Cloud Services Market in Vietnam: Opportunities and Challenges

The rapid adoption of cloud services in recent years is aiding digital transformation in Vietnam. As demand for agility, productivity, and storage efficiency grows across all sectors, they push organizations in the country to transform their IT infrastructure, thereby opening up a broad range of opportunities for foreign firms.

Many Vietnamese firms are migrating to cloud computing to become more competitive. This increasing demand for cloud services in all business fields has fostered the expansion of both domestic and foreign cloud service providers in Vietnam. According to the Ministry of Information and Communication (MIC), Vietnam now has at least 27 data centers owned by 11 domestic firms.

However, although in recent years there has been a sharp increase in cloud adoption globally, Vietnam has been slow in implementing software-as-a-service (SaaS) solutions and making a full move to ‘the cloud’. Research shows that only 5 to 7 percent of Vietnamese enterprises have transitioned to a SaaS-first business model. In this light, understanding the challenges cloud computing faces may help foreign firms make more informed investments in Vietnam’s cloud services market.

Vietnam cloud services market in numbers

According to Vice President of Google, Stephanie Davis, Vietnam has the fastest-growing digital economy in Southeast Asia. Furthermore, the cloud computing market in recent years recorded a CAGR of nearly 30 percent in Vietnam, according to the MIC. This, together with the robust development of IT infrastructure software and data centers, shows that Vietnam’s ICT industry is making headway in accelerating its digital transformation agenda and developing the cloud computing market.

In 2020, Vietnam’s cloud service market reached US$196 million and is anticipated to have a CAGR of 18.8 percent up to 2026, according to Research and Markets. Data center construction has also increased dramatically in 2022, with several Vietnam data center industry heavyweights having built new units, including CMC Corporation, Viettel IDC, and VNG Cloud. These developments contain over 270,000 rack servers.

With regard to the cloud readiness of Vietnamese enterprises, an EY survey found that 84 percent of the respondents said their organization has a cloud migration strategy. One of the biggest driving factors for these firms to adopt cloud technology is to improve their operational performance.

In addition, domestic firms and multinational corporations are making headway in incorporating cloud technology into their business operations. Twenty-eight percent of the surveyed business leaders said they are designing a cloud migration deployment plan and 38 percent stated that their organizations are in the process of implementing a cloud strategy.

In this context, the cloud adoption journey of firms operating in Vietnam represents significant revenue growth potential for cloud service providers in the coming years.

Standout domestic players

CMC Cloud

CMC Corporation is the second largest ICT company in Vietnam with more than 26 years of development under its belt. The company provides a diverse range of services, including digital transformation consultancy, telecommunication, IoT, and AI. This is the only cloud service company in Vietnam with a foreign shareholder—the TIME dotCom Group—a leading telecommunications group from Malaysia.

In August 2022, CMC Corporation opened a new data center meeting global standards, with 1,200 racks across an area of 13,000 sqm in Ho Chi Minh City. After the new construction of the CMC Creative Space, the company is planning to build a research and innovation complex in Hanoi, preparing Vietnam to become a leading global tech hub in the future.

VNG Cloud

VNG Corporation, Vietnam’s first technology unicorn, established VNG Cloud in 2007 with a mission to provide high-end cloud computing services and solutions exclusively tailored to businesses. vServer is one of the infrastructure services that VNG Cloud offers. It provides an easy virtual server setup that meets all customer’s demands, according to the company.

They also have two premium data centers in Vietnam that have Uptime Tier III certifications for their design and facilities.

Viettel IDC

Viettel IDC is the largest data center (DC) and cloud service provider in Vietnam, representing more than 40 percent of the market in DC in Vietnam. With 13 data centers, 9,000 server racks, 60,000 sqm gross floor area, and over 70 products and services, Viettel IDC’s service caters to the needs of many of the world’s leading digital content enterprises.

Growth drivers

Growing demand for digital transformation

Vietnam is experiencing rapid digital acceleration as everything becomes more on-demand and needs-based. The country has one of the fastest growing digital economies and the e-commerce sector recorded the strongest growth in Southeast Asia in 2022. According to a report by Google, the digital economy in Vietnam could be worth US$49 billion, with an average annual growth rate of 31 percent, by 2025.

CEOs and boards are increasingly viewing the cloud as a strategic imperative for growth and business transformation. Therefore, they are migrating to cloud-based services to drive business performance and maintain their competitive capabilities amidst mounting economic uncertainty.

For example, in recent years, there has been an increasing demand for SaaS from sizeable vertical markets, including healthcare, telecommunications, and retail. Companies across all sectors are progressively moving towards the cloud for higher flexibility, agility, efficiency, and ultimately to achieve their digital transformation goals.

Quick and easy scalability for SMEs in Vietnam

The Vietnam Association of Small and Medium Enterprises reported that there are over 800,000 enterprises in Vietnam, of which SMEs make up nearly 98 percent. SMEs in Vietnam are making headways in digitizing their operations in an effort to increase their business value. The number of SMEs using digital platforms now exceeds 30 percent, according to the MIC.

With the diverse benefits of cloud services, SMEs can operate on an on-demand basis to control costs and quickly scale. Therefore, cloud services can boost business operational efficiency and help enhance online service performance when correctly utilized. That said, small businesses are facing hurdles in implementing their digital transformation strategies and maintaining their IT infrastructure.

Faster disaster recovery (DR) and effective business continuity plans (BCP)

Software failures, be they human or otherwise, can quickly become disasters. These can have profoundly negative impacts on business continuity, reputation, and overall revenue. With cloud computing solutions, however, the system recovery can be accelerated, and recovery expenses reduced.

Many Vietnamese financial institutions rely on the cloud to quickly store and recover their business data. With the support of the cloud, they can actively work on DR and BCP to secure their customer information and prevent any IT interruptions.

Challenges

Skills gap in the Vietnam workforce

One of the most urgent challenges to cloud adoption among Vietnamese enterprises is the skills gap in the workforce. According to McKinsey, today’s technology workforce is well-versed in creating business applications using conventional IT infrastructure. However, the majority of IT specialists need to be reskilled or upskilled if their organization is to transition to a cloud environment.

Lacking a cloud-literate workforce, the cloud transformation journey of an enterprise may be subject to failure. Therefore, as businesses are increasingly facing a wide range of talent issues, it can pose difficulties for cloud service providers operating in Vietnam to expand their business services.

Security and regulatory compliance

The primary issue that hinders the growth of the cloud computing market is strict regulatory frameworks and compliance policies in Vietnam. For example, Decree No. 53/2022/ND-CP mandates that domestic and foreign service providers have to store specific types of data in Vietnam for a minimum period of 24 months.

In addition, foreign cloud service providers must have representative offices established in Vietnam. The decree also sets out detailed guidelines by listing 10 different services that must comply with data localization requirements. This is likely to create increased costs for foreign enterprises.

Strict governance frameworks and cybersecurity compliance thus pose challenges for investors in Vietnam’s cloud services market.

Vietnam’s cloud service market in the future

Cloud computing has emerged as a transformative factor in the digital transformation age. Organizations in Vietnam are now taking a more holistic approach to their cloud adoption strategies and responding quickly to this digital disruption. As a result, the cloud services market in Vietnam has a promising future ahead for both domestic and foreign players.

That said, investment in Vietnam’s cloud market can be challenging for foreign investors, as administrative procedures and regulations remain complicated and troublesome. Firms looking to invest in Vietnam’s cloud computing market should consult a knowledgeable local professional advisory.

For support with legal and regulatory requirements for doing business in Vietnam, contact the experts at Dezan Shira and Associates.

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