As foreign investors realize China is becoming more expensive for manufacturing, they are turning their eyes to countries in Southeast Asia. Vietnam, for example, saw its foreign direct investment (FDI) grow 60% year over year in the fourth quarter of 2014. A large proportion of the FDI has gone to the high-tech industry. While people are expecting the technology boom to continue into the future, Vietnam is preparing a series of regulations for the technology industry, which may slow down the growth of IT business in the country.
Although a new law, effective in July 2015, will grant foreign high-tech firms more preferential incentives, the rising criteria for classifying as a “high-tech firm” is detrimental to Vietnam in terms of attracting more FDI for its technology industry. The newly proposed laws mandate that foreign tech-companies have a local presence in order to offer services in Vietnam. One of the reasons behind raising the criteria is the government is trying to protect Vietnam’s military-owned telecoms industry, as it experiences a downturn in growth. This industry's struggles have been a direct result of high-tech products being brought into the country by foreign internet technology companies. Although these laws will protect the local telecoms industry, they will limit the ability of some foreign internet technology companies to operate in Vietnam and constrain FDI.
The government’s censorship over the Internet is thought to be another large factor that may harm the emerging tech sector in Vietnam. Last year, a popular Vietnamese social media site was shut down because the Ministry of Information and Communications thought the content was offensive. This company is not alone, as many social media sites have since been fined or taken offline for similar reasons. Such control makes it difficult for young Vietnamese entrepreneurs to start businesses related to social media. It also limits companies' internet marketing abilities.
As Vietnam is fast becoming one of the tech hubs in Asia, the newly proposed laws would not only limit the growth of the local tech sector but also drive foreign investors away. What do you think the Vietnamese government should do to encourage growth in FDI for its tech industry while protecting its telecoms industry?