The Emerging PC Market in Vietnam
Hardware vendors profit at software makers' expense
With a 2,000% growth in installed PC base in just two years, Vietnam is at last entering the computer age. But while foreign hardware makers scramble to grab a piece of the market-share pie, software vendors are left with the crumbs.
by W. James LaLonde
Recently, I spent two weeks in Vietnam, where I traveled (mainly by hired car) from Hanoi in the north to Ho Chi Minh City (formerly Saigon) in the south. Vietnam is an extremely long and narrow country, nearly as big as Japan and with a coastline longer than California's. Two weeks was hardly enough time to see "the whole country," but I came away with some impressions of Vietnam and its emerging computer market.
No mainframes to unplug
Estimates put the installed base of PCs in Vietnam as of late 1994 at roughly 60,000 units. Compared with Japan, where over 60,000 PCs are sold every week, this seems a small figure. However, when one considers that in 1992 the installed base was only about 3,000 units ó a 2,000% growth in the installed base in two years ó the enormous potential for growth becomes obvious. The expectation is that the installed base will continue to grow by at least 50,000 units per year (90% IBM PC-compatibles and 10% Apple Macintoshes) for the rest of the century. This has many foreign computer companies scrambling for channel partners and market share in Vietnam.Vietnam does not have the mainframe legacy that many other countries have ó the country literally missed the mainframe era. When Saigon fell in 1975 and the Americans left, so did their mainframes and the know-how to run them. Now, after nearly twenty years of technological darkness, the PC is poised to bring Vietnam into the 20th century. It is estimated that nearly 70% of all IT (information technology) expenditures in Vietnam are on PC-based solutions.
The Vietnamese are now making up for lost time, and awareness of personal computer hardware and software was surprisingly high among the people I met. (I wish I could say the same about Japan!) In Vietnam, the personal computer has become a status symbol, reflecting high technology and economic promise. Some 100,000 people attended the Ho Chi Minh City Information Technology Conference in 1994. In general, people seem genuinely excited about the promise of "high technology," as represented by the PC and the benefits computers bring to society.
$2,000 of "free software" with each computer sold
The PC shops in Vietnam reveal much about the state of the PC market. The average shop has one or two PCs hooked up and on "display," but the most substantial area of a shop is generally filled with boxes of unsold computers piled to the ceiling. One part of the shop is invariably set aside for PC set-up and "free software" installation. A typical shop will load your hard drive full of (illegal) software for just a $5 installation fee.Vietnamese PC shops come in all shapes and sizes, but there are two main varieties. One is the traditional PC store, where customers can get advice and consultation on how to set up a LAN as well as a good price on a Singaporean "no-brand" PC and a genuine Epson dot matrix printer. The other is a no-frills shop, where the buyer chooses from available stock and then waits as a shop employee sets up the PC and installs the "free software."
The shops I visited tended to have the latest versions of software running on their demo PCs, but the hardware they were peddling was hardly "cutting edge." The high-end machines had a 486DX2 CPU, VL bus with 8MB of RAM, a 210MB hard disk drive, and a 14-inch SVGA monitor. Larger monitors and Pentium-based PCs with a PCI bus were scarce. The latest technology and laser printers remain beyond the budget of the average Vietnamese computer shopper.
Most shops had little packaged software and few computer books on display. The lack of packaged software can be explained by the fact that very few Vietnamese actually pay for the programs they use. Computer books do sell quite well, though, and several of the bookstores I visited had significant areas devoted to computer books. The offerings were cheaply printed Vietnamese translations of English manuals or locally produced "how to" books; even in Ho Chi Minh City, there were few imported English PC books or magazines.
The Vietnamese language
The Vietnamese language has been described as a fusion of Chinese, Thai, and Khmer. Until the 17th century, the Vietnamese language was written with borrowed Chinese characters, in much the same way that Japanese is written today. Unlike modern Japan, however, the written ideographs were used and understood exclusively by the elite ruling class. (Interestingly, I was able to read many of the Chinese characters that remain on temples and some shop signs better than the locals.)In the 17th century, a French Jesuit scholar created a roman script to express the language, which he used in an attempt to convert the masses to the faith. Christianity has faded away, but the roman script remains and is one of the key reasons that Vietnam enjoys a very high adult literacy rate today. To the untrained eye, Vietnamese script may look as though it has been written by someone with a shaky hand ó or typed by a hyperactive typist. A multitude of varied accent and pronunciation marks seems to surround every other character.
When I first saw Microsoft Word 6.0 for Windows running on a PC at the reception counter of my hotel, I wondered how the input is accomplished. I continued to stare at the screen, wondering "Is Vietnamese double-byte or single-byte?" The lady behind the hotel counter began to look quite worried about the foreigner who had a strange attraction for the hotel's one and only PC.
