The Business Case for Outsourcing Software Testing to Vietnam

Transcription

1 The Business Case for Outsourcing Software Testing to Vietnam Synopsis This white paper provides a business case for considering Vietnam as an offshore outsourcing destination, and offers specific examples from the IT and software industries including a US software testing firm with a facility in Vietnam. This paper begins by outlining a framework for evaluating potential outsourcing destinations. It then proceeds to evaluate Vietnam against the framework, demonstrating that Vietnam is worthy of strong consideration as an offshore outsourcing destination for information technology functions including development and software testing. Contents Synopsis... 1 A Framework for Evaluating Outsourcing Destinations... 1 Evaluation of Vietnam as an Outsourcing Destination... 3 Cost:... 3 Workforce Suitability:... 3 Stability:... 4 Government Business and Intellectual Property Policies... 5 Facility with English... 6 Examples of Companies in Vietnam... 6 LogiGear s Experience in Vietnam... 7 Conclusion/Vietnam Scorecard... 9 A Framework for Evaluating Outsourcing Destinations A framework for evaluating outsourcing destinations does not have to be complex or elaborate. In fact, a simple framework that focuses on the key issues is probably far preferable and more effective. It allows the evaluator to focus their analysis on those metrics that should have the greatest impact on the success of the outsourcing effort. The metrics that we feel will provide for an effective and thorough analyses are: Cost - Cost is typically the first early driver in any outsourcing effort. The desire exists on the part of the potential outsourcer to lower their costs. When evaluating costs it is important to

2 LogiGear Corporation white paper, January 2007 Page 2 of 10 understand that there are two types of costs for any outsourcing effort: labor costs, as well as overhead costs. You should not only compare the labor costs of potential outsourcing destinations against each other and against your domestic team, you should also make an estimate of the additional overhead costs associated with managing an outsourced effort. Workforce suitability - It is important to evaluate the workforce of potential outsourcing destinations. What is the educational attainment level? Is there a large enough pool of available workers? What is the rate of turnover (or churn) for technology related jobs? Stability (political, economic, ethnic, and religious) - The stability of potential outsourcing destinations is critically important. Instability introduces significant risk into any potential outsourcing. When evaluating stability you need to look at many different factors, including political stability, economic stability, and ethnic and religious stability. From a political standpoint: o How long has the current government or form of government been in power? Is there significant political upheaval? Have there been any recent coups or rebellions where the government has changed hands in other than peaceful political means? o What is the country s relationship with their neighbors? Are there tensions? Have there been any recent conflicts or wars? From an economic standpoint: o What is the rate of economic growth (GDP growth)? o What is the rate of foreign investment? Others willing to invest in a country is typically a very good sign. o Is the country a member of the World Trade Organization (WTO)? From an ethnic and religious standpoint: o Is there any ethnic/racial tension or conflict? o Is there any religious tension or conflict? All of these factors can have an impact on the potential success of an outsourcing effort. Conflict or instability introduces the potential for work slow downs or stoppages. It can also have personal safety ramifications for individuals who may have to travel to the region. Remember that Americans can be favorite targets of insurgents and rebels because of their PR

3 LogiGear Corporation white paper, January 2007 Page 3 of 10 value (taking an American hostage gets the attention of the U.S. Government and press). Changes in government can also lead to changes in government policies. What was once a business friendly country could quickly become business unfriendly under a new regime. Government business and intellectual property policies - You should evaluate the business and economic policies of the governments of potential outsourcing destinations. Do the labor, economic, development, and taxation policies create a favorable climate for business? Equally important is the protection of intellectual property. What are the intellectual property policies, laws, and enforcement like in potential outsourcing destinations? Facility with the English language - The ability to communicate effectively is critically important for the success of any outsourcing effort. You need to understand what level of English proficiency, both written and spoken, exists in potential outsourcing destinations. Fit with your overall strategy - The last criteria is one that is very often overlooked, with potentially disastrous results. You need to make a thorough evaluation of how well offshore outsourcing fits into your overall business strategy and business processes. Without a good fit, any offshore outsourcing efforts, to Vietnam or any other country, may be doomed to failure from the outset. Evaluation of Vietnam as an Outsourcing Destination Evaluating Vietnam using the previously mentioned metrics shows that Vietnam is a very good potential destination for a company s outsourcing efforts. Following is a discussion of Vietnam s merits using the evaluation criteria. Cost Labor costs in Vietnam compare very favorably to other potential outsourcing destinations. For example, Vietnam s salaries are over 30% less expensive for both IT outsourcing (ITO) and business process outsourcing (BPO) than India. Other Asian countries are even more expensive for ITO and BPO, and Eastern European countries are even more expensive again (source: neoit as reported in GlobalServices, August, 2006). Vietnam s labor costs are also 90% less expensive than labor costs in the United States. A recent article, the Top 50 Outsourcing Cities in GlobalServices (October, 2006) cited Ho Chi Minh City in Vietnam for one of the lowest production costs. Workforce Suitability Vietnam has a well educated and technically savvy population. According to the Vietnam

