Outsourcing in Vietnam: Unlocking Opportunities and Navigating Challenges

The outsourcing landscape in Vietnam is on the ascent, especially in the IT sector, with a projected growth of 13.47% by 2027. The country’s appeal lies in its affordability and a vast pool of tech talents, making it a magnet for global leaders seeking cost-effective solutions and flexible team management. While the prospects seem promising, CXOs contemplating hiring talent from a new territory like Vietnam need to navigate various considerations. This article is dedicated to providing unbiased information on outsourcing in Vietnam, shedding light on both the advantages and challenges that businesses should be aware of.

Introduction to the Vietnam Outsourcing Market

Location: Southeast Asia

Timezone: Indochina Time (GMT +7)

Population: 98.17 million (2021)

GDP: $3,6842 billion

Main Industries:

• Electronics
• Steel
• Food & beverage processing
• Agriculture
• Travel & tourism

While Vietnam is one of the fastest-growing countries in Southeast Asia, its income level still falls into the lower-middle range, making it an attractive destination to hire globally competitive talents at an affordable price.

Business outsourcing has become a new norm in recent decades, with 90% of US businesses considering outsourcing for a part of their operations. Riding this wave, Vietnamese talents and companies are offering services with a wide range of expertise.

Here are the most sought-after services in the Vietnam outsourcing market:

• HR outsourcing
• Payroll outsourcing
• IT outsourcing
• Accounting and finance outsourcing
• Customer service outsourcing

Unveiling IT Outsourcing in Vietnam

In 2021, the IT industry in Vietnam demonstrated remarkable growth, reaching a staggering revenue of 136.1 billion dollars, marking a doubling since 2016. Contributing to this success, major tech giants like Intel, IBM, Samsung Display, Nokia, and Microsoft have chosen to invest in Vietnam, acknowledging the country’s burgeoning reputation as a technology hub in the Asia-Pacific region. These achievements have firmly established Vietnam as a preferred destination for IT outsourcing.

Adding to its acclaim, Vietnam secured the 6th position in Kerney’s 2021 Global Service Location Index. This index evaluates a country’s software outsourcing capabilities, considering criteria such as financial attractiveness, skills and availability, business environment, and digital resonance.

Here are key insights into Vietnam’s IT landscape:

• Number of IT engineers: 480,000
• Most popular programming languages: Javascript, Java, PHP, C#/.Net, Python
• Most sought-after IT jobs: Backend developer, full-stack developer, frontend developer
• Types of IT services in Vietnam: Fintech, eCommerce, Car/Food ordering, , business process outsourcing, software outsourcing.

Outsourcing in Vietnam: Opportunities

In the era of digital transformation, a term resonating across industries, businesses are compelled to either leverage this trend or risk losing their competitive edge. Recognizing the financial implications of implementing digital innovations in-house, many companies opt to outsource portions of their work and processes to skilled professionals in less-developed countries. The primary objective is to capitalize on the cost advantages offered by these nations.

Compared to established outsourcing destinations like China, India, and Ukraine, Vietnam presents a financially advantageous option in terms of the cost of living and labor hiring. Vietnam’s labor costs are notably lower than those in other popular outsourcing countries. With the minimum wage in Vietnam being 95% lower than in the United States.

Let’s delve into the average monthly salaries for various countries:

Vietnam average salary: $284

India average salary: $396

Philippines average salary: $1,620

China average salary: $1,161

Ukraine minimum wage: $398.627

Taking software developers, one of the most sought-after roles, as an example, the cost of hiring a software developer in Vietnam is significantly more economical compared to other countries in the Asia-Pacific and Western regions.

Unlocking Potential: IT Opportunities Outsourcing in Vietnam

1. Abundant IT Talent Pool

Vietnam stands as an IT education powerhouse with over 400 universities and educational centers dedicated to programming and software development. Annually, these institutions produce a staggering 57,000 tech graduates, showcasing the country’s commitment to fostering a skilled workforce. Presently, more than 400,000 IT engineers contribute their expertise in over 60,000 digital technology firms, marking the exponential growth of the tech industry in Vietnam. Bloomberg predicts that with this momentum, the nation could emerge as a global force in the tech industry.

