SOFTWARE OUTSOURCING INDUSTRY IN VIET NAM

HCA : Hochiminh Computer AssociationHSBC : Hongkong & Shanghai Commercial Bank :IBM : International Business Machines Corporation IEEE : Institute of Electrical and Electronics Engineers

TABLE OF CONTENTS

Acknowledgements

Abstract

List of Abbreviations

List of Charts and Tables

INTRODUCTION

I Rationale

II The significance of the study

III Aims of the study

IV Research questions

V Scope of the study

VI Methodology of the study

VII Design of the study

CHAPTER ONE: LITERATURE REVIEW

1.1 The concept of software, outsourcing, and software outsourcing

1.1.1 Software definition

1.1.2 Outsourcing concept

1.1.3 History of software outsourcing

1.1.4 Types

1.1.5 Advantages of software outsourcing

1.1.6 Disadvantages and concerns 11

1.2 Software Outsourcing industry in the world, India and China 11

1.2.1 In the world 11

1.2.2 In India and China 12

CHAPTER TWO: SOFTWARE OUTSOURCING INDUSTRY

IN VIET NAM 15

2.1 Overview 15

2.1.1 The introduction of Software outsourcing to Vietnam 15

2.1.2 Key players 16

2.1.3 Principal services 18

2.1.4 Markets for Vietnam software outsourcing industry 18

2.1.5 Achievements 19

2.1.6 Main objectives 21

2.2 Prospects of Vietnam software outsourcing 22

2.2.1 Appealing factors 22

2.2.2 Highly appreciated by the big software outsourcing service providers 30

2.2.3 Increasing government support 32

2.3 Situation 33

2.4 Opportunities 36

2.5 Challenges 40

CHAPTER : A CASE STUDY OF FPT SOFTWARE 43

3.1 FPT software in general 43

3.1.1 Formation and main services 43

3.1.2 Vision 43

3.1.3 Strong business results 44

3.2 Businesses 46

3.2.1 Enterprise Resource Planning (ERP) service 46

3.2.2 Web Meister (WM) 48

3.3.3 FPT.iHRP 48

3.3 Success factors 49

3.4 Direction and challenges 53

CHAPTER 4: RECOMMENDATIONS 56

4.1 Strong commitment of the government 57

4.1.1 Financial support 57

4.1.2 Promotion 58

4.1.3 Legal and Regulatory framework 59

4.2 Human resource and training 59

4.3 Associated solutions 62

4.3.1 Enhance the IT infrastructure 62

4.3.2 Copyright protection 63

4.4 Open source software (OSS) development 63

4.5 Set up quality control system 64

4.6 Other suggestions 65

CONCLUSION 67

REFERENCES 70

Information technology (IT) is seen by the VietnamGovernment as one of the most significant driving forces for theeconomic development and social advancement It steps up thereform process, intensifies the industrialization and modernization

of economic sectors, and strengthens the competitiveness ofbusinesses The development of IT industry, especially the softwareindustry has become a key industry in many developing countriesbecause of the increasing application of information technology

in business, manufacturing and many other sectors Among them,the software outsourcing stands out as one of the most profitableand fast-growing industry

This paper studies the current situation of softwareoutsourcing development, some of the favorable factors that boost

this industry as well as the analysis of the software outsourcingactivities in FPT Software Once we have figured out the potentials,

we can work out some solutions to first maintain and make use ofthese factors and then to promote the Vietnam software status in theinternational arena

LIST OF ABBREVIATIONS

AIC : Advancing Technologies & Investment ConsultantsCorporation

APEC : Asia-Pacific Economic Cooperation

BPO : Business Process Outsourcing

CDIT : C-DIT-Center for Development of ImagingTechnology

CDMA : Code Division Multiple Access

CEIC : Computer and Enterprise Investigations

Conference

CMC : Computer Manufacturing Corporation,

CMM : Capability Maturity Model

CMMI : Capability Maturity Model Integration

COSIS : Copernicus Online Service + Information System

ERP :Enterprise Resources Planning

FCG : First Consulting Group

FPT : Financing and Promoting Technology

FSoft : FPT Software

GCS : Global CyberSoft, Inc

GSE : Global System Engineering

HCA : Hochiminh Computer Association

HSBC : Hongkong & Shanghai Commercial Bank :IBM : International Business Machines Corporation