4 LogiGear Corporation white paper, January 2007 Page 4 of 10 Economic Times, 96% of Vietnam s population is literate. In addition, 80% of the graduates from Vietnamese colleges and universities graduate with science degrees making Vietnam a particularly good destination for technology outsourcing. The educational attainment levels of Vietnam s workforce are further supported by government policies that place a strong emphasis on the importance of education as well as a cultural emphasis on education and receptiveness to training. As of 2004, there were over 200 colleges and universities in Vietnam, an increase of 60% during the six year period 1999 through 2005 (source: Vietnam Economic Times). The Vietnamese workforce also enjoys more stability than is typical in other outsourcing destinations. Vietnamese businesses experience less than 5% turnover (churn) for IT-related positions. This compares very favorably to other outsourcing destinations such as India where churn is over 10%, and in some cases well over 10%, and that number continues to increase in India. Meanwhile the October, 2006 article in GlobalServices, the Top 50 Outsourcing Cities, cited Ho Chi Minh City in Vietnam for its strong labor pool and significantly low attrition rates. Stability Political Stability From a political standpoint, Vietnam has enjoyed over thirty years of political stability. The current government has been in place since the reunification of Vietnam in Vietnam also has not experienced any major conflicts or tensions with its neighbors in almost thirty years (since 1978). This stability has been underscored by the visits of two U.S. Presidents to Vietnam. President Clinton visited Vietnam during his administration, and more recently (fall of 2006), President George W. Bush visited Vietnam to attend the APEC summit. While in Vietnam, President Bush met with Vietnamese President Nguyen Minh Triet, with Prime Minister Nguyen Tan Dung, and with Vietnam s Communist Party chief Nong Duc Manh. Economic Stability From an economic standpoint, Vietnam has a strong and robust economy. Vietnam s gross domestic product (GDP) growth has averaged 7.4% over the past six years (up through 2005, source CEIC). Vietnams GDP growth is the second fastest in Asia (see: Vietnam s Roaring Economy Is Set for World Stage in the New York Times, October 25, 2006). In 2005, foreign direct investment (FDI) in

5 LogiGear Corporation white paper, January 2007 Page 5 of 10 Vietnam was estimated to have reached nearly $5 billion (US dollars). This economic growth and investment compares favorably with other outsourcing destinations. Ethnic and Religious Stability From an ethnic and religious standpoint, Vietnam is also relatively unique due to the absence of ethnic and religious conflict. Almost 95% of the country is ethnic Vietnamese and over 80% of the population has no declared religion. Largely because of this, Vietnam has none of the social and religious conflicts that arise in other outsourcing destinations. A 2003 survey done by the United Nations Development Programme (UNDP) cited Vietnam for being a highly secure investment environment. The survey mentions that in the context of the Iraq war and regional instability, Vietnam is emerging as one of the most secure investment environments. In addition, the Hong Kong-based Political and Economic Risk Consultancy ranked Vietnam as the Asia-Pacific region s safest country (Out of fourteen Asia-Pacific nations. See Berth of a Nation in Time, fall 2002). The kind of stability enjoyed by Vietnam is not enjoyed by many other outsourcing destinations. Thailand as recently as September of 2006 experienced a coup where the military unseated the standing government. India and Pakistan have a long and ongoing history of tension, conflict, and war over the disputed Kashmir region. In Sri Lanka, the Liberation Tigers of Tamil Elam (LTTE) and Sri Lankan military forces have clashed on many occasions recently and there is a U.S. Government travel warning in effect for Sri Lanka. There is a similar travel warning in effect for Indonesia due to ongoing concerns about the possibility of terrorist attacks directed against American or other western citizens and interests. Government Business and Intellectual Property Policies Vietnam abandoned its centrally planned economy twenty years ago in favor of free market economic reform (economic reforms known as doi moi ). Since then, Vietnam has embarked upon business-friendly policies and laws to attract foreign investment. In November, 2006, the General Council of the World Trade Organization (WTO) voted to make Vietnam the organization s 150th member. In a press release about Vietnam s ascension into the WTO, WTO Director-General Pascal Lamy stated: Viet Nam has shown how anchoring domestic reforms in the WTO can yield dramatic results. Viet Nam s economic growth topped 8% last year, foreign direct investment rose steeply to over $6 billion, and exports surged by over 20%. More must surely follow with the new laws, administrative measures, and commitments on goods and services that are in Viet Nam s membership package. (General Council approves Viet Nam s membership, WTO, November 7, 2006) Most notable are Vietnam s efforts to protect intellectual property. Vietnam has largely been in TRIP (WTO Trade Related Aspects of Intellectual Property) compliance since As recently as the summer of 2006, Vietnam enacted legislation to come into full compliance with TRIP. The United States government has praised Vietnam for the extensive revisions and updating of its intellectual

