Startup fever to restructure Vietnamese growth model

Gripped by a wave

24-year-old Hoang Ngoc Dung is working a regular 9-to-5 job, but on the side she is founder and director of The Mindful Project, a project that uses video clips, infographics, and pictures that are accessible online as well as interactive classes to help high school students get to know themselves, their strengths, weaknesses, dreams, and passions.

“The Mindful Project wants to supplement and fix the weaknesses of the Vietnamese education system, which is focused on theory and does not pay enough attention to individualism. We aim to help students become more active to seize opportunities to change themselves and their surroundings,” Dung said, citing the Ministry of Labour, Invalids and Social Affairs’s alarming statistics of 176,000 bachelor of arts degree holders sitting unemployed because they chose the wrong thing to study in college and were not proactive enough to adapt to the needs of the job market.

Dung is only one of many young Vietnamese starting something new to address a specific, growing demand of the community. During the last two years, ‘startup fever’ has gripped the country, adding more and more new unique hues to the company palette, with the birth of many companies providing (and aiming to provide) innovative products and solutions that may disrupt the market.

“Startups, I think, only became hot in the past one or two years. Some students returning from foreign universities and Viet Kieu coming back to Vietnam made it more exciting. Many startups received plentiful investment and were successful, such as Misfit, the Kafe, and Tappy,” Dung explained.

Along with the appearance of so many startups came a range of accelerators and incubators, developed by the government and the private sector alike. Examples include the Innovation Partnership Programme (IPP), an Official Development Assistance (ODA) programme signed between the Vietnamese and Finnish governments, incubator Danang Entrepreneurship Support Company, financed from the city’s development fund and a recently licensed VND750 billion ($33.3 million) IT innovation centre in Ho Chi Minh City by real estate developer Hoa Binh Corp..

On the other hand, funds such as IDG Venture and 500 Startups have emerged as providers of funding. There are many awards startups can apply for, such as VNPT’s Nhan Tai Dat Viet, and competitions, such as Startup with Kawai and Startup Wheel, where start-ups can get the desired media attention and receive critiques from the judges that would help them better their products and services or improve their skills.

Social startups have their own competitions, such as UPshift Vietnam and the ASEAN Impact Challenge. The Centre for Social Initiatives Promotion has some projects that support social entreprises through investment, training, and advertises many funds and competitions on its facebook page for social startups to join.

Taking root in fertile soil

Vexere (which translates to “cheap coach tickets” in English), the biggest online coach ticket booking platform in Vietnam, started operation in 2013 and saw its traffic shoot from 1,000 views per day at first to 50,000 views now. The website sells 1.5 million tickets each month. The number of coach companies listed on the site is now 2,000, operating 5,000 routes. 50 coach companies have transferred to vexere’s ticket management software and 100 sales agencies use the company’s agency software.

Vexere’s CEO Tran Nguyen Le Van said one of the main reasons so many companies were created was that there were so many things to do.

In the case of The Mindful Project, it is because young Vietnamese see the need to bridge the gap between their education and the real world. In vexere’s case, coach tickets have been booked online in many countries for a long time, but not in Vietnam.

“Vietnam is still underdeveloped and many things are done manually so there is a lot of room to innovate and use technology to solve everyday issues, such as booking coach tickets,” Van said. “In other areas, such as healthcare and agriculture, there is a lot of room for technology that can save on manpower.”

Moving the bookings from manual to digital fundamentally changes the way coach transport works in Vietnam. It not only brings revenue to coach companies easier but also helps them save up to 40 per cent on telephone calls.

“For example, Sao Viet Coach Company has a line that goes from Hanoi to Sapa. There are four ticket booths on the road. The central management does not have to call each of these booths to find out how many tickets have been sold, and the booths do not have to call one another,” Van said.

It also forces them to increase service quality by instilling the habit of giving and receiving feedback. Before, coaches could make stops along the way to get more passengers, cramming the coach and causing discomfort for the other passengers, but now people can leave reviews on the website, forcing coaches to significantly reduce this behaviour.

“In the past, if the customer had a complaint, he or she would not know where to make the complaint and who is going to address it,” Van said. According to him, the website now has 5,000 reviews. “Coach companies can consult the reviews to improve their services.”

Vexere now even enables passengers to pick their seats. Van is proud that now whenever customers want to travel by coach the first thing they do is to go to the vexere website. He said next year vexere would expand to air and train traffic or go to Cambodia and Laos. As of now, some coach companies in Cambodia and Laos already use vexere’s software.

In the same vein, jupviec.vn, an online housekeeping agency, changes the way housekeeping is done in Vietnam. A website that displays information about housekeepers and a video interview so that customers can choose the most suitable housekeeper is not entirely new and has been done in other countries, but in Vietnam, it has found virgin soil to grow rapidly.

The switch from hiring housekeepers based on recommendations from acquaintances, or taking a risk by hiring a stranger, was warmly welcomed by the market and jupviec.vn has served 15,000 customers in Hanoi up to now. The company, which announced the launch of its supplementary aupair search service last week, plans to expand to Ho Chi Minh City and some of Vietnam’s bigger cities in 2016.

As most startups use information technology to get to users, Vietnam is the perfect market. The country has a population of 90 million, 54 per cent of whom are under 30, and roughly 45 per cent of whom use the internet frequently. Though the speed is still relatively low, wifi coverage is good. Almost all coffeeshops offer free wifi.

