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.
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