[2023] Offshore Software Development Rates In Vietnam

Published July 11, 2023

All over the world, IT offshore development is proliferating. India and China have taken top positions in offshore development and IT staffing. However, Gartner’s research shows that investment in these traditional outsourcing destinations is declining, and multinational corporations are turning to new alternative countries to pursue diversified sourcing strategies. Clients are becoming more interested in English proficiency, cultural compatibility, reduced time lag, and real-time communication.

Among various offshore options, Vietnam has established itself as a dynamic and productive environment for offshore software development in the APAC region, offering a skilled and cost-effective talent pool. Vietnam’s ICT (information and communication technology) revenue reached 120 billion USD in 2020 with an annual growth rate of 7.1%, even in the disruption rooted in the COVID-19 pandemic, according to a Ministry of Information and Communications (MIC) report. Many companies in the US, Europe, Australia, and Singapore now see Vietnam as one of their strategic partners.

The original purpose of offshore development is to reduce costs. However, the labor costs of engineers account for a large proportion of software development costs, and the monthly unit price of engineers has an extremely large impact on development costs. Vietnam has a high-quality and relatively reasonable labor rate, making it an attractive outsourcing destination. This article details the unit price of Vietnam’s offshore development.

Vietnam IT Engineer Salary Market

According to TopDev’s “Vietnam IT Market Report 2022”, engineer salaries are as follows:

350USD (entry-level)
1,190USD (middle level)
860USD～1,510USD (high level)
1,410USD～$2,300USD or more (manager)

In addition, the rate of the US dollar, Vietnamese dong, and US USD is based on the rate as of July 10, 2023 [1 dollar = 23,660 dong].

As predicted in previous reports, high-paying positions require skills such as Data Analyst, Cloud, DevOps, and AI/Machine Learning. Despite being sought after with attractive salaries, the IT talent supply has yet to keep up with industry demand and growth rates.

According to a 2022 survey by Salary Explorer, the average salary for an IT professional in Europe is $85,000 per year. This compares to an average salary of $15,000 per year for an IT professional in Vietnam.

Offshore Development Rate in Vietnam

The formula for the cost of offshore development is “total development time x hourly rate”. The hourly rate is expressed in the amount of money that an employee is paid per hour they work. However, the hourly rate depends on the expertise and experience of the offshore development company. So, the hourly rate has a big impact on the cost of offshore development.

The hourly rate of Vietnamese IT labor varies depending on their experience, skills, and location. However, according to Glassdoor, the median hourly rate for an IT worker in Vietnam is around 12551.89₫ – 35000.00₫ (~$5 – $14). For more senior IT workers, the hourly rate can be up to 39245.50₫ (~$16).

Here is a breakdown of the hourly rates for different IT roles in Vietnam:

Software Engineer: 12551.89₫ – 35000.00₫ (~$5 – $14)
Web Developer: 11527.35₫ – 32000.00₫ (~$4.6 – $13)
IT Support Technician: 9760.33₫ – 29000.00₫ (~$3.9 – $11)
IT Project Manager: 17623.78₫ – 42000.00₫ (~$7 – $17)

It is important to note that these are just median hourly rates. The actual hourly rate that an IT worker can command will depend on a number of factors, including their experience, skills, and location.

For example, an IT worker with 5+ years of experience in a major city like Ho Chi Minh City or Hanoi can expect to earn a higher hourly rate than an IT worker with less experience in a smaller city.

Overall, the hourly rate of Vietnamese IT labor is very competitive. IT workers in Vietnam can earn a good living, and they are in high demand from both local and international companies.

Here are some additional factors that can affect the hourly rate of Vietnamese IT labor:

The type of company they work for: IT workers who work for large multinational companies tend to earn higher hourly rates than those who work for small local companies.
The industry they work in: IT workers who work in the tech industry tend to earn higher hourly rates than those who work in other industries.
The language competence they have: IT workers who are fluent in English or other foreign languages tend to earn higher hourly rates.

