1. The Strategic Importance of Lang Son

Lang Son’s geographical advantage—serving as a gateway to China and ASEAN countries—offers immense potential for cross-border logistics and trade activities. With its well-established border gate economy, Lang Son is uniquely positioned to:

• • Enhance Trade Connectivity: Leverage its proximity to China’s booming markets for export-import activities.
  • Develop Logistics Infrastructure: Integrate advanced logistics services to improve supply chain efficiency.
  • Promote Economic Zones: Strengthen industrial zones like the Dong Dang Economic Zone, creating synergies with the FTZ [1].

2. Lang Son’s Progress Toward the FTZ

• • Infrastructure Development: Projects like logistics hubs, cargo transit centers, and road upgrades to facilitate seamless trade [4].
  • Digital Trade Solutions: Accelerating e-commerce and cross-border trade solutions to streamline transactions [3].
  • Investment Policies: Offering favorable tax incentives to attract domestic and international investors.

3. Call to Action

To realize the FTZ’s potential, Lang Son must:

• • Attract Foreign Investments: Promote the FTZ globally as an ideal trade hub.
  • Enhance Infrastructure: Focus on logistics networks, smart technologies, and green solutions.
  • Facilitate Trade Policies: Simplify customs and regulations for smoother cross-border trade.

Conclusion

Lang Son’s Free Trade Zone is a game-changing opportunity to boost logistics, attract investments, and position Vietnam as a regional trade leader. By building on its geographic strengths and learning from global success stories, Lang Son can emerge as a logistics and trade hub for Southeast Asia.

🌐 Sources

1. dantri.com.vn – Khu thương mại tự do: Giải pháp thúc đẩy tăng trưởng logistics ở Lạng Sơn
2. haiquanonline.com.vn – Lạng Sơn: Kết nối và phát triển thương mại, du lịch Việt-Trung
3. dangcongsan.vn – Lạng Sơn: Tăng tốc phát triển thương mại điện tử xuyên biên giới
4. logistics.gov.vn – Lạng Sơn đẩy mạnh triển khai các dự án trọng điểm phát triển kinh tế cửa khẩu
5. dangcongsan.vn – Khu thương mại tự do, giải pháp đột phá thúc đẩy tăng trưởng logistics

Vietnam’s logistics sector has made significant progress, growing at an average rate of 14-16% annually, more than double the global logistics growth rate. The market size is about $40-42 billion, representing 10% of GDP and 5% of trade turnover. In 2024, Vietnam was ranked among the top 10 global emerging logistics markets, 4th in the region for Logistics Opportunity Index and 43rd globally for Logistics Performance Index.

Three key goals for Vietnam’s logistics industry

1. 1. Reduce logistics costs from 18% to 15% of GDP by 2025.
   2. Increase the logistics sector’s share of GDP from 10% to 15%, aiming for 20%, and expand its global market share from 0.4% to 0.6%.
   3. Boost sector growth to 20% annually, up from the current 14-16%.

The Strategic Role of Free Trade Zones (FTZ): 

1. 1. Increase international competitiveness:
      FTZ helps optimize logistics costs, increase transportation speed, and position Vietnam as a key transhipment hub in the global supply chain
   2. Develop logistics infrastructure:
      Attract investment to build seaports, warehouses, and modern transportation technology, improving logistics performance and capacity.
   3. Promote e-commerce:
      With tax incentives and flexible customs procedures, FTZ supports import-export businesses, particularly rapidly growing e-commerce companies 
   4. Upgrade logistics services:
      Create opportunities for domestic logistics businesses to develop value-added services such as transportation, warehousing, and supply chain management.

The Free Trade Zone is a breakthrough solution to promote the growth of the logistics industry, create a foundation for sustainable economic development, and enhance Vietnam’s position on the global logistics map.

🌐 Sources:

1. vlr.vn – Free Trade Zones: A Key to Enhancing Vietnam’s Logistics
2. moit.gov.vn – Giải pháp đột phá thúc đẩy tăng trưởng logistics

Sector outlook

Vietnam’s data center economy growth is driven by a compound annual growth rate (CAGR) of 10.68 percent from 2022 to 2028. Vietnam had 77.93 million internet users in January 2023, indicating a 7.3 percent increase from the previous year.

The digital economy in Vietnam is undergoing significant transformations due to evolving regulations and the push for greater digitization. Recent regulations prioritize data sovereignty, personal information protection, and cybersecurity. Data localization norms came into effect on October 1, 2022, to ensure data stays within Vietnam. The government also focuses on digitization initiatives, such as tax incentives for high-tech investments, e-governance, fiber connectivity expansion, and 5G rollout. These policies have stimulated increased investments in data centers in Vietnam.

Developments in advancing connectivity

In terms of connectivity, Vietnam has made advancements, including the introduction of commercial 5G in December 2020. 5G network coverage now extends to 40 out of 63 provinces and cities in Vietnam. The Ministry of Information and Communications conducted a spectrum auction to expand 4G and 5G services. Efforts are also underway to develop 6G technology.
Vietnam is connected to Asia-Pacific and Europe, Middle East, and African countries as well as the U.S. through five operational submarine cables. Additional cables like the Asia Direct Cable and Southeast Asia-Japan Cable 2 will further enhance Vietnam’s connectivity by 2023/2024.

