Vietnam as a Software Development Outsourcing Destination for Singaporean IT Companies

The Singapore software market

Singapore has seen accelerated growth in the information technology sector, from low-cost building companies to innovations in telecommunications, blockchain tech, and more.

However, hiring and retaining engineers in the tech ecosystem is challenging, especially in talent-scarce Singapore. Tech founders are competing against the global landscape where engineers are happy to go where they are most valued.

According to a recent Marketline report, the total income of  Singapore’s software market reached a high peak of 2.3 billion USD in 2014. Another survey from BMI Research revealed that the income is expected to see a sharp increase to 9.1 billion SGN (6.7 billion USD) in 2019.

Yet according to Singapore’s Minister for Communications and Information, Dr Yaacob Ibrahim, a significant percentage of Singapore’s 6,000 engineering graduates do not enter the IT sector. In part, this is because most companies are looking for developers with some experience, but there are other factors at play.

While new startups are seeking talent, so are banks and large tech companies. Reports indicate in the next 2 years, programmer positions will account for more than 40% of the expected demand in tech manpower. IT firms in Singapore can, therefore, expect the competition for tech talent to intensify further.

As Singapore grows its technology ecosystem, the availability of local engineering talent has not kept up, and we see entrepreneurs seeking overseas talent and foreign software houses to build their products. This option is reinforced as IT companies in Singapore find the quality they need at lower cost by outsourcing to providers in other countries.

The global IT outsourcing market

Outsourcing today is no longer just about cost. Over the years, outsourcing has resulted in highly efficient, process-driven organizations. Now it’s time to harness that energy to reach the next level of growth and performance.

Traditional outsourcing will continue to decline. As more enterprises join the digital revolution, they require new skills, tools, processes and ways of thinking. Service providers that understand this need, and can support the mega-trends in IT, are the ones that will ultimately succeed.

According to the report “IT Outsourcing -Market Demand, Growth, Opportunities and Analysis of Top Key Player Forecast to 2023”, published in 2015, the global IT outsourcing market reached $314.92 billion in 2015. The market is projected to reach $481.37 billion by 2022, representing a CAGR of 6.2% during the forecast period.

Improved company focus, gaining access to exceptional capabilities and reduced costs are some of the major factors driving the market. On the other hand, factors such as loss of control and reduced employee morale are hindering the growth of IT Outsourcing. New business models, new market opportunities and trends in cloud computing are contributing to the growth of the IT infrastructure outsourcing services market. The Asia-Pacific and Latin American markets specifically are expected to see increased growth due to expansion by multinationals into these regions.

Why Vietnam?

Vietnam’s IT outsourcing industry is perhaps just leaving its infancy. In 2002, Vietnam was considered a newcomer with little experience. But in 2017, just 15 years later, Vietnam ranked 5th on the Global Services Location Index, a ranking of software outsourcing services by consulting firm A.T. Kearney.

Another report, this one from Cushman & Wakefield in 2016, showed Vietnam as the number one destination for Business Process Outsourcing (BPO) in the world. In fact, Vietnam BPO brought in 2 billion USD in 2015 and expected profit increased by 20-25% per year. Vietnam currently sees continuing investment from such global technology giants as Intel, IBM, Samsung Display, Nokia and Microsoft.

Economic growth

Despite being a socialist republic with a history of communist political influence, significant reforms in 1986 completely changed Vietnam’s economic landscape. In fact, since the year 2000—much to the surprise of some Western business leaders—the country has had one of the highest economic growth rates in the world. In 2007, Vietnam joined World Trade Organization (WTO), making it easier for Western companies to do business in and with Vietnam. No longer a junior player, Vietnam is now a global competitor.

Investment in education

In a previous post, I talked a bit about some of the ways the Vietnamese government invests in education, especially in information technologies. Recognizing the importance of technical knowledge, the Vietnamese educational system ensures children are exposed to computers and programming from a young age. As I outlined in that article, the results speak for themselves, verified objectively by the likes of Google engineer Neil Frasier during his trip to Vietnam in 2013.

Reasonable cost

While the cost of labor may not be the primary consideration when selecting an outsourcing IT provider, it’s definitely up there. Once an IT firm is convinced that an outsourcing partner can provide the quality required, decision making moves on to costs, and the average labor cost in Vietnam is around 90% less than the US, 50% less than China and 40% less than India. High quality at lower costs is always a winning formula.

Cultural factors

Despite (or perhaps because of) Vietnam ’s interesting and often complicated history, Vietnamese employees are very loyal to their employers, reflecting the powerful connection the culture places on familial bonds. Vietnam workers are expected not only to provide for their immediate families but also give support to their extended families. It’s a cultural distinction that often keeps Vietnamese professionals close to home and loyal to good employers. As a result, Vietnamese companies typically retain talented developers longer than their international competition.

Others considerations:

For companies in Singapore, another reason to consider outsourcing is a cultural commonality. Singapore and Vietnam are only a 2-3 hour flight away from each other. The two countries are only separated by a single time zone, making real-time meetings and consultation during normal business hours possible. Singapore and Vietnam are close geographically, share similar customs and lifestyles, and have a similar work ethic. This means the likelihood of working well together right from the start, with no need for cultural adjustments or acclimation. The process is clearer, easier and much more convenient.

Also, many Vietnamese companies are focusing on Singapore market, like FPT, which founded a software center to serve the needs of the government and large corporations. Adamo Software, specializing in mobile apps and website development, serves small and mid-size companies as well as start-ups in Singapore. Every month, Adamo employees travel to Singapore to consult with customers and secure new contracts.

All told, Vietnam has important advantages as an outsourcing destination for Singapore’s IT community, including competitors from India, China or Malaysia. A handshake between companies in Singapore and Vietnam creates the foundation for a long-lasting partnership that benefits not just each company, but each country as well.