Vietnam’s Tech Startups: Human Resource Challenges
Vietnam’s startup environment is dynamic and is rapidly growing. However, human resources are one of several challenges for tech start-ups. Vietnam Briefing addresses key issues in tech startup talent and approaches for attracting and retaining them.
Vietnam is now the third most active startup ecosystem in Southeast Asia, behind only Singapore and Indonesia. The start-up scene in Vietnam has developed rapidly in the past decade, benefitting from governmental policies, tax incentives, and changes in consumer behaviors.
Vietnam is home to 3,800 startups, along with 200 venture capital and 100 startup incubators. The four unicorns in Vietnam are VNG, VNLife (VNPay), M_Service (Momo), and Sky Mavis. Out of the total investment value of US$1.35 billion in 2021, many deals are worth millions. Some notable investments include the US$250 million investment into VNLife (Series B), US$258 million in Tiki (Series E), US$200 million in Momo (Series E), and US$45 million in KiotViet (Series B).
The large investments into these start-ups highlight how the capital market is focused on tech businesses. Hanoi and Ho Chi Minh City have developed a robust ecosystem for tech startups, with dominating sectors including artificial intelligence (AI), e-commerce, fin-tech, and enterprise solutions.
Following integration into the ASEAN Economic Community and an increased presence of global tech companies, more investors want to put money into startups in Vietnam. With arguably the fastest-growing tech scene in Asia, new startups in Vietnam will achieve an increasing amount of investment over the next decade.
Yet the startup ecosystem in Vietnam is still young. It just passed the second stage of activation and now is going into the third phase of development which is the globalization stage. Regardless of size, human resources are one of several challenges for tech start-ups. 90 percent of startups fail within their first year and “personnel crisis,” which causes companies to end before they are fully developed, is one of the key causes of this failure.
Vietnam tech startup talent
Demand for highly skilled labor
Demand for tech talent is high. According to Navigos Group’s report on human resources of Vietnamese start-ups, recruitment demand for start-ups is increasing, with 53 percent having to recruit during the first three months of establishment and 17 percent having recruitment needs over the next three to six months. It is worth noting that the demand for highly skilled and specialized employees is increasing.
However, there is a supply-side problem. Startup companies are already facing issues with a limited local talent pool. For example, Cisco projected that by 2020 the Vietnamese information technology (IT) sector would face a shortage of over 500,000 information & communication technology (ICT) workers. Last year, only 400,000 engineers were working in IT and 50,000 IT students graduated. There are likely even fewer engineers trained in data or AI technologies. In addition, many of these engineers are considering opportunities abroad. A survey conducted in 2018 revealed that 57 percent of professionals working in AI or blockchain technologies would have relocated abroad if given the opportunity.
For instance, the game programming sector, a hot field contributing to Vietnam’s two unicorns, VNG and Sky Mavis, is also in a significant shortage of personnel. According to Statista, there are only around 25,000 employees in the game sector in Vietnam, which is a big deficiency compared to market demand.
Higher education institutions have established new majors and degrees such as data science and artificial intelligence (i.e., Hanoi University of Science & Technology), data science (i.e., Ho Chi Minh City International University), and created vocational programs focusing on training digital skills. However, these structural initiatives only started rolling out in 2019, and have not yet translated to a significant boost in tech talent supply to meet the pressing demand for tech talent in the fast-growing tech ecosystem.
A lack of high-quality personnel has led to competition between firms to win over talent, causing start-ups to lose people to others, making more attractive offers.
Vietnam boasts a large, young labor force. Through a survey of 25,000 Gen Z young people nationwide from 93 universities, it showed that 34 percent of young people are willing to join startups or start their own businesses; 8 percent said that there is no need to work for a company, working part-time is better; 14 percent prefer to work for non-profit organizations; the rest of the young people no longer “love” working for foreign businesses like the previous generation but are willing to choose domestic enterprises.
In addition, the abundant young labor force is a significant advantage, as young people can adapt quickly.
However, if a tech startup does not have the necessary HR practices in place to accelerate this youthful talent, it may cause challenges.
International human resources
With labor scarcity, entrepreneurs require not just domestic but also foreign human resources. Vietnam has no restrictions on recruiting foreign workers, but the current regulations have shortcomings such as no mechanism for foreign workers on probation and work permits. Current regulations for foreign workers have a maximum of two years of work contract and no indefinite contracts. In addition, there is no visa for foreign start-ups to enter Vietnam. Foreign experts entering Vietnam often have to apply for a business visa (usually up to 3 months) with entry restrictions. This makes it difficult to attract skilled professionals in the field of technology.
What can businesses do to attract and retain employees?
Have clear company goals and values
Most of the time, in a start-up, employees feel that a firm lacks clear direction and well-defined business processes. Because of this, the morale of the employee suffers and it leads to a conflicting climate within the organization full of internal competition and blame-pacing.
Therefore, it is very important for a startup to communicate that goal to its employees so that employees know the goals and values of the organization. Every startup has a business goal where it first enters any line of business and creates a company culture. This acts as a set of guiding principles for any new employee.
Diverse recruitment options
Startup firms should outsource HR functions particularly if it is not their core competency; the majority of startups in Vietnam struggle to handle HR issues. A simple solution to this problem is to outsource these responsibilities and functions. Attracting talent and strategic recruitment is one of the challenges. This challenge could be tackled by following different recruitment options as per the requirement of the startup.
Investors should be prepared to open up new recruitment channels. For recruiting personnel, start-ups should diversify recruitment channels such as using online information channels, via social networks, in the start-up network or from universities, etc. Adding new recruitment channels will help the company attract employees from different backgrounds, not just in terms of gender and ethnicity, but also in terms of socioeconomic background.
Finding compatible talent for a startup is not an option but a crucial step for running its business successfully. The steep competition to hire the best talents out of a limited local pool affects not only one company but the entire ecosystem. Tech startups should carefully select employees for each stage and function, and they should balance the risks. In order to strongly promote startup enterprises, the Vietnamese government needs to focus on connecting the components of the startup ecosystem which are government policies and human resources.
Vietnam Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in Hanoi, Ho Chi Minh City, and Da Nang. Readers may write to email@example.com for more support on doing business in Vietnam.
We also maintain offices or have alliance partners assisting foreign investors in Indonesia, India, Singapore, The Philippines, Malaysia, Thailand, Italy, Germany, and the United States, in addition to practices in Bangladesh and Russia.
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