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Hanoi vs. Ho Chi Minh: Which City is Best for Offshore Outsourcing?

Hoang TRAN VAN

Project Director


You have decided to start an offshore outsourcing project. With its highly-skilled IT specialists, low costs and dynamic business environment, Vietnam has certainly proved its point as an emerging software development powerhouse whose potential you should explore. Yet, making the final choice puts you in a difficult position: which city will give you the edge, Hanoi or Ho Chi Minh?

These two cities have shaped Vietnam’s digital transformation over the past decades and are now capitalizing on the high skills of a young population to provide competitive growth opportunities for companies of all sizes.

Offshore outsourcing - Hanoi vs Ho Chi Minh

Through its two main cities, Vietnam is a highly competitive outsourcing destination. Contact us to learn more about setting up and offshore unit in Vietnam.

The tale of the two cities

Hanoi is Vietnam’s capital city and political center, drawing on more than 1,000 years of rich history to tell its story as a citadel, administrative center, capital of the French Indochina, and then capital of the Socialist Republic of Vietnam. Hanoi is the second most populated and economically developed city, and hosts most of the country’s governmental institutions. It is situated in the northern part of Vietnam, in the Red River delta.

Ho Chi Minh City is the country’s financial center, as well as the largest city in terms of population and economic development. Its history evokes the city’s evolution from a fishing village to the capital of the French colony of Cochinchina, and later the capital of the independent republic of South Vietnam. It is located in the south-eastern part of Vietnam.

As tech hubs, both cities have a community of tech-savvy people who are fueling the country’s growth as a competitive offshore outsourcing spot. An increasing number of IT specialists trained overseas are returning home, in Hanoi and Ho Chi Minh City, to apply their know-how and expertise as well as an open-minded, western-biased way of thinking.

Ho Chi Minh City is indeed known for the business-oriented mindset of its people and diverse business opportunities, but Hanoi offers deeper technical expertise and more stability for longer-term investment. Through its embassies and government institution, the capital city also opens up perspectives of foreign exchanges and partnerships unrivaled by any other city in the country.

Read more about the myths and the reality behind Vietnam as an offshore destination

 

Quick facts about Hanoi and Ho Chi Minh City

Hanoi and Ho Chi Minh City have made rapid progress in recent years, especially in the high-tech industry. Relying on favorable demographics (over 60% of the population is under the age of 35), a better quality of the educational system, and strong government support, both cities are consistently paving their way towards an enticing business environment for IT&C projects.

Many of the statistics monitoring their performance have registered significant improvement, transforming Hanoi and Ho Chi Minh City into two welcoming destinations for offshore outsourcing projects. Although Ho Chi Minh now leads the race for innovation and disruption, Hanoi comes only second and is strengthening its position with growth rates that outpace Ho Chi Minh in many respects.

 

City Indicators Hanoi Ho Chi Minh City
Population 7.6 million 8.4 million
GDP Growth Rate 8.1% 7.8%
Foreign Direct Investment 4,157 valid projects 6,954 valid projects
Tholons Services Globalization Index 26th place 24th place
City Momentum Index 8th place 2nd place
Provincial Competitiveness Index 14th place 8th place

Hanoi has achieved a higher and more stable GDP growth rate as well as a more significant evolution in the Provincial Competitiveness Index, advancing 10 positions as compared to Ho Chi Minh City’s downfall of 2 positions. The City Momentum Index still favors Ho Chi Minh as the city with a stronger momentum but both cities have made remarkable progress since last year, when they did not make it to the Top 20.

Contact us to learn more about the business potential of Hanoi as an offshore outsourcing destination.

 

Hanoi and Ho Chi Minh City: what to look at for your offshore outsourcing project

When locating your offshore outsourcing project you have to be well aware of the potential of the location you have chosen. This requires careful consideration of multiple aspects that range from skill sets and local community to costs and openness to investment. Depending on what you want to achieve, Hanoi and Ho Chi Minh City have multiple competitive advantages to offer in order to support your growth.

 

Accessibility

When assessing destinations for your next offshore outsourcing project, ease of access and a supportive infrastructure are the first things to look for.

