ICT Exports Analysis Report – Focusing on Vietnam and Documents_2382015000... · ICT Exports Analysis Report - Vietnam 2015 Investment & International Business Development (I&IBD)

ICT EXPORTS ANALYSIS REPORT – FOCUSING ON VIETNAM

Investment & International Business Development Department Information Technology Industry Development Agency (ITIDA)

ICT Exports Analysis Report - Vietnam 2015

Investment & International Business Development (I&IBD) - ITIDA 2

Table of Contents Executive Summary .............................................................................................. 3

1. ICT Exports Development Profile ................................................................. 4

1.1 Sourcing Strategy 2020 ..................................................................................................................... 4

1.2 Foreign Investors - AfterCare & Business Development .......................................................... 5

1.3 ICT Exports Development Strategy............................................................................................... 5

1.4 Egyptian Companies - Export IT Rebate Program ..................................................................... 5

2. ICT Trends and Exports Analysis ................................................................. 7

2.1 ICT Exports to Asia (excluding Gulf) – Analysis* ...................................................................... 7

2.2 ICT Exports to Vietnam – Analysis* ............................................................................................. 9

2.3 ICT Sourcing to Vietnam – Analysis* .......................................................................................... 10

2.4 Vietnam – ICT Market Highlights ................................................................................................ 11

2.5 Asia (excluding Gulf Countries) - ICT Market Highlights ........................................................ 12

2.6 ICT Worldwide – Brief Highlights ............................................................................................... 13

3. Recommendations: ....................................................................................... 14



Executive Summary

Aiming to explore potential business opportunities and means of cooperation between Egypt and Vietnam in the ICT/ITES sector, this report provides highlights on Egyptian ICT export trends and business models – based on exports of companies approved under Export-IT Rebate program as well as sourcing services as analyzed from foreign investors portfolio managed by the Investment & International Business Development (I&IBD) of ITIDA, illustrates that Egyptian exports and sourcing services to Vietnam are focusing mainly on software services, data processing, e-publishing as well as solutions and system integration in addition to sourcing services of multi-lingual technical support, implementation services, innovative solutions and back office services. Whereas sectors served by Egyptian companies were limited to Oil & Gas/Petrochemical/Power & Water Utility Plants, followed by Research and Medical/Pharmaceuticals. On the other hand and based on the ICT market indicators included with the aim to highlight market opportunities/demand and link same to Egyptian ICT exports, type of services, target markets, market penetration business models, etc. Opportunities are highlighted throughout the report shedding light on the presence of Egyptian companies in the international market. With Gartner forecasting that the worldwide dollar-valued IT spending forecast will grow 3.1% in 2014, reaching USD 3.8 trillion (Gartner). Such steady growth for instance represents sound opportunity that can be utilized by Egyptian companies. Focusing on Vietnam, IDC concluded that Vietnam ICT market in 2015 has become more challenging in such unfavorable economic times in Vietnam than before, coupled with the changing appetite of consumers and businesses. IDC sees a fairly traditional economy moving toward one that is technology-laden, where an organization scales up technology's contribution into the bottom line of the organization. If market forecast materializes, Vietnam will be among the top ICT spenders in Asia/Pacific in 2014. Top IT spending in Vietnam are as follows:

Hardware Support Services

System Integration

Software Deploy Services Main Business Verticals are:

Communication & Media

Banking & Insurance

Manufacturing & Retail

E-Government

In view of the above, it is evidenced that there is a gap between sectors currently served by Egyptian companies and booming sectors/industries in Vietnam, however Egypt is considered to have sound experience in the Vietnamese market with respect to system integration and software services which is considered an opportunity to direct companies to conduct market development activities. As such, we are recommending to conduct several mutual activities to exchange expertise in the sourcing field based on the success story of one of the prominent foreign investors in this area as well areas of system integration, software deploy services specifically in the fields of communication, banking and insurance as well as manufacturing and retail.



The following sections briefly illustrate the Export Development profile managed by I&IBD - ITIDA being the primary reference for Egyptian exports indicators and sourcing services offered by foreign investors. Brief description is provided as well on the Export-IT Rebate Program with the aim to clarify the validity of the source of data depicted throughout the report. It is worth mentioning that such analysis is considered the main basis for strategies developed in coordination with international consultants as well as initiatives undertaken by ITIDA.

