Below is our analysis of Vietnam as an outsource destination along these foundational criteria:

• Government support
• Infrastructure
• Labor force
• Costs
• Intellectual property protection
• Political and economic stability

These criteria are described in Outsource Evaluation Criteria.

Government support: Good

This category assesses Vietnam government determination to build the industry, and whether it works hard to create a conducive environment for foreign companies to do business in Vietnam. This starts at the national level with clear strategy/mandates, policies and laws, supported by pragmatic implementation at the local government level, and broad-base participation by the industry.

Stragegies and policies are generally favorable for IT outsourcing

At the national level, the Vietnamese government put high emphasis on the growth of the IT sector, starting over a decade ago and continues its focus to the present. Some key aspects include the formulation of national strategies to grow ICT, significant improving infrastructure, and revamping the tertiary education system. IT corporations and workers enjoy favorable tax treatments, and excellent land lease arrangements. At the same time, some aspects are still lagging behind - Companies expressed the concern that imported equipment to set up labs and development environment are taxed similar to other purposes.

Vietnam Ministry of Information and Communication (MIC) publishes a list of master plans, decrees, decisions and directives aimed at driving the ICT sector to achieve 20-40% annual growth up to 2010 that were created within the last 10 years. There are many of them, but two were cited by Gartner in their analysis of Vietnam: Vietnam Software Industry Development to 2010 and the Program on Development of Vietnam's Digital Content Industry to 2010. [Note that the English version of this site may be out of sync with the Vietnamese one.] Since the current master plans end in 2010, the government needs to review the status and update the master plans for the next 5-10 years.

Significant progress has been achieved in executing the strategy. However, some government reports indicated mixed results at the local government level in achieving these goals and differing interpretations and implementation.

Education system is being upgraded

VNICT official indicated a supply of 50 thousands workers each year. However, he added that the quality of graduates need to improve with more practical industry knowledge. Other reports suggest an output of 30-40 thousands new graduates each year. Anecdotal data suggests that university level curricula need to be upgraded to be current with technology progress. Vietnam recognizes this and is improving its education system to grow a competitive workforce. In 2009, the government invested over $60 millions ^[1] to expand education and training for ICT professionals and to establish high tech parks. The privatization of the tertiary education system with the infusion of successful education models from India, the US, Australia among others will ensure college graduates capable of competing with those from developed nations. Curricula from these private IT-focused universities are current, and teaching is done primarily in English. Universities such as FPT also dedicates a year for internship with an IT company. This should result in a new crop of students with more current skills and able to work in companies.

Infrastructure - Good

Vietnam improves its infrastructure on several fronts: transportation systems, network capacity, and high tech parks.

• Transportation: Vietnam now has three major international airports serving Hanoi, HCM City, and Danang. Direct flights to Asian countries, Germany are operational, with those to the US expected in 2010.

• Network capacity: Network capacity grows rapidly over the past 15 years. Starting at 4Mpbs in 1997, international internet bandwidth reached 1 Gbps in 2004, 18 Gbps in 20083 , and over 80 Gbps by the end of 20094 with cost of service also falling in line. ^[2]

• High tech parks: Several high tech parks are now in operation while continuing to expand. Quang Trung HTP, Saigon HTP in HCMC and Hoa-Lac HTP in Hanoi are the most prominent ones with modern-city-like infrastructure where people can both live and work, equipped with ample power supplies and telecommunication bandwidth. The government also provides many incentives for ICT businesses, and for them to use these HTPs.

Labor force - Good

In addition to capacity and quality, we also consider communication skills, work habits, and culture to be relevant to whether project coordination and teamwork can be effective.

Labor capacity is abundant at the junior level, but experienced workers are harder to find

VNICT Ministry reported 57,000 software workers and 33,000 digital contents workers in 2008. With the expansion rate in the last 2 years, it is estimated that over 100,000 workers are now employed in these fields. There is an abundance of workers with 1-3 years experience. However, 7+ years experienced programmers and project managers are harder to come by. The average age of software engineers in Vietnam is 24. Polling of outsource companies suggested a timeline of 2 weeks to build a 10-person project team with general skill set, and up to 8 weeks with specific skill sets. This is far better than our experience trying to recruit project teams in Bangalore, indicating that there is still available capacity in Vietnam.

Universities now produce 30-40 thousands graduates a year. This figure is expected to grow in both quantity and quality resulting from the liberalization of the higher education system and several new private universities supported by and modeled after successful foreign universities such as IIT from India.

