Op-Ed Commentary: Edward Barbour-Lacey

HANOI – The world may not know much of Vietnam’s tech startup community, but the changes taking place within this community may soon bring it to the attention of investors and consumers throughout the world.

Vietnam is a prime market for hi-tech products, particularly those that relate to the internet and can be downloaded as games or apps. The country has more than 36 million internet users, a number that is continuing to grow. There are already more than 20 million Facebook users within the country.

Let’s get this started

The tech startup community in Vietnam began over ten years ago when a number of aspiring companies were funded by IDG Ventures Vietnam, a firm which bills itself as the first technology venture capital fund in the country. Startups from this time period include VC Corp, VNG, and Vat Gia. These companies now exist as a strong foundation to build upon for the new and upcoming companies in Vietnam.

Besides IDG Ventures, there are a variety of other venture capital funds located in Vietnam, a brief sampling includes: CyberAgent Ventures, OneCapitalWay, and DFJ VinaCapital.

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While there was some initial success from the early startup efforts, there were also many failures. By 2012, many in the community had an unsettling feeling that the community had a serious lack of incubators and accelerators to help guide the new companies. Now, in 2014, a number of organizations have risen up to fulfill this need.

Among this new group of incubators and accelerators is the Silicon Valley Project, which is funded by Vietnam’s Ministry of Science and Technology. The four-month program is based in Hanoi and brings in mentors from around the world to council the participating companies.

There is also the Founders Institute, which is one of Vietnam’s oldest incubators. The Institute has already produced three classes of companies, including Yton.vn and Appota.

The incubators and accelerators range from the large government sponsored types to the small and idiosyncratic types such as X-Incubator, which only provides US$15 in funding but promises to help provide resources and connections.

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A variety of websites and other resources have also sprung up to help startups on their quest to make it big.

A key online area where the country’s startup community can interact with each other and continue to evolve is on the Launch Facebook page. This page currently has over 13,000 members and continues to grow.

A bird flaps its wings in Hanoi and…

Fueling the dreams of Vietnam’s wannabe tech startups has been the amazingly popular game “Flappy Bird.” The game has been a high-profile recent example of a hi-tech product to make its way successfully out of Vietnam. The game was available for download on sites such as Apple’s App Store and Google Play. Despite its simplistic technical design, the game was making US$50,000 a day in advertising revenue at its peak in popularity.

Flappy Bird has now been withdrawn from all download sites by its creator for unknown and somewhat mysterious reasons; however, the excitement caused by its success has yet to dissipate. The money earned in a day by Flappy Bird would take the average Vietnamese worker many years to earn in the usual types of employment on offer.

The meteoric rise and proceeding dramatic fall of Flappy Bird has served as a grim reminder of how much work needs to be done to ensure that the tech startup community succeeds.

Startups that develop games and apps are beginning to have a real impact on the industry as a whole. The Hanoi-based company, Appota, is a prime example. Begun in 2011 with only 20 employees, it now has more than 120 with plans for future growth as well.

While tech startups are often more attractive to foreign investors than other sectors such as property, there are still potential drawbacks, such as the fledgling companies being unable to meet international compliance and reporting standards.

Building a hi-tech Vietnam

The technology sector in Vietnam had been in a nascent state for some time due to a lack of people possessing the requisite skills to be successful. There is thus much room for improvement within Vietnam’s tech sector. The government has recognized that a skills deficit exists and, with the aim of jumpstarting the tech sector, has launched a number of programs intended to fill the perceived gap.

Beginning in 2010, Vietnamese prime minister, Nguyen Tan Dung, began a program intended to “transform” the country into an advanced IT market. In support of this plan, the Ministry of Science and Technology has been pouring money into the country’s infrastructure and hi-tech industrial parks. The World Bank has also pledged to help Vietnam, and has given the country a US$100 million loan to be used for development of the IT market.

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Education reform also still has some way to go before it is able to produce graduates who are up-to-date on all current technologies and methods. The country has a growing workforce; however, there is still a noticeable lack of high-tech skills among job seekers. The World Bank has stated in its 2014 Vietnam Development Report that Vietnam “needs to focus on making its workforce more productive and alleviating skills barriers to labor mobility.”

While the money that the Vietnamese government has put behind its development efforts is impressive, concerns remain that the ubiquitous bureaucracy inherent in the current governing system may impede the flow of money from getting to where it most needs to be.

While the Vietnamese government is pushing ahead with its skills training programs, foreign companies are also investing in the future of the country’s workforce. After already investing US$1 billion in a computer chip making plant in Ho Chi Minh City, Intel has led a group of technology companies, including Siemens, to train Vietnamese workers by committing US$21 million to fund training programs intended to develop a high-tech workforce within the country.

Tech companies speak loudly with their wallets

Vietnam is steadily becoming an important manufacturing base for electronics makers who are searching for the next location in the world that is able to provide a well-educated and low-cost workforce. Samsung is moving into Vietnam in a big way. The company is building a US$2 billion complex in the northern province of Thai Nguyen where it will produce smartphones and other electronics. Samsung already has a plant in Bac Ninh province and another in Ho Chi Minh City. Foxconn Technology Co., Intel Corp., LG Electronics and Canon Inc. are also beginning to drastically expand their investments into the country.

LG Electronics Inc. has stated that it will spend around US$1.5 billion over the next ten years as part of a plan to expand its production of electronics products in Vietnam.

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Dreaming in hi-tech

It is clear that Vietnam is serious about developing its technology sector and that there is now a great groundswell of startups beginning to bubble up into the wider global marketplace. However, it remains to be seen whether the local tech community can continue to mature and develop products that will be competitive anywhere. Vietnam’s dream is not simply to be building the tech products of foreign companies but to be developing its own. This new crop of startups could be the beginning of the realization of this dream.

So what do venture capital funds look for in startups? Nguyen Manh Dung, head of Vietnam and Thailand for CyberAgent Ventures explains that the team, as well as the idea, is of paramount importance. “Not only do they have short term [goals], they have long term [goals]. They think more than [about] the current state and they’re passionate about how to build a business. And the start of a business is not only because [of] money. It’s because you want to bring more benefits to the user, to support the development or something like that. The team should be [made of the] people I mentioned.”

Let us hope that technology entrepreneurs in Vietnam take this advice to heart.

Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam in addition to alliances in Indonesia, Malaysia, Philippines and Thailand as well as liaison offices in Italy and the United States.

For further details or to contact the firm, please email vietnam@dezshira.com, visit www.dezshira.com, or download our brochure.

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