Vietnam has great potential as an investment location for IT outsourcing (read more: IT outsourcing to Vietnam: market opportunities for German companies). However, the cultural differences between German and Vietnamese companies must not be ignored if projects are to be successful. Intercultural understanding is an important success factor for international cooperation. This article by Nhat Linh Nguyen and Peter Steinhoff analyzes possible motives and advantages of Vietnam as a future IT offshoring location, as well as the risks of intercultural aspects of IT outsourcing, in order to derive recommendations for successful cooperation.

Germany and Vietnam: Cultural differences

Vietnam as a collectivist society

The cultural differences between the two countries represent a key challenge for German companies. Intercultural understanding is necessary for successful cooperation. Two fundamental aspects should therefore be taken into account: Firstly, Vietnam is a collectivist society, i.e. interpersonal relationships are also very important in the world of work. In companies, for example, decisions on project work are usually made jointly. When filling new positions, close people such as family and friends are given preferential treatment. In addition, the welfare of the group is paramount, so the needs of the individual are put aside. Personal opinions are not expressed openly in order to maintain harmony within the group. Against this background, it is advisable for German managers to set incentives at group level and not, as in Germany, to reward employees individually. Criticism should also not be voiced directly to the team, but should be carefully packaged. As in other Asian cultures, it is also important to "save face" in Vietnam.

Different understandings of hierarchy as a challenge for intercultural cooperation

Secondly, the different understanding of hierarchies is of central importance. Vietnam is a country with a high power distance, i.e. employees accept the hierarchical order and the clear differences between salaries and decision-making powers without questioning this. While it is common in Germany for employees to work independently and have room for maneuver, employees in Vietnam generally expect very clear instructions regarding their tasks. Consequently, management should give their employees and colleagues exactly the degree of autonomy they need based on their cultural background and adapt the decision-making process accordingly.

Intercultural understanding as a prerequisite for successful business relationships

Against this background, it is essential to prepare employees in Germany for their potential new tasks (change management) and to show them how they can maintain the business relationship with the offshore provider (relationship management). With the help of the Enterprise Transformation Cycle (ETC), these goals can be implemented and achieved. It is important to clearly formulate what the goal of outsourcing is and how this change and thus the transformation should take place. The prerequisite is that this transformation process begins with the redesign of the company's strategy. With the help of implementation tools, such as a balanced scorecard, the strategy is underpinned and the path is described with concrete measures. This is followed by the transformation of processes, organization, people, systems and tools as well as governance. Another important aspect is recruiting the right employees with the necessary skills and openness to the topic.

Using intercultural training in change management

The next step is to plan and implement the type of transformation. This takes place in the Envision, Engage, Transform and Optimize phases. The second phase (Engage) is particularly crucial. The aim here is to involve employees so that they support the transformation process and to prepare for the transformation in concrete terms. The central tasks in this phase are

• Creation of a communication concept
• Creating a network for change
• Selection and training of change agents (employees who are to support and shape the change)
• Communicating the change

This is flanked by intercultural training. As the national cultures between Germany and Vietnam are very different, it is essential to avoid a possible "culture shock" for those involved in the project. Various training courses ("Saving face: Power distance, direct and indirect communication", "Individuality versus collectivity", "Developing action strategies in different contexts", "Special dynamics of virtual, international teams and conflict management") can improve intercultural understanding as well as intercultural competence among employees and develop a certain intercultural sensitivity in parallel. Only through this intercultural competence can conflicts and misunderstandings with the foreign offshore partner be avoided and international cooperation promoted.

Favorable conditions for foreign investors

As an emerging IT hub, Vietnam offers an alternative to established locations such as India and China. Vietnam's IT outsourcing industry has remained a consistent productivity force despite the global health and economic crisis that has affected much of the world and brought nearby offshoring epicenters to a standstill. According to several consensus analyses, the country will buck the global trend and record slight economic growth even in 2020. For 2021, analysts even expect economic growth to return to the pre-crisis level of between 6.6% and 7%. These good medium to long-term economic prospects (low labor costs, a stable political, social and economic environment and a young, in some cases well-educated, hard-working and loyal labor pool) had already made Vietnam a valued destination for foreign investors before Covid-19. In addition, the free trade agreement between the EU and Vietnam came into force on August 1, 2020. This will make the Southeast Asian country even more attractive to foreign investors in the coming years.

The Vietnamese government also wants to support the influx of foreign companies through a variety of (non-)tax incentives. The Investment Law from 2015, revised in 2020, and implementing decrees determine the main support instruments that investors can take advantage of. From a tax perspective, the state supports domestic and foreign investors through reduced corporate tax rates for different periods, temporary full tax exemptions, reduced income tax rates for employees and import VAT relief. In addition, the legislator supports infrastructure development, particularly in economic zones, high-tech and industrial parks as well as research and development projects, and also promotes the training of employees.

Outlook

As a "tiger state", Vietnam offers a promising business location and has the opportunity to establish itself as a center of excellence for IT in the ASEAN region in the long term. To achieve this, the growth path it has embarked on must be consistently pursued and existing challenges must be met. If you want to participate in the high forecast growth rates, you have to establish yourself on the Vietnamese market without neglecting the competition from neighboring countries. In addition, the cost structures, administration and cultural aspects are different to those in Germany. A market entry in Vietnam must therefore be carefully planned regardless of the sector. Potential can only be exploited if foreign companies familiarize themselves with local conditions and adapt their business activities accordingly.

This article was co-authored by Nhat Linh Nguyen and Prof. Dr. Peter Steinhoff. Nhat Linh Nguyen completed her Bachelor's degree in Business Administration at the University of Augsburg. She is currently working in a technology company and is studying for a Master's degree at the University of Applied Management in Ismaning, specializing in International Management.

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