Outsourcing in Vietnam: Competitive Factors and Entrepreneurial Challenges
The outsourcing sector in Vietnam has experienced consistent growth in recent years, making it an increasingly appealing prospect for global businesses. Since joining APEC in 1998 and becoming a WTO member in 2007, the Vietnamese government has actively promoted international economic integration.
In addition to implementing various institutional and policy reforms, Vietnam has adopted a more flexible approach to cross-border trade and investment. This includes a substantial 98% tariff reduction within ASEAN, aligning with international business standards and establishing new bilateral and multilateral relations. By committing to more business-friendly conditions for foreign enterprises, Vietnam has strategically positioned itself as a significant geopolitical location and an attractive outsourcing destination in Southeast Asia.
Development of Vietnam’s Outsourcing Market
Vietnam’s outsourcing industry, though relatively young compared to the Philippines, the global leader in business process outsourcing (BPO), has witnessed significant growth over the past decade. The Vietnamese government’s shift from a centrally planned system to market-oriented economic policies has attracted private enterprises and foreign investments. The Information and Communications Technology (ICT) sector in Vietnam has experienced an average annual growth of 9.8% over the last five years, contributing $110 billion in annual revenue in 2019, making up 14% of the country’s GDP. With an improving IT infrastructure, enhanced logistics, favorable regulatory environment, and business-friendly economic reforms, Vietnam is now establishing itself as a prominent outsourcing destination in the Asia-Pacific region.
Key achievements include:
- Ho Chi Minh City consistently recognized as a Top Outsourcing City for eight consecutive years (Tholons, 2009-2016)
- Acknowledged as a top-ranked pioneering location with a favorable cost environment for BPO services in the BPO and Shared Service Location Index (Cushman and Wakefield, 2016)
- Identified as the next BPO giant in ‘Spotlight on Vietnam’ (PwC, 2017)
- Ranked 5th in the Top 10 Global Locations for Offshore Services (Gartner, 2016)
- Positioned 5th in the Global Services Location Index (A.T. Kearney, 2019)
COMPETITIVE OUTSOURCING FACTORS
Strategic Location
Positioned strategically to the south of China, Vietnam emerges as a compelling outsourcing destination for international investors aiming to broaden or diversify their supply chain operations beyond China and into other ASEAN markets.
Integration into the Global Economy
Vietnam aspires to establish itself as a competitive, modern, and open economy, actively engaging in significant trade agreements such as the implementation of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in 2019 and the recent ratification of the European Union-Vietnam Free Trade Agreement (EUVFTA) earlier this year.
Improving Business Regulations
The Vietnamese government has achieved notable success in enhancing its legal and institutional framework, aiming to create an efficient, transparent, and business-friendly environment for investors and enterprises. As of the Ease of Doing Business 2020 ranking, Vietnam currently holds the 70th position among 190 economies.
An Emerging Middle Class with Increasing Purchasing Power
As of August 2020, Vietnam accommodates a population of 97 million people, constituting 1.25% of the global population, and is anticipated to grow to 120 million by 2050. The median age stands at 32.5 years, representing 70% of the Vietnamese populace, with the emerging middle class, making up 13% of the population, projected to double by 2026. Vietnam presents extensive market opportunities for various business investments, including outsourcing, and is expected to rank among the Top 20 Economies in the World by 2050.
Young Population with Growing Skill Set
Vietnam’s working-age population comprises around 72 million individuals, with a remarkable 95% literacy rate reflecting significant progress in education. The labor participation rate stands at 77%, boasting one of the lowest global unemployment rates. Currently in the ‘golden population structure’ phase, projected to last until 2034, Vietnam exhibits a favorable ratio of employed to unemployed individuals.
English fluency, a common challenge in Southeast Asia for effective outsourcing, is being addressed by the Vietnamese government. While not inherently English-speaking like the Philippines, Vietnam is actively expanding English language education and enhancing digital skills and technical knowledge among its workforce. The government has invested over $150 million in e-learning and EdTech (Educational Technology), fostering technical and academic support and ICT application. With more than 1,900 vocational training centers across the country, these initiatives aim to prepare workers for skills-intensive jobs in high-tech employment sectors, science, technology, and innovation.
Fast, Stable Economic Growth
Despite the global economic slowdown, Vietnam’s economy demonstrated fundamental strength and resilience in 2019, marking it as one of the fastest-growing economies in Southeast Asia. This robust performance is attributed to the export-oriented manufacturing and processing industry, a strong domestic demand, increased inflow of foreign direct investment (FDI), and substantial investments in financial technology (fintech).
Competitive Labor Cost
Vietnam’s consistently low labor costs have consistently positioned it as an appealing outsourcing destination for foreign investors and importers. Even with the annual increment in minimum wage rates, which currently ranges between $132 and $190, the overall cost remains highly competitive compared to other countries in the region.
