Đề tài Current situation of outsourcing development, a number of favorable factors promoting this industry as well as analysis of outsourcing activities FPT

TABLE OF CONTENTS Acknowledgements i Abstract ii List of Abbreviations iii List of Charts and Tables iv INTRODUCTION 1 I. Rationale 1 II. The significance of the study 2 III. Aims of the study 2 IV. Research questions 3 V. Scope of the study 3 VI. Methodology of the study 3 VII. Design of the study 4 CHAPTER ONE: LITERATURE REVIEW 5 1.1. The concept of software, outsourcing, and software outsourcing 5 1.1.1. Software definition 5 1.1.2. Outsourcing concept 5 1.1.3. History of software outsourcing 7 1.1.4. Types 7 1.1.5. Advantages of software outsourcing 9 1.1.6. Disadvantages and concerns 11 1.2. Software Outsourcing industry in the world, India and China 11 1.2.1. In the world 11 1.2.2. In India and China 12 CHAPTER TWO: SOFTWARE OUTSOURCING INDUSTRY IN VIET NAM 15 2.1. Overview 15 2.1.1. The introduction of Software outsourcing to Vietnam 15 2.1.2. Key players 16 2.1.3. Principal services 18 2.1.4. Markets for Vietnam software outsourcing industry 18 2.1.5. Achievements 19 2.1.6. Main objectives 21 2.2. Prospects of Vietnam software outsourcing 22 2.2.1. Appealing factors 22 2.2.2. Highly appreciated by the big software outsourcing service providers 30 2.2.3. Increasing government support 32 2.3. Situation 33 2.4. Opportunities 36 2.5. Challenges 40 CHAPTER : A CASE STUDY OF FPT SOFTWARE 43 3.1. FPT software in general 43 3.1.1. Formation and main services 43 3.1.2. Vision 43 3.1.3. Strong business results 44 3.2. Businesses 46 3.2.1. Enterprise Resource Planning (ERP) service 46 3.2.2. Web Meister (WM) 48 3.3.3 FPT.iHRP 48 3.3. Success factors 49 3.4. Direction and challenges 53 CHAPTER 4: RECOMMENDATIONS 56 4.1. Strong commitment of the government 57 4.1.1. Financial support 57 4.1.2. Promotion 58 4.1.3. Legal and Regulatory framework 59 4.2. Human resource and training 59 4.3. Associated solutions 62 4.3.1. Enhance the IT infrastructure 62 4.3.2. Copyright protection 63 4.4. Open source software (OSS) development 63 4.5. Set up quality control system 64 4.6. Other suggestions 65 CONCLUSION 67 REFERENCES 70 ABSTRACTS Information technology (IT) is seen by the Vietnam Government as one of the most significant driving forces for the economic development and social advancement. It steps up the reform process, intensifies the industrialization and modernization of economic sectors, and strengthens the competitiveness of businesses. The development of IT industry, especially the software industry has become a key industry in many developing countries because of the increasing application of information technology in business, manufacturing and many other sectors. Among them, the software outsourcing stands out as one of the most profitable and fast-growing industry. This paper studies the current situation of software outsourcing development, some of the favorable factors that boost this industry as well as the analysis of the software outsourcing activities in FPT Software. Once we have figured out the potentials, we can work out some solutions to first maintain and make use of these factors and then to promote the Vietnam software status in the international arena. LIST OF ABBREVIATIONS AIC : Advancing Technologies & Investment Consultants Corporation APEC : Asia-Pacific Economic Cooperation  BPO : Business Process Outsourcing CDIT : C-DIT-Center for Development of Imaging Technology CDMA : Code Division Multiple Access CEIC : Computer and Enterprise Investigations Conference CMC : Computer Manufacturing Corporation, CMG : Computer Measurement Group  CMM : Capability Maturity Model CMMI : Capability Maturity Model Integration COSIS : Copernicus Online Service + Information System  ERP :Enterprise Resources Planning FCG : First Consulting Group FPT : Financing and Promoting Technology. FSoft : FPT Software GCS : Global CyberSoft, Inc GSE : Global System Engineering HCA : Hochiminh Computer Association HSBC : Hongkong & Shanghai Commercial Bank : IBM : International Business Machines Corporation IEEE : Institute of Electrical and Electronics Engineers IPR : Intellectual Property Rights IT : Information Technology KPO : Knowledge Process Outsourcing Kyu : Japanese levels of proficiency or experience LAN : Local Area Network NASDAQ : National Association of Securities Dealers Automated Quotation System NASSCOM : National Association of Software and Services Companies NEC : Nippon Electric Company NTT : Nippon Telegraph and Telephone OSS : Open Source Software PC : Personal Computer PSD : Pyramid Software Development PSV : Paragon Solutions Vietnam QA : Quality Assurance SMEs : Small and Medium size Enterprises SO : Software Outsourcing SOEs : State Owned Enterprises TMA : Tuong Minh & Associates VASC : Vietnam Association of Software and Communication W3C : The World Wide Web Consortium W-CDMA : Wideband