If you are looking to hire Vietnamese IT labor, it is important to do your research and compare rates from different companies. You can also use online platforms like Upwork or Fiverr to find freelancers who are willing to work for hourly rates.

Impact of Exchange Rate on The Salary Market for IT Engineers in Vietnam

However, especially in an environment where the value of the exchange rate between the Vietnamese Dong and the US dollar experiences a fluctuation, companies need to properly allocate foreign exchange risk to reap the full economic benefits of offshore outsourcing. This Outsourcing Update explores this challenge and explains the various ways in which the parties can address their outsourcing agreements.

1. Foreign Exchange Risk

Foreign exchange risk is when a service provider incurs costs in one country and receives payments in another country’s currency. For example, offshore outsourcing in Vietnam requires service providers to pay for leasing space, hiring personnel, and other resources in Vietnamese Dong. However, service charges are usually received in US dollars.

For the sake of convenience, let us assume that a service provider costs VND 240,000,000 per month to conduct business in Vietnam, and the contract stipulates that $10,000 per month will be paid in US dollars. Initially, the service provider would receive $10,000 from the client and exchange it for VND 248,760,000 (Exchange rate of US dollar to VND in 2022, $1 = VND 24876), of which VND 240,000,000 would be used to pay costs and VND 8,760,000 would be retained as profit.

However, after the exchange rate becomes $1 = VND 23.636, the payment of $10,000 is only 23,636,000 Vietnamese dong (converted). This amount is not enough to cover the service provider’s fulfillment cost of VND 240.000.000, as a consequence, it cannot bring about a revenue stream for this company.

Similar to the previous example, if the US dollar strengthens and the exchange rate becomes favorable (eg, $1 = VND 24.000), the service provider can make a profit.

The depreciation of the US dollar hurts imports of not only products but also IT services.

2. Interest Conflicts Of The Parties

In dealing with foreign exchange risk, customers are usually more interested in avoiding rate increases due to a weaker US dollar than in preventing service providers from benefiting from a stronger US dollar. This is because customers are usually more interested in realizing cost savings and gaining budget certainty than in participating in all possible benefits of service providers. Similarly, service providers are also more concerned about the US dollar depreciation. As the US dollar depreciates, service providers see their profits dwindle. In the case of the severe yen US dollar in the first half of 2023, there is a possibility of recording a loss because the local cost after converting the service fee into the local currency cannot be covered.

3. How to Alleviate Exchange Risk

For the aforementioned reasons, it is necessary to deal with foreign exchange risk in offshoring contracts. Parties can allocate foreign exchange risk in a variety of ways, which are explained below.

The service provider bears all the currency risk

In extreme cases, the service provider can bear all the currency risk. The Service Provider continues to offer its customers a fixed fee for its services, regardless of changes in the applicable exchange rate. Service providers can be profitable if the exchange rate moves in their favor.

For example, let’s say that a company in the United States outsources its IT services to a company in India. The contract specifies that the service provider will charge a fixed fee of $10,000 per month. If the exchange rate between the US dollar and the Indian rupee weakens, the service provider will still receive $10,000 per month, even though the value of that amount in rupees will decrease.

This approach can be beneficial for the service provider, as it can potentially profit from favorable exchange rate movements. However, it can also be risky, as the service provider could lose money if the exchange rate moves in the opposite direction.

The customer bears all the currency risk: In this scenario, the customer agrees to pay a variable fee for the service provider’s services, based on the prevailing exchange rate at the time of payment. This means that the customer bears the full risk of currency fluctuations, both positive and negative.

For example, let’s say that the same company in the United States outsources its IT services to a company in India, but this time the contract specifies that the customer will pay a variable fee of 100,000 rupees per month. If the exchange rate between the US dollar and the Indian rupee strengthens, the customer will have to pay more in US dollars, even though the amount in rupees remains the same.

This approach can be beneficial for the customer, as it can potentially save money if the exchange rate moves in their favor. However, it can also be risky, as the customer could have to pay more in US dollars if the exchange rate moves in the opposite direction.

