[Vnbiz] Vietnamese IT follows Taiwan's example

[Phan, Tai]

Vietnamese IT follows Taiwan's example
By David Fullbrook 

Vietnam's burgeoning information-technology (IT) sector is drawing favorable parallels with the early phases of Taiwan's rise as a hardware and software powerhouse. The potent mix of government promotion, an energetic and qualified workforce, and growing flows of foreign capital and expertise are fast fitting Vietnam's technology industry into the global IT manufacturing, design and service supply chain. 

Similar to Taiwan, Vietnam's Communist Party-led government



has given highest priority to supporting its nascent IT industries, including through the development of better IT-related infrastructure. Between 2006 and 2010, Hanoi has budgeted US$5.97 billion to improve the country's communications. For instance, Vietnam's teledensity, or the number of phones per 100 people, is forecast to more than double to 56.1 by 2010, from 26.2 last August. 

Significantly, Vietnam has several natural comparative advantages to Taiwan, which in the 1970s and 1980s was able to leverage its longtime first-mover advantage, but nowadays has been eroded by fierce, fast-moving global competition. Then, Taiwan's choices were limited by its lack of minerals and commodities, harried by the security threat from mainland China, and mostly guided by huge amounts of foreign - mainly US - aid during the early stages of its economic takeoff. 

Taiwan's entrepreneurs and government bureaucrats focused on hardware niches, including components and chips for servers, personal computers and printers. From those humble beginnings emerged world-leading manufacturing giants, including Taiwan Semiconductor Manufacturing Corp, which specializes in memory chips, and device-design house High Tech Computer, whose highly acclaimed smartphones are now sold under its own brand, Dopod, after scoring success with global mobile-telecom networks, such as the United Kingdom's 02. 

By contrast, Vietnam is rich in IT-relevant industrial minerals such as bauxite and manganese, has a young and growing IT-literate labor pool, and is attracting ever higher levels of foreign investment, significantly at a much earlier stage of development than Taiwan ever did. US technology giant Intel's decision last February to build a $300 million microchip-assembly plant in Ho Chi Minh City, and its November announcement to up that outlay to more than $1 billion, promises to lure in big new IT-related foreign investments from Intel's suppliers and supporting industries. 

"Intel sees Vietnam as one of its key markets with great opportunity for growth, innovation and partnership," said Rick Howarth, an Intel Products executive at its Ho Chi Minh City facility. "Vietnam has a large population of more than 80 million, with 50% under 25 years old, and this younger generation pushes for and drives technology development, which makes Vietnam an attractive market for Intel." 

Homebound diaspora 
Another similarity to Taiwan's experience is the growing influx of IT-savvy Vietnamese nationals from abroad. Taiwanese returned from the West, especially North America, with cutting-edge engineering qualifications and an appreciation of where the global technology industry was headed and the particular needs of US-based electronics-manufacturing firms. 

Similarly, Vietnamese who fled the country for Western destinations after the 1975 communist takeover, and their foreign-born children, are in increasing numbers heading back to Vietnam to partake in the still-communist-led country's recent economic opening. Known in Vietnam as the "Viet Kieu", they have in recent years become a driving entrepreneurial force behind Vietnam's impressive IT rise. 

Returning Viet Kieu have not always received such a warm welcome, however. In the 1990s, returning refugees or foreign-born Vietnamese were often treated with a mix of suspicion and derision by communist officials - though then the xenophobic reception was not much warmer for most foreign investors. That was reflected in half-hearted economic reforms and red-tape-mired investment policies that after a few short frustrating years in the early1990s caused many foreign investors to abandon Vietnam and head for China. 

A decade later, the difference is stark. A "key driving force for the recent resurgence of Vietnam is the influx of returnees from her vast overseas diaspora, especially IT-savvy entrepreneurs and investors from Silicon Valley, and the growing links between these overseas diaspora and Vietnam", said Wong Poh Kam, a specialist in technology entrepreneurship at the National University of Singapore's business school, adding, "the same phenomenon that initially drove the growth of high-tech development in Taiwan Hsinchu". (Hsinchu is the heartland of Taiwan's technology sector.) 

Indeed, Vietnamese-Americans who cut their teeth in the San Francisco Bay Area are increasingly looking homeward to set up outfits in IT research, development and commercialization. "The [Viet Kieu] are an important factor driving growth, enriching the bubbling pool of small and medium-sized firms, driving the sector, as was the case in Taiwan," noted David Dapice, a specialist in development economics at Tufts University in the US, who is now researching and advising on economic reform in Vietnam. 

