Outsourcing has become a good business strategy for companies seeking cost-effective solutions, accessing specialized skills, and focusing on their core competencies. As businesses explore outsourcing destinations, Vietnam is emerging as an outsourcing hotspot with attractive benefits for businesses of all sizes.
Successful outsourcing can be attributed to several key factors. These are substantial advantages of the practice to help you consider before making a decision.
Cost Advantages
Vietnam offers competitive labor costs compared to other popular outsourcing destinations like China, the Philippines, or Malaysia in the region, making it an appealing choice for companies looking to reduce labor costs.
A Typical example is Labor Costs: The average monthly salary in Vietnam is significantly lower than in countries like the United States, Western Europe, or even China. According to Statista 2020, manufacturing labor costs in China are 6.5 USD per hour. As a comparison, the average hourly wage in Mexico is 4.82 USD and in Vietnam, it is 2.99 USD[1].
Skilled Workforce
This S-shaped country has a young and dynamic population of over 97,5 million people with a high literacy rate. The country has made significant investments in education and technical training, producing a pool of skilled professionals in fields like software development, IT services, engineering, manufacturing, and more. Many Vietnamese professionals have gained international exposure and possess excellent technical expertise.
According to TopDev’s 2021 IT market report [2], Vietnam currently has over 430,000 IT engineers, and over 55,000 graduates from more than 153 IT institutions each year.
Some highlighted industries with well-trained experts
- IT Services: Vietnamese software engineers are proficient in various programming languages and technologies, making them suitable for software development projects.
- Engineering: Vietnam has a strong engineering talent pool, particularly in fields like mechanical engineering and electronics. This expertise is beneficial for companies seeking outsourced engineering design and manufacturing support.
- Business Process Outsourcing (BPO): The nation has invested in training and developing professionals in BPO services such as customer support, data entry, and back-office operations. These skilled professionals can handle various tasks efficiently and effectively.
Strategic Location
Vietnam offers a strategic location for investment and outsourcing with a logistic hub located along East Asia and bordering South China.
Vietnam’s strategic location offers convenient time zones that overlap with other Asian countries, Australia, Europe, and even the United States. Proximity allows for easier travel and more convenient time zone overlaps, which can enhance communication and project coordination.
- Connectivity: Vietnam’s geographic location offers excellent connectivity to major markets in Asia. For example, Ho Chi Minh City, Da Nang, Hai Phong, and Hanoi are well-connected with direct flights to major cities worldwide, making business travel and collaboration convenient.
- Regional Market Access: Being part of the Association of Southeast Asian Nations (ASEAN) and its free trade agreements (ASEAN-Australia-New Zealand Free Trade Area (AANZFTA), ASEAN-China Free Trade Area (ACFTA), ASEAN-India Free Trade Area (AIFTA), etc.), Vietnam provides access to a market of over 650 million people. This regional market integration benefits businesses looking to expand their operations in Southeast Asia.
Political Stability and Government Support
The country has achieved political stability for decades, providing a secure environment for global businesses. The Vietnamese government actively promotes the outsourcing industry, establishing special economic zones and implementing supportive policies to attract foreign investment. This commitment, combined with political stability and a reliable legal framework, creates an environment conducive to successful outsourcing ventures.
- Political Stability: The government has actively pursued economic reforms and has shown commitment to creating a favorable investment climate. In 2020, the U.S. Agency for International Development (USAID) is supporting Vietnam to improve its governance for economic growth by strengthening public financial management, enhancing the business environment, promoting trade, boosting investment, and fostering innovation[3].
- Simplified Administrative Procedures: The Vietnamese government has implemented measures to simplify administrative procedures for businesses, reducing bureaucratic hurdles and enabling smoother operations. The new Law on Investment released in January 2021 aims to streamline administrative procedures, enhance transparency, and provide more favorable conditions for foreign investors[4].
- In September 2020, the Vietnamese government issued an action plan implementing Resolution No 23/NQ/TW, which sets out a national industrial policy until 2030 with a vision towards 2045 [5]. The resolution was first signed in March 2018. The policy outlines several goals and measures to develop the BPO industry, such as:
- Increasing the share of the BPO industry in GDP from 1.7 percent in 2020 to 2.5 percent in 2025 and 3.5 percent in 2030.
- Boosting the export value of the BPO industry from US$3.5 billion in 2020 to US$6 billion in 2025 and US$10 billion in 2030.
- Investment Promotion: The government actively promotes investment in the outsourcing industry through campaigns, investment forums, and events. They provide guidance and support to foreign companies interested in setting up operations in Vietnam.
The World Bank’s Ease of Doing Business Index recognizes Vietnam’s progress in creating a more favorable climate for businesses [6].
Growing Tech Hubs
Vietnam has invested heavily in technology education and training programs. This has led to a rise in its technological competence, particularly in areas such as software development, artificial intelligence, and digital services. Many high-tech parks and software hubs have formed like Quality Tech Solution Complex (QTSC), Saigon Hi-Tech Park (SHTP), Danang Hi-Tech Park and Industrial Zones, and more.
