Vietnam has long been recognized as a preferred destination for manufacturing outsourcing.
When people think of outsourcing in Vietnam, Nike, which produces over 50% of its footwear there, often comes to mind.
However, what is not widely known is that Vietnam has also emerged as a major player in the IT outsourcing industry over the past two decades.
Did you know that the Vietnamese company FTP Software currently employs more than 27,000 people and proudly claims to have completed over 11,000 outsourcing projects in the last 23 years?
Our company, LMC has been as well actively engaged in this industry in Vietnam for the past 5 years, working on various ambitious projects for clients located outside of Vietnam.
Here’s some essential information you should know if you are considering outsourcing some of your projects in Vietnam.
Why Outsource IT Projects?
IT Outsourcing is expected to reach a global market value of US$460.10 bn by 2023, with a projected annual growth rate (CAGR 2023-2028) of 11.07%, resulting in a market volume of US$777.70 bn by 2028.
It’s a global trend.
For those still unfamiliar with or skeptical of outsourcing, it’s essential to understand why more companies are choosing this option:
Cost Savings: Companies opt for IT outsourcing to reduce expenses associated with hiring and training in-house IT staff, maintaining infrastructure, and acquiring the latest technologies. Outsourcing vendors offer services based on predetermined fees, often with a service-level agreement (SLA), leading to substantial long-term cost savings, especially when utilizing providers from countries with lower labor costs (Like Vietnam).
Access to Specialized Skills and Expertise: IT outsourcing grants access to a diverse pool of specialized skills and expertise. Businesses that struggle to build and retain internal IT teams due to various reasons or a tight labor market can benefit from outsourcing.
Scalability and Flexibility: IT outsourcing enables businesses to swiftly scale their IT operations. The outsourcing vendor can adapt to changing organizational needs, accommodating expansions, reductions in services, and adjusting to market demands, seasonal fluctuations, or specific project requirements without major internal restructuring or investments.
Why Outsource IT Projects to Vietnam?
While Vietnam may not rival India as the leading IT sourcing hub in Asia, it offers several compelling advantages:
FPT Software Village in Hoa Lac High Tech Park ( Source FPT Twitter)
A Dynamic Information and Communications Technology Sector (ICT):
Vietnam’s ICT sector is experiencing rapid growth, driven by the increasing digitalization of the country.
The Ministry of Information and Communications (MIC) reported that revenues from Vietnam’s ICT sector reached US$148 billion, a notable 8.7 percent year-on-year increase.
Moreover, the number of digital tech firms has surged, estimated to be around 70,000 in 2022 compared to 45,600 in 2019.
The country’s Minister of Information and Communication, Nguyen Manh Hung, has emphasized that the COVID-19 pandemic acted as a catalyst comparable to a “100 years push”, accelerating the digital transformation across economic, political, and social spheres in Vietnam.
Labor Costs in Vietnam: A Competitive Advantage for IT Outsourcing
Cost is a crucial factor for many companies considering Vietnam as their preferred destination for outsourcing IT services. While the expenses of outsourcing a project in Vietnam also depend on factors such as complexity, duration, and nature, the primary determinant of cost is the labor employed. In this regard, Vietnam stands out for its competitive advantage in the field, particularly when compared to Western countries.
According to data collected by a leading Vietnamese recruitment agency, TopDev.vn, specializing in IT positions, the average monthly gross salaries before tax (excluding bonuses, overtime, and other benefits) in Vietnam are as follows:
- Junior Developer (0 to 2 years of experience): $350 – $565
- Mid-Senior Developer (2 to 4 years of experience): $535 – $1,190
- Senior Developer (4 years and above): $860 – $1,510
As developers gain more experience, their salaries logically increase, and in some cases, this progression can be rapid. However, several factors come into play to determine the value of a developer in the labor market:
Management Level: IT companies in need of a developer capable of leading a team and acting as a director have to budget a minimum salary of $2,750 per month. For managers with a technical background, the monthly salary ranges from $1,610 to $2,435.
