Vietnam information technology report q4 2012

Q4 2012
Published by Business Monitor International Ltd.
www.businessmonitor.com
INFORMATION TECHNOLOGY REPORT
ISSN 2044-9631
Published by Business Monitor International Ltd.
VIETNAM
INCLUDES BMI'S FORECASTS
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VIETNAM INFORMATION
TECHNOLOGY REPORT
Q4 2012
INCLUDES 5-YEAR FORECASTS TO 2016


Part of BMI’s Industry Report & Forecasts Series
Published by: Business Monitor International
Copy deadline: October 2012
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Vietnam Information Technology Report Q4 2012

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CONTENTS
Executive Summary 5
SWOT Analysis 7
Vietnam IT Sector SWOT 7
Vietnam Telecoms SWOT 8
Vietnam Political SWOT 9
Vietnam Economic SWOT 10
Vietnam Business Environment SWOT 11
Asia Pacific IT Risk/Reward Ratings 12
Table: Asia Risk/Reward Ratings Q412 15
Asia IT Markets Overview 16
IT Penetration 16
IT Growth and Drivers 18
Sectors And Verticals 20
Market Overview 24
Hardware 25
Software 27
Services 31
Industry Developments 33
Industry Forecast 37
Table: Vietnam IT Industry – Historical Data And Forecasts (US$mn unless otherwise stated), 20092016 40
Industry Forecast Internet 41
Table: Telecoms Sector – Internet – Historical Data And Forecasts, 2009-2016 41
Macroeconomic Forecast 43
Table: Vietnam – Economic Activity, 2011-2016 45
Competitive Landscape 46

Hardware 46
Software 48
IT Services 52
Company Profiles 54
FPT Software 54
Country Snapshot 55
Table: Vietnam's Population By Age Group, 1990-2020 ('000) 56
Table: Vietnam's Population By Age Group, 1990-2020 (% of total) 57
Table: Vietnam's Key Population Ratios, 1990-2020 58
Table: Vietnam's Rural And Urban Population, 1990-2020 58
BMI Methodology 59
How We Generate Our Industry Forecasts 59
IT Industry 59
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IT Ratings – Methodology 60
Table: IT Business Environment Indicators 61
Weighting 62
Table: Weighting Of Components 62
Sources 62

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Executive Summary
BMI View: Vietnamese IT spending is expected to reach US$2.53bn in 2012, up 15%, with BMI
upwardly revising its forecast due to macroeconomic factors. The PC market slowed in Q112, but
drivers including rising PC penetration, economic growth, a range of government ICT initiatives and a
campaign to develop Vietnam's domestic IT industry will help to sustain continued expansion going
forward. Vietnam's improving ICT infrastructure will also drive the development of the nation's IT market
in a country with below 20% PC penetration. Meanwhile, there is strong demand for ERP solutions in
2012 and cloud computing revenues are expected to report at least 300% growth over the five-year
forecast period to 2016.
Headline Expenditure Projections

Computer Hardware Sales: US$1.6bn in 2011 to US$1.8bn in 2012, +13% in US dollar terms. Forecast
in US dollar terms unchanged; however, tablets are expected to provide a strong growth area in 2012 due
to lower prices.

Software Sales: US$187mn in 2011 to US$222mn in 2012, +22% in US dollar terms. Forecast in US
dollar terms upwardly revised due to analyst modification, but will depend on the success in bringing
down illegal software use.

IT Services Sales: US$395mn in 2011 to US$474mn in 2012, +20% in US dollar terms. Forecast in US
dollar terms upwardly revised due to analyst modification with growing demand for digital infrastructure
projects in various sectors, such as banking, telecoms, energy and government.

Risk/Reward Ratings: Vietnam scores 33.2 out of 100 in our Asia risk/reward ratings table. This places
the country 11th, ahead of Sri Lanka. The country ranks only ninth for its IT market score, with 36.9.

Key Trends & Developments.
 In H112, vendors reported continued robust sales of ERP solutions, despite the uncertain
economic situation. There is still a lot of potential for Vietnamese enterprises to increase

spending on basic solutions. A number of Vietnamese companies embarked on large-scale ERP
implementations, including Hoang Anh Gia Lai Group (HAGL), which launched a VND100bn
ERP system. However, while the ERP market is strong, it is estimated that only about 10% of
Vietnamese businesses have used CRM.
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 In 2011, a number of government ministries and organisations, including the Ministry of
Education and Training, started to promote the roll out of cloud services. Plans to modernise IT
in government agencies and the customs department, as well as the Tax Administration
Modernization Plan for 2008-2013 represent opportunities for vendors of IT products and
services.
 An ambitious government IT plan for 2010-2020 should shape many segments of the
Vietnamese IT market, with the government pledging to invest VND2.4tn (US4,115mn) from
the State Budget in the ICT sector over this period. The government's increasing focus on
encouraging ICT development and foreign investment in the technology sector will also create
opportunities. Many of the government's ICT development plans and programmes are still in a
nascent stage and their ultimate effectiveness is yet to be determined.
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SWOT Analysis
Vietnam IT Sector SWOT
Strengths

