Vietnam challenges Indian dominance in outsourcing

Low staff turnover and an educated workforce are among the attractions

Vietnam is rapidly emerging as a viable offshore IT development location, offering lower prices, less employee churn, and greater stability than rival sites in India.

That is the view of IT recruitment and outsourcing specialist Harvey Nash, which currently provides a range of services for application development, software testing, maintenance and support for UK customers including the Discovery Channel and the Princes Trust from its 1,200-strong development centre in Hanoi.

Paul Smith, global managing director for IT outsourcing at Harvey Nash, said the firm's Vietnamese operations were currently growing at 40 percent a year and insisted the country has the credentials to challenge for much of the offshored IT work currently heading to India.

"Developers salaries are 15 to 20 percent lower than in India and 80 percent of Vietnamese graduates have science degrees, with 9,000 to 10,000 coming into the market each year," Smith said.

Smith also argued that Vietnamese developers are less intent on moving to Europe or the US compared with their Indian counterparts, so staff turnover is far lower. "We experience less than five percent churn compared to 35 percent at some Indian service providers," he said. "That is really important for development work as customers can feel pretty confident that the team that starts the project will finish it."

“Soft” benefits such as low crime rates, safe water and good infrastructure also make it easier to attract western clients, according to Smith. "We do development work for [accountancy software firm] CedarOpenAccounts," he said. " When they began working with us their HR department came and did due diligence and they have had no problem convincing UK staff to come out here."

Critics of moving IT work to the Far East point to a larger time difference and weaker language skills than those found in India. But Smith is adamant such criticism is unfounded, and that the six-hour time difference actually fits in well to firms "chase the sun" software development strategies. He added that English and European language skills are strong in the country. "We manage projects and client relationships with teams in the UK and it is relatively easy to ensure problems are avoided," he said.

However, firms looking to offshore IT work should not discount India too soon, according to a report last month from sourcing advisory firm Everest Group, which said reports about rapid IT wage inflation in the country have been greatly exaggerated. It concluded that UK firms would be able to achieve substantial labour savings by moving work to India for the next 30 years.

Stephen Dunn, managing principal at Everest Group, said in a statement that though there was some wage inflation in India it was nearer 10 percent than the 18 percent reported in some quarters. Everest added that firms were already minimising the impact of this inflation by moving to "second tier" cities in India and establishing sites in other countries such as Vietnam and the Philippines.