SOFTWARE OUTSOURCING INDUSTRY IN VIET NAM

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


ABSTRACTS

Information technology (IT) is seen by the Vietnam
Government as one of the most significant driving forces for the
economic development and social advancement. It steps up the
reform process, intensifies the industrialization and modernization
of economic sectors, and strengthens the competitiveness of
businesses. The development of IT industry, especially the software
industry has become a key industry in many developing countries
because 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 profitable
and fast-growing industry.
This paper studies the current situation of software
outsourcing development, some of the favorable factors that boost

this industry as well as the analysis of the software outsourcing
activities in FPT Software. Once we have figured out the potentials,
we can work out some solutions to first maintain and make use of
these factors and then to promote the Vietnam software status in the
international arena.


LIST OF ABBREVIATIONS
AIC

: Advancing Technologies & Investment Consultants

Corporation
APEC
BPO

: Asia-Pacific Economic Cooperation
: Business Process Outsourcing

CDIT

: C-DIT-Center for Development of Imaging

Technology
CDMA

: Code Division Multiple Access

CEIC
: Computer and Enterprise Investigations

Conference
CMC

: Computer Manufacturing Corporation,

CMG

: Computer Measurement Group

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
HSBC

: Hochiminh Computer Association
: 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
Companies

: National Association of Software and Services

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
TMA

: State Owned Enterprises
: Tuong Minh & Associates

VASC

:

Vietnam

Association

of

Software

Communication
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

and


LIST OF CHARTS AND TABLES

Table 1: Top reasons for outsourcing....................................................
Table 2.1: Companies and workers in Vietnam Software Industry
(2006 -2007)..........................................................................................16
Table 2.2: Structure of the number of companies specified by the
number of employees............................................................................17
Table 2.3: Kearney ranking for offsite service locations....................20
Table 3: Revenue and staff growth from 2000 – 2008.......................44



INTRODUCTION

I. Rationale

Software outsourcing is the term given to the process of
programming and engineering services beyond national boundaries
(eDINUS). As the global market today is highly competitive and
continuously changing, a company must thus focus on both
productivity and at the same time cut down costs. Thus, a lot of
processes that take up precious resources are being outsourced. The
three most common motives in executing the software outsourcing
activities are cost reduction, competition and the utilization of thirdcountry supplies of resources. Nowadays, software outsourcing is
becoming a global trend and Vietnam also strongly engaged in this
practice. Although software industry is now a young industry in
Vietnam, it is growing rapidly with impressive turnover and
increasing contribution to the country’s prosperity.
It is the fact that India has long been taking part in these
activities, making huge success and currently is the world leading
outsourcing site with revenue from offshore software development
of up to US$ 50 billion – as much as the Vietnam GDP. China is the
follower as an attractive hub to the globe and this industry has
contributed to Chinese state budget a significant amount of total
revenues from software products and services. Attracted by such


visible benefits, other less-developed countries like Malaysia,
Philippines, Russia, etc…are attempting to become others
alternatives to India. Software manufacturers worldwide are seeking
international markets to localize their products to countries with
well developed IT support infrastructures, favorable demographics
and labor costs, competent technical education, a favorable
government regulatory environment supporting. While the markets
are open to many participants, It raises the question that why
Vietnam 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 bright
future ahead to make strides in this area.
In order to fully grow up, it is important to this country to look
into some of the key potentials and strengths to prioritize the
development efforts. The government and enterprises should be
better aware of what advantageous factors they possess, the
awaiting opportunities and difficulties as well. Only by good
preparation and coordination, they can best utilize the available
resources and realize the objectives of following in the footsteps of
India and become a prominent player in the world software
outsourcing.
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, much
focus is paid to look into the potentials factors driven the future
growth of the industry. An in depth analysis on the business of FPT
Software a leading company in this field will give insights into how
software enterprises in Vietnam work and make the activities pay
off. Then, the paper also figures out the opportunities, difficulties
and raises the suggestions to promote the industry development in
line with the whole economy.
III. Aims of the study
The study is designed with the hope to achieve the following
primary aims:
To understand about the software outsourcing practice.
To investigate the current situation of software outsourcing
development and analyze some of strengths and a case study of