6 LogiGear Corporation white paper, January 2007 Page 6 of 10 property laws (WTO News Item, July 2006). In the package of Vietnam s WTO accession documents, Viet Nam stated that they will comply with the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement immediately, without any transition period. Facility with English From the standpoint of understanding English, one would not expect Vietnam to fare well. That would, however, be a mistaken notion. Vietnam actually does very well from an English proficiency standpoint. The first thing that helps Vietnam is that the Vietnamese language uses roman alphabets and characters. In addition, English is the most popular second language in Vietnam. Most graduates from Vietnamese colleges and universities are proficient in English. All of this serves to make Vietnam s technology workers typically competent in English-language communications. Examples of Companies in Vietnam Intel Corporation: In October of 2006, Intel Capital, the venture capital arm of Intel Corporation, announced that they were making a $36.5 million investment in FPT. Based in Hanoi, FPT is Vietnam s largest software company. Earlier in 2006, Intel also announced plans to build a $300 million chip assembly and testing factory in Vietnam s Ho Chi Minh City (For more information see: Intel invests in Vietnam software company, reported in the San Jose Mercury News, October 24, 2006). Japanese Companies Offshoring to Vietnam: Japanese companies are moving an increasing amount of their information technology development to Vietnam. Vietnam could account for as much as 10% of Japan s software offshoring by 2010 (see Vietnam: Capitalizing on the China-Japan Standoff in GlobalServices, November 2006). Many other companies, such as Anheuser Busch, Bayer, Cisco, IBM, Nortel Networks and Sony have also outsourced projects to Vietnam (see Outsourcing to Vietnam, CIO.com). Next, a detailed example: an American software testing company that has established a thriving offshore test and research center in Vietnam, serving a wide range of American customers.

7 LogiGear Corporation white paper, January 2007 Page 7 of 10 LogiGear s Experience in Vietnam LogiGear Corporation, founded in the USA in 1994, is a leader in software testing services, automation and training. This includes a respected training organization, LogiGear University, and long experience in testing software for many well-known US companies in a wide range of industries. Led by industry thought-leaders, the company was well-prepared to ensure quality when expanding offshore, as long as the right environment could be found. Vietnam provided exactly that environment. As is often the case with Western companies venturing into developing countries, LogiGear s presence in Vietnam started modestly, beginning with a relationship with a Vietnamese software development and testing services company that lasted over five years. LogiGear s confidence in offshoring to Vietnam evolved from this relationship, and in early 2005 the company established the LogiGear Test and Research Center (LTRC, or Luong Toan Rang Cong in Vietnamese) in Ho Chi Minh City. The first and only US-led software testing company in Vietnam, LTRC grew from ten staff members to approximately 150 in the first two years, with plans to expand to 500 by the middle of Now fully integrated, LogiGear s US and Vietnamese operations offer the speed and cost-savings benefits of test automation combined with globally distributed teams, delivering on the vision outlined in LogiGear founder and CEO Hung Q. Nguyen s recent book, Global Software Test Automation: A Discussion of Software Testing for Executives. LogiGear s US operations are expanding in synergy with the new resources in Vietnam, supported by continuous training led by US-based LogiGear University instructors. LogiGear s US project managers, automation engineers, test leads and other staff work closely with a highly skilled Vietnamese team including a group with advanced software test automation expertise. LTRC provides outsourced software testing services for numerous U.S. companies, from startups to well-known multinational FORTUNE 500 companies, in industries as diverse as consumer products, oil and gas exploration, and software publishing, including these examples: For a technology company with Windows, UNIX, and Solaris cross platform software, LTRC took a suite of tests that were being run by an offshore outsourcer in India and completely automated the tests, decreasing their run time from days to hours. LTRC not only completely automated the software tests, but also expanded the test suite and test coverage, even further

