4 factors turning Vietnam into Southeast Asia’s next growth story

Several batches ago, we started to see a steady influx of Vietnamese founders applying to our AppWorks Accelerator. It was a rather curious phenomenon because at the time, we had only begun expanding our scope outside of Taiwan to include Southeast Asia and had really only seen inward interest coming from developed markets like Singapore and Hong Kong.

West Lake, Hanoi. Photo credit: huythoai / 123RF.

Indonesia had long been earmarked for obvious reasons, but Vietnam was nowhere on our radar. And yet, we ended up having founders of startups such as Innaway (AW#17), Triip.me (AW#18), KardiaChain (AW#18), and Abivin (AW#19) join our program. Granted, each of them had different motivations for coming to Taiwan, but it was enough to pique my interest in understanding the Vietnamese market, specifically the context and mentality in which these founders were coming from.

A handful of trips and dozens of meetings later, I’ve grown to become quite fond of the ecosystem in Vietnam. There’s an almost festive-like energy reverberating throughout the local startup scene. The country is experiencing a level of economic prosperity it has never seen before, and as a result, a generation of eager entrepreneurs laser-focused on tapping into the limitless possibilities at hand. Based on my observations, there are several key factors currently driving this growth.

The macros

Vietnam’s ascension to the regional, if not global, spotlight has been nothing short of an economic miracle. Just three decades ago, the country was one of the poorest in the world, with gross domestic product per capita treading around US$100 and over 70% of its population living in poverty.

Thanks to the Doi Moi reforms introduced in 1986 that gradually saw the liberalization, privatization, and diversification of its economy, Vietnam today is a comfortably middle-income country, with an accelerating market driven by a large, increasingly wealthy, and digitally connected middle class. From 2000 to 2015, Vietnam exhibited an average GDP growth rate of 6.9%, most recently clocking in at 7.08% in 2018, placing it among the fastest-growing economies in the world.

With 95.5 million people, Vietnam boasts not only the third-largest population in Southeast Asia, but also a young one, with over half under the age of 35. Levels of disposable income have also never been higher, and internet and mobile adoption are becoming more ubiquitous among its consumer base.

These are the fundamentals that should whet the appetite of any early-stage investor worth their salt, and many seem to agree. In the 2019 eConomy SEA report by Google, Temasek, and Bain & Company, Vietnam was designated as the third-most funded country in Southeast Asia after Singapore and Indonesia, having attracted over US$1 billion in funds over the last few years. The country’s internet economy has expanded by 38% on an annualized basis since 2015 – growing far more quickly than its regional peers with the exception of Indonesia – and is now set to reach US$12 billion or 5% of its GDP in 2019, according to the report.

It was only a few years ago when Vietnam lagged behind the majority of its peers in terms of capital allocation, deals done, and overall interest. But now, the conversations are evidently shifting from “Why Vietnam?” to “How do I get a piece of Vietnam?”

The tech talent

A classic characterization of the ideal Southeast Asian startup is one that is headquartered in Singapore, targeting Indonesia, with designers in Thailand, customer service in the Philippines, and engineers in Vietnam. It’s a gross oversimplification of each country’s strengths, but it’s nonetheless rooted in some degree of truth.

Vietnam’s heavy investment in science, technology, engineering, and math education over the last 15 years, combined with improved internet connectivity and a young, low-cost workforce, has spawned a thriving IT outsourcing industry. Vietnam is now home to roughly 30,000 IT companies, while churning out 80,000 IT graduates a year from its universities, according to Vietnam’s Ministry of Science and Technology. The country has also usurped China as Japan’s second-largest software outsourcing partner, right behind India, and houses substantial research and devvelopment bases from the likes of IBM, Intel, Oracle, Samsung, and Grab.

What does this mean for startups? This country is producing a legion of skilled developers ready to join a startup or bootstrap one of their own.

Many of the local founders I met previously worked for an outsourcing company (or in many cases simultaneously), but turned to entrepreneurship and startups in search of greater opportunities for growth and impact.

Of course, the talent pool is not without its challenges. The talent is certainly there, but it’s raw, and it’s young. As the ecosystem is still relatively nascent, there are very few people who have experience managing teams and solving problems at scale.

The sea turtles

The homegrown ecosystem

The time is now