1. ICT Exports Development Profile

In the years 2014/2015, ITIDA continued to support ICT export promotion through the launching of a number of strategies, initiatives and programs. Having a holistic view of the ICT industry through the management of both portfolios of foreign as well as indigenous companies exporting their ICT/ITES to 160+ countries and employing around 120K Egyptian employees, enables us to provide highlights and profound analysis of the validated export values, services exported, business models adopted by foreign and local companies as well as export destinations and business verticals served. Furthermore, desk and international market research is conducted covering ICT market indicators aiming to identify market opportunities/demand and link same to Egypt’s competitive advantage as a sourcing destination as well as capabilities of companies operating in the country and Egyptian ICT exports in general including type of services, target markets, market penetration business models …etc. For example and based on a whitepaper developed in 2015 by Avasant - one of the prominent international consultants, 2015 is expected to be a positive year for the Egyptian economy as the currency stabilizes and investment returns to the country. Various sectors within the economy are poised for growth and transformation which would not be possible without IT-BPM-KPO intervention. Cloud and mobile based IT solutions for logistics and supply chain industry could potentially be a large market. Automotive sector is another booming sector and grew by over 50% in 2014 and is expected to grow by 12-16% in 2015. Innovations and growth in the Auto sector will create a significant demand for high-end IT solutions and design service

1.1 Sourcing Strategy 2020

With the aid of expert consultant Mckinsey & Co. a formulated three years strategy was set with accordance to ITIDA mandates for the years 2007-2010. ITIDA is currently undertaking measures needed in placing its 2020 strategy, which will be a combined effort with an acclaimed international sourcing advisor. Said Strategy, will reflect Egypt’s ever growing traits as a remarkable sourcing destination and foreseeable accomplishments as ITIDA is continuously assessing the competitiveness of ICT incentives packages and applying best practices in terms of investment attraction.

The strategy will be developed with the main objectives of repositioning Egypt as a leading sourcing destination, stimulating demand, developing sustainable and scalable



talent pool supply, setting plans for developing Tier II cities and achieving regional spread within Tier I and II cities, increasing exports and creating job opportunities. Strategy will include model for development and implementation of an aftercare system for existing and new investors, linkage with SMEs, development of an ecosystem, capacity building programs and review of current regulatory framework.

1.2 Foreign Investors - AfterCare & Business Development

Helping foreign investment, ITIDA manages comprehensive Aftercare System providing full fledge support to foreign investors including logistical and financial incentives subsidizing both training and international telecommunication cost in addition to continuous help and guidance in every step along the way to foreign investors, supporting all the due diligence activities required including information gathering, site visits, case studies, etc…, facilitating the set-up and establishment procedures in Egypt, in addition to providing incentives that support the company’s business needs.

ITIDA has managed to support existing sourcing centers to grow their operations in Egypt and overcome any challenges encountered, in addition to attracting new investors to establish their centers in the country. Egypt’s outstanding unique mix of strengths has positioned it as an ideal sourcing destination. In alignment with its competitive incentive package, Egypt is home to world renowned corporations across Sourcing industry’s three main verticals of Knowledge Process Outsourcing (KPO), Information Technology Outsourcing (ITO) and Business Process Management (BPM) respectively.

1.3 ICT Exports Development Strategy

ITIDA is in the process of developing ICT Exports Development Strategy that aims to develop and increase ICT exports and create new job opportunities which contributes in putting Egypt on the world map for exports. A detailed comparative analysis has been finalized covering ICT exports development strategies globally in addition to a detailed desk research tackling potential markets and opportunities through the analysis of Egyptian ICT exports indicators and the global forecasted ICT spending.

