Vietnam, a tiger for the future? By Robin van Koert India is the most popular destination for offshoring. However, the consequences of that success are increasing labor costs. China is developing into a competitor. Language is only a temporary obstacle. In the long run, Chinese success will nevertheless also reduce the cost advantages of that country. What will be the next offshoring success story? Bangladesh, Thailand and Sri Lanka are well known alternatives. For most Dutch companies, Vietnam is not yet a blip on the offshore outsourcing radar. Is that deservedly so? Perhaps. The lack of protection for intellectual property, for example, is a problem for Vietnam. Illegal software copying is a threat to a successful future as an offshoring destination. Measures to be taken in connection with Vietnam's entry into the World Trade Organization (WTO) are partly expected to provide a solution. A similar problem is the lack of standards for software companies. One or two companies have been CMM certified and others will follow. Nevertheless, it remains difficult to assess the quality of potential Vietnamese partners. Moreover, what do we know about the country itself? Vietnam is a country with more than eighty million inhabitants of which more than three quarters is younger than 35 years old. Over the last decade, the Communist party has gradually opened up the economy to free markets. During that time, economic growth has been on average seven percent per year. Since the introduction of the Internet in December 1997, an information technology sector has been gradually developed. The software market is worth about 80 million US dollars. In 2003, Vietnam exported software for a value of 15 million US dollars. The software export is growing at a rate of 25 to 30% each year. Vietnam is aiming for the number one offshoring spot in South East Asia. Is it, therefore, time to start taking Vietnam seriously? For the time being, the low level reputation as an offshoring destination is a disadvantage. "Unfamiliarity prevents popularity", says Laszlo Klucs of the Netherlands Center for the Promotion of Import from Developing Countries (CBI). Still, the country does have the opportunity to develop itself into a competitive alternative. Low labor costs are an important reason. A programmer earns 250 to 500 US dollars per month. Other advantages are political stability, very low geopolitical risks and state involvement. However, there is also a negative side to state involvement. The Vietnamese government wants to arrange everything. Software parks are a good example. In imitation of the Chinese, Vietnam applies state planning to the parks. So far, however, Ho Chi Minh City's Quang Trung Software City and Saigon Software Park are the only success stories. "The smaller software parks in Hanoi, Haiphong, Danang and Can Tho have a limited infrastructure", states Shekhar Bhusannavar, deputy general director of SilkRoad. "The idea of software parks is good", confirms dr. Nguyen Huu Le, chairman of TMA Solutions, "but the state does not have enough money." The government does appear to be aware of that problem. Vietnam is studying the Indian model, in which the state creates the conditions and entrepreneurs invest. Nevertheless, the country still has mountains to move in this area. However, there is no shortage of zest for work and ambition in Vietnam. It is that attitude which is crucial for Vietnam's eventual success. The skill levels of graduated computer engineers are an example. The educational institutions do not provide the market with immediately employable graduates. "We provide them with a six month training program", says Le. "The basis is good", he continues, "and new programmers acquire fairly quickly the necessary knowledge and skills." Vietnam has about twenty thousand programmers, but only 20% are experienced. The country also has a shortage of experienced project managers. In addition, knowledge of English is limited to source codes and programming languages. Robin van Koert, 11 October 2004