software outsourcing company to have general picture of the whole
industry.
To give recommendations to address some of the key issues
and overcome difficulties to better grow and flourish.
IV. Research questions
The above aims of the study can be realized by the following
research 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 FPT
Software in particular. Then, suggestions will be recommended to
overcome these obstacles and gain strong results.
VI. Methodology of the study
To achieve the set aims, I have approached to a variety of
books and articles regarding on software and software outsourcing.
Besides, I tried my best to access FPT Software Company get the
internal documents and contact developers who are working there to
obtain the basic knowledge and concept of software outsourcing
process. While searching for the materials, I mostly paid attention to
the factors that underpin the future development of software
industry. Based on the thorough analysis, suggestions for better


stimulating the growth of the industry are also made. In my study, I
used 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, the
aims, research questions, scopes and methodology of the study.
Chapter one provides theoretical background about the
software industry and the software outsourcing activities, the
concept, types, advantages and disadvantages, then the software
outsourcing development in the world, in India and China. Chapter
two investigates the development of software outsourcing in
Vietnam and focuses on some of the key factors for development, as
well as the opportunities and the challenges. Chapter three is aimed

to learn about the success story of software outsourcing in FPT
Software

(FSoft).

Chapter

four

offers

some

possible

recommendations to foster the growth of this industry in the next
few years.
The conclusion sums up all the issues addressed and suggests
some 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

and

performance, (2) data structures that enable the programs
to adequately manipulate information, and (3) documents that
describe 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 environmental
condition which causes hardware to be worn out, but it may
deteriorate. Finally, most software is custom – built, rather than
being 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

the

development, operation, and maintenance of software; that is,


the application of engineering to software, and (2) the study of
approaches to application (IEEE, 1993). A software process
determines activities and organizational procedures to enhance
collaboration in the development team so that a quality product is
delivered 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 company
that one part of the jobs will be made in house or offsite. Since its
development, Outsourcing is becoming a popular trend not only in
information technology but other industries for services that are
seen as essential to run and manage a business. In other words,
outsourcing is an arrangement in which one company purchases
services from another while still keeping ownership and ultimate
responsibility for the underlying processes. The clients inform their
providers what they want and how they want the work performed.
So the client can delegate the provider to operate as well as redesign
basic processes in order to ensure the least expense involved and
efficiency benefits.
Software outsourcing is the term given to the business of
outsourcing software programming and engineering services to
contractors or wholly-owned facilities located in foreign countries
with lower labor costs.


Offshoring versus outsourcing: A lot misunderstandings

happen between two terms ‘offshoring’ and ‘outsourcing’. The
former refers to taking advantage of lower-cost labor in another
country and can be handed off to third-party vendors or remain inhouse while the latter targeted one or all processes to only the thirdparty vendors. The misconception is that offshoring involves
outsourcing. In fact, outsourcing includes organizations that
establish dedicated captive centers of their own in remote, lowercost locations.
Software outsourcing is a specialized task providing a
creative series of solutions from concept to implementation.
Software outsourcing helps accelerate business performance, save
time and money, however, this activity requires huge investments
and a technique intensive workforce. Software outsourcing industry
could also give the companies a chance to develop software at a
lower rate, employ specialized labor at a cheaper cost, promote
software research and save time. This is the reason why most
companies decide to outsource their software development activities
to offshore destinations. A software company can save about 40%
of expenses by outsourcing an application development project
overseas. The outsourcing activities comprise the installation of a
dynamic 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, software
outsourcing industry is the most effective way to stretch your
budget. 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 activities
should be passed to the externally foreign service providers.
1.1.3 History of software outsourcing
Software outsourcing owed its origin to the industrial boom