The “National Digital Transformation Program to 2025” aims to shift 50 percent of business operations to digital platforms by 2025. Edge data center deployment is expected to increase due to the growing connectivity of the 5G network, providing last-mile connectivity and lower latency services. The program’s targets include a digital economy contributing to 20 percent of the GDP, at least 10 percent representation of the digital economy in each sector, annual productivity growth of no less than 7 percent, and rankings within the top 50 on various indices measuring ICT development, global competitiveness, and innovation. Additionally, goals related to digital society development involve expanding fiber optic internet infrastructure, ensuring widespread availability of 4G/5G services and smartphones, increasing digital checking account adoption, and improving cybersecurity rankings.

Sector promotion and favorable tax policy

To promote growth in the ICT sector, the Vietnamese government has introduced favorable tax policies and incentives for high-tech investments. Companies operating in digital technology domains can benefit from a reduced corporate income tax rate of 10% for 15 years, along with other advantages.
Vietnam’s data center market attracts investments from both newcomers and established operators. Ho Chi Minh City and Hanoi serve as major data center hubs, collectively hosting 27 data centers. The industry segments include IT infrastructure, electrical infrastructure, mechanical infrastructure, general construction, security and compliance, and tier standards.
Overall, Vietnam’s data center economy shows promising growth prospects, driven by favorable regulations, increasing connectivity, and government support for digitization initiatives.

Regulatory frameworks that apply to data centers in Vietnam

Regulatory frameworks that apply to data centers in Vietnam include:
Law on Investment No.61/2020/QH14: This law governs investment activities in Vietnam, including the establishment of data center businesses.
Decree No.25/2011/ND-CP: This decree provides guidelines for implementing regulations related to telecommunications, which includes data center operations.

Foreign data center companies operating in Vietnam have two options:
Business cooperation contract (BCC): Foreign companies can enter into a BCC with a local partner to operate a data center without setting up a local company. The BCC must involve at least one local partner, and foreign ownership cannot exceed 100 percent.
Joint venture (JV): Foreign companies can establish a local entity through a JV, as data center businesses are classified as telecommunication services under Vietnamese law. Foreign ownership is subject to specific restrictions depending on the type of service provided.

For JVs,
1. In non-facilities-based services, foreign ownership cannot exceed 65 percent.
2. In facilities-based services, foreign ownership should not exceed 50 percent. Importantly, certain international trade and investment agreements may facilitate flexibility in the foreign ownership ratio.

Additionally, if a foreign investor already holds more than 20 percent of the charter capital in another Vietnamese telecommunication enterprise, they cannot possess more than 20 percent of the charter capital in a Vietnamese data center company.

Depending on the data center investment path selected in Vietnam, certain registration procedures are mandated:

1. In the case of a BCC, both parties involved will need to obtain an Investment Registration Certificate (IRC) to proceed with the investment under the BCC.

2. In the case of a JV, not only will an IRC be required, but also an Enterprise Registration Certificate (ERC) will be necessary for the establishment of the joint venture.

3. If the data center business falls under the category of a facilities-based service, obtaining Investment Policy Approval from the Prime Minister is essential before the IRC can be issued. This additional step is crucial for regulatory compliance in this specific sector.

Decree 25, which was issued on April 6, 2011, applies to the telecommunications domain. The decree stipulates details and specifies new guidelines for the execution of several articles of Telecom Law relating to the ratio of ownership, foreign investment, commercial rights fees, and authorized capital.

International norms under UN, WTO, and FTA frameworks

Vietnam’s international commitments under the UN, WTO, and free trade agreements also influence data center regulations. While specific provisions for data centers may be lacking, existing agreements cover related services such as online information and database retrieval.

Law impacting telecommunications and Internet services

• Telecommunications Law No. 41/2009/QH12
• Decree No. 25/2011/ND-CP
• Decree No. 53/2022/ND-CP (provisions of Law on Cybersecurity)
• Decree No. 72/2013/ND-CP
• Circular No. 17/2016/TT-BTTTT, as amended by Circular No. 08/2017/TT-BTTTT

Data and cybersecurity laws

• Law on Cyber Information Security No. 86/2015/QH13, dated November 19, 2015
• Law on Cyber Security No. 24/2018/QH14, dated June 12, 2018
• Decree No. 53/2022/ND-CP, dated August 15, 2022, detailing several provisions of the Law on Cyber Security
• Decree No. 13/2023/ND-CP, dated April 17, 2023, regarding Personal Data Protection (Decree 13), in effect from July 1, 2023

Data and cybersecurity laws require the storage of certain data types within Vietnam. Foreign entities may need to localize data storage or establish a presence in Vietnam if requested by the Ministry of Public Security. In specific, decree 13/2023/ND-CP regulates personal data protection, imposing obligations on organizations and individuals involved in data center-related services. It also restricts the transfer of Vietnamese personal data outside of Vietnam.

Construction of data centers

Construction of data centers must adhere to specific national standards and technical regulations outlined in Circular 03. These include requirements for data center design, fire prevention, lightning protection, and earthing.
1. The national standard for data centers and telecommunications technical infrastructure requirements, as outlined in TCVN 9250:2021 (or ANSI/TIA-942-B:2017 standard or the Tier standard by the Uptime Institute).
2. The national technical regulation (NTR) concerning fire prevention and firefighting equipment applicable to buildings and facilities, as specified in QCVN 06:2021/BXD.
3. The NTR about lightning protection, which is relevant to telecommunications substations and peripheral cable networks, as detailed in QCVN 32:2020/BTTTT.
4. The NTR regarding earthing for telecommunication stations, as specified in QCVN 9:2016/BTTTT. These regulations are essential in ensuring the compliance and safety of data centers in Vietnam.
These regulations are essential in ensuring the compliance and safety of data centers in Vietnam.

