retail sales led the way in early
             2010 as spending recorded positive growth following a contraction in 2009. In Hong Kong consumer
             spending is expected to remain strong in 2010, as evidenced by the positive early reception for Apple's
             iPad. IT market growth will be driven by government IT spending as well as cross-border trade and
             cooperation.


             The largest IT market in the region is, unsurprisingly, China, estimated at US$105.4bn in 2011, trailed
             distantly by Australia (US$20.8bn), India (US$19.7bn) and South Korea (US$17.8bn.) Singapore's IT
             market (including communications) is the largest as a proportion of national GDP (2.2%), followed by
             Hong Kong (2.1%). Thailand's IT market was affected last year by a number of exogenous events
             including floods in the north east of the country, and political unrest. However, in 2011 the country looks
             to be back on track.


             The fastest growing IT markets over the forecast period are projected to be India and Indonesia with
             2011-2015 compound growth of 109% and 91% respectively, driven by increasing PC penetration. Sri
             Lanka is third with the IT market growing by an estimated 89% over BMI's five-year forecast period,
             while China's total growth is estimated at a still healthy 70%.


Sectors And Verticals

             Regional IT markets remain hardware-centric, with hardware accounting for 25-74% of total spending in
             all markets in 2010. However, spending on software and services will grow faster. Notebook sales are
             growing much faster than the PC market as a whole with growth driven by falling prices and more
             features.

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             In mature markets such as Australia and Singapore, PC sales are dominated by replacement sales. In
             Australia, upgrades are estimated to account for at least 80% of business purchases and more than 50% in
             the case of households. More than 90% of Australian households now have a PC, but consumers have
             appeared willing to spend on upgrading their notebook computers and it is also becoming more popular to
             purchase a second household PC. Indeed, around 30% of households have more than one PC.


             Tablet sales will lead to a new PC market growth area, with triple-digit growth projected in many
             markets. In China it is estimated that tablets could account for around 6-7% of computer sales in 2011.
             However, partly thanks to the tablets surge, demand for netbooks has lost momentum in some markets.
             Sales, although initially promising, have sometimes fallen short of perhaps unrealistic expectations. In
             Australia, netbooks sales growth slowed from the first quarter of 2010, and this has continued into 2011.


             In less developed markets, demand from under-penetrated rural areas, affordable computer programmes
             and growing broadband penetration should generally drive growth. In China, as in much of emerging
             Asia, demand from smaller towns and rural areas where PC penetration is relatively low will provide the
             main source of growth. Another driver will be replacement of desktops with notebooks. SMEs will be one
             of the strong growth segments over the forecast period, with SME demand for servers and networking
             equipment a significant growth opportunity.


             Falling prices is another major driver, placing pressure on margins. As of the third quarter of 2010, the
             average price of a PC in China was estimated to have fallen to around US$600, considerably below the
             price level in developed markets. In India, the average price of a PC has nearly halved over the past few
             years, and rising incomes and greater credit availability will continue to bring computers within the reach
             of lower income demographics.


             In both emerging and more mature markets, the growing popularity of broadband will help to support
             computer sales. China Telecom is among regional telecoms companies to have rolled out PC bundling
             offers as part of its broadband packages. Meanwhile, broadband plans will also help to popularise tablets.
             At the end of 2010, Australian telecoms operators such as Telstra were competing to offer affordable
             tablets bundled with data services.


             Meanwhile, a wave of 3G launches across the region should also provide a stimulus to sales of notebooks,
             with Vodafone Hong Kong among service providers offering 3G/HSPA USB modems bundled with
             their 3G services. However, netbooks and notebooks face competition from other form factors such as
             smartphones from Palm, RIM, Apple and other vendors, and tablet notebooks, spearheaded by Apple's
             iPad,


             Due in part to high levels of piracy, software's share of IT spending is relatively low, ranging from 9-25%
             among countries covered by BMI. Efforts are being made to tackle the issue of piracy, but despite


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             government crackdowns in China and the Philippines, software piracy remains above 70% in most of
             emerging Asia.


             In 2011, sales of Microsoft's Windows 7 operating system and new Intel core technology retain the
             potential to help trigger hardware upgrades, although much will depend on business confidence.
             Hundreds of large enterprises and thousands of small enterprises in China have already started migrating
             to Windows 7, and this process is expected to continue in 2011.


             Across the region there is a growing trend for smaller companies to seek greater efficiency by using IT to
             improve productivity and reduce costs (including labour costs). As Asian companies have become more
             integrated into the global supply chain, their multinational business partners often encourage them to
             install backoffice systems to meet efficiency requirements.


             In general, enterprise resource planning (ERP) and other e-business products still dominate the enterprise
             software market, but vendors are also looking to other areas such as customer relationship management
             (CRM) and business intelligence, where faster growth is possible. Although the market remains relatively
             small, more companies are looking at computing solutions such as Software-as-a-Service (SaaS). Cloud
             computing business models such as SaaS offer smaller businesses a cost-effective way to deliver
             applications such as payroll, tax-return processing and recruitment.


             The hosted application model may already account for between one-fifth and one-quarter of Chinese
             software revenues and SaaS has also enjoyed steady growth in the Hong Kong market over the past few
             years. Improved broadband infrastructure will assist the popularisation of the rented software model in
             markets such as Indonesia. Meanwhile, around one-third of Australian organisations already use some
             cloud computing.


             New platforms and services in the telecoms field is a driver for that key IT spending segment, where an
             industry restructuring with the advent of 3G mobile services has led to more competition. Meanwhile,
             expanding technology adoption in the logistics industry and public transport will be a source of IT
             services projects. Sectors such as hospitals and real estate will also provide opportunities.


             The IT services segment accounts for 17-40% of spending in the Asian markets covered by BMI. The
             global economic slowdown and credit tightening had an impact on projects in some verticals, but in 2010,
             a brightening business climate should mean more opportunities in key IT-spending verticals such as
             Financial Services, Telecoms, Government, Healthcare and Logistics.


             Government spending will account for a larger share of spending in many markets. In China, government
             stimulus packages have helped to drive IT-related investments, while in Singapore government ICT




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             projects such as SOE2 provide significant opportunities. Meanwhile, the Hong Kong government's
             Digital 21 initiative will continue to generate spending.


             Regionally, hardware deployment services remain the largest IT services category, with other
             fundamental services including system integration, support systems, training, professional services,
             outsourcing and internet services. Main spenders across the region include banks and financial institutions
             as well as governments. Even in emerging markets such as India, IT vendors are having to pay more
             attention to value-added services such as technical support and product troubleshooting, or basic IT and
             hardware consulting.


             In many countries, the number and size of local outsourcing deals are increasing. Outsourcing could
             account for as much as 30% of China's IT services spending by 2013, while in India there have been some
             large contracts such as that awarded by Idea Cellular to IBM. Singapore and Hong Kong have both seen
             a trend towards larger outsourcing projects in the public and private sectors.


                               Market Structure (% Of Total IT Market)
                           2011e                                                    2015f




     e/f = estimate/forecast. Source: BMI




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Vietnam Market Overview
Government authority                   Ministry of Information and Communications (MIC)

Minister                               Le Doan Hop


Government Authority

             The Ministry of Information and Communications (MIC) is the main Vietnamese policymaking and
             regulatory body in the fields of IT, although its brief also covers a number of other areas such as
             telecommunications, broadcasting and publishing.


             The MIC's major functions include proposing and drafting laws, regulations and development plans
             related to IT and other policy areas. The current national framework for IT is the Strategy for IT
             Development, which was approved in 2005 and covers the 2010-2020 period.


Background

             The Vietnamese IT market, including computer hardware, packaged software and IT services, was valued
             at US$1.9bn in 2010. Vietnam IT spend per capita, at around US$22 in 2011, is considerably lower than
             the US$178 estimated for ASEAN neighbour Thailand. However, IT spend per capita is expected to grow
             to US$42 by 2015.


             Computer hardware, including desktops, notebooks, and accessories, is the largest IT market segment in
             Vietnam, accounting for around 73% of spending in 2010. Packaged software was valued at US$159mn
             that year, equivalent to around 9% of spending. IT services and outsourcing comprised 18% of spending.


             Tariff reform, expanding internet infrastructure, a growing economy and government programmes will all
             play a part in driving Vietnamese IT market growth over our five-year forecast period. Vietnam has a
             relatively good IT and telecommunications infrastructure, with particularly high mobile telecoms
             penetration. However, with PC penetration at just 15%, there is still a large portion of the population that
             do not participate in the digital society and are unable to afford the latest IT products.


             The household sector, which accounts for only around 10% of the IT market currently, should increase its
             share by 2015. The country's vast, under-penetrated rural market offers the most PC market growth
             potential, with Hanoi and Ho Chi Minh City accounting for most sales currently, also presents a
             significant growth opportunity as the government rolls out measures to boost rural incomes.


             The government sector is a key segment of the Vietnamese IT market and comprises about 30% of
             national IT spending. Public IT spending by around 7,000 government organisations at national,


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             provincial and municipal levels will provide important opportunities to vendors. A number of
             programmes exist to increase IT utilisation in areas like e-government, e-taxation and education. The
             national IT plan has regional components, focused on northern, eastern and southern regions.


             The private sector accounts for around 60% of IT demand and both domestic and foreign enterprises are
             investing in IT to boost performance. Large corporations are more likely to buy software from top-tier
             vendors, but SMEs account for the majority of Vietnam's 400,000 enterprises and are increasingly a target
             for multinationals. There is a lot of potential for Vietnamese enterprises of all sizes to increase spending
             on basic solutions, including customer relationship management (CRM) and security.


