HANOI -- Japanese companies are increasingly outsourcing software development to Vietnamese engineers for everything from smartphone and tablet apps to car and medical equipment systems.
The trend reflects the Southeast Asian country's wealth of high-quality, hardworking engineers. They also happen to be 30% to 40% cheaper than their Chinese counterparts.
Recruit Technologies contracts its Web development to FPT Software, Vietnam's biggest software unit. At its headquarters near Tokyo Station, employees gather in front of a 50-inch TV screen for a meeting with FPT engineers in Da Nang, Vietnam's third-largest city, to discuss design. Recruit Technologies now engages 110 FPT engineers for full-time work, with plans to increase that number to around 200 by the end of the year.
Used-car dealer Gulliver International uses a proprietary appraisal app at its 314 outlets around Japan. The software was developed for use on Apple's iPad by Seta International, a Japanese company with a development center in Vietnam. "We would like to farm out the development of all business apps to Vietnam in the future," said Ho Chol, an executive officer at Gulliver.
Value for money
The software connections between Japanese companies and Vietnam are wide-ranging. Hitachi Medical uses code written in Vietnam for most of its new medical devices, including computerized tomography and magnetic resonance imaging machines.
For Japanese companies, the availability of less expensive engineers is the biggest advantage to hiring in Vietnam. Labor costs per engineer are 200,000 yen ($1925) to 300,000 yen a month, about 20% to 40% what it would cost to hire someone in Japan to do the same job. Factoring in productivity, quality control and other overheads, labor costs in Vietnam are 40% to 60% lower than in Japan and 30% to 40% less than in China.
Golf Digest Online, a golf website, saves 200 million yen a year by outsourcing its software development to Vietnam, said Atsushi Muramatsu, a manager at the company.
China has long dominated software outsourcing for Japanese companies, controlling about 80% of the market. But wages are rising sharply in China. Costs in big cities there are expected to approach those of smaller cities in Japan within a year or two, if productivity differences are taken into account. And these days, more Chinese companies have ceased to do business with Japanese companies, or demand higher fees. With a growing domestic market, Chinese companies "appreciate orders from Japan less," said an official at a Japanese information technology specialist.
Japanese companies began hiring Vietnamese software developers about a year ago, said Seta International CEO Tomomichi Hirose.
Given their need for frequent communication, Japanese companies prefer partners near their own time zone. Although companies in emerging Asian economies are ideal, people in India, a global center for the industry, are unenthusiastic about learning Japanese, as are English-speaking Filipinos.
Although labor costs in Myanmar are lower than in Vietnam, "IT manpower has yet to be developed there," said Atsushi Masui, a division director at Hitachi. Indonesia has a similar dearth of IT engineers, while labor costs in Thailand and Malaysia are higher than in Vietnam.
During a recent visit to FPT's head office in Hanoi at 8:30 a.m., 19 newly hired engineers were busy studying Japanese. They were taking a four-month course that runs until 5 p.m. every day. During language training, the engineers are exempt from other work.
FPT has invested a lot in education in Vietnam, setting up a four-year university eight years ago to teach IT and Japanese. It now has 7,000 students. Classes are conducted in English, and students use online learning tools to hear presentations from companies and from overseas. Java and other practical programming skills are part of the curriculum. Students are also required to take 90-minute Japanese classes three days a week for a year.
Tuition at FPT University is not cheap, costing nearly $10,000 or around six times as much as a public university in Vietnam. To ensure it has access to qualified graduates, FPT offers scholarships to students who agree to join the company after they complete their studies.
Nguyen Duc Son, 27, who works at FPT's new office in Hoa Lac Hi-Tech Park on the outskirts of Hanoi, was one of FPT University's first graduates. Managing a group of 20 engineers for Japanese clients, Son hopes to become section chief, a position that would see him in charge of 70 employees, by the time he is 30. From there, he aims to become director of the division, overseeing 700 staff.
Son first encountered a PC in high school and quickly discovered a knack for programming. He enrolled in Hanoi National University, an elite institution in Vietnam, but was unhappy with the lack of practical education. This led him to sign up with the newly founded FPT University.
FPT University pays for 50% to 100% of tuition for qualified students. Son had 70% of his fees covered. "I wouldn't have enrolled without the scholarship," he said.