Jari Hietala

Opportunities for Finnish Companies
in Vietnam
Jari Hietala
7.6.2007
Table of Content
Basic facts
Vietnam vs. other South East Asian markets
GDP, GDP growth, total volume of imports
Some core sectors
ICT
Environment & Energy
Forest
Healthcare
Infra & logistics
What you might face
Vietnam-mahdollisuuksia suomalais-yrityksille / Finpro ry / 2

Basic facts

Viet Nam country profile
Nominal GDP: USD 51 billion
GDP Growth: 8.4%
Total population: 84,402,966 (m/f: 49,1%/50,9%)
GDP per capita: USD 610
Major industries: Rice, rubber, food processing,

sugar, textiles, chemicals.
Major Trading China, Singapore, South
partners: Korea, Japan, Taiwan, EU
Inflation rate: 8.3%
Unemployment
rate: 2.4%
Exchange rate
(June 2006): 1 USD = 16.000 VND
Figures are for 2005 unless indicated.
Positives
New, dynamic and open market

Young and literate population
Educated yet inexpensive labor
Political stability
Robust economic growth
Bilateral trade agreement with the Europe
Union (cut off tariff with many goods)
150th WTO member

Negatives
Corruption
Bureaucracy and capacity of government
employees and institutions
Poor infrastructure
Low quality of education
Language bar

Economic climate from late 1980s to present
1986
1986 1990...
1990 ...1997
1997 2006
2006
Vietnam has been in High economic growth Momentum has

transition from a and development was picked up but this is
centrally-planned to a achieved in the early- mostly due to high
market-based economy to-mid 1990s, but earnings from crude
since 1986. growth slowed in the oil exports (6.8 per
Despite the many late-1990s due to the cent growth in 2001;
positive reforms in the combined effects of 7.0 per cent in 2002
last few years, progress the slow reform and 7.1 per cent in
is slow and trade and process and declining 2003).
industrialization policy foreign and domestic
remains largely one of investment resulting
import substitution from the regional
affording economic crisis of
disproportionate 1997.
protection to the
dominant state-owned
sector.
Main industrial items have increased rapidly
Main industrial items Due to difficulties in producing Items decreased

increased and consuming, some items over 2004:
rapidly over 2004: raised at a range of 10-15%
against last year:
purecoal
coal
pure
processed crudeoiloil
processed crude
seafood liquidizedgas
gas
seafood liquidized
tinned milk sugar
tinned milk sugar
chemical fertilizer molasses
chemical fertilizer molasses
floortiles
tiles assembled
floor assembled
rolled steel ready-madegarments
garments television sets
rolled steel ready-made television sets
electric cables paper and paper boards bicycles
electric cables paper and paper boards bicycles
machinetools tools cement
machine cement
assembled assembledmotorbikes
motorbikes
assembled assembled
automobiles beer
automobiles beer
electricity
electricity

Deterrents to trade
The main deterrents to trade
and investment are:
the lack of a comprehensive

and transparent legal
system
restricted land usage rights
complex foreign investment
laws
continued corruption in
infrastructure projects
the poor state of the
financial system
Standard and Poor's rate the systemic risk in the banking sector as one of the
highest in the Asia-Pacific region (along with China and Indonesia).
Vietnam vs. other South East Asian markets

Value of Imports (US$ billions)
10
9
37
GDP Growth rate %
8
7 Thailand
324
6
115 Malaysia
5
118 Vietnam
4
3 Singapore
2
1
0
0 50 100 150 200 250
Size of GDP in 2005 (US$ billions)

Vietnam is here

Imported commodities
The value of imported commodities was estimated at 36.88 billion

USD, increasing by 15.4% against last year:
domestic sector 23.19 billion USD, increasing by

11.1%;
foreign invested sector by 23.5%.
As import proportion of domestic sector increased more slowly, only

62.9% in 2005 (2004: 65.3%) and FDI sector 37.1% (2004: 34.7%).
Import values per month were 3.07 billion USD.
Imports from Asian countries took a greater proportion and highly
increased: China 27.8%; Singapore 25%, Taiwan 16.3%; Japan
14.4%; South Korea 8.3% and Thailand 29.6%.