             The Vietnamese IT market remains constrained by high levels of grey market activity, and particularly by
             software piracy, which accounts for around 85% of installed software. However, the rate has come down
             from 95% in the last two years due to a more proactive government approach to the problem.


             ICT Sector
             The ICT sector is a key growth priority for the Vietnamese government, which has a plan to grow it. The
             value of the ICT sector was put by government figures at around 330bn Dong (US$16.5bn) in 2010, but
             around two-thirds of those revenues were telecoms related. Hardware sales were estimated at around
             US$7bn, while revenues from software and digital media development were put at US$2bn. The total of
             around US$9bn represented growth on an equivalent figures of around US$6.6bn in 2009. Electronics
             companies in Vietnam focus mainly on assembly, with value-added contributing only about 10% of
             revenues. Vietnam has around 150 software companies, many of which are focused on export markets.


             In 2009, the government set an ambitious target of 14% annual growth for the ICT sector, with total
             turnover to reach US$50bn by 2014. US$14bn is to come from hardware and US$5bn from software.
             Telecommunications is projected to account for half the total, or US$25bn.


Hardware

             BMI projects that sales in Vietnam's computer hardware market will be worth around US$1.6bn in 2011,
             up from an estimated US$1.4bn in 2010. The main growth driver will be affordable notebooks. BMI
             projects growth of around 11% in the Vietnam PC market this year, less than the 17% estimated in 2010
             when the market bounced back from the effects of the economic slowdown.


             In 2010, overall PC sales were reported to have achieved double-digit growth, compared with 2009. The
             growth was driven mainly by imported laptops, with shipments up by around one-third in H110, both
             sequentially and y-o-y. Desktop sales, however, remained in negative growth territory. A return to growth
             in Q210 followed a disappointing first quarter of 2010, when notebook sales were slower than expected.
             The relatively sluggish sales were attributed in part to price cuts in 2009. These meant that traditional
             Lunar New Year holiday season price discounting had less appeal to consumers than previously.

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             Going into H210, growth received a boost in August with back-to-school sales, and summer retail
             promotions. Sales of PCs picked up as new vendors entered the market while others rolled out new
             models, allowing for double-digit growth for FY10. In 2011, public sector procurements across a wide
             range of sectors, including education, healthcare and transport, and growing demand from businesses in
             rural areas, will help maintain momentum.


             However, a number of factors could potentially act as a check on the PC market, including government
             cutbacks and continued caution in the business segment, despite growing awareness of the strategic value
             of IT investments. The depreciation of the dong has also restrained demand by leading to higher prices for
             imported laptops. Vendors reported in 2010 that the number of first-time buyers in the market
             was relatively limited, with most sales coming from purchases of typically lower-priced second
             computers.


             PC penetration in Vietnam was estimated by BMI at around 15% in 2010. Notebooks are owned by an
             estimated 7% of the Vietnamese population, which points to significant growth potential for the local PC
             market, with the most potential being in rural areas. Currently, Hanoi and Ho Chi Minh City are thought
             to account for around 85% of notebook sales. The spread of fixed and mobile broadband services will
             spur purchases of mobile PCs as connectivity devices. As elsewhere, telecoms operators such as Viettel
             are emerging as significant distribution channels for notebooks as vendors seek tie-ups.


             Going forward, government programmes are expected to make a significant contribution to computer
             sales. In August 2009, the Vietnamese government announced a national programme to supply 1mn
             computers at favourable prices to Vietnamese schools by 2011. Multinational IT vendors such as Acer,
             Intel and Microsoft were all participating in the programme. Desktops will retail under the programme at
             around US$161, or about half the usual price. The computers will come loaded with educational software
             and with broadband connections.


             The programme received reinforcement with the launch in Ho Chi Minh City in January 2010 of a
             programme entitled One Teacher-One Computer. The programme, which has support from the VNPT and
             the Ministry of Education and Training, will provide laptops at a price that is VND800,000 below the
             market price. Discounts of up to 80% for schools and 30% for teachers will also be offered on VNPT's
             broadband service packages.


             The main driver of sales is notebooks, for which the addressable market was estimated at more than 1mn
             units in 2010. Vendors and retailers reported double-digit growth for notebooks in the first half of 2010.
             Notebooks were responsible for around 40% of PC sales, but this share should pass 50% within the
             forecast period. In particular, LCD-screen notebooks are forecast to grow at an almost triple-digit rate
             over the next year. Vendors are promoting small form factor netbooks, but, this segment will face strong




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             competition from low-end notebooks with more features, as well as from smartphones, tablet notebooks,
             and specialist devices such as e-readers.


             In 2010, several Vietnamese enterprises announced plans to tablet PCs, and the first such product, from
             Hanel, was introduced on the market in October 2010. Tablets are being designed to appeal to consumers
             who find a smartphone inconvenient for consuming video media or surfing the web, but for whom a
             netbook is still too big or heavy. Tablets are generally significantly more expensive than smartphones but,
             despite a previous mixed record with this form factor, are seen as a growth area in 2011.


             However, local products are expected to find it hard to compete in this segment with tablets from
             multinational brands, like Apple's iPad, which enjoyed growing recognition in Vietnam in 2010. Other
             vendors, such as Samsung with its Galaxy Tab, are expected to follow Apple in releasing tablet devices,
             which have a form factor between the size of a smartphone and a netbook.


Software

             In 2011, Vietnam software sales are projected by BMI to grow to US$184mn, and software CAGR for
             2011-2015 should be in the region of 20%. Software spending comprises around 9% of total Vietnamese
             IT spending currently. The market is expected to reach a value of around US$378mn by 2015, with steady
             growth in demand for licensed software from government, enterprise and household segments.


             Vietnam's software market is developing, despite the problem of software piracy, which still accounts for
             around 83% of software, compared with around 76% in neighbouring Thailand. While high, the 83% rate
             represented a drop in 2010 of 2% from 85% in 2009, and 95% as recently as 2007. Th Vietnamese
             government has gradually taken a tougher stance, with the problem is more one of enforcement rather
             than a lack of legal provisions.


             In November 2011 the government provided a boost to legal software usage by signing an extension of a
             deal with Microsoft to purchase licensed software for government organisations. The original 2007
             agreement had covered all 63 provincial authorities, 24 ministries and enterprises where the state has a
             stake of more than 50%.


             In the past year, the government has moved to tighten enforcement of copyright regulations. Decree
             47.2007.NP-CP, which became effective in June 2009, allows for a penalty of up to VND500mn (around
             US$28,000) for instances of software piracy. In April 2010, it was announced that Bach Khoa Internet
             Security Centre (or BKIS) and Lac Viet Computer Joint Stock Co had become the first Vietnamese
             firms to join the Business Software Alliance, a global software industry association that focuses on
             copyright issues.




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             The Vietnamese software market remains highly cost-sensitive, with around 75% of the market served by
             lower-cost local software vendors. Local software dominates the market for government and SME
             segments. However, larger Vietnamese companies are more likely to buy higher-priced software from
             multinationals, which have around 25% of the market. Vietnamese customers are demanding a higher
             level of support for software compared with a few years before.


             Growing PC penetration, as well as new technologies and business models including 3G mobile and
             WiMAX, and industry trends such as software-as-a-service (SaaS) and open source will provide areas of
             Vietnamese software market growth going forward. Most demand remains for on-premises subscription
             models, due to the greater perceived security and degree of control. However, as internet infrastructure
             improves in Vietnam, there should be more demand for alternative models such as SaaS and other cloud
             computing services.


             In 2011, migrations to Microsoft's new Windows 7 operating system should continue to have a positive
             impact on software revenues, although much will depend on consumer and business confidence.
             Microsoft officially introduced Windows 7 in Vietnam in early November 2009, with the programme
             being installed in PCs sold at leading electronics distributors such as Nguyen Kim, Tran Anh, Phong
             Vu and Dang Khoa. Microsoft will introduce a Vietnamese version of Windows Live and has announced
             a list of Vietnamese software programmes that are compatible with Windows 7 including Vietnamese
             font programmes, dictionaries and accounts software. There should also be a boost from systems
             upgrades previously delayed as a result of the economic situation.


             2010 saw a pick-up in demand for software with investments in sectors such as government, banking,
             telecoms and real estate. Some vendors and distributors saw a slowdown in 2009 due to global economic
             headwinds. The economic downturn may have added to the forces driving interest in open-source
             software due to its perceived lower cost and access to codes. The economic downturn has led businesses
             and customers to look more closely at open-office-type open-source software, as well as free services
             such as Google Docs, which are funded by advertising. Once again, a key issue and precondition for the
             more widespread adoption of open source will be the development of a support infrastructure.


             There is still a lot of potential for Vietnamese enterprises to increase spending on basic solutions,
             including CRM and security. According to estimates by the Ho Chi Minh Computer Association, the
             local market for ERP software was forecast to grow to VND700bn (US$46.3mn) in 2010, from
             VND700bn (US$46.3mn) in 2010. Government support for ICT development should provide a
             framework for growing utilisation of software in both public and private sectors.


             Over BMI's five-year forecast period to 2015, the Vietnamese enterprise software market should offer
             opportunities in many sectors. While management software remains at less than 10% of the total software
             market, basic applications such as enterprise resource planning (ERP) and accounting are finding


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             increasing popularity with the business market. There is a growing emphasis on cost efficiency as
             enterprises look to enhance productivity through automating these and other functions.


             An increasing number of Vietnamese companies have shown an interest in and willingness to use cloud
             services. The government has also got involved in encouraging the development of this business model in
             Vietnam, and in 2010 reached an agreement with Microsoft to cooperate on research. Given the current
             focus on many businesses of controlling costs, the pay-on-demand SaaS model should grow in popularity
             and spread beyond the initial core application area of CRM.


