S3Corp. Tech Blog

The Vietnamese software sector has evolved with remarkable speed, both in scale and in the number of companies offering outsourcing services. This sector has become a national investment priority, fueled by high potential and a rapidly maturing workforce.

A Rising Force in Software Development

Vietnam’s ascent in software outsourcing is particularly notable given its relatively recent entry into the global IT services landscape. Compared to industry heavyweights like China and India, Vietnam’s software companies are younger, but they’ve managed to establish a strong foothold in a short period. Vietnam software development company now rank among the world’s leading software exporters, leveraging innovative approaches and specialized skills to compete at an international level.

Comparative Advantages: Human Resources and Cost Efficiency

Vietnam’s competitive edge in software development is grounded in a unique set of advantages. The country’s abundant human resources and low labor costs make it an appealing choice for international clients. This workforce is characterized by a high level of technical education, and many young Vietnamese developers have trained abroad or gained experience with multinational tech companies.

The Vietnamese government has also played a proactive role in supporting the industry’s growth. Policies tailored for the software sector include a four-year income tax exemption, personal income tax breaks for software developers, and VAT incentives for software products. These measures, coupled with Vietnam’s relatively low operational costs, have positioned the country as a cost-effective yet highly capable alternative for outsourcing.

Riding the Wave of Global Outsourcing Shifts

Over the past three years, Vietnam’s software outsourcing industry has benefitted from a notable shift in global demand. Companies looking for alternatives to established outsourcing centers in China and India have increasingly turned to ASEAN countries. Vietnam’s IT services market has been a prime beneficiary of this shift, enjoying an annual growth rate of 15-25 percent. This momentum has allowed Vietnam to expand its reach and establish itself as a serious contender in software exports.

Government statistics underscore this upward trend. Vietnam’s software exports were valued at VND58 trillion in 2017 and reached VND34.2 trillion in the first half of 2018. Industry leader FPT Software reported a 29 percent increase in exports year-over-year, with revenue expected to hit VND7.5 trillion by year-end. These figures highlight the growing impact of Vietnam’s IT sector on the national economy.

Vietnam’s Place on the Global IT Map

Vietnam has successfully carved out a niche on the global outsourcing map. In A.T. Kearney’s 2017 Global Services Location Index, Vietnam software outsourcing rose five places to secure the sixth position, reaffirming its attractiveness as a software outsourcing hub. This progress reflects a strategic mix of cost efficiency, skilled labor, and government support.

Vietnam’s growth trajectory is not just confined to Western clients. The country has been Japan’s second-largest partner in software and service outsourcing since 2014, cementing strong business ties with one of Asia’s largest technology markets. Japanese companies have increasingly looked to Vietnam for high-quality, affordable IT solutions, and Vietnam has responded by developing specialized expertise to meet Japan’s stringent standards for quality and reliability.

Capitalizing on Industry 4.0 Opportunities

The advent of Industry 4.0 has opened new opportunities for Vietnam’s software sector to move up the value chain. Technologies like artificial intelligence, machine learning, big data, and the Internet of Things (IoT) offer significant growth potential, and Vietnamese firms are positioning themselves to meet this demand. By leveraging these cutting-edge technologies, Vietnam software development company can enhance its software services portfolio and secure a more prominent position in the global IT industry.

The Vietnamese government has taken steps to support Industry 4.0 adoption by investing in digital infrastructure and launching initiatives to foster innovation. These efforts are designed to create a high-tech ecosystem that encourages Vietnamese companies to adopt advanced technologies and compete in new domains, such as automation, data science, and cyber-physical systems.

Challenges and the Need for Larger Players

Despite these successes, Vietnam’s software outsourcing industry faces structural challenges. One of the main obstacles is the relative scarcity of large, highly specialized firms capable of handling complex, large-scale projects. Currently, only around 200 software companies in Vietnam have between 150 and 200 employees, and just a handful—about 10—employ more than 1,000 workers. The limited number of large-scale providers restricts Vietnam’s capacity to take on massive orders, a gap that larger firms in India and China can easily fill.

To address this challenge, Vietnam software outsourcing needs to attract more large multinational tech companies and foster the growth of local firms to increase their scale. This would enable the industry to meet rising global demand for end-to-end software services, as well as take on higher-value projects that require specialized teams and advanced capabilities.

Government and Industry Collaboration for Long-Term Growth

Vietnam’s government recognizes the need to nurture larger players and drive long-term growth. Collaborative initiatives between the government and industry stakeholders are underway to build up the talent pipeline and boost scalability. By focusing on skills development and creating incentives for foreign direct investment, Vietnam aims to develop a sustainable model that will attract larger players and enhance the capabilities of its software sector.

For instance, the government has initiated programs to strengthen STEM education and increase tech training in universities. Partnerships with international tech firms are also being encouraged to bring in new skills and technologies. Additionally, efforts to simplify business regulations and streamline licensing processes are intended to attract foreign investors, particularly those looking to establish large-scale operations.

A Bright Future for Vietnam’s Software Outsourcing Sector

With strategic investments, a growing talent pool, and government support, Vietnam’s software outsourcing industry is on a trajectory for further growth. The country’s unique combination of competitive advantages, coupled with its commitment to innovation, positions it as a dynamic player in the global IT services market.

As Vietnam continues to build its software outsourcing capacity and adopt advanced technologies, it is well on its way to achieving its ambition of becoming a global software development powerhouse. In the coming years, Vietnam’s IT sector will likely see more international collaborations, increased foreign investment, and a stronger presence in high-value software development projects, cementing its status among the world’s leading outsourcing destinations.