Can Vietnam Create the Next Silicon Valley?

HANOI, Vietnam — “Let me explain how a startup works,” said Csaba Bundik, executive director of the European Chamber of Commerce in Vietnam. In an unheated room in the unfinished part of a shopping mall, about 70 young Vietnamese in puffy winter coats took notes on smartphones. “You start with an idea. But you have to show that it’s not just a brilliant idea—it’s a brilliant business.”

I’d come to Indochina Plaza, one of the newest malls in Hanoi, on a Saturday morning to attend Vietnam’s first startup fair. Despite the lack of heating and bare ceiling pipes, the room was filled with aspiring entrepreneurs hoping to connect with investors. The woman next to me carried a stack of papers: her business plan, she explained, eyes anxiously scanning my scribbled notes. “What’s your idea?” she asked me.

When it comes to high-tech breakthroughs, Silicon Valley has long been the dominant model for the rest of the world. But as the pace of American innovation slows, Asia is ramping up its own tech industry. Following the lead of China, Japan, and the “Asian tigers,” Vietnam recently launched the ambitious Silicon Valley Project: a comprehensive plan to transform the country from a top producer of electronic components to a major player in the global digital economy. Sponsored by the Ministry of Science and Technology, the project aims to launch internationally competitive technology firms and eventually turn one of the country’s major cities—either Hanoi, Ho Chi Minh City, or Da Nang—into a tech hub.

“The big goal would be to have tech startups that can IPO in the U.S.,” Han Linh, the project’sexecutive coordinator, told me. “But that’s in maybe seven or eight years, best case.”

Flappy Bird, the mobile game developed by Hanoi programmer Nguyen Ha Dong that recently catapulted to fame as one of the most-downloaded apps in the world, illustrates the untapped potential of Vietnamese tech startups as well as the challenges they face. Dong has since yanked the game from app store because it was too “addictive.” But his fellow entrepreneurs view his runaway success as an encouraging sign—and a valuable lesson.

“It encourages Vietnamese developers that they can make a good product even with only one guy and very simple design,” said Quan Dinh, the founder of Digi-GPS, which produces products like SmartBike, a theft-prevention device for motorbikes that lets you text your motorbike to turn it off and track the bike via GPS. “It also teaches young entrepreneurs that they need to prepare for copyright and tax issues and communication to the press when [their products] become successful.”

For Vietnam, cultivating a startup scene where products like Flappy Bird can succeed represents a potential step up from being an offshore manufacturing hub for foreign companies like GE, which has a $61-million wind turbine parts factory in Hai Phong, and Intel, which has invested $1 million in its Ho Chi Minh City chip plant. As Le Dinh Tinh, deputy director general of the Diplomatic Academy of Vietnam’s Institute for Foreign Policy and Strategic Studies, argued in a recent article, the country needs to “overcome the middle-income trap” by boosting its competitiveness in both agriculture and information technology. The Silicon Valley Project’s mission statement frames the stakes more starkly: “This is the time for Vietnam to join in the technology race. Countries which fail to change with this technology-driven world will fall into a vicious cycle of backwardness and poverty.”

Vietnam’s competitors in the “technology race” had a significant head start. When Linh started working on the project two years ago, he recalled, “the government had no idea what venture capital was.” Under increasing pressure to modernize the economy, however, Vietnam’s Communist government has adopted a series of reforms, including allowing foreign investors to own larger shares in local banks and privatizing state-owned enterprises. At its sixth plenum in 2012, the Central Committee of the Communist Party resolved to “encourage the private sector, in collaboration with state-sponsored sources, to set up new VC funds.”

The Silicon Valley Project takes a methodical approach to building a startup ecosystem—one that includes offering programs to help entrepreneurs develop their ideas and starting a business accelerator. “We want to create something like [the American seed accelerator] Y Combinator,” Linh said. “Even in America, that’s quite new. We’re not so far behind.” According to Linh, theMinistry of Science and Technology has earmarked $3 million for the project, as well as $50 million per year for “the application of technology through startups” and $100 million to develop the tech industry through a joint project with the World Bank.