             Meanwhile, new cloud computing offerings and increased competition in this segment should fuel further
             demand from end-users to utilise this technology. In addition to cost savings, businesses will look to
             boost efficiency and increase flexibility of response to customer needs. Large businesses are most likely
             to put IT applications such as mail, phone systems and document management into the cloud. However,
             enterprise applications that require a high level of customisation, or which are subject to regulatory or
             data-sensitivity constraints, are more likely to stay on premise.


             The economic slowdown, and fall in demand for manufactured goods, represented a challenge for
             vendors as enterprises were tempted to focus more on the bottom line. Many companies, particularly
             trading companies, cut back on non-essential systems upgrades in the face of cash-flow shortages.
             Smaller enterprises will be a growth opportunity due to growing awareness. Companies are looking for
             software that will help boost performance and operational efficiency. Promising segments include discrete
             manufacturing, consumer packaged goods and hotels and property management.


             Security software such as anti-virus and internet security applications is one segment that should grow in
             line with increased awareness among Vietnamese organisations of the benefits. Vendors should also look
             to areas such as CRM and business intelligence, where faster growth is possible, due to untapped
             potential in key segments such as CRM, ERP and human resource management (HR). Data analytics and
             database software is likely to be a growing area and account for a larger portion of software budgets. The
             banking and finance sector is a promising area for database software and one where foreign companies
             have done well.


             The internet service provider (ISP) sector is a promising segment for software and services vendors, as a
             government campaign to boost internet usage is set to cause an increase in the number of ISPs. To date,
             only 17 ISPs have been licensed. ISPs are also expected to move towards offering more IT services and
             hosted software themselves. Web analytics is one promising area, as firms look to assess the effectiveness
             of their online presence and advertising in more detail.


             The government is a significant software-purchasing segment in Vietnam and accounts for about 30% of
             total IT spending. The 7,000 government agencies offer considerable opportunities at national provincial


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             and municipal levels. A particular area of opportunity is tax agencies of all administrative tiers as
             governments look to increase the efficiency of tax collection. Meanwhile, the Vietnamese government's
             drive to implement e-government will be another driver in this segment.


             Banking and finance, oil and gas, aviation and telecoms are forecast to be some of the biggest spending
             software segments over BMI's five-year forecast horizon and among the best opportunities for foreign
             vendors. These segments offer the most potential for customised solutions as well as off-the-shelf
             packaged software. Banks are looking to take their services to the next level in response to the demands
             of a rapidly growing economy, and are investing in more advanced and flexible platforms for core
             banking processes. The mid-sized Vietnam Asia Commercial Bank (VietA) was among those to
             implement a new core-banking solution in H110, having designated technology as a core pillar of its
             growth strategy.


             Spending opportunities in the finance segment will be driven by regulatory compliance, due to regulations
             such as Basel II, HIPPA and the Sarbanes-Oxley Act, as well as potential new regulations introduced in
             the wake of the global financial crisis. Mobile operators are investing in new OSS (operating support
             systems) to reduce costs and support delivery of new services.


Services

             Vietnamese IT services spending is forecast to reach around US$388mn in 2011, up from US$342mn in
             2010. The market showed signs of stabilisation in 2010 after the economic crisis had an impact in 2009,
             with projects being put on hold. Sectoral CAGR is projected at 12% over the forecast period, as the
             market approaches US$726mn by 2015.


             IT services now account for around 18% of total Vietnamese IT spending, and is forecast to be the fastest
             growing IT market segment. Over the past few years, the size of IT services deals has increased in key IT
             spending verticals. The government has launched a number of major projects in cities like Ho Chi-Minh
             City, Hanoi and Danang, which will boost public sector spending. Growing broadband penetration in
             rural and remote areas will also fuel the market's development.


             Growing demand for digital infrastructure projects in segments such as banking, telecoms, energy and
             government has attracted global IT services giants such as IBM to invest more in Vietnam. Large local
             organisations such as the Corporation for Financing and Promoting Technology (FPT) have also
             targeted this opportunity and announced plans to compete with established multinational vendors and
             offer high-quality outsourcing services.


             Vietnam suffers from a shortage of trained IT workers, however, with some estimating that Vietnam
             would need an additional 1mn IT engineers in order to achieve the government's ambitious targets for the



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             domestic software and IT services sector. Lack of language skills and patchy ICT infrastructure are other
             barriers, and this situation represent an opportunity for external service providers and trainers.


             The MIC said in 2010 that it would draft a decree to regulate operational requirements and procedures for
             firms providing IT services, and pointed to a lack of regulations currently for businesses providing IT
             services, consulting or security services. The draft decree is to focus on mapping out policies to help the
             IT industry grow in the future and was due by the end of 2010. Significantly for vendors, however, the
             decree was also to suggest measures to boost the usage of IT services in state-owned bodies.


             Measures to gradually eliminate firms that had been previously licensed to provide IT services but were
             for whatever reason not actually doing so will be included in the decree. According to the ministry,
             Vietnam has around 10,000 firms currently licensed to provide IT services. However, only one-third are
             operating.


             The three major IT services categories currently are be hardware deployment, hardware support and
             systems integration (SI). Much IT services work remains add-ons to hardware deployments, with local
             resellers of IT vendors such as Dell, HP and Oracle offering support and implementation.


             Although the provision of IT services is still typically built around hardware sales, the consulting element
             has been growing, along with a focus on return on investment. Enterprises increasingly seek external
             advice in prescribing an IT strategy, particularly for informatisation, networking and identifying vendors.
             ERP systems are a key focus and security is also a fast-growing area, with SI expanding into security
             consulting, implementation, support and training services, which require high expertise in networks and
             anti-virus applications.


             Meanwhile, outsourcing is a future growth area due to improving ICT infrastructure and international
             bandwidth as well as government targets for growth of the domestic IT services and software sector. The
             government's drive to create a significant IT services industry in Vietnam over the next 15-20 years is
             expected to be a significant factor shaping this opportunity. Vietnam hopes to leverage its competitive
             prices to claim a larger share of the global outsourcing market. According to market research firm
             Gartner, the number of companies embarking on outsourcing negotiations last year had increased to
             36%, up 10% over the previous year.


             One potential demand driver will be organisations looking for help with to utilise efficiencies from cloud
             computing such as SaaS and Infrastructure-as-a-Service. Particular areas of opportunity for cloud
             computing include banking, government and retailing as organisations in those fields look to enhance
             efficiency and save money on hardware investments.




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             More investment in local call centres will generate spending on IT hardware, software and services and be
             another source of opportunities for IT vendors. In 2010, Japanese company Moshi Moshi established
             MOCAP Vietnam Joint Stock Company, in partnership with a Vietnamese company, to provide call
             centre services for the Vietnamese market. MOCAP Vietnam was claimed to be the first outsourcing
             company established with Japanese backing in Vietnam. However, economic growth and rising spending
             power should attract new entrants to this segment going forward.




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Industry Developments

             New IT Plan
             The Vietnamese government has unveiled ambitious plans for developing the country's IT industry over
             the next five years. In November 2010, the government pledged to invest US$8.5bn in the ICT sector
             over the next 10 years.


             Meanwhile the government's campaign to attract more foreign IT companies to invest in Vietnam
             received a boost with the announcement that HP would set up a wholly-owned firm in Vietnam in early
             2011. The government hopes to attract US$5bn of foreign investment into the IT industry by 2015.


             The government's plans, which states a revenues target for the ICT sector of between US$17bn and
             US$19bn in the next five years, include major investments to develop production centres in software,
             services, hardware and electronics. Revenues are projected at US$2bn from software sales, US$12.5bn
             from hardware, US$2bn from digital content, and US$1.5bn from IT services.


             To achieve these targets, the government will drive the development of three production centres for
             software, services and digital content. These are respectively, Ho Chi MInh City, with projected revenues
             of US$3bn by 2015, Hanoi with US$1.8bn, and Danang with revenues of US$300mn. Meanwhile, three
             regions will be established in Hanoi, Hai Duong, Bac Ninh and Vinh Thien Hue provinces, with revenues
             targets of US$5bn, US$6bn, and US$700bn respectively, by 2015.


             The plan is currently a draft, produced by the Ministry of Information and Communications (MOIC) and
             must be submitted for government approval later this year. Other components of the plan include the
             creation of two hardware and electronics companies with average annual revenues of over US$2bn, and
             two software businesses with average revenues of more than US$200mn. Some 50,000 IT engineers are
             to be trained and become proficient in foreign languages.


             Government IT Strategy
             The government's Strategy for IT Development covers the 2010-2020 period and focuses on four major
             areas: enhancing IT application, developing the local IT industry, developing ICT infrastructure and
             developing IT HR. Key opportunities for IT vendors involve the development utilisation of IT
             applications. Major threads here include building and developing e-citizens, building e-government and e-
             business, as well as developing transactions and e-commerce.


             A number of specific IT plans have been developed, including one to modernise IT in government
             agencies, which was first approved in March 2009. In an April 2010 cabinet meeting, Prime Minister
             Nguyen Tan Dung ordered all members of his cabinet to use computers while working. New government




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             departments continue to go online in 2010, with the Ministry of Agriculture and Rural Development
             launching its e-portal in February 2010.


             Other government ICT projects include a plan to modernise the customs department in 2050-2010 and a
             Tax Administration Modernisation Plan for the 2008-2013 period. Other plans include developing the
             internet in rural communities (2008-2013) and developing the Vietnamese IT industry. The plans all have
             regional versions, focused on the central, south and northern regions.


