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Make or break time for Vietnam's IT entrepreneurs
Amy Kazmin, FT Syndication Service
10/14/2005
BANGKOK: Christopher Vaughan, vice-president of product development for Massachusetts's Reef Point
Systems, considered all the usual places -- including India and eastern Europe -- as he sought low-cost
programmers to help write computer code for his company's advanced security systems for mobile
networks.
But ultimately Mr Vaughan bet on Vietnam's TMA Solutions, a private company that has produced
telecommunications software for giants such as Nortel, Lucent, Japan's NTTData and others for just a
fraction of the cost in India.
"I get the most bang for my buck here," Mr Vaughan said on a recent trip to Ho Chi Minh City to train the
first batch of TMA programmers on the Reef Point project. "I didn't realise that they had progressed as far
as they had. Vietnam just kind of popped out."
Vietnam is a newcomer to information technology outsourcing. But although its fledgling software industry
is starting to register on the radar screens of international IT companies, business has not grown nearly as
fast as the country's communist authorities, or local IT entrepreneurs, had hoped.
At the dawn of the new millennium, Hanoi confidently predicted Vietnam would have a $500m (euro415m,
£280m) software industry by this year. But Henry Nguyen, managing director IDG Ventures Vietnam, an IT
venture capital fund, estimates the country's entire software business is worth just $200m, out of which
exports account for just $60m-$70m.
"The promise was not fulfilled," says Nguyen Huu Le, TMA chairman. "You would be generous in saying
they achieved half the target."
Vietnam's young software industry is now working to overcome its multiple handicaps, unleash its potential
and establish itself on the global software outsourcing map. The question is whether it will succeed.
"Five years is the window to make it or break it," says Tim Parker, TMA vice-president. "Vietnam is either
going to get the reputation for high-quality work and delivering on time, or business goes elsewhere."
Many of Vietnam's leading software entrepreneurs left the country as war refugees, spent years in the west,
then returned in the late 1990s, lured by the IT potential in Vietnam's youthful, ambitious and
mathematically inclined population.
The end of the US technology bubble was a setback to their aspirations, and entrepreneurs also confronted
local impediments including the overly theoretical education of Vietnamese IT graduates; an acute lack of
experienced project and corporate managers; and some of the world's most expensive telecoms
infrastructure.
Thinh Nguyen, a Vietnamese-American veteran of several successful Silicon Valley start-ups, founded
Pyramid Software Development in Ho Chi Minh City in 2001, expecting to have a $10m business and
hundreds of employees within a year. But scaling up has proved tough. Pyramid today has $1.0m in
revenues and 60 engineers, although the founder hopes to have 100 engineers by the year's end.
"We are capable of bringing the work but you need the support system to build a good company," he says.
While Vietnamese universities churn out about 25,000 IT graduates a year, just a fraction have the practical
and team-working skills software businesses need.
Qualified project managers capable of developing software solutions, interacting with foreign clients and
leading programming teams are also in short supply, constraining the industry's growth. "There are lots of
foot soldiers but not enough majors and colonels," says IDG's Henry Nguyen.
While foreigners could fill the gaps, Vietnam restricts foreign employment to 3.0 per cent of a company's
staff, a limit one executive called "misguided" for the industry's long-term development. "The only reason
to hire foreigners is that the skill set is not here," he says.
But many believe the industry is at last poised for take-off, as companies begin to expand, buoyed by
generous tax incentives from a government that aspires to a high-technology future and reductions in
telecoms costs.
TMA doubled its staff from 300 to 600 employees last year and expects to double again by 2007. State-
owned FPT -- with several hundred engineers -- is winning software development contracts from Japanese
companies that are mistrustful of old enemy China and prefer Vietnam to India.
Global Cybersoft, a five-year-old Silicon Valley-based company supported by the International Finance
Corporation, has tripled its engineering staff to 350 over the past two years and is still hiring, as it receives
increasing queries from Japan.
Hung Le, of Global Cybersoft, is bullish about the future. "It's like the dotcom era in Vietnam. Everybody is
talking about software outsourcing right now."
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