The risk is shared between the service provider and the customer: In this scenario, the service provider and the customer agree to share the risk of currency fluctuations. This can be done in a variety of ways, such as by using a fixed exchange rate with a band, or by using a forward contract.

For example, the contract could specify that the service provider will charge a fixed fee of $10,000 per month, but if the exchange rate between the US dollar and the Indian rupee moves outside a certain range, the fee will be adjusted accordingly.

This approach can be beneficial for both the service provider and the customer, as it can help to mitigate the risk of currency fluctuations. However, it can also be more complex to negotiate and implement.

The best way to allocate foreign exchange risk in an offshoring contract will depend on the specific circumstances of the parties involved. However, by understanding the different options available, the parties can negotiate a solution that is fair to both of them.

How to Choose the Right Offshore Development Partner for Your Company

In order to manage IT outsourcing perfectly, a company needs a set of principles and processes so that IT offshore can be profitable. However, hiring an IT offshore development company for the first time requires mindful planning. Many IT offshore development companies have well-designed sites and appeal that famous brands are on the list of past customers. But not all that glitters is gold. In order to select the most suitable partners, a viable partner selection framework is required. Here, we will introduce a plan for identifying the most suitable company among a number of IT offshore development companies.

Step 1: Requirement Analysis

Hiring an IT outsourcing partner is a big business decision and should be well-informed. Therefore, before reaching out to partners or interviewing potential IT offshore development companies, businesses should clarify their roles through a rigid analysis of their requirements and needs. This is one of the essential steps in the selection process of an IT offshore development company.

Organizations should have a list of people who have opinions that influence decisions about the IT offshore development company selection process. Next, define the technical, business, and functional requirements you plan to employ your partner on and share them with internal stakeholders and decision-makers for input.

We recommend that the required documentation include the following points:

1. What Kind of Software are You Trying to Build?

If you are planning to hire an IT offshore development company to build software that you hope will perform a specific task or function, please elaborate. What is the purpose behind hiring an IT offshore development company? Building a custom app, training simulator, IoT platform, or something else? Consider listing their capabilities and business needs in detail.

2. Focus on The Tech Stack that The Offshore Development Company has Expertise in

Companies working on software projects may have a separate list of technologies they are familiar with and would like to use to arrive at the desired solution. You may already have an in-house team working on the same software, and the teams and developers at the offshore development company may have good suggestions for an already integrated tech stack. Document them all and let others weigh in.

3. Estimated Timeframe

In the world of software development, “time is money”. An IT offshore development company will propose a schedule related to time to market, but the company will estimate if the first delivery is required.

4. Other Requirements

Long-term relationships and post-release support should be considered.

Step 2: Market Research and Potential Partners Shortlist

Once all the requirements are known and approved by the company’s stakeholders, it’s time to look for a potential IT offshore company. The following resources can help you in this process:

Search B2B network sites of technology companies like GoodFirms, and Clutch for IT outsourcing vendors with good ratings and reviews.

Gartner and Forrester provide research reports listing key players in the market.

Get potential IT vendors noticed by asking colleagues or posting jobs on LinkedIn.

Step 3: Agile Implementation

The only way to survive in today’s market is to keep up with the ever-changing needs of customers. Agile methodologies are recommended for organizations to efficiently respond to rapidly changing customer needs.

Agile methodologies provide a collaborative work environment and can deliver results quickly. In order to establish a leadership position, it is desirable to utilize partners who follow agile methods and respond quickly to changing customer requirements.

Step 4: Request for Proposals

Now that you’ve identified your business needs and created a list of suitable IT partners, it’s time to test and evaluate your prerequisites. Now is the time to request an RFP (Request for Proposal) or RFQ (Request for Quotation) to send to potential IT outsourcing partners.