Land law

• Law on Land No. 45/2013/QH13
• Civil Code No. 91/2015/QH13, dated November 24, 2015

Under Land Law No. 45/2013/QH13 and the Civil Code No. 91/2015/QH13 in Vietnam, foreign investors are not allowed to own land for data center development directly. However, there are provisions for foreign investors to establish data centers through business cooperation contracts (BCC) or joint ventures (JV).
In the case of a BCC, the ownership of real estate must be with the local partner, who then contributes it to the BCC. Foreign investors are not permitted to own real property for data center development.
For JVs, land ownership is also prohibited. Instead, JVs have the option to lease land from the State or sub-lease land within an industrial zone from an industrial zone developer specifically for data center development. Although they cannot own the land, JVs can retain ownership of the data center buildings constructed on the leased land. Any assets attached to the land must be registered with the relevant land authority.
These arrangements allow foreign investors to develop and maintain data center facilities in Vietnam while complying with local land ownership regulations.

Electricity law

• Law on Electricity No. 28/2004/QH11, dated December 3, 2004

Under the current electricity law in Vietnam, specifically the Law on Electricity No. 28/2004/QH11, there is no requirement for special power purchase agreements specifically for data center operations. The law also lacks guidelines for purchasing power from Independent Power Producers (IPPs), except for IPPs operating rooftop solar systems.
However, there is a draft decision proposed by Vietnam’s Prime Minister that aims to establish a pilot program allowing direct power purchase agreements between renewable power producers and consumers, including data centers. To participate in this program, renewable power plants and consumers, such as data centers, must register with the Ministry of Industry and Trade (MOIT). MOIT will assess and create a list of eligible participants. Only those on the list will be able to directly purchase power from IPPs.
It’s important to note that this draft decision has not been finalized yet but is expected to be fast-tracked in 2023 after the release of Vietnam’s Power Development Plan 8 on May 15, 2023. This potential development could provide opportunities for data centers to directly purchase renewable power in the future.

The electric vehicle (EV) market is experiencing a worldwide transformation, and Vietnam is no exception. This shift is not only driven by consumers but also by increasing business-to-business (B2B) collaboration, which brings forth lucrative opportunities for firms to provide parts, components, and ancillary services. From EV charging infrastructure to battery manufacturing and supply, there are various avenues for growth in Vietnam’s relatively underdeveloped EV industry. First-movers may enjoy advantages but should also be prepared to invest in developing the market as a whole. In this summary, we explore the B2B opportunities available in Vietnam’s electric vehicle industry.

Challenges entering the Vietnamese EV market

The Vietnamese EV market poses challenges for businesses looking to enter the industry. One major obstacle is the lack of infrastructure. Vietnam needs to establish a robust charging network to support widespread EV adoption, but there is currently a scarcity of charging stations, limited power grid capacity, and a lack of standardized charging protocols. These factors can create operational difficulties.

The government acknowledges these challenges, as Deputy Minister of Transportation, Le Anh Tuan, mentioned in a workshop last year. There are indications that the government will support private sector-led initiatives to develop key enabling infrastructure.

Another challenge arises from intense competition. As Vietnam’s EV industry shows great potential, foreign companies adopting a wait-and-see approach may face fierce competition from established players within Vietnam, such as VinFast, as well as from other countries. Competitors like Tesla, BYD, and Volkswagen have extensive experience, resources, and established supply chains that could pose a challenge to newcomers in the market.

Policy and regulatory environment

Policy and regulatory factors play a crucial role in the EV market in Vietnam. Navigating complex and evolving regulations, obtaining permits, and complying with quality standards can pose challenges for businesses. The government recently issued a decree regarding the inspection and certification of imported automobiles and parts, adding another layer of regulations for importers.

Talent acquisition, skills gap

The talent acquisition and skills gap is another challenge. Finding skilled professionals with expertise in EV technology is difficult due to a lack of educational institutions specifically focused on this industry. Companies may struggle to recruit and retain qualified personnel, especially with the rapid pace of technological advancements requiring continuous training and upskilling.

Opportunities

Despite these challenges, there are opportunities in the domestic EV market. Growing customer interest in EV adoption is expected to drive demand, with the number of EVs projected to reach 1 million units by 2028 and 3.5 million units by 2040. This will fuel supporting industries such as infrastructure, charging solutions, and ancillary EV services, providing opportunities for B2B collaboration and strategic alliances.

There are significant B2B opportunities in-vehicle components and technologies in Vietnam. International companies like ABB and Foxconn have made investments in manufacturing EV-related components. ABB provided robots to VinFast’s factory, boosting electric vehicle production, while Foxconn plans to establish a factory for EV chargers and components.

Overall, despite challenges, the nascent EV industry in Vietnam offers fertile ground for B2B collaboration and presents opportunities for businesses to contribute to its growth and capitalize on the emerging market landscape.

EV charging and infrastructure development

The development of EV charging infrastructure presents significant opportunities for collaboration in Vietnam. An agreement between Petrolimex Group and VinFast will result in VinFast charging stations being installed at Petrolimex petrol stations, along with battery rental services and dedicated maintenance stations for EV repair.

Understanding the market for EV services

The EV industry in Vietnam goes beyond manufacturing and includes services like EV leasing and mobility solutions.

VinFast, through its subsidiary Green Sustainable Mobility (GSM), offers electric car leasing services to transportation companies. Lado Taxi has integrated nearly 1,000 VinFast EVs into their electric taxi fleet, while Sun Taxi has signed a contract to procure 3,000 VinFast cars, representing the largest fleet acquisition in Vietnam so far.

Selex Motors and Lazada Logistics have partnered to use Selex Camel electric scooters in their operations in Ho Chi Minh City and Hanoi. The collaboration aims to operate at least 100 electric scooters in 2023.

