The global business landscape has undergone immense changes since the outbreak of COVID-19. These turbulent times have reshaped markets and have driven many industries to their breaking point.
Surprisingly, the Vietnam startups ecosystem is currently exhibiting impressive development, while keeping the pandemic under control. In line with the recent rapid growth of tech startups in Southeast Asia, Vietnam launched a programme on October 5th to accelerate the founding of startups and expedite recovery from the investment drop during H1 2020 due to COVID-19. The aim is to promote the country’s innovation, exploit new opportunities, drive productivity, and boost employment.
Programme incentives
The programme offers multiple incentives to any startups setting up their offices in high-tech parks. Hoa Lac Hi-tech Park on the outskirts of Hanoi is one such park hosting 91 projects with registered capital of approximately $3.7 billion USD.
We look at why Vietnam is the next big startup market in Southeast Asia
The state covers some costs, and startups are also eligible for public investment credit capital, with preferential loans provided by state-owned Vietnam Development Bank. Startups are also entitled to tax relief incentives, with Hoa Lac-based companies’ corporate income tax rate deducted to 10% – from the usual 20% – for 30 years, effective from the first year of a reported turnover.
Focus industries
Incentives apply for startups engaged in the following industries:
- Telecommunications businesses: Considered key players in the country’s digital economy growth and divestment of state-owned telecom corporations, the government wants to grow this sector. They want to focus on the commercial launch of big telecoms service operators, 5G bandwidth, new mobile applications and support services for online jobs following the impact of COVID-19.
- Information technology: This sector has witnessed record growth, making Vietnam the eighth-largest IT services provider globally. The main sub-sectors that show potential are fintech, AI, eCommerce, software outsourcing, telemedicine and education technology.
- Automation: Following a growing demand in the experimental robots and automation manufacturing industry, Vietnam is one of the fastest-rising robot consumption markets in ASEAN. The programme’s incentives can help it reach full potential, previously stunted due to limited technical infrastructure.
- New and clean energy sources: Vietnam has seen an increased annual electricity demand of approximately 10% over the past five years. The country aims to increase its renewable energy capacity to 15% by 2030 while reducing dependence on coal, which accounts for 38% of Vietnam’s electricity production. Refined petroleum products, liquefied natural gas and solar/wind renewable energy sources are likely to witness increased demand.
- Production of intermediate goods: The government wants to encourage participation in value chains and industry clusters, to further boost the country’s economic development and integration in the global economy.
Why Vietnam?
Many factors make Vietnam a hotspot for startups, SMEs and offshoring investments. Labour costs in Vietnam are generally lower compared to neighbouring countries with tech talent shortages, such as Thailand, Singapore or Malaysia. According to VN Express, Vietnam’s IT labour costs are 40% cheaper than in China and India.
Moreover, the emphasis on STEM education has equipped a tech-savvy young generation with outstanding technical abilities. Vietnamese software developers rank among the best in the world and get recognition for their high-quality work, creativity and up-to-date skills in the usage of cutting-edge technologies.
Its geographical location also poses many advantages in terms of convenient travel and mild weather. The minor time difference with other Asian countries and direct connecting flights from Ho Chi Minh City to major European and US cities facilitates accessible work travel. Despite the occurrence of natural disasters, common for the region’s tropical countries, severe weather conditions in Vietnam are mostly due to heavy rainfall and storms. It has less exposure to destructive typhoons or insufferable humidity, with its southern region particularly enjoying pleasant temperatures throughout the year.
The country’s reasonable financial stability and political environment, along with the absence of religious and ethnic conflicts, provides a steady, neutral ground—almost ideal for building an economic superstructure and attracting foreign investors. The government’s supporting policies contribute to a flourishing market, and with several laws due to be enacted in January to remove further administrative barriers, Vietnam will continue to be a favourable environment for startups.
Vietnam’s national programme to support startups began back in 2016, with almost 2,500 startups and projects having received support as of August 31st 2020. The Vietnamese government aims to stimulate the country’s growth over the next 20 years by making Vietnam a ‘startup nation’ and upgrading Vietnam’s startup ecosystem. The recently added incentives make the country a hotspot for tech startups in Southeast Asia and support their scalability over time, offering optimal conditions for high-tech investments.