IEEE : Institute of Electrical and Electronics Engineers

IPR : Intellectual Property Rights

IT : Information Technology

KPO : Knowledge Process Outsourcing

Kyu : Japanese levels of proficiency or experience

LAN : Local Area Network

NASDAQ : National Association of Securities Dealers Automated

Quotation System

NASSCOM : National Association of Software and Services

Companies

NEC : Nippon Electric Company

NTT : Nippon Telegraph and Telephone

OSS : Open Source Software

PC : Personal Computer

PSD : Pyramid Software Development

PSV : Paragon Solutions Vietnam

QA : Quality Assurance

SMEs : Small and Medium size Enterprises

SO : Software Outsourcing

SOEs : State Owned Enterprises

TMA : Tuong Minh & Associates

VASC : Vietnam Association of Software andCommunication

W3C : The World Wide Web Consortium

W-CDMA : Wideband Code Division Multiple Access

Wifi : Wireless Fidelity

WiMAX : Worldwide Interoperability for Microwave Access

WLAN : Wireless Local Area Network

LIST OF CHARTS AND TABLES

Table 1: Top reasons for outsourcing Table 2.1: Companies and workers in Vietnam Software Industry

I Rationale

Software outsourcing is the term given to the process ofprogramming and engineering services beyond national boundaries(eDINUS) As the global market today is highly competitive andcontinuously changing, a company must thus focus on bothproductivity and at the same time cut down costs Thus, a lot ofprocesses that take up precious resources are being outsourced Thethree most common motives in executing the software outsourcingactivities are cost reduction, competition and the utilization of third-country supplies of resources Nowadays, software outsourcing isbecoming a global trend and Vietnam also strongly engaged in thispractice Although software industry is now a young industry inVietnam, it is growing rapidly with impressive turnover andincreasing contribution to the country’s prosperity

It is the fact that India has long been taking part in theseactivities, making huge success and currently is the world leadingoutsourcing site with revenue from offshore software development

of up to US$ 50 billion – as much as the Vietnam GDP China is thefollower as an attractive hub to the globe and this industry hascontributed to Chinese state budget a significant amount of totalrevenues from software products and services Attracted by such

visible benefits, other less-developed countries like Malaysia,Philippines, Russia, etc…are attempting to become othersalternatives to India Software manufacturers worldwide are seekinginternational markets to localize their products to countries withwell developed IT support infrastructures, favorable demographicsand labor costs, competent technical education, a favorablegovernment regulatory environment supporting While the marketsare open to many participants, It raises the question that whyVietnam can not join and get one piece of this profitable cake?Vietnam is now just a 10-year-old player in the game with the brightfuture ahead to make strides in this area.

In order to fully grow up, it is important to this country to lookinto some of the key potentials and strengths to prioritize thedevelopment efforts The government and enterprises should bebetter aware of what advantageous factors they possess, theawaiting opportunities and difficulties as well Only by goodpreparation and coordination, they can best utilize the availableresources and realize the objectives of following in the footsteps ofIndia and become a prominent player in the world softwareoutsourcing

II The significance of the study

The research attempts to provide a background understanding

of the software outsourcing activities and an overall picture of the

prevailing software outsourcing market in Vietnam However, muchfocus is paid to look into the potentials factors driven the futuregrowth of the industry An in depth analysis on the business of FPTSoftware a leading company in this field will give insights into howsoftware enterprises in Vietnam work and make the activities payoff Then, the paper also figures out the opportunities, difficultiesand raises the suggestions to promote the industry development inline with the whole economy.

III Aims of the study

The study is designed with the hope to achieve the followingprimary aims:

To understand about the software outsourcing practice

To investigate the current situation of software outsourcingdevelopment and analyze some of strengths and a case study ofsoftware outsourcing company to have general picture of the wholeindustry

To give recommendations to address some of the key issuesand overcome difficulties to better grow and flourish

IV Research questions

The above aims of the study can be realized by the followingresearch questions

i) What is software outsourcing, its advantages and

disadvantages?

ii) What is current situation of software outsourcing in

Vietnam and which potentials it possesses?

iii) What is FPT Software and how FPT Software can be

successful software company?

iv) What are the possible solutions to better boost the growth

of this industry in Vietnam?