Code Division Multiple Access Wifi : Wireless Fidelity WiMAX : Worldwide Interoperability for Microwave Access WLAN : Wireless Local Area Network  LIST OF CHARTS AND TABLES Table 1: Top reasons for outsourcing 9 Table 2.1: Companies and workers in Vietnam Software Industry (2006 -2007) 16 Table 2.2: Structure of the number of companies specified by the number of employees 17 Table 2.3: Kearney ranking for offsite service locations 20 Table 3: Revenue and staff growth from 2000 – 2008 44  INTRODUCTION I. Rationale Software outsourcing is the term given to the process of programming and engineering services beyond national boundaries (eDINUS). As the global market today is highly competitive and continuously changing, a company must thus focus on both productivity and at the same time cut down costs. Thus, a lot of processes that take up precious resources are being outsourced. The three most common motives in executing the software outsourcing activities are cost reduction, competition and the utilization of third-country supplies of resources. Nowadays, software outsourcing is becoming a global trend and Vietnam also strongly engaged in this practice. Although software industry is now a young industry in Vietnam, it is growing rapidly with impressive turnover and increasing contribution to the country’s prosperity. It is the fact that India has long been taking part in these activities, making huge success and currently is the world leading outsourcing site with revenue from offshore software development of up to US$ 50 billion – as much as the Vietnam GDP. China is the follower as an attractive hub to the globe and this industry has contributed to Chinese state budget a significant amount of total revenues from software products and services. Attracted by such visible benefits, other less-developed countries like Malaysia, Philippines, Russia, etc…are attempting to become others alternatives to India. Software manufacturers worldwide are seeking international markets to localize their products to countries with well developed IT support infrastructures, favorable demographics and labor costs, competent technical education, a favorable government regulatory environment supporting. While the markets are open to many participants, It raises the question that why Vietnam can not join and get one piece of this profitable cake? Vietnam is now just a 10-year-old player in the game with the bright future ahead to make strides in this area. In order to fully grow up, it is important to this country to look into some of the key potentials and strengths to prioritize the development efforts. The government and enterprises should be better aware of what advantageous factors they possess, the awaiting opportunities and difficulties as well. Only by good preparation and coordination, they can best utilize the available resources and realize the objectives of following in the footsteps of India and become a prominent player in the world software outsourcing. II. The significance of the study The research attempts to provide a background understanding of the software outsourcing activities and an overall picture of the prevailing software outsourcing market in Vietnam. However, much focus is paid to look into the potentials factors driven the future growth of the industry. An in depth analysis on the business of FPT Software a leading company in this field will give insights into how software enterprises in Vietnam work and make the activities pay off. Then, the paper also figures out the opportunities, difficulties and raises the suggestions to promote the industry development in line with the whole economy. III. Aims of the study The study is designed with the hope to achieve the following primary aims: To understand about the software outsourcing practice. To investigate the current situation of software outsourcing development and analyze some of strengths and a case study of software outsourcing company to have general picture of the whole industry. To give recommendations to address some of the key issues and overcome difficulties to better grow and flourish. IV. Research questions The above aims of the study can be realized by the following research questions What is software outsourcing, its advantages and disadvantages? What is current situation of software outsourcing in Vietnam and which potentials it possesses? What is FPT Software and how FPT Software can be successful software company? What are the possible solutions to better boost the growth of this industry in Vietnam? V. Scope of the study The study mainly examines the software outsourcing activities in the world, in Asia and in Vietnam but focuses on the FPT Software in particular. Then, suggestions will be recommended to overcome these obstacles and gain strong results. VI. Methodology of the study To achieve the set aims, I have approached to a variety of books and articles regarding on software and