Offshoring in Ho Chi Minh city (Vietnam) looks promising

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Luxoft, an IT provider based in Moscow, specializes in sophisticated application development work for companies such as The Boeing Co., Deutsche Bank AG and IBM. A relatively new company, Luxoft has tapped Russia's elite universities for top science talent and judiciously opening centers in Central and Eastern Europe. But when it went hunting for a spot in Asia for back-office help, it bypassed India and ventured to Vietnam, this week opening an office in Ho Chi Minh City.

"It is one of the best-kept secrets of Southeast Asia," said Peter Vaihansky, VP Marketing at Luxoft, ticking off its advantages. The total cost of labor here beats that of India and China by 10% to 15%, he said. Unlike India, where salaries continue to rise and turnover is pegged as high as 30% by some studies, the Vietnamese market is not overheated, Vaihansky said. Attrition there hovers below 10%. That's an important consideration for an offshore provider still building its brand image. "We cannot be a quality provider unless we can build stable teams that do not rotate half of their staffs every year. That is a very, very critical issue for us," Vaihansky said.

Vietnam may not yet be a hotbed for IT offshoring, but it isn't exactly a secret, either. Indeed, Vietnam earned an "excellent" for cost from Gartner, beating out China, India, Pakistan, the Philippines and Sri Lanka, which were judged "very good." But one Gartner analyst also noted that Vietnam came up short in other areas, ranking only "fair" on language skills and political and economic environment. Cost and risk correlate tightly, she noted. Still, the appetite for global outsourcing is driving more countries to market themselves as IT service destinations. The big news coming out of the Gartner report was not the fact that 30 countries met the firm's criteria as offshore destinations, but that an additional 13 countries just barely missed making the list.

Good cultural fit with Russia – Time for India to worry

For Luxoft, the appeal of Vietnam went beyond cost, Vaihansky said. Literacy levels are high in Vietnam. There are more than 70 colleges and universities in Ho Chi Minh City, he said, "and they teach good math there." The Vietnamese educational system "has borrowed" heavily from the former Soviet Union. Many older IT professionals were trained in Russia and speak Russian, as well as French.

"The outsourcing industry is different in Asia than in Russia. The educational DNA in Vietnam is much more in research and development and the science side of computer engineering," Vaihansky said, drawing a distinction between the Russian emphasis on high-level math and algorithmic training, and the technical IT skills found in abundance in India. "I'm not bashing India," he added, “but Vietnam is a good cultural fit for us, both in terms of establishing relationships with the authorities and jumping through the bureaucratic hoops to open our center."

For a company like Luxoft, cost has to be a big enticement, he said. "In India, a guy with seven years' experience, educated at an elite university, you can expect to pay $30,000 in U.S. dollars in salary. For that same guy in Vietnam -- good education, some work experience with an American company -- that rate plummets to $800 to $1,000 per month," Rodriguez said.