Guide to Setting Up an Offshore Development Center (ODC) in Vietnam

Setting up an Offshore Development Center (ODC) is a powerful strategy for companies looking to grow their tech capabilities to the next level.

Setting up and managing an offshore development center is far from straightforward. Even for large corporations, it requires deep insights, careful planning, and great execution to navigate through all the barriers effectively.

In this article, we’ll break down the critical steps and share practical tips to help you establish an ODC successfully.

Why Companies Choose To Build Their ODCs In Vietnam

The success of an ODC largely depends on selecting a location with the right mix of talent, infrastructure, cost-efficiency, and a favorable business environment. Therefore, businesses must thoroughly evaluate potential locations to ensure they align with their ODC objectives and growth strategies.

In this regard, ASEAN has garnered significant attention for its competitive advantages, including cost-efficiency, a highly skilled talent pool, and a strategic geographic position that provides easy access to other key markets across Asia.

Furthermore, Vietnam stands out as a prime destination in ASEAN for establishing an ODC. The country offers a large pool of highly skilled IT professionals and engineers at 40% to 60% lower costs compared to those in Singapore or the US. 

Additionally, its strategic location, connecting major innovation hubs across Asia and ASEAN, combined with a burgeoning tech ecosystem and favorable government policies for business investments, has resulted in one of the region's fastest-growing economies, further enhancing its appeal as a prime destination for building an ODC.

In short, the benefits of having an ODC in Vietnam can be summarized as follows:

• Cost efficiency
• Access to a broader skilled talent pool
• Strategic Location
• Government Support
• Developing Tech Ecosystem
• Cultural Compatibility
• Infrastructure Development

Discover more insights about Vietnam: Pros and Cons of Offshore Development Center (ODC) In Vietnam

Key Steps to Setup an Offshore Development Center (ODC) 

1. Define The ODC Project Scope and Budget

The beginning is the most important part of the work. Businesses need to clearly define the scope and requirements for their ODC, pinpointing the technology stack and expertise required. This is also where you can establish an expected budget and required resources.

A company looking to build an offshore development center as an extension of its tech operations, handling only side projects, will have vastly different needs compared to a dedicated ODC serving as the main hub for all tech activities.

Some initial considerations that should be taken into account include:

• The specific operations and results expected from the ODC.
• The available budget and resources.
• Key milestones and timelines for the setup process.
• Required technologies and expertise.
• Risk mitigation strategies.

2. Select a Suitable ODC Model

There are three core models for establishing an ODC, each varying in terms of control, flexibility, and risk management. Thus, businesses should evaluate which option is most effectively designed to meet their specific business and project needs.

3. Choose a Location

While Vietnam is a great destination for building an ODC, the country has 5 centrally controlled municipalities (cities) and 58 provinces, each with its own potential and specialization. When it comes to ODCs, businesses often consider these three cities as prime locations:

A. Ho Chi Minh City: 

As the economic engine of Vietnam, Ho Chi Minh City continues to outperform with the highest growth rates and an impressive FDI inflow of US$198.82 million in the first half of 2024. Combined with the largest concentration of tech talent, a thriving tech ecosystem, and favorable government policies for investment and digital transformation, the city is now the preferred location for companies building Offshore Development Centers (ODCs).

B. Hanoi: 

Ranked second in investment inflows and home to a flourishing tech talent pool, Hanoi has seen a 52% surge in investment compared to the same period last year. The city is benefiting from government support as it strives to become Vietnam's foremost science and technology hub, with efforts focused on attracting more FDI by boasting technological and scientific advancements.

C. Danang: 

Danang, though smaller in scale compared to Ho Chi Minh City and Hanoi, maintains its competitive edge with lower office, infrastructure, and talent costs. Furthermore, its accelerating growth, thriving startup scene, and solid government backing have led more businesses to consider Danang for setting up their ODC.

Discover more insights into: Vietnam Startup Ecosystem: Why You Should Be Excited 

4. Research the Market, Culture Nuances, and Regulatory Compliance

Firms must conduct market research to gauge the availability of skilled talent, assess office spaces, and evaluate local economic factors that can affect ODC operations. It also requires businesses to familiarize themselves with Vietnamese work culture to ensure that communication and management practices align with local norms.

This is especially important when considering Vietnam’s legal framework, including employment compliance, tax regulations, and data privacy rules. To successfully build and run an ODC in Vietnam, businesses must ensure full regulatory compliance and avoid any potential legal mistakes.

5. Register Your ODC

Registering an ODC as a legal entity requires submitting various documents to the relevant state authorities, which include detailed information about your business operations, ownership, and legal structure. To clarify the essential procedures, we have compiled the key legal considerations outlined below:

A. Investment Registration Certificate (IRC) 

Prepare and submit an investment proposal to the Department of Planning and Investment (DPI) to obtain an IRC, including: 

• A written request for permission for execution of the investment project;
• A detailed investment proposal;
• Copies of any of the following documents: ID or passport, investor's financial statements of the last two years, financial institution commitment, financial capacity guarantee;
• Office lease agreement or land use rights;
• Information on the application of technologies;
• The business cooperation contract.

