Outsourcing to Vietnam presents a compelling and strategic option for businesses seeking cost-effective solutions. When considering outsourcing to Vietnam, there are several factors to take into account to ensure a successful partnership. This article will provide some key considerations.
Asia has recently emerged as an attractive outsourcing hub for international nations. Currently, numerous multinational corporations are opting to outsource their operations to Vietnam.
However, What sets Vietnam apart, drawing foreign businesses to its shores? What types of outsourcing services can be found in Vietnam? These questions will be addressed, providing insights for those contemplating outsourcing ventures in this dynamic and thriving market.
Outsourcing to Vietnam: the status quo
While India and China dominate the outsourcing of software development in Asia, Vietnam has emerged as a noteworthy destination for IT offshoring, attracting increasing attention.
Vietnam boasts an annual output of over 400,000 IT engineering graduates and 50,000 IT students from 153 institutions. Additionally, its youthful population is advantageous for international companies, as it signifies that these skilled professionals are readily available for work at any time.
The trend of IT outsourcing to Vietnam is on the rise, thanks to the country's expanding tech infrastructure and the availability of IT talent. Compared to India, foreign companies can reduce operational costs by more than 30%-50% when outsourcing IT roles to Vietnam.
Vietnamese developers command an average hourly rate ranging from $20 to $40, in stark contrast to the hourly rates exceeding $100 in developed countries like the US or Europe.
Notably, numerous well-known companies, including Intel, Samsung, LG, and Microsoft, have already outsourced IT services to Vietnam.
This small nation is gaining momentum in offering a wide range of IT support services, software development, application development, and various other IT-related roles.
Factors to consider when outsourcing
When a company decides to outsource the production of its products, several risks and challenges need to be considered. These risks can vary depending on the nature of the product and the outsourcing arrangement.
Some common risks when outsourcing product production can be prioritized are (1) Loss of Control; (2) Regulatory Compliance; (3) Legal and Contractual Issues; etc.
Legal and regulatory aspects of outsourcing are crucial to mitigate risks and ensure a compliant and successful outsourcing partnership. These will relate to legal documents such as contracts, taxes, NDAs, etc. Before choosing outsourcing partners or countries, you might consult with legal experts to navigate these regulations and ensure compliance.
Quality and Skills
When outsourcing product development, concerns about quality and skill include evaluating the skill levels, training, and certification of the outsourcing partner's workforce, ensuring adherence to quality control processes and standards, effective communication, and a focus on continuous improvement to maintain and enhance product quality.
Quality and skill concerns should be addressed through a combination of due diligence during the selection of an outsourcing partner, ongoing monitoring, clear contractual agreements, and proactive communication. This helps ensure that the quality of outsourced products meets your expectations and the standards of your business.
There are several costs that global businesses need to be concerned about when outsourcing their services or products. The primary focuses are labor and infrastructure costs. While the former requires comparison and research about the labor market in specific countries, the latter is related to the setup and maintenance process. Additionally, a comprehensive assessment should include scrutiny of initial and ongoing expenses, hidden costs, cost overruns, currency fluctuations, etc. Further and careful research could help business owners make informed decisions, leading to significant cost savings in the outsourcing process.
Time Zone and Communication
Time zone differences and effective communication are critical considerations when outsourcing.
Time zone disparities between the outsourcing location and the client's location can affect real-time communication and collaboration. A significant time zone difference can lead to delays in decision-making and response times, potentially affecting project timelines.
Language barriers and cultural differences may lead to misunderstandings or misinterpretations, making clear communication vital. The use of communication tools, such as video conferencing, messaging platforms, and project management software, helps bridge the gap and maintain open channels of communication.
Why outsourcing to Vietnam
Vietnam stands out as "a notably stable nation within Southeast Asia," effectively managing internal conflicts. Furthermore, the country's ranking in the Global Peace Index for 2022 has risen to #44, a notable improvement from its previous position at #50.
Regarding economic growth, Vietnam distinguishes itself as one of the Southeast Asian nations experiencing the most substantial GDP growth, registering a 13.67% increase in 2022. It has also demonstrated remarkable resilience in dealing with the challenges of Covid-19.
Despite global concerns about food and energy crises and rising inflation in 2022, Vietnam's inflation rate remains relatively stable, ranging from 3% to 4%. This rate is considered acceptable when compared to similar rates in other countries, underscoring Vietnam's strength and stability in the face of global economic uncertainties.
Quality Control and Compliance
Regarding quality, Vietnamese IT companies have established a standing for providing services that adhere to global standards, with an increasing focus on embracing industry best practices and obtaining certifications. This has drawn a diverse clientele seeking a combination of cost-effectiveness and top-notch results. Although the outsourcing industry in Vietnam is in the stages of development, its progression indicates an increasing ability to manage a more extensive array of intricate and advanced IT projects.
In terms of contracts, businesses might benefit from the Vietnamese government’s support. They actively support the IT sector through policies aimed at fostering growth and attracting investments.
In terms of communication, despite the initial language barrier, the workforce is progressively improving its proficiency in English, and companies are proactively implementing measures to enhance communication skills. The Vietnam outsourcing industry is also distinguished by a strong work ethic and the delivery of high-quality work, particularly in complex software development tasks.
Vietnam offers a cost-effective labor market with competitive wages and lower operational expenses compared to many Western countries. Labor costs in Vietnam are just half or even one-third, which can result in significant cost savings in comparison with the West. This cost advantage can significantly reduce the overall expenses of businesses.
Additionally, when it comes to software development outsourcing in the US, choosing Vietnam as an outsourcing destination can result in cost savings of up to 90% compared to domestic outsourcing, and it is over 33% more economical than outsourcing to India.
Timezone and Communication
Vietnam's time zone allows for overlapping work hours with many countries in Europe and Australia. This alignment enables real-time communication and collaboration between the outsourcing team in Vietnam and the client or partner in a different time zone.
Moreover, many Vietnamese professionals, especially in the IT sector, have a good command of the English language, making communication easier for international clients. Vietnam ranks 60th out of 111 non-native English-speaking countries and territories in Education First's EF English Proficiency Index (EPI). Among the 24 Asian countries and territories listed, Vietnam now ranks seventh, a jump from its previous 12th position.
In summary, Vietnam's attractiveness as an outsourcing destination stems from its economic stability, cost-efficiency, and quality control. Vietnam's successful management of the COVID-19 pandemic has further bolstered its appeal, drawing the attention of foreign companies, especially in the IT outsourcing sector. In comparison to other Southeast Asian nations, outsourcing to Vietnam is notably cost-effective, prompting some manufacturers who previously outsourced to China, Philippines or India to shift their production operations to Vietnam.