There’s no question that the most of offshored work ends up in India. But another country is stepping up. Maybe it is not a well-known fact to many, but Vietnam is becoming fast a center for information technology companies to set-up their offshore operations. Despite of the huge market share of India and China in offshore development, Vietnam is quickly emerging as a software outsourcing destination.
In 2009, GlobalServices named Vietnam’s Ho Chi Minh City among the top 5 outsourcing cities in the world, due to its having one of the lowest production costs, among other reasons. IT salaries in Vietnam are the lowest among every major country, including offshore destinations. They are 40% lower than in India and China, and more than 80% lower than in Singapore. Tax rates are on a par with other emerging markets and Vietnam provides a good overall cost benefit in terms of labor, property rates, taxes and so on. Outsourcing software development can cost up to 50% less than the rivals from India. In addition literacy rates are high, at around 94%. These figures are convincing enough to place Vietnam as the top future contender for offshore development projects. As Indian companies enter the maturing cycle, the cost differential between India and Vietnam will increase even further.
Another reason for choosing Vietnam as an offshore location is that the young generation of skilled workers is highly motivated and technologically advanced. This dynamic generation provides a great pool of skilled software developers required to meet the growing demand of offshore development. Today the country has a 96% literacy rate and 80% of the country’s college graduates hold degrees in the sciences. Each year more than 25,000 technical engineers graduate from the universities. Unlike many Asian languages, Vietnamese uses the Latin alphabet, which makes it relatively easy for Vietnamese speakers to learn English. English is the second most popular language in the country, and the majority of Vietnams’ college graduates have high proficiency in English. French, a legacy of colonial rule, is still spoken by some older Vietnamese. A number of companies from French-speaking countries are actively considering Vietnam as an offshore location for this reason. Chinese and Japanese are also spoken to a limited extent. Almost all government bodies provide Web sites in Vietnamese and English.
Intel has dumped a ton of money in the country and IBM and others are investing there. Other companies that have chosen to outsource to Vietnam are Nortel Networks, Bayer, Sony, Cisco and Anheuser Bush. Overall, companies in Vietnam have an IT-related turnover rate of less than 5%, whereas in many other countries, such as India, this turnover rate can be 10% or even higher.
Government of Vietnam is promoting its economy for more foreign investment. It offers great incentives in the IT industry in order to capitalize on globalization. The country’s economic dynamism is also attributed to its rapidly maturing business environment. Nevertheless, the government needs to ensure that software and services play important roles in the IT industry, which is currently dominated by hardware manufacturing. The government still needs to do more to reduce tax rates and create more special enterprise zones and software parks.
The Story of Pentalog Vietnam
After several months of benchmarking, Pentalog's Board of Directors has decided that Vietnam would be the company's third offshore location. Pentalog, belonging to the top 30 of European nearshorers, was attracted by the association of a growing demography and a fast-improving higher education system. The authorities' strong commitment to develop a leading edge technology stands out against the current decline in Ukraine and Russian province cities. And Morocco still does not seem to keep its promises regarding the practice of foreign languages (Pentalog acted in 7 countries in 2008) and the number of educated engineers. Pentalog Vietnam is integrated into Pentalog's Right Cost policy, which was launched 9 years ago, and brings the company its first « extreme low cost » capacity. Vietnam is probably the most competitive country in the world in terms of quality-price ratio. With 25 employees in France, over 400 employees in Romania-Moldova and 50 in Vietnam, Pentalog should be able to offer the best cost-ratio available in Western Europe (92% of the team members are based offshore-nearshore).
Pentalog has very high expectations with an emphasis not only on technical competence of the candidate but also on his/her ability to communicate. We demand that our collaborators are capable of communicating verbally in English and, if possible, in French. We systematically conduct interviews in both Vietnamese and English. Those who refuse to speak in English during an interview or who cannot express themselves correctly in English will never join us, even if they are experts in Java, .NET...
Frédéric Lasnier, Pentalog CEO underlined that the objectives of the project in Hanoi is to offer service quality, meet our clients’ growing needs and breake the market with a price of EUR 100/day for a dedicated team, in other words a 40% discount to our average rates.