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The Promise Of Outsourcing To Vietnam

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Editor’s note: Josh Lieberman is president of KMS Technology, a provider of IT services across the software development life cycle with offices in Atlanta and Ho Chi Minh City.

It’s no surprise that Vietnam is being talked about as an alternative, amid rising costs and attrition rates in popular offshoring destinations like China and India. The General Statistics Office of Vietnam reports growth of almost 6 percent in GDP during 2014. Tech giants like Samsung, Microsoft, LG and Intel have invested in large operations in Vietnam, and a growing number of technology startups have secured investment. The entrepreneurial spirit on the streets of Ho Chi Minh City is palpable.

Vietnam has a lot going for it, and it’s a great outsourcing destination for some companies looking to build teams up to a couple of hundred resources, but it doesn’t have the scale for prime time right now for multi-national corporations to set up large-scale development centers.

What’s the attraction?

Vietnam first achieved a “good” rating from Gartner back in 2010 when it was named one of the top 30 countries for offshore services. There has been steady improvement since then with continued maturity of the existing industry, a wave of new graduates, foreign investment and startups. A Gartner report from January this year named Vietnam in the top tier of emerging market locations, alongside China and India.

Speaking from our past operations in India, we find modern IT skills in Vietnam equal to and in some cases exceed what India offers. English skills in Vietnam are also excellent. Schools teach English and it’s well-understood that proficiency in the language allows progress in the IT industry. You can secure an articulate and consultative workforce with good verbal and written English if you know where to look.

The country is undergoing a transformation. The rise of tech business and the increase in opportunities is driving an entrepreneurial spirit that can be seen in the success of developers like Dong Nguyen, the Vietnamese creator of the mobile sensation, Flappy Birds. Designed, created, and distributed for free in a matter of days from Ho Chi Minh City, within a year it had millions of players and was earning $50,000 per day from in-game advertising. It has served as an inspiration for others.

We also have to talk about the culture of working in Vietnam where loyalty is highly prized. We’ve been working in Vietnam for over 20 years, and the level of commitment, focus and loyalty continues to be strong. The expectations on service level are generally high in that part of the world and particularly so in Vietnam. Our attrition rate sits at between 6 and 8 percent. For IT and outsourcing in India, attrition rates regularly climb beyond 20 percent, and the trend is driving wages higher.

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(Source: Josh Lieberman)

Fostering loyalty like this isn’t just down to external cultural factors. You need to create an attractive internal company culture. We’ve done this by ensuring opportunities for employee growth through training, maintaining an open door policy with upper management, and encouraging a social atmosphere with clubs and weekend parties. You have to go beyond paying lip service to these things and actually show your employees that you care.

What’s the catch?

But there is still a definite skills gap. The Global Talent Index for 2015 suggested that Vietnam has gone from being number 52 in the world in 2011 to number 53 this year. The scale required for a really large operation simply isn’t here. We need another five to ten years of graduates coming through before it will be realistic to, for example, set up a 5,000-person center for IT outsourcing.

You also have to remember that the technology industry didn’t take off until relatively recently in Vietnam, so you won’t find support for maintenance and legacy platforms, like mainframe or AS400.

There are complications to negotiate when you set up a business in Vietnam. You can’t just parachute an operation into the country. We have a local team that we have worked with for years that had the experience to get up and running quickly. We were able to build strong ties with local universities and the government. That enabled us to optimize recruitment, understand tax implications and secure the appropriate licensing.

If you can understand the local hiring market and can afford to be selective and methodical, then the talent is there, but Vietnam currently still lacks the volume needed to drive the kind of growth we’ve seen in India.

A bright future

It may still be early days for Vietnam, but there’s a whole new generation of talent coming through and a strong focus on computer science in the school system. That investment will pay off as the technology sector matures and more companies see the appeal of locating here. We expect great things within the next decade, and we intend to be at the heart of it.

Featured Image: Josh Lieberman