An Integrative Conceptual Model of Vietnam as an Emerging Destination for Offshore Outsourcing of Software Development for Finnish Companies

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INTRODUCTION

Offshore software development has become a rapidly growing practice in the information technology (IT) industry. Rationale for outsourcing varies from financial aspects, renewing management agenda and focusing on core competencies, to technical and political reasons (Lacity & Willcocks, 2001; Sparrow, 2003; Yalaho & Nahar, 2009; Nahar, 2010). The financial aspects are reducing costs, generating cash, and replacing capital outlays with periodic payments. Technical motives are improving quality, gaining access to new talent and technology, and availability of service providers with expertise and economies of scale. Political reasons deal with dissatisfaction with internal departments and managers, viewing IT as a support function rather than a key asset, and pressure from service providers, as well as a desire to follow trends receiving attention in trade journals and press (Smith et al., 1998). Development of online databases, collaborative online and other tools, different sourcing strategies and cooperation models develop many opportunities for companies to effectively and precisely executing outsourcing projects. Hoch et al. (2000) addressed that even though there is high potential for attaining wealth and profits in the software business, only a few companies have succeeded to remain in the market and flourish.

Today offshore outsourcing is more a norm rather than a specialty. Nevertheless, implementing a successful offshore outsourcing project is not an easy task. In addition to the traditional risks software projects face, such as organizational, technical and communication, offshore outsourcing projects require more attention on managerial and cultural aspects (Beulen & Ribbers, 2002; Narayanaswamy & Henry, 2005; Wei & Peach, 2006; Yalaho & Nahar, 2008). Vast distances between software development centres, cultural aspects and barriers emphasize the need for offshore outsourcing projects to be well managed. Time zone differences also magnify the requirement for managing offshore outsourcing projects successfully.

Carmel (2003a) developed a 4-tier taxonomy of software exporting nations classifying the software industry. In this categorization, Vietnam resided in the last tier of "Infant stage software exporting nations". The characteristics of this tier are under five years of maturity, under 100 organizations and companies, and export revenues between US$25 million and US$100 million. Along with Vietnam, fourth tier nations include Cuba, Egypt, Indonesia and Bangladesh. These nations face challenges related to infrastructure, cultural and socio-political issues, and partner preconceptions (Heeks, 1999; Coward, 2003). The top tier consists of organization for economic cooperation and development (OECD) countries, such as the United States (US), Germany, Ireland, Israel, Finland and the new comer of the 1990s, India. These countries have a software export maturity of over 15 years, hundreds of organizations and significantly over US$1 billion of export revenues (Carmel, 2003a). Indian IT-BPO industry attained aggregate returns of US$71.6 billion in 2009. Of this, the software and services segment accounted for US$59.6 billion. As per NASSCOM, "the Indian IT exports are anticipated to attain US$175 billion by 2020 out of which the domestic sector will account for US$50 billion in earnings". India continues to be the most favoured destination for companies looking to offshore their IT and back-office functions (India Business Dictionary, 2010). Currently, Vietnam Software Association (VINASA) has 198 members and it intends to increase its membership base to 500 companies by 2015 (Ministry of Foreign Affairs of Denmark, 2010a). FPT Software and TMA Solutions, two of the member companies of VINASA have had outsourcing experience since 1999 (FPT Software, 2006). The revenue of "FPT Software" in the first quarter of 2010 was approximately US$12 million (FPT Software, 2010). …