Dat Bike, a Vietnamese electric scooter company, has collaborated with Gojek to revolutionize transportation services such as passenger transportation, food delivery, and general delivery. They will utilize Dat Bike’s advanced electric motorbike, the Dat Bike Weaver++, in their operations.

VinFast has invested in Be Group, a technology car company, and signed an agreement to deploy VinFast electric motorbikes. With support from VPBank, Be Group drivers receive exclusive benefits for renting or owning VinFast electric cars.

These collaborations highlight the growing range of services in the EV industry in Vietnam, offering opportunities for innovation, sustainability, and partnerships across various sectors.

Key takeaways

As the EV market expands, companies need a strong network of suppliers, service providers, and partners to sustain their operations and meet growing demand. This creates opportunities for B2B collaborations and partnerships that offer innovative solutions, specialized components, or complementary services.

Although challenges exist, the future potential of the EV industry in Vietnam is undeniable. By forming strategic supply chain partnerships and providing after-sales services, B2B businesses can leverage each other’s strengths, foster innovation, and contribute to the overall growth and development of the EV industry in Vietnam.

]]> https://plusone.asia/ai-adoption-in-vn/ Mon, 31 Jul 2023 07:02:10 +0000 http://www.plusone.asia/?p=291 Various industries in Vietnam have already embraced the revolutionary technology of AI, which holds immense potential for optimizing operations and workflows. Nonetheless, foreign companies aiming to take advantage of this growing trend should be aware of specific challenges that need to be addressed.

With a vibrant economy, a youthful population, and a strong appetite for innovation, Vietnam offers an appealing environment for AI implementation. However, there are certain challenges that need to be addressed, such as regulatory frameworks and skill gaps, which foreign companies may encounter when entering the Vietnamese market. This article explores the current state of AI adoption in Vietnam and provides insights into how the country can navigate its journey toward becoming an AI-powered nation. It also highlights the opportunities and challenges that foreign firms face in the field of AI in Vietnam, along with key sectors that have already embraced this promising technology.

AI Development and Opportunities in Vietnam

The ICT industry in Vietnam has experienced significant growth, with revenues reaching VND 3,893,595 billion in 2022. Vietnam’s progress in AI readiness is also evident, as it climbed seven places to rank 55 out of 181 countries in the Government AI Readiness Index. However, Vietnam faces a labor shortage in the field of AI. Despite having around 400,000 IT engineers and over 50,000 IT graduates annually, they only fulfill 25% of the country’s demand for IT workers.

Nonetheless, Vietnam holds great potential for AI development. The country boasts a thriving startup ecosystem, a young population eager to embrace new technologies, and government policies that support AI advancement.

Government initiatives and support

The government has approved a National Digital Transformation Program aimed at transitioning governance, the economy, and society towards digitalization by 2025 and beyond. The program sets goals for Vietnam to become a leading country in information technology, improve its E-Government Development Index ranking, and feature among the top countries in the Global Innovation Index.

Vietnam’s commitment to digital transformation emphasizes the crucial role that artificial intelligence will play in achieving these objectives. This creates ample opportunities for AI development and investment in Vietnam’s evolving technological landscape.

Startup ecosystem

Vietnam’s startup ecosystem is thriving, with a growing number of unicorns (startups valued at over $1 billion), doubling even during the Covid-19 pandemic. This is attributed to a government-designed ecosystem that attracts investment in Vietnamese technology and startups, along with a young and motivated workforce.

A tech-savvy, golden population

One advantage Vietnam possesses is its “golden population” structure, with nearly 69 percent of the population being of working age. The country’s flexible and tech-savvy human resources adapt quickly to new technologies, as seen by the high smartphone penetration rate.

Overall, Vietnam presents significant opportunities for AI development, driven by its startup ecosystem, a young and adaptable workforce, and supportive government initiatives.

Challenges for AI Development in Vietnam

While Vietnam holds many opportunities and potential for AI applications, there are several challenges that companies face when entering this sector.

One key challenge is the lack of regulatory frameworks. Although there are already AI solutions available, Vietnam’s legal system has yet to catch up with the necessary regulations to ensure smooth development and operation. Ethical considerations regarding the application of AI solutions also need more attention. The National Strategy on Research, Development, and Application of Artificial Intelligence until 2030 provides a broad outline for the development of AI technology in Vietnam. However, further supporting documents are needed to establish a clear path forward.

Another major challenge is the shortage of a skilled workforce in AI. Despite having a young population, Hoai Xuan Nguyen, Director of the Vietnam Institute of Artificial Intelligence, has noted the country’s lack of specialized AI expertise and abilities. This poses difficulties for foreign companies in finding qualified personnel to lead their AI projects. The rapid evolution of AI technology further complicates the task of finding individuals with comprehensive AI skills. Reports indicate that there is expected to be a continued shortage of programmers and engineers in Vietnam, despite rising compensation and bonuses in the profession, according to the Vietnam IT Market Report by TopDev.

Overcoming these challenges will require concerted efforts to develop appropriate regulatory frameworks and invest in AI education and training programs to build a skilled AI workforce in Vietnam.

Sectors applying AI

The banking sector in Vietnam, led by VPBank and Vietcombank, has been at the forefront of AI applications. VPBank utilizes AI for foreign currency transactions, personal credit, and digital banking, while Vietcombank developed a customer care chatbot platform called VCB Digibot.

