CHAPTER V: LEADING SECTORS FOR U.S. EXPORTS & INVESTMENT
Vietnam's dynamic economy provides many opportunities for U.S. exporters. Some leading sectors for U.S. non-agricultural goods and services, as well as agricultural products, are listed below. Information supporting the selection of sectors is gathered from interviews with industry experts, market research, and available data. In some sectors, reliable and complete data sets are not available. Interested parties may contact the FCS Office or the USDA/FAS Office at the U.S. Embassy, Hanoi, for updated information.
A. Leading Prospects for Non-Agricultural Goods and Services
1. Electrical Power Systems
Rank of Sector: 1
Name of Sector: Electrical Power Systems ITA
Code: ELP ..........................1995 .............1996 .............1997
A. Total Market Size ...........250.0 ............450.0............ 470.0
B. Total Local Production .....79.0 ............100.0 .............115.0
C. Total Exports .....................0.0 .............0.0.............. ...0.0
D. Total Imports ..................171.0 ...........350.0 .............355.0
E. Imports From The U.S. ......4.2 .............9.5 .................22.5
The above statistics are in $ millions and are unofficial estimates.
Vietnam currently has the capacity to produce 4,500 megawatts of electrical power and intends to double generation to 9,000 megawatts by the year 2010. Currently, hydroelectric plants generate 67%, coal-fired plants 18% and gas plants generate 15% of the economy's total power capacity. Vietnam will emphasize hydro-generated power over fossil fuel power. The still uncommitted Son La hydro plant project will be twice the capacity of the 1,920 megawatt Hoa Binh hydro plant; the country's largest. Nonetheless, the current emphasis is on a dramatic expansion of gas and coal fired capacity.
The government currently has organized plans for eighteen power projects, representing 10,000 megawatts of capacity on the books. Ten of the projects have received funding commitments from either the World Bank, the Asian Development Bank (ADB) and Japanese ODA. However, international funding falls far short of the resource requirement for the scale of project development envisioned. The government's strategy depends on Independent Power Producers (IPP) and the Build-Operate-Transfer (BOT) method of project financing for success. The two BOT power projects expected to come on stream are the $300 million, 300 megawatt, coal-fired Quang Ninh power station and the Phu My 2 power plant (600 megawatt).
Vietnam's electrical power grid is antiquated and in need of modernization. The World Bank and the ADB have plans for power transmission and distribution upgrading projects. The World Bank has initially allocated $280 million, while the ADB has earmarked $300 million for these projects. Current World Bank projects include the $80 million Ho Chi Minh City (HCMC), Danang, Nha Trang distribution rehabilitation & expansion project, the $50 million reconstruction of forty substations throughout Vietnam and the $150 million Ho Chi Minh City, Vung Tau and Ha Long Bay transmission/distribution project. This last project will also include an expansion of the 500 Kv line between Hanoi and HCMC. ADB has initiated a $80 million Hanoi/Hai Phong/Nam Dinh Electrical Network Rehabilitation project.
Currently, the Vietnamese government is exploring the possibility of allowing private investment in the transmission and distribution (T&D) sector. This could be performed as either a BOT or a joint-venture arrangement. The feasibility of private investment in T&D sector is linked to the available tariff structure.
American power generation, transmission and distribution equipment has the reputation in the Vietnamese industry as competitively priced and providing advanced, proven technology. The disadvantage thus far has been access to competitive trade financing, outside of the financed ODA projects. Major foreign companies such as Mitsubishi Heavy Industries, Siemens, ABB, and Gec-Alstrom have established an active presence in Vietnam.
All of the terms and conditions for sale must be negotiated in advance and the suppliers must be flexible concerning terms and conditions. The Vietnamese are now experienced at evaluating the total package of a bid. Negotiations tend to be long and drawn-out affairs. Many of the large projects are very competitive with up to several dozen bidders reaching the pre-qualification phase in the largest projects.
