Vietnam ranks second after China in software outsourcing for Japan

July 18, 2016 | 08:43 am GMT+7

Vietnam has replaced China as the second largest partner in Japan’s software outsourcing market.

India and China were the two largest software outsourcing markets for Japan. However, Vietnam moved to the second position last year, according to Nguyen Ich Vinh, CEO of Tinh Van Outsourcing from Global Outsourcing Market research.

India remains the largest outsourcing market for Japan with 31.5 percent of the market share. Meanwhile, Vietnam, which has ousted China from the second position, holds 20.6 percent.

One of the reasons which explain why Japanese enterprises choose Vietnam as the outsourcing partner, according to Nikkei, is that the cost to hire Vietnamese IT engineers is 30-40 percent cheaper than Chinese engineers.

This prompted Tinh Van to set up a representative office in Japan in late 2015 which gets orders directly from Japan. 

Meanwhile, FPT, the largest Vietnamese IT group, VietSoftware International and TMA list Japan among their most important markets.

Shigeki Maeda, Vice President of Jetro Tokyo, said the Japanese government strives to turn Japan into the world’s leading IT utilization community. In Japan, the demand for computer engineers has increased rapidly, while the domestic labor force is not large enough to satisfy demand.

The Japanese outsourcing market scale has increased from 135 billion yen in 2012 to 145.5 billion, or $1.4 billion in 2015. It is expected that outsourcing demand would increase to 156 billion by 2017.

A report showed that while IT firms from the US and Europe only sign about 10 percent of outsourcing contracts to develop software, the figure is much higher for Japanese firms. 

Commenting about Vietnam’s IT labor force, Katsuro Nagai from the Japanese Embassy in Vietnam said that Vietnamese are smart and hardworking, but Japan still sees a gap between demand and supply of skilled workers.

Vietnam's new second ranking in Japan has raised controversy.

Some analysts said that Vietnam should strive to create ‘made-by-Vietnam’ software instead of doing outsourcing for foreign companies.

Meanwhile, Hoang Nam Tien, president of FPT Software, said that FPT Software is known as an outsourcing company, not a software inventor, and he is comfortable with that designation. 

According to Tien, there are two branches in software industry – Software Products and services.

“In fact, there are only a few companies in the world that make software products. IBM also focuses on service. We (FPT) also discussed what we should do – product or service, and the answer is service,” Tien said.