First, we wish to mention the great potential of the domestic market. As you

know, in all sectors, the outlet is the important element for the products. In other

words "there is demand, there is supply". The software industry also follows the

same law. Currently, the domestic market is big and attracting foreign software

enterprises in the supply of software products. However, their prices are too high

as they have to make market survey while Vietnamese enterprises have great

advantages in language, familiar market and better after-sale service.

Nonetheless, we also value foreign markets, as they are the most promising for

software export in high quality and economic value. Much needs to be done

before this is realized.

As we have considered in part I, our software industry has been developing with

high speed and also being received many attentions from the government. As Mr.

Phan Van Khai, the prime minister signed a decree in June last year to build and

develop the country's software industry from 2000 to 2005, emphasizing that the

industry will continue to be a new economic aspect to Vietnam.

Why do we say so?

If we consider the policies of the government, we can understand the bright

prospects of software industry(remember that software include IT):

-  Internet subscribers to represent 1.5 percent of the country's population by

   2005

-  Yearly growth to reach 20-25 percent

-  Total turnover of software productions to amount to US$ 500 million by 2005

-  Training of 50,000 IT experts, 25,000 of who should be highly qualified

    experts and professional programmers.

Turnover in the country's software industry could grow eight-fold over the next

five years. So forecast the Vietnam Informatic Association (VIA), predicting

$340 million for 2005.

VIA also examined what share of the business domestic software firms would

likely capture. It decided on figures of $110 million for 2005, respectively,

meaning its slice of the market would, at least percentage wises, hardly change at

all. Software company directors are lobbying the Government for better tax rates

and other incentives for the emerging domestic IT industry.

When building this agenda, our government had studied carefully the situation of

software industry and pointed out that we are having many comparative advantages

to complete this task as following:

- The large potentials of human resources to the software industry's development

  are the most important. If these potentials explored well, Vietnam will have a

  large number of well-trained programmers and project managers who play an

  important role in speeding up the development of software sector in the

  economy.

- The low labor cost that helps to reduce the cost of product are another

  important advantage. In compared to other nations in area of North Eastern of

  Asia, Vietnam has low minimum salary in dollar, therefore, it could make

  advantages in setting up a low price of software. By this way, software “made in

  Vietnam” could penetrate world software market.

- Oversea Vietnamese community is an important factor helping domestic

software companies in touch modern technology and managerial skills from

foreign companies. Recently, there are about 3 million Vietnamese origin people

living in oversea mostly in developed countries such as the United State of

America, France, Germany, Canada... A part of this community has worked in

software sector. For example, there are nearly 10000 Vietnamese- American

working in Silicon Valley. Some of them become famous and have a strong

financial condition. From 1996 up to now, there are 430 companies of the

Vietnamese oversea in Vietnam with registered capital of 490 billion VND

(1 US$ = 14500 VND in December 2000).  10% of those companies have run in

software sector.

- Vietnam software companies just are late comers in the software area. So, we

can spend a little time to look for new technology as well as leaning from leading

companies about managerial organizing skills. In addition, Vietnam software

companies could have no pressure to return long-term investment that they have

done before.

Standardized computer applications are easily available worldwide at relatively

low costs. By starting late, Vietnam may find considerable advantages simply by

being able to exploit better the whole range of more or less advanced software

without being locked into particular systems solutions. In both HCM City and

Hanoi a growing number of firms provide increasingly advanced software

services. Most of these firms are newly established, but a few have operated for

more than ten years. Some of their customers may have a long-term experience

in computing. Others customers merely need help in better using existing

information technology systems. These software and IT service firms could be

treated as the embryo of an advanced IT service sector in Vietnam. Besides the

two metropolitan areas, the size of this IT service sector is still small. If the IT

specialists working in universities, and inside the computer departments in city,

provincial and government administrations, considered alongside the private

firms, the sector could be considered to be larger. In-house software services are

still relatively important in Vietnam. For both small and large customers, the

trend is now to buy services from IT services firms. This trend follows what is

happening in other countries. Some vendors offer package deals, which include

hardware, software, and systems design (i.e. systems integration), but staff

training, software maintenance and upgrading, and around-the-clock technical

service. Undoubtedly, this part of the IT sector will expand very rapidly over the

