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In IT outsourcing, Vietnam is one of the favorite destinations with an impressive digitalization pace. According to the 2024 Global Innovation Index, Vietnam was ranked 44th among the 133 economies in the list.
While working with IT companies in Vietnam leads to exciting opportunities to invest and digitize, it also means there are certain challenges in productivity management and communications.
In this article, we explore the major strategies divided based on working models and geographical placement.
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Based on working models
In this category, the two strategies for working with IT companies in Vietnam are fixed price and time and material.
Fixed price contract
A fixed-price contract is a project agreement where the client and contractor agree upon a predetermined cost for the entire project. The cost is estimated based on the defined scope of work and project requirements.
The client pays a set amount for the completion of the project, and the contractor is responsible for delivering the agreed-upon scope within the specified budget. Any changes or modifications to the project scope are typically addressed through change orders, which may incur additional charges.
The biggest advantage of fixed-price contracts is that they provide cost predictability and clarity in project budgeting. Clients know the exact project cost upfront, making budgeting and financial planning more straightforward.
In addition, it grants both the client and the vendor a greater sense of control over the project. To minimize changes that could incur additional charges, the two sides tend to aim for well-defined project scope and timelines, which aid in planning and project management.
Time & materials (T&M) contract
With a T&M contract, the client pays IT companies in Vietnam based on the actual hours worked by the project team and the cost of materials used during the project’s execution. Therefore, it is likely that the final project cost may not be known until completion.
T&M contracts are often used for projects with evolving or unclear requirements. Therefore, the distinctive benefit of this working model is adaptability and scalability. It allows for changes without requiring extensive contract modifications. The client and vendor can make adjustments to adapt to market changes. Simultaneously, a T&M contract requires diligent cost monitoring to prevent cost overruns and scope creep.
In short, when working with IT companies in Vietnam, the choice of fixed price or T&M contracts is based on the nature of your project and its priorities. Fixed-price contracts are suitable for well-defined projects with stable requirements where cost predictability is crucial. Meanwhile, T&M contracts are ideal for projects with evolving or uncertain requirements.
Based on geographical proximity
Another approach to categorizing IT outsourcing strategies is based on the geographical distance between the business client and their IT partner. The two major models of IT outsourcing outlined here are offshore development and nearshore development.
Offshore development
An Offshore Technical Delivery Center (ODC), also known as off-shore IT outsourcing, is a strategic business model where you set up a dedicated team of IT professionals in a different country to handle software development and other technical needs. For example, if you partner with IT companies in Vietnam to form an ODC, it will operate as a separate entity in the country with its own facility, infrastructure, and resources.
A large number of businesses consider Eastern Europe and Asia countries as their top destinations for setting up an ODC.
In Eastern Europe, the Czech Republic, Belarus, Romania, Poland, and Ukraine are some of the well-known destinations for hiring IT companies. Eastern European developers, though quite modest in population (estimated at about 1 million), are often highly skilled and have good English proficiency.
Meanwhile, Asia has become the global hub of software development with a staggering number of software developers: 6.5 million. With this large crowd of IT professionals, Asia has been creating a thriving and dynamic outsourcing market that helps businesses make their investments worthy.
This model has been the most popular choice for many business leaders who wish to work with IT companies in Vietnam due to its many major benefits.
- Cost-effectiveness: Working with an ODC means you have access to a pool of skilled IT professionals with specific skills that might be scarce in your own market and may be at a potentially lower rate compared to the home country.
- Scalability: An ODC allows for easy adjustments of the size of your team based on the project’s changing needs and requirements. When it is needed, the ODC takes care of the staffing process. The team size is scaled up or down to make sure the number and the quality of team members are at adequate levels.
To ace your ODC model, you should prepare and have solutions for the following challenges, which stem from working with a team in a different location.
- Communication and collaboration: There can be disruptions and miscommunications if you do not share the same language and working method with IT companies in Vietnam.
- Cultural differences: It may take some time for your company to understand and adapt to different cultural norms and work styles. This is a common problem for businesses that
- Time zone management: The two teams work on different time zones, which means they will need to align their work schedules and deadlines carefully.
- Security and data privacy: When working with an offshore team, it is essential to implement robust security measures and data privacy controls so that the risk of data breaches is mitigated.
Many Western businesses have turned to Asia and established ODCs here, such as Manulife in 2019. Therefore, as a highly popular approach to working with IT companies in Vietnam, ODCs can empower businesses that are looking to optimize their IT resources and gain a competitive edge.