Market Attractivness of key sectors by countries
Market Attractiveness:
1 = Low
3 = Medium
5 = High
Market Development Stage
Embryonic: the market is in embryonic phase. Difficult to
identify segments and potential customers. Marketing is
focussed on creating the market
Growth: the market is growing at a fast pace. It is relatively
easy to find customers. For new market entrants this is usually
the most desired status of the market
Mature: quite slow growth in the market. All the key players
have strong market positions and for the new entrants it is
difficult to enter the market. It is a fight to maintain the market
shares. For new entrants the key is to find suitable niche areas
Market size (relative to each others)
1 = small
3 = medium
5 = big

ICT sector
6
Market Attactiveness
4 Thailand
Malaysia
3
Vietnam
2 Singapore
1
0 Embryonic Growth Mature

Overview of Vietnam IT
IT market reaches USD 828 million for 2005:
Hardware: USD630 million (76% of total

market), up 15.6% in comparison with 2004
Software & Services: USD 198 million, 24%
of total market, up 41.4%
Telecom: USD 1,600 million
PC sales reached 1.2 million in 2005, 90% assembled

in Vietnam. With an annual growth of 25%, sales of 6
million PC can be foreseen for the next 5 years.

GDP growth vs. IT growth
49.6
50
40 32
28.8 29.1
30 20.9
17.6
20 13 13.4
6.9 7 7.24 7.5 8.4
10
0
2001 2002 2003 2004 2005
GDP growth IT Market growth IT Industry Growth

Overview of Vietnam IT
Software-the fastest growing sector
Software revenue reached US$ 250M, a 47% growth compared

to 2004.
Software export reached US$ 70M, a 55.5% growth.
Number of software firms reached 720, a 15% growth
Number of programmers approached 19,000, 25% growth

State Strategy for ICT
Prime Minister approved Strategy for ICT development until 2010

and direction toward 2020in Oct 2005.
Target for 2010
ICT is considered spear-headed industry with annual growth

rate of 20-25%. Total revenue will reach USD 6-7billion by 2010
Well-developed infrastructure all over the country. 32-42

telephone subscribers per 100 people,
8-12 internet subscribers (with 30% broadband users) per 100

people, reaching internet usage rate of 25-35%.
10 PC/100 people. Vietnam-mahdollisuuksia suomalais-yrityksille / Finpro ry / 20

State Strategy for ICT- Target for 2010
High Priority for development of e-government: all ministries,
provincial and district governments, administrative
governmental organizations are connected to internet via
broadband.
e-business: 25-30% of transaction will be undertaken via e-
transaction system. 50-70% of enterprises apply ICT.
Maintain high growth rate of 40% for software and information
content industry, total revenue of USD 1.2 billion by 2010
100,000 ICT university/college graduates. 20% have
international standard level
OSS: Master Plan on Applying and Developing Open source
software in Vietnam for the period of 2004-2008has been
approved by the Prime Minister, aiming at speeding up OSS
application and development
Incentive Policy
For software development business
No VAT tax and no corporate income tax (normally 28%) for

first 4 years
50% tax exemption for the subsequent 9 years

Global City Competitiveness for Off-shoring services
Delhi NCR 100
Bangalore 97.8
Hyderabad 94.3
Mumbai 92.6
Factors under Pune 91.4
consideration: Chennai 90.1
Kolkata 89.1
Human Capital HoChiMinh City 87.9
Manila 87.7
Shanghai 86.4
Costs Moscow 86.2
Guangzhou 84.4
Infrastructure Cebu 81
Clark 80
Environment Davao 80
Dalian 75.8
Risks Kuala Lumpur 74.6
Penang 74.1
MexicoCity 73.6
Budapest 73.3
Prague 72.8
Sao Paulo 71.1
Warsaw 71.1 Source:
Krakow 70.6 NeoIT,
Oct,2006
0 50 100 150

