Vietnam - the next hub for offshoring?

Vietnam could potentially overtake India and China as a site for outsourcing by the year 2012, an industry expert has said.

At a forum on doing business in the region this week, Paul Smith, the managing director of recruitment and software firm Harvey Nash, said the country will become the most desirable place for outsourcing services - including IT - in the next few years.

"The duopoly India and China have long enjoyed within IT outsourcing is fast coming to an end - and rightly so. With deregulation, accession to the WTO and UN Security Council as well as significant overseas IT investment, Vietnam is becoming the outsourcing destination of choice for international business, not simply the poor relation," Smith said at the forum.

"Vietnam has always offered a highly skilled labour force and low costs, but this coupled with economic expansion, political stability and diplomatic acceptance means the decision to choose it as an offshore destination has become a no-brainer," he added.

His views were echoed by Andrew Cahn, the chief executive of the UK's trade and investment. "UK companies such as BP, Prudential and Harvey Nash have led the way into Vietnam, but opportunities exist for all aspects of UK industry, from retail services to infrastructure development and financial services to IT outsourcing."

This is because it has staff churn of just five per cent, a skilled, young IT workforce with strong language skills, and low operation costs, he said.

"India is becoming very expensive. There's a skills shortage because there's so much demand... and it's pushing wages and prices up even more," Smith told IT PRO. That demand has pushed annual staff turnover to 25 to 30 per cent, he said, compared with Vietnam's five per cent. "It's a major plus," he said.

Smith said the country has a young workforce, with over 60 per cent below the age of 25, compared to the UK's rate of 23 per cent below the age of 30. And, 83 per cent of graduates study science - compared with just 11 per cent in the UK.

"China has challenges with language and cultural skills," he added. "It is expensive to get people with good language skills." But in Vietnam, "written English is better than in most other countries," he said.

Smith also stressed that the taxes are low and the country has strong growth. It has the second highest GDP growth, after only China, and has seen over seven per cent growth for the past twenty years.

That growth has helped Vietnam raise many of its people out of poverty, as well. In ten years, the country has gone from 80 per cent of the population below the poverty line to under 15 per cent. "That is lower than India," stressed Smith.

But Smith warned companies looking to outsource in Vietnam - and anywhere else - to be cautious. "Like any new country you go into, make sure you understand the dynamics," he said. "If it was really, really easy, everyone would be doing it already. This is for early adopters."

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