I then noticed that the application software seemed to be the English version ó yet the type was true Vietnamese, complete with abundant crazy squiggly marks. It was not until the next day, when I got a full demonstration at a local PC shop, that I learned the truth: Windows users in Vietnam use the English version of applications, and install Vietnamese TrueType fonts to get Vietnamese output. By shifting and pressing various number key combinations, they produce the accent marks that appear around the characters. One might think that placing all those marks around the characters would make typing difficult, but the locals speedily cranked out text for me in numerous demos.
Piracy problems
Yes, software piracy is a serious problem in Vietnam. As in many other Asian countries, the concept of intellectual property rights is not well understood in Vietnam. Unlike Taiwan, however, where making and reselling pirated copies of packaged software has become a profitable and well-organized business, the average Vietnamese pirate mass copies floppies and sells them cheaply to computer shops and end users. Users then buy the equivalent of software manuals very cheaply at a bookstore. Although regulations prohibiting software piracy exist in Vietnam, they are weak and rarely enforced.Such an environment makes it unprofitable for software companies to operate in Vietnam and hinders the development of a healthy local software industry. While Vietnam's PC market has as much long-term potential as the economy itself, a lack of Vietnamese-language software will certainly stunt the growth of the computing market in Vietnam. It is up to the foreign hardware makers to realize this and to start educating their dealers and customers. Major software vendors will also need to begin a serious lobbying campaign to encourage the Vietnamese government to create stricter regulations that carry heavy fines and punishment for copyright infringers.
The good news is that the situation is not utterly hopeless. More and more Vietnamese software is being produced, and business people are slowly starting to realize that they have to pay for software (or, at least, for Vietnamese-language software). There are even rumors that the government plans to implement a new law that classifies intellectual property as an asset, which therefore should also include harsher penalties and stricter regulations.
Telecom troubles
Another serious barrier that threatens to inhibit the proliferation of PCs in Vietnam is the poor state of the telecommunications infrastructure. I saw only one public telephone during my two weeks there, and very few of the people I met had a telephone in their home. Vietnam has one of the lowest telephone densities in the world ó less than 0.5 telephones per 200 persons. Compare that with China (1.3 telephones per 100 persons) and Malaysia (12 per 100).In 1986, when Vietnam first opened up to the Western world, it is said that the only phones in use were in government ministries, and that all international calls were made using a high-frequency radio link. Things have improved dramatically since then. Foreign telecom companies like Germany's Seimens, Australia's Telstra, France's Alcatel, and others have provided much-needed technical assistance to the Directorate General of Post and Telecommunications in Hanoi. A new telecom backbone now runs the length of the country, connecting the major cities. Idiosyncrasies in service still abound, and many rural areas are still without telephone service. In Ho Chi Minh City, it is possible to get a mobile telephone account started up in under an hour; a normal telephone line, on the other hand, takes weeks and costs significantly more. All this means that it will be some time before the corporate WAN is a reality in Vietnam. Remote access to LANs and other forms of mobile computing will remain next to impossible for the foreseeable future.
Where are the Japanese?
Wherever I went in Vietnam, I was amazed by the overwhelming market presence of Japanese companies in many key sectors (such as consumer electronics, building supplies, motorbikes, and automobiles). From the television sets that seem to be the only form of evening illumination in rural towns to the toilet-paper holder in my hotel room, products "made in Japan" were everywhere.It struck me as odd, therefore, that there were practically no Japanese PCs to be found in Vietnam. Except for Epson's dominance of the printer market, no Japanese computer maker has a significant presence in Vietnam. NEC, Toshiba, and the rest would do well to heed the lesson of Honda and see to it that their products get to market. Vietnamese consumers like Japanese products, and they are very brand loyal and quality conscious. The time is ripe for Japanese PC makers to take on their American counterparts in this rapidly expanding and promising market.
James LaLonde is a manager with Microsoft Co., Ltd. (Japan). In his current position in the Business System Sales Unit, he is responsible for marketing Microsoft's Windows NT and related server products to large multinational corporations. He can be reached via the Internet as jameslal@microsoft.com. The views expressed in this article are his own and are in no way representative of those of the Microsoft Corporation.
How to buy a PC on an annual salary of US$200
According to much-publicized official statistics, the yearly per capita income of Vietnam is approximately US$200. I began to doubt that figure seriously on my very first day in Vietnam. Walking around the streets of Hanoi, I was nearly run over several times by hoards of Honda scooters that dominate the streets. In Vietnam, the 100-cc Honda scooter is the equivalent of the family car in Western countries; entire families (father, mother, and baby, too!) ride on a single Honda. (Although their success in Vietnam was anything but planned, being first to the market with a quality product paid off for Honda. Their market share in Vietnam is tremendous, ó as high as 95%, according to Honda officials. Even the word for this type of scooter/motorbike in Vietnamese is "honda.")In Vietnam, it seems as though everyone owns a motorbike, yet they cost roughly 10 to 15 times the average Vietnamese worker's "official" yearly wages. According to my guide, the most popular model is the Honda Dream II, which sells new for about US$2,700. (The same model costs around ·140,000 in Japan; because of government taxes, import duties, etc., the Vietnamese end up paying nearly double.)