Opportunities for Finland-Vietnam
IT Collaboration
Training of IT engineers: training courses, dispatch of

engineers to Finland
Offshore-outsourcing to Vietnam
Customization and distribution of Finnish products for

Vietnamese market
Development of application based on OSS

Energy and Environment Sector
5
Market Attractiveness
4
Thailand
3 Malaysia
2 Vietnam
Singapore
1

Renewable energy
National Energy Development Program puts emhasis on
Strengthen R&D for new types of energy, in which attention
was paid on solar, wind and especially the renewable energy
(biomass)
2/3 of population live in rural areas, where the only energy
source today is biomass (woody biomass, agricultural waste,
sugar cane)
Energy from biomass accounts for 50% of the whole country

R&D directions for biomass utilization

R&D directions for biomass utilization

Power Generation in SE-Asia
Capacity and Demand Forecasts
Energy Consumption Peak Load Power CapacityPower Capacity
Actual Forecast Growth Actual Forecast Installed Planned Planned
2003/2004 2010 2002
2020 2004 2010 2020 2003/2004 2010 2020
Bill kWh Bill kWh or Bill kWh or in MW in MW in MW in MW in MW in MW
annual % annual %
Thailand 89,9 194 260* 15 000 30 000 41000* 23 000 31 500 46500 *
Philippines 72 13 400
Vietnam 41 90 160 6 900 12 000 27000 9 000 21 500 35 000
Malaysia 84 127 14 500 22 000 14 000
Indonesia 129 17 000 27 500 25 600 35 000
China 1 400 2,2 % 2,70 % 378 000 470 000 555 000
Notes: 1) Source: http: //www.eia.doe.gov/ and Asean centre for energy www.asianenergy.org
2) Source: EVN Master Plan on electric power developmenmy in Vietnam period 2001-2020
*) by the year 2016 according to ASEAN Centre for Energy. Estimation includes retirements capacity -7500 MW

Forest sector
5
4.5
4
3.5
3 Thailand
Vietnam
2.5
Malaysia
2 Singapore
1.5
1
0.5
0
Embryonic Growth Mature

Overview of forest industry
One-third of Vietnam is forested, less than 10% of this is
original growth.
Use of forest land is strictly controlled by the state, and most
companies in this sector are state-owned.
Industry forecasts show local demand for paper from now to
2010 will increase by 10.4% each year.
The government's 5 Million Hectare Afforestation Project has
attracted some interest from foreign donors.
foreign investment in wood processing in Vietnam has been
limited, with total capital of approximately US$165 million.
Most of the projects in the forestry sector appear to be risky and
low-yield, due to the lack of sources, the structural limitations of
proposed plants and financing challenges.

Expected investment requirements in 2006 2020
Unit: billion VND
Perce From
2006 2011 Budg
No. PROGRAMS TOTAL ntage other
2010 2020 et
(%) sources
A Total 31946 68414 100360
Sustainable forest
1 16214 28220 44434 44 30% 70%
management
Forest protection,
biodiversity
2 3871 10263 14134 14 60% 40%
conservation, and
environmental services
Timber and forest
3 product processing and 10428 26663 37091 37 5% 95%
trade
Research, Education,
4 547 849 1396 1,4 80% 20%
Training and Extension
Renovation of institution,
5 policy, planning and 886 2419 3305 3,3 100%
monitoring
Forest protection,
Biodiversity
conservation, and
Environmental
Timber and forest
services
product processing
and trade
Sustainable Forest
Management Research,
Education,
Training and
Extension
Fields need
investments from
private sector
Projected Consumption of Industrial Forest Products up to
2020
Year Sawnwood, Fiberboard Particle- Plywood Total
m3 m3 board, m3 & Wood-
Veneer, based
m3 Panels
m3
2003 2,211,000 40,000 80,000 11,000 131,000
2020 6,992,000 166,000 312,000 37,000 515,000
Annual 7% 7%-8% 8-9% 7%-9% 8.5%
growth
Newsprint Printing & Other Other Total