V Scope of the study

The study mainly examines the software outsourcing activities

in the world, in Asia and in Vietnam but focuses on the FPTSoftware in particular Then, suggestions will be recommended toovercome these obstacles and gain strong results

VI Methodology of the study

To achieve the set aims, I have approached to a variety ofbooks and articles regarding on software and software outsourcing.Besides, I tried my best to access FPT Software Company get theinternal documents and contact developers who are working there toobtain the basic knowledge and concept of software outsourcingprocess While searching for the materials, I mostly paid attention tothe factors that underpin the future development of softwareindustry Based on the thorough analysis, suggestions for better

stimulating the growth of the industry are also made In my study, Iused a number of business books, various reference books,newspaper, magazines and different sites of Internet as the sources.

VII Design of the study

The study consists of three main parts

The introduction represents the rationale, the significance, theaims, research questions, scopes and methodology of the study

Chapter one provides theoretical background about thesoftware industry and the software outsourcing activities, theconcept, types, advantages and disadvantages, then the softwareoutsourcing development in the world, in India and China Chaptertwo investigates the development of software outsourcing inVietnam and focuses on some of the key factors for development, aswell as the opportunities and the challenges Chapter three is aimed

to learn about the success story of software outsourcing in FPTSoftware (FSoft) Chapter four offers some possiblerecommendations to foster the growth of this industry in the nextfew years

The conclusion sums up all the issues addressed and suggestssome main points for further research

CHAPTER ONE LITERATURE REVIEW

1.1 The concept of software, outsourcing, and software

outsourcing

1.1.1 Software definition

Software constitutes (1) instructions (computer programs)

that when implemented provide a desired function andperformance, (2) data structures that enable the programs

to adequately manipulate information, and (3) documents thatdescribe the operation and use of the programs (Pressman, 1997)

Software is a logical element According to Pressman (1997)

a software product has three main characteristics Firstly, software

is developed or engineered, not manufactured Secondly, software

is not “worn out” It is not susceptible to the environmentalcondition which causes hardware to be worn out, but it maydeteriorate Finally, most software is custom – built, rather thanbeing assembled from existing components

Software Process: According to the Institute of Electrical and

Electronics Engineers, software engineering is (1) the application of

a systematic, disciplined, quantifiable approach to thedevelopment, operation, and maintenance of software; that is,

the application of engineering to software, and (2) the study ofapproaches to application (IEEE, 1993) A software processdetermines activities and organizational procedures to enhancecollaboration in the development team so that a quality product isdelivered to the customers (Leszek, 2001).

1.1.2 Outsourcing concept

Outsourcing is an information technology term represents the

process in which one company deliver services to another companythat one part of the jobs will be made in house or offsite Since itsdevelopment, Outsourcing is becoming a popular trend not only ininformation technology but other industries for services that areseen as essential to run and manage a business In other words,outsourcing is an arrangement in which one company purchasesservices from another while still keeping ownership and ultimateresponsibility for the underlying processes The clients inform theirproviders what they want and how they want the work performed

So the client can delegate the provider to operate as well as redesignbasic processes in order to ensure the least expense involved andefficiency benefits

Software outsourcing is the term given to the business of

outsourcing software programming and engineering services tocontractors or wholly-owned facilities located in foreign countrieswith lower labor costs

Offshoring versus outsourcing: A lot misunderstandings

happen between two terms ‘offshoring’ and ‘outsourcing’ Theformer refers to taking advantage of lower-cost labor in anothercountry and can be handed off to third-party vendors or remain in-house while the latter targeted one or all processes to only the third-party vendors The misconception is that offshoring involvesoutsourcing In fact, outsourcing includes organizations thatestablish dedicated captive centers of their own in remote, lower-cost locations