Thanks to a cohesive system of railways, waterways and roads, Hanoi and Ho Chi Minh City are easily accessible. Each city is served by an international airport and represents a terminal for numerous train routes. The network of highways and expressways is also improving consistently in order to decongest Vietnam’s two most important business hubs. The Tholons Index mentions an equal level of competitiveness (0.5) for both cities in terms of availability of physical and technological platforms/systems to host outsourced operations.

The national authorities are now concentrating their efforts on increasing Hanoi’s competitiveness by implementing a synchronous infrastructure network that focuses on modernizing all types of infrastructure within its territory: traffic, electricity supply, trade, industry, information, health, sports, culture and more. Ho Chi Minh is also undertaking similar initiatives to enhance the city’s infrastructure.

Offshore outsourcing - Vietnam

Accessibility is an important factor to consider when locating your project, but setting up a project in an offshore location is much more than that. Learn more about how to build a successful collaboration in Vietnam.

Education and expertise available

Hanoi is the largest center of education in Vietnam, hosting hundreds of scientific research institutes and over 50 universities and colleges. The first Western-style universities were set up in Vietnam’s capital city and here you can find the largest technical university of the country – Hanoi University of Technology. Ho Chi Minh City is also home to several institutions that provide high-quality education and training.

From well-versed Software Engineers to R&D Specialists or Business Managers, the IT&C talent pool available in Hanoi and Ho Chi Minh is diverse and highly-qualified. Tholon’s Top 100 Super Cities Report estimates that the overall talent availability and its ability to meet the demands of an outsourced project is equally comparable in Hanoi (0.7) and Ho Chi Minh (0.8).

The distinct history of the cities has influenced the evolution of their people’s skills. Vietnam’s startup community has noticed that Hanoi has more numerous and more talented engineers, whereas Ho Chi Minh’s specialists are more business-oriented. The Provincial Competitiveness Index has rated higher the level of labor training quality in Hanoi, at an average of 7.88 as compared to Ho Chi Minh, which scored 7.12. So, if you are looking for business professionals, you should go to Ho Chi Minh City, but if you need high-end technical expertise then you should look at Hanoi first.

 

Costs involved

The total cost of setting up an offshore outsourcing project is another aspect to consider especially if you dispose of a limited amount of financial resources to support your actions.

Cost competitiveness is higher in Hanoi as compared to Ho Chi Minh City. The cost of living and the average salary payment expenses are also significantly lower in Hanoi. The capital city still has some improvements to make in order to increase the effectiveness of business registration operations and reduce the time required for bureaucratic compliance.

 

City Indicators Hanoi Ho Chi Minh City Observations
Tholons Index – Cost 1.4 1.3 Hanoi is more attractive in terms of overall payroll and non-payroll costs
Numbeo Index – Cost of Living 42.64 38.67 Hanoi is 60% less expensive than New York City, Ho Chi Minh is 57% less expensive than New York City
Average Monthly Salary 481.32$ 301.10$ The average salary is 37% lower in Hanoi
GDP per Capita 3,425$ 5,428$ The GDP per capita is 35% lower in Hanoi
PCI Index – Entry Costs 7.51 7.99 Ho Chi Minh is more competitive in terms of length and procedures of business registration
PCI Index – Time Costs 5.87 6.24 Ho Chi Minh is more competitive in terms of time spent on bureaucratic compliance, and process effectiveness

Take a look at Pentalog’s service offer to learn more about the costs of setting up an offshore team.

 

Potential for innovation and business development

Stability and government openness to foreign investment are other important points to look at when evaluating the potential of an outsourced destination.

“Vietnam’s two major commercial hubs, Ho Chi Minh City (2nd) and Hanoi (8th), have made rapid progress and now sit in the Global Top 10. Their success has been underpinned by favourable demographics and significant FDI as they take concrete steps to liberalise their business environments.” (JLL City Momentum Index 2017 Edition)

The capital city, Hanoi, prides itself with a stable economic environment and a steady GDP growth, which have earned it the reputation of a reliable destination to invest in. Hanoi hosts a significant number of government institutions, diplomatic missions and international organizations, fostering a communication network that facilitates access to information and experience sharing. Ho Chi Minh is more dynamic and is currently advancing at a faster pace, but its rapid evolution can be a source of concern for the stability of a newly-established business.