t Writing Paper & t
Paper,t Board, t
2003 55,000 160,000 680,000 76,000 971,000

2020 192,000 691,000 2,856,000 318,000 4,057,000
Annual 8-9% 9%-11% 9%-11% 9%-11% 9%-11%
growth
Vietnam-mahdollisuuksia suomalais-yrityksille / Finpro ry
WTO/AFTA Scenario for Vietnam
Increasing import competition stimulated by tariff

reductionsinefficient mills cannot compete against imports; applies
especially to small P&P and panel mills
Trade liberalisation opens also new opportunities
Enhanced market access and comparative advantages will stimulate
exports of furniture/SPWPschallenge to secure supply of (certified)
wood
Investments in new capacity and technology, and more competition
needed to improve productivity and profitability
Restructuring of the sector: larger mill sizes and closing of smaller,
inefficient mills

Major Investments Needed to Finance Forest Sector
Development
n VFDS implementation will require huge investments (depending

on the scenario) especially in
forest industry: USD 7-8 bill. in 2006-2020
forest plantations: USD 800-1000 mill. in 2006-2020
. but also in forest land use planning and allocation,
natural forest mgmt., protection and conservation and
associated human resource development
nCompetitive pulp mills are very costly at about 1 bill. USD;

creating conditions for such investments is a challenge
THE KEY QUESTIONS ARE HOW TO SECURE WOOD SUPPLY
AND MOBILIZE ENOUGH INVESTMENTS!!

VFDS Industry Development Scenario
Industry Expansion Potential Total
Potential by 2020 Capacity in 2020
Sawnwood 2,000,000 m3 6,000,000 m3
Particleboard 220,000 m3 312,000 m3
MDF 126,000 m3 170,000 m3
Paper and Board 2.6 mill. t 3.6 mill. t
Pulp: difficult to expand 1.5 mill. t 2.2 mill t VFDS Scenario

because of lack of fibre 2.9 mill t High Scenario
Wooden Furniture 2.3 mill. m3 3.4 mill. m3

( wood requirements)
Woodchip for Export 500,000 admt

Benchmarking Hardwood Fibre Costs
(Source: Pyry, Indufor)
EUR/m3sub, at
80
millgate
70
60
50
40
30
20
10
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H&W Sector
6
5
4 Thailand
Malaysia
3
Vietnam
2 Singapore
1

Medical Equipment Future targets
57 new hospitals with USD 1,8 billion in 2005 to 2010

USD 1 billion will be spent on medical equipment.
Upgrade provincial hospitals, district clinics, communal health centers, fund
epidemic prevention drives and medical check-ups for poor.
Safe blood transfusion

HIV/AIDS prevention and care
Upgrade central hospitals in the city of Hue
Health care for people in the Central Highlands and for poor
people in the mountainous northern provinces.
Presented projects offer export opportunities to Finnish medical

equipment suppliers, architects and consultancy and training
services providers.
Source: 2006 Report of Vietnam, EU economic and commercial counselors

Medical Equipment Market
Market for medical equipment worth USD 195 million in 2006 and is growing
by 10 percent each year.
The best sales prospects for manufactures are
Imaging diagnostic equipment (i.e., X-ray machines, CT
Scanners, Color Ultrasound machines, Magnetic Resonance
Imaging machines)
Laboratory equipment
Operating theaters and sterilizing equipment
Patient monitoring equipment
Emergency equipment
Health care sector
2004 2005 2006
(million USD)
Total Market Size 183.0 186.5 195.0
Total Local Production 3.0 3.5 4.0
Total Export 0 0 0
Total Import 180.0 183.0 191.0

