Vietnam's high-speed IT rise
With new foreign investments pouring in and more than 600 software-oriented firms already in place, Vietnam's information-technology sector is by all measures going great guns. And recent big-ticket investments from the multinational likes of Intel and Canon could soon establish Vietnam as a low-cost IT leader in the region, challenging the positions of such countries as Thailand and the Philippines.
US technology giant Intel this month announced plans to boost its investment in Vietnam to US$1 billion, a mere nine months after the company unveiled plans to spend $300 million on a factory to assemble and test microchips in Ho Chi Minh City. Canon is meanwhile spending $1 billion on a new printer factory in Hanoi, while Alcatel, Fujitsu and Siemens are all increasingly sticking "Made in Vietnam" on their products.
Where Intel goes, the IT industry often tends to follow. "Intel going in means they will bring along their supplier network - these are global companies that have to move with Intel," said Dieter Ernst, a senior fellow at Hawaii's East-West Center who researches innovation offshoring. "The industry notes these developments. It's very likely that other firms will follow."
In addition to suppliers ranging from household names like NEC, TDK and Kelly Services to obscure specialists such as Daewon Semiconductor Packaging, Dainippon Screen Manufacturing, Munters, and STATS ChipPAC, Intel's preference for sourcing locally will likely provide opportunities for dozens, if not hundreds, of new Vietnamese technology companies. That growing mass of suppliers will in turn make Vietnam more attractive for other global IT manufacturers.
Vietnam, which only really opened to manufacturing-oriented foreign investments in 2000 after a botched liberalization period in the early 1990s, significantly won the Intel contract against better-established IT regional players, including Thailand, Malaysia and the Philippines.
"After an extensive search, Intel selected a site in the Saigon High Tech Park because of its good physical infrastructure, the available workforce and the tremendous interest in information technology in Vietnam as evidenced by the rapid growth of the industry there," said Rick Howarth, general manager of Intel Products Vietnam in Ho Chi Minh City.
Vietnam's IT-relevant infrastructure and educational attainment are quickly catching up to Thailand, and arguably are soon set to overtake those in the Philippines. Malaysia has a bigger infrastructure lead, established manufacturing facilities by the likes of Intel, Microsoft and Seagate, and a much larger workforce fluent in English. But Malaysia has wholly failed to self-generate a new class of so-called "technopreneurs", as the government envisaged through its establishment of the Multimedia Super Corridor in 1996.
Though Vietnam is emerging as a mean competitor in Southeast Asia, it still pales next to China, which offers a huge market, masses of suppliers and a strong research base. However, for big Japanese and Taiwanese investors at least, Vietnam is free from the cultural or political baggage that goes with investing in China. Moreover, Vietnam's population is younger and more eager to learn than China's new generation of techies, and the bureaucratic hassle of doing business for IT firms is less severe in Hanoi than Beijing, industry sources say.
And, of course, IT firms are also drawn to Vietnam by the low wages. An experienced programmer on average earns $7,200 per year there, compared with China's going wage of $8,900, according to recent United Nations Development Program statistics.
Innovation premium
Vietnamese firms have importantly placed a premium on innovation, spending 1.42% of their sales on research and development, compared with just 0.15% by Thai IT firms and against a regional average of 1.24%, according to a recent International Finance Corp survey. Meanwhile, firms in Vietnam report waiting on average 17.57 days for electricity to be connected to new facilities, against a 23.64-day wait in Thailand. A main telephone line, meanwhile, is connected on average in 8.83 days in Vietnam, compared with a regional average of 9.32 days and 15.52 days in Thailand, according to the same survey.
Vietnam is rapidly plugging in its economy, in some areas faster than regional neighbors such as Thailand. More than 13.7 million Vietnamese, or 16.5% of the population, now regularly use the Internet, of whom 3.8 million surfers are regular subscribers, according to information compiled by the Vietnam Internet Network Information Center. That total figure has skyrocketed from 8.1 million in September 2005. In comparison, Thailand's National Electronics and Computer Technology Center reckoned 7.08 million people, or 8.75% of the population, were using the Internet as of last November.
