S3Corp. Tech Blog

Vietnam’s IT outsourcing industry stands resilient in the face of a global economic slowdown, poised to continue on a strong growth trajectory in the coming years despite recent demand fluctuations. With an expanding talent pool, ambitious partnerships, and targeted industry support, Vietnam software outsourcing sector is setting itself up as a competitive player on the global stage.

Steady Expansion Driven by Strategic Diversification

In 2023, Vietnam’s software industry revenue reached $4.6 billion, as reported by the Vietnam Software Association (VINASA). Of this, software outsourcing services accounted for nearly $3 billion, with software development contributing another $1.6 billion. Since 2011, the industry has seen a consistent growth rate of 10-15% annually, surpassing the national GDP growth rate of around 7%. Although this pace is slower than the impressive 30-40% annual growth achieved in the preceding five years, the steady increase underlines the industry’s robustness.

This growth has been strategically diversified across various sectors. While domestic spending by public enterprises has seen reductions due to budget constraints, rising private investments have helped compensate for these reductions. Meanwhile, Vietnam’s IT outsourcing firms have increased their foothold in industries like finance, accounting, and insurance, sectors that have continued to drive demand for outsourced IT services, especially in the areas of credit card processing, human resources, and customer relationship management.

Despite impressive growth rates, Vietnam software outsourcing still trails behind regional leaders such as India and the Philippines, which generated $98 billion and $21.3 billion, respectively, from IT services in 2023. However, with targeted improvements and a growing commitment to workforce development, Vietnam is positioning itself as a competitive alternative for businesses seeking quality software outsourcing at a relatively lower cost.

Addressing Workforce Challenges Through Training and Development

Vietnam IT outsourcing growth depends heavily on the availability of trained professionals. According to VINASA, demand for IT talent will remain high, with the sector anticipated to generate roughly 400,000 job opportunities by 2025. However, the current educational infrastructure can only support training for around 250,000 professionals within that timeframe. This gap has put pressure on local universities, junior colleges, and training centers to expand their capacity.

To address this talent shortfall, companies have begun investing in in-house training and professional development initiatives. Le Xuan Hai, chairman of IT outsourcing firm VietSoftware International, emphasized the importance of internal training to meet the industry’s demands. “Training should begin within the company to contribute effectively to the market—a concept understood by only a few firms,” he noted.

The growing need for skilled IT professionals has also intensified retention challenges. Rising competition for talent has spurred wage inflation, making it increasingly difficult for companies to retain experienced staff. These conditions, however, have created a fertile market for private IT training providers, which could help bridge the talent gap by offering specialized programs tailored to the industry’s needs.

Expanding Market Reach: Vietnam’s Foray into Japan and Asia

Vietnamese IT firms are not just focused on expanding their workforce; they’re also ramping up efforts to capture new markets. Recently, FPT Corporation, a leader in the local IT industry, announced partnerships with Japanese publishing giants Toppan Printing Company and Tokyo Shoseki Company. These alliances, aimed at providing tailored software outsourcing services, underscore Vietnam’s ambition to penetrate Japan—a market known for its stringent quality standards.

FPT’s recent financial performance further highlights the sector’s international potential. In the first quarter of 2023, FPT recorded a 58% year-over-year growth in overseas profits, largely driven by a 35% increase in foreign revenue. To support this upward trajectory, the company opened a new hub in Danang in May 2023, with plans to grow its workforce there from 2,000 to 10,000 by 2025. This strategic expansion aligns with the anticipated demand surge tied to the ASEAN Economic Community’s launch and a spike in foreign direct investment (FDI) in Vietnam, which rose 120% year-on-year in early 2023, totaling $4 billion.

Branding and Market Positioning: Building Vietnam’s IT Reputation

Despite its skilled workforce and established service offerings, Vietnam software development sector is still developing its international branding. Nguyen Huu Le, chairman of TMA Solutions, explained that one of the main challenges for Vietnamese software companies is securing new clients in a market where relationships often rely heavily on networking and personal connections. “The issue for software firms is finding more customers. Companies tend to rely heavily on networking, meaning that the sales infrastructure is just not there yet,” Le commented. He added that consistent growth in the industry could be supported by more robust marketing initiatives, both locally and internationally.

While Vietnamese IT firms have maintained double-digit growth for over a decade, the market remains open to new players, particularly those willing to invest in a strong sales and branding infrastructure. According to Le, “Although Vietnam’s IT outsourcing sector has experienced rapid expansion, the market is far from saturated. There’s room for more players, especially those focused on niche segments and quality service.”

Future Outlook: Navigating Challenges and Capturing Opportunities

Vietnam’s IT outsourcing industry stands at a crucial juncture, with several factors influencing its future direction. Increasing demand, regional competition, and the need for a skilled workforce will continue to shape the sector. The following aspects are likely to drive Vietnam’s IT outsourcing evolution in the years to come:

1. Skill Development and Retention Strategies: As the demand for IT professionals grows, Vietnam’s industry leaders will need to innovate in recruitment, retention, and training practices. Collaborations between private training providers and companies are expected to play a vital role in filling the skills gap, while competitive compensation and career development opportunities could help mitigate retention challenges.

2. Targeted Market Expansion: Vietnamese IT firms are keen on expanding their reach beyond established clients in Japan, Europe, and North America. The ASEAN region, with its burgeoning demand for digital transformation, offers untapped potential for Vietnamese companies. By focusing on emerging markets and customizing solutions for local requirements, Vietnam could strengthen its regional influence.

3. Advancements in Technology Adoption: As Vietnamese firms compete with global giants like India and the Philippines, adopting and implementing new technologies such as artificial intelligence, cloud computing, and data analytics will be crucial. Firms that invest in these areas can improve operational efficiency, enhance service quality, and attract clients who require advanced technological solutions.

4. Brand Development and International Recognition: Building a strong brand identity and establishing credibility on the international stage are critical steps for Vietnam’s IT outsourcing firms. Industry-wide marketing initiatives, participation in global tech conferences, and showcasing success stories can help elevate Vietnam’s profile as a reliable and competitive IT outsourcing destination.

5. Government Support and Policy Enhancements: Government initiatives focused on strengthening the IT industry, such as incentives for software exports, funding for skill development programs, and improvements in digital infrastructure, will be essential in sustaining growth. The Vietnamese government has already demonstrated its commitment to the IT sector, and further policy support could provide the industry with additional momentum.

Conclusion: A Promising Path for Vietnam’s IT Outsourcing Sector

While Vietnam’s IT outsourcing sector faces challenges, including the need for enhanced training capacity, retention strategies, and international marketing, the industry is well-positioned for continued growth. Its adaptability, combined with targeted investments in skill development, market expansion, and brand building, could make Vietnam a formidable competitor in the global IT outsourcing arena.

With its young, dynamic workforce and a favorable business environment, Vietnam is increasingly seen as a strategic alternative for businesses looking beyond traditional outsourcing destinations. As the industry capitalizes on its strengths and addresses existing gaps, Vietnam’s IT outsourcing sector is set to emerge as a key player in the global market, offering compelling opportunities for companies worldwide seeking high-quality, cost-effective solutions.