Vietnam’s Data Center Market: A New Frontier for Global Investors

Vietnam’s cloud and data center industries are now open to 100 percent foreign ownership through the implementation of the revised Telecommunications Law.

The new law, which came into force on July 1, 2024, does not restrict foreign investment in providing digital services, allowing businesses to be entirely foreign-owned. Additionally, the law permits the provision of such services across national borders, with further guidance expected from relevant authorities.

For Vietnam, the new law opens fresh avenues for investment in its data center industry, allowing the country to tap into global expertise and resources. This move is expected to enhance Vietnam’s technological infrastructure, stimulate economic growth, and create new job opportunities within the digital sector.

Opportunities and challenges

Vietnam’s data center industry is rapidly emerging as a key sector within its digital economy, fueled by the country’s growing demand for digital services and infrastructure.

A forecast by Research and Markets, the country’s data center industry is poised to reach US$1.03 billion by 2028, a huge increase from the US$561 million recorded in 2022. This growth is driven by several factors, including the rapid expansion of internet usage, the proliferation of smartphones, and the increasing adoption of cloud services by businesses.

As of January 2024, there were approximately 78.4 million internet users in Vietnam, with around 97 percent of them owning a smartphone. Further, the government mandates that both domestic and offshore service providers of telecommunications, internet, and value-added services in cyberspace must store certain types of data in Vietnam. This includes personal data of service users, data generated by service users, and data on the relationships of service users. In response to these requirements, major companies like Alibaba have announced plans to build data centers in Vietnam, while AWS and Google are also exploring opportunities to expand their cloud services in the country.

Despite the promising growth prospects, Vietnam’s data center industry faces several significant challenges:

1. Reliable power supply: One of the critical challenges is ensuring a reliable power supply. Data centers require consistent and robust energy sources to maintain operations. However, Vietnam’s current infrastructure struggles to meet these demands, leading to concerns about the long-term sustainability of data center growth. The government and private sector will need to invest in enhancing the country’s power grid and exploring alternative energy solutions to support this burgeoning industry.
2. Regulatory hurdles: While the revised Telecommunications Law simplifies foreign investment, navigating the broader regulatory landscape in Vietnam can still be challenging. Investors may face bureaucratic delays, inconsistent enforcement of regulations, and challenges in securing necessary permits.
3. Skilled labor development: Another challenge is the development of a skilled labor force capable of supporting the data center industry. As the sector grows, there will be an increasing demand for professionals with expertise in data center management, cybersecurity, and network infrastructure. Vietnam must invest in education and training programs to build a workforce that can meet these demands, or risk falling behind in the global market.
4. Infrastructure scaling: The country’s data center infrastructure is still in its nascent stages and faces challenges in scaling to meet global standards relative to its population size — the current number of data centers in Vietnam can only meet a maximum of 30 percent of demand. Scaling infrastructure to meet the growing demand will require significant investment, coordination between the public and private sectors, and adopting of innovative technologies to ensure efficiency and sustainability.

Competition with neighboring markets

While still in its developmental phase, Vietnam’s data center market is quickly gaining momentum and is poised to become a significant player in the Southeast Asian region.

In recent years, countries like Singapore and Malaysia have established themselves as leading data center hubs in Southeast Asia, largely due to their advanced infrastructure, favorable business environments, and robust regulatory frameworks. Singapore, in particular, has long been the region’s preferred destination for data center investments — Google recently completed its fourth data center in Singapore. With this completion, the company has raised its investment in the country’s digital infrastructure to US$5 billion, an increase from US$850 million in 2022 when Google completed its third data center in the city-state.

However, as the market in Singapore becomes saturated and the cost of operations rises, investors are increasingly looking towards emerging markets like Vietnam. Unlike Thailand and Indonesia, where regulatory complexities and infrastructure challenges can deter investors, Vietnam’s revised Telecommunications Law simplifies the investment process, making it easier for foreign companies to enter the market.

Conclusion

Vietnam’s data center market stands at the threshold of significant growth, driven by the country’s evolving digital landscape and the recent implementation of the revised Telecommunications Law. The full opening of the sector to foreign ownership marks a pivotal moment, attracting global investors eager to tap into Vietnam’s potential. While the country offers promising opportunities, particularly as a new frontier in Southeast Asia, challenges such as power supply reliability, regulatory complexities, skilled labor shortages, and infrastructure scaling must be carefully managed.

However, as global players like Alibaba, AWS, and Google explore expansion in Vietnam, the country has the potential to transform into a regional data center hub, competing with established markets like Singapore and Malaysia.

• Previous Article ASEAN Labor Costs: Minimum Wage and Social Insurance Essentials
• Next Article New Legislative Changes for Corporate Service Providers in Singapore