Thailand's connection to the global Internet amounted to 9,904 megabits per second of bandwidth in November, against 1,010Mbps in December 2002, a reflection of its larger economy. However, Vietnam's international bandwidth is likewise growing rapidly, almost certainly now exceeding 6,000Mbps after reaching 5,795Mbps in September, up from 3,505Mbps last December. Greater bandwidth capabilities are important for boosting Internet speeds, a crucial factor for software services, online solutions and outsourcing - all rapid-growth areas for Vietnam.
Education is another key factor. About 40% of Thai students study beyond high school, compared with just 10% in Vietnam. However, Vietnamese high-school students are widely perceived to be stronger in math, which gives them an edge when it comes to IT.
"Something seems to work better in Vietnam. Company managers tell me they have good experiences - people are trainable, motivated, they can easily move beyond routine tasks and come up with solutions. I hear that more in Vietnam than a number of other countries," said Ernst, the innovation expert.
Intel's billion-dollar investment will strengthen the hand of those Vietnamese policymakers now advocating more state nurturing of the industry. And outside experts say Hanoi increasingly views the Internet and communications technology as fundamental to developing the broad national economy.
"There is no doubt that they see IT as important. Just as electricity was part of Russia's modernization for Lenin, the Internet is part of the modernization of Vietnam for the government," said David Dapice, a specialist in development economics at the United States' Tufts University who is now researching and advising on economic reform in Vietnam.
One way is to promote Internet-ready mobile telephony to make up for a shortage of land lines. To that end, Vietnam has six mobile-phone firms battling for customers, and some are already preparing to roll out third-generation networks providing wireless broadband Internet. Mobile-phone subscriptions are doubling every two years in Vietnam, and in July 18.5% of the population owned a handset.
With Intel's support, Vietnam is already running pilot projects using the cutting-edge technology WiMAX (worldwide interoperability for microwave access), which offers higher speeds and range measured in kilometers rather than the mere meters of wi-fi (wireless fidelity). Commercial roll-out of WiMAX remains limited even in developed countries. Proving WiMAX's potential in Vietnam could pay dividends for Intel by stoking demand for its WiMAX chips in other developing countries that suffer from chronic shortages of phone lines and limited Internet access.
Vietnam's WiMAX projects aim to connect rural areas with public access to the Internet through telecenters. Through these, the government hopes to deliver better public services, such as health advice and farming tips, more efficiently. Further down the road it will be possible, and perhaps economically viable, to outsource some back-office operations to villages, providing an alternative for some to migrating to the cities.
Such ambitious projects show that Vietnamese officials - in some ministries at least - are increasingly thinking about how to apply information technology and wireless communications as tools for beating poverty and creating jobs in knowledge industries up and beyond traditional low-wage manufacturing jobs. "There is a concern in Vietnam about spreading development to the poorer areas," said Dapice, the development economist.
And that's arguably where Vietnam suddenly has an edge on its more economically established neighbors. For instance, Thailand's bureaucratic legacy and deeply ingrained approaches to managing the economy make it hard to overturn and reform because it would threaten so many vested interests, often connected to political cliques. The Philippines and Malaysia similarly suffer from bureaucratic morasses.
Vietnam's autocracy is often crude, and its strict structures are certainly no paragon of efficiency. But despite this and rapidly growing corruption, the communist government tends to issue clearer policies and implement them with more determination than Thailand's and the Philippines' fits-and-starts democracy, some economic experts contend. "In comparison with Thailand, the political decision-making processes can move faster once they've reached a certain a position on a policy," said Ernst.
It would be premature to write off Thailand's, the Philippines' and other regional countries' established IT industries because of Vietnam's recent rise and growing attractiveness to global IT companies. But Vietnam's concentration on the industry is fast eroding other countries' head start. If Intel's recent decision is a sign of the times, Vietnam is set to draw more IT-related investments that would have previously been destined for elsewhere in the region.
By David Fullbrook - Asia Times - November 29, 2006.
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