2. Highly Skilled Tech Workforce

Frequently, there is a question that comes up: “Do professionals in Southeast Asia possess a high level of proficiency in software engineering?”. Skepticism from global business leaders and recruiters is not uncommon, particularly when they haven’t tapped into talent from Eastern countries. However, there are compelling reasons to repose trust in the quality of developers in Vietnam.

• Global Recognition:
  • Vietnam is ranked 29th worldwide in developer Skills Charts, according to Skill Value’s Report 2019.
  • It holds a position among the top 10 in Skill Value’s World Rank of Best Developers Survey, trailing only the USA, UK, and France.
  • Vietnam is identified as one of the two best Southeast Asian destinations for software outsourcing in 2022, as reported by Accelerance.
• Certifications and Maturity:
  • Many software development companies in Vietnam have achieved CMMI level 2, a standardized certification measuring organizational development maturity.
  • Notably, Paraceltech has attained CMMI level 3, signifying the organization’s ability to perform development tasks at a “defined” level. Certain firms, including FPT, have reached the pinnacle with level 5, the highest maturity CMMI level.

3. Diligent Work Ethic

When seeking employees, the consensus among business leaders is that a learning mindset is as crucial as one’s knowledge and skills. This is particularly relevant when engaging offshore talents, where communication and continuous improvement form the cornerstone of a lasting and mutually beneficial relationship.

For those in search of such traits in outsourcing, Vietnam emerges as an ideal destination. Aligned with a working culture akin to Japan, China, and South Korea, the Vietnamese are renowned for their strong work ethic. Expatriates residing in Vietnam often attest to the population’s healthy work ethics, describing them as diligent and industrious.

Illustratively, in the realm of IT outsourcing, even if not all Vietnamese developers are initially familiar with specific tools or development fields required by their clients, they exhibit a proactive approach to learning and mastering these skills with a problem-solving mindset.

4. Team Collaboration

Smooth operation between business hirers and offshore worker teams is essential in outsourcing, making teamwork a valuable skill for service providers. Vietnamese professionals are typically recognized as effective team players, contributing to the successful outcomes of various projects for offshore clients. According to Brian McDermott, a Singaporean managing director with extensive experience working with the Vietnamese, “the Vietnamese work extremely well in teams.”

5. Socioeconomic Stability and Resilience Amidst Covid-19

Investing in a country with high socioeconomic stability can significantly impact business success. Political upheavals can disrupt outsourcing processes, leading to delays and undesired outcomes. Vietnam, described by the UK government as “one of the more stable countries in Southeast Asia,” maintains strict control over domestic conflicts.

Ranked 44th in the Global Peace Index 2022, up from 50th in the 2021 Index, Vietnam exhibits stability and resilience. With a robust GDP increase of 13.67% in 2022, Vietnam is one of Southeast Asia’s fastest-growing economies. Its effective handling of the Covid-19 situation, characterized by a high vaccination rate and open borders for foreigners, further demonstrates its stability.

In the face of global challenges such as the food and energy crisis and inflation spikes, Vietnam maintains an acceptable inflation rate ranging from 3% to 4%, showcasing its resilience against economic uncertainties worldwide.

6. Supportive Investment Environment

The Vietnamese government has actively worked towards making the nation more accessible, transparent, and liberal for foreign businesses and investors. Constant regulation updates and participation in key agreements, including ASEAM, AFTA, WTO, BTA with the US, and EVFTA, underscore Vietnam’s commitment to a favorable business environment.

With flexible regulations, such as lower corporate income tax rates, Vietnam has successfully attracted substantial foreign direct investment (FDI) from global enterprises like LEGO, Apple, Canon, Microsoft, and Samsung. The country’s FDI has seen healthy growth, increasing from 1.61 billion USD in January to 19.68 billion USD in November 2022.

For these reasons, the conducive business environment in Vietnam facilitates easier outsourcing of Vietnamese talents at an attractive cost.

Outsourcing in Vietnam: Challenges

1. Timezone Discrepancy

Although Vietnam’s timezone is advantageous for communication within Asia, companies in the US and the UK may face challenges coordinating with their Vietnamese outsourcing teams due to the considerable time difference.

