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Microsoft’s Gates Sees Vietnam Outsourcing Potential

Microsoft Corp. Chairman Bill Gates said Vietnam has the potential to develop as an outsourcing center similar to India, during the first visit by the world's richest person to the Southeast Asian nation.

Gates, 50, met Vietnamese Prime Minister Phan Van Khai and President Tran Duc Luong in Hanoi, before crossing town to take questions from students at the Hanoi University of Technology. The visit by the founder of the world's biggest software company takes place two months after Intel Corp., the world's biggest semiconductor maker, said it would build a plant in Vietnam.

While the U.S. government says infringement of intellectual property rights is rampant in Vietnam, the nation of 84 million people is attracting the attention of global technology companies, lured by economic growth exceeding 8 percent a year and an estimated literacy rate of at least 90 percent.

"It's great that Intel is coming here, and no doubt that other information-technology manufacturers will see the kinds of skills'' in Vietnam, Gates said in Hanoi today. "But in no sense should Vietnam specialize in manufacturing. Vietnam should also focus on software development, outsourcing. There's an opportunity to do call centers."

Citing the example of India, Gates said "hopefully Vietnam can also be a country that grows the capacity to supply skills to other countries, including the U.S."

Later in the day, during a visit to the largely rural province of Bac Ninh, east of Hanoi, Gates noted"the Asian miracle" of rapid economic growth that has boosted the standard of living in countries throughout the region.

List of Miracles

"Over the next decade, Vietnam will join the list of those miracles, and provide all the advances that come with that development," Gates told a crowd of journalists, local officials and curious locals. "Microsoft is committed to playing its role by making a broad set of investments in the country.''

The estimated value of Vietnam's industry for software- related and information technology-related services was $170 million in 2005, with the industry growing at an annual rate of about 40 percent, the Vietnam News reported today.

Vietnam now has about 600 software-development companies employing 15,000 workers, up from 170 companies employing 5,000 in 1999, according to the report.

"There are two factors in Vietnam's favor,'' said Nguyen Dang Tien, vice-chairman of Ho Chi Minh City-based software company Diginet Corp., which was founded in 1996 and has about 150 employees. "We have the overseas Vietnamese coming back, and they have skills and experience they gained outside the country. And we have a young population, and they learn fast.''


Still, about 92 percent of software in Vietnam was pirated as of 2004, the highest rate in the world, according to the Business Software Alliance, a trade group funded by Microsoft.

"Piracy of copyrighted works and trademark counterfeiting remains rampant throughout Vietnam,'' the Office of the U.S. Trade Representative said in a 2005 report.

At Vietnam's last round of talks on joining the World Trade Organization, held last month in Geneva, members of the working party on its accession bid asked questions on the timetable for Vietnamese regulations to implement intellectual property laws, according to a summary from the WTO.

Today, the Redmond, Washington-based company signed what Gates called a ``milestone'' accord with Vietnam's ministry of finance, in which the ministry would become the first state body to use fully licensed software throughout its entire information technology system, according to a finance ministry press release.


"This confirms the government's commitments in intellectual property protection, as we approach international integration and becoming a full member of the WTO,'' the ministry said.

Lenovo Group Ltd., China's largest personal computer maker, said this month that it would buy $1.2 billion of Microsoft's Windows software over the next year as part of efforts to curb piracy of the world's most-used operating-system software.

Earlier this week, Gates met with Chinese President Hu Jintao during Hu's visit to the U.S. Hu said China has an interest in upholding intellectual property rights commitments because the world's most populous nation doesn't see itself solely as a center for manufacturing, Gates said.

"Throughout Asia, and particularly here in Vietnam, we have seen great economic development, and the opportunity to create high-paying jobs is strong,'' Gates said. "The key element is talent.''

To contact the reporter on this story: Jason Folkmanis in Ho Chi Minh City


Vietnam’s Growing Role in Outsourcing

Some of the biggest names in technology are turning to the Asian country for top-notch game design and software development

When Microsoft's video game unit began looking to offshore some work in 2002, Vietnam was hardly an obvious choice. But after a fact-finding team returned from an Asia-wide tour including stops in India, China, and South Korea, a small outfit named Glass Egg Digital in Ho Chi Minh City was a top contender. After successfully completing a pilot project designing 3-D racing cars used on the Forza Motorsport game installed in every Xbox console, Glass Egg's relationship with Microsoft (MSFT) has steadily grown.

