Japan’s software outsourcing shifts from China to Vietnam

Till few months back, China was the undisputed software outsourcing destination for Japanese IT enterprises. But now the situation is not at all the same. IT firms in Japan are shifting more software outsourcing services to Vietnam. This trend for increased IT outsourcing to Vietnam is getting immense, especially after China-Japan territorial disputes.

Vietnam IT company. Image source excelbrothers.com

The trend for increased outsourcing is Vietnam emerged slowly by last September. Since then, the number of outsourcing contracts has increased by 30%. Leading software outsourcers of Vietnam like Cuong, and FPT Software claims that they have seen considerable increase in revenue and margins due to increase in contracts from Japanese enterprises.

Japan increasing outsourcing contracts

Estimates reveal that Japanese outsourcing contracts usually accounts to tens of billions of dollars an year. An IT promotion agency of Japan, namely Japanese IPA had recently conducted a research on the outsourcing activities of Japan. The survey conducted over 1100 Japanese IT firms disclosed that 31.5% of the companies are interested to have contracts with Vietnam. Among the rest, 20.6% would like to have outsourcing contracts with India and 16.7% with China. Already 23.3% of Japan based companies have placed their orders with Vietnam.

Reduced expenses are the main reason cited by Japanese firms for placing more orders with Vietnam. Territorial issues between China and Japan recently had also adversely affected the outsourcing trend.

The Information Technology Department under the Ministry of Information and Communication, Vietnam, claims that the total turnover of the country from ICT (Information and Communication Technology) industry reached $20 billion. This figure is higher by 17.6 percent than that was reported in 2010. Out of this total outsourcing revenue, IT sector solely contributes to 79 percent.

In fact Vietnam earns 4% of the total Japanese IT outsourcing (worth $10 billion). Highest proportion for the total GDP of the country is contributed by software sector. The industry which earned only 1.2 billion dollars in 2011 is now reported to reach 18,855 dollars per worker per annum.

Vietnam facing Challenges

Japan is planning to increase its 4% market in Vietnam to 10% in the coming 10 years. This will improve the total revenue making an increase of 30% per annum. In the midst of this Vietnam is facing challenges on technology and language. They are lacking adequate labors with professional skills in technical areas. Their resources are not proficient in Japanese language also. Increasing labor cost is yet another problem faced by IT enterprises of Vietnam. Lack of IT engineers with foreign language skills and increased salary is really matter of thought for Vietnam.

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