next few years. Like in some of its neighboring countries, Vietnamese software

development may take off from local customer adaptations of standardized

computer programs. As is the case with most personal computers and their

applications, the first such tools to come to the market are geared toward the

handling and processing of the local language and its writing system. Such

applications may ease the penetration of computer usage among all sectors of

society, and serve an important role in popularizing microcomputers. Hence,

more user-friendly software, customized for the Vietnamese language, could

facilitate a rapid diffusion of computer and communications application among

industrial firms and public institutions. There are several examples of new

software products that have reached the domestic market such as a low-cost word

processing program in Vietnamese written by a Hanoi scientist, who now runs his

own software firm. Although many more Vietnamese-language applications are

already available in the marketplace and exhibit the creativity of Vietnamese

programmers, the level of software development and systematic integration into

the computing environment remains very limited, partly due to the lack of

diversity of computer platforms and limited access to detailed and thorough

technical information. Much remains to be done with respect to Vietnamese-

language processing. Already five years ago there were clear ambitions in

Vietnam to create a broader and more coherent base for the future development

of 'information industries'. Software production and related services were seen

as an obvious candidate for rapid industrialization.

Two thousand IT engineers, of whom, most are software programmers, will be

educated in Vietnam under financial and technological support from Japanese and

Indian governments, an official from the Ministry of Science, Technology and

Environment said. The number of trained engineers is a key human resource that

is needed to meet the demand of software exports, forecast to reach US$ 1

billion by the year 2005.

Meanwhile, the second Vietnam-Japan Bilateral Conference on IT cooperation

was recently held in Ho Chi Minh City by Vietnam Ministry of Science,

Technology and Environment and Japan-based CICC (Computerized International

Cooperation Center-Japan). After the conference, both sides signed a

cooperation agreement on Vietnam's IT development.
 

Pursuant to the agreement, Japan has agreed to help Vietnam set up the second

training center in Ho Chi Minh to train IT engineers during the period of 2000-

2002. The first center, also funded by CICC, was established three years ago in

Hanoi. Along with this program, Japan will support a series of training courses.

Simultaneously, the vice minister of Science, Technology and Environment,

Chu Hao said that India is also a nation from which Vietnam can learn and follow

in terms of IT development.
 

According to him, the Indian government has agreed to loan US$ 50 million with

a preferential interest rate to train Vietnamese engineers including sending

engineers to IT companies in India to serve an internship.
 

Hao said Vietnam's IT companies and universities will sign concrete contracts

with Indian IT companies to implement the training program under a dual

government umbrella. At present, India-based Aptech Co., Ltd. has supported

FPT Co., Ltd. to build a training center in Ho Chi Minh City. This center will

educate about 500 engineers per year within two years and has already recruited

local students.

The Vietnamese government's plan of becoming a big exporter of software will

remain just that - a plan - unless substantial foreign capital and technology can be

lured into the IT training centers, according to Nguyen Anh Tuan, director of the

Internet Value Added Services Center (VASC). He wants to see new policies

introduced to tempt more outside investors. "Japan and India help us very much,

but it is not enough in terms of finance and technology," he said. "We need more

helping hands from the US government and IT companies."

At present, the three universities in Vietnam have information technology

departments; all of them were established around a decade ago. However, so far

only around 500 students have graduated through these IT departments, partly

because their entry exam requirements are so tough. Tuan pointed out that the

knowledge level of even these relatively fortunate graduates was generally

inadequate. He said, "Vietnamese students do not lack in brains or ability. The

problem is that they are educated in an environment in which they are not trained

well enough to work in a modern industrial world."

IT analysts have concluded that if Vietnam wants to get to a stage whereby it

could annually export a billion dollars worth of software, it will have to find at

least US$ 800 million to spend on the training of a minimum of 40,000

programmers and will also need to have adequate technological infrastructure.

FPT, which has been recognized by the Ministry of Trade for outstanding export

achievement, hopes to become a huge software firm with markets in North

America, Malaysia and Singapore. FPT director, Thanh Nam, said: "Vietnam

should study nations like India and the Philippines which have given tax

exemption for software exports, helping businesses reduce the retail price of

their products. They have also created easy visa conditions for staff working in

this field and made clear public declarations that their nations will have strong

software industries."

The Value Added Service Center (VASC) under Vietnam Data Communications

Company (VDC) has recently signed a $150,000 contract to send software to 4

Real Software of America. Company representatives say this is the highest-value

contract that a Vietnamese firm has ever signed in this export field.

VASC director, Nguyen Anh Tuan, told how his firm had built up carefully to

winning the deal. "If software firms want to have many export contracts they must

improve their marketing and promotions, he said. In order to get the 4 Real

Software contract we had to develop clear orientation, which meant our research,

discussions and attempts at persuading 4 Real that we were the best firm for their

order could take no longer than a month."

