Vietnam’s Rising Offshore Development Costs: Indonesia Emerges as a Strategic Alternative

Why Japanese Companies Are Reassessing Offshore Development Destinations

In recent years, offshore development has become a cornerstone strategy for Japanese companies battling the chronic shortage of domestic IT talent. Vietnam emerged as a go-to destination due to its low labor costs and abundant technical talent. However, by the mid-2020s, rising wages, rampant job-hopping, and unstable team dynamics have forced businesses to seek alternatives.

This article explores the current challenges in Vietnam’s offshore development sector and evaluates Indonesia’s growing potential as a viable replacement.

Current State of Offshore Development in Vietnam

Former Appeal: A Synonym for Low Cost and High Quality

From the 2010s onward, Vietnam became a magnet for offshore development due to:

• Low labor costs : Competitive salaries compared to neighboring countries.
• High educational standards : Strong focus on STEM fields in universities.
• Young, motivated workforce : Demographics skewed toward tech-savvy youth.
• Geopolitical stability : Favorable environment for foreign investment.

Rising Labor Costs

As of 2024–2025, the salaries of developers in Vietnam have increased significantly. For example, the following data has been reported:

• Front-end developers: Monthly salary of approximately $900–$1,500

• Back-end developers: Monthly salary of approximately $1,200–$2,000

This represents a rise of nearly 1.5 to 2 times compared to the previous levels of around $500–$700. This trend is especially noticeable in urban areas such as Hanoi and Ho Chi Minh City.

Job Hopping and Low Retention Rates

Along with rising salaries, job hopping (frequent job changes within a short period) among engineers has become the norm in Vietnam. Even if companies invest in training, it is not uncommon for employees to move to other companies within a few months. This trend is driven by the following factors:

• A seller’s market due to excessive demand for engineers

• Mass hiring by foreign companies

• The younger generation’s desire for career advancement and higher pay

As a result, there is a lack of stability in development teams, increasing the risk of impacts on project quality and delivery deadlines.

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The Potential of Indonesia as an Alternative Location

Basic Information and Growth Background

Indonesia has the largest population in Southeast Asia (approximately 280 million people), with a high proportion of young people, indicating great potential for future labor supply. In recent years, it has been attracting attention as an offshore development location for the following reasons:

• More stable labor costs compared to Vietnam

• Higher employee retention rates and stronger loyalty

• Governmental support for IT education (for example, the “Merdeka Belajar” policy)

• The rise of startup culture and an expanding pool of engineers

Labor Cost Comparison

The salary levels for engineers in Indonesia fall within the following ranges:

• Front-end developers: Monthly salary of approximately $500–$1,000

• Back-end developers: Monthly salary of approximately $600–$1,200

Compared to Vietnam, these levels are equal to or lower, allowing for reduced development costs while maintaining a stable supply of human resources.

Retention Rates and Hiring Environment

In Indonesia, the culture of job hopping is not as prevalent as in Vietnam, and many engineers remain with the same company for several years. Many workers come from regional areas and tend to show a higher level of loyalty toward their companies.

In terms of educational standards for engineers, a three-pronged development system is being established through universities, polytechnics, and boot camps.

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Practical Comparison and Considerations Between Vietnam and Indonesia

Language and Cultural Differences

In terms of English proficiency, Vietnam has a slight lead. However, English education among Indonesia’s younger generation is being strengthened, and the average TOEIC scores are on an upward trend. Additionally, when it comes to affinity with Japanese culture, Indonesia ranks higher, making it more compatible with Japanese companies.

Labor Laws and Contracts

Vietnam’s labor laws are relatively company-friendly, but since the amendment of Indonesia’s Job Creation Law in 2023, the country has been improving its labor environment to encourage foreign investment. For matters such as salaries, social security systems, and obtaining work visas, collaboration with local partners is essential.

Future Selection Criteria: Which Should You Choose?

When to Choose Vietnam

• Short-term projects : Leverage existing networks and high-quality systems.
• Cutting-edge tech needs : AI, IoT, or rapid prototyping.
• Established presence : Already have a subsidiary or trusted local partners.

When to Choose Indonesia

• Long-term HR development : Build stable, loyal teams.
• Cost-performance focus : Maximize budget efficiency.
• Labor-intensive tasks : BPO, web production, or volume-driven workflows.

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Conclusion: Balancing Cost, Stability, and Growth

Vietnam’s offshore sector remains attractive for its proven track record and high-quality output . However, soaring costs and turnover demand caution for long-term strategies.

Indonesia , while still maturing, presents a compelling alternative with stable costs , higher retention, and government-backed growth. For Japanese companies, the decision hinges on balancing cost-performance , team stability , and cultural alignment .

A hybrid approach—leveraging Vietnam for immediate needs and Indonesia for future scalability—could optimize outcomes.

Glossary of Terms Used in This Article

Offshore Development

The practice of outsourcing development work to overseas locations. It is widely used in the IT industry to reduce costs compared to domestic development. Southeast Asia is a major outsourcing destination.

Job Hopping

The tendency of workers to frequently change jobs within a short period. Particularly common among IT engineers who seek career advancement or higher salaries through frequent job changes.

Back-End Developer

An engineer responsible for designing and developing the server side and database of systems and applications. Their main role involves handling business logic and data processing.

Front-End Developer

An engineer who develops the user-facing side of websites and applications. They build the visual UI using HTML, CSS, JavaScript, and other technologies.

BPO (Business Process Outsourcing)

Outsourcing part of a company’s operations to external firms. It is used not only in IT but also in fields like customer support, accounting, and human resources.

Merdeka Belajar

An educational reform policy by the Indonesian government promoting “freedom to learn.” It encourages the implementation of practical education programs in collaboration with industry sectors.

Frequently Asked Questions (FAQ)

Q1. What differentiates Vietnam and Indonesia as offshore destinations?
A1. Vietnam has already attracted many companies, with high-quality IT talent and proven experience. However, rising labor costs and high turnover rates are concerns. Indonesia has more stable labor costs and higher employee retention, making it suitable for long-term development.

Q2. Which country has better English proficiency?
A2. Currently, Vietnam is said to have a higher average level of English proficiency. However, English skills in Indonesia are also improving, especially among younger generations. It is recommended to check language support based on the specifics of the project.

Q3. Which country should be chosen for a first-time offshore development project?
A3. If you want fast results in a short period, Vietnam is the better choice. If you aim to develop a team over the long term, Indonesia is more suitable. The decision should depend on your company’s resources and goals.

Q4. Is development in Indonesia reliable in terms of quality?
A4. The country’s education and training systems are improving, and more skilled personnel are emerging. However, selecting the right partner company and designing a solid training support system is essential.

Q5. What should be considered when shifting a development base from Vietnam to Indonesia?
A5. Legal systems, tax regulations, and labor contracts differ, so it’s important to collaborate with local experts. Also, understanding cultural and management style differences in advance is crucial.

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