Alibaba Set To Construct Vietnam Data Center To Comply With Local Regulations

Alibaba has announced its intention to establish a data center in Vietnam to meet the legal requirement of storing data locally. Currently, Alibaba leases server space from government-owned entities.

The tech conglomerate informed Nikkei Asia that it presently rents computer server space from Viettel and VNPT, state-owned telecommunications companies. This move exemplifies companies’ responses following the implementation of a controversial law in 2022. Despite opposition from Google, Amazon, and others, Vietnam enforced the policy by the end of that year, mandating data localization within the country.

Consequently, businesses have been exploring alternative options across borders.

Dang Minh Tam, solution architect lead at Alibaba Cloud, revealed that the company utilizes colocation, renting space from data center operators in collaboration with the two state-owned companies to store client data locally. Additionally, the company backs up data at its own server farms across the region, spanning from Indonesia to Singapore, upon clients’ requests.

Alibaba’s decision to construct a data center in Vietnam aligns with the increasing demand in one of Asia’s rapidly growing economies, according to Tam. While details such as cost and timeline remain undisclosed, the expenditure for building a data center can surpass $1 billion.

“Vietnam presents a highly promising market,” Tam expressed in an interview. “There’s significant room for expansion.”

Apart from cost considerations, building proprietary servers enables companies like Alibaba to ensure heightened security and control over their data. Leif Schneider, counsel at law firm Luther, highlighted the importance of clear contracts to delineate liability when multiple entities are involved in managing the same data. This was emphasized at a recent cloud and data center conference in Ho Chi Minh City.

Meanwhile, local companies echo Alibaba’s optimistic outlook on the market.

Viettel IDC, operated by Vietnam’s military, reported increasing demands from clients such as Alibaba and Microsoft for environmental, social, and governance (ESG) enhancements. Dubbed “ESGT,” the company’s approach integrates technology to track and optimize water usage, a significant expense for cooling computers. Though currently reliant on conventional energy sources, Viettel aims to incorporate renewables, targeting 30% of its energy consumption by 2030, as per technical department manager Nguyen Dinh Tuan.

“We must brace for the impending data center boom,” Tuan emphasized in an interview. “Preparation for the sustainability trend is imperative.”

Viettel anticipates a 15% annual expansion in Vietnam’s data center market, further accelerated by the potential investment of major cloud providers like Alibaba. This growth is partly propelled by data localization regulations, acknowledged by Hanoi to contradict free trade agreements but facilitate the government’s access to data.

The regulations have catalyzed the growth of cloud providers with existing server farms in Vietnam, such as gaming unicorn VNG and IT company CMC. The latter intends to construct at least two data centers in the coming years, potentially doubling its capacity.

According to Evolution Data Centers CEO Darren Webb, Vietnam should emulate the success of markets like Malaysia and Thailand, which flourished upon the entry of international players. Protecting domestic markets may stifle growth, as emphasized at the industry conference.

“The countries that try to protect their domestic markets find limited success,” Webb remarked. “Expansion is key to enlarging the pie.”