             Government PC Programmes
             Vietnam's government ICT programmes are expected to boost PC sales. The Ministry of Education and
             Training are implementing a national programme to supply 1mn affordable computers to Vietnamese
             schools by 2011. The computers will come loaded with educational software and broadband connections.
             Multinational vendors Acer, Intel and Microsoft were participating in the programme. The desktops will
             sell for around US$161, about half the normal price.


             In January 2010, VNPT in Ho Chi Minh City launched a local version of the programme that will provide
             teachers and students in the city with low-priced laptops and DSL broadband connections. The discounts
             will be available through VNPT's 30 retail outlets and 200 agents in the city.


             Meanwhile, the roll-out of e-government infrastructure and services should also be a driver of PC sales
             during BMI's forecast period. In September 2009, the government launched an e-procurement pilot
             system. The system will be used by the Hanoi People's Committee, the Electricity Group of Vietnam
             and the Telecommunications Post Group in the initial trail phase from 2009-2011. In the second phase,
             for 2011-2015, the system will be gradually expanded to all public agencies and state-owned enterprises
             across all economic sectors.


             Lower Import Tariffs
             Import taxes on electronic products and components were lowered from January 2009, in accordance with
             the government's commitments under the AFTA, which Vietnam entered in 2006. As of January 2009,
             duty on complete build unit (CBU) electronic products from ASEAN countries was reduced to 0-5%.
             Eligible products must have an ASEAN content of at least 40%. Meanwhile, the average import tax on
             components was reduced from 9.41% to 6.36%.


             Vietnam's admission into the WTO in January 2007 provided additional momentum for market
             liberalisation. As Vietnam implements its WTO commitments, more than 300 IT products will enjoy a
             zero tariff in three to seven year's time, compared with previous tariffs of 2-8%. Meanwhile, another
             development set to reduce tariffs on some high-end electronic products was the Vietnam-Japan economic
             partnership agreement, which came into effect at the beginning of 2009. Under the agreement, import
             taxes on electronics goods imported directly from Japan have been reduced by 2.5-4.5%.


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             The lower tariffs for AV products such as TV sets, laptops and cameras will be in force in five to 10
             years, with the tax reductions gradually being lowered year by year. Impact is likely to be limited as only
             around 1% of Japanese electronics products sold on the Vietnamese market are directly imported from
             Japan. The majority are imported from Thailand, Malaysia and Singapore.


             The China-ASEAN free trade agreement offers both opportunities and challenges to vendors, especially
             given the growing presence of low-cost Chinese vendors in the Vietnamese market.


             Impact On Local Manufacturing
             The tariff reductions are likely to have a significant effect on the development of the local market and
             Vietnam's electronics industry. Foreign manufactures have already signalled their intentions to roll back
             or cease their assembly operations in Vietnam and to rely on imports from neighbouring ASEAN
             countries. Meanwhile, due to a lack of a large-scale parts and components industry in Vietnam, it is very
             difficult for local producers to compete on price with foreign manufacturers. Import taxes on components
             and other expenses continue to add to the problem.


             The government must decide how to react in this situation to promote the development of Vietnam's
             electronics industry which, after a history of about 20 years, is still mainly concerned with assembly.


             Government Electronics Industry Plan
             Within the framework of the government's IT plan, in early 2010 the Ministry of Industry and Trade was
             preparing a report that will outline a strategy to raise the technology level of Vietnam's manufacturing.
             The report will focus on six high-tech industries, with the first being electronics IT. The government
             reportedly plans to set a target of increasing investment in scientific research for these industries to 3.5-
             5.0% of revenues by 2015 and 8-10% by 2020. The current level is 0.2-0.3% of revenues. Meanwhile,
             investment in technological upgrades will be raised from the current 8-10% to 10-15% by 2015 and 20%
             by 2020.


             The government will also prioritise technology skills and training. The aim of the plan is to enable the
             high-tech sector to meet domestic demand while at the same time integrating Vietnam into the global
             electronics industry chain. The government has identified a number of barriers to high-tech development.
             These include slow progress in building high-tech industrial zones.


             Another government policy that may boost demand for computers is a two-year plan to enhance IT use by
             government agencies. The plan, outlined by Prime Minister Nguyen Tan Dung, requires basic public
             services such as information exchange, sending and receiving documents as well as making payments
             online to be provided to citizens and enterprises. By 2010, about 50% of directives from central,
             municipal and province governments are to be published online, according to the target.




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Industry Forecast Scenario

             The Vietnamese IT market is estimated to grow at a CAGR of 16% over the 2011-2015 period. The
             addressable domestic market for IT products and services is projected by BMI to reach US$2.2bn in 2011
             and US$3.9bn by 2015.


             The PC market bounced back in 2010, following a sluggish start to the year. Government and business IT
             spending remain subject to fiscal restraints, and the devaluation of the dong will also inhibit demand.
             Going forward, however, factors such as growing PC penetration, economic growth, a range of
             government ICT initiatives and ambitious plans to grow Vietnam's IT industry will help to underpin
             strong growth.


             2011 Outlook
             The overall Vietnamese IT market outlook for 2011 is one of a broad recovery that gathers pace in the
             second half of the year. The market is expected to grow around 12% in 2011, with a slight dip from the
             nearly 20% growth estimated in 2010, but still among the fastest growth rates in the region. The
             Vietnamese economy is expected to remain strong and drive growth in IT investments. The government's
             increasing focus on encouraging foreign investment in the tech sector will also create opportunities.


             PC sales bounced back to double-digit growth in 2010, although steep price discounting seemed to have
             weakened the attraction to consumers of traditional seasonal discounts. Retail PC sales are expected to
             remain strong as new vendors enter the market and others release new models. However, businesses and
             individual remain cautious, with much demand being for lower-priced second computers.


             PC subsidy programmes will support the PC market this year as the government continues to roll out the
             One Teacher-One Computer programme. The plan is to supply 1mn computers to Vietnamese schools by
             2011. A Ho Chi Minh City version of the programme was launched in January 2010. Other government
             ICT projects, in cities like Hanoi, Ho Chi Minh City and Danang, are also expected to


             Meanwhile, software revenues could receive a further boost from migrations to Microsoft's Windows 7
             operating system. Microsoft has worked on ensuring the programme's compatibility with popular
             Vietnamese software programmes in application areas like security and accounting. The Ho Chi Minh
             Computer Association forecast 20% growth for the domestic ERP software market in 2010.


             Drivers
             The Vietnamese IT market is expected to have a number of long-term drivers going forward. The
             government's ambitious plan for Vietnam's IT society and IT market covers the 2010-2020 period and
             should shape many segments of the IT market. Plans to modernise IT in government agencies and the



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             customs department, as well as the Tax Administration Modernization Plan for 2008-2013 represent
             opportunities for vendors of IT products and services.


             Vietnam's improving ICT infrastructure will also drive the development of the nation's IT market. In a
             country with just 15% PC penetration, government digital divide programmes to boost internet and digital
             utility in rural areas underpin addressable market growth and open PC ownership to a growing number of
             rural inhabitants. The government's 2008-2013 programme for developing the internet in rural
             communities is one example, as are various policies to boost rural incomes.


             Meanwhile broadband service providers will continue to expand penetration in rural and remote areas.
             The spread of fixed and mobile broadband services will spur purchases of mobile PCs as connectivity
             devices. As elsewhere, telecoms operators such as Viettel are emerging as significant distribution
             channels for notebooks as vendors seek tie-ups.


             Vietnam's gradual integration into global trade networks such as ASEAN and the WTO has helped to
             bring down tariff barriers and prices, as well as increase opportunities for importers. As of January 2009,
             duty on CBU electronic products from ASEAN countries was reduced to 0-5%. Meanwhile, the Vietnam-
             Japan economic partnership agreement, which came into effect at the start of 2009, lowered import taxes
             on electronics goods from Japan by 2.5-4.5%.


             Tariff reductions, particularly the ASEAN ones, contributed to lower prices and a boost to PC sales in
             2009. However, the new China-ASEAN free trade agreement offers both opportunities and challenges to
             vendors, given the growing presence of low-cost Chinese vendors in the Vietnamese market.


             Meanwhile, the government's drive to create a significant IT services industry over the next 15-20 years is
             expected to be a significant factor shaping the IT services market as Vietnam leverages its competitive
             prices to claim a larger share of the global outsourcing market. According to market research firm
             Gartner, the number of companies embarking on outsourcing negotiations had increased to 36%, up 10%
             over the previous year.


             Future growth will, however, depend on government progress on various business environment issues,
             including copyright protection. Further progress in combating software piracy, which still accounts for
             around 83% of installed software compared with 76% in neighbour Thailand, would support the growth
             of the software market. Although high, the piracy rate has fallen from around 95% in the last 4-5 years as
             the government has implemented stricter regulations.


             Segments
             Government remains a key IT spending segment and accounts for around 30% of total Vietnamese IT
             spending. After a deceleration in 2009, government IT spending was forecast to increase again in 2010. In


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             March 2010, the prime minister ordered all cabinet ministers to use computers and the government is
             working for a two-year plan to increase IT use in government. By the end of 2010, around 50% of
             government directives were to be published online, according to one government target. Such initiatives
             will drive IT spending by agencies at central, municipal and provincial government levels.


             The private sector comprises around 60% of IT spending. Larger Vietnamese companies remain more
             likely to buy higher-priced software from multinationals, which have only around 25% of the local
             software market. In the large corporate sector, growing demand for digital infrastructure projects in
             segments such as banking, telecoms and energy has attracted global IT services giants such as IBM to
             invest in Vietnam. Foreign investment, particularly by Japanese companies, in call centres and other areas
             will help to grow the market.