8 LogiGear Corporation white paper, January 2007 Page 8 of 10 improving on the significant time savings already achieved through automation. For a software company whose tests were very ad hoc and not documented, LTRC was able to create hundreds of automated tests in only a matter of months that are reusable and easily maintainable. The entire extensive suite of tests takes only two days to run automatically. Because the test automation is designed for easy modification, the initial base of tests has been expanded and used to test the company s software on other platforms, different versions of the company s software, and other related software products. For a large oil and gas exploration company, LTRC has integrated their services into the customer s existing QA organization and is helping them to change their testing methodology to benefit from advanced international standard testing frameworks. Because of the expertise and cost-effectiveness of the LTRC staff, this company has been able to automate tests that had traditionally been done manually, run more tests in the available cycle time, and become more efficient. LTRC s resources also helped the company solve some particularly difficult testing problems that had been plaguing them for some time. Because of LTRC s cost-effectiveness, many customers are able to put together a testing staff that is two to three times larger than their domestic staff using offshore LTRC resources. Due to LogiGear s focus on unified global automation teams, management communications, control and testing speed are improved as well. This enables the company s clients to not only save money, but also increase the number of test cases, increase the number of test cycles, and improve the testing coverage. LogiGear s Director of Engineering Services, Salvador Sandoval, is quick to point out that it is not just lower labor costs that allow LTRC to accomplish these feats. LTRC employs technology graduates very proficient in computer technologies. LTRC then augments their expertise and university training by providing extensive instruction in the art and science of software testing, the latest Action-Based Testing (ABT) methodologies, advanced testing technologies that support the methodology, as well as extensive soft skills training such as business and cultural training, and English training to augment their understanding and proficiency in written and spoken English. As Sandoval points out, the Vietnam team includes very experienced software testers. The combination of a highly proficient and inexpensive labor force, along with our ABT methodology and tools, are what allow us to consistently create and run more tests, provide better test coverage, as

9 LogiGear Corporation white paper, January 2007 Page 9 of 10 well as save our customers money. LogiGear CEO Nguyen reinforces the idea that you must look at offshore resources as more than a cheap labor pool. Vietnam provides us with a very low-cost and technically savvy labor pool, but to obtain the best results you must invest in offshore resources by training them so that you can achieve the optimal synergy between inexpensive offshore labor, appropriate technological expertise, and proficiency with your methodology and supporting tools. Only by achieving the synergy between inexpensive labor, technical proficiency, understanding of methodology and supporting tools will a company be able to have the most successful offshore outsourcing experience, Nguyen points out. As can be seen, LogiGear s experience in Vietnam echoes many of the points already made in this paper. LogiGear finds an inexpensive and talented workforce in Vietnam. Most of LogiGear s recruits come to LTRC with computer science degrees. In addition, LogiGear finds the attrition rate in Vietnam to be very manageable and less than 10%. LogiGear has also been able to take advantage of Vietnamese government economic incentives such as paying no income taxes for the first four years of operation in Vietnam. LogiGear s success in Vietnam, and the rapid expansion of LTRC in such a short time, is testimony to Vietnam s attractiveness as an offshore outsource destination. People who decide to outsource to Vietnam should be very happy with their choice over other potential destinations, adds Nguyen. He is also quick to point out that Vietnam is a beautiful country with many UNESCO recognized sites. UNESCO currently has five sites in Vietnam on its World Heritage List, including the Complex of Hué Monuments, Ha Long Bay, Hoi An Ancient Town, the My Son Sanctuary, and Phong Nha-Ke Bang National Park. The World Heritage List includes 830 properties forming part of the cultural and natural heritage which the World Heritage Committee considers as having outstanding universal value (see World Heritage List, UNESCO). Conclusion/Vietnam Scorecard When looking at how Vietnam stacks up, it becomes clear that Vietnam is an offshore outsourcing destination that is worthy of strong consideration. On the following page is a table showing that on all of our framework s metrics, Vietnam scores very well:

10 LogiGear Corporation white paper, January 2007 Page 10 of 10 Metric Grade.. Cost... Lower than most other outsourcing destinations.. Workforce.. 96% literacy rate..... Heavy emphasis on science degrees.. Stability.. Political: years of the same government Almost 30 years of no conflict with neighboring countries..... Economic:..... Strong GDP growth..... Strong foreign investment..... WTO membership Ethnic and Religious Conflict:..... Negligible.. Government Policies Pro-business..... Good and constantly improving Intellectual property protections and enforcement.. Facility with English Vietnamese language uses roman alphabet and characters..... English is the most popular second language in Vietnam..... Most graduates from Vietnamese colleges and universities are fluent in English For more information, please see the LogiGear website at LogiGear Corporation, 551 Pilgrim Drive, Suite A-1, Foster City, CA USA Copyright 2007, LogiGear Corporation. All Rights Reserved.