The Vietnamese government is committed to reform the business environment, by providing incentives and facilitating processes meant to encourage foreign investment. Hanoi is currently the focal point of these strategic actions and the local authorities are scaling up their efforts to make the local business climate more appealing. Their initiatives are sustained by the Prime Minister who has issued a separate decree that provides higher incentives for companies investing in Hanoi. The government has also implemented a one-stop shop approach aimed at facilitating foreign business penetration. Ho Chi Minh City is also benefitting from this nation-wide measure to develop its attractiveness.

The Tholons Index notes that Hanoi benefits from a stronger business catalyst, raising at 0.8 as compared to 0.6 for Ho Chi Minh City. This indicator is calculated based on the presence of government incentives and regulations, the level of industry performance, the support of industry-related organizations as well as the ease of doing business in a location.

 

An evolving startup scene

Hanoi and Ho Chi Minh City are two vibrant startup scenes that encourage both local and foreign innovators to build their presence in Vietnam. Co-working spaces as well as startup incubators and accelerators span across their entire territory. However, the specificity of each city influences project typology and their way to welcome and encourage startup potential.

Ho Chi Minh’s community has an entrepreneurial mindset, which sustains a high level of confidence in their ability to build startups and make them profitable. The city ranks a bit higher in the Tholons Index when considering the Digital & Innovation parameters: number and diversity of startups, startup ecosystem, and number of unicorns. By taking a look at the level of foreign investment in the region as compared to Hanoi, it is fair to say that Ho Chi Minh has a more extended startup ecosystem. But it also means higher competition and a fiercer fight in the innovation race.

Hanoi is also an interesting startup destination, with high potential for foreign investment. It is a more creative hub, its engineering-minded community is more focused on building unique products. Hanoi hosts the country’s first and currently largest high-tech park – Hoa Lac High-Tech Park. Hanoi’s startup scene benefits from greater support from national authorities. Examples of the government’s involvement are the ambitious Silicon Valley Project (a plan sponsored by the Science and Technology Ministry that aims to catalyze Vietnam’s digital transformation), the FIRST project – Fostering Innovation through Research, Science and Technology (an initiative encouraged by the Ministry of Science and Technology in partnership with the World Bank) as well as the government’s preferential mechanisms and policies to encourage investment in Hanoi’s high-tech park.

 

Pentalog – a success story in Hanoi

Pentalog has opened its offshore delivery center in Hanoi in 2009. Since then, the location has turned out to be one of our most competitive software production locations, serving clients from France, the USA, Canada, Singapore and Switzerland, to cite a few.

When we started looking for an offshore location in Asia we were immediately attracted by the capital city’s tech diversity and startup potential. We saw Hanoi as the pioneer of innovation, where the preferential administrative procedures established by the government encourage business development and foreign investment. We also found attractive the lower level of competition and the cost-effectiveness of establishing a business in Hanoi.

But what determined us to make the final call is the people’s loyalty. We have registered much lower turnover rates than our counterparts based in Ho Chi Minh City. After more than 8 years of operations in the capital city we can undoubtedly state that the people in Hanoi are steady and easy to work with, their level of both English and French is good. Being a center of education focused mainly on technology, the capital city allowed us to access rapidly specific tech skills and recruit IT Engineers easier. All of these aspects have helped us build stable teams and long term collaborations.

 

If you are looking for an offshore destination to locate your business or an IT outsourcing partner to help you speed up your software development capacities, contact us!

We would be happy to share with you more insights about Hanoi and help you set up a successful collaboration with an offshore team in the capital city of Vietnam.

In the meantime, learn more about some of our success stories in Hanoi : medtech apps, SaaS business intelligence, telecom equipment testing and more.

Read more about the author: Hoang TRAN VAN


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