Vietnam: The next giant in Software Outsourcing Development?

According to the October 2017 PwC article “Spotlight on Vietnam”, Business Process Outsourcing (BPO) is one of five business areas in Vietnam with the greatest potential for growth and investment in the near future. (The others are solar and wind energy, luxury hotels, modern agribusiness and food, and retail banking).

Vietnam’s BPO potential is backed by an 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 channels of service: domestic/onshore outsourcing, nearshore outsourcing, and offshore outsourcing.

Vietnam’s geographic location, its young and abundant workforce, and a stable government committed to economic growth are coalescing into the perfect environment for Software outsourcing development. With the recent implementation of new government policies to boost investment in technology and education, Vietnamese industry is gradually transitioning from a low-cost manufacturing location to an outsourcing destination for international business interests needing well-educated, highly-skilled IT service providers.

High growth potential for IT outsourcing in Vietnam

In Vietnam, the BPO industry has grown considerably. According to figures from the Vietnam Software and IT Services Association (VINASA), IT outsourcing has grown 20-35% annually over the past decade, with last year’s industry revenue reaching $2.2 billion. Based in Hanoi, Adamo Software is a growing, forward-thinking software company with a well-deserved position in Vietnam’s IT landscape.

With a population of 92 million, 65% of which are under the age of 35, Vietnam has one of the fastest growing economies in Southeast Asia. Given the growing political differences between China and Japan and with proximity and access to Japanese and Korean markets (where India and South America have challenges with time zone differences and culture gaps), Vietnam is well-positioned as a favorable destination for Software outsourcing development. The cost of labor in Vietnam is approximately 50% lower than that of India, China and other Southeast Asian neighbors, and Vietnam benefits from much lower attrition rates amongst its labor force.

In addition to tax incentives offered to investors and new policies benefiting human resource development, the Vietnamese government has mapped out a new master plan in for investment and development in the power sector to meet the needs of increased industrial capacity.

Although Vietnam’s BPO market is still in its early stages, there is reason to be optimistic about the potential for continued growth. According to 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 outperformed China, becoming the second largest offshore software R&D partner for Japan in 2016. Yet Vietnam’s BPO revenue only accounts for 1% of the country’s GDP, indicative of the tremendous potential for growth in the BPO industry.

It is safe to say that Vietnam’s growth potential as an Software outsourcing development destination 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 “latecomer” advantages, Vietnam’s growth in high-end outsourcing could be much faster than that of others in the region. For instance, Vietnamese firms could increase investment in knowledge process outsourcing, which requires higher expertise like market research, data mining, fraud analytics, strategic planning, and so on.

The Vietnamese government is committed to its vision for growth, with new regulations designed to attract foreign exchange and FDI in the IT industry. For example, Vietnam has welcomed the opening of several foreign-invested IT R&D centers, which can be considered the first building blocks of the IT ecosystem needed to support the BPO sector.

BPO service providers in Vietnam hold many competitive advantages and are following a growth trajectory similar to and perhaps exceeding those of India 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 will need to transform through industry leadership and innovation to meet the ever-increasing demands of the market. This strategy is a core principal at Adamo Software.