Vietnam Catches Up

“Vietnam and IT is not a combination that readily springs to mind. This is not surprising given that Vietnam-based software developers have little professional representation, unlike the competition in more established outsourcing centers such as India and China,” said Marc Lopatin and Dan Stern, directors of Research Vietnam.

In a recent report, Lopatin and Stern revealed that more companies are now outsourcing to Vietnam. Most of them are from North America followed by Europe and Japan. Multinational clients outsourcing to Vietnam include Nortel Networks, Cisco, IBM, Hewlett Packard, British Aerospace, British Petroleum, Sony, Fuji and Tata Consultancy Services.

In some cases, developing software in Vietnam is 90 percent cheaper than in the US, and between one-third and one-seventh of the cost of developing in India. And in recent years, the Vietnamese government has also demonstrated its commitment to developing the software outsourcing industry of the country.

A national IT development strategy has been put in place and Ho Chi Minh City has launched its own locally funded plan to improve infrastructure and IT human resources. The government is also planning to train 25,000 software engineers by 2005.

Where education is concerned, the government has a policy to build a new network of universities and colleges between 2001 and 2010 aimed at doubling the number of students per 10,000 of the population from 117 to 200. It has also stressed that 50 percent of higher education staff should be postgraduates and capable of innovative research.

A total of $7 million has been allocated for postgraduate training abroad while global giants such as Aptech, Oracle, TCS, Microsoft, Cisco and Novell have all set up training centers.

Quality And Infrastructure Issues

In other areas however, Vietnam still lags behind other Asian countries in recognizing the importance of quality assessment when trying to attract international customers. ISO 9000 and the Capability Maturity Model (CMM) are only just beginning to be recognized by Vietnam-based software companies.

As such, overseas quality assessment companies are finding an increasingly receptive audience as attempts are made in Vietnam to carve out a small share of the global IT outsourcing market.

One other barrier to IT growth is telecom infrastructure. By Asian standards, data transmission rates are slow and expensive. There is a total of 60MB of bandwidth in Vietnam offered by six international carriers. Moreover, the country’s firewall slows traffic and leased lines are highly priced.

The Vietnamese government has been quick to recognize this and made a series of announcements in December 2001. This included a pledge to cut Internet fees by 40 percent in 2002 and bring telecom charges in line with regional neighbors.

The government has also announced that 30 percent of the state telecom monopoly will opened up to competition by 2005. Up to 40 percent of the $11 billion earmarked for telecom investment between now and 2010 will be raised from foreign sources.

In 2001, the Internet could only be accessed through the state-owned monopoly. The situation is set to change later this year following the Communist Party leadership’s decision to enact legislation deregulating the telecom industry. This will allow foreign Internet Service Providers (ISPs) to enter the market in 2002. Foreign Internet Access Providers are expected to be able to compete before the end of 2003.

Whether or not government promises equate to firm policy and implementation, December 2001’s signing of the bilateral trade agreement (BTA) with the US, is evidence of Vietnam’s firm intentions to liberalize its economy.

Under the BTA, Vietnam has agreed to allow 50 percent equity participation in value added telecom by the end of 2003, and 50 percent foreign equity participation in Internet services by 2004. Foreign players will also be able to take stakes of up to 49 percent in mobile and satellite services by the end of 2005.

One of the key challenges in 2002, however, will be fresh government attempts to regulate the use of the Internet. Recent legislation has clarified provisions governing the activities of Internet connection providers (IXPs) and ISPs. The real question, however, is whether there will be a ministerial clash between those in government wishing to promote Internet services versus those wanting to maintain control of information exchange.

Legal framework

The legal framework of Vietnam can is also a cause for consideration. Legal issues relating to copyright, intellectual property rights and technology transfer are still important concerns for customers considering outsourcing to Vietnam. The majority of software being used in the country is unlicensed and Vietnam has only signed a copyright agreement with the US.

However, with government support for the software industry riding high, Vietnam should be able to leapfrog cumbersome legal structures that exist in other regional IT centers.

The Vietnamese government has already given the software industry a number of cost cutting incentives. Local and foreign-invested companies enjoy reduced corporate income tax rates and preferential tax holidays. Software for export is VAT zero-rated and largely exempt from import and export duties. Software companies also enjoy fast track licensing in a country with a reputation for onerous bureaucratic delays.

The above information is taken from Research Vietnam’s report called IT Vietnam 2002: Outsourcing To An Emerging Market.

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