 The 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.
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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 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 2012 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 wide-scale 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 7.1% annually between 2000 and 2011.
 The economic boom has lifted many Vietnamese out of poverty, with the official
poverty rate in the country falling from 58% in 1993 to 14.0% in 2010.

Weaknesses
 Vietnam still suffers from substantial trade, current account and fiscal deficits,
leaving the economy vulnerable to global economic uncertainties in 2012. The
fiscal deficit is dominated by substantial spending on social subsidies that could
be difficult to withdraw.
 The heavily managed and weak currency reduces incentives to improve quality
of exports, and also keeps import costs high, 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 rising 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. According to
Transparency International's 2011 Corruption Perceptions Index, Vietnam ranks
112 out of 183 countries.

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 know-how.
 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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Asia Pacific IT Risk/Reward Ratings
BMI's Asia Pacific IT Risk/Reward Ratings (RRR) compares the potential of a selection of the region's
markets over our forecast period through to 2016. Our Q412 ratings reflect our consideration of the
political and economic risks, as well as the risks associated specifically with IT intellectual property (IP)
rights protection and the implementation of state spending projects.
While there were slight changes to the countries' individual scores, their respective rankings were
unaffected. Singapore remained the most attractive investment destination on a risk-reward basis among
the 12 countries that were assessed with an IT Rating score of 74.1. Developed countries Australia, Hong
Kong and South Korea occupied the second, third and fourth position respectively, which is mainly due to
their more stable macroeconomic environment as well as factors such as the governments' receptiveness
to innovations and greater protection of IP. On the opposite end of the spectrum are emerging markets
such as Vietnam and Sri Lanka. Besides weak Country Structure and Country Risk scores, their IT
markets are still in the infancy stage, with significant barriers holding back growth in the near term.
Although Singapore's IT market is significantly smaller than many of its regional peers, the country has
other redeeming factors. Besides a pool of skilled labour in a highly urbanised environment, the country

is strategically located in the heart of South East Asia amid emerging markets such as Indonesia and
Thailand, which allows Singapore to form the hub for companies' regional expansion plans. Its strong
infrastructure, which includes access to major submarine cable networks and high-speed broadband
connectivity, political stability and pro-business environment attract foreign investors and spur
technological developments.
Australia's IT Rating score improved by 0.1 percentage point over the quarter to 73.3 due to an increase in
the country's Country Risk score. Australia's National Broadband Network (NBN) is still grinding
forward, and the project's outlook received a slight boost in end-June after the opposition Coalition party
announced that it would not terminate the NBN if it comes to power. The NBN is important to provide
high-speed broadband connectivity to consumers and businesses, especially in underserved regions,
which in turn would spur demand for sophisticated IT solutions such as deeper integration of cloud
services and telepresence.
Hong Kong's position as one of Asia's most important financial hubs presents significant IT services
growth opportunities. We expect enterprises to increasingly turn to IT solutions to reduce operating costs
and facilitate cross-border transactions, in addition to affordable high-speed broadband connectivity – the
territory has some of the world's lowest fibre broadband tariff rates. Further, Hong Kong's geographical
proximity and relationship with China makes it a good investment location for IT companies interested in
tapping into the Chinese market.
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New offerings such as cloud computing, machine-to-machine (M2M) and telecare are some areas that are
driving demand for IT solutions in South Korea. Besides government-led initiatives, telecoms operators
are playing their part by deploying the latest technologies to ensure networks are able to cope with
bandwidth-intensive services. At present, South Korea has the most number of LTE subscribers in Asia
Pacific, largely due to the fact that all three mobile operators have launched commercial services. The
market also has a growing pool of M2M subscribers, which grew by 9.6% from 1.429mn in November

