Behind an unmarked door on the second floor of a new commercial park located just a few blocks north of the border from Ha Dong province is the Hanoi branch of VietGest, one of a thousand companies in Vietnam’s burgeoning software development industry. The small four-room office houses a young team of 15, average age 25. The software developers enjoy air conditioning on full blast in their room. The support staff and junior software engineers make do with fans to stave off Hanoi’s sweltering heat.
VietGest is part of the rapidly growing USD $2.3 billion dollar software and digital content industry in Vietnam. According to Vietnam’s Ministry of Information and Communication, the industry has grown an average of 20-25% year over year since 2001. As India grows wealthier, global companies have begun looking elsewhere for low-cost technology outsourcing opportunities.
NeoIT cites IT labour costs are 40% less expensive in Vietnam than in China and India. A.T. Kearney’s Global Services Location Index and KMPG Advisory predict Vietnam will be one of the next outsourcing hubs for software development.
The Vietnamese telecom giant FPT also dominates the global outsourcing provider market in Vietnam. Its outsourcing team of 3,800 brought in $62.5 million last year. Nguyen Thi Dan Phuong of FPT said: “Our market share is roughly 21% of Vietnamese outsourcing to global market.”
Growing technology industry
While FPT may cast a long shadow, a myriad of software companies of different sizes, histories, and target markets characterise the vibrancy of Vietnam’s growing technology industry.
VietGest represents a start-up. Hoang Viet Tung, 30 years old, and Vu Minh Tuan, 28 years old, founded the company in 2010, when the pair returned home after studying abroad in Switzerland. VietGest specialises in serving French-speaking companies. Tuan runs the Hanoi office while Tung manages a team of 50 in Ho Chi Minh City.
After FPT, the second largest software outsourcing company based in Hanoi is VietSoftware International (VSII), which started as a subsidiary of VietSoftware, Inc. and spun off as its own company in 2006. VSII is IBM’s biggest Offshore Delivery Centre (ODC) in Vietnam. The core team has been in outsourcing since 2000 and it has grown to 200 engineers. Like most other providers of global outsourcing, VSII executive leaders trained abroad. CEO Le Xuan Hai, who co-founded VietSoftware, studied in Australia and worked in Germany while Director of Global Business Development Tran Luong Son earned his PhD in Russia and his Master’s in the US.
In terms of high tech development, Ho Chi Minh City (HCMC) is to Hanoi what Silicon Valley is to Seattle. One of the industry’s pioneers is TMA, a privately held company based in HCMC with 1,200 engineers. TMA is among the small number of Vietnamese software companies with more than 1,000 employees. Bui Ngoc Anh, a rare female in a male-dominated world, started TMA in her living room with six engineers in 1997. Today, her husband, Nguyen Huu Le, runs the company. Le is a Vietnamese Australian with an Australian doctorate and 22 years of experience at Nortel. Le said TMA pulled in $22 million in 2012.
All three companies share a sense of national pride to prove through providing outsourcing to global clients that Vietnamese software engineers are among the best in the world.
Le said: “The vision of the founder was ‘To Be One of the Top Offshore Developers and help put Vietnam on the World Map of Offshore Development by Exemplary Quality and Customer Focus’.”
Regardless of company size, Vietnamese software companies that provide outsourcing face similar challenges. “First, competition with peers from other emerging countries, notably India,” said Tran Tai, a RMIT Vietnam lecturer. “Second, difficulty in recruiting enough IT talent to satisfy larger projects. Third, considering the shrinking margin, some firms are looking at developing their own IT products. However, sales and marketing is a key issue.”
Although English is widely studied, Vietnam lags far behind India in this area.
Le said: “Even though the level of verbal English communication of Vietnamese ICT engineers has improved significantly, there’s still a gap with the need of international business.”
Then there is learning the language of Western business management.
When TMA started in 1997, there were just a few Vietnamese software companies that specialised in outsourcing. Le said one of TMA’s biggest challenges was “to build a company with Western management style in order to compete in the world market. Vietnam’s software industry at that time lacked experience in modern management practices and international business”.
Embracing Western leadership styles himself and in true Silicon Valley fashion, Le is dubbed “Chief Mentor” at TMA.