             Smaller enterprises will be a vendor focus due to their growing awareness of the benefits of IT utilisation,
             but this segment is constrained by low budgets and lack of access to credit. Companies are looking for
             software that will help boost performance and operational efficiency. Promising SME verticals include
             discrete manufacturing and consumer packaged goods, as well as hotels and property management. The
             solution areas with most demand currently include security software and key applications such as CRM,
             ERP and HR management.


             The banking and finance sector is a promising area for database software and one where foreign
             companies have done well. Spending opportunities in the finance segment will be driven by regulatory
             compliance, due to regulations such as Basel II, HIPPA and the Sarbanes-Oxley Act, and quite likely by
             new regulations introduced in the wake of the global financial crisis.


             An increasing number of Vietnamese companies have shown an interest in and willingness to use cloud
             services. The government has also got involved in encouraging the development of this business model in
             Vietnam and new cloud computing offerings and increased competition in this segment should fuel
             further demand from end-users to utilise this technology.


             Summary
             Overall, the hardware market is predicted to grow from US$1.6bn in 2011 to US$2.8bn in 2015, with
             computer sales rising from US$1.3bn to US$2.4bn over the same period. Software spending should rise
             from US$184mn to US$378mn and IT services from US$388mn to US$726mn over the forecast period.




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Table: Vietnam IT Sector (US$mn unless otherwise stated), 2006-2015



                                2008        2009      2010e       2011f         2012f      2013f      2014f      2015f

IT Market (US$mn)           1,524.44    1,676.88    1,928.41   2,159.82       2,505.40   2,931.31   3,429.64   3,944.08

IT Market as % GDP               0.02       0.02        0.02           0.02       0.02      0.02       0.02       0.02

Hardware (Computer
market sales) (US$mn)       1,128.08    1,224.12    1,427.03   1,587.47       1,828.94   2,125.20   2,469.34   2,839.74

Services (US$mn)              259.15      297.31      341.91     388.38        456.64     541.21     641.07     726.22

Software (US$mn)              137.20      155.45      159.48     183.98        219.81     264.90     319.23     378.13

PCs (including
notebooks) (US$mn)            958.87    1,040.51    1,212.97   1,349.35       1,554.60   1,806.42   2,098.94   2,413.78

Servers (US$mn)               101.53      110.17      128.43     142.87        164.60     191.27     222.24     255.58

ICT market, nominal
value growth, % y-o-y          11.60       10.00       15.00          12.00     16.00      17.00      17.00      15.00



e/f = estimate/forecast. Source: BMI. ITU (Internet and broadband penetration).




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Internet

Table: Telecoms Sector –Internet – Historical Data And Forecasts



                                 2008       2009         2010e      2011f      2012f       2013f         2014f     2015f

No. of internet users
('000)                          20,834     22,780     27,140       31,093     33,366      34,967      35,641     36,108

No. of internet users/100
inhabitants                      24.17      26.10        30.71      34.83      37.00       38.40         38.76     38.90

No. of broadband internet
subscribers ('000)               2,049      2,967        3,760      4,829      6,203       8,118      10,216     12,843

No. of broadband internet
subscribers/100
inhabitants                       2.38        3.40         4.25      5.41        6.88       8.91         11.11     13.83



e/f = estimate/forecast. Source: VNNIC, BMI



              This quarter we have made some further                Industry Trends – Internet Sector
              revisions to our internet user and                                    2008-2015
              broadband subscriber forecasts for
              Vietnam. According to the latest data, the
              number of Vietnamese internet users grew
              by an impressive 19.1% in 2010. This
              growth rate was stronger than the 9.3%
              growth recorded in 2009. As a result, the
              total internet user base grew to 27.14mn at
              the end of the year. A combination of an
              improved economic climate, together with
              strong growth in the number of mobile
              broadband connections, is thought to have
              contributed to the accelerated growth in
                                                              e/f = estimate/forecast. Source: VNNIC, BMI
              internet usage.


              Going forward, we believe that Vietnam's internet sector offers strong growth potential. On the one hand,
              internet user growth to date has been largely confined to urban centres, but the internet user penetration
              rate is expected to be approaching saturation in major cities and towns. Penetration levels in rural parts of
              Vietnam remain very low as a result of consumers' lower purchasing power. This means that the ability to
              achieve higher growth rates in the future will depend on the pace of internet infrastructure development in
              rural parts of the country and the prices of consumer electronics and internet services.




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             We now predict that Vietnam will have around 31.1mn internet users at the end of 2011; this would
             reflect an annual growth rate of 14.6% and would raise internet user penetration to more than 34%. By the
             end of 2015, we expect this figure to surpass 36mn, representing a penetration rate of almost 39%. By
             2015, we predict that annual growth will have fallen to around 1.3%.


             Meanwhile, this quarter sees the introduction of a revised estimate for the number of Vietnamese
             broadband subscribers at the end of 2010. Our new estimate takes account of mobile broadband
             connections which are offered by the country's 3G network operators and which appear to be having a
             negative impact on demand for fixed broadband subscriptions based on DSL. Our new estimate of
             3.76mn broadband subscribers at the end of 2010.


             Our newly revised forecast assumes that Vietnam's broadband subscriber market grew by 26.7% in 2010.
             In 2011, we predict that Vietnam's broadband subscriber base will increase by more than 28%, with
             mobile broadband uptake helping to drive growth forward. Also contributing to strong growth will be the
             deployment of services based on optical fibre (FTTx). By the end of 2015, our newly revised forecast
             anticipates almost 13mn broadband subscribers in Vietnam, representing a penetration rate of 13.8%.
             Despite the fact that broadband services remain beyond the reach of many Vietnamese consumers in the
             lower end of the income bracket, we retain an optimistic view of the medium-term development of the
             sector. Our optimism reflects the considerable investment the sector is currently receiving, with new
             technologies such as WiMAX and LTE expected to become operational in the months ahead.




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Macroeconomic Forecast

             Public Spending Cuts To Keep Economic Growth Subdued
             BMI View: The Vietnamese government's shift in focus from driving economic growth towards fighting
             inflation and addressing macroeconomic imbalances is beginning to have a cooling effect on the
             economy. Vietnam's real GDP growth came in at a relatively subdued 5.4% year-on-year in Q111,
             compared with 7.2% in Q410. We expect public spending cuts and tighter credit conditions to keep
             economic activity depressed over the coming months. Accordingly, we are maintaining our forecast for
             real GDP growth to come in at a subdued 6.3% in 2011.


             Latest economic figures published by the General Statistics Office suggest a shift in the Vietnamese
             government's focus from driving economic growth towards fighting inflation and addressing
             macroeconomic imbalances is beginning to have a cooling effect on the economy. Vietnam's real GDP
             growth came in at a relatively subdued 5.4% year-on-year (y-o-y) in Q111, compared with 7.2% in Q410.
             We expect economic activity to moderate over the coming months as the full impact of fiscal and
             monetary tightening continues to feed through the economy. This is in line with our forecast that
             economic growth will slow from 6.8% in 2010 to 6.3% in 2011. From our perspective, attempts by the
             government to cool the overheating economy are a positive move that will help facilitate a more stable
             growth trajectory for Vietnam over the longer term.


             Public Spending A Key Drag On Growth
             Prime Minister Nguyen Tan Dung unveiled the government's latest measure to cool the economy on
             March 31, highlighting plans to slash the fiscal budget by 7.4% this year. According to the plan, public
             spending cuts will amount to around VND50trn (US$2.4bn) of investment in public projects. We see this
             as a strong indication that the government is serious about addressing mounting inflationary pressures and
             an overheating economy. However, given that the impact of fiscal tightening has yet to be reflected in
             Q111 data, we expect economic activity to continue to slow in Q211. Accordingly, we expect reduced
             public spending to be a key drag on growth over the coming months. Business investments could also
             come under pressure as public projects begin to be put on hold.


             Removing The Punch Bowl
             In line with the Vietnamese government's attempt to slash public spending to cool the economy, the State
             Bank of Vietnam (SBV) has also embarked on aggressive monetary tightening. Following a total of 300
             basis points (bps) of rate hikes in February, the central introduced a further 100bps hike on April 1,
             bringing the policy rate from 9.00% at the beginning of the year to 13.00%. The SBV's move came after
             headline consumer price inflation (CPI) accelerated to a 25-month high of 13.9% y-o-y in March,
             suggesting that inflation is at major risk of exceeding the central bank's target of 7% this year.
             Accordingly, we have revised our policy rate forecast from 12.00% to 13.00% for end-2011, reflecting
             the SBV's latest rate hike. We expect the SBV to hold its policy rate at 13.00% as we see inflationary


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             pressures moderating over the coming months. The multi-month high headline CPI reading in March
             could be due to one-off effects of a currency devaluation in February – which caused a spike in import
             prices – and electricity and fuel price adjustments in March (see our online service, March 29, 'Wait-And-
             See For The SBV'). We acknowledge that the full impact of monetary tightening by the SBV, which was
             only introduced in late February, will take several months to feed through the economy. However, we
             note that lending rates, which have risen to 18.0-22.0% in recent weeks, are already beginning to have a
             cooling effect on economic activity.


             Industrial Production Growth Stagnates
             Industrial production growth remained stagnant at a moderate growth rate of 15.1% y-o-y in March. We
             believe tight credit conditions due to high lending rates, coupled with expectations for a slowdown in
             domestic demand will help keep industrial activity depressed in Q211. Private consumption should also
             start to cool as public spending and industrial activity continue to moderate over the coming months. That
             said, we believe private consumption will remain resilient as the government plans to provide financial
             support to lower-income households to help offset the impact of fiscal tightening. Moreover, a strong
             labour market should also help to provide support for private consumption in the coming months. Our
             long-held view that private consumption will remain a key driver of economic growth in 2011 will stay in
             play.