Tuan also called for the taxing of software firms to be altered, adding: "The main

thing we want is for the State to have smoother policies, especially in relation to

signing of contracts, costs for marketing and promotion and also costs for

advertising because the software industry necessarily must have a big budget for

advertising."

The Vietnam government has set IT master plan for 2005, aiming to make

technology its central plank for a 25% GDP growth. The idea is to create better

support industries.

With the assistance of the Business Software Development Promoting Centre

our software industry have  had more promotion in sales and profit. Those are:

- One, to facilitate a favorable environment for the development of software

   and IT industry in Vietnam. As a unit of VCCI, the Centre can advise the

   government on preferential treatment concerning tax, infrastructure, and

   copyright issues for software businesses.

-  Two, to assist software businesses. In Vietnam, there are some 260

   businesses working in this area, most of them are small and medium enterprises

   facing many difficulties because of the lack of experience in this new and highly

   competitive market. The Centre helps in finding markets,

   Introducing Vietnamese software products, sponsoring training courses on

   managerial skill, exchanging information on technology and experiences with

   major firms like Microsoft, IBM, etc. In 2001, in particular, the Centre

   organized a "Vietnam software market on line" where software businesses can

   introduce their products, and customers can find numerous solutions to

   business problems.

-  Three, To increase the competitiveness of the Vietnamese businesses and

   Vietnamese economy in general, the Centre organized 60 seminars in 2001 to

   improve the knowledge of enterprises on the role and importance of IT,

   receiving great appreciation from enterprises.

Moreover, we are now in the process of integration and we are in the course of

reducing trade barriers. Therefore, we will have many opportunities to approach

and make use of advanced technology. With high quality product, our software

industry will provide to the customers' comfortable and modern life. Since then,

we can increase our domestic market share and truly become a trusted trademark

in Vietnam. The open door policy and integration process stimulates other

economic industry development and it creates a need for IT and boosts demands

for software products domestically. According to experts’ estimation, demand of

domestic market will increase about 30-50% annually. Over the past few years

Vietnam has become an increasingly popular location for multinationals to

outsource their software development because of its low production costs.

However, in our opinion, the competitive advantages of Vietnam software

companies are not so much and not strong enough to restrict the different level

in developing between domestic and foreign software companies. It must be

recognized that there are so much disadvantages of Vietnam software companies

compared to major competitors in the world. Therefore, we have thought it

should not be too optimistic on the considering prospects of Vietnam software

industry as well as evaluating the contribution of this industry in GDP.

2. In the international markets:

Computer software has been among the fastest growing industries in most East

Asian countries in the last few years. The global market is dynamic and diverse,

providing a wide variety of market niches to be exploited by newcomers. It might

be appropriate for young Vietnamese software companies, already operating on

the local or domestic market, to try out new software products for the

international market. However, the global software industry represents a

challenging and swiftly changing environment that usually requires substantial

marketing and distribution efforts as well as an international organization for

after-sales service and technical support.

Integrating into regional and the world market, Vietnam software market closely

links to and becomes a part of them. It leads to a situation of

“internationalization” in software price; it means that international pricing system

will directly influence price of software products. It brings advance to domestic

software suppliers a good background when they pricing their product at

reasonable levels. (In the past, such job has been criticized like “unbelievable” or

“not suitable to real value of products” even when selling at very low prices

because buyers could not understand the right value ones).

The Corporation for Financing and Promoting Technology (FPT), one of the

largest IT corporations producing both hardware and software in Vietnam, was the

first homegrown company to go abroad by opening two offices in the U.S.

(Silicon Valley) and India (Bangalore), the two software centers of the world.

FPT spent hundreds of thousands of U.S. dollars building up the two offices.

Although they are now not generating much profit, they have proved that we have

been located at the most developed technology country in the world.

With the birth of the Business Software Development Promotion Centre,

Vietnam’s software products can be helped to introduce to the world to increase

international co-operation. Through the website of the Centre, we introduce to

international partners the Vietnamese business environment, policies, enterprises

as well as IT products. In co-ordination with VCCI activities, we create more

opportunities for software enterprises to meet with each other.

Besides, the bilateral trade agreements that we signed with some developed

countries also take an important role in promoting the sales of our software

products. When tariff and non-tariff will be clearance, obviously there are no

barriers to protect for domestic business like previously, so they could compete

to foreign products directly.

There are many benefits which will be brought from these trade agreements in

both domestic and foreign market:

- It raises conditions to approaching and receiving scientific and

technological advantages all over the world in order to faster Vietnam

software development. This is exactly an advance of a follower and an

infant industry based on existed experiences. Therefore, software

enterprises can economize a great deal of investment expenditure.

