How Vietnam’s IT services are attracting foreign investment

U.S. semiconductor giant Nvidia last week acquired VinBrain, an artificial intelligence subsidiary of Vietnamese conglomerate Vingroup, for an undisclosed price.

Its CEO, Jensen Huang, said the acquisition was "the starting point of a major future design center" in the country.

U.S. private equity fund Sunstone Partners announced at the end of November that it was investing in software firm KMS Technology, which has offices in Vietnam.

Julian Hinderling, Sunstone Partners’ deputy general manager, said the collaboration is "a great opportunity to innovate and scale up business."

The sector has also attracted the attention of Asian investors in recent years. Japanese giant Sumitomo made a strategic investment in software outsourcing firm Rikkeisoft and Tokyo-based Agest Group’s acquired LogiGear Vietnam and rebranded it as Agest Vietnam.

The deals signal that foreign investors are taking an interest in software development in the country rather than just manufacturing like they used to, but industry experts noted that most deals are small and large acquisitions by foreign investors are rare.

A senior executive at a company based in the Quang Trung Software City, a major tech hub in HCMC’s District 12, said Japanese businesses prefer acquiring software companies valued at around US$1 million.

"Chinese investors are more discreet, often purchasing stakes rather than making outright acquisitions."

Vietnam’s software and IT services sector saw just seven private equity and venture capital deals worth around $3.8 million in the first 11 months of 2024 to lag behind several of its Southeast Asian neighbors, according to a recent report by S&P Global.

Singapore led the region with 104 deals worth over $2 billion, followed by Indonesia with 21 deals worth nearly $128 million and the Philippines with five deals totaling $69.5 million.

A study by the Economic Research Institute for ASEAN and East Asia suggested that private equity funding in Southeast Asia’s software and IT services sector will reach at least $1 trillion by 2030.

Dr. Nguyen Cong Ai, deputy general director of audit firm KPMG Vietnam, expected IT to become as popular on the M&A market as other traditional industries such as real estate, consumer goods and manufacturing.

It would be driven by initiatives and reforms to promote foreign investment, such as tax incentives for high-tech industries and the optimization of investment review procedures, he added.

A KMS Technology office in Vietnam. Photo courtesy of the company

The Vietnam Software and IT Services Association said revenues from software and IT services increased sixfold over the last decade to nearly $16 billion last year.

The e-Conomy SEA 2024 report by Google, Temasek, and Bain & Company noted there is plenty of room for the sector to grow as the digital economy, which includes IT, is forecast to grow 16% this year to $36 billion.

Hinderling said: "We are still in the early innings of massive digitization efforts across enterprises, further accelerated by increased demand related to next-generation data and AI-enabled applications."

A report on foreign investment by HSBC in August noted that Vietnam’s tech industry has mastered many complex production processes and grown beyond basic hardware production and assembly.

But for it to grow in the long term, the country needs to upgrade its technology infrastructure, given the increasing demand for 5G networks, data centers and cloud services. It must also address the lack of experienced and skilled tech workers, the report said.

Businesses need to invest in better technology and a skilled workforce to ensure compliance with cybersecurity standards and data protection regulations, especially as cyberattacks become more sophisticated.

The Ministry of Information and Communications said Vietnam needs at least 500,000 more tech workers by 2025.

This creates an urgent need for businesses to upskill and reskill employees, according to recruitment firm TopDev.