To better serve their foreign clients, Vietnamese software outsourcing providers strive to understand what their clients value and how they work and think.
In Asia, the belief “leaders are born” prevails while in the West, many assume “leaders can be made”. To simulate some aspects of the work environment of their foreign clients, all three companies employ “soft skills” training. While “hard skills” means technical expertise, “soft skills” requires having Emotional Intelligence and knowing how to interact and build relationships with others. The concept of “soft skills” is still so foreign in the Vietnamese workplace that no Vietnamese name exists for it; the original English must be invoked.
Those with strong soft skills will be able to bring out the best thinking, creativity, and innovation in others.
Tuan said: “We are influenced by our Asian culture. We’re more careful, risk-averse. We’re not as flexible.” Acknowledging their cultural tendencies, VietGest takes extra conscientious efforts to train their staff.
On Saturdays, the VietGest employees participate in additional soft skills or non-technical training researched and organised by alternating team members. This way, more team members get opportunities to lead and VietGest does not need to hire outside resources.
VietGest has a unique policy of encouraging anyone who wants to be team leader to try it for a month and if the candidate and the team feel it’s a good fit, the candidate may remain in that role. Although several have tried, Tuan said: “No one has wanted to stay. But after the month, the person has greater empathy and appreciation for what it takes to manage a team.”
While the number of students choosing to study information computer technology has increased by 70% since 2006, the talent pool is still very limited. Companies must make cost-effective decisions in their recruiting strategy to remain competitive.
At VSII, Hai and Son said they like to hire engineers with at least a few years of experience who share their long-term vision of the company. VSII is competing for talent not just with local companies but with foreign giants in Vietnam.
Many of our engineers studied or worked abroad or worked for foreign companies here before coming to VSII. They are the future of the company,” said Son.
TMA has the most robust system for recruiting and training. Aside from hiring from interns, they have their own training centre, from which they recruit the best students to work for TMA.
Vietnamese companies that specialise in outsourcing have the added challenge of trying to get their employees to approach work like their foreign clients while incentivising and managing the team in ways that make sense to the Vietnamese.
Vietnamese culture puts a high value on community and family. VSII sponsors family trips and rents a two-storey room inside a multi-company office complex to serve as a cafeteria exclusively reserved for VSII employees.
Renting a separate cafeteria is a great expense, but it makes our employees feel special, valued, and respected,” said Hai. The room is decorated in bright citrus tones with plastic ivy hanging from the ceiling and a sign in English that reads “Have a Good Lunch”.
There are even gifts for the children of VSII employees. Whenever a VSII employee gives birth, she is presented with a silver spoon. In the Vietnamese context, the spoon is used for cạo gió or “spooning”, a form of Vietnamese folk medicine where repeated pressured strokes are applied with the smooth edge of a spoon or coin over skin lubricated with a medicinal oil.
When Vietnam first began outsourcing software development services, companies faced challenges building trust and brand recognition globally.
Improvements to Vietnam’s legal system in recent times mean foreign software developers can have greater level of confidence outsourcing to local developers provided they follow good business practices and ensure they localise their contracts suitably,” said Giles Cooper, a partner at the law firm Duane Morris Vietnam.
Le believes the biggest challenge that remains is still in winning new clients through marketing and sales. “Few companies have an overseas presence so sales and marketing activities mostly come from Vietnam, which is not very effective in attracting foreign clients,” he said. TMA has five overseas offices along with its six domestic sites.
Smaller companies are following suit. VietGest is about to expand its sales force in France to more than 20 people and they plan to open an office in the US in the future. They expect their company will grow by 120% next year.
Amid predictions Vietnam’s economic bubble will burst, companies in the outsourcing sector are confident they will not be hurt because “they rely on revenue from foreign clients and reinvestment, not heavy capital inflow”, said Tai.
If the promises for Vietnam’s outsourcing potential holds true, VietGest may find itself needing more office space soon.
*Julie Pham  is a management consultant and did a PhD in History. This is an edited version of her article Vietnam’s Tech Industry Strives To Prove It’s A World-Class Hub Of Outsourcing Providers which was first published on www.forbes com. Picture credit: dream designs and http://www.freedigitalphotos.net.