Starthub.vn, one of the websites funded by the Silicon Valley Project, describes itself as the “heart of Vietnam’s startup ecosystem.” Its database lists hundreds of tech startups, from the Amazon-like Tiki.vn to the Yelp-like Foody.vn. Founder Anh-Minh Do expects to feature at least 1,000 homegrown firms on his portal by the middle of 2014. “Vietnam has seen quite a few startup successes. We’re kind of in the third generation now,” he said.

Interest in startups is hardly unique to Vietnam. As in many other countries, from the U.S. to Ireland to Japan, high unemployment rates have triggered renewed interest in the DIY approach to business. But in Vietnam, that motivation is coupled with a new entrepreneurial drive. In the words of Starthub founder Do, the country is “more ambitious than its neighbors.” Today’s young entrepreneurs grew up in the 1980s and 90s, as Vietnam was transitioning from a centralized, state-run system to a market economy. For the first time, people were allowed to own their own businesses, and they took full advantage of that economic freedom—a lesson absorbed by their children.

“Most Vietnamese young people want to be entrepreneurs,” said American entrepreneur Chris Zobrist, founder of the START Center and Saigon Hub and an advisor to the Silicon Valley Project. “A lot of their parents started businesses that did really well, and that created an image in young people’s minds that being an entrepreneur is a real path to success in life.”

Dinh, the founder of Digi-GPS, says young Vietnamese are also taking their cues from the U.S., where “they see successful people … take an idea and make it work.” This dynamic contrasts sharply with the climate in China, where university graduates tend to be risk-averse, seeking jobs at state-owned companies rather than setting up their own. And unlikeIndia's new wave of startups, many of which are founded by Americans, this boom is led by young Vietnamese. At the startup fair I attended, many of the speakers were expats. But I didn’t see a single Westerner in the audience. New websites like Action.vn and TechDaily.vn cover the latest startup happenings—with no English translation.

“A lot of people in America still think of Vietnam as rice paddies,” said Aaron Everhart, one of the founders of Hatch, the startup incubator that organized the fair. “But the startup ecosystem is vibrant. There's potential here for a knowledge economy.”

I met Everhart and co-founder Dat Le Viet in the Hatch office, located on the seventh floor of a Hanoi karaoke lounge. Outside the window, traditional tube houses stood in winding alleys, with a few outcroppings of tall buildings in the distance. The small room, a jumble of laptops and iPads, spoke to Everhart’s vision of the future.

“The strength of an economy is in small- and medium-sized enterprises. But in Vietnam, these lack sustainability and scalability,” Everhart said. “People have ideas, but they don’t understand how to make a business last. So we thought there ought to be an organization to help them.”

Dan Schupp, who worked for IBM in the U.S. and China before moving to Ho Chi Minh City to start Free Range Technology, conceded that interest in entrepreneurship in Vietnam was “at least as strong as in the States” but pointed out that the country faces a significant disadvantage in comparison with its larger neighbor to the north.

“Vietnam is a small country that knows it’s a player in a larger world, so people look to the outside a lot more. You hold an event for entrepreneurs here, and you’re going to have a packed house every single time,” he said. “But there’s just not as much investment money here as in China.”

Moreover, while young Vietnamese might have both entrepreneurial drive and technical skills—high-school students recently outscored their U.S. counterparts in math and science assessments—startups struggle to succeed without access to experienced professionals.

“From a talent perspective, it’s going to be a very big challenge. In Silicon Valley, you have a lot of people who have successfully started companies. Here you don’t have that depth of experience,” said Jonah Levey, an American who founded Vietnam Works, the country’s first online job-recruitment website, in 2002.

But the Silicon Valley Project’s most serious challenge may be even harder to resolve. While official backing makes things easier in many ways, depending on the state to nurture a startup culture poses its own risks. Chien Cong Nguyen, the founder of a soon-to-launch network for sports fans called Parlayz, pointed to a recent ban on sharing news online as “the opposite of encouraging entrepreneurs.” Can an initiative funded by a government known for restricting freedom of speech succeed in a sector that’s all about unrestricted creativity?

“Look at the history of Silicon Valley,” Nguyen said. “They started with government funding, but they were successful because they got out of that.” To him, the experience offers a clear lesson: “Don’t ever let government into the ecosystem.”