The traffic and transport sector also heavily applies AI, particularly through Intelligent Transport Systems (ITS). This technology is used for public security monitoring, traffic jam warnings, and traffic violation detection in cities like Hanoi, Ho Chi Minh City, Binh Duong, and Quang Ninh.

In the healthcare sector, AI is gradually being adopted for clinical decision-making, electronic health records, and diagnostics. VinBrain’s DrAidTM assists in diagnosing heart and lung disorders, while robot calls utilize AI to check on patients’ health and update medical information. However, the use of AI in healthcare is still in its early stages, with challenges including the lack of specific regulations and high costs for deploying new technology products.

Conclusion

Despite these challenges, Vietnam offers lucrative opportunities for foreign firms seeking to invest in AI. The dynamic economy and young population make it an attractive destination. Collaboration with local educational institutions, providing training programs, and actively participating in AI infrastructure development can help address limitations and unlock the full potential of AI in Vietnam.

By seizing these opportunities, foreign firms can not only benefit from Vietnam’s growing market but also contribute to the development of a strong AI ecosystem in the country.

]]> https://plusone.asia/an-overview-of-vn-data-market/ Mon, 31 Jul 2023 07:01:02 +0000 http://www.plusone.asia/?p=285 Vietnam is placing greater emphasis on its data market as it aims to undergo a digital transformation of its economy. Understanding the present condition, future trajectory, and factors contributing to growth in this market is crucial.

The Significance of Vietnam’s Data Market in the Digital Transformation Era

Vietnam’s data market is gaining increasing importance as the country strives to undergo a comprehensive digital transformation. The market was valued at US$858 million in 2020, and it is expected to reach US$1.82 billion by 2023, with a projected compound annual growth rate (CAGR) of 5.32 percent from 2023 to 2027. This growth aligns with Vietnam’s commitment to embracing the opportunities of the fourth industrial revolution.

While Vietnam is relatively new to the digital transformation race, it holds significant growth potential, making the market prospects attractive. However, foreign players currently dominate the data market, holding an estimated 70-80 percent market share. Major domestic players such as Viettel, VNPT, and FPT, along with a few small and medium enterprises, account for the remaining 20 percent.

Cloud computing and AI are two sub-sectors within the data market that exhibit high levels of competition. Over the past years, AI and big data have been extensively applied in sectors such as banking and finance, e-commerce, and telecommunications in Vietnam. These advancements indicate the growing adoption of innovative technologies to drive digital transformation in various industries in the country.

Vietnam’s Data Market Revenue 2018 to 2024

Source: Statista

Data Market Regulations

Vietnam’s government has taken significant steps towards promoting the development of artificial intelligence (AI) and creating a favorable environment for foreign AI companies. Decision No. 127 outlines the National Strategy for Research, Development, and Application of AI until 2030, aiming to position Vietnam among the top four ASEAN countries in AI applications by 2030. The strategy focuses on various objectives, including developing legislation, infrastructure, ecosystems, and skilled personnel in the AI field.

Decision No. 677 highlights the importance of foreign companies’ contributions to the information communication technology (ICT) sector, particularly in knowledge sharing and human resource skill development. Additionally, Decision No. 2117 prioritizes incentives  for the following digital technologies upon market entry:

• Artificial Intelligence (AI)
• Internet of Things (IoT)
• Big Data Analytics
• Blockchain
• Cloud computing, Grid computing, Edge computing
• Quantum computing
• Next-generation network infrastructure (5G, 6G, NG-PON, SDN/NFV, SD-RAN, SD-WAN Network Slicing, LPWAN, IO-Link Wireless)
• Virtual reality, Augmented reality, Mixed reality
• Intelligent, Remediating, and Adaptive cybersecurity
• Digital Twin
• Plant simulation
• Precision agriculture

Key Players in Vietnam’s Data Market

Competition in Vietnam’s data market is fragmented, with no dominant company and a cluster of smaller firms. This presents an opportunity for foreign companies to carve out a share of the market.

In the server and storage system sub-sector, Hewlett Packard Enterprise (HPE) and Dell are prominent players, currently taking up over 40 percent and 28 percent of the server market respectively, followed by Cisco and other firms like Fujitsu and Hitachi.

In management software, data integration, and data analysis, key players include FPT, VNPT, CMC TS, MISA, and HIPT.

The data security market involves major players such as FPT, SAP Asia Vietnam, IBM Vietnam, Viettel Cyber Security Company, Microsoft, Amazon Web Services Vietnam, Cisco, and HPT Vietnam.

Current application of digital technologies in the banking sector

In Vietnam’s banking sector, technology plays a crucial role in driving competition. Around 92 percent of banks are developing mobile banking applications, with a focus on automation and IoT capabilities. Banks collaborate closely with fintech companies in payment services, digital banking, big data, and blockchain. Advanced analytics, AI, machine learning, and chatbots are widely embraced for value creation. Leading examples of digital banking platforms include Timo/Yolo by VP Bank, Robot OPBA by Nam A Bank, and Live Bank by TpBank. However, there is still a gap between global banks and Vietnamese banks in terms of digitalization, presenting opportunities for fintech and ICT solution providers to tap into the banking market.

Overall, the data market in Vietnam is young but dynamic. Their government regulatory initiatives and competitive landscape indicate a welcoming environment for foreign companies looking to enter the data market, particularly in AI and related technologies.

]]> https://plusone.asia/finance-risk/ Sat, 29 Jul 2023 08:59:56 +0000 http://www.plusone.asia/?p=116 Selling a company involves the preparation and review of various complex documents, regardless of the type of buyer or investor involved. These documents include marketing materials such as teasers, confidential information memorandums, private placement memorandums, and executive summaries. Additionally, there are information requests for updated financial information, customer contracts, and customer data. Legal documents also play a significant role and require careful review before signing.

