Advantages for Developing Outsourcing

India and China are now leading global outsourcers. However, world-leading IT companies are eying Vietnam, where there are many advantages. The emerging Vietnamese market is a new, ideal outsourcing destination.

China and India are top players on the global outsourcing market. India is the main subcontractor for the United States, as it uses English as a major spoken and written language. Japan, however, has not reached full cooperation with India because of language barriers.

 

Dr Hoang Le Minh, Deputy Director of Ho Chi Minh City Department of Posts and Telecom, analysed that the Indian software industry has experienced many development stages, from merely receiving subcontracts, handling a part of packaged software, carrying out data services and assisting customers at simple levels, to setting up large scale, offshore development centres and specialised outsourcers, providing professional services for customers, and taking part in offshore turnkey and packaged software.

 

China has become a successful subcontractor for Japan in recent years. However, the rapid rise in wages, dissatisfaction with product quality, and the mobility of employment, have caused Japan to begin reconsidering the risks in investment in China. But Japan has invested in many large scale projects in China; hence, it cannot make immediate changes and remains dependant on China.

 

Evaluating the development potential of the Vietnamese outsourcing market, Mr Minh said unlike the Indian software industry which mainly relied on export (1986-2000) and lacked domestic market consumption stimulation, China (1996-1997) and Vietnam (2007) have domestic consumption markets for diversified software and services. This stimulates expansion in the Vietnamese software industry.

 

Regarding human resources for this field, Mr Minh said although human resource cost increases with the level and seniority of software experts, the abundant labour supply makes human resource cost small change for software exporting companies. Low labour cost in Vietnam is an important advantage. This trend will continue for a long time, and will be a competitive advantage which no longer exists in nations like India, Russia, Eastern Europe and the Philippines.

 

Mr Nguyen Trong Duong of the IT Industry Department under the Ministry of Posts and Telecom added that Vietnam now has more than 750 software companies employing more than 35,000 engineers. Of the sum, about 150 companies are medium software exporters with an average workforce of 100-150 employees. Especially, several companies, including FPT software, FPT Information Systems, TMA and PSV, have more than 1,000 employees each. Duong said the high-level workforce in Vietnam is expanding quickly, because 60 per cent of its population is of working age and 94 per cent of its population is literate. Furthermore, operational costs and wages are lower than those in India and China. Costs in Vietnam are proven to equal only a third to a half those in India and China, respectively. Thus, Vietnam is a magnetic destination for software outsourcing. Regarding this issue, Mr Shigeru Fujiwara said due to certain difficulties in India and China, giant IT groups, especially Japanese, see Vietnam as a third software outsourcing nation.

 

In addition, the organisational and operational restructure, merger, acquisition and establishment of Vietnamese software companies and the transference of senior human resources among software companies, has risen strongly. Several large scale software exporters have revealed plans to list shares on the stock market. Their listing plans will draw the attention of domestic and foreign financial and venture investment funds, like IDG Ventures, VinaCapital and Dragon Capital, as well as multinationals like Intel, IBM and Microsoft. Mergers and acquisitions forming IT groups in a variety of fields such as software production and outsourcing, hardware design and manufacturing, digital content production and services, have become a new trend. The formation of strong groups will ensure a firm foothold on the market.

 

Ministry of Posts and Telecom figures show that software revenues exceeded US$350 million in 2006, including US$110 million from exports. The growth rate of the sector was over 40 per cent annually, on average in the past five years. In 2006, the growth rate was 41 per cent and export earnings growth was 57 per cent.