Vietnam's Outsourcing Challenges

Business of Tech

Alignment, staffing and culture are often more critical than software and apps

Posted by Ann All Oct 31, 2008 1:09:17 PM

Vietnam is a rising star in outsourcing, as I wrote in April, citing an investment by Russia's Luxoft and Bill Gates' interest in the country as signs of its ascendance. IBM last month also announced it's opening a cloud computing center in Hanoi.

Yet Vietnam fared poorly in Gartner's list of 30 outsourcing destinations, which rates countries on 10 criteria, including language skills, government support, labor pool, infrastructure, educational system, cost, political and economic environment and cultural compatibility. Cost was the only area in which the country earned a rating better than "fair" on Gartner's five-point scale of poor, fair, good, very good and excellent.

The truth likely lies somewhere in between, based on presentations given at the recent Outsourcing Vietnam Seminar. According to a Manufacturing Business Technology story about the event, Vietnam has some 150 companies involved in outsourced software projects. The average workforce is 100-150 programmers, although some bigger companies employ up to 1,000 workers. The country's outsourcing revenues grew from about $20 million in 2002 to $180 million in 2007, according to the Vietnam National Institute of Software and Digital Content Industry.

Yet the country is already beginning to face some of the same problems as more mature outsourcing destinations like India. One example: salary inflation. Pham Thien Nghe, general secretary of HCM City Computer Association, estimates a software engineer earning about $313 a month can generate a turnover of about $625 a month. If taxes and other expenses are included, his employer would make no gain.

Because most Vietnamese software companies employ less than 500 workers, it's tough for them to earn business from huge multinationals like Microsoft, says Phi Anh Tuan, director of the HCM City Branch of the CMC group.

A Luxoft official also mentions that his company faced fairly significant hurdles in establishing operations in Vietnam because the process was overly complicated. The article doesn't elaborate, but I wonder if this is because of Vietnam's Communist government. Like China, it has been instituting market reforms, but its efforts seem far less well organized than China's.

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Oct 31, 2008 5:44 PM

Dennis Stevenson says:

Ann,

Last week I returned from visiting 2 outsourcing teams... One in Hanoi Vietnam and the other in Noida (Delhi India). I have to say that FPT Software in Hanoi was quite impressive to me. I've been outsourcing since 2001 (in India), so I've seen a thing or two over the years.

I definitely agree that language is a bit of an issue. Having a face-to-face conversation is difficult with some engineers. I found that I interacted mostly with the Project Manager and he then served as interface to the rest of the team. For the most part that worked well. The other management types that I dealt with had very good English skills, and conversation was not a problem at all - especially after my first day and some adjustments with my ear. Over the last few months, we have worked through the team based communication issues by essentially conducting meetings in chat rooms. The written english skillset is much better than spoken. That has been a very nice approach (it automatically generates a dialog transcript).

The engineers there did seem to be a bit young to me. It is difficult to find 10+ year experienced engineers. So there is clearly a need to filter assignments and reviews to ensure the appropriate degree of technical oversight. However from a process perspective, FPT Software is SEI-CMMi Level 5 certified.

In terms of ease of doing business... I actually have contracted through a domestic company (Agilis Solutions) who maintains the relationship to the Vietnamese teams. Agilis provides local (US) project managers and architects to compliment the development/QA teams. Working in this fashion has been actually quite easy. I think Agilis has smoothed out those operational issues over the last several years, so I had no insight to that.

Overall, I am presently very happy with the work I have received from the team. They are very hard working, very committed to my team's success, and seem to respond very well to challenges. Not to say we haven't have rough moments. But we've all come through those in pretty good shape.

I blogged my experiences in Vietnam in a summary post here: http://is.gd/5nja - not a real technical assessment, but some flavor of what I experienced.

Dennis Stevenson

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