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Welcome to Silicon Vietnam - Creating a technological eco-system (Part 3)



In the last post in this series we turn to the requirements of access to funding and education. Where is the investment coming from and going to, and can Vietnam’s education system meet the demands of this rapidly developing industry?


Access to capital and funding

One of the key components is of course access to opportunities to invest in the business in its early stages.


Borrowing from a bank is far less prevalent in Vietnam than it is in the west and elsewhere in the region. This is understandable as the banking system only started to open up following Vietnam’s entry to WTO in 2007. In addition, many foreign banks are reconsidering their positions in Vietnam now, and less than 30% of small to medium sized business borrow money from Vietnamese banks[1]. However, in February 2018 BIDV (the largest state bank in Vietnam) released a financing scheme of USD100 milliion to support start-ups.


A total of 92 Vietnamese startups raised $291 million in funding in 2017, a 45 percent increase in number of startups from 2016[2]. The biggest deal was Foody, a food social network startup, which was acquired for $64 million by Singapore-based SEA Group, one of the most valuable startups in Southeast Asia.


Another success was the popular e-commerce site Tiki.vn which received a $54 million investment from JD.com, China's second biggest online retailer.


The categories in Vietnam which had the largest start up investment were (i) e-commerce, $83 million; (ii) food technology, $65 million; and financial technology, $57 million. Looking at the retail outlet statistics, e-commerce growth is expected to be stellar. There are 1800 physical convenience stores in Vietnam which means there is 1 store per 54,000 people. In China, where e-commerce has seen one of the largest growth explosions in history, there is 1 store per 25,000 people – twice as many retail outlets as Vietnam. To give further context, South Korea has 1 store per 2000 people. Vietnam just does not have sufficient shops for people to buy the stuff that they are now rich enough to buy.


Alibaba purchased a controlling stake in Lazarda, the largest online retail operation in SEA (and Vietnam). Given what Alibaba has achieved in China, it will be interesting to watch this space in Vietnam. Expect to see a massive push for a Vietnamese Singles Day!


It is worth noting that the investors in the above businesses are non-Vietnamese. Large Vietnamese companies seem to prefer to invest in manufacturing industries, e.g. smart phones (Vingroup and BKAV have both moved into the smartphone production market).


Relative to the region, Vietnam is ranked third in South East Asia for its start-up community (behind Singapore and Indonesia) according to Angelist Asia 2017. The average valuation is US$3.5 million. It’s not huge, but Vietnam is doing very well to be ahead of other jurisdictions in the region.


Education, Talent Pool, Government

There appear to be some contradictions - Vietnam Software Association complains of a lack of talent entering the market with approximately 400,000 IT workers needed by 2020, with the universities and training establishments set to provide only 250,000 workers in this period.


However, Ministry of Planning and Investments statistics provide that 17% of university graduates under the age 25 were unemployed in 2017.



Vietnamese high school students have long been known for their excellent performances at math and science competitions, outscoring their US and UK counterparts – so the raw material is there but it’s what happens later that is the key.

It is the labour-intensive sectors that continue to be the growth drivers but as the country moves towards Industry 4.0, the government must introduce significant reforms across all the main sectors of the economy to increase the skill and quality of labour to remain competitive. Indeed, many reforms are required by upcoming free trade agreements.


FDI companies report a difficulty in hiring skilled labour. According to the 2018 Global Talent Competitiveness Index (GTCI), which assesses countries in terms of their ability to attract, develop, and retain talent, Vietnam ranks 87th amongst 119 countries. Major challenges include the lack of technology infrastructure, R&D spending, vocational, and technical skills.


While acknowledging the role of the government in tackling some reforms and the strength of recent economic development, Borge Brende, president of the World Economic Forum said that ‘grand opportunities’ await Vietnam if it implements proactive policies relating to Industry 4.0 and technologies relating to artificial intelligence, self-driving cars, Internet of Things and blockchain.


If you want to visualize everything in the 21st century, you need all these technologies, which means adequate research and development resources have to be provided. Please invest in students, universities and technology.”

One of the most successful startups in Vietnam is VNG[1], a gaming company whose games are exported to over 200 countries while chat app, Zalo, has 70 million users across several Asian countries. It is the only Vietnamese startup to have a US$1 billion valuation. The person behind it believes that returning Vietnamese who have studied abroad, who have also maintained their local connections are most likely the type of entrepreneurs to succeed. Overseas experience makes the returnee attractive to investors due to their different thinking among a particular focus, while local experience and local connections allow the opportunity to be taken on the ground.


On a much broader level, whether the limited access to information is adversely affecting the ability of startups to flourish remains to be seen. Eddie Thai, a venture partner in a Silicon Valley VC business says – ‘it is incredibly difficult – though not impossible – to develop [creativity and critical thinking] in a context that limits information. It’s no surprise that many of the most successful startups in SEA – Grab, Sea, VNG and Carousell – have founders who spent time studying elsewhere.’ The recent Cyber Law may exacerbate this issue, though in China similar conditions have not necessarily curtailed innovation.


However, recent articles on Silicon Valley suggest that the behaviour of internet giants is stifling innovation and creating a ‘killing zone’ around startups[4]. This ultimately squashes them before they even have a chance to get up and running.


There is certainly cause for optimism in Vietnam’s ability to have a flourishing tech industry. There are still many opportunities for those who spot them, have the ability, the combination of the international and local network, and the courage - to take the chance. It may not have all the elements of the Silicon Valley model running smoothly together, and it may not have the massive market and the sheer numbers of China. But both these places are getting incredibly competitive – almost to an extent that now limits or squashes opportunities. For those in the right place at the right time in Vietnam, the opportunity may be right now.


[1] VCCI (Vietnam Chamber of Commerce and Industry

[2] Report by Topica Founder Institute (TFI)

[3] SEA Globe - December 2017 issue

[4] The Economist June 2018

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