Nearshore development
As mentioned above, besides its major advantages, working with an ODC is also associated with several difficulties related to cultural differences and productivity management. These issues are resolved with another strategy of working with IT companies in Vietnam – nearshore development.
Nearshore outsourcing means you outsource software development and other technical operations to a country geographically close to your own. For instance, Vietnam is strategically located in Southeast Asia. Therefore, it has a wide reach in the nearshore development landscape, with a large customer base spreading across many Asian countries, including Singapore, Japan, South Korea, and China. Additionally, its time zone is relatively close to these markets, which facilitates real-time communication and collaboration.
The key advantages of establishing a nearshore delivery center are:
- Improved communication and collaboration
The geographical proximity of nearshore development mitigates common issues associated with IT outsourcing such as time zone differences and language and cultural barriers. Therefore, it allows the two teams to collaborate more effectively with little or no bottlenecks and fosters quicker problem-solving.
- Better supervision of product quality and progress
With nearshore development, it is easier to travel to and have direct exchanges with the IT companies in Vietnam that you are working with. Therefore, as managers and investors, you have more control over project execution.
However, a noteworthy drawback of nearshore outsourcing is the chance of it not being as cost-effective as offshore development. choosing to set up a nearshore team also means your choices of destinations are not as diverse as other IT outsourcing strategies. Sometimes, the neighboring country may not be as cost-effective as distant offshore locations, or it does not offer a vast talent pool with the specific skills that you need.
Vietnam – A dynamic destination for IT outsourcing
The large variety of contract types and working models found in IT companies in Vietnam has proven the maturity and abundance of IT outsourcing in this country. Global clients from different backgrounds and industries can choose the contract type and working model that best matches their unique needs.
Vietnam’s IT outsourcing companies specialize in serving various industries, including finance, healthcare, e-commerce, manufacturing, logistics, and more. They adapt their services to industry-specific needs and regulations.
Additionally, Vietnam’s IT maturity is shown in the quantity and savviness of services that Vietnam IT companies offer. They offer a broad spectrum of IT outsourcing services, catering to a wide range of industries and technology domains.
- Software development: Custom software development, web and mobile app development, and full-stack development services.
- Quality assurance and testing: Comprehensive testing services, including functional testing, performance testing, and automation testing.
- Cloud services: Cloud computing solutions, migration services, and cloud-native application development.
- Data analytics: Data analysis, business intelligence, data visualization, and machine learning services.
- IT support and maintenance: Managed IT services, technical support, and ongoing software maintenance.
- Cybersecurity: Cybersecurity consulting, penetration testing, and data protection services.
- DevOps and infrastructure: DevOps implementation, infrastructure management, and continuous integration/continuous deployment (CI/CD) services.
GEM’s take on best practices of working with IT Companies in Vietnam
As a leading IT service provider who has worked with many clients across industries, here is GEM’s list of recommended practices to help your business achieve successful collaboration with your IT outsourcing project.
Do your research
Before choosing an IT outsourcing provider, you should narrow down your potential candidates based on your business needs, budget, and requirements. To find reliable and reputable IT companies in Vietnam, you can use referrals, review platforms, or search engines like Google.
Communicate clearly
Communication is key for any outsourcing project since the work is done across different time zones, languages, and cultures. To streamline communication, you and the IT companies should establish regular communication channels, such as email, phone, video call, or chat, and use clear and concise language to avoid misunderstandings.
In addition, you should also set clear expectations, deadlines, and feedback mechanisms for both parties.
Respect the differences
Working with IT companies in Vietnam means working with a different culture, management approach, and legal system. You should respect the differences and learn to achieve unanimity. Furthermore, the legal and regulatory aspects of outsourcing (such as contracts, intellectual property rights, and data protection) should also be catered to.
Conclusion
Working with IT companies in Vietnam can be a rewarding and beneficial experience for foreign companies that wish to pursue digitization. The country’s IT outsourcing landscape has matured immensely with a growing number of available services, working models, and internationally recognized solutions. Therefore, it stands as a destination of choice for organizations seeking strategic partnerships to drive innovation and growth.
GEM Corporation offers all of the above
Are you still hesitant because you’re unsure which Vietnam-based IT company offers the strategy that you want? Do you need help picking the best strategy for your unique needs?
With industry insights gained from 10+ years of working with businesses across domains, GEM Corporation is confident in our ability to provide the IT approach that will best empower you and your organization.
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