An Introduction to Starting a Software Outsourcing Business in Vietnam

Due to recent technological and commercial advancements supported by an upgrade in education and skill sets, the Vietnamese software outsourcing sector has mainly expanded. As a result, several global businesses are setting up shops in Vietnam to take advantage of software outsourcing’s lower costs, which has changed the fundamental variables that motivate foreign investment and its effects on the economy. As a result, the Vietnam Foreign Investment Agency estimates that US$14.1 billion has been invested in the country’s software outsourcing industry.

Vietnam is a preferred location for companies to outsource their software development projects due to its growing importance as one of the leading global outsourcing centers, particularly in Southeast Asia, as well as its low costs and highly trained IT workers.  Starting a business in software outsourcing is consequently growing in popularity among foreign investors and businesspeople in Vietnam.

Size of the IT Outsourcing Market

According to a recent report, the market for IT outsourcing in Vietnam is predicted to grow to 300 billion USD by 2025. That is an incredible 5900% rise from the 5 billion USD reported in 2019.

Market Timing: Choosing when to Start Your Software Outsourcing Business in Vietnam

1. Good Technical and IT education

Because of the excellent standard of education and vocational training in the country, engineers are being employed by overseas companies. Recently, the government gave the successful development of this talent in the broader workforce a top priority.

2. Young, Talented, and Affordable Workforce

Vietnam has one of the most significant percentages of young people in the world, in contrast to many other nations currently experiencing population aging and skill shortage difficulties.

These young individuals are now more than just laborers; they are also highly talented IT professionals who may advance the software development and outsourcing industries.

According to SunBytes, Vietnam has the most significant IT developer workforce of any country in Southeast Asia, with over 400,000 people. In addition, over 50,000 recent grads are foreseen to start working each year. 

RELATED: The Developing IT Industry in Vietnam: Update 2021

3. Governmental Reform and Support

The government’s assistance and reform initiatives have made it easier to do business and attract international investment in Vietnam.

Of 190 nations, Vietnam was ranked 69th in terms of business ease in 2019. However, according to many IT businesses and corporations, finding enterprise and investment certificates has gotten simpler.

4. Advanced Infrastructures and Technologies

Vietnam consistently keeps up with recent technological developments occurring elsewhere. Even Vietnamese IT experts stay current with recent developments in machine learning, blockchain, artificial intelligence, data science, and other fields.

Main challenges of software outsourcing in Vietnam

It’s critical to comprehend the difficulties you can experience if you outsource software development to Vietnam. It can assist you in deciding whether it’s a viable alternative for your company or in taking preventative action to go around them.

Lack of a national data protection law

Because Vietnam currently needs a formal data protection law, it is challenging for multinational corporations to develop data privacy policies. While many businesses try to adhere to the GDPR and Vietnam’s data protection law, they must overcome several obstacles due to insufficient regulations or disparate information sources.

Language Barrier

One of the main reasons a project fails is poor English ability. Business owners are particularly concerned about the language barrier when looking for outsourcing personnel in Southeast Asian nations like Vietnam. The Vietnamese had the 66th-best score on the Global English Proficiency Index in 2021. However, Vietnam moved up six spots to land at #60 in 2022, earning a “moderate” level of English proficiency, and the situation worsened.

Popular software development companies in Vietnam

1. Savvycom

One of the leading IT companies in Vietnam, it focuses on providing local and international businesses with software and consulting services for the digital transformation of the financial, healthcare, and retail sectors

2. KMS technology

Vietnam-based KMS Technology is an engineering and services company headquartered in the United States. Because of the superior quality of its goods and the knowledge of its Vietnamese engineers, KMS Technology has gained clients’ trust worldwide.

3. CMC Global

The objective of CMC Global, a subsidiary of CMC Corporation, is to introduce Vietnamese ICT goods, services, and solutions to the global market. When it comes to offering a wide range of comprehensive IT Solutions & Services, ranging from conventional services to Digital Transformation, CMC is the market leader in Vietnam.

4. NFQ Asia

The nation’s most excellent agile IT company, NFQ Asia, is a leader in using Elasticsearch and specializes in PHP. NFQ Asia supports successful international startups, huge websites, and massively scaled apps. Furthermore, by updating and supporting ongr.io, an application that accelerates transactional applications and presently powers large European e-shops and startups, NFQ Asia also contributes to the open-source community.

Recommended practices for successful software outsourcing

Outsourcing can be tricky, particularly for beginners. However, understanding the industry’s most recent advancements, trends, and statistics, as well as the best practices for outsourcing, will help you navigate its complexities.

1. Establish early outsourcing objectives.

Make a list of your objectives before dealing with an outsourcing provider. Additionally, your outsourcing partner needs to comprehend your dreams. Therefore, giving them a clear list of goals will enable you to be on the same page.

2. Choose the appropriate outsourced engagement model.

When deciding which outsourcing model to adopt, consider your budget, the services you wish to outsource, and your outsourcing goals. Keep in mind that every outsourcing model performs a particular role.

3. Choose the right outsourcing service provider.

When choosing the best outsourcing service provider, you must be cautious. Making a list of what you need and want from an outsourcing partner will help you identify the best one. When selecting an outsourcing partner, you can consider the firm reputation, worldwide reach, technical knowledge, systems and processes, hiring, and HR assistance.

4. Create a process for clear communication

It is crucial to constantly and directly communicate with your provider about the project’s status, particular priorities, and other pertinent matters. Project management tools, maximizing communication channels, and frequent check-ins are a few strategies for regularly keeping in touch with your outsourcing partner.

Tax Incentives in Vietnam

Hi-tech enterprises can apply for tax exemptions for the first four years of operation.

Tax reduction can be achieved in one of two ways:

1. Profits from new public sector-related projects are carried out in economically or socially disadvantaged areas, as defined in the Appendix to Decree No. 218/2013/ND-CP.
2. A period of tax exemption or reduction applies to high-tech and agricultural firms. The year in which they receive their Certificate of Hi-tech Enterprise or Certificate of Agriculture Enterprise Applying High Technologies marks the start of these incentives.

How to Start a Software Outsourcing Business in Vietnam

In Vietnam, foreigners can start a software outsourcing company with a 100% foreign-owned company. Organizations with 100% foreign ownership must have at least one resident director.

A foreigner may own a business, but if they don’t live in Vietnam, they cannot serve as the director and must appoint a resident.

Additional conditions to launch a software outsourcing business in Vietnam:

• The minimal amount of capital is not specified. However, the business strategy required that the planned money be realistic and reasonable.
• If the founder and their dependents want to obtain a residency card, there must be US$40,000 in the capital.
• Responsible for 20% of corporate income tax