The process of preparing, producing, and reviewing these documents is intricate and time-consuming. Therefore, many business owners seek assistance from professionals like bankers, brokers, lawyers, and accountants. It is advisable for you to do the same. However, as a business owner, it is crucial for you to have an understanding of the important components of key M&A (merger and acquisition) documents involved in the transaction process.

The Investment Banking Engagement Letter

The investment banking engagement letter is a crucial document when selling your business. It establishes the terms and scope of the advisory services provided by the investment banker and outlines the economic points that govern the relationship. Understanding the interests of the investment banker is essential for the successful negotiation of this letter.

Here are six key points to consider when reviewing the engagement letter:

1. Fee Arrangement: Investment bankers typically charge a non-refundable deposit or retainer along with a success fee based on closing the transaction. The success fee should be the most significant component of compensation, while the retainer should be credited towards it. A progressive pricing schedule can incentivize the investment banker to achieve a higher sale price.
2. Exclusivity: Granting exclusivity to an investment banker may seem risky, but most qualified bankers will require it. Not giving exclusivity might limit your chances of securing a top professional. To minimize risk, ensure that the deposit/retainer paid is only a small portion of the banker’s overall compensation – not nearly enough to pay for the total time spent on your deal.

“Nearly all qualified investment bankers will require exclusivity.”

3. Term of Engagement: The term specifies how long the agreement lasts, usually spanning 6-12 months. This allows sufficient time for the investment banker to prepare necessary documents, solicit offers, and negotiate a deal.
4. Termination and Tail Period: The engagement letter should state the right of termination after the term of engagement. It may also include a “tail period” where the investment banker receives payment if a transaction is completed within a specified timeframe after termination. Negotiate the fee rights during the tail period to ensure fairness.
5. Reimbursable Expenses: Investment bankers incur expenses during the sale process such as travel, or research,… which should be reimbursed. The engagement letter should allow you some control over these expenses, with monthly reports and approval thresholds for individual and aggregate expenses. violations of these provisions will result in the expenses not being reimbursable should be stated explicitly in The agreement.
6. Covered Transactions: Clearly define the scope of services and transactions covered to avoid inappropriate fee structures. Different outcomes may have different fee implications, so ensure that the engagement letter reflects your specific goals.
   

“To successfully negotiate this letter, it is crucial that business owners understand the interests and position of the investment banker.”

By paying attention to these key points in the engagement letter, you can align the interests of both parties and increase the chances of a successful sale of your business.

Here are six tips for writing an effective investment teaser:

1. Include the basics: Ensure that buyers have a clear understanding of your company by providing information such as how you generate revenue, when the company was founded, sales and revenue mix, industry categories, distribution methods, management team background, and financial profile (historical and projected revenue and EBITDA). Highlight unique strengths of the company, like market share leadership or significant intellectual property.
2. Clearly state your goals: Communicate your objectives, whether you seek growth capital, ownership transition, recapitalization, liquidity event, shareholder consolidation, or other goals. Buyers appreciate upfront honesty about your intentions, helping establish trust between you and potential buyers.
3. Rely on hard facts: Present your teaser professionally by using a standard font, sending it as a PDF file, avoiding excessive capitalization or flowery language, and ensuring flawless grammar and spelling. Stick to objective descriptions rather than exaggerated claims, as credibility is crucial.
4. Maintain honesty: Starting a transaction process with dishonesty or withholding essential information will harm your credibility. Exaggerating financial performance can be discovered during due diligence and severely impact trust.
5. Keep it concise: It’s best to limit the teaser to one page. This forces you to be concise and ensures that every word adds value. Buyers review numerous opportunities, so make their time count by focusing on what makes your company interesting rather than explaining basic details.
6. Preserve anonymity: Do not disclose your company name or identifying information prematurely. Prospective buyers will review the teaser before signing a confidentiality agreement, so ensure they cannot easily identify your company based on the provided information. This protects your company’s freedom of action, prevents false rumors from competitors, and avoids alarming your employees.

By following these tips, you can create a compelling investment teaser that attracts the right buyers and simplifies the sale or financing process.

The critical element that every teaser must have is a clear answer to the question:

“What is the source of your company’s competitive advantage?”

The competitive advantage of your company is essential as it determines its ability to generate profits and sustain long-term growth. Investors use this information to estimate the value of your business.

Competitive advantage can stem from various sources, such as customer entrenchment, high switching costs, long-term contracts, brand recognition, intellectual property, stable management teams, culture, etc. Financial buyers evaluating your company will assess the sustainability of its competitive advantage to determine their return on investment. The perceived protection of your firm’s revenue and profits directly influences the price they are willing to pay for the acquisition.

Strategic buyers, on the other hand, may have the resources to replicate your products or services in-house. They evaluate whether to build their own version or acquire your company. The more powerful and complex they perceive your competitive advantage to be, the more likely they will choose acquisition.

It is important to note that revealing the competitive advantage of your business in a teaser does not mean providing intricate details. The purpose of the teaser is to generate curiosity. Further explanations about your operations and competitive advantage should be reserved for other materials and in-person meetings, typically after signing a non-disclosure agreement (NDA).

The non-disclosure agreement (NDA) is the initial document in an M&A transaction, sometimes referred to as a confidentiality agreement (CA). Its purpose is to ensure confidentiality among buyers, establish terms of engagement, restrict disclosure to third parties, and outline other agreed-upon conditions.

