Vietnam: an emerging hub for IT/AI business

Vietnam is rapidly transforming into a vibrant destination for businesses, particularly in the IT and AI sectors. With its growing economy, competitive workforce, and increasing foreign investments, the country offers great potential for entrepreneurs and companies looking to expand in Asia. That is why in this article we dive into some of the opportunities, challenges, and strategic advantages of doing business in Vietnam. Thereby we emphasize on its IT and AI landscape.

Why consider Vietnam for business?

First things first, why consider Vietnam as a business / investment destination? Well, for starters Vietnam’s steady economic growth, skilled labor pool, and strategic location make it an increasingly popular choice for global businesses. The Government’s favorable policies for technology and innovation further enhance its appeal. Here are some key highlights:

• Competitive labor costs: Labor in Vietnam is significantly cheaper than in China, India, and the U.S., making it a cost-effective outsourcing destination.
• Government support for technology: The Vietnamese Government prioritizes IT and AI as economic drivers, offering tax incentives for software development and digital transformation initiatives.
• Growing English proficiency: Vietnam ranked 8th in Asia for English proficiency in the 2024 EF English Proficiency Index, facilitating smoother communication for international businesses.

Opportunities in Vietnam’s IT and AI sectors

A thriving IT workforce

Vietnam is home to 106 (!!) universities and institutes offering IT programs, producing approximately 57,000 graduates annually. On the downside: only 35% of them meet employer standards upon graduation. However, additional training and skill development programs are closing this gap. Prominent institutions like Hanoi University of Science and Technology and Ho Chi Minh City University of Technology lead the way in producing top-tier talent. These graduates are fueling Vietnam’s growing reputation as a technology hub.

Rising investments in AI

Global tech giants are increasingly investing in Vietnam’s AI ecosystem. In December 2024, NVIDIA announced its Vietnam Research and Development Centre and an AI Data Centre, signaling confidence in the country’s potential. Similarly, Sumitomo Group’s investment in Rikkeisoft, Vietnam’s second-largest IT company, highlights the growing interest in the sector.

Outsourcing excellence

Vietnam’s outsourcing market is projected to reach USD 694.8 million by 2024. Cities like Ho Chi Minh City, Hanoi, and Da Nang are becoming outsourcing powerhouses, offering high-quality services at competitive rates. Indeed, talking from our own VNNL perspective: we are receiving more and more requests from overseas entrepreneurs and investors looking to enter this market.

Challenges to navigate

Limited practical skills

Despite a robust academic foundation, Vietnamese IT graduates often lack practical experience. Thinking about it, this is probably true for many graduates around the World, and not only an issue in Vietnam. Having said that, companies investing in Vietnam should be ready to offer on-the-job training to bridge this gap.

Licensing process

Setting up a business in Vietnam involves navigating a complex and often formalistic system. The process of registering a foreign-owned limited liability company including all licenses, permits, and visas can easily take up to four months. It is definitely possible to do, however, and the help of a professional consultant often already make things a lot easier and more clear.

Infrastructure development

While Vietnam has made significant strides in infrastructure, some regions still face challenges such as inconsistent internet speeds, limited public transport, and uneven development between urban and rural areas. Businesses must account for these discrepancies when planning operations.

Cultural nuances in business practices

Understanding and respecting local business etiquette is vital. For example, Vietnamese culture places a high value on hierarchy and relationships, which may impact negotiations and decision-making processes.

Talent retention

With high demand for skilled professionals in IT and AI, retaining top talent can be challenging. Competitive salaries, professional development opportunities, and a positive work environment are critical to reducing turnover rates.

Comparative advantages for outsourcing

• Cost-effectiveness: Labor costs in Vietnam are 90% lower than in the U.S. and 50% lower than in China.
• Tech ecosystem growth: The Vietnamese digital industry generated USD 118 billion in revenue in the first nine months of 2024, a 17.78% increase from the previous year.
• Government incentives: Software development companies may enjoy corporate tax exemptions for four years and a 50% tax reduction for the following nine years.

Strategic locations for business in Vietnam

• Ho Chi Minh City: The business capital with a dynamic workforce and modern infrastructure.
• Hanoi: The political and educational hub with a strong emphasis on innovation.
• Da Nang: An emerging tech city known for its cost-effectiveness and quality of life.

Naturally, each location offers unique advantages. This depends on business priorities, such as: workforce availability, operational costs, and market access.

Practical tips for success

• Partner selection: Choose partners with proven track records to minimize risks.
• Clear contracts: Ensure contracts are comprehensive, outlining payment schedules, milestones, and penalties for non-compliance.
• Invest in training: Allocate resources for upskilling local talent to align with project requirements.
• Leverage local expertise: Work with on the ground consultants or firms to navigate regulatory and cultural nuances effectively.

Conclusion

Vietnam stands at the crossroads of innovation and opportunity. Its growing IT and AI sectors, coupled with Government support and a competitive labor market, make it an attractive destination for businesses. By addressing challenges strategically and leveraging Vietnam’s strengths, companies may unlock significant value in this dynamic market. Explore Vietnam today to position your business at the forefront of Asia’s digital transformation.

VNHL is here to support you

VNHL often supports foreign entrepreneurs and investors with their IT / AI projects in Vietnam. Meaning that we are familiar with both the regulations and the practice. If you have any questions or requests for support: you can reach out to us via the chat button on the right of this page, or via our contact us page for further information and questions. Our three main services are: (i) consulting, (ii) networking, and (iii) supporting. We look forward to hearing from you and to supporting you.

*Dear reader, even though our VNHL Consulting team always tries its very best to provide its Clients with correct and complete info: we are not a Vietnamese law firm. The information in this post is therefore not meant to, and should also not be construed to, constitute legal advice. For specialized advice in the fields of law, accounting, tax, etcetera: we always recommend our Clients to speak with qualified specialists in those fields. We have several such specialists in our nationwide network, and we are always happy to introduce our Clients to them, when appreciated.