_The Global Information and Communications Technology Industry: Where Vietnam Fits in GVCs_ _Source_ : Country industry associations (Korea (FKII), Japan (JISA), Chinese Taipei (CISA), Nepal (NCA), Malaysia (PIKOM), Vietnam (VINASA), Bhutan (BICTTA)) and Vietnam Ministry of Information and Communication (MIC) for India and China. Note: Data compiled for ASOCIO report titled “Asia-Oceania Vision 2020 - Enabling IT leadership through collaboration.” Data for India and China compiled separately. Data for top-level management is unavailable from the MIC.

An important reason for Vietnam’s growing exports is its cost advantage over competitors in the region. As Table 8 indicates, Vietnam’s workforce is far less expensive than China’s or India’s. Entry-level computer programmers in Vietnam earn just 54% of what their Chinese counterparts make, and 36% of what entry-level Indian programmers make. According to data collected by the MIC, ICT workers in Vietnam have a lower attrition rate (5-7%) than workers in China (10-30%) and India (50%). In 2014, Vietnam surpassed India to become the second largest exporter of software services to Japan (China is still the largest).<sup>17</sup> While Vietnam will not compete on cost forever, human capital will be important in supporting upgrading efforts in the ICT services sector in the near term.

Cost competitive wages have driven growth in industry segments like software outsourcing and BPO. Software outsourcing is generally less capital-intensive than hardware manufacturing, creating opportunities for domestic firms to enter the market and grow quickly. Most of the larger software outsourcing firms in Vietnam are local firms serving the global market. Generally, these firms have their production sites in Vietnam and small sales and marketing presences in key markets around the world, especially the USA and Japan. Interviews with BPO firms confirm that Vietnam has attracted a great deal of work that was previously done in places like China, India and Eastern Europe. However, this niche is primarily occupied by foreign firms taking advantage of Vietnam’s cheap labor. Upgrading opportunities in the BPO space remain limited given the low complexity of the work and limited availability of skilled personnel necessary to shift into higher value added ICT-enabled services, sometimes referred to as knowledge-intensive business services (KIBS).

# _Highlighting four types of ICT Services firms in Vietnam_

While large, multinational firms dominate the hardware manufacturing industry in the country, Vietnam’s ICT services and ICT-enabled services sector includes a wide range of firms. As Figure 5 shows, ICT firms in Vietnam typically fall into one of four categories: 1) state-oriented firms focused on the local market, 2) locally-owned firms focused on the export market, 3) foreignowned firms and consultants focused on the local market and 4) foreign-owned firms focused on the export market. Finally, there are a number of small but growing entrepreneurial firms developing products for the local, regional and global markets. We will discuss some illustrative cases in the pages that follow. See Table 9 for a list of the top 15 IT services and ICT-enabled services firms in Vietnam.

> 17 Viet Nam News article available from <u>http://vietnamnews.vn/economy/245585/viet-nam-climbs-itsoftware-exports-ladder.html.</u>

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