software outsourcing. Besides, I tried my best to access FPT Software Company get the internal documents and contact developers who are working there to obtain the basic knowledge and concept of software outsourcing process. While searching for the materials, I mostly paid attention to the factors that underpin the future development of software industry. Based on the thorough analysis, suggestions for better stimulating the growth of the industry are also made. In my study, I used a number of business books, various reference books, newspaper, magazines and different sites of Internet as the sources. VII. Design of the study The study consists of three main parts. The introduction represents the rationale, the significance, the aims, research questions, scopes and methodology of the study. Chapter one provides theoretical background about the software industry and the software outsourcing activities, the concept, types, advantages and disadvantages, then the software outsourcing development in the world, in India and China. Chapter two investigates the development of software outsourcing in Vietnam and focuses on some of the key factors for development, as well as the opportunities and the challenges. Chapter three is aimed to learn about the success story of software outsourcing in FPT Software (FSoft). Chapter four offers some possible recommendations to foster the growth of this industry in the next few years. The conclusion sums up all the issues addressed and suggests some main points for further research. CHAPTER ONE LITERATURE REVIEW 1.1 The concept of software, outsourcing, and software outsourcing 1.1.1 Software definition Software constitutes (1) instructions (computer programs) that when implemented provide a desired function and performance, (2) data structures that enable the programs to adequately manipulate information, and (3) documents that describe the operation and use of the programs (Pressman, 1997). Software is a logical element. According to Pressman (1997) a software product has three main characteristics. Firstly, software is developed or engineered, not manufactured. Secondly, software is not “worn out”. It is not susceptible to the environmental condition which causes hardware to be worn out, but it may deteriorate. Finally, most software is custom – built, rather than being assembled from existing components. Software Process: According to the Institute of Electrical and Electronics Engineers, software engineering is (1) the application of a systematic, disciplined, quantifiable approach to the development, operation, and maintenance of software; that is, the application of engineering to software, and (2) the study of approaches to application (IEEE, 1993). A software process determines activities and organizational procedures to enhance collaboration in the development team so that a quality product is delivered to the customers (Leszek, 2001). 1.1.2 Outsourcing concept Outsourcing is an information technology term represents the process in which one company deliver services to another company that one part of the jobs will be made in house or offsite. Since its development, Outsourcing is becoming a popular trend not only in information technology but other industries for services that are seen as essential to run and manage a business. In other words, outsourcing is an arrangement in which one company purchases services from another while still keeping ownership and ultimate responsibility for the underlying processes. The clients inform their providers what they want and how they want the work performed. So the client can delegate the provider to operate as well as redesign basic processes in order to ensure the least expense involved and efficiency benefits. Software outsourcing is the term given to the business of outsourcing software programming and engineering services to contractors or wholly-owned facilities located in foreign countries with lower labor costs. Offshoring versus outsourcing: A lot misunderstandings happen between two terms ‘offshoring’ and ‘outsourcing’. The former refers to taking advantage of lower-cost labor in another country and can be handed off to third-party vendors or remain in-house while the latter targeted one or all processes to only the third-party vendors. The misconception is that offshoring involves outsourcing. In fact, outsourcing includes organizations that establish dedicated captive centers of their own in remote, lower-cost locations. Software outsourcing is a specialized task providing a creative series of solutions from concept to implementation. Software outsourcing helps accelerate business performance, save time and money, however, this activity requires huge investments and a technique intensive workforce. Software outsourcing industry could also give the companies a chance to develop software at a lower rate, employ specialized labor at a cheaper cost, promote software research