Software outsourcing is a specialized task providing a

creative series of solutions from concept to implementation.Software outsourcing helps accelerate business performance, savetime and money, however, this activity requires huge investmentsand a technique intensive workforce Software outsourcing industrycould also give the companies a chance to develop software at alower rate, employ specialized labor at a cheaper cost, promotesoftware research and save time This is the reason why mostcompanies decide to outsource their software development activities

to offshore destinations A software company can save about 40%

of expenses by outsourcing an application development projectoverseas The outsourcing activities comprise the installation of adynamic database-driven website or a fully functioning e-commerce

website by using creative talent and technical expertise to satisfy

another company's web development needs Undoubtedly, softwareoutsourcing industry is the most effective way to stretch yourbudget More and more organizations nowadays enter into big

software outsourcing contracts to reduce their costs Participating in software outsourcing practice, companies should focus on the most

important and key activities locally and less strategic activitiesshould be passed to the externally foreign service providers

1.1.3 History of software outsourcing

Software outsourcing owed its origin to the industrial boomthat began in the late 17th century Manufacturers at that time hadsoon realized the benefits of processing some parts of theproduction stages to the third external parties A point in this case,the America passed the job of making covered wagon and clipperships' sails to workers in Scotland; England's textile industryflourished in the 1830s as that work was outsourced to Indianmanufacturers Some big empires such as the ancient Chinese andthe Japanese used to outsource their material extraction jobs to theirconquered nations In recent days, many computer companies in theUSA used to outsource their payroll processing Even thoughoutsourcing existed since the very early days, but the concept ofoutsourcing is often blurred Because it happened on a small scaleand was concentrated in some specific regions, such as the USA andEurope In 1980s, the U.S and Japanese software outsourcing

markets are very bustling, but in 1990s software outsourcing inIndia, China and Eastern Europe rose sharply Now, softwareoutsourcing in Southeast Asia is booming with India leading role.With $400 billion revenue per year, outsourcing now is an industrythat the world can hardly ignore Globalization, explosive growth ofInternet, and the development of information society in every region

of the world has made outsourcing an integral part of the worldeconomy

1.1.4 Types

With regard to function, software can be classified asapplication software or system software Because there are somany different uses for computers, there are correspondingly a largenumber of different application programs Some of which are ofspecial functions or packages tailored for a specific purpose (e.g.,inventory control or payroll)

Others are general-purpose application programs that are not linked

to any specific business task, but support instead general types ofinformation processing Some of the most widely used general-purpose application packages are spreadsheet, management,word processing, desk publishing, and graphics, multimedia

According to Krishnan (1998) the software industry can bebroadly classified as custom software, software service andpackaged software Custom software includes internal system

development within an organization Software serviceincludes the systems integration and systems consultingservices provided by a wide range of organizations, from anindependent programming consultant to large consultingorganizations The packaged software domain includes all softwaresold as merchantable products.

In terms of the software outsourcing activities, we have other

kinds of classification such as business process outsourcing (BPO) and knowledge process outsourcing (KPO) BPO is a process in

which a company passes some of its in-house operations/processes

to a third party The main implementations include (1) back officeoutsourcing, which includes internal business functions such as ITdepartments that keep the phones and computers running,accounting works, and human resources; and (2) front officeoutsourcing, which includes customer-related services such asmarketing or technical support In which, accounting works and

financial chain outsourcing take bigger part of the pie BPO helps

free up a company’s capital and reduce costs The outsourcedoperations or processes vary from manufacturing to customerservice to software development Multinationals, or companies fromwestern countries often use BPO

KPO, on the other hand, involves outsourcing for high-endknowledge work This includes research and work on intellectual

property, equity and finance, analytics, market research and datamanagement, etc It is estimated that, within the next 10 years,Knowledge Process Outsourcing will be the big trend in the

outsourcing marketplace KPO deals with executing standardized

processes, involves higher-end services which require advancedanalytical and technical skills KPO is often used in such followingareas: pharmaceuticals, biotechnology, data search, integration andmanagement services, financial services, research and analytics,technology research, computer-aided simulation and engineeringdesign and professional services, such as business research and legalservices

KPO versus BPO: KPO is driven by the depth of knowledge,

experience and judgments while BPO in contrast is more about size,volume and efficiency