Newest moderns can equip its infrastructure, at the highest international

level.

- The market expands in both scale and structure of software demands.

Domestic together with international market brings favorable

opportunities to software business. New trends and prospects appeared

from socio-economic fields, which increasing day-by-day, certainly ask

for IT updated applications more and more... Also, changes in knowledge

of people on IT have pushing demands for software. In addition, the

Government recognizes a necessity to optimize encouragement to

software industry. For example, process of developing E-commerce at

different degrees is based on a certain development level of IT.

Anyway, agglomeration and centralization will be obviously occurred in software

industry. Companies with a sound strategy will be well developed. In contrast,

small companies could be merged or bankrupt. So, the industry becomes more

dynamic. To be existed and developed, small companies should coordinate or

associate themselves in a different form. Many types of effective organization

shall appear in software industry. The coordinated scope in software production

could be widened regionally and internationally.

One of the motives for our software products is that the demand for such items is

increasing day by day and the application of those Software programs change fast.

Therefore, we can sell our goods worldwide and let the world remember our

name. Our enterprises are not strong and liquid but we can cooperate with other

giants in this field like IBM, Microsoft, Compact...they are now presented in

Vietnam and making profit companies.

Another innovation in the way software is produced has been the development of

software subcontracting arrangements. More and more, large electronics

companies, including large software developers, 'outsource' routine tasks to

specialized software subcontracting firms. Moreover, software subcontracting is

sometimes organized on a global scale. European and US firms, for example, are

using software subcontractors located in India to create an international 24-hour

production schedule. In principle, this type of arrangement could reducing the

amount of time it take to finish a project by half. During our interviews and visits

to some of the Vietnamese IT service firms, we have seen early examples of sub-

contracting arrangements with a major foreign customer and a software house in

Europe.

Comfortably, Software is often seen simply as a non-standardized good,

composed of complex knowledge for still-evolving markets. Thus, in most

developing countries, factory-type methods of mass-production of software are

rarely applied to production.

In highly developed countries, however, mass-production techniques and modern

management practices have been moving into the software industry.

Indeed, some experts believe that further standardization of software production

will become an important lever for the swift and cost effective creation and

diffusion of software applications. In some cases these practices have been

applied to developing countries as well.

In order to speed up the development of software industry, we can not ignore the

role of the government as we mentioned above. However, we would like to focus

on one crucial solution, which are being executed in some recent year. That is

high technology parks: Hoa Lac, Quang Trung (Hanoi), Tan Thanh (Ho Chi Minh

city).

In short, capital and development potentials are the keys to the development of

the software industry. India grew into a major information technology power

thanks to the progression in India of foreign companies and both to the presence

overseas of qualified Indian nationals and to that in India of qualified

professionals. The Indian experience should be a model for Vietnam in

developing this industry, since it will have to attract foreign information

technology companies and to train qualified manpower.

Vietnam should also endeavor to solve its defective infrastructure; its excessive

telephone communication and Internet connection costs, along with the necessity

to use a local Internet access provider in the case of Internet connections.
 

The biggest problem Vietnam will encounter in the case of investments is located

at the conjunction between business detachment and the complex legal system,

between Vietnamese habits and corruption. On the other hand, if investments

decreased around 1997, this is not related to the impact of the Asian crisis, but

rather to a weaker investment environment.

Unless the inefficient government and the state corporations implement a radical

deregulation, the worldwide information revolution that must be rapidly

implemented will be left aside. Furthermore since Vietnamese information

companies are still at the early stage of development and since there is not,

unlike India, a priority action plan, price competition potential becomes the key

issue at stake.

The Vietnamese are famous for having a high capacity potential. In order to use

them, the government is trying to implement a radical policy.

3. Some advantages and obstacles affected software industry:

3.1 Advantages:

The large potential of human resources:

As our population is increasing year by year and the labor force who are seeking

for jobs is about 1 million; we can address the unemployed issues by exporting

labor. Some of the strong countries are now lacking of technology staff such as:

Germany, American, France... and they are encouraging import such this kind of

labor. Therefore, our labor force can be trained in this area in order to work

overseas. Of course, these staffs must be high educated and qualified enough.

Our government now is promoting projects, which will train the imformatic

staffs in foreign countries. Companies who perform in this section themselves

also enable their staffs to be higher educated.

