Trends in service offshoring and implications to Vietnam

Two recent studies indicated new trends in rationale and direction of service offshoring that differ from the conventional thinking. Vietnamese government, organizations and companies need to be aware of these changes to improve the country's competitiveness in the global market.

Duke University's Duke/Booz Allen Offshoring Network Survey 2006 showed an interesting trend, i.e. offshoring is no longer "moving jobs elseswhere", but rather "sourcing talent everywhere", which will be dominant in the long run.

The survey also maps offshoring destination according to the 2 most important selection criteria, cost of labor and access to qualified talents, as shown in the picture below. China clearly has been regarded as a good destination for high-end service offshoring works.

Meanwhile, IDC's Global Delivery Index 2007 focuses more on the current attractiveness of Asia-Pacific cities as global delivery centers and points out the trend that Chinese cities will gradually replace the Indian cities as the top destinations by 2011. The report also emphasizes the short-term importance of deal clinching factors that include criteria such as agent skills, political risk, cost of labor, and language skills.

These results have important implications to Vietnam as a new, second-tier destination:

1. Differentiating from China will be a critical success factor for Vietnamese companies. So far, China has not been taken as a major competitor for service offshoring works. In addition, Vietnam also needs to keep up with China in investment into infrastructure, English language and Internet connections.
2. Vietnam needs to expand its qualified talent pool in the coming period by making college education accessible to more people, especially high-school graduates. A larger pool will help to alleviate bidding up cost of labor by competing offshoring and domestic demand, while keeping a critical mass to make the country attractive.
3. Vietnam needs to create a good environment for and encourage the development of offshoring agents, especially ones led by Vietnamese overseas due to their connections and understanding of both sides. The government should step back from the agent role and focus more on environmental development issues, where spillover is critical.
4. For companies, developing and retaining talents are as important as keeping a low cost to be successful in the long run.

Comments

[Thao M. Nguyen]

Thanks for your entry. I just read the book: The world is flat. And i see a great opportunity for vietnam in outsourcing and offshoring. about Offshoring, many taiwan, japan, ameria's company take their manufacture to vietnam. Is it a good new for vietnam?
And could you give me something about outsourcing at Vietnam. We're now on outsourcing developing status. And we want to focus to find the best way to reach it. Thanks, Thao Nguyen

[Jason Vu]

Vietnam needs some big shots, someone who can lead outsourcing firms like Paul Vivek. Byan is a good one, he helped FPT Soft to the next level.

[Tien]

Hi Thao,

About 2 years back, I did a small presentation to FPT Information System (FIS) management regarding outsourcing strategy for their SI services. They liked it but still followed their low-hanging-fruit strategy and ended up no where so far. The contents of my slides still valid, though some parts pf it was not tailored for software outsourcing. I can remove some sensitive parts and send it to you if you want.

Tien.

[Tien]

Hi Jason,

I agree with you Vietnam needs people like Paul Vivek. I also saw a host of other types of Indian offshoring agents in US, ranging from companies to assist shaping processes and finding partners, to high-profile thinkers and Chamber of Commerce members to promote offshoring to India.

For Vietnam, I believe only FSoft is not enough for a critical mass. Vinasa was created to address this but wasn't very effective, though. In such a case, captive offshoring can be another choice, especially for high uncertainty-avoidance cultures like in Japanese or German.

Tien.