- Tech Giants’ Presence: Global technology companies, such as Intel, Samsung, and Microsoft have established research and development centers or manufacturing facilities in Vietnam. Their presence has fostered a technology ecosystem and attracted talent, contributing to the growth of the tech industry.
- Global Manufacturing Factories: Huge manufacturing factories of Lego, Heineken, Daikin, Foxconn, and more are located in Vietnam, proving the country’s potential as an attractive outsourcing destination.
- Startup Culture: Vietnam has seen the rise of numerous tech startups in recent years, focusing on areas like e-commerce, fintech, and software development. VNG, VNPAY, Momo, and Sky Mavis are well-known ‘tech unicorns’, emphasizing a vibrant tech community and a pool of innovative professionals.
Language Proficiency and Cultural Compatibility
Many Vietnamese professionals, particularly in the IT sector, have a good command of the English language, which facilitates effective communication and collaboration with clients from English-speaking countries.
- English Language Schools: Vietnam has witnessed a significant rise in English language schools and training institutes. Many young Vietnamese professionals proactively enhance their English language skills to improve their career prospects in the global job market. According to VnExpress International [7], Vietnam ranked 60th out of 111 non-native English-speaking countries in 2022. Besides English, Chinese (Mandarin, Cantonese), French, and German are some highlighted languages in Vietnamese’s communication capacity.
- International Companies’ Presence: Multinational companies that have set up operations in Vietnam have contributed to the improvement of language proficiency among the local workforce. These companies often provide language training programs for their employees, further enhancing their English communication skills.
According to the Institution of Education Sciences [8], Vietnam’s culture has influenced local citizens to learn languages. Furthermore, Vietnamese work culture emphasizes diligence, discipline, and a strong work ethic, aligning well with many international business expectations.
- Strong Work Ethic: Vietnamese professionals are recognized for their strong work ethic, dedication, and commitment to achieving high-quality outcomes. They are often willing to put in extra effort to meet project deadlines and deliver exceptional results.
- Communication Style: Vietnamese professionals tend to have a polite and indirect communication style, which can foster harmony and maintain positive working relationships. While this style may differ from direct and assertive communication styles in some cultures, understanding and adapting to it can enhance collaboration.
- Host Country for International Conferences: Vietnam hosts various international conferences, summits, and events. This role as a host country allows Vietnam to showcase its cultural heritage, hospitality, and organizational capabilities, further demonstrating its compatibility with international organizations.
Infrastructure Development
The country has invested heavily in infrastructure development, including physical infrastructure, telecommunications, high-speed internet connectivity, and education facilities. Major cities like Hanoi and Ho Chi Minh City boast modern office spaces and reliable infrastructure, supporting smooth business operations and effective outsourcing engagements.
Physical Infrastructure
- Transportation: Vietnam has invested in improving its transportation infrastructure, including roads, highways, airports, and ports. This facilitates the movement of goods and people within the country and enhances connectivity with international markets. For example, the construction of modern expressways has improved transportation efficiency between major cities like Hanoi, Ho Chi Minh City, and Da Nang.
- Power and Energy: Vietnam has enabled Power Development Plan 8 (PDP8) [9], aiming to secure the country’s energy future up until 2030. By 2030, Vietnam aims to draw a minimum of 30.9% of its energy from renewable sources, increasing to 67.5% by 2050. Offshore wind, from which Vietnam generated no power in 2020, should give the country 15GW by 2035, accounting for around 18.5% of the total power mix.
- Ports and Logistics: With substantial investments, Vietnam has been able to upgrade its ports and logistics infrastructure, allowing it to operate efficiently in the import and export markets. Ports such as Ho Chi Minh City’s Cat Lai and Hai Phong International Container Terminals have undergone expansions to accommodate larger vessels and increase cargo handling capacities.
Information and Communication Technology (ICT) Infrastructure
- Internet Connectivity: The country has witnessed a rapid increase in internet penetration, with the widespread availability of high-speed internet connections in urban areas.
- Data Centers: Vietnam has seen the establishment of data centers that offer secure and reliable hosting and cloud services. Viettel, FPT, CMC, and VNG data centers meet international standards and provide businesses with the infrastructure needed for efficient data storage and management.
Education and Research Facilities
- Universities and technical institutes: In recent years, Vietnam has invested heavily in education institutions specializing in technical and engineering disciplines. These institutions produce a skilled workforce equipped with the knowledge and expertise required for outsourcing services in areas such as software development, engineering, and business process management.
- Research and Development (R&D) Centers: Several multinationals and universities have established R&D centers in Vietnam. These centers conduct in-depth research, promote innovation, and facilitate knowledge transfer, fostering a culture of continuous learning and technological advancement.
The Vietnam Academy of Science and Technology (VAST), Duy Tan University Hanoi University of Technology, Vietnamese-German University (VGU), and Oxford University Clinical Research Unit in Vietnam (OUCRU) are top-tier R&D centers with valuable contributions to the country’s development.
While Vietnam has many advantages as an outsourcing destination, companies need to conduct thorough research, consider their specific requirements, and assess the capabilities of potential outsourcing partners before making a decision.
