THANK YOU FOR SUBSCRIBING
By Viet Ho, CPO, Russell Investments
In 2015, the global outsourcing market for IT and Business Process Outsourcing (BPO) was estimated at approximately US$180 billion, with India capturing approximately 50 percent of that market. However, Vietnam is rapidly becoming a serious player thanks to the number of factors that makes the country attractive to supply management practitioners seeking cost-friendly solutions without high-level risk. BPO is a high-growth potential segment in Vietnam, due to the availability of human resources, affordable costs and untapped demand from companies with current mature, outsourced operations in India and China.
“Vietnam has proven to be a solid contender for quality and affordable outsourcing”
With a population of 90 million, out of which 65 percent is young and tech-savvy, under 35 Vietnam has emerged as one of the fastest-growing economies in the world. Additionally of being politically stable, the Vietnam government is highly supportive of the IT/BPO industry. Around Vietnam’s Hanoi and Ho Chi Minh commercial hubs, the IT industry has more than 15 industrial parks and export-processing zones in addition to the popular Quang Trung Software Park and Saigon High-Tech Park.
In Vietnam, employees are in abundance with more than 290 universities offering IT and engineering training and, Vietnam has over 100,000 students earning undergraduate and graduate degrees in engineering each year. On top of an ample workforce, employee loyalty is strong in the culture-Vietnam workers tend to be loyal to their workplaces. Employee attrition rates in Vietnam are in the 8-9 percent range while other outsourced destinations like India and the Philippines are facing attrition rates in the 40-50 percent range.
Over the last 15 years, Vietnam has been known for its low-end manufacturing industries, e.g. garment, footwear, and furniture. An illustrative example is the growth of Nike’s manufacturing capabilities in Vietnam. In 2010, Vietnam surpassed China as the largest producer of Nike footwear and presently, Nike employed over 333,000 manufacturing jobs in Vietnam (30 percent more than China).
In the last five years, Vietnam has attracted more technologically-advanced and higher value-added manufacturers in industries such as power generation, automotive and consumer electronics. Vietnam is becoming the “go to” place for manufacturers like Microsoft/Nokia, Intel and Samsung.
Vietnam’s government has set an ambitious target of 7 to 8 percent annual growth by 2020. To meet this goal, the country also needs to boost its overall labor productivity growth. To that end, Vietnam is actively working to develop partnerships with foreign companies and encouraging these businesses to build relationships with Vietnam service providers and suppliers.
With the 20 years old historical tie between the U.S. and Vietnam since the Vietnam War, Vietnam companies are strongly interested in working with U.S.-based companies and are focused on developing long-term strategic partnerships. According to the 2015 Index of Economic Freedom, Vietnam has steadily opened its market to foreign trade and reduced barriers. A.T. Kearney’s Global Services Location Index ranked Vietnam as the 12th most attractive country for offshore services outsourcing. Cushman and Wakefield put Vietnam at the top of its CW Global Outsourcing Location Index for the first time in 2015.
Of notable importance, the Trans-Pacific Partnership (TPP) was agreed to in October 2015 and will change the game for Vietnam. The TPP is intended to enhance trade and investment among partner countries, promote innovation, economic growth and development, and support the creation and retention of jobs. All signatory countries, including the U.S. and Vietnam, will need to conform their domestic laws and policies to the provisions of the TPP agreement. This agreement will follow international standards in areas such as cross-border service supply, financial services, e-commerce, investment, intellectual property, government procurement, employment, environment and state-owned enterprises. Vietnam is not a democratic country and, as such, has not always been considered a strong contender for foreign business investment in the past. The TPP agreement, once ratified by the 12 signatories, will go a long way allaying some of the historic concerns about the ease and risk of doing business in Vietnam.
The cost savings of outsourcing to Vietnam can be considerable. In general, Vietnam’s labor costs averages around 90 percent less than the U.S., which translate to significant savings. Based on my analysis after working professionally with India offshore suppliers the last 10 years, Vietnam’s labor rates may be 30-50 percent lower than India. In 2014, analysts from the research firm Gartner commented, “Vietnam remains one of the most competitive options in the world for software outsourcing due to its competitive labor costs and other business costs.”
In the early 2000s, there was a shift of manufacturing jobs from China to Vietnam. It is anticipated that a similar shift to Vietnam for BPO will soon occur as U.S.-based companies look to mitigate or transfer operations from India and China with labor costs and concerns about intellectual property protection and other challenges of doing business in these two countries continuing to increase.
Take the time to examine all your options, and be sure to look beyond the traditional China and India suppliers. In BPO, Vietnam suppliers have demonstrated capabilities and growth in areas such as data entry, digitization, document processing, online catalog/image, loans and mortgage, title insurance, and back-office support (procurement, accounting and finance).
While Vietnam may still have some issues to improve—for instance, some critics say verbal English-language skills in Vietnam can be problematic, but over a short period of time I continue to see improvement in these skills because of increased investment in education and opportunities. For BPO services that are “non-voice” (where verbal skills are not as important), I find that Vietnam workers have an additional advantage of a stronger working knowledge of the written languages from Europe, China and Japan. For example, on a recent advisory project, the small Vietnam team of nine people was able to support work in multiple languages, including English, French, German, Chinese and Japanese, without any additional costs.
Overall, due to its many strengths and efficient costs, Vietnam has proven to be a solid contender for quality and affordable outsourcing.