29 Jan 2019
In the three decades since introducing its Đổi Mới economic reforms in 1986, Vietnam has transformed from one of the world's poorest countries to an economic powerhouse. And according to Minh Khuong Vu, Associate Professor at the Lee Kuan Yew School of Public Policy (LKYSPP), it shows no signs of slowing down, “Vietnam’s manufacturing sector is still rapidly expanding. In term of employment in this sector, Vietnam is largest among 10 ASEAN countries.”

Vietnam's economic growth averaged 6.8% between 2000 and 2018. The US, by comparison, has hovered around 2% over the same period. In 2010, the World Bank upgraded the country's status from a low income country to a lower-middle income country. The Asian Development Bank also expects economic expansion to continue, forecasting a GDP growth rate of 6.8% in 2019.

A new breed of tech-savvy entrepreneurs are seeking to ride the wave of growth and prosperity washing over Vietnam. They see tremendous potential in a country with high internet connectivity, widespread smart phone usage, growing discretionary income, and a young and relatively well-educated workforce.

Reverse brain drain

One of the darkest chapters in Vietnam's past is contributing to its current boom — two decades of war with the US and its allies. Vietnam closed itself off from the rest of the world after the so-called Fall of Saigon (now Ho Chi Minh City) on April 30, 1975. Over the next 15 years, hundreds of thousands of Vietnamese fled the strict communist regime.

Eddie Thai_WEF Hanoi
Eddie Thai at Start-Ups: Driving Innovation at the World Economic Forum on ASEAN 2018 in Ha Noi, Viet Nam, September 12, 2018 (Photo: World Economic Forum / Sikarin Thanachaiary)

Those economic and political refugees became the Vietnamese diaspora, now estimated at around 4 million people, who carved out new lives in the US, Europe, Canada and Australia. They are known as the Viet Kieu, or Overseas Vietnamese. Many second-generation Viet Kieu, like Eddie Thai, co-founder of investment fund 500 Startups Vietnam, have moved back to Vietnam, bringing with them international experience, a global outlook and a desire to contribute to their parents’ home country.

Thai, who attended Harvard and Yale, and fellow American Viet Kieu, Binh Tran, who co-founded the social network ranking website Klout, leapt into the Vietnamese tech start-up fray in 2016. The pair announced they would create a US$10 million venture capital fund in Vietnam focused on local tech start-ups. Two years later, the Ho Chi Minh City-based 500 Startups Vietnam closed the fund at US$14.1 million. To date, it has allocated capital, as well as expertise and advice, to 37 companies, which have gone on to raise more than US$90 million in downstream capital.

Late last year, 500 Startups Vietnam called for applications for the first batch of companies to participate in its Saola Accelerator, named for a very rare forest bovine nicknamed the “Asian unicorn". Three rounds of accelerator batches are planned, according to Thai, with the first to go through the process in the first half of 2019.

The Ho Chi Minh City-based Vietnam Innovative Startup Accelerator (VIISA), is backed by FPT, Vietnam's biggest information technology company, and Dragon Capital, a Vietnam-based fund with more than US$3.14 billion in assets. In the first three rounds of VIISA's program, it has invested in 25 start-ups, creating 350 jobs in the process.

VIISA Program Director Dung Le said Viet Kieu and "returnees" were major drivers of the current tech start-up boom.

Khanh Tran, head of technology investments at VinaCapital Group, an investment management and real estate development firm with more than US$1.8 billion in assets, is one such returnee. Tran, who has studied and worked in the UK, Singapore and the US, said in 2000 there were about 10,000 Vietnamese studying overseas. By 2010, there were 100,000, and today there are an estimated 300,000 to 400,000.

Many of the young Vietnamese who were sent abroad to study remained there for several years after completing their schooling, working in their chosen fields and building up expertise. And many of those eventually choose (or were told) to return home, said Tran.

Tech giants pave the way

According to Tran, the "tipping point" for Vietnam's nascent tech start-up sector occurred in 2016, with the arrival of international ride sharing apps Uber and Grab, and online retailers Lazada, Tiki and Amazon.

"For the first time, Vietnamese people started using their smart phones for things that weren't just talking and text," Tran said. "The big start-ups spent a lot of money to educate the market."

These international players took advantage of Vietnam's ongoing love affair with phones. Vietnam has 128 million mobile phone subscribers for a workforce of 53.7 million people - more than two phones for every worker.

Tran said VinaCapital also expects investment in the sector to continue to increase exponentially. "In our estimate, over the next two or three years that investment will be $2 to $3 billion," he said.

Evolving Vietnam

It's good news for the communist government of Vietnam, which has been moving to a socialist-oriented market economy since 1986. Prime Minister Nguyen Xuan Phuc is taking a personal interest in the tech start-up sector, calling for greater momentum at the national innovation and start-up festival Techfest 2018 in Da Nang.

Still, many challenges lie ahead, and ensuring an educated workforce will be crucial.

Vietnamese students are excelling at maths and science, and graduating with technical degrees at record rates. A 2016 worldwide ranking of the mathematics, science and reading skills of 15-year-olds put Vietnam at number 21, equal to Australia and ahead of the UK, France and the US.

But there is room for improvement in Vietnam's education system.

VIISA's Le said the poor English language skills of many would-be tech entrepreneurs would hamper their ability to communicate with foreign investors. 500 Startups Vietnam's Thai also said improved English skills would give Vietnamese entrepreneurs access to a much greater knowledge base.

Vietnamese graduates also perform poorly in areas which require critical thinking. "Many Vietnamese are able to develop this skill, but it's not part of the education system," Thai explained.

Investors also need to be educated, he added. While foreign investors are keen to support tech start-ups in Vietnam, Vietnamese investors were wary, mostly because they didn't understand the new wave of businesses.

But Prof Vu says this is likely to change, “Things are rapidly changing. Vietnam’s deep integration into the world economy and the people’s hunger for learning will make a huge difference in the time to come.”

He also emphasised that start-ups are agents of change, “They foster innovation, technology diffusion, and business transformation, which are all important for Vietnam to boost productivity growth.”

Indeed, Tran, Thai and Le all agree the future is bright for Vietnam's start-up ecosystem, while Prof Vu clarifies that opportunities for traditional business expansion are still abundant. One thing is for certain - according to Vu, “The Vietnamese are very entrepreneurial.”