Today, Glass Egg Digital designs most of the 330 different models in Forza Motorsport 2. Not only do the digital Lamborghinis, Maseratis, and Mercedes look and handle on screen exactly like the real thing, but equally important, they look just as convincing as crumpled wrecks after collisions.

Next up, Microsoft is planning to contract out the considerably more demanding task of creating the tracks and cities through which its cars race. "Today we work on a massive scale [with Glass Egg]," says Nick Dimitrov, senior business manager at Microsoft Game Studios. "We have pretty much put them through the grinder on QA [quality assurance] compliance, and we couldn't be happier."
Selling to the Masters

He's not the only one singing Glass Egg's praises. "They have done some fantastic stuff for us," says Brian Woodhouse, executive producer at Bizarre Creations in Liverpool which outsourced the creation of digital gas masks, telecom towers, and statues that get shot up in a gun-lovers' game called CLUB under development for Sega.

Glass Egg's client roster now includes Electronic Arts (ERTS), Sony Computer Entertainment Europe (SNE), Codemasters, and Atari (ATAR). Founded in 1995 by Vietnamese-American Phil Tran as a 2-D production studio, Digital Glass Egg has seen revenues grow 50% in the past two years. The company declined to give exact numbers but says sales this year will be just under $5 million.

Glass Egg is by no means the only Vietnamese company carving out a niche in software outsourcing. Crosstown rival Alive Interactive, also with a U.S. founder, has excelled in car design, while software developer TMA Solutions, founded by Canadian-Vietnamese Nguyen Huu Le does work for Nortel (NT), Comsys, and Alcatel-Lucent (ALU).

Intel Planning Plant

Homegrown Vietnamese companies are gaining momentum too. The country's largest outsourcing outfit is a division of Hanoi-based IT company FPT Corp., which just garnered a $36.5 million investment from private equity firm Texas Pacific and Intel Capital.

Further proof of Vietnam's potential are the ringing endorsements the country has received from some of IT's biggest names. In March, Intel (INTC) Chairman Craig Barrett visited Vietnam to unveil plans for a $600 million chip testing and assembly plant (see, 3/13/06, "Good Morning, Vietnam"). Intel subsequently bumped up the figure to $1 billion.

In April, Bill Gates was greeted like a rock star by some 7,000 students at Hanoi University of Technology where he talked about his vision of IT in Vietnam. Nonetheless, the country faces some big obstacles if it is to become an IT outsourcing hot spot. Internet connections can be painfully slow since there is no fiber-optic broadband network. The staff at Glass Egg often stay up half the night in order to upload and download files.

Lost on the Map

Another drawback is the lack of fluent English speakers, though clients say this problem is minimal as most communication is via e-mail. Helping balance out these deficiencies are the country's low wages—programmers earn about one-tenth what computer programmers make in the U.S.—a young and highly motivated workforce, and low staff turnover rates of about 5%.

With software and IT exports of just $70 million last year, tiny Vietnam is never going to eclipse India, which logged $17.7 billion in high-tech shipments in 2007. Indeed, for many multinationals looking to outsource this kind of work, the country doesn't even figure on the map.

"One disadvantage of being here is that some people think we work in rice paddies and little grass huts," says Glass Egg Chief Operating Officer Charles Speyer. Nothing could be further from the truth. Glass Egg's 140 employees toil in state-of-the-art facilities just a mile from Ho Chi Minh City's international airport in E-Town, Vietnam's first high-rise dedicated to high-tech clients.

Mastering the Background Arts

The company's big challenge will be keeping its edge over China. "Ultimately China will beat us on cost," says Steve Reid, a Glass Egg business development manager. "If we want to be in business in five years, we have to move up the value chain." For his company, that means mastering the technically more demanding task of environment design.

Reid says its first attempt, working with Electronic Arts to create an imaginary Middle Eastern background for EA's Battlefield 2 war game was a huge learning experience for both companies. Turning out sleek driving machines is a snap, says Reid, compared to the challenge of portraying rusted tanks, bombed-out mosques, and water-stained walls.

(by Frederik Balfour on Business Week)