Vietnam plays a small role in global IT services today, but it has big potential to contribute more in coming years. Many Vietnamese IT companies and policymakers want to develop the human capital necessary for future success. However, they face challenges that will require clever solutions.
Like many emerging markets, Vietnam today exports substantially more goods than services. Although revenues from IT services have grown substantially in recent years, the country produces vastly more hardware than software. And while IT services companies outnumber hardware manufacturers, you’ll still find more tech industry workers in factories than in offices.
Those factory jobs don’t pay much. According to official government statistics, the average hardware production worker earned $2,165 per year in 2012. Those in IT services, by contrast, routinely make several multiples of that. Many also enjoy the added perks of participating in the global knowledge economy and building skills that are likely to remain relevant for many years.
While Vietnam’s IT services professionals earn good incomes at home, their wages are attractive to international buyers. The latest version of AT Kearney’s Global Location Services Index, a biennial study of global offshore services locations, ranks Vietnam as having the world’s most financially competitive services market. It offers great value across many IT service categories, from basic testing and systems maintenance to development of contemporary web, mobile, social, and cloud applications.
Vietnam offers more than just cost advantages. Its proximity to Japan and Korea attracts clients from there who prefer “nearshoring” to distant places like India or South America, where time differences and cultural gaps can make communication difficult. Vietnam also has a large diaspora that allows it to source clients, capital, and managerial expertise from around the world, including important IT markets like the U.S. and Europe.
Despite many advantages, however, Vietnam still lacks the depth of talent to achieve scale quickly as an IT services powerhouse. In India, the world’s leading exporter of IT services, the top five IT companies collectively generated $34 billion in 2012. Vietnam’s entire software and digital content sectors only brought in $2.4 billion that same year. While Vietnam has a few large IT companies and a growing array of successful boutiques, the country’s potential still remains largely untapped.
The government understands this, and recently enacted a range of initiatives to improve the situation. It promotes IT education, provides tax benefits to software companies, finances software parks, and is investing to improve digital infrastructure. While these initiatives can help, the private sector is still likely to drive progress fastest.
The education system remains one of the biggest hurdles to developing robust IT services. On paper, the country appears to be cultivating its human capital. Official statistics state that Vietnam’s university systems had nearly 170,000 students enrolled in IT-related university programs in 2012. Yet many IT executives in Vietnam say that the vast majority of these students leave school without sufficient skills or the mindset for continuing education.
Among the minority of IT students who receive adequate training, their hard skills—like understanding contemporary programming languages—tend to be excellent. Yet soft skills like critical thinking and communication, essential for interpreting client demands and presenting results, rarely flourish in an educational system that favors “chalk and talk” over engagement and problem solving. The lack of strong foreign language training also creates issues for companies that deal with international clients.
Current policies to improve education, such as hiring more professors with advanced degrees, may not be enough. Many in the industry complain that heavy bureaucracy prevents other essential changes in the system. Onerous immigration procedures, for example, discourage foreigners with much-needed skills from moving in and helping to build the system.
Despite these challenges, savvy IT professionals find ways to build new skills and businesses and some even find the challenges have a positive side. “All this bureaucratic hassle actually makes us strong,” said one IT executive. “It encourages us to be dynamic and find ways to beat the system. It helps us develop the creativity that local schools don’t teach.”
The stakes are high. Vietnam currently has a young population with a strong affinity for digital engagement. With the right training, this tech-savvy generation could transform Vietnam into a leading provider of IT services to the global market. For the time being, the country remains an unpolished gem.
Will Greene runs TigerMine Ventures, an advisory firm that helps companies and organizations in Southeast Asia. He writes regularly for Techonomy about the region.