As businesses are struggling to scale up their tech operation due to its cost and limited tech talent in the market, many are building their own offshore software company in Vietnam.
But what exactly is offshoring software development? And why Vietnam as the offshore destination? To find out the answers, we will have to examine them step by step.
What is Offshoring Software Development?
It is commonly to be confused about the term due to its complex nature, where scaling strategies share some similarities and tend to overlap each other. Fortunately, we can easily identify the differences between them based on the method of scaling and its geographic destination:
Method of Scaling
Insourcing is the process of completing specific tasks within the organization, as compared to Outsourcing, which is the process of hiring a company or individuals outside the organization to complete the same tasks.
Onshore refers to a company operating within their home country, whereas Offshore refers to a company’s operations outside their home country. This is more of a geographical differentiation.
In short, outsourcing software development means hiring a third-party IT service provider to help you kickstart or complete the project. On the other hand, when people refer to offshoring software development, it means building your own tech team in a different country.
Why Offshoring Software Development
The main reason for its popularity is the financial advantage. By having offshoring tech teams in a low-cost country, business can minimize staff expenses as well as operation cost. For example, a tech team of 3 members can cost US$117,516 Yearly in Singapore but will only cost US$83,940 Yearly in Vietnam. That is 40% cheaper! And since 2020, the cost reduction has become much more valuable as companies have to cut down their budgets due to the Covid-19 pandemic.
Wide Tech Talent Pool
Coupled with the fact that we are living in the age of innovation where tech startups are emerging at unprecedented speeds, competition for tech talent is harsher than ever due to the skewed demand but low supply in Singapore.
In fact, the average length of the interview process is around 25.4 days in Singapore, with IT roles often taking double that amount of time, due to additional complexities and the competitive labor market. To survive, many startups are offshoring their tech development to other countries as a solution for quality talent and faster recruitment time.
Why Offshore Software Company In Vietnam
Long gone the time when India and China are considered as cheap and quality offshore destinations. Instead, tech hubs across Southeast Asia have become the better alternative for startups and SMEs based in Singapore, with Vietnam as one of the best for offshoring development team.
The country is well known for their affordable but skilled tech talent and low operation cost. According to our research, Vietnam is actually the cheapest option when it comes to tech human resources compared to Thailand and Malaysia.
But what makes Vietnam become the spotlight is its successful campaign against Covid-19, resulting in a strong economic recovery and stable political environment. This explains why many businesses consider Vietnam as a well-rounded country in terms of talent availability, financial stability, and general business environment.
What Is The Best Offshore Team Structure
It is crucial to understand the team structure and size that you are aiming for. The common logic is the smaller the team, the cheaper and easier to manage. On the other hand, the bigger teams are superior when it comes to big-scale projects, but also much more expensive and complex.
|Team Size||First Hire||Remarks|
|1~3 pax||Any||No structure, basically hire what you need.|
It is hard to keep a small team in the long term, though, as all employees want growth opportunities and to work in larger teams. At the early stage, engaging freelancers or outsource may work better, if you cannot commit to long term hiring.
If you don’t have good technical leadership, then the offshore employees you employ need to be able to run by themselves, typically 4+ years of experience.
|3~5 pax||Team Lead (4~6 yrs)||Senior Backend Engineer (4~6 years exp) as Team Lead|
Here, you focus on one strong tech lead working on the most important/indispensable/core part of your system (usually the backend), to pull the team together.
With time, he/she should assume a stronger leadership role and possibly evolve to be your TPM.
|5~10 pax||Technical Project Manager (8+ yrs)||Technical Project Manager (6~8 years exp)|
For a 10 pax team, you WILL need a small level of technical leadership, and it will be great if you hire a TPM who knows how to recruit, inspire, and retain the different small teams around him.
|10~50 pax||VP of Engineering (8+ yrs) or Country Manager||Depends on CTO’s requirements, and there are quite some considerations to make!|
Developer Salary In Vietnam
The average pay for IT talents across Vietnam in 2021 can be divided based on their experience level and title:
With a detailed explanation of how the ranking works:
- Intern/Fresher: Little knowledge of the language or tech stack. Limited or no professional programming experience.
- Junior: Some knowledge of the language or tech stack.
- Senior: Strong knowledge of the language or tech stack.
- Tech Lead/Manager: Mastery of the language or tech stack. Great mentor.
When it comes to tech positions, the salary rate also fluctuates.
While the statistics can be various from different sources, it is clear that Vietnamese developer salary is substantially lower (at least 50%) when compared to Singapore. This means startups could leverage the cost advantage to build their own offshore tech team instead of settling down with just local hires.
Moreover, the software industry has the highest turnover rate of any industry at over 13% due to large constantly growing demand, leaving many developers feeling undervalued when their employer fails to keep up with the market and their increasing skills. Thus, attractive employee benefits and compensation are a must.
We recommend a 20% increase in salary offer compared to the average pay rate for Vietnamese developers would be a great starting point.
Challenges You Will Face When Setting Up Offshore Software Company In Vietnam
One of the biggest challenges with offshore operations and building a tech team in Vietnam is working with staff who live in a different culture. In other words, hiring the right talents who can speak English while sharing a similar mindset is a must. Unfortunately, it is often extremely difficult to access local human resources, especially for companies that do not have prior experience operating in overseas markets.