1.4 Egyptian Companies - Export IT Rebate Program

o Export-IT Rebate program is an integral part of ITIDA’s strategy to encourage and

promote exports of ICT companies and support them in penetrating key markets. ITIDA is one of the leading organizations in the region that introduced Export rebate program to support the ICT industry. Additionally, Export-IT rebate program is the only program in Egypt that provides support to ICT companies exporting ICT/ITES.

o The program was designed in coordination with the Egyptian NGOs as

representatives of the IT industry. By virtue of this program, eligible approved



companies receive direct cash rebate on the collected proceeds of their value-added exports during a specific time frame.

o Throughout Export-IT previous rounds and since its launch in 2010, ITIDA has

extended its support to more than 121 Egyptian companies to overcome the economic conditions with total rebate amount that reached USD 24.1 million, Export-IT rebate contributed to a 410.6 million USD as export revenues.

o The main aim of the program is to inject cash into Egyptian ICT companies,

leverage companies’ competitiveness and increase their exports from IT products and services.

o Additionally, one of the main strengths of Export-IT lies in data collected from participating companies covering their ICT exports in terms of amount, export destination, types of service exported, and business verticals served. Being a good sample of the industry, all mentioned data are being analyzed (after being validated by auditors) to provide a sound overview of Egyptian ICT export trends and business models. ITIDA utilizes such information as basis for development of new strategies targeting the ICT industry. The program cross cut with other initiatives presented by ITIDA being the only source of validated information on exports of Egyptian companies.

o In 2014, ITIDA re-launched Export-IT program for the fifth year under the auspices

of the Minister of Communications and Information Technology. Allocated budget reached 40 million LE offering higher direct cash rebate than previous rounds ranging from 10% to 20% of the value added on exports of beneficiary companies (with a ceiling of USD 500,000 per company per year) based on the company size (Micro/Small/Medium/Large) and their exports growth.



2. ICT Trends and Exports Analysis

2.1 ICT Exports to Asia (excluding Gulf) – Analysis*

* Based on companies participating in Export-IT program

Excluding the Gulf countries, Egyptian exports to Asia which represents 13% of total exports in

2013 has witnessed 20% rise as compared to 2012 exports specifically to countries like China,

Taiwan, Vietnam and Jordan with services such as E- Publishing and Call Center/BPM.

In 2013, important markets in Asia have witnessed increase in Egyptian exports such as China,

Taiwan, Jordan, India and Vietnam compared to 2012 exports to same destinations. Additionally,

Egyptian companies succeeded in penetrating new markets within Asia namely; Bangladesh,

Azerbaijan and Mongolia.

0

0.05

0.1

0.15

2009 2010 2011 2012 2013

9%

5%

10% 12% 12.5%

* Excluding Gulf Countries

Exports To Asia* (% Of Total Exports)

0%

10%

20%

30%

40%

China Taiwan Jordan Malaysia Vietnam

33% 32%

2% 5%

0.6%

36% 33%

10%

4% 1.4%


Exports to Top Destinations in Asia*

Exports 2012

Exports 2013



Exporters Profiles: 11 different Egyptian companies (approved under Export-IT Program in 2014)

exported to Asia (excluding Gulf countries) in 2013.

Although number of micro, small and medium companies exporting to Asia (excluding Gulf

countries) represented 91% of total companies exporting to this region, large companies dominated

the exports of ICT/ITES with value of services exported amounting to 75% of total exports

directed to mentioned region.

Top Exports: top services exported to Asia (excluding Gulf region) in 2013 were mainly in the

areas of E-publishing representing 49% of total exports to the region followed by Call Center/BPM

services representing 27%.

75%

15%

9.7% 0.3%

Exporters Profile

Large

Medium

Small

Micro

49%

27%

9.5%

6%

5% 3% 0.5%

TOP SERVICES EXPORTED TO ASIA* IN 2013

E- Publishing

Call Center / BPM

Software / Application Development

SMS

Modelling,Design and Engineering Services

Solutions and System Integration

Consulting




Almost 50% of Egyptian exports to Asia in 2013 targeted Researchers followed by Information

Technology market with services amounting to around 33% of total services exported to this region.

2.2 ICT Exports to Vietnam – Analysis*

* Based on companies participating in Export-IT program

As illustrated below, throughout the previous years from 2011 till 2013, exports to Vietnam – despite of being nominal - have been increasing mainly due to the fact that new companies started exporting services to Vietnam in 2013.