             Narrowing Trade Deficit Not Enough To Offset Tightening Measures
             Looking at the latest trade figures, we note that trade exports came in at a robust 26.0% y-o-y in March,
             an encouraging sign that Vietnamese exports could have benefited from an 8.5% currency devaluation in
             February. However, trade imports also registered a significant increase of 21.5% y-o-y in March,
             resulting in a trade deficit of US$1.2bn. We note that a devaluation in the Vietnamese dong, which will
             dampen demand for imports, should gradually translate into a smaller trade deficit in Q211. This in turn
             suggests that we could potentially see rising net exports acting as a cushion against an expected
             slowdown in domestic demand. Nonetheless, we believe that any increase in net exports will be
             overshadowed by the combined effect of fiscal and monetary tightening in the coming months. Therefore,
             we are happy to maintain our forecast for Vietnam's real GDP growth to come in at 6.3% in 2011. Our
             forecast is slightly lower compared to the government's growth target of 7.0-7.5% this year. However,
             given that the government has already reversed its pro-growth stance on the economy, we expect the
             government to revise its growth target accordingly in the coming months.




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Table: Vietnam – Economic Activity



                               2008          2009          2010         2011f         2012f         2013f         2014f         2015f

Nominal GDP,
VNDbn 2                  1,485,038.0   1,658,389.0   1,953,223.3   2,326,853.6   2,641,667.1   2,985,462.7   3,358,614.4   3,761,091.7

Nominal GDP,
US$bn 2                        89.8          92.8         101.9         113.0         129.7         150.8         174.5         200.6

Real GDP growth,
% change
y-o-y 2                          6.3           5.3           6.8           6.3           7.2           7.2           7.2           7.2

GDP per capita,
US$ 2                         1,041         1,063         1,153         1,265         1,438         1,656         1,897         2,161
                 3
Population, mn                 86.2          87.3          88.4          89.3          90.2          91.1          92.0          92.8

Industrial
production index,
%
y-o-y,
ave 1,2                        13.6            6.7         14.1          10.0          15.0          16.0          17.0          16.0

Unemployment, %
of labour force,
eop 2                            4.7           6.0           5.0           6.0           5.0           5.0           5.0           5.0



                     1                           2                           3
f = BMI forecast. at 1994 prices. Source: General Statistics Office. World Bank/BMI calculation/BMI.




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Competitive Landscape
Hardware

                      Vendors report successes with netbook products in Vietnam


                      Vietnamese company announces tablet launch


             Multinational brands dominate the Vietnamese PC market, with HP and Acer the top-selling brands.
             Other multinational vendors including Dell, Toshiba and Asus have enjoyed strong recent growth in the
             booming market. Meanwhile, Korean consumer electronics giant Samsung has targeted a larger share of
             the Vietnamese notebook PC market. Samsung hoped to leverage its distribution network and strong
             brand recognition into a 10% share of the PC market in 2010.


             Fourth-placed PC market player Asus has targeted third place in 2011, and is working to strengthen its
             distribution channel. In April 2011, Asus launched a new partnership with local company FTP
             Distribution which has a nationwide network of 400 dealers. FTP, a member of FTP Trading Group, will
             distribute Asus products, with Asus planning to introduce the full range of its new products in
             Vietnam during Q211. FTP also distributes a portfolio of other leading PC brands including Dell, Lenovo
             and Acer.


             Asus, which first entered the Vietnam market only three years ago, is also focusing on service as a
             competitive differentiator. FTP will provide warranty services for Asus laptops at its four new service
             centres in Hanoi, HCMC, Danang and Can Tho. Meanwhile, Asus plans to open between 13 and 15
             service centres in Vietnam in 2011.


             As in many other markets, telecoms carriers have also emerged as a significant channel option for PC
             vendors. Dell has launched a partnership with military-run telecoms company Viettel, which will
             distribute Dell PCs. Viettel has a substantial presence in rural areas, which have big PC market growth
             potential, as PC penetration is currently low. Meanwhile, Dell has also partnered with local retail giant
             Teh Gioi Di Dong to sell both online and through the company's 40 retail outlets.


             HP's Vietnam market sales have been boosted by government and education sector projects, as well as by
             its strategy to target the consumer segment. HP was ranked by market research firm AC Nielsen as the
             leading laptop and PC market brand in Vietnam in 2010. HP is also the leader in the printer segment.
             Vendors continued to roll out new models during the economic slowdown, with the popularity of the
             small form factor netbooks a significant focus. In May 2009, Intel said that Vietnam was the leading
             consumer of its net-top product in the Asia Pacific region, with demand up some 400% compared with
             the last quarter of 2008. Intel expected total Vietnamese net-top sales of 120,000 this year.


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             2010 saw the emergence of tablet PCs, spearheaded by Apple's iPad, which surveys indicate enjoys a high
             brand recognition in the Vietnamese market. In 2010, several Vietnamese enterprises announced plans to
             tablet PCs, and the first such product, from Hanel, was launched in Vietnam in October 2010. However,
             local manufacturers are likely to find it hard to compete with their multinational rivals, with vendors, such
             as Samsung with its Galaxy Tab, following Apple in releasing tablet devices,


             The reduction of import tariffs from January 2009 encouraged multinational vendors to focus more
             imports of high-end devices. Sony announced that it was starting to sell its VAIO notebook in Vietnam,
             as it started to shift to importing for domestic sales. Sony already has 180 distributors nationwide.
             Meanwhile, working with its partner DigiWorld Corp, Dell launched a campaign to target the local
             consumer segment, which is fuelling much of current growth.


Software

                      Government partnering with vendors to explore cloud computing opportunities


                      Microsoft signs extension of licensing agreement with government


             Vietnamese software producers dominate their domestic software market. Local products accounted for
             around 75% of market value in 2008 while foreign vendors have around 25%. Local companies have a
             particularly strong position in the government and SME segments, while larger Vietnamese corporations
             are more likely to consider more expensive software from multinationals. However software piracy is an
             issue for both domestic and multinational companies. Lac VIet Company, vendor of a popular dictionary
             software, has estimated annual losses to piracy of around VND58bn.


             The government plans to expand the local software industry, and develop a number of new software
             bases, as well as two new software businesses with revenues of more than US$200mn, could potentially
             have an impact on the local software competitive landscape. The Ministry of Information and
             Communications (MOCI), which developed the plans, has also called for the localisation of some open-
             source software products for use in state agencies.


             Vietnam has about 150 domestic software companies, including 19 joint ventures according to US
             Commercial Service data. Major IT spending verticals such as banking and finance, oil and gas, aviation
             and telecoms are among the best opportunities for foreign vendors. The government supports the
             development of a local software industry and the Vietnam Software Association has forecast growth for
             the software industry of around 20% in 2010, although this would be only 30% of that achieved in the
             pre-economic slowdown period of 2005-2008.


             Many local companies target export markets. FPT Software, one of Vietnam's largest software exporters,
             said that it had set itself a growth target of 20% for 2010, thanks to the recovery of the American and

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             Australian markets. Meanwhile, other local software firms such as VietSoftware International and Run
             Systems Co were targeting rates growth of 200-250% and 30%40% in 2010 respectively.


Operating Systems

             In November 2011 Microsoft signed an extension of a deal with the Vietnam government to purchase
             licensed software for government organisations. The original 2007 agreement had covered all 63
             provincial authorities, 24 ministries and enterprises where the state has a stake of more than 50%.
             Microsoft also agreed to support the development of the government's ICT master plan and public
             policies for the ICT industry in the period through 2020.


             Microsoft is dominant in the operating system segment but faces a challenge from Chinese vendor
             KingSoft. Microsoft officially introduced its Windows 7 operating system in Vietnam in early November,
             one month later than in many other markets. Microsoft will introduce a Vietnamese version of Windows
             Live and has announced a list of Vietnamese software programmes that are compatible with Windows 7
             including Vietnamese font programme Unikey and dictionaries from Lac Viet Company, as well as the
             popular BKIS anti-virus programme.


             Microsoft has a lot riding on the new operating release, given perceived problems with its previous
             operating system Windows Vista, and also because of the continuing global challenge from open source.
             The economic downturn may have added to the forces driving interest in open-source software. The
             economic downturn has led businesses and customers to look more closely at open-office type open
             source software, due to its perceived lower cost and access to codes, as well as free services such as
             Google Docs, which are funded by advertising. However, a key issue and precondition for the more
             widespread adoption of open source will be the development of a support infrastructure.


             BMI projects that Windows 7 will attract more support than Windows Vista, largely because Windows
             XP is now getting old. Many businesses that declined to upgrade from XP to Vista, due to reported
             problems with the latter, may now go straight to Windows 7. Microsoft will still offer reduced support for
             XP until 2015, but hardware manufacturers will start to wind down their support from about 2012. This
             will be a key factor that should drive business upgrades to Windows 7.


             Microsoft will also argue that Windows 7 can help businesses to save costs, enabling IT departments to
             be run more efficiently. In particular, Windows 7 is better-suited to virtualisation than either XP or Vista.
             Virtualisation look sets to become an important trend in IT spending in the next few years, as it allows
             businesses to simplify the management of desktop PCs by running desktop applications and storing user
             data within the data centre. Given the current economic climate however, IT directors will need to justify
             any upgrade in terms of cost savings. In September 2010, Intel announced a new drive to introduce its
             cloud computing to Vietnam over the next five years.



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             Business Software
             The Vietnamese enterprise software market is competitive with local companies having a significant
             share of the market. Major global players such as SAP, Oracle, IBM and Microsoft have a local presence
             but face competition from cheaper local rivals such as CMC Joint Stock Corporation (CMC), MISA,
             FAST and Exact Software, as well as from Chinese rivals. Similarly in the security software segment,
             US suppliers Symantec and McAfee have had successes, but face competition from popular Vietnamese
             anti-virus programmes such as BKIS.