Having to schedule and execute initial screening for the best talent in another country with a different time zone would be a strenuous task. Moreover, the recruitment process varies but remains complex in each region means your business will have to dedicate its already limited resources on finding the right talents, instead of focusing on core business activities.
Managing Administrative Tasks
Whether you are planning to incorporate an offshore company in Vietnam or just looking for an offshore development team, it will involve administrative procedures and legal documents for compliance.
The real problem is that small businesses and startups might not have a dedicated team for administrative tasks, so they often end up struggling to balance time and resources for core activities and other time-consuming tasks such as these.
Finding Office Space
No business leader wants to hear that their employees cannot finish their work, or experience delays in offshore software development, due to distracting environments and low-speed wifi. Hence, finding an adequate workplace is crucial when it comes to software development. This process will once again eat up a lot of your time. Even then, renting an office can be risky in this time of uncertainty, since cash reserves are relatively low.
The process of incorporating in Vietnam is lengthy yet lacking clear guidelines. Depending on the type of your organization being conducted, it can take between one to four months, sometime even longer dues to missteps.
Incorporating in Vietnam often begins with applying for an Investment Registration certificate which can cost you a month to receive. Then you will also need a business registration certificate which can add another week to the process. Additionally, your business may require additional licenses before it can be registered officially in Vietnam.
Vietnam Culture Barriers
Vietnam is considered as one of the best offshore IT countries in Asia due to its young and educated population. Packed with cost-effective factors such as lower wages and favorable operating conditions, it makes sense for startups and companies to choose Vietnam as their offshoring destination.
However, Vietnam still has its own barriers that need to be defeated before startups can make use of a dedicated offshore software development team. For many companies expanding overseas, business culture remains as one of the main obstacles.
The “Saving Face” Mindset
In Vietnam, people often work hard to establish group dynamics and strong bonds. Moreover, they also express great respect to the elderly, by accepting the fact that older individuals hold much more experience and therefore, more knowledge. This allows them to establish a generational hierarchy and behave accordingly.
Thus, the presence of a strong and experienced team leader is important for any offshore software development project in Vietnam. Professional attitude with a dedicated mindset must be present at all times as your offshore employees will look up to them. Any sign of negativity such as anger or frustration is considered as a lack of leadership skills.
Highly Competitive: Win or Lose
Vietnamese are also well known for their adaptiveness with sudden changes and quick thinking, but their laid-back attitude means they often start the “real work” near deadlines, lack detailed planning, or just do not follow them accordingly. It is understandable that many businesses will be inclined to micromanage their offshore team to avoid these problems.
However, according to recent research, micromanagement will lead to significant increases in operation and development costs due to high staff turnover and low productivity. Thus, it is recommended to have a balanced management strategy for your offshore software development team with daily update meetings, while still allowing your staff to be flexible in their work.
Now comes one of the most important parts when doing offshore software development; patience and flexibility. In Vietnam, break or lunchtime usually lasts from 12 pm to 1 pm and is highly valuable for employees as they refresh their energy after a “work-hard” morning. Vietnamese always make sure they can have a proper lunch break and peculiarly, taking a nap after lunch is considered a positive habit.
Therefore, it would be a good idea to reserve meetings and business matters for early mornings to allow a laid-back lunch. If you want to have an online meeting with your offshore team in the latter part of the day, it is recommended to set up the meeting time between 2 pm and 5 pm. While your teammate can join the meeting at 1 pm, they would not be so productive right after waking up from a short nap.
When Should You Rely On Offshore Service Provider or Venture Studio?
Let’s face it. Setup business operations in Vietnam are difficult even for big enterprises, especially when it comes to offshore software development. The process requires near perfect execution in every aspect of managing an offshore development team.
Still, it is not impossible to venture on your own but it will take longer, and may cost more for a beginner which would defeat the purpose of offshoring. So it is crucial to minimize the risks of failure by relying on a trustworthy venture studio with deep knowledge and insight of the local market.
In other words, if you are planning to venture into Vietnam but do not have the ability to execute it properly, please seek help from a professional.
How To Choose The Right Third Party Offshore Service Provider or Venture Studio
The quick expansion of the IT industry opened up more room for offshoring services, but not all of them are as good as they may want you to think. Every growing business is unique and requires a different strategy for their offshoring software development in Vietnam.
Thus, it is imperative to find an offshore HR service provider that can meet your goal and vision. Here are some questions you should ask:
Are their offices located in Singapore and Vietnam?
Having both onshore and offshore teams in your area can make a big difference when you need immediate support.
Do they have a good track record?
Reputable companies tend to stay in business longer, so take a look at their customer stories and review.
Do they offer a full-service package?
Setting up offshore software company in Vietnam is anything but simple. The process is complex and requires different departments such as HR, Recruitment, Administration, etc to make it work. Hence, a good venture studio is the one that can offer a full-service package to meet any demand from you.
Are they proactive?
Pro-active service providers solve issues before they even become a problem. They look for vulnerabilities and monitor your environment to spot possible threats and protect you from them. Reactive teams don’t act in such a preventive manner, so pay attention to how they communicate with you.
Setting Up Offshore Software Company In Vietnam Is A Great Strategy To Scale Up Tech
We hope this guide can help you on build your offshore software company in Vietnam. Depending on your startup capabilities and goal, it is possible to venture alone. However, we recommend that you seek advice from a trustworthy venture studio to gain better understanding of the offshore challenges in Vietnam and how to overcome them.