Vietnam: The next giant in IT outsourcing?

Kevin Nguyen

Business process outsourcing (BPO) / IT Outsourcing is believed to be one of the five sectors with the greatest potential for growth and investment in Vietnam in the near future, along with solar and wind energy, luxury hotels, modern agribusiness and food, and retail banking, according to PwC’s ‘Spotlight on Vietnam’ report released in October 2017.

Vietnam ranks sixth in global software outsourcing

Vietnam’s BPO potential is backed by quite advanced IT infrastructure and a large workforce that welcomes 40,000 new ICT graduates each year. With the continued growth of digital connectivity and market demands, there is plenty of room to develop the BPO sector across the three main types of services, namely domestic outsourcing (onshore outsourcing), near-shore outsourcing, and offshore outsourcing.

Vietnam’s geographical location, young and abundant workforce, and stable government committed to economic growth all create fitting conditions to develop BPO. With the release of recent government policies to boost technology and education investments, Vietnam is gradually transitioning from a low-cost manufacturing centre to an outsourcing destination for business services requiring high-skilled talent.

High potential of Vietnam’s IT Outsourcing for growth

Over the past 10 years, the Business Process Outsourcing industry has gathered pace in Vietnam. According to figures from the Vietnam Software and IT Services Association (VINASA), the industry has grown 20–35% annually over the 10-year period with last year’s industry revenue reaching $2,2 billion. Based in Hanoi, Adamo Digital — software company is a growing, forward-thinking software company with a well-deserved position in Vietnam’s IT landscape.

Vietnam is not only one of the fastest growing economies in South East Asia, but is also has a population of 92 million people, of which 65% are under the age of 35. With growing political differences between China and Japan, as well as the proximity to access Japanese and Korean markets where India or South America have challenges with the time differences and culture gaps, Vietnam has positioned itself as a very favorable destination. The cost of labor is approximately 50% lower than that of India or China or other South East Asian neighbours and the country also benefits from much lower attrition rates. In addition to the tax incentives offered to investors and the policies on human resource development, the government has mapped out a new master plan in for investment and development in the power sector to meet the goal of advancing industrial capacity.

Although Vietnam’s BPO market is still in its early stages, we have seen some encouraging results over the years. According to the eighth edition of the Global Services Location Index released by A.T. Kearney in 2017, which analyses and tracks the contours of the offshoring landscape in 55 countries, Vietnam ranked sixth out of 20 emerging markets with the highest potential for BPO growth. It jumped five spots in comparison to the previous year, surpassing the Philippines (seventh) for the first time. Vietnam has even outdone China to become the second largest offshore software research and development (R&D) partner for Japan in 2016. Yet Vietnam’s BPO revenue only accounts for 1 per cent of the country’s GDP, indicating tremendous room for BPO to grow.

It is safe to say that Software Development in Vietnam growth potential is massive. Aside from software R&D, there is abundant talent available for other outsourcing services such as accounting, payroll management, customer service, and others. If local market players can leverage the ‘late-comer’ advantages, Vietnam’s advancement in high-end outsourcing categories could be much faster than that of other players in the region. For instance, Vietnamese firms could start investing more in knowledge process outsourcing, which requires higher expertise like market research, data mining, fraud analytics, strategic planning, and so on.

The Vietnamese government has shown its vision through many supporting regulations to attract foreign exchange and FDI in the IT industry. For example, Vietnam has welcomed the opening of several foreign-invested IT R&D centres. These can be considered the first stepping stones to build up the IT ecosystem needed to support the BPO sector.

Software development services in Vietnam hold many competitive advantages and are following a similar growth trajectory to India’s and the Philippines’. Continued engagement in large markets such as Japan and China will bring significant foreign investment to boost the development of high-tech outsourcing in Vietnam. Nevertheless, for further advancement in these services, BPO providers in Vietnam need to transform by innovation to meet the ever-increasing demands of the market.

Kevin Nguyen

Written by

Software Development — Mobile App Development — Website Solution Development

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