However, Vietnam's IT sector would not have grown as quickly as it has without the legions of reasonably well-educated engineers and programmers pouring out of the country's own high schools 

and universities - which, similarly, was a key factor in Taiwan's high-tech takeoff in the 1980s. Information technology, especially software, has grabbed the imagination of many young Vietnamese eager to leapfrog over the drudgery of factory work and into what to them represents a more modern livelihood. 

Though government policy has swung decidedly behind promoting a national IT industry, there is still a frequent lag in putting official



rhetoric into working action, some industry experts contend. "A range of policies exist to promote IT activities," said Scott Cheshier, deputy director of Bristol University's Mekong Program in Britain. "However, although several plans and strategies exist, coordination and implementation remain the key issues." 

One frequent criticism is that the government still cossets big state-owned firms, which not only drag on the public purse but also crowd out innovation. 

"The tendency to protect public enterprises is much stronger in Vietnam than in China. There is more reluctance to let hybrid [public-private] forms of organization develop," said Dieter Ernst, senior fellow at the EastWest Center in Hawaii. "In Taiwan there was a great acceptance of this, despite being a severe authoritarian regime at the time." 

Comparative advantages 
Yet for every drawback, Vietnam seems to have several advantages working in its favor. Unlike Taiwan, where much investment was sourced locally, including through the government, Vietnam is drawing significant capital inflows earmarked for IT ventures from across East Asia, including big outlays from Japan, South Korea and even Taiwan. That is quickly plugging the country into multinational global supply chains and export-oriented operations at the earliest stages of Vietnam's IT development. 

Complementing hardware-related manufacturing is an innovative and growing software sector, which is surprisingly thriving given Vietnam's overall low level of economic development. Since the late 1990s, Vietnam's homegrown software houses, especially in Ho Chi Minh City, have picked up a growing amount of US outsourcing work in developing computer games, digital cartoon graphics, and other high-end software, such as Orient, a business-solutions specialist. 

While many firms are small, employing dozens rather than thousands, some local IT giants are already emerging. For instance, FPT, a Vietnamese-owned software-services firm that employs about 6,000 in Hanoi, provides back-end services and counts big Japanese firms among its customers. The company scored a $36 million investment from Intel and Texas Pacific Group, a leading private-equity fund, in October. 

Still, there is plenty of room for Vietnam's software industry to grow. 

"Vietnam's outsourcing business is still immature, with many companies focusing only on a small part of the software development cycle (such as data-entry; testing and coding), but very few indicate capabilities in application development, project management, system architecture, system integration, database administration or business process analysis, which are a major portion of the current outsourcing business," wrote John Vu, a fellow at Carnegie Mellon University's Software Engineering Institute, in a recent white paper on the Vietnamese industry. 

Industry trends suggest that software is where most IT business growth will be concentrated, especially as so-called "software as a service", in which applications traditionally stored on a personal computer are instead delivered over the Web, and "network-based solutions", software-based tools that allow people to cooperate on projects over the Internet, grow as expected in global popularity. And with Vietnam's growing pool of low-cost, yet well-qualified, engineers and programmers, the fast-growing country seems increasingly well positioned to win a greater proportion of these emerging market niches. 

As of 2003, only 38% of Vietnam's 570 software houses, which then employed more than 12,000 people, were locally owned. There are now more than 700 software-oriented Vietnamese firms, according to the Viet Nam Software Association. That compares favorably with the 1,200 software companies in more established Thailand, which first entered the IT industry in the 1980s but still lacks any globally recognized, homegrown designers or producers. Taiwan, by contrast, has never had a software industry to match its global prowess in manufacturing and design of components, chips and devices. 

With many multinational IT investors looking to diversify their recent over-reliance on China as a production base, yet also finding India too distant from East Asia's product design and manufacturing nexus, Vietnam and its increasingly skilled and always energetic workforce appears to be in the right place at the right time for more technology-related foreign investments. 

Indeed, statistics show that global demand for Vietnamese programmers and engineers is growing, pushing up local wages for the most skilled IT personnel. Last year, the United Nations Development Program's Hanoi office estimated that Vietnamese programmers were earning on average $7,200 per year, considerably higher than the $5,880 average in IT hothouse India. Perhaps more telling is the fact that Vietnam is fast emerging as the foreign destination of choice for Taiwanese IT investors. 

"There's a lot of investment from [other] Asians in Vietnam; Taiwan was mostly self-made," said Kevin Luong, chief executive of Everki International, which manufactures bags in Taiwan but is now developing manufacturing and software operations in Vietnam. "There's a whole section outside Ho Chi Min City that is predominantly Taiwanese. There [are] a lot of Taiwanese investors thinking ahead, developing factories. They're always looking for the next big thing."