Vietnam's IT market takes shape at its own pace

Vietnam's IT market takes shape at its own pace

A symbol of the grandiose hopes that computer vendors once held for Vietnam stands shielded by a wrought-iron gate from sidewalk hawkers and from the motorbikes streaming down Vo Van Tan Street in Ho Chi Minh City. Nestled by the Fook Yuen Chinese restaurant is the sprawling colonial-era French villa that IBM's representative office has called home for just over a year. The ornate, whitewashed mansion, which the company finished renovating last year, was part of a grand entrance that IBM made following the 1994 lifting of the US trade embargo with Vietnam. On news of the embargo's end, IBM and a number of other major IT players, including Digital Equipment and Unisys, rushed into Vietnam in hopes of windfall fortunes from a country that had been closed off to US businesses by the 20-year embargo.

In particular, computer and networking companies were enticed by the Vietnamese government's IT-2000 initiative - a master plan to support the country's modernisation through several big-ticket IT projects in areas such as banking, telecommunications and national information databases. Many vendors rented office space, quickly doubled and tripled the size of their staff, and ladled out funds for seminars and overseas junkets. IBM, for one, soon had offices in both Ho Chi Minh City and the capital, Hanoi, with a staff of 65.

But in the three years since the coming-out party began, some global IT companies, like the colonial powers before them, have found that an open wallet, a handsome design and lavish ambitions are no guarantees of success.

"Many companies have invested large amounts of money, and they have been largely disappointed," said Angelo Canepa, country manager of Olivetti's representative office in Hanoi.

"People set very high expectations for very quick results and they are finding that the potential is still there . . . but it is going to be a lot more difficult than people anticipated," said Sam Williamson, the head of IBM's Vietnam unit.

The vendors, optimistic but many still in the red, complain of incessant delays, slow decision making and local officials inexperienced in managing large projects. Making matters worse is the corruption that runs deep at many levels of government and business. Vendors said they are struggling to balance the flexibility required for success in Vietnam with the need to maintain corporate values to operate within the law.

The last few years are riddled with horror stories of companies disenchanted with Vietnam's rough-and-tumble market, but IT vendors had hoped they would avoid the trouble. Vietnam has both a government ardently embracing IT and a key ingredient for the growth of computer use: people. In both size and smarts - at 75 million, the second largest population in South-East Asia, a high literacy rate and a relatively high level of technical expertise - Vietnam is fertile ground for IT.

To be sure, some companies are making progress. Williamson said IBM's sales of PCs and networking gear are strong, while Intel, which opened its first representative office in March, expects 1997 revenues of roughly $US18 million, according Ho Vinh Khanh, Intel's country man-ager in Ho Chi Minh City. Keeping its operation lean with a staff of just three full-timers, Acer Vietnam is already profitable and takes in well over $1 million each month from PC sales, according to Dean Lee, managing director of Acer Vietnam.

But for others, 1997 will likely be a defining year: those without a clear picture of when the returns will come may prune back or sharply modify their plans while cutting costs and buckling down for the long term.

Concerning a recent going-away party held for an IBM executive at a Hanoi expatriate club, one executive joked: "On that day, had there been a 747 at the airport going to Los Angeles, I think the whole troop at the American Club would have gone and gotten on it because they were so dissatisfied."

One of the biggest frustrations for vendors has been a government plan to revamp the country's banking system. Though funding for the $US54 million project has been approved by the World Bank, the Vietnamese Government has dragged its heels on taking bids. Vendors were told the tender would begin around September 1995. They are still waiting.

IT makers have no hard answers as to why the project hangs in the wind, but say in general that government officials, fearing the repercussions of a misstep, shun taking the lead on big projects. Several recent financial scandals - including one that led a court to sentence four people to death - have added to the fear. Proposals get passed around and among ministries until a consensus can be reached, a long and frustrating process, vendors said.

"Anytime there is big money involved, people are scared," said one official at a company waiting for the banking tender.