Using an NDA is crucial for protecting sensitive information from being shared with unauthorized parties or used against the disclosing party, particularly in the case of private businesses. As a business owner or CEO considering selling your company, it is important to understand how and when to use an NDA to safeguard your interests.

There are situations where you might be approached by a potential buyer or competitor seeking collaboration, even if your business is not currently for sale. In such cases, having a basic understanding of NDAs, their key components, and their application is essential. Seeking legal advice is recommended when drafting or structuring an NDA.

ONE-WAY VS. MUTUAL NDAs

NDAs are commonly categorized as either one-way or mutual. In a one-way NDA, also known as a unilateral NDA, the receiving party is obligated to protect the disclosed confidential information. For instance, if a private equity group approaches you, you can require them to sign a one-way NDA, ensuring the protection of any confidential information you share while not being bound if they disclose confidential information to you. This type of NDA safeguards your information but not that of the other party.

On the other hand, if a competitor engages in discussions at a trade show, they may request a mutual NDA. In this scenario, both parties’ confidential information is protected under the NDA, covering any disclosures made by either side.

DEFINE CONFIDENTIAL INFORMATION

Confidential Information refers to sensitive or proprietary data that is intended to be kept secret and not disclosed to unauthorized individuals or entities. The definition of confidential information can vary depending on the specific circumstances, and it is crucial for a Non-Disclosure Agreement (NDA) to clearly outline what constitutes confidential information and what does not. It is essential not to sign an NDA that lacks this specific indication, as it could lead to ambiguity and potential disputes.

Typically, an NDA specifies that any information related to products, services, markets, customers, research, software, developments, inventions, designs, drawings, financials, and other similar items should be considered confidential. However, there may be exceptions to confidential information, such as information already known to the receiving party or information that is publicly available and can be proven as such.

In addition to defining confidential information, the NDA also includes other important clauses:

1. Purpose of disclosing confidential information: This section states the specific purpose for which the confidential information has been shared.
2. Returning or destroying confidential information: It outlines how the confidential information is to be returned or destroyed after the completion of the agreed-upon purpose or under specific circumstances.
3. Use of confidential information: This clause clarifies that the confidential information should only be used for the explicit purpose set forth in the agreement and not for any other purposes.
4. Enforceability of the entire agreement: In case any portion of the agreement is found to be void or unenforceable, this provision ensures that the remaining parts of the agreement remain valid and enforceable.
5. Ownership of confidential information: This section specifies which party retains ownership rights over the confidential information disclosed during the agreement.

“Never sign an NDA that does not specifically indicate what constitutes confidential information.”

The Confidential Information Memorandum (CIM)

The Confidential Information Memorandum (CIM), also known as the offering memorandum or pitch book, provides detailed information about the company being sold and highlights its long-term value. Many business owners underestimate the importance of professionally prepared marketing materials during an M&A transaction.

Having a comprehensive set of investment marketing materials has two significant benefits in the M&A process:

1. Speed: Well-prepared marketing materials that address potential buyer questions upfront reduce the need for individualized responses. This becomes crucial as the deal process progresses and time is of the essence. By anticipating buyers’ inquiries in advance, you facilitate quicker assessment of their interest levels, preventing wasted time for both parties.
2. Buyer perception: The appearance of professionalism greatly influences potential buyers. Investing in high-quality marketing materials enhances your business’s image and attracts serious buyers who are more likely to offer a higher valuation compared to organizations with amateurish materials.

“A well-crafted CIM can expedite the transaction process and lead to a more favorable valuation.”

WHY DO YOU NEED A CIM?

The CIM comes into play once a potential buyer signs the NDA. Its purpose is to help them understand your business and recognize the unique strategic investment opportunity it presents.

Components of a CIM may include:

• Executive summary
• Company History
• Sales process and/or manufacturing capabilities
• Management team structure
• Growth opportunities
• Competitive landscape or industry outlook
• Intellectual property overview and/or company assets
• High-level financials (historical data and projections if available)

Without a CIM, engaging with interested buyers would involve multiple conference calls, duplicated questions, and ongoing correspondence. However, with a well-prepared CIM, you can consolidate these interactions into one document. Buyers can review the CIM and swiftly determine their level of interest, either passing or progressing to the next stage, typically a conference call with the business owner. During this call, more in-depth discussions occur regarding the owner’s goals, valuation, and desired deal structure.

While buyers will still want to communicate directly, visit the company in person, meet the team, and tour the facilities, the CIM sets the foundation for all discussions and establishes transaction expectations. Sharing a CIM is the most efficient way to gauge a qualified buyer’s interest level.

SHOULD I HAVE A CIM EVEN IF I’M NOT ACTIVELY SELLING?

Having a Confidential Information Memorandum (CIM) prepared, even if you are not actively selling your business, can offer several advantages. It allows business owners to uncover and address any existing issues within their company before initiating the sale process. By creating a CIM, owners can view their business from a buyer’s perspective, identify potential challenges such as customer concentration or management expertise gaps, and find opportunities for improvement.

Additionally, a well-prepared CIM can also be useful when approaching commercial banks for loans. It serves as a comprehensive document that showcases the company’s strengths, operations, and financials, providing banks with valuable insights to assess creditworthiness. Moreover, in emergency situations like natural disasters, key personnel changes, or significant personal financial shifts, having a CIM readily available enables quick decision-making and communication.

However, it is essential to seek assistance rather than attempting to create a high-quality CIM alone. Several options are available, including hiring professional investment banks with expertise in building such materials, engaging an M&A consultant for more cost-effective support, or working closely with the CFO of the company. While each option has its benefits, ensuring that the necessary resources are committed to producing a professional CIM is crucial. Incomplete or amateur documentation may discourage potential buyers, resulting in undervaluation or lack of interest. Therefore, investing in a well-prepared CIM demonstrates seriousness in the selling process and yields long-term benefits.