B. Enterprise Registration Certificate

• Business registration application form;
• Draft of the company’s charter;
• List of Members (for limited companies) or Shareholders (for joint-stock companies);
• Certified copies of ID cards for individual members and authorized representatives, the decision on the establishment, or an equivalent document.
   

C. Tax Compliance

• License Fee: The annual fee is 2 million VND for registered capital under 10 billion VND and 3 million VND for capital above that amount;
• Value Added Tax (VAT);
• Corporate Income Tax;
• Export and Import Tax;
• Special Consumption Tax: Levied on specific goods and services.
   

D. Post-establishment Procedures

• Open a company bank account;
• Obtain a company seal;
• Register for a digital signature for electronic tax filing and online reporting;
• Submit the business license fee declaration and payment.

For more detailed guidelines: Setting Up A Business In Vietnam – Complete Guide

6. Infrastructure Setup

Firms will also have to consider the resources required for the ODC in terms of infrastructure setup. We highly recommend following the checklist below:

7. Build the ODC Team 

Typically, firms can treat a dedicated offshore development center like a standalone company, in which they can hire multiple roles and integrate different departments. However, this approach tends to be the most costly, and time-consuming and demands strong market expertise, which isn't ideal for newcomers.

Instead, businesses should focus on building the tech team and key departments based on the project’s scope, while allowing the headquarters to handle other functions remotely or outsourced to third-party partners.

An ODC team usually includes:

• CTO/ Project Manager: Oversees the development process, ensures project milestones are met, and coordinates between teams and stakeholders.
• Tech Manager: Focuses on people management, resource allocation, and ensuring the team functions smoothly as a whole, rather than on hands-on technical work.
• Tech Lead: Primarily responsible for technical execution and project leadership, including hands-on coding and making key technical decisions.
• Developers, QA, and Testers: A blend of senior developers with in-depth technical knowledge and junior resources allows for cost-effective solutions while upholding quality standards.

8. Monitor ODC and Implement Robust Management Practices

Once everything is set, the long-term success of your ODC will depend on how well it's managed and monitored.  Beyond talent, factors like legal compliance, office rental, and payroll will constantly require businesses to take into account. Start by defining a clear organizational hierarchy, assigning specific roles, and implementing regular reports to avoid any confusion.

For ODC staff, robust communication and management procedures are needed to ensure they can perform at their best. Hence, efforts should also be put into establishing seamless communication channels while encouraging collaboration between onshore and offshore teams to promptly resolve issues and maintain team unity.

9. Partner with a Service Provider

Many businesses initially consider setting up an ODC independently, only to find the process overwhelming due to unfamiliar markets and hidden pitfalls, while also needing to maintain focus on core operations.

This is when partnering with a reliable partner in Vietnam can be a game-changer, as they leverage local expertise to meticulously manage all aspects of the ODC setup and further provide sustained support after the process has been completed.

Businesses now have a wealth of service providers to choose from, but sorting out the most suited one can also be tricky. Before finalizing your decision, consider these essential criteria:

• Relevant expertise, experience, and technical capabilities
• Local knowledge and network
• Transparent pricing
• Security standards and time guarantees
• Frequent communication and ongoing support

Tips for Managing Your ODC in Vietnam
 

As your ODC successfully transitions to operation, the focus will shift to ongoing monitoring and management. To help ensure smooth operations and long-term success, here’s a comprehensive checklist that can serve as the foundation for creating a robust ODC management strategy in Vietnam:

• Clearly outline goals and assign KPIs for the ODC team.
• Implement project management tools and communication platforms.
• Schedule regular meetings with both onshore and offshore teams.
• Develop a reporting structure for progress and issues.
• Review team performance, and create feedback systems and recognition/ reward programs.
• Foster collaboration between onshore and offshore teams.

Read on for more detailed insights about : How To Manage A Software Development Team in Vietnam

Conclusion

Setting up an ODC is a great strategy for businesses to significantly boost their tech capabilities and tap into the vast tech talent pool in Vietnam. It also serves as an excellent initiative for future market expansion, as the offshore development center operates as a legal entity within the local country.

However, building one is not an easy feat. Businesses must ensure careful planning at every step, from legal compliance to team structuring, talent acquisition, and project management. To navigate these complexities, many businesses are relying on trusted partners to ensure the successful establishment of their ODC. 

ShopBack, for example, has successfully built their ODC with the support of Talent JDI, demonstrating how strategic partnerships can facilitate a smooth and effective setup process. Check out their story here!