Potential Indicators
The Vietnamese market has significant growth potential, due to a sizeable
population, higher living standards and increasing healthcare awareness.
The Vietnamese government continues investing, but inadequately, in the
health sector and has recently announced a scheme expanding the
healthcare network throughout out the country. This will include the
establishment of hospitals in more remote areas.
Government subsidies covered only about 20 percent of health care
expenses, with the remaining 80 percent coming out of individualsown
pocket. This indicates open market for privates investments.
Medical equipments in hospitals are still outdated and don t meet the
growing demands.
Source: Vietnam Pharmaceuticals & Health Report q4 2006

Infra & Logistics Sector
6
5
4 Thailand
Malaysia
3
Vietnam
2
Singapore
1
0
Embryonic Growth Mature

Infrastructure development
Vietnam is at the stage where
developing the national infrastructure is
the primary task from the Vietnamese
Government perspective to meet rapidly
increasing domestic demand (current
annual growth at 7-8 per cent).
Many infrastructure development
projects including highway construction,
railways, airports, power plants, water
supply and drainage systems, housing
development programs, industrial
zones, and hi-tech industrial parks are
underway.
Many of those are financed by
international funds from the World
Bank, ADB and JBIC. Japan is
currently the leading ODA country for
Vietnam.
Shipbuilding introduction
Vietnam has an area of 331,689 sq. km. The distance between the
northernmost and southernmost points is 1,650 kms and the total
coastline is 3,260 kms.
Vietnam has more than 60 shipbuilding and maintenance companies
under different agencies such as the Ministry of Defence and Vietnam
National Shipbuilding Industry Corporation (Vinashin).
The industry has built a number of 6,500 dwt cargo ships and 3,500 dwt oil
tankers and a project to build a 100,000 dwt oil tanker is under
preparation.
From 2006 to 2010, the industry will focus on integration and
competitiveness and hire non-Vietnamese experts to make large ships for
export.
Domestic shipbuilders have been unable to build heavy-tonnage vessels
because of limited technology, modern machinery and capital.
Vietnam
s shipbuilding industry is ranked the 11th in the world.

Market - domestic
The main market for the shipbuilding industry is the domestic market, but lately
it has expanded activities to international markets. The export market now
account for more than 20% of the total turnover and it is expected to increase
in the coming years.
Vietnam s shipbuilding industry is growing rapidly, creating good opportunities
for exporters of materials, maritime products and services.
Expected domestic demand for additional and passengers shipping fleet :
Additional vessels
Vessels 2001-2010 2001-2010 2010-2020 2010-2020 Passenger ships
units mill. units mill. Vessels 2005 2010
Containers 229 1.65 284 2.1 Sea going 59 79
Cargo ships 28 0.47 58 1 River 522 650
Oil tankers 37 1.11 43 n.a. Total 581 729
Potential customers for the shipbuilding and repairing sectors are ship owners in areas
such as cargo transport, passenger transport, the fishing industry and the oil and gas
sectors. The vast majority of ship owners are state owned enterprises.
Business opportunities
Shipbuilding industry in Vietnam still faces some difficulties in production due to the old
and inappropriate levels of technology. There is a big room for improvement in a number
of stages of the production process, especially in
plotting and marking
cutting technology
welding technology
engineering technology.
Some shipyards are working on implementing ISO 9000 quality standards of its
manufacturing process.
In order to upgrade its technology level and implement its development plan, the
shipbuilding sector needs at least USD 1,5 billion to modernize its operation and to import
advanced technology. The capital is planned to come from different sources, including
USD 700 million from joint ventures
USD 510 million from foreign loans
the remaining from local sources.
This large sum of investment into the industry will be channelled through Vinashin.

