Vietnam has emerged as an attractive destination for offshore outsourcing, particularly in the Information Technology (IT) sector, thanks to its competitive costs and skilled workforce. Low production costs and an abundant, diverse labor pool have captured the attention of global companies.
Have you ever wondered why many international companies choose Vietnam as their outsourcing destination? Is the offshore outsourcing cost in Vietnam truly competitive and reasonable compared to other countries? What factors contribute to Vietnam’s superior cost-effectiveness in this field? Let’s explore the answers in the following section to understand more about Vietnam’s importance in the outsourcing world.
Factors Influencing Offshore Outsourcing Costs in Vietnam
When many Americans think of Vietnam, the first image that often comes to mind is not related to technology. However, the country with the twelfth largest population in the world has now developed a rapidly growing technology sector.
According to the announcement by the Ministry of Information and Communications, the revenue of the Information Technology (IT) industry in general for the first 10 months of 2023 was estimated at over VND 2.7 quadrillion, equivalent to USD 113.8 million, an increase of 1% compared to the same period. The number of digital technology enterprises registered for establishment continues to grow steadily.
According to a report released by Google, Temasek, and Bain & Company, Vietnam continues to be the fastest-growing digital economy in Southeast Asia for the second consecutive year (2022 and 2023) and is forecasted to maintain this position in 2025 (tied with the Philippines).
Is it because of the significant investment in the IT sector in Vietnam?
Overall, at present, the digital transformation story is no longer new in Vietnam. It is an inevitable trend for most countries seeking development. And after the outbreaks of pandemics, we can witness new breakthroughs in the IT sector with a range of new ideas and innovations.
The result of this rapid transition has created many new opportunities for the IT job market. Mr. Park JongHo – CEO | TopDev affirmed that:
“Vietnam is having a promising IT workforce in terms of quality and quantity as well as a potential market and economic growth. The key lies in the plans, strategies for investment, development, and orientation for this resource to promote the national economic and social goals in the context of globalization. This is truly a big topic and a long journey for all of us, but we believe that CHANGE will make great things happen. And to make a change, each party can contribute in its own role. All for economic development with human resources at the center.“
According to the Vietnam IT Market Report – Tech Hiring 2022 released by TopDev, Vietnam is having a promising IT workforce in terms of quality and quantity as well as a potential market and economic growth. Up to now, Vietnamese programmers have held high rankings, ranking among the Top 6 leading countries in software outsourcing services (2021) according to Kearney’s Global Services Location Index. At the same time, Vietnam is one of the top two software outsourcing destinations in Southeast Asia according to Accelerance. This demonstrates the quality of technology products from Vietnam.
And that’s why Vietnam attracts the offshore outsourcing market to such an extent.
How is the offshore outsourcing cost in Vietnam?
In recent years, the cost of using offshore outsourcing services has tended to increase, driven by several important factors as mentioned above.
Firstly, the demand for offshore outsourcing services is booming, especially from developed economies such as the US and Europe, where they need cost-effective technological solutions. Secondly, labor costs in popular outsourcing destinations such as India, China, and Vietnam are on the rise due to economic growth and the increasing cost of labor. Thirdly, countries are implementing measures to improve service quality, leading to cost increases.
Specific numbers are also noteworthy. For example, the average salary for software engineers in India ranges from $25 to $50 per hour, while in China, this figure is from $30 to $50 per hour, and in Vietnam, it is from $20 to $50 per hour.
The future forecast shows that the offshore outsourcing costs will continue to increase due to the growing demand and competition among service providers. However, this growth rate seems to be slowing down compared to previous years.
It is important for businesses to carefully consider factors such as cost, service quality, and geographical location when deciding on an offshore outsourcing destination.
Below is a comparison table of Offshore Outsourcing costs in 3 countries: Vietnam, India, China.
Why is the offshore outsourcing cost in Vietnam lower than in other countries?
Although software offshore outsourcing costs are not the only criterion for choosing a partner, it is indeed an important point that businesses need to pay attention to if they want to ensure cost-effectiveness. The offshore outsourcing price in Vietnam is not the cheapest, but overall, this cost is quite stable and suitable, providing high quality due to the abundant IT resources in Vietnam.
The number one reason for this is the labor cost in Vietnam, known to be significantly lower than in other countries. With the average salary for software engineers being only 1/3 compared to India and 1/4 compared to China, Vietnam benefits from an abundant labor force and low living costs.
Secondly, the government’s preferential policies are another important factor. Vietnam has many policies to attract foreign investment, including in the field of offshore outsourcing. Companies enjoy incentives in tax, land, and labor, creating favorable conditions for business operations.
Thirdly, the technological infrastructure is rapidly developing in Vietnam. Vietnam is investing in advanced technologies such as high-speed internet and high-tech zones, helping offshore outsourcing businesses operate more efficiently.
Furthermore, the increasingly improved service quality is a significant advantage. Offshore outsourcing companies in Vietnam are focusing on improving service quality to meet the growing demands of customers. Many Vietnamese companies have achieved international certifications for service quality such as ISO 9001 and CMMI.
A special point is about the labor force in Vietnam. Vietnam’s population is young, literate, and increasingly interested in technology. About 60% of the population is under 25 years old, and many clearly support the West, seeing the war with the US as a legacy of the previous generation. The literacy rate of 97% is one of the highest in the world, close to the rates in the US, Ireland, and Russia, and far exceeds India. And while technology fields are new in Vietnam’s higher education system, these fields attract some of the country’s best students each year.
Primary education emphasizes science, math, and logic, providing a solid foundation for future training. Currently, Vietnam graduates about 20,000 technical engineers each year. As evidence of talent quality, Vietnamese programmers ranked second in over 60 countries in the 1999 International Software Competition. Furthermore, researchers have recently moved to propose a more comprehensive, interdisciplinary education program for Vietnamese universities.
Lastly, the favorable geographical location of Vietnam is also an important factor. Being close to major markets such as Japan, South Korea, and China, offshore outsourcing businesses can easily access potential customers.
In conclusion, Vietnam has emerged as a highly attractive destination for offshore outsourcing, particularly in the field of Information Technology (IT), due to its competitive costs, skilled workforce, and favorable business environment. The country’s rapid development in the technology sector, coupled with its young and literate population, has made it a prime location for companies seeking cost-effective and high-quality outsourcing solutions.
Despite the increasing costs associated with offshore outsourcing globally, Vietnam remains a compelling option for businesses looking to optimize their operations. The lower labor costs, government incentives, robust technological infrastructure, and improving service quality all contribute to Vietnam’s competitiveness in the offshore outsourcing market.
Furthermore, Vietnam’s strategic geographical location near major markets in Asia enhances its appeal as an outsourcing destination, facilitating easy access to potential clients and partners.
In the face of evolving global trends and competition, it is imperative for businesses to carefully consider various factors such as cost, quality, and location when making outsourcing decisions. Vietnam’s continued commitment to investment in its technology sector and workforce development positions it as a key player in the global outsourcing landscape, offering promising opportunities for businesses seeking efficient and reliable outsourcing solutions.
Feel free to contact Innotech for any Offshore Outsourcing service you require. We are a Vietnam-based team committed to consistently delivering high-quality solutions tailored to your offshore outsourcing needs.
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