             German software giant SAP is the world's largest business software company and in July 2009 included
             Ho Chi Minh City on its world tour for the first time. SAP promoted its solutions as helping Vietnamese
             organisations adapt to the world market. Local clients include PetroVietnam Technology, the
             International Consumer Products Corporation and VinaCapital.


             In April 2010, SAP announced that it had formed a strategic partnership with leading Vietnamese
             software venture CMC. The two partners will develop the major enterprise market together with CMC
             becoming SAP's strategic partner for consulting and implementing SAP solutions. The main target will be
             large companies, including in the finance sector. CMC is one of Vietnam's largest software companies
             and is active in the IT, telecoms and e-business with an annual growth averaging at least 30%.


             SAP's biggest global rival, US vendor Oracle, has performed strongly in the Asia Pacific (excluding
             Japan) region during the recent financial crisis. According to the company, it managed to increase its
             market share in the region. In Vietnam the company has made strong inroads into the banking sector,
             where it claims to have more than 15 customers, including banks such as Dong A Bank, Hubu Bank,
             Ocean Bank, Nam A Bank, and Tien Phong Bank. Recently mid-sized bank Vietnam Asia Commercial
             (VietA) Bank, which is based out of Ho Chi Minh City and has 15 main branches and 47 sub-branches,
             announced that it was migrating to an Oracle FLEXCUBE solution to cover all of its operations.


             Oracle has placed a particular focus on middleware recently and has increased the number of its
             middleware representatives in the Asia Pacific region in an attempt to boost its share. In November 2009,
             Oracle Vietnam launched Oracle Middleware 11g and Oracle Database11g release 2 in Vietnam. The new
             software is designed to lower IT costs, streamlining critical processes, secure corporate information and
             boost productivity.


             Other multinational vendors like Microsoft are also targeting promising enterprise sectors, and in 2010
             Microsoft won a VDN3bn contract for its Dynamics CRM solution from Sacombank Real Estate, an
             affiliate of Saigon Thuong Tin Commercial Bank.


             While many foreign vendors have found richest pickings in the corporate sector, some are now starting to
             target Vietnamese SMEs. In 2009, Epicor Software Corporation, a leading provider of ERP solutions in


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             Asia, set up a strategic alliance with the Vietnamese subsidiary of US-based DiCentral Group to expand
             its presence in Vietnam. Epicor provides DiCentral with technical and marketing assistance as the
             company promotes its ERP solutions to local firms, with a focus on solutions for plastics manufacturing
             and consumer packaged goods, as well as the hotel and property management segment.


             An increasing number of Vietnamese companies have shown an interest in and willingness to use cloud
             services, which are perceived by vendors as an emerging opportunity. In 2010, the Vietnamese FPT
             (Corporation of Financing and Promoting Technologies) and Microsoft reached an agreement on
             cooperation to research opportunities for cloud computing in Vietnam. The partners will also launch
             commercial pilots. Meanwhile IBM is promoting cloud computing as a cost-effective way for Vietnamese
             SMEs to realise efficiencies through IT utilisation. Key prospects are seen as being enterprises in the
             finance and banking, insurance and retail sectors.


             As a result of growing competition business software vendors have increasingly looked to expand through
             strategic acquisitions. This process also has also been driven by demand for more targeted applications,
             which has driven vendors to acquire expertise in particular industry verticals. In H109, SAP's biggest
             global rival Oracle purchased Sun Microsystems for US$7.4bn. Oracle's acquisition came after IBM
             dropped its own bid to buy one of the most famous names in IT. Although not Oracle's largest ever
             acquisition, it was certainly one of the most significant in strategic terms, as it was Oracle's first hardware
             acquisition.


             By adding hardware to the mix, the deal fits into Oracle's strategic plan to become a technology 'one stop
             shop' for its global customer base. However, Oracle can also get leverage from synchronicities with Sun
             software. Sun's Java platform, used to write platforms for websites and mobile phones, will be a major
             asset for Oracle. Sun's Solaris is major platform for Oracle's database software.


             The deal was just the latest in a string of recent acquisitions for Oracle that are estimated to have cost
             more than US$40 bn. The acquisition will have an impact on the business software competitive landscape
             as rival vendors work out how they are affected. IBM, in particular, which many thought a natural fit for a
             Sun acquisition, will have to redefine its relationship with Oracle.


             European giant SAP, which still has the leading share of the global business software market, has insisted
             that its specialist software provider role still works and that clients do not really want to buy all their IT
             from one provider. However, particularly following Oracle's acquisition of Sun, SAP may be forced to
             reconsider.


             The main enterprise software vendors are increasingly focused on the SME segment, rolling out a
             succession of product lines and software packages previously only available to larger companies. New
             releases were tailored to SMEs' smaller budgets and particular organisational needs.


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             Cost and access to credit remain big issues for smaller Vietnamese companies, leading to high levels of
             software piracy. In response, multinational vendors have had to experiment with innovative programmes.
             In September 2009, Microsoft Vietnam launched a programme called 'Microsoft Open Value', which was
             aimed at supporting SMEs in Vietnam to regularise their Microsoft software use though buying a licence
             at a suitable price and with a suitable payment method in line with the enterprise's budget.


IT Services

                      MOC announced decree regulating IT Services market by end of 2010


                      IBM builds on new Innovation Centre with partnerships with local universities


             According to Vietnam's MIC, Vietnam has around 10,000 firms currently licensed to provide IT services.
             However, only a third are actually operating. The MIC is currently developing a draft decree to map out
             policies to help the IT industry grow in the future and this is due by the end of the year.


             Measures to eliminate firms that had been previously licensed to provide IT services, but were for
             whatever reason not actually doing so will be included in the decree. The decree will also stipulate
             procedures and operational requirements for firms providing IT services.


             Local software producers are increasingly offering software development and outsourcing services as
             Vietnam's government targets a larger share of the global outsourcing opportunity.


             Vietnamese companies have a particularly strong Japanese client base for these types of services.
             According to the Vietnam-Japan IT cooperation club, Vietnam ranks third after China and India for IT
             and software outsourcing services to Japanese organisations with a 0.5% market share. This share is
             projected by the club to increase 10-fold within five years and the annual growth of IT and software
             outsourcing services offered by Vietnamese software companies has doubled every year according to the
             Japan IT Association. Indeed, many Vietnamese software companies earn 100% of their revenue from
             Japan.


             The largest Vietnamese software company, FPT, offers software custom development and outsourcing
             services to foreign companies and earns 56% of its revenues from Japan. In 2011, the company unveiled
             a major new restructuring plan which will consolidate five technology subsidiaries in a search for higher
             growth. The company's five subsidiaries; FPT Information System; FPT Telecom Corp; FPT Software;
             FPT Online and FPT Trading Group; will be merged, with the company either buying out minority
             shareholders or facilitating a share swap.




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             FPT is looking to restore its growth rate, which has fallen below 20% in the past couple of years, after
             previously being around 30%. FPT is focused on expansion through adding to its network of partners.
             The company is looking to stake a position in the small but emerging cloud computing opportunity and in
             May 2011 announced a cloud-computing alliance with Microsoft. In January 2010, FPT revealed that it
             had launched a US$2mn outsourcing contract to develop core retail and e-commerce software for Nissen
             Co.


             Japanese companies are also involved as players in Vietnam's developing outsourcing sector. In March
             2010, Japanese companies Mitsui and Co and Moshi Moshi Hotline Inc announced that they had jointly
             established MOCAP Vietnam Joint Stock Company (MOCAP Vietnam) in Hanoi in partnership with a
             local company. The new company said that this was the first Japanese-founded call centre outsourcing
             company to be founded in Vietnam and it was due to start to provide call centre services for the Vietnam
             market from March 2010.


             Because of the potential of the Vietnamese market, many other foreign vendors have increased
             investment in the country. IBM has made a series of recent investments in Vietnam. In May 2009, the US
             giant announced its establishment of the first IBM innovation centre in Vietnam. The new facility will
             provide support to digital infrastructure projects in banking, telecoms, energy and government industries.
             The centre, located in Ho Chi Minh City, will also provide entrepreneurs, IBM business partners and
             others from not only Vietnam but also Cambodia and Laos with access to training workshops, consulting
             services and technical infrastructure.


             IBM has also announced a number of cooperations with local universities in Vietnam. Among these
             initiatives, the University of Technology, Vietnam National University in Ho Chi Minh City will
             cooperate with IBM to establish a new university cloud computing centre and a cloud curriculum.
             Government is an important target sector for IT services vendors. In July 2009, the Ministry of Foreign
             Affairs and Microsoft Vietnam signed an agreement about cooperation on IT development. Microsoft will
             provide consultation to the ministry on its IT status and developing a roadmap for developing its IT
             applications through 2014. Microsoft will also provide training of the ministry's IT staff.




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             Internet                                                 Vietnam Internet User Growth
             There were a total of 22.78mn internet
                                                                                    2004-2008
             users in Vietnam at the end of 2009,
             according to the regulator, VNNIC. This
             represented an annual growth rate of 9.5%
             from 20.8mn in 2008, and down from the
             12.3% y-o-y increase in 2008.


             This would indicate that demand for
             internet services is falling. The chart shows
             that the annual rate of growth, in terms of
             the number of new internet users, has
             become progressively lower over the past
             few years. As of February 2010 (latest
             data), the VNNIC stated that the internet       Source: VNNIC, BMI
             user base had risen to 23.31mn, revealing
             some net additions of 0.53mn in the first two months of the year.