Specialty: Skills and specialties also significantly impact a developer’s salary.
Here are some examples of average monthly gross salaries (before tax and excluding bonuses, overtime, and other benefits) for developers with up to 3 years of experience in various fields:
|Machine Learning /AI Engineer||$3,188|
This data can provide valuable insights into the cost structure of local companies offering outsourcing services from Vietnam.
A young and dynamic pool of IT talent
While China’s population has already begun to decline, Vietnam’s population continues to grow, reaching 100 million inhabitants in 2023, making it the 15th most populous country globally.
According to the General Statistics Office (GSO), the labor force in Vietnam reached 51.7 million in 2022.
The Ministry of Education and Training (MOET) estimates that the number of developers and engineers in the IT industry in Vietnam is close to half a million, with an additional 57,000 software majors graduating annually in 2021.
A versatile set of skills
Topdev.vn has polled local developers to know what the most popular tools used by local developers for each Tech Stacks are:
|TECH STACK||Preferred tools / Languages|
|Java||Spring Boot 46%||Spring 43%|
|.NET/ C#||.NET Core 47%||.NET Framework 44%|
|PHP||Laravel 67%||CodeIgniter 34%|
|Database technologies||MySQL 58%||SQL Server 20%|
|DevOps||Linux 75%||Docker 41%|
|Python||Django 38%||Falcon 22%|
|Mobile Development||Java 49%||Swift 38%|
|Cloud Platform||AWS 35.16%||Microsoft Azure 22%|
Political stability and infrastructure
When it comes to outsourcing IT projects, long-term stability is a crucial consideration.
Vietnam stands out as one of the most stable countries in Southeast Asia, providing a conducive environment for businesses.
Since the Doi Moi policy in 1986, which opened Vietnam’s doors to the international economy, the government has consistently encouraged projects that attract foreign capital and expertise. IT outsourcing, in particular, has been actively promoted due to its significant value in driving the country’s development path, surpassing labor-intensive manufacturing.
Vietnam’s infrastructure is rapidly advancing, especially in the major hubs of Hanoi, Danang, and Ho Chi Minh City, which are at the heart of the IT outsourcing industry. These cities boast international airports and are well-connected with efficient transportation systems. Hanoi has already launched its first Metro line, and Ho Chi Minh City is set to follow suit in the coming months.
Moreover, these cities are considered hotspots for opportunities, attracting talent not only from different provinces but also from abroad.
Which kind of IT projects can be outsourced in Vietnam?
The field of IT encompasses a vast array of domains, and Vietnam possesses expertise in a significant portion of them. Here are some of the most common IT projects outsourced to Vietnam:
Software Development: Vietnam is a popular choice for outsourcing software development projects, including web applications, mobile apps, enterprise software, and e-commerce platforms.
Website Development: The country houses a talented pool of developers who are proficient in various CMS platforms, such as WordPress and Webflow, and also able to create custom CMS solutions. Our company has a particularly successful track record of assisting European companies in outsourcing their website projects to Vietnam.
Design: Vietnamese designers exhibit remarkable versatility in web design, packaging, product design, and architecture. Their recognized skill sets make them highly sought after by businesses and industries worldwide, and our company itself has experienced fruitful collaborations with multiple talented designers.
Quality assurance (QA) testing: Companies can outsource Quality assurance (QA) testing to Vietnam. The relatively low cost of labor in Vietnam makes it particularly attractive for outsourcing these activities.
IT Support and Maintenance: Vietnam is also a destination for outsourcing IT support services, including helpdesk support, infrastructure management, software maintenance, and system administration. While India maintains a competitive advantage in this field due to a better command of English, Vietnam remains an option for cost-effective IT support outsourcing.