and save time. This is the reason why most companies decide to outsource their software development activities to offshore destinations. A software company can save about 40% of expenses by outsourcing an application development project overseas. The outsourcing activities comprise the installation of a dynamic database-driven website or a fully functioning e-commerce website by using creative talent and technical expertise to satisfy another company's web development needs. Undoubtedly, software outsourcing industry is the most effective way to stretch your budget. More and more organizations nowadays enter into big software outsourcing contracts to reduce their costs. Participating in software outsourcing practice, companies should focus on the most important and key activities locally and less strategic activities should be passed to the externally foreign service providers. 1.1.3 History of software outsourcing Software outsourcing owed its origin to the industrial boom that began in the late 17th century. Manufacturers at that time had soon realized the benefits of processing some parts of the production stages to the third external parties. A point in this case, the America passed the job of making covered wagon and clipper ships' sails to workers in Scotland; England's textile industry flourished in the 1830s as that work was outsourced to Indian manufacturers. Some big empires such as the ancient Chinese and the Japanese used to outsource their material extraction jobs to their conquered nations. In recent days, many computer companies in the USA used to outsource their payroll processing. Even though outsourcing existed since the very early days, but the concept of outsourcing is often blurred. Because it happened on a small scale and was concentrated in some specific regions, such as the USA and Europe. In 1980s, the U.S. and Japanese software outsourcing markets are very bustling, but in 1990s software outsourcing in India, China and Eastern Europe rose sharply. Now, software outsourcing in Southeast Asia is booming with India leading role. With $400 billion revenue per year, outsourcing now is an industry that the world can hardly ignore. Globalization, explosive growth of Internet, and the development of information society in every region of the world has made outsourcing an integral part of the world economy. 1.1.4 Types With regard to function, software can be classified as application software or system software. Because there are so many different uses for computers, there are correspondingly a large number of different application programs. Some of which are of special functions or packages tailored for a specific purpose (e.g., inventory control or payroll). Others are general-purpose application programs that are not linked to any specific business task, but support instead general types of information processing. Some of the most widely used general-purpose application packages are spreadsheet, management, word processing, desk publishing, and graphics, multimedia. According to Krishnan (1998) the software industry can be broadly classified as custom software, software service and packaged software. Custom software includes internal system development within an organization. Software service includes the systems integration and systems consulting services provided by a wide range of organizations, from an independent programming consultant to large consulting organizations. The packaged software domain includes all software sold as merchantable products. In terms of the software outsourcing activities, we have other kinds of classification such as business process outsourcing (BPO) and knowledge process outsourcing (KPO). BPO is a process in which a company passes some of its in-house operations/processes to a third party. The main implementations include (1) back office outsourcing, which includes internal business functions such as IT departments that keep the phones and computers running, accounting works, and human resources; and (2) front office outsourcing, which includes customer-related services such as marketing or technical support. In which, accounting works and financial chain outsourcing take bigger part of the pie. BPO helps free up a company’s capital and reduce costs. The outsourced operations or processes vary from manufacturing to customer service to software development. Multinationals, or companies from western countries often use BPO. KPO, on the other hand, involves outsourcing for high-end knowledge work. This includes research and work on intellectual property, equity and finance, analytics, market research and data management, etc. It is estimated that, within the next 10 years, Knowledge Process Outsourcing will be the big trend in the outsourcing marketplace. KPO deals with executing standardized processes, involves higher-end services which require advanced analytical and technical skills. KPO is often us