Workers are young but eager, productive and loyal

Worker productivity in Vietnam is a key strength. Workers tend to be hardworking, result oriented, and loyal. They are also more willing to engage in team discussions, in constrast with with other cultural traits where people tend to defer to higher ranks to make decisions. They perform exceptionally well when clear benchmarks are involved. In our discussions with companies that outsourced to Vietnam, there were several examples of pilots among competing teams from different countries that resulted in projects implemented in Vietnam once customers became satisfied with initial engagements. Many projects were consolidated and rellocated to Vietnam for similar reasons.

Culturally, Vietnamese tend to place high value on education and work ethics. Vietnamese students are hardworking, and generally will excel given the right educational environment. There are ample cases where Vietnamese students graduated at the top of their classes at high schools and universities in the US and elsewhere. International Mathematics Olympiad results over the last two decades had Vietnamese students on average ranked in the top 10 internationally, behind powerhouses such as USSR, Russia, USA, China but ahead of most western countries.^[3]

Vietnamese workers have the reputation of hardworking and productive. They also tend to stay with the same employer if they are treated fairly and the prospect of job security is good. While workers from some countries may have the culture of deferring to superiors for decisions and directives, Vietnamese workers are more willing to engage in discussing issues that they have opinions about.

Some quotes supporting these observations^[4]:

"Nowhere in the world has reliable and industrious workers like Vietnam.” Mr. Kenichi Ohno-economic professor of National policy research Institute in Tokyo.

” advantage of Vietnamese workers is the learning mind and  striving effort" Mr. Steve Woodside-General Director of NIKE VIETNAM

Attrition is not yet an issue in Vietnam due to labor pool availability and the cultural loyalty to stay with the same employer, especially with projects that they are assigned long term. Vietnamese workers also prefer to work with foreign owned companies, perhaps for better benefits and to gain more valuable working experience. This speaks well to recruit good people for outsource projects, and for those companies desiring to establish subsidiaries in Vietnam.

Several outsource providers such as FPT are CMM certified, and several others are in process to do so. The majority follows a model of adopting customer processes.

Languages - good

The first concern that comes to foreigners would be whether they can communicate with a remote project team in Vietnam. Overall, Vietnamese IT workers can communicate effectively in at least one of several languages: English, Japanese, and French. In our interviews with company representatives, we found no difficulties in communicating with project managers, leads and senior engineers, fundamentally on par with tier 1 Indian project teams. Communication at the individual contributor level may need improvement if the project model requires communication among all members. However, in an offshore project engagement, communication is typically coordinated through project leads and as such verbal communication at the developers level tends not to be a major issue.

With broader involvements with foreign corporations, it is expected language skills to continue to improve. English is compulsory in high schools. Some private universities now teach predominantly in English. Companies are also offering English training to their employees.

Costs of doing business is excellent

Cost of doing business is a key differentiator for Vietnam. Many analyst reports concluded that cost is Vietnam top competitive factor. Gartner found that cost in Vietnam is 40% lower than India. Of the 30 leading outsourcing destinations, Gartner found Vietnam IT wages to be the lowest. An even better cost model can be achieved by building one's own branch in Vietnam and hire people directly. VN ICT reported an average wage of $12K/year for software workers, while other sources reported lower costs, down to $6K7. Contract flat rates range from $10/h to $20+/h based on project types and specialized knowledge.

Intellectual property protection - Good

IP protection was a key concern when we investigated Vietnam four outsourcing due to the rampant software piracy going on in Vietnam. As we interviewed companies and inspected their physical facilities, IT security infrastructure and associated policies, it was evident that companies providing outsourcing services are well aware of such concerns and have gone out of their way to ensure their customers' peace of mind. We found the physical separation among customer projects to be as light or as tight as the customer may prefer. Project workers can share the same workspace with other teams in the most lax arrangements, to separate rooms/floors/buildings/cities with similar control ranges for electronic access – from shared servers to separate physical network infrastructures.

Workers are trained on security measures and must abide by policies. For instance, workers are not permitted to take removable storage media to the office, and USB ports are often disabled.

Political and economic stability - Fair/Good

The positives

Vietnam is probably among the safest country to do business in. In most countries, terrorism and crime are among the top concerns. When we visited India, the security even at hotels were quite strict, reminding us of the terrorist threat present in that country. Vietnam has been blessed thus far concerning security – being a communist country with tight control has its advantage in this regard.