For tech companies, an advantage lies in the availability, skill, and relatively low cost of IT human resources. A big percentage of the workforce is young and eager to work in startups in order to contribute as much as possible. All these factors make Vietnam a good place to start a company.

Obstacles remain

Still, there are things preventing the startup ecosystem in Vietnam from growing to its full potential.

ASEAN countries, like Malaysia, offer preferential tax policies for angel investors while Vietnam does not. Moreover, there are so many licences to get in order to make an investment, which was the common grievance brought up at a recent conference held by the Ministry of Science and Technology (MoST) in Hanoi's Hoa Lac Hi-Tech Park.

Pham Hong Quat is director of the MoST's Department of Market Development and Science and Technology Enterprise, which is drafting policies to support the startup ecosystem, including to encourage venture investments into companies that deal with innovative technologies or technology products whose sales have the potential to grow fast. He admitted in a recent interview with dantri.com.vn that that the existing regulations on investment funds, the stock market, corporate banking, and science and technology funds were numerous but not ideally encouraging yet, especially for those with little capital and governance capacities.

“It is not as easy for investors in Vietnam as it is for those in Malaysia, Singapore or Thailand. Vietnamese companies may have to go to other countries where it is easier to call for capital in order to grow,” he said.

Do Tuan Anh, CEO of mobile content distribution platform Appota, bemoaned the lack of special support for startups, saying that startups should be higher on the government agenda because of their potential to drive the economy to new heights. Tuan complained that resources were being wasted instead of used to support startups, such as empty real estate projects that could be rented to start-ups at low price.

However, problems facing startups most of the time are the same problems facing the private sector in general. Chris Harvey, founder and CEO of job listing platform for IT professionals ITviec, said that his main problems were obtaining licences, paying taxes, and paperwork.

In copyright law, for example, Van’s personal experience showed that if you register a logo, it takes one year to receive feedback from the people in charge. During this year, you do not know whether you succeeded or will have to start again.

Startups in each area also face difficulties particular to their field. In Vexere’s example, coach companies suffer from the government’s price ceiling for coach tickets.

Appota’s Tuan Anh cited the burdensome game licensing process. “Other countries view games as an industry that makes profit and contributes to the economy. In Vietnam, theoretically, game companies can apply for a licence but the procedures are complicated and vexing. It is more difficult for small companies that do not have the resources to comply,” he said.

Another issue of complaint was the disparity of tax policies targeting Vietnamese and foreign companies. “Vietnamese companies are paying tax twice. Why? Because they have to advertise through Facebook and Google to get to their Vietnamese user base – there is just no other way, Facebook and Google are too popular already. But then they have to pay the contractor tax for these companies, because Facebook and Google do not have offices in Vietnam. Paying tax twice, how could they have any profit left to reinvest into their business?” Tuan Anh said. “We do not have a way to legally bind foreign companies to make it fair between Vietnamese and foreign enterprises.”

Last but not least, according to Vexere’s Van, IT human resources are aplenty in Vietnam, but many of them still have a contractor mindset.

“In other countries, they look for customers, get customer requirements, plan everything. Vietnam is used to contracting part of the products,” Van explained. “It is hard to find someone with a view,” Van said, “and even harder to find someone with startup experience.”

Hope for a change in the growth model

In his speech at the 12th Vietnam Party Congress in January 2016, Minister of Planning and Investment Bui Quang Vinh said that one of the focuses of renewing the country's growth model was to create a new wave of startups.

“The health of the economy is measured in the health of its companies. The government should also boost the entrepreneurial spirit by enabling investment into startups,” he said.

The Vietnamese economy is moving towards a place where the private sector plays the major role, and the government seems to be doing its best to enable startups, which embody the flexibility and creativity of the private sector, to realise their potential and play their part as principal drivers of growth.

A pilot project of the MoST, Vietnam Sillicon Valley, has achieved some measure of success. Among the successful stories, graduate Lozi, an app that helps users find restaurants based on location, reviews, and preferences, received seven-digit funding at the end of 2015 from Golden Gate Ventures and DesignOne Japan. The investment, according to a representative of Lozi, is going to be used to develop a solution to connect restaurant owners with users, and fuel the startup’s expansion to Southeast Asia, while at the same time improving the quality of the existing service.

In November 2015, the government issued Decree 118/2015/ND-CP on the implementation of the Law on Investment, which said that projects that concern incubating hi-tech, companies in hi-tech, venture investments for hi-tech companies, as well as the application, research and development of hi-tech would receive investment incentives from the government, in tax and land use.

Pham Hong Quat’s department, under directions from the MoST, recently drafted “The Startup Ecosystem Support Project till 2025” which outlines ways in which the government can help startups and other entities in the ecosystem, such as funds, accelerators, and coworking spaces, through consulting, financing, tax breaks, and other methods.

Perhaps the most revolutionary development is that the government is going to allocate a portion of its budget to invest in startups. In a recent interview with local media, MoST's Deputy Minister Tran Van Tung said that after the project Vietnam may have to fix some of its laws. “Only one or two of every ten projects that the government invests in are going to be successful. So the people who use the money from the state budget to invest in these startups may be charged with mismanagement of state assets. This risk needs to be removed by legal documents,” he said.

In conclusion, the startup wave does not look like it is going to run out of momentum any time soon because of the manifold advantages Vietnam offers as a market. However, to turn the startup wave into a permanent part of the economy, the first thing the government needs to do is to make doing business easier.