49%

33%

10%

4% 4%

Business Verticals Served in Asia*

Researchers

Information Technology

Telecommunication

Financial Services & Banking

Others


0.08% 0.08%

0.14%

0.00%

0.05%

0.10%

0.15%

0.20%

2011 2012 2013

Exports to Vietnam ( % of Total Exports)

0.16%

0.11%

0.28%

0.00%

0.05%

0.10%

0.15%

0.20%

0.25%

0.30%

2011 2012 2013

Exports to Vietnam ( % of Total Exports to Asia)



66%

22%

9% 3%

Services Exported to Vietnam

Software / Application Development

Data Processing Services

E- Publishing

Solutions and System Integration

88%

9% 3%

Business Verticals Served in Vietnam

Oil & Gas / Petrochemical / Power & Water Utility Plants

Research

Medical and Pharmaceutical

Top services exported in the previous three years (2011-2013) were mainly Software/Application

Development representing almost 66% of total exports to Vietnam, followed by Data Processing

Services, E-Publishing and Solutions/System Integration with 22% , 9% and 3% respectively .

Egypt’s Exports to Vietnam targeted mainly three business verticals with 88% of exports to

mentioned destination targeting Oil & Gas/Petrochemical/Power & Water Utility Plants, followed

by Research and Medical/Pharmaceuticals with 9% and 3% respectively of exports to Vitenam.

2.3 ICT Sourcing to Vietnam – Analysis*

* Based on foreign investors portfolio managed by I&IBD One of Egypt’s sourcing industry founders announced its decision to expand its center of operations in Egypt. The center currently caters to customer service, Technical support, Back office and R&Ds services. Such decision, manifested the company’s confidence in Egypt as a host country and optimality as a location in developing its exportations of stated services. Mentioned foreign investor is providing the following services to Vietnam:

Multi-lingual technical support

Implementation services

Innovative solutions

Back office services



2.4 Vietnam – ICT Market Highlights

Despite macroeconomic challenges, Vietnam IT services spending increased 9.9% to $446 million in 2013, according to International Data Corporation (IDC). As an emerging market, Vietnam’s investments in infrastructure have been growing rapidly. IDC sees that hardware support services have continued to dominate the IT services spending with 18.9% market share, followed by the system integration and software deploy services at 14.3% and 11.3%. In 2013, the spending for hardware deploy services was low at 8.8% growth due to the lack of demand from the banking, insurance, manufacturing and retailing sectors. Taken together, these sectors constitute 41% of IT services spending in Vietnam. However, the strong investments in e-government, cloud computing, data center, and Geography Information System (GIS) led a healthy demand for system integration services, increasing by 9.7% compared to 2012. The spending for networking consulting & integration services increased 10.1% with strong investments in the IPv6 platform coming from the communication sector. "Vietnam IT services market has been maturing with emerging trends of big data, cloud and mobility," says Ha Ngoc Khuong, Market Analyst, IDC. IDC observes that the spending for outsourcing services increased more than 11%, driven by the lack of end users’ advanced technical skills. Local system integrators have been closing the skill gaps by providing better technical support and customer care, enticing end users to opt for outsourcing. More players are jumping into the business, resulting in a wider range of options available for end users. IDC forecasts that IT services market will grow at 12.7% year-on-year in 2014. The Financial Sector Modernization and Information project, valued at $71.8 million by Vietnam State Bank, will be a strong motivation for the IT services market in 2014. IDC expects IT services spending of the banking sector to return to a healthy track with demand for new core banking and big data projects. In addition, the increasing spending in infrastructure such as smart grid and smart transport projects will drive the demand for related IT services such as consulting and system integration services. Moving into 2014, IDC predicts that ICT spending in Vietnam will project a growth rate of 15.5% in 2014, following a modest growth of 8.4% growth in 2013. The total ICT market in Vietnam is expected to reach US$13.05 billion in 2014. If market forecast materializes, Vietnam will be among the top ICT spenders in Asia/Pacific in 2014.



Among many potential business verticals expected by IDC in Asia pacific region during the five years (2013 – 2018), the Communication and Media Sector come in the first place to reach over than USD 95 billion in 2018 followed by Banking, Discrete Manufacturing and Government which expected that IT spending in it will reach over than 40 billion.

