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Compelling Reasons for Considering Outsourcing to Vietnam

Companies are looking for ways to cut down their costs as the global marketplace gets more and more competitive. The most common ploy used by companies to control their cost-base is outsourcing their operations. For a long time, China and India have been dominating the business process outsourcing (BPO) activities due to the availability of low-cost labor, natural resources, and highly skilled technical workforce. However, companies are starting to face challenges in such locations due to rising labor costs, high attrition rate, and stringent regulations. In recent times, another destination has shot up as a lucrative alternative for companies looking to outsource their business operations. It may take you by surprise, but yes, Vietnam has been preferred sourcing destination for several companies now due to numerous reasons. A Gartner report in 2015 named Vietnam in the top tier of offshore services SE_Demo2locations, alongside China and India. The success story of Vietnam as a BPO destination has been marked by the $2 billion contribution to the country’s GDP in 2015. So why are companies looking to outsource their operations to Vietnam?

Availability of Technical Talent

The pool of technical talent available in Vietnam is growing at an outstanding rate. First of all, unlike India and China, the English language is not a problem for Vietnamese people as the majority of the schools are in English medium. Also, English is the most popular language in Vietnam after Vietnamese with focus on the proper accent. Such proficiency allows the workforce to excel in the IT industry, where the employees are exposed to foreign customers. However, the talent is not limited only to the knowledge of the language but also expands to technical expertise as well. For instance, the game Flappy Birds, which gathered millions of players within a year was created by a Vietnamese citizen. Additionally, Vietnam also has close to 40,000 IT students graduating each year, which provides ample supply of fresh talent. Over thousands of IT companies are already employing about 80,000 workers in the country. The major factor influencing these IT companies is the impressive literacy rate of 96%, with 80% of the graduates majoring in science.

Higher Retention Rates

The working culture in Vietnam vastly differs from other outsourcing hubs as loyalty is highly prized here. The level of commitment, loyalty, and focus seems to be strong amongst the employees due to attractive internal company culture. Vietnamese companies provide continuous employee development programs, maintains open door policy, and encourages an atmosphere with clubs and weekend parties. For instance, employee attrition rates in IT companies in Vietnam sits at a meager 6%-8% compared to rates exceeding 20% in India. Higher employee engagement, work-life balance, matching pay to performance, and superior benefit programs are among other reason for high retention rate in the country.

Modern Tech Infrastructure

Vietnam has already attracted top IT companies in the world like IBM, Intel, and Microsoft to set up their facilities in the country. The country has invested heavily in its 2020 IT Master Plan, which includes construction of tech parks such as Da Nang Hi-Tech Park, housing offices and factories for global IT companies. The government has passed multiple economic policies encouraging domestic and international entrepreneurs to start a business. In 2013, IBM selected the city of Da Nang to receive a IBM’s Smarter Cities Challenge Grant worth $50 million.

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Have Automation and AI put an End to the Era of Outsourcing Services?

The developed parts of the world have enjoyed lowered production cost and higher profits by outsourcing services from various operations like production and customer service. With countries such as China, India, and Bangladesh being the major outsourcing services hubs due to lower labor rates, companies have been able to lower their cost base considerably. On a similar note, automation and artificial intelligence (AI) have also significantly saved large chunks of the cost for the companies. As a result, many analysts and experts have predicted that the days of outsourcing services will be outnumbered soon enough, with automation and AI eating up numerous jobs. So does the rise of automation and AI bring down the curtain on outsourcing? In this article, we have explained the reasons for this question. 

How Automation and AI Impact Outsourcing Services?

Increasing Cost of Outsourcing Services

Although traditionally companies preferred outsourcing to save on labor costs, today the BPO’s charge higher fee for their services and add markups making those services expensive. Additionally, governments across the world also discourage companies from their outsourcing services and promote employment and production in home country instead. For instance, under the Obama administration, a $200 billion in tax relief and incentives law was put in place, which encouraged American companies to make an investment in their business and create new jobs. Other laws allowed businesses to write off all costs in new investment in equipment in the US.

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Loss of Control

When businesses outsource their operations, they contract the work to other company, which means sharing company details, information, and data. The company will be at the mercy of the BPO. Also, quality and service delivery from the BPOs may vary widely.

Supply Chain and Logistics Efficiency

Outsourcing services of manufacturing and production operations may seem lucrative at the beginning with all those cost savings opportunities. However, businesses may incur unanticipated costs such as hidden fees, import and export duties, shipping costs, haulage, freight costs, legislative costs, and additional taxes. Additionally, due to the complicated logistics network, the time-to-market is also significantrequest proposally increased. Consequently, businesses are looking to manufacture in the home country whenever possible by carrying out make-or-buy decisions.

Automation and AI

The most prominent factor that could signal the end of outsourcing services is the rising popularity of automation and AI. The technology is so advanced that it can eliminate the majority of human errors, and provide a quality output at a faster rate. Automation in manufacturing has been around for a long time. However, AI is threatening to replace service facing operations. For instance, with machine learning and cognitive computing abilities, companies can use chat-bots to solve customer queries and automatically reply to e-mails from the customer.


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