Vietnam to Become Regional Software Powerhouse
The Quang Trung Software Park in Ho Chi Minh City, which currently houses 65 software companies with total capital of roughly US$33 million, has just received Sao Khue - Vietnam' annual information technology award - for 2005. Its performance reflects a fact that the country is becoming a favourite destination for software development.
The US-based consulting firm A.T. Kearney, in 2004, ranked Vietnam one of 20 countries with highest offshore location attractiveness index which is based on three factors, namely people skills and availability, business environment and financial structure. In other words, Vietnam has become a favourite outsourcing destination for foreign software companies due to its low production cost, skilled labour force, socio-political stability and many government incentives regarding IT development.
In June 2000, the Vietnamese government issued a resolution on building up and developing the country's software industry. Since then, it has offered IT firms many financial incentives, such as low import duties on many products and reduction of corporate income tax for a certain period of time.
Under Circular 123-2004-TT-BTC of the Ministry of Finance dated December 22, 2004, all newly-established software companies are now entitled to 10 per cent of corporate income tax rate for 15 years from their date of commencement of business operations. The firms are not only exempt from corporate income tax for four years commencing from the time they have taxable income, but are also entitled to a 50-per cent reduction of the amount of the tax payable for nine following years.
According to Research Vietnam, an in-country outsourcing intermediary, the software outsourcing cost in Vietnam is only half of that in India which was ranked first among the 20 countries. The consulting company Andersen Vietnam estimated that charge-out rates of Vietnam-based developers is some US$20,000 per person per annum, while the figure in India stands at US$40,000.
Besides low production cost, Vietnam boasts a strong labour pool with good command of maths, IT and foreign languages. Under an instruction issued by the country’s Political Bureau, it will have 50,000 IT specialists by the end of 2005. Maths is a strong suit of Vietnam’s educational system, while IT is becoming a common subject for many local students to pursue. Regarding language skills, Vietnamese people have a greater awareness of English and French than East Asian rivals, many foreign software developers stated.
For the above-mentioned reasons, many IT giants such as Cisco, IBM, Nortel Networks and Fuji have outsourced software development projects to Vietnam. Even well-known IT enterprises from India, Vietnam’s offshore rival to some extent, including NIIT and Aptech have had strong presence in Vietnam.
In addition to world’s leading IT companies from America and Europe, many Japanese firms have been outsourcing software projects to Vietnam, instead of as previously to India and China due to closer proximity, lower labour costs, cultural similarity and close relations between Vietnam and Japan. Japan is becoming a strategic market for our software industry, said Truong Gia Binh, Chairman of the Vietnam Software Association (Vinasa).
“Vinasa predicts that Vietnam is likely to earn about US$350 million from exporting software to Japan in 2010, representing some 10 per cent of its outsourcing market,” he said, noting that in the worst scenario, the respective figures will be nearly US$100 million and around three per cent.
According to many foreign research companies, Japan’s software market value stands at some US$100 billion a year, accounting for 20 per cent of the world market. Of this value, about US$3 billion comes from imports. The United States is estimated to spend US$17.2 billion on software outsourcing this year, up from US$9 billion in 2002. Vietnam has found it hard to penetrate the US software market, since US companies are well acquainted with India’s software industry.
To create a springboard for Vietnam’s software industry, Vinasa has proposed to the Vietnamese government that it should construct a national programme on developing the industry like other key industries, and mention software development issues in documents of the 10th Party congress to be held in 2006.
Vietnam’s software industry posted turnovers of roughly US$200 million last year, up 90.5 per cent against the previous year. Specifically, US$50 million came from export, and nearly US$150 million from domestic sales. According to the Ho Chi Minh City Computer Association, Vietnam, in 2003, had 12,000 programmers, each of whom annually created an average of US$10,000.
In 2000, when the Vietnamese government issued a resolution on the software industry’s construction and development with a target of gaining US$500 million worth software production value in 2005, Vietnam had no software enterprises with workforce of more than 100. Now, it houses over 650 software firms, many of which have workforce of 300 each.
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