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OCTOBER 2, 2000 VOL. 156 NO. 13

Software for Hard Times
Even socialist Vietnam wants on the e-bandwagon, betting that infotech exports will fuel rapid growth
By DAVID LIEBHOLD Ho Chi Minh City

For Tran Coi, the only difficult thing about the New Economy is trying to explain it to his mother. Coi's father was killed in combat a few months before he was born, so Coi's mom had to raise the family of five by farming a small piece of land. Coi has come a long way: now 27, he is a senior programmer at FSOFT, a state-owned software development company. "My mother doesn't really know what I do," he confesses, "except that it has something to do with computers." But she isn't complaining. Coi now makes $300 a month—more than 10 times the national average—and his family, at last, is doing fine.

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Authorities are hoping the nation's youth will transform the communist country into a major software exporter

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Vietnam is counting on people like Coi as it tries to make the dramatic leap from subsistence farming into the information age. In June Hanoi unveiled a five-year plan to support its budding high-tech sector, which includes constructing two large software parks. The industry is still tiny, even by regional standards: software exports totaled just $9 million last year. But it is growing exponentially, with exports projected to reach $500 million by 2005. Investors say the efficiency, diligence and creativity of Vietnamese programmers is impressive, and labor costs are among the lowest in the world. That has some industry insiders thinking that Vietnam could one day replicate India's success in information technology. The transformation is already under way. In Ho Chi Minh City, British-owned SilkRoad Systems has hired 17 local programmers to write software for the likes of Jardine Fleming and Merrill Lynch. Says managing director David Appleton: "We're on the edge of a huge success story here."

Much of that hope rests on the human capital at Hanoi's disposal. Vietnamese youth—who make up half the population of 79 million—regularly win prizes in international mathematics and computing competitions. Universities in Ho Chi Minh City alone are churning out 2,000 IT graduates each year. "It seems our brains are not bad," says Nguyen Thien Nhan, vice chairman of the Ho Chi Minh City People's Committee. Foreign investors agree. "We're talking about people who outperform," says John Shrimpton, director of Dragon Capital, which is backing SilkRoad Systems and several other software firms. "Software is perhaps the area of greatest comparative advantage for Vietnam." According to industry experts, Vietnamese programmers are even faster and better able to make decisions independently than their Indian counterparts. And a Vietnamese programmer typically works for just $200 per month—at least 30% less than his counterpart in the Indian high-tech hub of Bangalore.

But for Vietnam's nascent software sector to live up to its potential, Hanoi will need to remove a few obstacles—starting with inadequate Internet access. Standard connections are still tediously slow, due partly to government firewalls erected to block sites considered harmful and partly to the narrow bandwidth of international lines. High personal tax rates push up costs. "To get $4,000 in someone's pocket you have to pay them $20,000," notes Frederick Burke, a lawyer with Baker & McKenzie in Ho Chi Minh City.

Hanoi is taking some steps toward solving both of these problems. The two new software parks will offer direct Internet access, via dedicated gateways. In the southern Quang Trung Software City, which opened on the outskirts of Ho Chi Minh City on Sept. 1, a satellite dish offers world- class connectivity of 3 megabits a second. Informally, at least, government officials have indicated that software companies located outside the parks may soon be allowed to connect to the gateways. Park users are being offered big tax breaks and other incentives, and there are plans to grant programmers lower individual tax rates irrespective of where they work.

If that all happens, Hanoi's efforts to promote its software industry may also push one of the world's last communist countries that much closer to a free-market economy. Authorities already recognize that the sector offers their cash-poor country a fast track to high-digit economic growth, with minimal capital outlay. According to Nguyen Quang A, who heads Hanoi software firm Computer Communication & Control, Vietnam's biggest industry, garments, adds only 20% value to input materials. "With IT," he says, "we add 80%." Numbers like that are making officials take notice. Says Nhan of the People's Committee: "If we can't make the whole society happy at once, why shouldn't we do it step-by-step?" The software sector may turn out to be the thin edge of the wedge.

With reporting by Huw Watkin/Hanoi

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