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Software Outsourcing Industry in Vietnam After Covid-19

Fortunately, the overall impact of the epidemic on the software outsourcing industry has been less lethal than in many other sectors.

To understand what happened specifically in Vietnam, it is important to first understand the dual nature of the software outsourcing industry in the country.

Until recently, the majority of the industry consisted of large, traditional IT services companies working almost exclusively with an old-tech stack for large conglomerates in Japan and Korea. In practice, many of those companies became co-owned by the Japanese or Korean and fulfilled the role of their back office.

In recent years, we have seen a surge of modern, nimble software houses with a more entrepreneurial outlook, using the same tech stack and agile methodology as their Western peers. Those tend to service more international clients in Australia, Singapore, Europe or the USA.

Covid-19 has impacted those 2 groups in a very different way.

 

Traditional IT companies focused on Japan and Korea

Companies reliant on the Japanese market have been severely hit.

Traditional Japanese work culture makes working from home and managing projects remotely very challenging. As a result, the execution of existing projects slowed down, and most Japanese companies stopped pursuing new opportunities and haven’t embarked on any new projects.

That was exacerbated by the fact that Vietnamese companies servicing the Japanese market tend to have large teams with a significant managerial layer and a very high-cost base. In the aftermath of Covid, most of them announced cost-cutting, layoffs, and hiring freeze.

 

Entrepreneurial software houses

Here the story has been dramatically different, and Covid-19 had a fairly positive impact on those businesses. Here is why:

 

Remote work became a norm

Clients that were previously wary of remote teams and avoided outsourcing/offshoring due to the perceived increased communication costs and managerial effort between remote teams, had to adapt to working from home. Managing team members remotely became the norm. As such, many clients feel there is no difference whether the tech team is offshore or onshore, and are open to initiatives that bring the costs lower.

 

Lower costs and flexibility became more important

Even companies with generous software development budgets started to pay more attention to costs and made an effort to extend their runways. Vietnam has been a big beneficiary of the new ‘cost-conscious’ mindset. In addition, during this precarious economic situation, more companies prefer the flexibility that comes with the ‘augmented teams’ model to full-time hires.

 

Nimble and flat organizational structure

Smaller software houses kept their teams nimble and flat. They never had time or money to develop fat managerial layer or overly bureaucratic management processes. As a result, they found it easy to shift to ‘work from home’ and didn’t have to fire anyone, quite the opposite.

 

Availability of talent

Many of those companies saw an opportunity in huge layoffs programs pursued by their larger, more traditional counterparts. Covid-19 stopped the salary inflation in the sector and created a great opportunity to hire talent that otherwise wasn’t willing to change employers.

 

 

The future is bright

Overall, the outlook for more modern, entrepreneurial software houses in Vietnam is bright. We should hopefully see the gradual talent transition from old school IT service companies towards more entrepreneurial, ambitious software houses, which in turn will help to solidify Vietnam position as a local innovative tech hub and not just a cheap back office to Japanese conglomerates.

Please get in touch if you would like to find out more about the Vietnamese software development industry, remote teams and Railay.