2.5 Asia (excluding Gulf Countries) - ICT Market Highlights

IDC revised IT spending growth in the Asia/Pacific (excluding Japan) (APeJ) region down from 8.7% to 5.8% in 2014 followed by a very modest increase to 6.0% in 2015. IT spending growth for the rest of the 2014-2018 forecast period is expected to climb upwards to 6.4% in 2017. IDC expects the APeJ region to remain a most reliable engine for growth with multinational companies (MNCs) and Asian enterprises alike continuing to relentlessly look to Asia for future opportunities. Government sector IT investments in the Asia Pacific area excluding Japan (APEJ) is set to increase from the $25.4 billion (AU$32.3 billion), which it hit in 2014, to $32.5 billion (AU$41.3 billion) in 2018, representing a five-year compound annual growth rate of 6.2 percent, according to industry analyst IDC. According to IDC: Asia/Pacific (Excluding Japan) Public Sector IT Spending 2013-2018 report, the overall year-on-year IT spending growth this year for the APEJ public sector is anticipated to grow at 5.9 percent. Meanwhile, Gartner reported in January that the mature APAC market including Japan is expected to spend $7.4 billion on public cloud services this year.



2.6 ICT Worldwide – Brief Highlights

Worldwide IT spending is on pace to total $3.5 trillion in 2015, a 5.5 percent decline from 2014, according to the latest forecast by Gartner, (June 2015). "We want to stress that this is not a market crash. Such are the illusions that large swings in the value of the U.S. dollar versus other currencies can create," said John-David Lovelock, research vice president at Gartner. "However, there are secondary effects to the rising U.S. dollar. Vendors do have to raise prices to protect costs and margins of their products, and enterprises and consumers will have to make new purchase decisions in light of the new prices." Communications services will continue to be the largest IT spending segment in 2015 with spending at nearly $1.5 trillion (see Table 1). However, this segment is also experiencing the strongest decline among the five IT sectors. Price erosion and competitive threats are preventing revenue growth in proportion to increasing use within most national markets. Worldwide IT Spending Forecast (Billions of U.S. Dollars)

2014 Spending

2014 Growth (%)

2015 Spending

2015 Growth (%)

Devices 693 2.4 654 -5.7

Data Center Systems 142 1.8 136 -3.8 Enterprise Software 314 5.7 310 -1.2 IT Services 955 1.9 914 -4.3 Telecom Services 1,607 0.2 1,492 -7.2 Overall IT 3,711 1.6 3,507 -5.5

Source: Gartner (June2015)



3. Recommendations:

The above highlights on Egyptian ICT export trends and business models – based on exports of companies approved under Export-IT Rebate program as well as sourcing services as analyzed from foreign investors portfolio managed by I&IBD, illustrates that Egyptian exports and sourcing services are focusing mainly on software services, data processing, e-publishing as well as solutions and system integration in addition to sourcing services of multi-lingual technical support, implementation services, innovative solutions and back office services. Whereas sectors served by Egyptian companies were limited to Oil & Gas/Petrochemical/Power & Water Utility Plants, followed by Research and Medical/Pharmaceuticals. On the other hand and based on the ICT market indicators included with the aim to identify market opportunities/demand and link same to Egyptian ICT exports, type of services, target markets, market penetration business models …etc. Opportunities are highlighted throughout the report shedding light on the presence of Egyptian companies in the international market. Focusing on Vietnam, IDC concluded that Vietnam ICT market in 2015 has become more challenging in such unfavorable economic times in Vietnam than before, coupled with the changing appetite of consumers and businesses. IDC sees a fairly traditional economy moving toward one that is technology-laden, where an organization scales up technology's contribution into the bottom line of the organization. If market forecast materializes, Vietnam will be among the top ICT spenders in Asia/Pacific in 2014. Top IT spending in Vietnam are as follows:

Hardware Support Services

System Integration

Software Deploy Services Main Business Verticals are:

Communication & Media

Banking & Insurance

Manufacturing & Retail

E-Government

E-Health

In view of the above, there is a gap between sectors currently served by Egyptian companies and booming sectors/industries in Vietnam, however Egypt is considered to have sound experience in the Vietnamese market with respect to system integration and software services which is considered an opportunity to direct companies to conduct market development activities. As such, we are recommending to conduct several mutual activities to exchange expertise in the sourcing field based on the success story of one of the prominent foreign investors in this area as well areas of system integration, software deploy services specifically in the fields of communication, banking and insurance as well as manufacturing and retail.