_The Global Information and Communications Technology Industry: Where Vietnam Fits in GVCs_

# **Introduction**

The information and communications technology (ICT) sector has become the driving economic force of the current era. It is widely seen as a tool for modernizing entire economies: a driver of innovation and productivity, a catalyst for global integration, and a source of high paying, knowledge-intensive jobs. At the same time, the changes wrought by ICT can be thoroughgoing and come with breathtaking speed, regularly upending the status quo. The fortunes of incumbent firms, occupations, and entire industries can be disrupted or even rendered entirely obsolete in short order. As such, the ICT sector is of strong and growing interest to policy makers and a host of other stakeholders (NGOs, labor, standard-setting bodies, etc.). The ICT sector can be difficult to define because it consists of a rapidly changing and broadening mix of electronic hardware and ICTrelated services, from telecommunications to software and information technology (IT) services, including cloud-based services and platforms.

The goal of this paper is to delineate the main characteristics of the ICT sector, identify the central actors that produce ICT goods and provide ICT services, describe Vietnam’s current and potential position in ICT global value chains (GVCs), and provide forward-looking recommendations for improving that position. As is common in GVC analysis, we focus on the roles played by key firm-level actors in the value added chain and highlight if and how specific countries and geographic areas have come to specialize in various activities — such as R&D, product design, production, marketing, consumption, etc. This is important in the case of Vietnam because the country is currently specialized in a narrow, low value-added range of GVC functions, namely hardware assembly and outsourced software and ICT services.

Part I of the paper outlines the electronic hardware industry’s central role in ICT GVCs, and especially the dramatic shift of production to Mainland China over the past 15 years. This section identifies three key firm-level actors in the hardware sector: lead firms, contract manufacturers, and platform leaders, and discusses their development, or “co-evolution” over time. The paper then defines and discusses ICT- and ICT-enabled services.

Part II of the paper focuses on Vietnam’s role in ICT GVCs. It provides an overview of how the country’s ICT industry first emerged post-liberalization and the position it occupies in GVCs today. A close examination of key trade and FDI statistics reveals Vietnam’s emergence as an export-oriented final assembly hub, especially for mobile phone handsets. Vietnam’s ICT services firms appear to hold a great deal of promise, and could be where most of the opportunities for future development lie. The paper then examines the rules and regulations that most directly shape and impact the sector’s development. Finally, in Part III, we offer a set of policy recommendations aimed at supporting entrepreneurship, skills development, and technological and industrial upgrading in Vietnam’s ICT sector.

# **Part I: The Global ICT Sector**

While the innovative power of ICT has been felt since the early days of radio, the pace of change has accelerated dramatically since the advent of low-cost, high capacity digital information technologies, which now underpin voice, video, and data communications. More than ever, the ICT sector is transforming business and government transactions, driving productivity and efficiency improvements across entire economies, unleashing innovation and creative destruction, and requiring regular and significant changes to business strategies and work processes. IT systems, which combine software and hardware, have become the backbone for almost all corporate and government functions and services.

2