LookAtVietnam – As the global economic recession bites, the local software industry is also hard hit, and its fast-track development has to some extent derailed, according to industry insiders. Although it is still early to forecast the final outcome, local software makers are now trying

The Vietnam Software Association, or Vinasa, admits that this year will see the growth rate of Vietnam’s software industry slow down due to the impact of the economic recession when foreign giant information technology companies narrow down its production and thus reduce outsourcing contracts for developing countries like Vietnam.

During the gilded age two years ago, software was considered as the fastest-growing sector compared to other industries in the country. It generated US$500 million of export revenue in 2007, or a ten-fold increase compared to ten years earlier.

In 2008, the industry still targeted a growth rate of 35-40%, without anticipating difficulties that unfolded later in the year. However, the reality was grim, when it only obtained a 20% growth rate. The time now comes tougher, when the association report of 3,000 software companies in the country, only about 800 to 1,000 ones are really earning their living from software industry.

Phan Tan Cong, general director of Vinasa, says that the slow growth rate is blamed for economic recession.

Reliable sources tell the Daily that many information technology companies are suffering from bad impacts when their foreign partners like Canada-based Nortel, Japan-based NEC and Hitachi have either gone bust or seen their profits shrinking sharply last year.

Before seeking the court’s receivership, Nortel was considered as the biggest client of Vietnam-based TMA Solution Company. And the giant NEC, seeing bright prospects, already opened a subsidiary, NEC Solutions Vietnam Co. Ltd.

The time is different now. Many are seeing their contracts with traditional partners canceled, and several of them have to resort to massive layoffs. For example, LogiGear Test & Research Center, a Vietnamese testing company, is mulling to cut down its workforce by 7%, says a source close to the company. The source says other software companies like CSC and Global CyberSoft are also facing a tough time because their main clients from the U.S., Japan and northwestern Europe are suffering difficulties due to the recession.

Currently, TMA Solutions is considered as one of the biggest outsourcing companies in Vietnam. It specializes in outsourcing networking and telecommunication software for companies in the U.S., Canada and Japan, including Nortel Networks, Critical Path, Telephony@ Work, Comsys, EasyLink, Lucent Technologies and NTT-Data. The company cannot avoid from the hardship, says the company’s top leader.

Nguyen Huu Le, chairman of TMA Solutions, admit that 2009 will prove a tough year for outsourcing companies due to the global recession.

“Many signed contracts may be suspended or payment deferred. Meanwhile, many clients will delay the deployment of new projects,” he complaints.

Sharing the view with Le, Tran Anh Tuan, vice director of ATHL Solutions Co.Ltd, says that every software enterprise cannot avoid being hurt and they are under the pressure of massive layoffs, restructuring business and seeking out new markets.

“Due to the economic downturn, enterprises will cut down expenditure for information technology and lock up the software developing job inside their countries rather than awarding them to foreign countries,” he explains.

According to Tuan, it is now high time to change corporate strategies. Enterprises who are seriously suffering from the recession need to focus on controlling expenditures to generate better profit rather than seeking to spur growth and innovation. Unnecessary projects will be postponed or permanently shelved.

Tuan also forecasts that the more bustling merger and acquisition activities in the world will cause negative impacts to the local outsourcing industry, as many local companies may be losing customers.

“To survive the hardship, Vietnamese software companies should not surrender but actively find out new ways,” he says.

Light at the end of the tunnel

A proverb says ‘necessity is the mother of invention,’ and indeed, both foreign-invested and local companies in Vietnam are actively finding new ways to survive.

Last year, Sony Electronic closed its production. However, now it declared to transfer its investment into embedded systems.

An executive from Sony says that before that time, embedded system was mainly developed in Japan. However, after carrying a study in Vietnam, Sony sees Vietnam a good base for developing the embedded system.

Kimihiro Itoki, director of Sony Electrics Vietnam, says that the demand for embedded systems was sustainable. Thus, Sony hopes Vietnam will be a destination to develop the sector in the future.

There are not only foreign companies actively seeking ways to survive the tough times, as many local companies are also making efforts to escape hardship.

Recently, FPT Software established its representative offices in Singapore, Malaysia and France to look for new customers and new orders. Similarly, TMA Solution has also opened its representative offices in the U.S. In addition, TMA Solution is hurriedly looking for new clients replacing Nortel that has declared bankruptcy.

Vinasa in its role as a trade association has recently mapped out a plan to accelerate software export with an aim of helping local software companies to find out new markets alongside traditional markets like Japan, the U.S and northern Europe. Under the plan, the association will spend VND1 billion to promote Vietnamese software industry at global exhibitions like CeBIT in Germany in March, and a software exhibition named Sodec in Japan in May. Up to date, the association has 160 members which account for 60% the country’s total software production capacity.

Although the software industry is facing with a tough time, Pham Tan Cong, general secretary of the association, still pins a hope that the industry will reach US$800 million of export earnings by 2010.

According to Cong, FPT Software has recently won a contract worth US$10 million from Malaysia, and another local company has obtained a contract worth US$54 million.

“It is a good signal for the software industry. We have rights to hope for a better future although life is not a bed of rose,” Cong says confidently.

VietNamNet/SGT