Đề tài Software outsourcing industry in Viet Nam

ge Language plays a significant role in international business and especially important in the software outsourcing process. You must be able to communicate with the offshore service provider – not only with the top managers, but also with the workers who are involved with your project on a daily basis. Language skills in Vietnam still lag behind the rich pool of native speakers in outsourcing hotspots of India, Ireland and Canada. However, the Vietnamese benefit from an alphabet based on Roman characters and a historical legacy that has created a greater awareness of French and English than many East Asian rivals. Young Vietnamese with better English communication have already overcome the language barrier that was believed as a weakness earlier. And these are just a few of the clear signs that Vietnamese society is becoming more educated, more technically capable, and more globally competitive. Unlike many Asian languages, Vietnamese uses the Latin alphabet, just as English does, which makes it relatively easy for Vietnamese speakers to learn English. English is the second most popular language in the country, and is a compulsory subject in many educational levels from primary to college; hence the majority of Vietnams’ college graduates have high proficiency in English. Consequently, most IT workers in Vietnam are able to communicate easily with U.S. companies in English when completing outsourcing projects. 2.2.1.6 Modern infrastructure A series of reforms started in Vietnam 20 years ago resulted in comprehensive accomplishments in all aspects of life. Some multilateral trade agreements and foreign investments have directly or indirectly led to changes in the telecommunications and computing infrastructure - jumping directly into advanced fiber optic cabling and wireless capabilities. More and more high-technology production from the globally largest corporations has moved to Vietnam, namely, the US$ 1 billion investments from Intel. Other multi-national companies such as IBM, Hewlett-Packard, and Canon etc. have well established contracts manufacturing computers, printers, and components. These companies are in Vietnam because of the quality of the products produced here. 2.2.1.7 Good environment The country has experienced no political conflicts, no religious and ethnic conflicts (Nearly 95% of the country is ethnic Vietnamese and over 80% of the population has no declared religion). Stable and strong economic growth, especially in recent years (GDP growth has averaged 7.4% over the past six years; WTO membership, good government policies: pro-business, large investment in IT areas. Some key international agreements and government policies have greatly paved the way for a prosperous economic future. The summer of 2000 was a historic period for Vietnam with the inauguration of the first stock exchanges in Ho Chi Minh City and Hanoi in June, and in July, Vietnam and the US signed the Bilateral Trade Agreement, spurring investment, trade and technology transfer between the two countries. Another proof to the government commitment to the growth of their nation’s economy and businesses is their participation in the Asian Free Trade Agreement, which brings about a new era of technology exchange between Vietnam and its Asian neighbors. 2.2.2 Highly appreciated by the big software outsourcing service providers Being chosen as the new viable outsourcing market has created great momentum for Vietnam to widen its software outsourcing prospects. At present, most software companies in Vietnam are small-sized, with exception of a few mid-sized enterprises. Despite this fact Vietnam has been quite successful in attracting numerous major big corporate and government names to outsource software projects to Vietnam. The trust represents in the big outsourcing contracts, projects and huge investment in training and building premises. Top names investing in Vietnamese IT such as International Data Group, Intel and Microsoft have helped spread Vietnam’s IT potential all over the world. If played properly, these contracts could initiate to even bigger software outsourcing contracts. Over the past few years Vietnam has increasingly been host to multinationals looking to outsource software development such as Anheuser Busch, Bayer, BP, Cisco, Critical Path, Daiwa, Fuji, IBM, Merrill Lynch, Nortel Networks, NTT, the State of Oklahoma and Sony. All have outsourced software projects to Vietnam either directly or through third-party subcontract. Over the past six months, two Vietnamese firms have won major software contracts with NASDAQ listed US firms, beating out competition from Indian and Australian software companies to design leading-edge applications. These came from a decision in the last minute by the government of the US state of Oklahoma to choose a Vietnamese-based partner, SilkRoad Systems, to outsource the development of its trade website. This decision is exceptional because the US public sector has traditionally outsourced to Indian developers. Major players like Cisco, IBM and Canada’s Nortel Networks have been exploiting Vietnam’s inexpensive software outsourcing resources for some years. In particular, Nortel Networks has been working with a Vietnamese developer since 1997. In spite of small scale business, their presence has prompted other multinationals like Daiwa, Fuji, NTT and Merrill Lynch to outsource software projects to Vietnam. Many Japanese companies are choosing to outsource much of their IT work to Vietnam. According to Global Services, as much as 10% of Japan’s software outsourcing may be processed in Vietnam by the year 2010. Intel is also heavily reliant on Vietnam to meet its outsourcing needs. In October of 2006, Intel Capital, the unit involved in venture capital for the Intel Corporation, announced a $3.5 million investment in FPT, Vietnam’s largest software company, located in Hanoi. Earlier in that same year, Intel stated that it was going to build a factory for chip assembly and testing with a price tag of $300 million. So far, significant reforms, including a bilateral trade agreement with the US and the promise of World Trade Organization membership in 2006, have