And even if a contract is signed, it is often viewed by the local partner as "a rather loose description of intent that may be changed at his will", said Norris Hickerson, Vietnam country manager for Digital. "The project is likely to take on different forms as you move forward and you have no control . . . It's not straightforward, and it often runs the Western business mind insane."

A couple of years back, Olivetti won a bid that included a large volume of PCs. Upon delivery of the computers, Olivetti's Canepa discovered that before putting the computers to use, his buyer had disassembled them, discovered that the Intel CPUs had been packaged in the Philippines, and demanded replacements from the US.

"I had to buy 400 microprocessors and put them in," he said. "What can you do?"

Canepa added that the experience is a sign of a more general attitude towards foreign proposals. "They always split your offer into its subcomponents and figure out how much you are asking them to pay for your brand name," he said.

Peddling the big names

Things aren't much better on the low end, where the only brand name that seems to matter is Intel. While many foreign vendors focus on the volume-buying customers that can pay for complete support and services, local clone makers peddling Intel machines are grabbing small but growing demand from individual and small-office users. The clone makers can't be beaten on price, and streetside technicians are popping up next to motorcycle and bicycle repair stands to handle software installation and processor upgrades.

Many foreign vendors are banking on Vietnam to follow the path of other developing markets where clone makers' early dominance rapidly eroded, once the global vendors got up to speed. But analysts said that now, with better support from Intel, clone makers are holding their price/performance advantage and continue to win customers - even some second-time PC buyers.

Value for money

The Anh family, for instance, hopes to buy a new PC in December. At their Ho Chi Minh City home, Mrs Anh and her 20-year-old son Phan said they can find a Pentium-based clone for about $800, or several hundred dollars cheaper than a comparable machine from most foreign vendors.

Phan, a student at the nearby College of Architecture, and his 14-year-old sister now share a 386-based unit that Phan bought three years ago by pooling money with his aunt and uncle.

Like a growing number of Ho Chi Minh City parents, Mrs Anh sees the computer as a key tool for her children's education. In the relatively affluent commercial city where students zip around on $US2000 motorbikes, the cost of a PC is now within reach for some families. Nevertheless, the difference between a branded computer and one from a local screwdriver shop can mean a new set of drafting tools for a student like Phan.

"No brand-name machine can go down to the price level of the clone machines," said Acer's Lee. To tap the low-end market, his company had to create a Vietnam-specific brand with cheaper components than Acer-branded machines, he said.

Then there's the independent streak that runs strong in the national character.

"The problem is finding the Vietnamese way of doing IT," said one member of the country's IT-2000 steering committee making the rounds at a recent computer trade show in Vietnam. "Like the Vietnamese resistance, we have to rely on the qualities of the Vietnamese people, and we have to avoid problem areas in which the Vietnamese people are weak."

The official explained that foreign vendors need to have patience with a small market where the average annual salary is a humble $US250 per head.

"I think vendors in Vietnam have to realise that the Vietnamese market is very small, it is an immature market, it is a very modest market," he said. "It will take time for them to get some benefit."

Holding up his fingers, the official said the IT needs of Vietnam are like the human hand. The little finger is hardware, the smallest and least important. The ring finger is software, more important than hardware but subordinate to the Vietnamese people's "brainware", represented by the middle finger. The index finger, meanwhile, is the leadership required by the government.

Uniting all the fingers into a functional hand is the thumb, or environment - the social, eco-nomic, creative, educational and other factors needed to advance Vietnam's IT aspirations.

To date, the official said, foreign vendors have focused too much on individual "fingers", most notably hardware, and have done little to help breed the all-important environment needed to create a working IT "hand".

Providing whole packages

In the frenzy to find profits here, some foreign vendors now admit, they followed scattershot strategies, bent on winning market share by pushing "boxes" with little regard for providing training and skills needed to effectively use them.

But the vendors are learning. Many companies are directing their focus towards providing whole packages that meet a particular IT need.

Some are more willing to integrate other vendors' products, including clone machines, with their own, and more vendors are expanding their training courses.

Many vendors said they realise now that Vietnam doesn't fit the mould of other developing nations they have tackled.

Success will come not overnight, but only to those willing to travel in the slow lane.

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