1.1.5 Advantages of software outsourcing

Table 1: Top reasons for outsourcing

Source: 2001 Outsourcing World Summit

Focus on core business activities: From the pie chart above, it

shows that the most notable benefit of software outsourcing is theconcentration on the main businesses, accounting for 36% Atpresent, some companies choose to outsource the less important andsecondary activities to the third party while still deal with the corebusiness activities in-house For example, back office operations areintrinsic to a company’s daily operation and require highmaintenance and specialized attention By outsourcing their backoffice operations businesses can concentrate on their corecompetencies while their back office operations are being managedsmoothly by a specialized third party company

Cost reduction and productivity increase: Of the same

percentage, cost reduction is the traditional reason for offshoredevelopment Low-level tasks such as coding and software testingcan be performed in less-developed countries at costs as low as tenpercent of domestic ones Software outsourcing enables a company

to get access to skilled and well-trained work force at extremely lowcost, thus the operational cost is minimized In fact most companiescan cut their operating costs to half by outsourcing Such aninexpensive and efficient labor can help save up labor training cost.This in turn leads to an increase in productivity, create customersatisfaction as well as cost savings By outsourcing a company

saves on recruitment, training and other human resource costs itwould otherwise have to maintain internally.

Fostering innovation technology: For companies that depend a

lot on technology for the production, investing in new technology isvery costly and often risky As the technology development changesday by day, it is difficult to keep up with latest innovations andsolutions Thus just outsourcing to companies that have theresources, expertise and desire, the providers have chances tocontinuously update their technological solutions

Beat Competition: In a fast growing global economy,

high-quality services as well as cheap prices are of the determiningfactors to retain customers and keep them loyal to your products.Outsourcing in this case can provide the company with betterservice solutions, thereby giving them a better market position oreven a competitive advantage

1.1.6 Disadvantages and concerns

Socio-economic concerns: The country with political turmoil,

unstable economy, poor infrastructure, and data insecurity is suchgreat risks to the outsourcing process These related concerns need

to be weighed out when you are deciding to outsource to a party company during the vendor selection stage

third-Infrastructure and operational concerns: Things should be

taken into consideration including the likelihood of whether the

country you are going to outsource can provide sufficient andadequate communication infrastructure, developed disaster recoverycapacity, power generation capacity, and non renewable resourcesavailability Thus before choosing an offshore location, it is vital for

a company to make sure that all the above factors may have theleast negative effects on your operations

Project related concerns: Project related issues depend wholly

on the provider, the project to be undertaken, the process of theproject and the relationship with the provider These aspects includepotential risks such as expertise and manpower of provider,reliability and ability to execute the required tasks as agreed and forexample whether the provider can fulfill the outsourcing demand up

to the company’s expectations

1.2 Software Outsourcing Industry in the world, India and

China

1.2.1 In the world

Undoubtedly, software outsourcing industry is experiencing arapid growth globally In order to survive in today’s competitiveworld, companies need the best combination of cost effectivedevelopment and best quality services Software outsourcingprocess is proving to be the best solution for sustaining oneselftoday More and more IT companies now are shifting towardoverseas services providers but they are facing tough competition in

the market As software outsourcing services help the companies tapinto the global market for best possible combination of resourcesthat can be utilized and also help these companies better grow up,the global demand of the software outsourcing services anddevelopment process is also increasing at high speed Many ITcompanies have also undertaken this process as their core businessstrategy Being pioneers in the software outsourcing industry,Australia and Unites States have long been making the fortune ofthis practice by gaining more than 50% to 70% profit from overseas

IT services to India Countries like India, China, Russia, thePhilippines and many other developing nations get involved in thishigh demand service But among this list India is leader for ITservices, while China is on the second place Countries such asRussia, the Philippines and others are relatively growing and newplayers for such software overseas services India has numerousfactors that make it the ‘spot of attraction’ globally for almost all thetypes of IT services Among which, call-center, BPO (BusinessProcess Outsourcing) and KPO (Knowledge Process Outsourcing)are often highly demanded services