What does all this have to do with PCs, you ask? The Honda scooter paradox exemplifies the gap between the "official" per-capita figure of $200 and the real purchasing power of the average Vietnamese. There are numerous other examples. In Ho Chi Minh City and Hanoi, for example, where the average monthly wage "officially" is US$35 and US$30, respectively, soft drinks like Coca Cola and Pepsi sell briskly at about US$1 per can ó roughly a day's pay for the "average" Vietnamese worker! Ownership of consumer durables is also much higher than the $200 figure would lead one to believe. According to the latest government statistics, nearly 65% of households in Ho Chi Minh City own a television set, 54% own a motorbike, and over 20% own videocassette recorders.
In talking with a number of Vietnamese people, I discovered how they can buy TVs and Hondas while feeding, clothing, and educating their kids, all on just $200 a year. The answer is that they do not. Most Vietnamese supplement their "official" earnings with various types of "unofficial" income. In rural areas, farmers ó freed at last from the confines of government-imposed quotas and required communal farming ó now farm their land as they like and have profit/loss responsibility. Many Vietnamese farmers work year-round and harvest three or four crops, selling the excess for extra (unreported) income.
A serious gap does exist in earning power between the rural and urban areas. Overall, residents of large cities make about 10 times the income of their rural counterparts. They supplement their income by moonlighting at one or even two extra jobs, and the money received from these jobs goes unreported and therefore is not included in the official $200 figure. (An exception to this are bureaucrats and police, who usually have just one job but buy their Hondas and TVs with money reportedly from bribes.) In addition to working extra jobs, a surprisingly large number of Vietnamese families receive payments (in the form of money or goods) from Vietnamese relatives living overseas. One reliable estimate puts the amount of these payments at US$60 per capita.
The bottom line, then, is that companies and individuals seeking to market to Vietnamese consumers should not pay too much attention to the $200 figure. Foreign computer companies certainly are not. Since the lifting of the embargo and the relaxing of the COCOM regulations, nearly all the large personal computer manufacturers are either directly or indirectly represented in Vietnam. Throughout the country, billboards and signs prominently advertise computers from Compaq, Digital, HP, Acer, and others.
Status of foreign computer companies in Vietnam
IBM opened its first office in Hanoi in 1938, and in 1993 it was the first major foreign computer company to open an office in Vietnam after lifting of the trade embargo and easing of COCOM restrictions. Despite the local office, IBM's Southeast Asia operations are supervised by IBM's PC Business Unit in Singapore, which handles distribution, pricing, support, and sales channel management. Most of IBM's business in Vietnam is handled through its local partners: FPT, CMT, Tradevico/IBC, SEATOC, Beam Co., Ltd., and Viettronimex.Compaq has a highly visible presence for the Vietnamese public, with billboards emblazoned with the Compaq logo. Yet Compaq does not have an office in Vietnam; its PCs are distributed through Genpacific (originally a joint venture between the Vietnam Ministry of Heavy Industry's Union of Electronics and Informatics). One of Genpacific's first tasks was assembling computers for sale to the Soviet Union in the late 1980s; that business has since evaporated, and Genpacific has branched out into distribution.
Apple Computer takes a two-tiered approach to the Vietnamese market, choosing different agents to promote different sectors. Focusing on the private sector is SV Informatics, a joint venture between Apple's Thai distributor and a Vietnamese partner. Public sector business is handled by Peace Tour Electronics, a government-backed enterprise that is heavily involved in the development of a Vietnamese version of the Apple Macintosh operating system.
Acer is represented by a joint venture with its Thai representative, Sahaviriya International. Acer plans to rapidly build up a dealer network, starting with Viettronimex in Ho Chi Minh City. Rather than try to compete on price with "no name" Taiwanese and Singapore PC clone makers, Acer will tout its reliable servers and go after the LAN business in Vietnam.
DEC opened a representative office in Hanoi in 1994, after two years of selling indirectly through three local resellers: Scitec, 3C, and CIIC. DEC is most visible in Hanoi, as its main focus is large public sector LAN projects.
Epson is represented in Vietnam by a joint venture between Epson Electronics, Thailand, and Sahaviriya OA Group (its Thai distributor). Epson has been in the market for a relatively long time ó over three years óand dominates the printer market (dot matrix printers are big sellers in Vietnam). Epson's main reseller is Viettronimex, and it has set up service centers in both Ho Chi Minh City and Hanoi.
Fujitsu recently joined the fray by donating several PCs to government officials in Hanoi. The donation is the first gesture in a larger plan to help the Vietnamese government get fully computerized by the year 2000.
