Vietnam’s Software Industry Eyes Global Expansion Opportunities

The growth of the domestic software market in Vietnam has seen a slowdown over the past five years, however, the country has experienced an increase in outsourcing to foreign markets.

A situation report from the Vietnam Software Development Association (Vinasa) highlights major global and domestic economic issues that have contributed to the slowed growth of the Vietnamese software sector from 2011 to 2015. Notably though, the sector was still able to maintain a growth rate of 10-15 percent per annum, which is 2-3 times higher than the GDP growth rate.

In financial terms, the revenue from the software application industry grew from $1.06 billion in 2010 to $1.6 billion in 2015. Similarly, the revenue from services and digital content also exceeded $1.6 billion in 2015. Consequently, the overall revenue from software and IT services increased from $2 billion in 2010 to $3 billion in 2015. It’s noteworthy that a significant portion, about 90-95 percent, of the total revenue consisted of Vietnamese value content.

Over time, there has been a considerable increase in the number of companies providing outsourcing services to international partners, which has added momentum to the software industry. Nevertheless, the domestic market has been negatively affected by the national recession. State-owned enterprises and businesses, which are typically the targeted clientele for the country’s IT firms, have seen a decline in number over the years as they reduced their IT service budgets.

This, in combination with issues in policies related to procurement and software outsourcing services, has limited the growth of the home market. However, the export market paints a brighter picture, revealing an annual growth rate of 30-40 percent per annum. Vietnam has emerged as the preferred partner for Japan, while also experiencing stable growth of 20-30 percent p.a in both the US and Europe.

Gartner’s report identifies Vietnam as one of the top 10 countries for software outsourcing services. Further, in the period of 2010-2015, Vietnamese cities Hanoi and Ho Chi Minh City were listed among the top 20 out of 100 global locations for software outsourcing by Global Services-Tholons. In 2013, Vietnam was second only to China as a preferred partner for Japan in the field of software outsourcing, according to a Japanese IT promotion agency.

On the flip side, experts warn that the labour shortage in the country poses a significant challenge for the future growth of the software industry. Educating 400,000 IT workers by the year 2020 appears unlikely, with only the capacity to train 250,000 from 290 national universities, colleges and an additional 150 training institutions. However, from 2011 to 2015, Vietnam did see a 10 percent annual increase in the labor force in the software and digital content sector.