that began in the late 17th century. Manufacturers at that time had
soon realized the benefits of processing some parts of the
production stages to the third external parties. A point in this case,
the America passed the job of making covered wagon and clipper
ships' sails to workers in Scotland; England's textile industry
flourished in the 1830s as that work was outsourced to Indian
manufacturers. Some big empires such as the ancient Chinese and
the Japanese used to outsource their material extraction jobs to their
conquered nations. In recent days, many computer companies in the
USA used to outsource their payroll processing. Even though
outsourcing existed since the very early days, but the concept of
outsourcing is often blurred. Because it happened on a small scale
and was concentrated in some specific regions, such as the USA and
Europe. In 1980s, the U.S. and Japanese software outsourcing


markets are very bustling, but in 1990s software outsourcing in
India, China and Eastern Europe rose sharply. Now, software
outsourcing in Southeast Asia is booming with India leading role.
With $400 billion revenue per year, outsourcing now is an industry
that the world can hardly ignore. Globalization, explosive growth of
Internet, and the development of information society in every region
of the world has made outsourcing an integral part of the world
economy.
1.1.4 Types
With regard to function, software can be classified as
application software or system software. Because there are so
many different uses for computers, there are correspondingly a large
number of different application programs. Some of which are of
special 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 of
information processing. Some of the most widely used generalpurpose

application

packages

are

spreadsheet, management,

word processing, desk publishing, and graphics, multimedia.
According to Krishnan (1998) the software industry can be
broadly classified as custom software, software service and
packaged software. Custom software includes internal system


development
includes

the

within

an

organization.

systems integration

and

Software
systems

service
consulting

services provided by a wide range of organizations, from an
independent

programming

consultant

to

large

consulting

organizations. The packaged software domain includes all software
sold 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 office

outsourcing, which includes internal business functions such as IT
departments that keep the phones and computers running,
accounting works, and human resources; and (2) front office
outsourcing, which includes customer-related services such as
marketing 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 outsourced
operations or processes vary from manufacturing to customer
service to software development. Multinationals, or companies from
western countries often use BPO.
KPO, on the other hand, involves outsourcing for high-end
knowledge work. This includes research and work on intellectual


property, equity and finance, analytics, market research and data
management, 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 advanced
analytical and technical skills. KPO is often used in such following
areas: pharmaceuticals, biotechnology, data search, integration and
management services, financial services, research and analytics,
technology research, computer-aided simulation and engineering
design and professional services, such as business research and legal
services.
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 the
concentration on the main businesses, accounting for 36%. At
present, some companies choose to outsource the less important and
secondary activities to the third party while still deal with the core
business activities in-house. For example, back office operations are
intrinsic to a company’s daily operation and require high
maintenance and specialized attention. By outsourcing their back
office operations businesses can concentrate on their core
competencies while their back office operations are being managed
smoothly by a specialized third party company.
Cost reduction and productivity increase: Of the same
percentage, cost reduction is the traditional reason for offshore
development. Low-level tasks such as coding and software testing
can be performed in less-developed countries at costs as low as ten
percent of domestic ones. Software outsourcing enables a company
to get access to skilled and well-trained work force at extremely low
cost, thus the operational cost is minimized. In fact most companies
can cut their operating costs to half by outsourcing. Such an
inexpensive and efficient labor can help save up labor training cost.
This in turn leads to an increase in productivity, create customer
satisfaction as well as cost savings. By outsourcing a company


saves on recruitment, training and other human resource costs it
would otherwise have to maintain internally.
Fostering innovation technology: For companies that depend a

lot on technology for the production, investing in new technology is
very costly and often risky. As the technology development changes
day by day, it is difficult to keep up with latest innovations and
solutions. Thus just outsourcing to companies that have the
resources, expertise and desire, the providers have chances to
continuously update their technological solutions.
Beat Competition: In a fast growing global economy, highquality services as well as cheap prices are of the determining
factors to retain customers and keep them loyal to your products.
Outsourcing in this case can provide the company with better
service solutions, thereby giving them a better market position or
even 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 such
great risks to the outsourcing process. These related concerns need
to be weighed out when you are deciding to outsource to a thirdparty company during the vendor selection stage.
Infrastructure and operational concerns: Things should be
taken into consideration including the likelihood of whether the