A niche segment of the market is the development of smaller power plants for industrial zones with possible sale of excess capacity to the public utility. The Amata industrial development zone (Bien Hoa) will have a $110 million, 50 megawatt unit and the Nomura industrial zone intends to provide a $43 million, 50 megawatt unit, both constructed for the exclusive use of the sites' tenants.
The Vietnamese government has decided to allow private financing to participate in the power sector. The government has established a BOT committee to oversee and streamline the process. A U.S. consulting firm is developing the terms of reference for the first international competitive bid of a BOT project. Well-known BOT power project developers from the U.S., Germany, Sweden, Japan, France, South Korea and Belgium have expressed interest in Vietnam's planned privately- financed BOT power projects. While not possible today, existing power plant rehabilitation services may be allowed. This would most likely be based on a lease-rehabilitate-transfer scheme, patterned after the current BOT investment framework.
Experts believe that U.S. companies may be particularly competitive in supplying power plant operation simulators and national dispatch centers.
2. Telecommunications Equipment
Rank of Sector: 2
Name of Sector: Telecommunications Equipment ITA
Code: TEL ...............................1995 .......1996......... 1997
A. Total Market Size .................535.0 ....629.0 ........710.0
B. Total Local Production ..........235.0 ....280.0 ........320.0
C. Total Exports ........................0.0 ............1.0......... 10.0
D. Total Imports ........................300.0 ......350.0....... 400.0
E. Imports From The U.S. .........12.0 ..........19.0 .......28.0
The above statistics are in $ millions and are unofficial estimates.
The telecommunications sector has been a national priority investment since 1992. The government recognizes that a modern telecom network is an essential ingredient for maintaining economic development and attracting foreign investment. The Vietnamese had no legacy system and were free to create a modern, digital system from the ground up. The Vietnamese telecommunications operating and purchasing authority, Vietnam National Post & Telecommunications Corporation (VNPT), has made a strategic decision to build the national telecom system with only state-of-the-art products and systems.
In 1992, there were fewer than 100,000 telephone lines in the entire country. As of 1996, there are 1.05 million telephone lines, multiple GSM cellular networks, multiple pager networks, a parallel fiber optic/digital microwave backbone system and all fifty-three provinces have digital switched hubs. The goal set by the Vietnamese government is to move from the current 1.4 telephone lines per 100 people to 5 lines per 100 people by 2000, the infrastructure for which will require $4 billion in investment. Current estimates indicate that over 1 million lines per year will have to be installed by the year 2000.
The latest of the major phone line installation contracts ($900 million) will be shared by France Telecom, Cable & Wireless (UK), Telstra (Australia) and Nippon Telegraph and Telephone (NTT of Japan). This project is focused on the modernization and the expansion of networks in Hanoi and Ho Chi Minh City.
Telstra (Australia) was the first Western telecom company to provide equipment to Vietnam. Telstra engaged in a very effective strategy of providing training, equipment and operations know-how. To date, Telstra has sold hundreds of millions of dollars worth of telecom equipment to VNPT. During the past five years, additional suppliers have successfully entered the market, including Siemens, Comvik, Erickson, Alcatel, NEC, Korea Telecom, France Telecom, Bosch, Cable & Wireless and Lucky Goldstar.
The VNPT has shown a high regard for American telecom equipment because of technology leadership and quality. Sales have been somewhat hampered, however, by the lack of competitive financing. A number of American firms have operated successfully in the rapidly growing market, such as Motorola, Hughes and AT&T. Many competitors rely on government-backed soft bilateral loans. Increasingly, the telecom sector has become a favorite of international banks and financing firms. Japanese trading companies (Sumitomo, Nichimen and Kanematsu) have also provided competitive financing for American telecom equipment.
Several firms have concluded telecom manufacturing joint-ventures, such as Goldstar for fiber optic cable and digital switches, Daesung (Korea) for copper cable, Alcatel to assemble digital switches, Siemens to produce fiber optic cable and digital switches, and Newtel (a group backed by Goldman Sachs and Nikko Securities) to produce telephony equipment in conjunction with Vietel (the new Army telecommunications company).