“Don’t make the mistake of thinking you can prepare a high-quality CIM for your company without some sort of help.”

An Indication of Interest (IOI) is a non-binding formal letter written by a potential buyer to express genuine interest in purchasing a company during the M&A process. It serves as the first written offer and helps the seller determine serious buyers from those who are not genuinely interested.

The key elements typically found in an IOI include:

1. Approximate price range: This can be expressed as a specific dollar value range or as a multiple of EBITDA (earnings before interest, taxes, depreciation, and amortization).
2. Buyer’s availability of funds: The IOI may mention the general availability of funds for the acquisition and also specify the sources of financing that the buyer intends to use.
3. Due diligence items: The IOI may outline the necessary due diligence items and provide a rough estimate of the timeline required for due diligence activities.
4. Transaction structure: Potential elements of the transaction structure may be proposed, such as asset vs. equity, leveraged transaction, cash vs. equity, and so on.
5. Management retention plan: The IOI might discuss the plans for retaining the current management team post-transaction and the role of equity owners in the future.
6. The time frame for closing the transaction: The IOI may indicate the expected timeline for completing the deal.

It’s important to note that an IOI is typically based on limited information, as the buyer may not have visited the company or conducted in-depth due diligence at this stage. Sellers should use the IOI to filter out non-serious buyers and focus their time and resources on those who value their company within the target range and possess industry experience relevant to the business.

Furthermore, it’s worth mentioning that an IOI should not be confused with a Letter of Intent (LOI). While both serve a similar purpose, they differ in their level of formality and binding nature.

“Think of an IOI as the first written offer for your company.”

The Letter of Intent (LOI)

A Letter of Intent (LOI) is a more formal document compared to the IOI and outlines the final price and deal structure for the acquisition of a company. Unlike the IOI, which provides a general price range, the LOI presents a specific bid for the company in terms of an absolute dollar value or as a firm multiple of EBITDA.

The LOI indicates the buyer’s desire to engage the company exclusively during a specified period in order to conduct a thorough due diligence process. If the seller accepts and executes the LOI, it prevents them from engaging with other potential buyers (unless otherwise specified). The issuance of an LOI does not necessarily require a prior IOI; different deals may follow different paths, with some directly entering the LOI stage.

Typically, an LOI follows one to three meetings with a prospective buyer. In structured sale processes involving multiple buyers, several discussions will take place, narrowing down the prospects to one to four potential buyers for more detailed negotiations.

When both the business owner and the prospective buyer(s) are interested in continuing the M&A process, the buyer(s) will submit an LOI outlining their proposed deal structure and terms. Receiving an LOI is a clear indication that the buyer is serious about the acquisition, although it doesn’t guarantee full commitment. Some buyers may issue LOIs for multiple deals but only close the top few.

The LOI should include a summary description of all the significant deal terms that will later appear in the purchase agreement. The level of detail in an LOI can vary, ranging from two to over ten pages. Some argue that shorter LOIs expedite the negotiation process by focusing on the primary terms: price, consideration, and timing. If agreement cannot be reached on these fundamental aspects, there may be no need to delve into other deal terms. On the other hand, longer LOIs address various issues upfront, preventing surprises in the future, such as representations and warranties or treatment of unvested options.

OTHER TERMS THAT MIGHT APPEAR IN AN LOI 

Additionally, an LOI may include other terms, such as employment agreements, retention bonuses, treatment of option pools, and fee responsibilities. It is important to consider all critical terms in the LOI, as inserting new terms into the purchase agreement that were not included in the signed LOI can come with consequences.

While the LOI itself is non-binding, it is advisable to include all crucial terms in it. Addressing any issues upfront during the LOI stage is better than having them uncovered during due diligence. Seeking legal advice from an M&A attorney, consulting with tax accountants and wealth managers, and involving professional investment bankers are recommended steps when approaching the LOI stage.

Overall, the LOI represents a significant milestone in the successful sale of a company, and careful consideration should be given to its contents before signing the agreement.

1. Employment Agreements: This clause pertains to management compensation and agreements with favored or long-time employees. However, requiring the buyer to provide such agreements or maintain current compensation structures may go beyond their standard post-deal integration practices. The buyer may refuse or require the seller to compensate accordingly.
2. Retention Bonuses and One-Time Payments: Similar to employee agreements, buyers may not want the added administrative or financial responsibility associated with providing retention bonuses or one-time payments.
3. Option Pools: The treatment of unvested options or vested but underwater options is not standardized in an LOI. Buyers may choose to honor the existing option plans by converting them into their own plan or a similar structure.
4. Fees: Generally, the party that incurs charges pays the fees. However, there may be circumstances where ambiguity arises. For example, if the buyer requires reviewed or audited financial statements from the seller but the deal falls through, the seller may request the buyer to cover the audit fee.

It is advisable to include all important terms in the LOI, even though the finalization of the transaction terms occurs in the purchase agreement. Adding terms to the purchase agreement that were not included in the signed LOI is possible but may come at a cost.

Disclosing any issues that may impact valuation or the buyer’s decision to proceed with the transaction, such as unresolved equity disputes or litigation, is crucial before signing the LOI. It is better to address these concerns during the LOI stage rather than having them uncovered during due diligence.

Engaging an M&A attorney, consulting with a tax accountant and wealth manager, and seeking assistance from professional investment bankers can be beneficial in ensuring the best deal and navigating the sale of the company successfully.