Vietnam has been out of regional conflicts for over 20 years and its single-party system intact for many decades. Leaving political dissidents and anti-government activities aside, Human Rights is still a concern for companies doing business in Vietnam. Based on 20 Human Rights articles created by the United Nations in 1948, the Danish Institute for Human Rights ranked Vietnam with 10 high risk and 8 medium risk areas that companies must be aware of 8. Many of these rights have indirect moral consequences to companies, but some have direct bearing on corporation such as bribery to officials which reportedly a systemic issue in Vietnam.

Economically speaking, Vietnam has made continual progress toward a free market system. With the Billateral Trade Agreements with the US in 2001 and accessions to ASEAN in 2005 then with WTO in 2007, Vietnam has loosened its business laws to create a more equitable environment for all parties to do business in Vietnam. These include protection of intellectual property rights, open markets, and providing a level playing field. Laws such as the Unified Investment Law in 2005 were designed to encourage foreign investment. However, this evolution is expected to continue. In this domain, Vietnam is working on catching up with the rest of the world.

The negatives

Reputable reports suggest fundamental issues concerning ease of doing business, corruption, and business-relevant human rights. While many of these reported issues may not directly affect business operation, especially IT outsourcing due to the government focus to grow it, we feel it's best to give companies the data so they can decide for themselves.

• World Bank rated Vietnam 93 out of 181 countries^[5] in ease of doing business (2009). By contrast, Thailand ranks 12 in the same report. The transformation from a centralized economy model to free enterprises require new regulations that are still evolving. Application of such regulations at the regional level is yet another challenge due to different interpretation and philosophies. On top of it, pervasive corruption hampers the process further.
• Transparency International rated Vietnam 121 out of 180 countries in its 2008 Corruption Perception Index^[6]. The same report rated Denmark at number 1, and the US at 18. Regional countries do not fare much better than Vietnam - China at 72, Thailand at 80, and Indonesia at 126.
• Danish Institute for Human Rights ranked countries based on 20 rights drawn from UN Universal Declaration of Human Rights. Of these, 10 such rights are considered high-risks for companies doing business in Vietnam.^[7]

Industry view

The Vietnam outsource industry is making a concerted effort to promote the country. An example of key advantages from TMA Solutions:

• One of the most stable and secure countries
• Average annual GDP growth of 7-8% during the last 15 years
• Young and well-educated population
  • 70% of 87M population under 30
  • Literacy rate more than 90%
  • 220,000 university/college graduates a year
• Vietnam emerging as a high technology center
  • Investment by IBM, Intel, Renesas, Foxcon ,Fujitsu, Canon,… to develop/manufacture high tech products
• Large talent pool
  • 30K - 40K ICT graduates a year
  • Supply will continue to exceed demand for many years.
• Quality
  • Only top resources are employed.
  • Adoption of international quality standards: ISO, CMMi,...
• Competitive cost
  • 40% lower than China & India (neoIT, 2006)
• Low attrition
  • Less than 10%
• Strong government support for the software industry
  • Tax, training & education, software/high tech parks, etc.

Information sources:

^[1]http://www.telecomasia.net/content/vietnam-tap-outsourcing-boom

^[2] Vietnam report on IT growth

^[3] International Math Olympiads Results 2009

^[4]http://www.dpi.hochiminhcity.gov.vn/invest/html/bus11.html

^[5]Vietnam Trade Brief (ranked 93rd in ease of doing business)

^[6] 2008 Corruption Perception Index

^[7] Human Rights - Vietnam Country Risk Assessment (business related human rights issues)

• Government support –This encompasses what the government does to support the IT outsourcing industry as a whole. It involves national strategies, immediate policies and concrete implementations to push the strategy forwards. Specific policies companies usually think about are tax incentives, favorable leases, etc. However, other longer term plans must also be in place to ensure long term competitiveness such as continuing to develop the labor force through up-to-date education.  Some analyst puts this ahead of selecting a outsource company.
• Infrastructure for IT operation – Whether current capacity meets current needs and plans for growth are in line with the general IT growth trends. Direct IT infrastructure such as network bandwidth/cost, road/air communication infrastructure, and IT facility capacity/growth are all important infrastructural considerations.
• Labor force – whether there is adequate capacity and quality to meet demands, whether language is an issue, and whether the education system is robust enough to be competitive in the long run.
• Cost
• Intellectual property protection
• Political and economic stability
• ...