2011 to 1.566mn in May 2012.
Malaysia remained in fifth position in our Q412 regional ratings with an IT Rating score of 51.8. 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. Guiding the government and industry is
the country's Economic Transformation Programme (ETP), which has earmarked areas such as cloud
computing as one of its top 10 strategic technology priorities. The roll-out of the High Speed Broadband
network will also boost IT spending outside the Klang Valley and help the country achieve a household
broadband penetration rate of 75% by 2015.
China's HSBC manufacturing purchasing managers' index posted its eighth consecutive sub-50 print (at
48.2) in June 2012, meaning that the country's structural slowdown is becoming increasingly difficult to
ignore. The country's manufacturing sector, which accounts for roughly 40% of the economy, is clearly in
a prolonged contractionary phase, and we do not envisage a turnaround anytime soon. Not only is the
headline index on the decline, but new export orders also came in at their weakest level in seven months,
and the employment reading contracted for a fourth month running. A Chinese economic slowdown
would negatively affect the IT market growth, albeit at a lesser extent than other industries such as
infrastructure or automotives. Factors such as the vast potential rural market and a commitment to
modernisation in sectors such as education, healthcare and manufacturing are among the expected drivers.
However, market risks such as poor IP rights protection and a lack of business transparency remain
threats to IT development.
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, and it is in
the midst of expanding operations outside Metro Manila. In order to facilitate the expansion, network
operators are extending fibre optic network throughout the country to provide high capacity connectivity.
The number of internet users in Indonesia is projected to increase from the estimated 84.755mn in 2011 to
171.183mn in 2016, representing 68.9% penetration rate. While the country's low personal computer
ownership and fixed broadband penetration imply significant room for growth, we believe that
development is largely limited to richer areas such as Java. We expect government-led initiatives to help
narrow the digital divide and encourage small and medium enterprises to adopt IT solutions to lower cost
and enhance productivity.
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Like China, India's IT Market score was bolstered by the county's population size, which in turn attract
businesses. According to Dimension Data, which partnered with Bharat Sanchar Nigam Limited in
April 2012 to provide data centre services such as video-as-a-service and infrastructure-on-demand,
India's IT market is worth INR24bn. Dimension Data expects the sector to grow a compound annual
growth rate of 22% to INR65bn in 2016.However, India faces a host of challenges if it wishes to fulfil its
potential. For example, at present, India's business environment is clouded with regulatory uncertainties,
which have caused ICT investments to grind to a halt.
Thailand's IT sector is gradually recovering from the floods, partially due to the government's Smart
Thailand project, which was unveiled in September 2011. Like Malaysia's ETP, the Smart Thailand
project aims to boost the country's competitiveness through greater ICT development by integrating ICT
in the government sector. At a cost of THB80bn, Thailand aims to increase broadband coverage to
95% of the population by 2020, up from 80% in 2015 and the current 33%. At the same time, all 800
government services across the education, health, government service and agriculture sectors are to be
migrated to an electronic platform, which should improve service quality and the communication between
agencies.
Vietnam is trying to catch up with regional peers, with the government pledging to invest US$8.5bn in
the ICT sector in the next 10 years. The government is also looking to attract US$5bn worth of foreign
investments in the IT sector by 2015, according to Avaya. Consequently, business communications
solutions provider Avaya opened a representative office in Ho Chi Minh in end-June with an eye on the
country's enterprise telephony, internet protocol and contact centres sectors.
There was a slight deterioration in Sri Lanka's IT Rating score of 28.3, which fell from 28.3 the previous
quarter to 27.7. However, we maintain our view that the country holds long-term potential in light of the
restoration of peace and improvements in the security situation, which will help to release pent-up
demand for IT solutions. 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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Table: Asia Risk/Reward Ratings Q412

Limits Of Potential Returns

Risks To Realisation Of
Potential Returns

Country IT Market

Country
Structure

Limits

Market
Risks

Country
Risk

Risks

IT

Rating

Region
al Rank

Singapore 57.0

100.0

72.1

70.0

85.1

79.0

74.1

1

Australia 60.0

95.0

72.3

80.0

72.9

75.7

73.3

2

Hong Kong 53.3

100.0

69.7

70.0

85.7

79.4

72.6

3

South Korea 53.3

70.0

59.2

75.0

75.4

75.2

64.0

4

Malaysia 44.0

55.0

47.9

35.0

78.3

61.0

51.8

5

China 55.6

30.0

46.7

35.0

65.1

53.1

48.6

6

Philippines 38.0

45.0

40.5

42.5

53.6

49.1

43.1

7

Indonesia 41.3

40.0

40.8

35.0

55.1

47.1

42.7

8

India 52.5

15.0

39.4

45.0

50.9

48.5

42.1

9

Thailand 40.0

20.0

33.0

35.0

70.3

56.2

39.9

10

Vietnam 36.9

15.0

29.2

35.0

47.2

42.3

33.2

11

Sri Lanka 28.8

10.0

22.2

35.0

44.2

40.5

27.7

12

Regional Average 46.7

49.6

47.7

49.4

65.3

58.9

51.1

Scores out of 100, with 100 highest. The IT Risk/Reward 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
Risk/Reward methodology and is designed to enable clients to consider each rating individually or as a composite,
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