paved the way for significant investments in education, transportation, housing, and technology looking for capable off-shore partners and foreign investments, now exceeding $30 billion. Many world leading companies are already pouring billion of dollars for outsourcing and investment on Vietnam: IBM, Citibank, CMG, NTT, Sanyo, Sony, Lucent, Nortel, etc...; HSBC plans to set up 2000 heads center (moving from China); Intel is building 600 million chip factory where 1.200 people will work. A lot have shown their trust in a country with a growing and youthful IT workforce, low costs and high aspirations to develop its software services; Vietnam is a natural offshore location and has all the ingredients to become the leading market choice in the next few years. Further proof of Vietnam's potential is the high recognition of IT status the country has received from some of IT biggest names. In March, Intel Chairman Craig Barrett announced their plans for a $600 million chip testing and assembly plant. Intel subsequently bumped up the figure to $1 billion. The presence of these leading international IT companies indicates the growth potential of the local marketplace and has a positive impact on the number of trained experienced technical employees. 2.2.3 Increasing government support The nation’s communist government once shut its economic and political doors to other countries faced tremendous difficulties in the liberalization effort. However, the nation is clearly moving to the market economy and maturing in understand about the world’s market. Since the decree to build and develop the country’s software industry was signed by the Prime Minister Phan Van Khai in 2000, the local and foreign enterprises have enjoyed full financial incentives packages. The selection of software as a key industry for development with government support and commitment has made other industries in Vietnam envy of attention it receives from the government. The strongest examples of active support from government indicating by a nationwide strategy for software development industry, software development investment stimulating and encouragement policy, and tax incentive commitment …etc. Moreover, the government has applied most preferential treatments to software enterprises, especially tax rates (Nguyen Duong, 2004), and many decrees related to the policy of developing Information technology have been issued. More importantly, software outsourcing is currently the most protected economic sector in Vietnam. It currently enjoys many favors including tax and investment incentives, such as low corporate tax rates, exemption from value added tax, exemption on tariff for imported materials that are directly used for the production of software, etc. This has created potential prospects for foreign investors to thrive in this high speed growth market. Vietnam Government has aimed at building software industry the leading sector with high growth rate. Officially, the government has shown its commitment to develop Vietnam into a main software exporter in the region via significant investments in software promotion projects. A number of software parks have been built and put into operation by municipal, provincial authorities and relevant government agencies. They offer tax exemptions and other incentives to software and related services firms. These decrees continue to strengthen the IT management of the government and to reduce the increasing piracy rate. These factors make Vietnamese one of the best nations that is globally competitive and technically advanced. Companies have started to capture this great opportunity of thriving to Vietnam with low cost and exceptional quality. The world history of outsourcing has a new chapter to Vietnam and this country mark itself as a perfect fit to any software outsourcing projects and process. For all the reasons described above, Vietnam is clearly an excellent choice for meeting any business’ outsourcing needs Vietnam is going to win the outsourcing game. 2.3. Situation The world software industry is growing rapidly with the increase in the number of companies prepared to use offshore providers by 50 per cent in the next decade. Existing companies utilizing outsourcing providers expect to double their budgets for offshore development in the same time frame. In the context of the global expansion of the market, there is room for companies from many countries to participate. Vietnam in the recent five years has been a new outsourcing spot in the same recognition with India, China and others sites. However, there are distinctions between software outsourcing development between Vietnam and its counterparts. The most significant discrepancy is the scale of the industry and the experience in working with the offshore service providers. Vietnam software outsourcing development now is said to be in the same situation of India 20 years ago. Vietnam already provides a lower cost alternative to India and as the wage rate differential increases over the next few years, companies will increasingly be seeking alternatives for their offshore outsourcing. However, in the long run, such countries as China, Russia, Malaysia and Philippines may take this place. China is a perfect example of good software outsourcing destination with full factors of attraction. Chinese companies and government officials are candid about their desire to become a major offshore software outsourcing destination. But apparently, the differences in scale do not mean Vietnam cannot compete in the outsourcing services market or cannot serve as an alternative to the undisputed leader, India. Already, Vietnam is being utilized as an overseas development centre for many Fortune 500 companies and this trend will increase as these companies expand their offshore outsourcing budgets, look to mitigate global risks and seek lower cost alternatives to India. The most compelling two competitive edges of Vietnamese software companies to partners are cost and technical capability. With cost considerations figuring so high in the decision making process and underemployment being so prevalent in Vietnam, we can only expect that international contract opportunities for Vietnamese