1.2.2 In India and China

At present, India & China are the two major softwareconstructions that offering the best quality and cost-effective ITservices to the world The two countries are also the close

competitors and playing almost equal role for offering the overseasdevelopments services in software industry However, each of themhas distinct specialties in particular field, such as India takes thelead in software industry while China holds the first position foroffering hardware services But together both of these countrieshave dominated the whole overseas IT Industry business market andaccounts for the majority of the market share in their specializedindustry

In the map of the Asian software outsourcing, India is a bigmark and possesses the biggest market share for softwareoutsourcing services Some of the key features for the success ofIndia for software outsourcing development are lower-labor cost,high quality development services, best infrastructure andtelecommunication facility in the country, highly qualified andfluent English speaking IT professionals and so on With aremarkable investment in software and back-office operationsaround the US$ 7-7.3 billion by the year ending in March 2007 andthe current investment figure of the local market is around US$ 6

billion (NASSCOM), India is putting a high expectation in this

lucrative industry The annual growth of the domestic softwaremarket is occupied up to 20-25 per cent in the coming years Sectorssuch as banking, finance, retail, healthcare and many others are nowbecoming more and more advanced with the technology growth,

which creates chances for software outsourcing companies to servethe country Currently, IT Companies and IT Industry of India aregetting around 80 percent of the revenue from United States andWestern Companies, but now the competition in the market isbecoming much fiercer, as most of the major software development

companies such as IBM and others are expanding their business

possibilities in other alternative sites outside India

As mentioned above, China made its success worldwide muchmore in the hardware rather than software industry China is known

as an enormous market for any industries not alone the softwareindustry Being the most populous country in the world, China istaking the full advantage of this vast labor pool to produce cheapproducts and services The overall growth of Chinese software andsystem integration stood at more than 30% in 2006 The totalamount of China software outsourcing now is up to US$ 4.696billion and China is emerging as the most competitive rival againstIndia Apart from the low labor cost, another driving cost to Chinesesoftware outsourcing industry is the transparency in regulations andprocedures, the huge investment in education for IT workers, theirimprovement in the protection of IPR as well as good ITinfrastructure and software development platforms However, Chinasoftware industry is desperately seeking for independent coretechnologies as well as distinctive products In the meantime, China

is known to many investors by a substantial number of high-endsystem software, general software In the next few years, Chinasoftware outsourcing industry aims to obtain the annual growth ofabout 50%, being far higher than that of the international market.The political stability and economic prosperity of China attractoverseas clients to search for more software developmentopportunities in China as China is gaining the competitiveadvantage as the labor cost here is much lower by 20%-40% thanthat in its direct competitor – India.

India is regarded as the best destination for softwareoutsourcing development while Chinese competence in the field ofhardware is demanded the most globally The combination of Indiansoftware outsourcing experience and Chinese hardware expertise isconsidered to bring evolutionary changes globally in the field ofsoftware outsourcing

CHAPTER TWO SOFTWARE OUTSOURCING INDUSTRY IN VIETNAM

2.1 Overview

2.1.1 The introduction of Software outsourcing to Vietnam

Over a decade, software outsourcing emerges as a fresh buteye-catching industry in Vietnam economic ground and it hasrecently enjoyed a surge in interest and development, receivingmuch attention and support of the country's government It can not

be denied that Doi Moi process has brought about significantchanges in policies and regulations that boost Vietnam economy

to grow very quickly Market economy transformation hasmade Vietnam a country of high economic growth rate, stablemacroeconomic environment and integration into the worldeconomy Along with country’s economic development, ITsector is growing and influencing other sectors of theeconomy while software outsourcing is the most profitableand dynamic segment In recognition of the importance andbenefits that this fresh industry contributes to the country, Vietnamgovernment has put emphasis on this industry as the leading sector

to help Vietnam turn into knowledge – based economy

In the 90s, software outsourcing in Vietnam was a newconcept when the underdeveloped economy was still facing withmounting difficulties, but now this industry is blooming due torelatively strong demand for IT and software products and services.Since then, the industry has continuously growing with sharprise in the number of established software companies and theincreasing application of software products in state and privateowned enterprises in Vietnam According to the latest statisticsfrom Agency for SMEs Development, currently about 300.000small & medium enterprises, 6000 SOEs, nearly 260,000 limitedcompanies apply and install the software programs accounting for86,5 % However the level and extent of application vary fromenterprises to enterprises A among which the number of companiesused the ERP service is just around 7% and 1, 1 % for enterprises inHanoi Vietnam is a viable market but the development of softwareindustry remains at the initial stage Besides, the country’ssuccessful accession to WTO has paved the way to an increase inFDI capital, bringing about a prosperous economy.