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Asia IT Markets Overview
IT Penetration
Across Asia, government ICT initiatives
and growing affordability will help to
drive increases 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 giants, 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 is only around 30% in 2012 – although it is
far higher in cities such as Shanghai and Beijing and urban PC penetration is projected to pass 60% by
2016. 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 is estimated by BMI at around 20% in 2012. Notebooks are owned by an estimated 10% of the
Vietnamese population, which points to significant growth potential for the local PC market.
Lower price will help to drive higher PC 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 programmes continue to find favour with governments. In China,
a subsidised household electronics products initiative aimed at rural residents has helped to boost PC sales
in areas where penetration was low. In Australia, national and state governments continue to roll out new
initiatives, with the Victoria government investing more than US$150mn in IT in schools.
In Indonesia, PC penetration of around 3% could double by 2016 if government initiatives are followed
through. The Indonesian government is also rolling out new e-learning initiatives, with a target of raising

Narrowband Penetration

Per 100 Population


f = BMI forecast. Source: BMI, Regulators

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the current 1:3,200 ratio of PCs to students in public schools to 1:20. Meanwhile, the Vietnamese
government has launched a programme entitled One Teacher-One Computer, which offers 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 South Korea, Hong Kong, Singapore, and Australia, with estimated 2012
penetration rates of 76.9%, 74.0% and 73.3% and 71.0% respectively. Singapore has by far the highest
rate of broadband penetration, which was estimated at 189.5% in 2012. Meanwhile, the Philippines has
the lowest levels of internet usage, with just 8.3% narrowband and 7.4% broadband penetration estimated
in 2012.
The fastest growth is expected in
Indonesia, where internet penetration is
projected to leap from 45.4% in 2012 to
68.9% in 2016, and the Philippines,
where penetration is forecast to reach
12.6% by 2016. India is still at only
11.8% internet penetration despite an
improvement in fixed-line infrastructure,
and penetration is forecast to reach only
16.2% by 2016. Steady growth is also
projected for Sri Lanka, where
penetration is projected to increase from
18.8% to 25.4% by 2016. Some 56.4% of
Malaysians have internet access in 2012.
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 a growing number of mobile broadband users, as 3G mobile services are expanded
across the region. In China, broadband penetration is on course to reach 20.9% by 2016. In India,
penetration should increase more than double to reach 2.8% by 2016 from around 1.2% currently,
although this remains below government targets. Sri Lanka will also see continued solid growth in
broadband penetration, which is projected to reach 21.7% by 2016.
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.
Broadband Penetration

Per 100 Population


f = BMI forecast. Source: BMI, Regulators
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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.
IT Growth and Drivers
Across Asia in 2012, IT spending should
benefit from improved economic
circumstances and tenders previously
deferred as a result of the economic

situation, although a forecast slowdown
in China could act as a drag on some
markets. Strong fundamental demand
drivers of IT spending meant 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
largest markets, such as China, lower-tier cities and towns will be among 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 as well as growing demand from small and medium-sized enterprises (SMEs).
Despite these drivers, BMI expects a moderation in Chinese consumer and business IT investment in
2012 owing to government economic cooling measures and uncertainty about the global economic
situation. However, an expansion in consumer credit and a modernisation drive in sectors such as
education, healthcare and manufacturing will sustain market growth.
The long-term IT market potential of another Asian giant, India, is plain: less than 3% of people in India
own a computer (about one-fifth of the level in China), meaning particular potential in the lower-end
product range. Having postponed IT projects during the economic slowdown, many Indian private and
public sector organisations are now investing again in upgrading their IT infrastructure.
India's IT market appears to be positioned for strong growth thanks to an improving economy and
consumer sentiment as well as 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.
2012 IT Market Sizes

US$mn, forecast

f = BMI forecast. Source: BMI
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In Thailand, demand will be bolstered by
market expansion in the relatively
underpenetrated rural areas. SIS
estimates that market growth in
upcountry areas should be 30% in 2011,
double that it has forecast for the country
as a whole. A similar situation pertains in
India where in 2012 there are expected to
be strong growth opportunities in smaller
cities.
The Philippines is one of the countries
currently benefiting from low-priced PC
programmes (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 and 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
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 the led way in 2011, as evidenced

by the strong advance sales of Apple's
iPad2. In 2012 vendors hope that the iPad
3 and ultrabooks will provide new growth
areas. Economic expansion and
improving business conditions are
underpinning stronger business sector
demand while a strong property market
and lower unemployment have boosted
confidence among consumers. However,
a potential cooling of the Chinese
economy as a result of monetary
tightening would quickly spread to both markets.