While this can be advantageous for certain models, such as the offshore development model providing 24/7 service, businesses employing DevOps and Agile methodologies may experience delays in real-time communication and project adjustments.

2. Language Barrier (With Improvements)

The English proficiency of the Vietnamese workforce, crucial for successful outsourcing, has historically been a concern. In 2021, Vietnam ranked 66th in the Global English Proficiency Index, but in 2022, it improved to the 60th position, reaching a “moderate” level of proficiency.

While countries like Poland, the Philippines, Ukraine, and India boast better English proficiency, the language skills of Vietnamese developers, especially those working closely with clients, have improved. Incentives and training programs at companies further enhance English proficiency.

3. Lack of National Data Protection Law

Vietnam currently lacks an official data protection law, posing challenges for global businesses in creating robust data privacy policies. Efforts to comply with GDPR and Vietnam’s data protection laws are hindered by incomplete rules and ununified information sources, creating disadvantages for enterprises seeking to invest in Vietnam

Ideal Candidates for Outsourcing in Vietnam

In the context of outsourcing becoming a prevalent strategy for businesses to manage labor shortages and achieve development goals, thorough research is crucial for those considering this model. Vietnam stands out as a prime outsourcing destination, particularly suitable for the following types of businesses:

• Western-based Global Enterprises Seeking an Asian Offshore Development Center:
  Global enterprises with a Western base aiming to extend their influence globally often leverage Vietnam as an offshore development center. This strategic move allows them to optimize their IT infrastructure and support, ensuring enhanced customer experience across different time zones. The cost advantage in Vietnam, significantly lower than in Western countries, enables substantial savings in talent acquisition and infrastructure costs.

• Developed Companies in the APAC & MENA Regions:
  Vietnam becomes a financially attractive outsourcing option for developed companies in regions with a higher cost of living, such as Singapore, Japan, Australia, and Saudi Arabia. The distinct time difference, for example, with Japan being only 2 hours ahead of Vietnam, facilitates seamless communication and collaboration with Vietnamese outsourcing teams.
  Notably, Asian companies find it easier to work with Vietnam due to shared similarities in business culture. Vietnam has become the preferred outsourcing destination for countries like Singapore and Japan, with Vietnamese service providers earning recognition and awards, such as the Best Venture 100 in Japan.

• Small Businesses Embarking on Digital Transformation:
  As digital transformation becomes a pervasive trend, small businesses striving to innovate and automate processes may lack technical expertise. Many small business owners, despite possessing strong business acumen, face challenges in comprehending technology concepts and implementing innovations.
  The alternative of relying on expensive IT consulting services is not always feasible. Outsourcing to a reliable Vietnamese IT service provider offers a cost-effective solution. Despite initial doubts about Vietnamese technology expertise, the country is rapidly advancing, demonstrating an increased understanding of complex technical concepts and catching up with leading innovators globally.

Outsourcing company in Vietnam: Paracel Technology Solutions

Paraceltech is an outsourcing company in Vietnam specializing in providing software development services for the Japanese, Korean, and European markets. With extensive experience and expertise in software development, we offer top-notch software outsourcing solutions designed to meet specific customer requirements.

• In Vietnam, we have a talented pool of software developers who are skilled in various programming languages and technologies. Our team is known for their strong work ethic, attention to detail, and ability to deliver high-quality software solutions within the agreed timelines.

• In Japan, we have established a strong presence in the outsourcing market by collaborating with local businesses and understanding their unique requirements. Our Japanese-speaking team ensures effective communication and seamless coordination throughout the development process.

• In South Korea, we have a team of dedicated professionals who are well-versed in the latest technology trends and development methodologies. We work closely with our clients to understand their business goals and deliver innovative solutions that drive growth and success.

See more: Software Development Services

FAQs:

Is Vietnam suitable for outsourcing?

Yes, especially for software outsourcing, Vietnam offers a large pool of talented professionals, expertise, a collaborative work spirit, and cost-effective outsourcing solutions.

Where are the top outsourcing location globally?

Popular global outsourcing destinations include India, China, the Philippines, Vietnam in Asia, Poland, Ukraine in the EU, and Argentina in America.