Low labor costs:

As analyzing briefly above, our labor cost is still lower than other countries, that

is an advantage for us in order to compete with other competitors. At the

moment, the salaries of programmers are higher than that of other sector but

much lower compared with that of other countries. The average level is about

2,500,000 VND per month while in foreign it is about $10000 or more. Thus,

we can draw investors to pay more attention to this sector because our labor

force is intelligent, hard working. The VASC director also called for the State

not to fix what salaries software firms could pay their engineers, saying: "Such

salaries should not be fixed. We need our engineers to devote their best efforts,

but to achieve this we must pay high wages so we are paying them what they are

worth."

Applying high technology:

As a follower, we can apply immediately that high technology and reduce the

costs. When doing so, we can satisfy the requirements of the people because

now, the people know much modern things through Internet or other

communications thus their demand is higher and higher. The open door policy

allows Vietnam software companies directly to approach different information

resources for quickly adding and updating new know-how to their business life.

Vietnam software companies can learn technology, managerial experience from

a big foreign company so that we can effectively receive and apply such advance

technology into developing and training human resources for software industry.

These above-mentioned advantages are important factors to encourage software

industry. Besides, we could not forget some favorable things such as: The

assistance of the government, the character of Vietnamese people: intelligence,

hard working, responsibilities

3.2. Obstacles:

First, the industry is immature, and is supported by limited capital, limited

technology and human resources. Resources for growth and development of

software companies have been scarce and limited in providing. Among of them,

the scarcity of human resources for developing software industry is the largest

obstacle. Software companies have faced to the problem of the shortage of well-

trained employees on both English and professional levels.

To date, only 95 companies have been registered as software makers, with a

grand total of 1,500 software engineers being employed by them.

However, the actual number of programmers working in the industry is

estimated to add up to 5,000, because many engineers are employed in

informally established software development teams. And of the 95 registered

companies, more than half are small start-ups that employ fewer than 20

engineers.

The turnover for the whole industry last year was estimated to be US$ 25

million, with US$ 5 million resulting from outsourcing contracts with

foreign software houses. Vietnam's Thuong Mai (Trade) newspaper has

reported that most of the software products produced by Vietnamese firms

are simple and used mainly by state organizations and state enterprises.

      Another obstacle that Vietnam's software industry faces is the issue of

      copyright infringement which runs rampant and discourages software

      producers from investing more in their development efforts.

According to Ngo Phuc Cuong, director of Microsoft Vietnam, only large

Corporations, state companies foreign investments and international

organizations are really buying software products. Most small companies and

individuals are using "cracked" software. The rate of “cracked” software in use

in Vietnam is reported at between 96 and 98%.

Industry experts estimate total expenses for developing an accounting

software package to be about US$ 100,000, with a required development time

frame of one to three years. Once the final product is ready for sale on the

market, it will be "cracked" and copied in no time, and sold at the basic cost of

a CD. That is why not many companies are eager to invest in software

development.

There could be many reasons for this situation of violation and piracy of

software in Vietnam.

-    The lack of understanding on the intellectual property of most software

      users in Vietnam is the reason in deep to violate and to pirate copyright

      software. In Vietnam, intellectual property is a new issue appearing in mass

      media and educational establishment few years ago. Many Vietnamese users

      have not understood it yet a major part of them have no hesitation to buy

      pirated products for their computers. In addition, it is easy at hand and

      suitable for their pockets. Furthermore, many developing countries including

     Vietnam, have considered that many international laws on intellectual property

     are nothing more than a lasso in hand of economic giants who are tightening

     developing nations faster and faster.

-    Low level of revenue per capita and the limitation of financial resources in

     most of enterprises and organizations using software recently are another

     important reason. It could be the direct reason for the violation of software

     copyright in Vietnam. The price of software is more and more expensive

     compared to the low purchasing power of the software users. While the price

     of personal computer and hardware has been reduced sharply, the price of

     software is still high and almost does not changed. Further, software

     publishing companies have to charge a high price for protected software

     related to the fee that the software companies must pay to the organization

     for intellectual property.

-    The weakness of system of law in protecting copyright and intellectual

     property is important too. The system of law related to copyright in Vietnam

     not only is lacked in detail but also is not synchronous and clear. Further, the

     sanction is not strong enough to deter and prevent the users from violating.

The third problem, and perhaps the most important of all, is one of market

characteristics. As a result of the widespread practice of copyright infringement

in Vietnam, most software companies operate few marketing tools and after-

sales services.

Vietnamese software development houses are currently engaged in outsourcing

projects commissioned by foreign companies; they produce packaged software

to be put on store shelves but only in foreign lands and sold under a different

vendor's name.

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