             Although the rate of internet user penetration among young people and in Vietnam's more affluent urban
             centres is already higher than the national average, it will be necessary to ensure that new demographic
             groups have internet access if internet user growth is to continue over the next few years. This in
             particular relates to providing internet services in rural areas of the country, where fixed-line
             infrastructure is particularly poor and in some cases non-existent.


             One phenomenon that bodes well for continued growth in the number of internet users is the high level of
             PC ownership that exists in Vietnam. According to a survey conducted by Alcatel-Lucent, some 95% of
             Vietnamese households now have access to a desktop PC, of which 16% are planning to purchase a
             laptop. Traditionally, affordability has been one of the main reasons behind the slow take-up of internet
             and broadband services in the market. However, access to PCs and laptops is growing as a number of
             cheaper models become available in the market.


             Meanwhile, growth in demand for broadband services is set to soar, as the Vietnamese government has
             been investing heavily in developing the broadband sector, announcing its commitment to inject
             VND100trn (US$6.3bn) in order to raise penetration rates significantly. Also, since joining the WTO, a
             number of high-profile global companies have relocated their operations to Vietnam and the employment
             of local staff has boosted incomes. The result has been that a significant number spend US$10-20 on their
             home internet bills, accessing multimedia content including games and downloads. Increased competition
             is also expected to encourage increased broadband usage.




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Company Profiles
FPT Software

Services                 FPT Software, one of Vietnam's largest software companies, was founded in 1998. FPT offers
                         software custom development and outsourcing services to foreign companies. Specific
                         services include software development and maintenance, ERP implementation, migration,
                         embedded systems and quality testing.


Recent Developments      In 2011, FPT unveiled a major new restructuring plan which will consolidate five technology
                         subsidiaries in a search for higher growth. The company's five subsidiaries; FPT Information
                         System; FPT Telecom Corp; FPT Software; FPT Online and FPT Trading Group; will be
                         merged, with the company either buying out minority shareholders or facilitating a share swap.

                         Among major developments in 2010, FPT revealed that it had launched a US$2mn
                         outsourcing contract to develop core retail and e-commerce software for Nissen Co. The
                         company's US$12mn revenues in Q110 exceeded planned projections by 9%, while profits
                         were 46% higher than initially projected. The fastest growth compared with 2009 came in
                         Vietnam, where revenues were up 90% y-o-y, while Asia Pacific (excluding Japan) grew 47%,
                         Europe 75% and the US 69%. However, the Japanese market, which accounts for more than
                         half of FPT's revenues, grew by only 16%.


Future Plans             FTP is looking to stake a position in the small but emerging cloud computing opportunity and
                         in May 2011 announced a cloud-computing alliance with Microsoft. Meanwhile the company
                         has said that it will continue to focus on an 'e-Citizens' strategy of concentrating on core
                         business areas and trying to increase synergy among product and service introductions by
                         FPT group companies.


Performance              FPT is looking to restore its growth rate, which has fallen below 20% in the past couple of
                         years, after previously being around 30%. FPT is focused on expansion through adding to its
                         network of partners.


Presence                 FPT has a presence in Hanoi, Ho Chi Minh City and Da Nang in Vietnam. The company is
                         also present in some major global IT markets including Japan (Tokyo, Osaka), Australia,
                         Singapore, Malaysia, Thailand, the Philippines, the US and France.


Sectors                  FTP earns 56% of its revenues from Japan. The company focuses mainly on the largest IT-
                         spending verticals including banking and finance, telecoms, manufacturing, government,
                         retail, infrastructure and utilities.




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BMI Methodology
How We Generate Our Industry Forecasts

             BMI’s industry forecasts are generated using the best-practice techniques of time-series modelling. The
             precise form of time-series model we use varies from industry to industry, in each case being determined,
             as per standard practice, by the prevailing features of the industry data being examined. For example, data
             for some industries may be particularly prone to seasonality, i.e. seasonal trends. In other industries, there
             may be pronounced non-linearity, whereby large recessions, for example, may occur more frequently than
             cyclical booms.


             Our approach varies from industry to industry. Common to our analysis of every industry, however, is the
             use of vector autoregressions. Vector autoregressions allow us to forecast a variable using more than the
             variable’s own history as explanatory information. For example, when forecasting oil prices, we can
             include information about oil consumption, supply and capacity.


             When forecasting for some of our industry sub-component variables, however, using a variable’s own
             history is often the most desirable method of analysis. Such single-variable analysis is called univariate
             modelling. We use the most common and versatile form of univariate models: the autoregressive moving
             average model (ARMA).


             In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data
             quality is poor. In such cases, we use either traditional decomposition methods or smoothing methods as a
             basis for analysis and forecasting.


             It must be remembered that human intervention plays a necessary and desirable part in all of our industry
             forecasting techniques. Intimate knowledge of the data and industry ensures we spot structural breaks,
             anomalous data, turning points and seasonal features where a purely mechanical forecasting process
             would not.


IT Industry

             Forecasts
             There are a number of criteria that drive our forecasts for each IT variable.


             IT forecasting is complicated due to the fragmented nature of the market, with little transparency of
             vendor data and low apparent agreement between many sets of figures in terms of market definition, base
             and methodology. In addition, forecasts are naturally affected by consideration of a variety of internal and
             external political and economic factors.



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             Within best-practice techniques of time-series modelling, BMI’s quarterly updated forecasts are
             improved substantially by intimate knowledge of the prevailing features of each local market.


             Individual variables taken into account in creating each forecast include:


                      Overall economic context, and GDP and demographic trends;

                      Underlying ‘information society’ trends;

                      Projected GDP share of industry;

                      Maturity of market structure;

                      Regulatory developments and government policies;

                      Developments in key client sectors such as telecommunications, banking and e-government;

                      Technological developments, and diffusion rates;

                      Exogenous events.

             Estimates are calculated using BMI’s own macroeconomic and demographic forecasts.


IT Ratings – Methodology

             Our approach in BMI’s IT Business Environment Ratings is threefold. First, we seek accurately to
             capture the operational dangers to companies operating in this industry globally. Second, we attempt,
             where possible, to identify objective indicators that may serve as proxies for indicators that were
             traditionally evaluated on a subjective basis. Finally, we include aspects of BMI’s proprietary Country
             Risk Ratings (CRR) that are relevant to the IT industry. Overall, the ratings system, which integrates with
             those of all 16 industries covered by BMI, offers an industry-leading insight into the prospects/risks for
             companies across the globe.


             Ratings System
             Conceptually, the ratings system divides into two distinct areas:
             Limits of potential returns: Evaluation of sector’s size and growth potential in each state, and also broader
             industry/state characteristics that may inhibit its development.
             Risks to realisation of those returns: Evaluation of industry-specific dangers and those emanating from
             the state’s political/economic profile that call into question the likelihood of anticipated returns being
             realised over the assessed time period.


             Indicators
             The following indicators have been used. Overall, the rating uses three subjectively measured indicators,
             and 41 separate indicators/datasets.



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Table: IT Business Environment Indicators



Indicator                                                                                                         Rationale

Limits to potential returns

Market structure

IT market value, US$bn                         Denotes breadth of IT market. Large markets score higher than smaller ones

Sector value growth, % year-on-        Denotes sector dynamism. Scores based on annual average growth over five-year
year (y-o-y)                                                                                         forecast period

Government initiatives and                        Denotes spending boost provided by public sector, which can be a crucial
spending                                                                              determinant of sector development

                                            Denotes maturity of market. A high proportion of hardware sales – compared to
Hardware, % of total sales                            services/software – indicates that the overall IT market is immature

Country structure

                                               Urbanisation is used as a proxy for development. Predominantly rural states
Urban-rural split                                                                                   therefore score lower

GDP per capita, US$                                           A high GDP per capita supports long-term industry prospects.

Overall score for country structure is also affected by the coverage of the power transmission network across the state

Risks to potential returns

Market risks

                                                  Markets with fair and enforced IP regulations score higher than those with
Intellectual property (IP) laws                                                                      endemic counterfeiting

                                            Subjective evaluation of official policy towards IT development, as enshrined in
ICT policy                                                                                              statute and tax code



Country risk

                                                Rating from CRR evaluates the vulnerability to external shock, which is the
Short-term external risk                            principal cause of economic crises. Such a crisis would cut investment

                                            Rating from BMI’s CRR, to denote risk of currency crisis and stability of banking
                                              sector. The former would hit revenues in hard currency, while the latter would
Short-term financial risk                                                                         curtail investment funding

Trade bureaucracy                                                  Rating from CRR to denote ease of trading with the state

                                        Rating from CRR denotes the strength of legal institutions in each state – security
Legal framework                                             of investment can be a key risk in some emerging markets

Bureaucracy                                              Rating from CRR denotes ease of conducting business in the state

                                       Rating from CRR denotes the risk of additional illegal costs/possibility of opacity in
Corruption                                         tendering/business operations affecting companies’ ability to compete



Source: BMI




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Weighting

               Given the number of indicators/datasets used, it would be wholly inappropriate to give all sub-
               components equal weight. Consequently, the following weight has been adopted.


Table: Weighting Of Components



Component                                                                                                   Weighting

Limits of potential returns                                                                                       70%

– IT market                                                                                                       65%

– Country structure                                                                                               35%

Risks to realisation of potential returns                                                                         30%

– Industry risks                                                                                                  40%

– Country risk                                                                                                    60%



Source: BMI


Sources

               Additional sources used in IT reports include national ministries and ICT regulatory bodies, national
               industry associations, and international industry organisations such as the International
               Telecommunication Union (ITU), officially released company results and figures, and international and
               national industry news agencies.




© Business Monitor International Ltd                                                                             Page 57
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