The growth in this sector will accelerate with the introduction of competitors to VNPT. In August 1996, the Saigon Postal Corporation (SPC) was formed as a joint-stock company to provide competing services to VNPT. In addition, Vietel has been organized to compete with VNPT and SPC in providing telecommunications services on a national scale.
Vietnam has recently placed an emphasis on installing fixed, wireless communications system in order to meet its installed base density goal by 2000. VNPT issued two $20 million contracts for 20,000 lines each during 1996 in Ho Chi Minh City. Vietnam also intends to launch its first satellite system to replace the three systems (Intersat, Intersputnik and Asiasat) that are currently leased. This $350 million project is projected to be completed by 2000-2001.
Subsectors which have the best potential include fixed and mobile wireless, cable TV transmission equipment, portable radio systems, digital microwave systems and digital switch gear (toll switches and tandem switches). Value-added products, such as billing systems and voice mail, are also attractive.
3. Computer Services
Rank of Sector: 3
Name of Sector: Computer Services ITA
Code: CSV ..........................1995 ........1996 ........1997
A. Total Market Size ..............2.5 ............8.0 .........22.0
B. Total Local Production ......0.3............ 0.8 ..........1.5
C. Total Exports ....................0.0............ 0.0 ..........0.0
D. Total Imports ....................2.2 ............7.2 .........20.5
E. Imports From The U.S. .....1.0 ............4.0 .........12.0
The above statistics are in $ millions and are unofficial estimates.
The Information Technology (IT) industry is in its infancy, but rapidly expanding. As of early 1994, total number of personal computers (PC) in Vietnam was less than 40,000 units. As of early 1996, the installed based is over 100,000. The annual PC growth rate is estimated to be 40%. The demand for services is growing at a commensurate rate.
The market is very receptive to U.S. products and services, as the Americans are perceived to provide the most advanced technology and the best after-sales service. The Vietnamese customers tend to be hardware- oriented, with software and services purchased as needed. The lack of skilled technicians is limiting the growth of the industry. IT Centers have recently been established to improve training, but they do not have enough qualified instructors.
Market growth is directly related to the rapid pace of economic development, strong foreign investment, ample overseas development aid and the intent to achieve the global integration of the Vietnamese economy. So far, IBM, Digital, Compaq, Accer, Unisys, Oracle, Microsoft and Hewlett Packard have established distribution channels in Vietnam. Microsoft recently (July 96) introduced the Vietnamese version of Windows 95. US companies must compete with Asian made PC clones and pirated software. Nevertheless, there is a market bias against Asian-made computers. The new copyright law was in July 1996 should help curb the piracy problem, once fully implemented.
The National Plan on Informatics Technology (IT 2000 Masterplan), established in 1994 as the country's IT strategy defines priority projects, sets national standards and outlines policies for mobilizing capital. Open systems are now the adopted standard. There is no legacy system in Vietnam and the market is showing its desire to start with the best and most reliable products (mainly American). The government has recently lowered the import tariffs for IT products to 5% from 25% to encourage faster IT growth.
Networking and interconnecting services are needed, as users are moving from single PCs to local networks and on to wide-area networks. The market can be segmented into two main components: the multinational business operations (over 3,600 foreign companies) and the state and private Vietnamese companies.
IT in the Vietnamese government and business sectors are expected to develop rapidly because of the anticipated computerization of the state-owned banking, telecom, energy and aviation sectors. In addition, demand will be driven by the planned development of an inter-ministerial information network and the role IT has to play in support of the national education system. Commencing in 1997/1998, multilateral donor agencies are projected to extend $200 million in credits to purchase computer systems and services. The first initiative will be the State Bank of Vietnam Interbank Funds Transfer Project, for which $50 million in World Bank funds are allocated.
The most promising industry subsectors include systems integration, IT training, network management, IT consulting and after-service support. Data center design, computer disaster recovery centers and out-sourcing are now being discussed as possibilities for the future. In addition, domestic software development will play an increasing role in the Vietnamese IT industry. Currently, there is a need for the legitimate localization of many international software programs.
Last update: March 1997 by VACETS