companies will continue to grow in the future. In terms of technical capability Vietnamese software engineers are rated on par with their counterparts in other countries for technical aptitude. However, Vietnamese engineers are better known for application development, maintenance and testing rather than for skills in areas such as design. As such, Vietnam software outsourcing development now is not positioned to dominate the software outsourcing services market, but is positioned to participate fully in this market. At present, despite the rapid increase in both quality and quantities, the total value of this market is still relatively small in comparison to other Asian economies. Vietnam’s fledgling IT industry is projected to reach US$ 690 million in sales by 2003, whereas India and Singapore recorded software and associated services revenue of US$ 6.2 billion and $1.8 billion respectively last year. China in the same year exported US$ 725 million of software products out of total production of some US$ 9.6 billion. Vietnam in fact is not a much developed country especially in the field of software outsourcing and this industry is thus still in an early stage of development. According to many sources, particularly (Carmel – 2003) that provided highly useful criteria for classifying and comparing exporting nations, India, Israel and Ireland are in the top tier for software outsourcing, while Vietnam is classified as being in the fourth tier. Tier-One countries, have numerous firms – in the 100s or thousands in clusters- actively producing software for export with export valued over $1 billion and have been in this industry for 15 or more years. Tier four countries by comparison have been exporting for five years or less, have companies in the tens of companies and have export revenues of less than US$ 25 million a year. Software outsourcing in Vietnam is on the peak at present as some of the eye catching activities are taking place in the country to develop Vietnam as the software outsourcing hub. Thought it looks like that the emergence in the field of Software Outsourcing services by Vietnam will come as a great and remarkable move in a short while. Country Vietnam at present passing through the rapid economic growth and getting good support overall for its IT Outsourcing venture. Country also seems to have good opening access towards the global Information Technology market. However, Vietnam is only in the initial stages of this software outsourcing business in IT industry. Vietnam’s present level of outsourcing development revenue is approximately the same as India’s a decade ago and the wage rates in Vietnam are roughly the same as India’s initial rates. As such, a lot of people have raised the question that whether Vietnam can overtake other countries, catches up with India in the outsourcing game. It is too soon now to say that Vietnam can become ‘second India” but it does mean we have no potentials to realize that dream. At the current position, Vietnam just can cover all the niches from other markets in the race of getting outsourcing contract and share the markets with India and China. But in the next decade, with the internal strengths, strong ambition and aggressive pursuit of Vietnam’s government to the growth of its software development industry, there is a likelihood that, the industry will take off ever higher. By sound policies, much preferential measures such as significant tax credits for employees, employers, investors and even computer science and engineering students…there is every reason to believe that by the end of the present decade Vietnam will number itself among the world’s leading offshore development providers. 2.4 Opportunities 2.4.1 Increasing shortage of IT professional worldwide: There is such a strong demand for the IT developers worldwide that the available supply of qualified specialist can not adequately meet. The search for new sources of labor to fill the gap remains a big puzzle for many companies. Especially in the most developed industrial countries, the search for IT programmer is rapidly becoming the most important reason for offshore development. For instance, the U.S. Department of Commerce reports that by 2003 there will be a shortfall of some 1.4 million computer programmers in the United States alone. Germany, Canada & Australia report each of them needs some 30,000-35,000 programmers. India is currently the undoubtedly leader of offshore services with more than 80 per cent of the market. However, it is expected that the Indian labor pool will not keep pace with the expected spike in international demand. While estimates range depending on the reported source, the trend is clear. By 2005, the Indian labor pool will have 700,000 professionals, but demand for offshore IT professionals will number more than one million. Therefore, as supply falls short of demand, wage rates in India are expected to rise. Besides, U.S IT firms often experience low morale and very high turnover, usually 40%-70% annually. Considering the time and costs associated with training new agents, it becomes difficult to maintain quality service at a low cost. Vietnam vast labor pool which is young, literate and increasingly interested in technology can be a strong point in gaining more endorsements from foreign investors. 2.4.2 Software Enterprise Software outsourcing is a young industry in Vietnam. Almost all software enterprises are newly established small companies that are very dynamic and flexible. Software parks have been constructed with adequate and supportive infrastructures and preferential regimes. 2.4.3 Software outsourcing human resource Vietnam has young, dynamic, hard-working and excellent technical background. Vietnam has always offered a highly skilled labor force at low costs in any industries in general and software outsourcing in particular. Moreover, the rapid economic expansion, political stability and diplomatic acceptance mean the decision to choose it as an offshore destination has become a no-brainer. The combination of high quality work and lower costs makes Vietnam a very attractive place for IT outsourcing right now. The educational growth in the field of IT sector is also rapid in Vietnam as more and more talents are coming out in the field of Software Outsourcing Industry. Technology and Infrastructure growth in the country is also on the boom and government support and encouragement to the country for possible IT Outsourcing services is remarkable. 