2.1.2 Key players

Table 2.1: Companies and workers in Vietnam Software Industry

(2006-2007)

Source: IT Industry Department, Ministry of Posts and Telematics

of Vietnam

From the above chart, there were nearly 400 softwarecompanies with 12,000 software programmers in 2003 This alsoreflects a steady rise in the number of both companies and softwaredevelopers year by year with an equal increase of 100 companieswith 2000 employees But in the early 2007, the number has sharplyincreased by 750 software firms employing around 35,000 workers.However, most software companies in Vietnam are of small scalewith less than 25 developers These enterprises are made up ofstated owned enterprises such as FPT Corporation, AIC, CDIT,VASC, foreign invested enterprises such as PSV, GCS, Silkroad,GlassEgg, PSD, Silverlake, Digitexx, NEC Soft, Fujitsu Soft,SangTao GSE and private enterprises such as CMC, Harmony,Vietsoft, Elcom, Quantic, Lacviet, Dolsoft, Diginet, TMA…

According to Ministry of Posts and Telematics of Vietnamcriteria for classifying by size, the small local business has from 10– 20 employees accounting for over 70 percent, the medium sizebusiness has about 50 – 150 employees with nearly 20 percent, and

a large company is with more than 100 employees accounting for

less than 10 percent There are only some companies with morethan 200 employees such as FPT, a Vietnam’s largest softwareproducer, has 800 programmers, or Tuong Minh & Associates(TMA) – a largest outsourcing company – has about 600engineers The productivity of programmers in 2003 reached thelevel of US$ 10,000 per man – year (HCA, 2004).

Table 2.2: Structure of the number of companies specified by the

2000 and March 2001, respectively in Hochiminh City,Danang Software Park in Danang worth US$ 1.7 million,established in 2000, Cantho Software Park in 2002 In addition, theVirtual Software Village project valued at US$ 7 million is nowbeing implemented to attract software customers and supportdomestic companies in marketing their software.

2.1.3 Principal services

Vietnam software firms supply both domestic and foreignmarkets by offering a wide range of services for nearly everyeconomic sector from bank network, tax authorities, customsoffices, enterprises to government such as: software for enterprisemanagement, which includes ERP solutions, accounting, financeand banking, human resource and wages, customer relationsmanagement…, software for state administration, which coversstate budget management system information exchange systemamong agencies of taxation- state treasury- finance, monitoring,system to receive tax documents, spending unit code provisionsystem, e-payment for the state treasury tax declaration supportsystem…software solutions for website and e-commerceapplication, for architecture and construction, healthcare andeducation In addition, they also provide the managed services such

as IT infrastructure, network, server, database, technology supportand custom application management Moreover, Vietnam is a big

vendor for foreign IT companies in terms of processing some stages

of the whole projects such as the video game development, webprogramming and content development, 3D Animation…

2.1.4 Markets for Vietnam software outsourcing industry

For the local market, we are aiming to reach a vast number ofSOEs and SMEs, multi-national companies, government agencies,ministries and international and non-profit organizations operating

in Vietnam who has demand for the enterprise software solution toincrease the productivity For instance, in the banking and financearea, a list of state owned, joint-stock, commercial banks andsecurities centers installed the Smartbank and capital managementsubsystem solution such as Vietnam Development Bank, The StateBank of Vietnam, Bank for Foreign Trade of Vietnam(Vietcombank), Hanoi Securities Trading Center, HCM SecuritiesTrading Center, Bao Viet Securities Company, Saigon SecuritiesInc Other customers including Vietnam airlines, Electricity ofVietnam, Petro Vietnam…etc, government offices, ministries,people’s committee and people’s council in provinces andinternational organizations such as World Bank, United NationsDevelopment Program, World Health Organization (WHO), UnitedNations Children’s Fund (UNICEF) which are using at least onesuitable software solution to work properly and run smoothly Andthis increasing number of these enterprises and institutions is a goodsignal to the software industry development

