Vietnam –Navigating the future of IT services sector Dr. Nguyen Cong AiHead of Strategy Group, KPMG Vietnam—October, 2017

© 2017 KPMG Limited, KPMG Tax and Advisory Limited, KPMG Legal Limited, all Vietnamese limited liability companies and member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG 8International”), a Swiss entity. All rights reserved.

Introduction

Positioning – Where are we?

Navigating – The way forward

Contents

A note about our methodologyOur data and information is based on the result of a survey of IT related industry businesses and universities

Survey was conducted in August – September 2017

105 respondents

59

29

15

2

Private Foreign invested

Universities/Associations State-owned

69%

21%

10%Vietnam

Non-Asian business

Asian business

Why Vietnam?

2%

20%

51%

26%

1%

Very low

Low

Medium

High

Very high

Most investors see Vietnam as an attractive destination

88%of our surveyed respondents predict sector growth of 15% or more in the next 3 years

73%of our surveyed respondent believe Vietnam remains a low-to-medium cost operating market

Source: KPMG ITO survey 2017

53%

39%

12%

1%

High (> 15%)

Very high (> 25%)

Medium (7%)

Low (< 7%)

Friendly business environment

Source: KPMG ITO survey 2017

Competitive labor cost Low investment cost Attractive tax incentives Strategic geographicallocation

90% 87%78% 77%

Investors agree that most critical success factors are competitive labour cost, low investment cost, attractive tax incentives, and strategic location

Competitive utilities costs

Source: Langdon and Seah

0.81

1.12

1.18

0.65

0.62

0.89

0.87

Manila, Philippines

Beijing, China

Guangzhou, China

Kuala Lumpur, Malaysia

Jakarta, Indonesia

Ho Chi Minh, Vietnam

Bangkok, Thailand

0.21

0.16

0.14

0.13

0.13

0.11

0.08

Manila, Philippines

Beijing, China

Guangzhou, China

Kuala Lumpur, Malaysia

Jakarta, Indonesia

Ho Chi Minh, Vietnam

Bangkok, Thailand

1.47

1.16

0.57

0.63

1.03

0.65

0.39

Manila, Philippines

Beijing, China

Guangzhou, China

Kuala Lumpur, Malaysia

Jakarta, Indonesia

Ho Chi Minh, Vietnam

Bangkok, Thailand

Electricity for business use (USD / kWh)

Water for business use (USD / m3)

Fuel - Diesel (USD / liter)

Vietnam has a competitive advantage regionally in terms of its low manufacturing costs and become a destination of choice in the future as a production base

Human resources

An internationally recognized workforce

Source: KPMG ITO survey 2017

Skillful IT labor force

Good customer services

Good technical skills

Fast adoption of new technology

Good management skill

59%

75%

90%

93%

More than 90%of surveyed respondents agree that Vietnam IT engineering workforce is very good at management skill and adoption of new technology

“Vietnamese software engineers learn things quickly. As long as you teach them properly, they learn well.”

Japanese IT Outsourcing Engineer Recruitment Executive

Plenty of skilled labor

Source: KPMG ITO survey 2017

73%of our surveyed universities expect the growth of IT studentsin coming years to be from 10% or more

80%of workforce at surveyed companies have IT specialized undergraduate degree

Labor costs are relatively low

USD800 –1,600

36%Below

USD80061%

61%of our surveyed respondents disclose average monthly salary for IT engineers is less than USD800 per month

Source: KPMG ITO survey 2017

69%

Average annual growth

rate of 15%

69%of the companies also expect that the average annual salary growth rate for IT engineer will be at about 15% in the coming years

Digital transformation: Disrupt or be Disrupted

29%

Digital Disruption has already happened

29%of our surveyed respondents have generated revenue from new technology products & services (IoT, Big Data & Analytics, Augmented Reality, etc.) in 2016

Source: KPMG ITO survey 2017

“These are the areas for strong development in VN in the years to come: Artificial Intelligence, Machine learning, Big data, Mobile, IoT/IoE”

CEO of an American software testing and development company

“New IT technology will play important part for the country development, in the era of industry 4.0, especially in agriculture and industrial manufacture of Vietnam”

Vice President of a leading global IT solutions founded in the US

Sharpening human resources

51%

20%

93%of our surveyed universities have plans to develop programs / courses in new technology products & services

Source: KPMG ITO survey 2017

93%

“Industry 4.0 will result in a shortage of technically, digitally skilled-people. Therefore, we need to develop new models of education, reconfiguring the way student are educated and trained”

Program Director of a leading Vietnamese University

“University’s mission is to produce knowledge that is relevant to industry, design courses that more accurately fit industry’s needs”

Recruitment Director of a reputable University in the central of Vietnam

Overall, what to be considered critical by investors?

72%

70%

63%

56%

55%

51%

Having plentiful IT labor supply

With high quality skills

Availability of good quality IT infrastructure

Transparent regulation framework

Trusted cyber security

Favorable tax policy

Source: KPMG ITO survey 2017

How the Government can support?

Favorable Policies support

Holistic infrastructure system

Investing in human resource

Fostering innovation

− Transparent investment climate

− Decentralization of licensing authority

− Improvement of legal system− Encourage investment in hi-

tech sector (tax incentives, government funding, duties exemption, etc.)

− Bilateral investment agreements

− Continue to invest in telecommunication infrastructure

− Implementation of e-government and reform administrative process

− Enhance country cybersecurity

− Attract foreign investment in higher education

− Provide funding and other support to institutions

− Have a system of monitoring / evaluating quality

− Encourage universities to invest in staffs and programs in digital technologies

− Facilitate catalytic events that bring entrepreneurs together

− Reorganize existing incubators along a holistic format that integrates incubated firms

Thank you

© 2017 KPMG Limited, KPMG Tax and Advisory Limited, KPMG Legal Limited, all Vietnamese limited liability companies and member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Your KPMG contact is:Nguyen Cong AiPartnerDeal AdvisoryHead of Strategy GroupTel: + 84 8 3821 9266 ext.8235Mobile: + 84 908 441 528acnguyen@kpmg.com.vn

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.