IT Market Sizes

As % Of National GDP


f = BMI forecast. Source: BMI

IT Markets Compound Growth

2012f-2016f (%)


f = BMI forecast. Source: BMI
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The largest IT market in the region is, unsurprisingly, China, estimated at US$124.4bn in 2012, trailed
distantly by Australia (US$22.0bn), India (US$20.7bn) and South Korea (US$18.5bn). Singapore's IT
market (including communications) is the largest as a proportion of national GDP (2.4%), followed by
Hong Kong (2.1%). Thailand's IT market has been affected by a number of exogenous events including
floods, which in late 2011 disrupted its production of hard disk drives, but in 2012 it looks to be back on
track.
The fastest growing IT markets over the forecast period looks set to be India and Indonesia with 2012-
2016 compound growth of 109% and 96% respectively, driven by increasing PC penetration. Sri Lanka is
third with the IT market growing by an estimated 83% over BMI's five-year forecast period, while
China's total growth is estimated at a still healthy 55%, slower than Vietnam at 69%.
Sectors And Verticals
Regional IT markets remain hardware-centric, with hardware accounting for 43-73% of total spending in
all markets in 2012. 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.
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 over 50% in the
case of households. Over 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. Around 30% of households have more than one PC.
Tablet sales will provide a PC market growth area, with triple-digit growth projected in many markets. In
China it is estimated that tablets accounted for around 6-7% of computer sales in 2011. The tariff on an
imported iPad was previously set at around CNY1,000 and has now been reduced to CNY500. In 2012,
tablets should be a growth area in India as well, with sales surpassing 1mn units, although much will
depend on greater affordability. The arrival on the market of cheaper, locally produced tablets, retailing
for as low as US$30, will help expand the market.
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.

Meanwhile, vendor expectations of a substantial boost from their promotion of high-tier ultrabooks may
not be realised until prices come down closer to their US market level.
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
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Asia, demand from smaller towns and rural areas where PC penetration is relatively low will provide the
main source of growth. In India, 2011 saw a wave of computer procurements by local governments.
Another driver in emerging Asian markets 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. 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.
Australia telecoms operators such as Telstra were competing to offer affordable tablets bundled with data
services.
Due in part to high levels of piracy, software's share of IT spending is relatively low, ranging from 11-
36% among countries covered by BMI. Efforts are being made to tackle the issue of piracy, but, despite
government crackdowns in China and the Philippines, software piracy remains above 70% in most of
emerging Asia.
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). In 2012, growing numbers of SMEs are
expected to invest in enterprise resource planning (ERP), while many of those that already have it will

explore efficiencies through consolidation and virtualisation. As Asian companies have become more
integrated into the global supply chain, their multinational business partners often encourage them to
install back-office systems to meet requirements of efficiency. The growing global ambitions of many
Asian companies, as well as often booming domestic markets, will fuel investments in software.
In general, 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.
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The hosted application model may already account for between one-fifth and one-quarter of China
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. The cloud computing market in India is currently very small but is forecast to expand
rapidly.
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 17-41% 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 2012
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
projects such as SOE2 provide significant opportunities. Meanwhile, the Hong Kong government's
Digital 21 initiative will continue to generate spending.

Market Structure (% of IT Market)

2012f (LHS) & 2016f (RHS)


f = BMI forecast. Source: BMI
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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.
Meanwhile, growing interest in cloud computing will be further stimulated by government programmes.
In China, government cloud pilots are under way in at least five cities. The Hong Kong government

announced plans in 2011 for an escalation of its cloud strategy over the next few years. In 2012 more
leading Australian private and public sector organisations are expected to launched cloud initiatives and
the government has adopted a six-year cloud computing strategy.

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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 field 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 for 2011, including computer hardware, packaged software and IT
services, has been valued at an estimated US$2.2bn. Vietnam IT spend per capita, at around US$23 in
2011, was considerably lower than the US$225 estimated for ASEAN neighbour Thailand. However, IT
spend per capita is expected to almost double by 2016, to US$45.
Computer hardware, including desktops, notebooks and accessories, is the largest IT market segment in
Vietnam, accounting for an estimated 74% of spending in 2011. Packaged software has been valued at

US$222mn for the year, equivalent to around 9% of spending. IT services and outsourcing comprised
17% 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 below 20%, 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 below 15% of the IT market, should increase its share by 2016.
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, also presents a significant growth opportunity as the
government rolls out measures to boost rural incomes.