Cloud Computing Services: Vietnam offers various cloud computing services, such as cloud infrastructure management, virtualization, and data storage. Businesses can confidently outsource their cloud-related projects to the country.
Artificial Intelligence and Machine Learning: Vietnam is experiencing significant growth in the AI and machine learning industry. Businesses can outsource projects related to natural language processing, image recognition, predictive modeling, and other AI applications.
VR-AR: Vietnam is becoming a top choice for companies outsourcing VR & AR projects. The country has a large pool of skilled developers enthusiastic about this technology. In particular, our experience has demonstrated that Vietnam is an excellent choice for outsourcing projects developed on the Unity engine (both for VR-AR applications and video games).
Blockchain: Cryptocurrencies have gained popularity in Vietnam, sparking interest among numerous young developers. The country has been home to successful blockchain projects like Axie Infinity, which is registered in Singapore but operates from Vietnam. Although skills in blockchain are in high demand (and blockchain developers are among the highest-paid professionals in Vietnam), businesses can find reliable partners in the country to outsource their blockchain projects.
Challenges and Difficulties in Vietnam’s IT Industry
Vietnam is emerging as a significant player in the outsourcing industry; however, the IT sector must address its inherent challenges to sustain its growth momentum.
Too young workforce?
A survey conducted by the recruitment website Topdev.vn revealed that approximately 30% of developers have over 5 years of experience, while 52.1% have less than 3 years of experience.
A tense labor market
Many IT companies operating in the outsourcing industry are facing challenges in recruiting and retaining top talent. TopDev.vn estimates that the IT software industry in Vietnam alone will need to hire 195,000 developers/engineers annually by 2024.
In a survey of developers done by the same company, 72% stated that they find it easy to switch to a new job within the IT industry. HR professionals with experience in IT recruitment have identified Back-end developers, DevOps, and Full-stack developers as the three hardest positions to fill in the industry.
Outsourcing to a country with a different cultural background can pose potential problems for companies. As our experience has shown, Vietnam is no exception. While we do not want to generalize, we aim to highlight potential issues that companies might face if they don’t choose the right outsourcing partner.
Unfortunately, it’s relatively common to find business partners in Vietnam who prioritize short-term success over long-term goals, which can hinder the establishment of stable partnerships. Several factors contribute to this, such as a high turnover rate due to the young workforce and Vietnam’s relatively recent opening of its economy.
Reluctance to address problems directly:
Many entrepreneurs in Vietnam have shared the experience of finding it culturally common not to directly report problems or confront partners or hierarchies. Instead, they tend to try to resolve issues internally until they become too severe to hide.
This cultural trait may also be linked to a lesser willingness to use the word “No” and the various meanings behind the word “Yes” in several South-East Asian countries, such as:
Yes, I am listening.
Yes, I understand your point of view, but…
Yes, I understand your concern.
This difference in communication styles has led to clear misunderstandings, with Western partners assuming that a “Yes” implies agreement and confirmation that the requested task will be done.
How to Find the Right Outsourcing Partner in Vietnam:
Here are some recommendations based on our experience:
- Clearly define project requirements and scope to ensure alignment with potential partners’ expertise.
- Preselect companies with relevant experience and successful track records. While it may be tempting to choose new and cheap players, our experience shows that the risks in Vietnam are too high.
- Evaluate communication skills, cultural compatibility, and adherence to security protocols to foster a smooth collaboration.
- Conduct thorough interviews, request proposals, and assess scalability options before finalizing your decision.
- Verify legal aspects, contracts, and service level agreements with the help of legal counsel to protect your interests.
Ideally, plan a visit to your partner and its operation center in Vietnam.
If you have an outsourcing project in South-East Asia, contact us. Our company was founded in 2018 by three French entrepreneurs and has a successful track record in managing multiple outsourcing projects, primarily focused on website development.
Working with LMC guarantees quality and efficiency (check our reviews on TrustPilot) and assures you of a reliable outsourcing partnership.