2.4.4 High demand of software outsourcing services Statistics from the Ministry of Post and Telematics indicate that the demand for software outsourcing in developing countries is high. The use of IT is becoming diversified and profound in various areas, from socioeconomic sectors, government administrations and businesses to the daily activities of many urban people. This creates a great potential market for software outsourcing. 2.4.5 Government Policies Software outsourcing industry has caught special attention of the government. Current policy pursued by Vietnam Government with respect to the development of the software industry is exceptionally positive. For example, the resolution No. 7/2000/ND-CP promulgated on June 5, 2000 about building and developing the Software Industry demonstrates the priority the government is putting on this industry. 2.4.6 Increasing foreign investors’ confidence Emerging as a new site for providing the qualified software outsourcing services, Vietnam has lured lots of foreign investors. American IT companies will find growing opportunities for doing business in Vietnam, particularly in sectors associated with Internet development. For examples, big name North American companies are outsourcing to the country, along with European and Japanese players. Nortel, Cisco, IBM, Hewlett Packard, British Aerospace, and Sony are just some of the names investing in Vietnam. It is forecasted in fiscal year 2007 that the market size of American software and IT outsourcing industry alone will be up to US$ 300 billion. The offshore share will rise from 10% in 2004 to 24% in 2007, and the offshore outsourcing expenses will be approximate to US$ 70 billion then Vietnam has chance for more outsourcing projects with higher value in the next coming year. Furthermore, most of the software outsourcing providers to express their trust in the business prospects here in Vietnam. They have no reservations about working with Vietnam-based developers since the country has a vast pool of intellectual resources that is largely untapped, low staff turnover of just five per cent, a skilled, young IT workforce with strong language skills, and low operation costs. High potential KPO service: Growth of Vietnam is rapid in the field of KPO services and the demand for Vietnam software product is increasing at the global level. Though, rapid growth of the country in the field of software outsourcing services seems to be way ahead. Experts also predict the bright future of Vietnam especially in the field of Knowledge Process Outsourcing Industry. Gaining clients for possible software outsourcing service is not easy and requires hardcore efforts. If Vietnam is able to overcome the current difficulties, the industry will have bright future ahead. 2.4.7 Better competitive advantages Currently, outsourcing in Vietnam has the cost advantage over the other competitors in the region. With the 30 - 40 % lower than China and India, 80% cheaper than Singapore, Vietnam is the first choice to the software providers. Moreover, India is becoming more expensive as the mature developers in India software firms asked for higher payment corresponding to their experience and expertise. India is also facing the skills shortage due to the increasingly high demand from the global outsourcing providers. That demand has pushed annual staff turnover to 25 to 30 per cent compared with Vietnam's five per cent. It creates a major plus tot make Vietnam much more attractive. In the meanwhile, language and cultural skills are posing challenges to China software industry as many investors complain that Chinese IT doers are poor in both written and spoken English and culture integration. It is expensive to get people with good language skills, but in Vietnam, written English is better than in most other countries and people here are of much more hospitality and high respect to different cultures. 2.5 Challenges Vietnam's software outsourcing industry is growing with many opportunities lying ahead but challenges remain. This also shows the trust that Vietnam’s IT industry is creating. However, Vietnamese companies have said that there are many opportunities but they can’t grasp them because of some difficulties. 2.5.1 Scale of operation In general, most software outsourcing companies are of small scale and facing up with dispersed, unprofessional development. The scope of software companies of Vietnam is quite modest, with only three companies having over 500 engineers (FPT, TMA, and FCG Vietnam). The remaining companies have from several tens to over 100 software engineers. Most of software enterprises are mainly small and limited in resources, lack of knowledge and experience in business administration. In addition, many software enterprises do not have a long-term strategy and efficient management method while the industry requires good plan for each project right from the start and good teamwork management. Software products are not so diversified focus is mainly on a certain general subject. Marketing activities have not been well developed and lack information about markets and customers. R&D capacity is limited and is not appropriately invested in. 2.5.2 IT Human resource Human resource is highlighted among the most significant factors to promote the software industry in Vietnam. Software developers are small in quantity and lack of experience, management and English competence. There are not enough leading experts to meet the requirements of big software outsourcing projects. Salary of a Vietnamese software engineer is around US$ 10,000 a year. And no software outsourcing company in Vietnam has yet to employ more than 1,000 engineers. Vietnam’s software human resources in 2006 was around 25,000, much lower than 70,000 of Infosys in India or 40,000 people who only serve IBM in India. Due to the lack of qualified programmers, Vietnam has lost many big contracts by the competitors in the