S3 tech blog

Despite slowing demand due to the weaker pace of economic recovery, Vietnam’s IT outsourcing sector is primed to maintain strong growth in the coming years.

Steady expansion

According to data issued by the Vietnam Software Association (VINASA) in May, Vietnam’s software industry earned $4.6bn last year, with software outsourcing services accounting for $3bn and software development generating the remaining $1.6bn.

Since 2011 the industry posted growth rates between 10% and 15% per year, according to the recent VINASA report. While still above the average level of the country’s GDP expansion at 7%, this fell short of the 30% to 40% annual growth rate for each of the preceding five years, the report said.

Budget cuts for public enterprises and state agencies have resulted in reduced spending on IT services in the domestic market, though increased private investment has helped offset some of the revenue draw down.

Meanwhile, IT revenues have been boosted by increased provision of services to the finance and accounting industries including the credit card services segment, along with support for the insurance and human resource industries, according to press reports.

Though Vietnam software outsourcing segment is expected to continue to expand at double-digit rates, the country lags behind regional industry leaders India and the Philippines, which respectively earned $98bn and $21.3bn from providing IT services last year.

Training up

As Vietnamese IT outsourcing firms look to compete regionally, the sector’s growth will partially depend on the quality of trained and experienced engineers and other professionals.

Demand for staff in the IT sector is expected to remain strong, with VINASA projecting that 400,000 positions will be created by 2020.

A rise in demand will likely put pressure on existing universities, junior colleges and other training establishments in Vietnam, which are estimated to have the capacity to train only 250,000 until 2020.

This gap is expected to be partially bridged by in-house training and professional development, according to Le Xuan Hai, chairman of IT outsourcing firm VietSoftware International.

“Training should begin from inside the company to be able to contribute to the market, which is something that only a few companies understand,” he told OBG.

Increased demand for trained and experienced IT professionals has also created a retention problem for local firms, said Hai, which could also possibly lead to an increase in wage inflation.

This need to fill the vacuum in the labour pool, however, could present opportunities for private sector IT training service providers.

Opportunities abound

The demand for more engineers was recently given impetus as part of a broader strategy to expand into Japan and other Asian markets.

At the end of May, local IT giant FPT inked agreements with two Japanese publishing houses Toppan Printing Company and Tokyo Shoseki Company to provide services for software outsourcing.

In April FPT posted a 58% year-on-year jump in its overseas profits, coming on the back of a 35% increase in foreign revenue.

To help support this growth, FPT is expanding both its staff numbers and facilities, opening a new hub at Danang in mid-May, with the current workforce of 2000 expected to expand to 10,000 by 2020.

The recent developments are in part a response to the forecasted increase in demand for IT outsourcing services expected to be generated by the launch of the ASEAN Economic Community, as well as rising foreign direct investment into Vietnam, which grew 120% year-on-year in the first quarter of the year to reach $4bn.

Profile-raising

While Vietnam software development sector has built a strong skills and products base, it is still developing its branding at the international level, according to Nguyen Huu Le, chairman of TMA Solutions, a Vietnam-based software outsourcing services firm.

“The issue for software firms is finding more customers as companies tend to rely heavily on networking, meaning that the sales infrastructure is just not there yet,” Le told OBG. “However, the industry can continue to grow with marketing campaigns.”

Though the sector has been expanding at a fast rate for more than a decade, Le points out that strong demand for IT products means there are still opportunities for newcomers.

“Although Vietnam’s IT outsourcing sector has experienced double-digit growth in the past couple years, the market is not yet saturated,” he said. “While new companies entering the market might require a little bit more investment, there’s still room for more players.”