Vietnamese cities are cluttered with motorcycles

The entire country of Vietnam is fast-transforming itself into the Silicon Valley of Southeast Asia. One reason is rapid economic growth; another is the youthful population. Those fundamentals are coalescing into venture anarchy as the volume of startups overwhelms the ability of the domestic ecosystem to support them. Constrained access to global capital may be a result of the poor quality of many startups, at least on a comparative basis, rather than lack of awareness by international investors.

Economy. Since 2014, Vietnam has been registering annual GDP growth at 6.0% or better, making it one of the best stories worldwide. The IMF expects that rate to continue through 2020. One key factor has been the government’s ability to attract foreign direct investment, especially in manufacturing.

Demographics. The population of Vietnam is close to 95 million, ranking it slightly smaller than the Philippines. The key metric is age structure: about 40% of the population is under 25 years old. The average age is near 30, some 10-to-15 years lower than in most developed nations.

That dynamism is leading to a surge in startup activity, at least in the headlines. Some prominent firms here have been built by the Vietnamese diaspora. Yet, many startups are founded by university graduates who cannot get jobs in established corporations. By one estimate, Vietnam is currently generating about 100,000 engineering graduates yearly, consistent with the figure for France and about 40% the number in the United States. Most of these aspiring executives lack the experience to run a successful company.

The government is actively supporting policies to turn Vietnam into a “Startup Nation” by 2020. The target is to have as many as one million firms registered as startups over the years ahead, supported by tax incentives and public-sector incubators. That buzz is infectious. But we are not sure that an economy now about the size of Pennsylvania needs that many tiny firms fighting over defined market share.

Vending sandwiches on the streets is not a startup. But selling sandwiches via smartphone apps is a startup.

Do Duc Kha
Deputy Head, Vietnam Institute for Entrepreneur Training and Development

On an up note, two major events in 2017 affirmed that select Vietnamese startups can compete for global capital. These developments injected even more life into the Vietnamese technology sector:

Public Listing. VNG announced its intention to list its equity on NASDAQ, although it may take a year or two before we actually see the IPO. The Ho Chi Minh City-based unicorn is active in gaming, social media, and mobile services.

Acquisition. Singapore-headquartered Sea bought an 82% interest in Foody. The Vietnamese firm runs a meal-booking and food-delivery service. The estimated value of the transaction was about $64 million. Sea is a NYSE-listed company.

Among investors, the case for Vietnamese startups may resonate best with those who have an affinity interest in the market. Key opportunities tend to be locally-adapted approaches to business models known elsewhere. Chinese billionaire Jack Ma highlighted the potential here with Alibaba’s investment in regional e-commerce firm Lazada and local payment processor Napas. Yet investors looking for fresh developments in artificial intelligence and blockchain may want to look beyond Vietnam.

Our Vantage Point: Startups can play an important role in driving economic development. But they are only one component of a broader growth strategy. In Vietnam, the mix is increasingly out-of-balance.

Learn more at VietNamNet Bridge.

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