For the external markets, the U.S and Japan remain Vietnam’skey outsourcing markets Recently dozens of Japanese companiesincluding Unico Vietnam, Ichi Corporation, Individual Systems,Aplis and Fusione have moved into Vietnam, with a view toexpanding their software outsourcing in the future According tostatistics of the IT Industry Department, the US is a big softwareexporter but its import of software accounts for 30% of the totalspending for software of the world and its payment for outsourcing

is approximately US$ 20 billion Meanwhile, Japan accounts for20% and 17 western European countries account for 23% of thespending on software of the world and the trend of moving softwareoutsourcing to developing countries like India, China and EasternEurope, and more recently, to Association of Southeast AsianNations (ASEAN) countries

software outsourcing for export have had the growth rate of50% In 2005, this number reached US$ 70 million (HCA, 2006).

Average annual productivity varies from US$ 7,500 to 10,000per software labor in domestic software enterprises Productivity ishigher in enterprises that provide outsourcing for foreigncompanies, estimated at US$ 11,000 to 15,000 Among Vietnam’ssoftware companies, there are about 15 companies that have wonthe quality certificate ISO-9000, and there is only one that has wonthe highest quality rating of Capability Maturity Model (CMM) –Level 51 Two others have won CMM-4, and around 20 softwarecompanies are now striving to apply for CMM-3 or CMM-4 TheMinistry of Post & Telematics, together with the Vietnam SoftwareAssociation (VINASA), has taken steps to increase qualitystandards for the industry

Vietnam is rapidly emerging as one of the top choices forJapanese IT businesses in software outsourcing, after India andChina The Corporation for Financing and PromotingTechnology (FPT) was top of the list for software exports in

2004 of US$ 3.05 million (HCA, 2004) However, export revenue

is mainly from outsourcing and sub-contracting activities whilerevenues from software package are limited With such impressiveturnover, Vietnam ranked the 20th of high potential software andservice outsourcing countries in the world because of manyadvantages, and could become a major software outsourcing

destination in the world with annual average growth of around 40%

in the past years In terms of the Knowledge Index and theKnowledge Economic Index Vietnam ranks 95th and 99th out of

132 surveyed countries around the world), 14 places higher than theprevious year (Vietnam's IT industry in 2007 – HCA)

Table 2.3: Kearney ranking for offsite service locations

Source: A.T Kearney Global Service

These impressive results indicate the rapid development of thecountry's software outsourcing industry over the past years Thesoftware outsourcing market expanded by 22.6 percent in 2006,surpassing the US$ 1 billion benchmark, of which, software andservices increased by 43.9 percent One of the notable things is thatInternet use is highly increasing in Vietnam with a growth rate of 25percent This places the country 17th in terms of global Internet

usage The number of Internet users in Vietnam accounted for 20percent of the country's population of more than 80 million.

The industry strives to maintain a growth rate of 35-40% peryear from now to 2010, with revenue ranging from US$ 800 million

to US$ 1 billion, making Vietnam one of the top 15 softwareoutsourcing and exporting nations The software outsourcingindustry represents one of Vietnam’s greatest growing potentialsectors A recent market study by a major private-sector researchorganization suggested that during the period from 2004-2008,Vietnam’s spending on this sector ranks among the top ten in theworld

2.1.6 Main objectives

In the period 2005-2010, Vietnam software industry willoccupy the domestic market, and will be recognized by globalmarket, especially in terms of software outsourcing Much attentionwill be paid to train a large number of highly skilled softwaredevelopers and professionals to embrace more big projects ITtraining systems need to reach the international level both inprofessional skills and communication and language skills A largesoftware outsourcing labor force will be exported to foreign markets(Japan and Korea) Violations of Intellectual Property Rights insoftware will be reduced to fewer than 70% The annual growth rate