RFPs are created when the desired service, quality, or end result differs for each vendor that may respond. RFQs, on the other hand, are used when you are asking for a simple service quote, and it is not possible to differentiate the desired service or product among the responding vendors. The purposes of creating RFQs and RFPs are to:

Receiving detailed proposals from IT vendors and applying knowledge and expertise related to the company’s domain.
Negotiate the best possible deal and identify the vendor that best fits your company’s needs.
Set clear goals, responsibilities, and constraints to maintain healthy relationships with outsourcing partners.

Companies require documentation to clearly communicate their business goals and express their requirements to vendors. The content of this document will differ based on the type of company. Nevertheless, there are specific sections that all RFP (Request for Proposal) and RFQ (Request for Quotation) documents should include. These sections consist of:

Information about the required documents to be submitted.
An overview of the company and its business goals.
Detailed specifications outlining the specific requirements.
Any limitations or restrictions that may affect the business.
Terms and conditions for the vendor’s participation.
Criteria for the selection process.

Once you have created this document, send appropriate copies to each vendor. Additionally, include your contact information so that the vendor can reach out to you if needed.

Step 5: IT Offshore’s Responses Analysis and Evaluation

To select the appropriate IT offshore development company, the next step involves examining their services and selecting one that comprehends your business requirements. You can create a spreadsheet to evaluate and compare different vendors. This evaluation includes establishing various criteria, and each IT offshore development company is assessed using color-coding for each criterion. For instance, excellent responses are marked as green, unsatisfactory answers as red, average answers as orange, and so on.

Step 6: Scheduling Demos and Interviews

Ask shortlisted IT offshore development companies to demonstrate their proposed technology solutions. This allows you to predict the expertise of an IT offshore development company and how a proposed IT offshore development company can be incorporated into your technology ecosystem.

Scheduling a demo offers the advantage of testing the suggested solution before making a financial commitment. It helps determine how well the solution aligns with stakeholder expectations and business requirements. Hence, companies should choose a vendor and arrange a demo before finalizing a contract.

During the process of selecting an outsourcing partner, several questions should be addressed:

Does the proposed solution fulfill the organization’s needs?
Does the technical team comprehend the proposed approach?
What are the potential risks associated with implementing the proposed technology in business operations?
Do company stakeholders consider the proposed technology solution economically feasible?
Were there any issues, bugs, or unsatisfactory user experiences encountered during the demo?

Considering these questions will contribute to making an informed decision when selecting an outsourcing partner.

Step 7: Contract Negotiation

If all goes well, we have a great deal for both companies. To increase your bargaining power, it’s a good idea to bring in people from sales and finance before you settle on numbers.

Once you have determined the total cost of the partnership, create a payment schedule so that the final payment amount is equivalent to the full amount. Final payment must be made after the job has been fully completed and tested.

If you have a legal department in your organization, ask them to review all the terms of the contract before closing it. It may take a few days, but it’s an important step to make sure everything is in place. It may take more expertise as an IT leader to avoid all hidden clauses in contracts. This is important to avoid causing problems for the company later on.

Summary

Hiring an offshore company has been cost-effective. This is because not only is it cost-effective, but it is also an environment that makes it easy for development companies with capable IT personnel and cutting-edge IT personnel to explain to clients. This is because offshore development companies that compete on price will not be able to compete on cost alone.

And how to avoid currency risk?

Convert all transactions to your currency.
Derivatives, forward exchange contracts, and currency options that determine the exchange rate at the time of settlement in advance

So, even in a downturn, you can secure your success and take advantage of the benefits of offshore.

With over 7 years of experience in developing web application systems, Relipa has gradually established itself in the market. Relipa’s professional staff are not only proficient in web programming languages but also flexible in applying the latest frameworks. We are committed to meeting all customer requirements, from design to implementation, with guaranteed quality and fast project completion times.

In addition, we are constantly consulting to refine our clients’ ideas and help them make the best decisions for their projects. With our dedication and professionalism, we believe in bringing satisfaction to our customers.

If you are looking for a reliable and professional web development partner, please contact us.

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