What you might face
Slow business development
High start-up costs
Watch out for mistranslations of important legal notices
Wide-spread corruption
Expensive proper housing and office space
Limited number of qualified English-speakers
In JVs, foreign partners provide basically everything, local
partners do site and links
Land use rights are hard to get
Construction materials must be imported

Thank you!
Finpro in Vietnam
Room 708, 11 Tran Hung Dao St.
Hanoi, Vietnam
Tel +844 9332470
phuong.kieu@finpro.fi

Jari Hietala

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Opportunities for Finnish Companies

Vietnam-mahdollisuuksia suomalais-yrityksille / Finpro ry / 2

Vietnam-mahdollisuuksia suomalais-yrityksille / Finpro ry / 3

Nominal GDP: USD 51 billion

GDP Growth: 8.4%

Total population: 84,402,966 (m/f: 49,1%/50,9%)

GDP per capita: USD 610

Major industries: Rice, rubber, food processing,

Inflation rate: 8.3%

New, dynamic and open market

Vietnam-mahdollisuuksia suomalais-yrityksille / Finpro ry / 5

Vietnam-mahdollisuuksia suomalais-yrityksille / Finpro ry / 6

Vietnam has been in High economic growth Momentum has

Main industrial items Due to difficulties in producing Items decreased

Vietnam-mahdollisuuksia suomalais-yrityksille / Finpro ry / 8

the lack of a comprehensive

Vietnam-mahdollisuuksia suomalais-yrityksille / Finpro ry / 11

Vietnam-mahdollisuuksia suomalais-yrityksille / Finpro ry / 12

Vietnam-mahdollisuuksia suomalais-yrityksille / Finpro ry / 13

The value of imported commodities was estimated at 36.88 billion

domestic sector 23.19 billion USD, increasing by

As import proportion of domestic sector increased more slowly, only

Vietnam-mahdollisuuksia suomalais-yrityksille / Finpro ry / 14

Vietnam-mahdollisuuksia suomalais-yrityksille / Finpro ry / 15

0 Embryonic Growth Mature

Market Development Stage

Vietnam-mahdollisuuksia suomalais-yrityksille / Finpro ry / 16

Hardware: USD630 million (76% of total

PC sales reached 1.2 million in 2005, 90% assembled

Vietnam-mahdollisuuksia suomalais-yrityksille / Finpro ry / 17

Vietnam-mahdollisuuksia suomalais-yrityksille / Finpro ry / 18

Software-the fastest growing sector

Software revenue reached US$ 250M, a 47% growth compared

Software export reached US$ 70M, a 55.5% growth.

Number of software firms reached 720, a 15% growth

Number of programmers approached 19,000, 25% growth

Vietnam-mahdollisuuksia suomalais-yrityksille / Finpro ry / 19

Prime Minister approved Strategy for ICT development until 2010

Target for 2010

ICT is considered spear-headed industry with annual growth

Well-developed infrastructure all over the country. 32-42

8-12 internet subscribers (with 30% broadband users) per 100

10 PC/100 people. Vietnam-mahdollisuuksia suomalais-yrityksille / Finpro ry / 20

For software development business

No VAT tax and no corporate income tax (normally 28%) for

50% tax exemption for the subsequent 9 years

Vietnam-mahdollisuuksia suomalais-yrityksille / Finpro ry / 22

Vietnam-mahdollisuuksia suomalais-yrityksille / Finpro ry / 23

Training of IT engineers: training courses, dispatch of

Customization and distribution of Finnish products for

Development of application based on OSS

Vietnam-mahdollisuuksia suomalais-yrityksille / Finpro ry / 24

0 Embryonic Growth Mature

Market Development Stage

Vietnam-mahdollisuuksia suomalais-yrityksille / Finpro ry / 25

Vietnam-mahdollisuuksia suomalais-yrityksille / Finpro ry / 26

Vietnam-mahdollisuuksia suomalais-yrityksille / Finpro ry / 27

Vietnam-mahdollisuuksia suomalais-yrityksille / Finpro ry / 28

Vietnam 41 90 160 6 900 12 000 27000 9 000 21 500 35 000

Malaysia 84 127 14 500 22 000 14 000

Indonesia 129 17 000 27 500 25 600 35 000

Vietnam-mahdollisuuksia suomalais-yrityksille / Finpro ry / 29

Market Development Stage

Vietnam-mahdollisuuksia suomalais-yrityksille / Finpro ry / 30