VietNamNet Bridge – The Japanese yen depreciation by 20 percent against the US dollar has made Vietnamese software firms lose big money.

Economists believe that the Japanese yen, together with the euro, witnessed the sharpest depreciations against the dollar in 2013.

The yen value has dropped by up to 20 percent just over the last few months, as Japanese policy makers decided to pump more money into circulation in an effort to devaluate the yen to support Japanese exporters.

On June 13, 2013, the exchange rate was 93.79 yen per one US$. On July 2, 2013, it was Yen70.736/US$1. However, the yen value dropped sharply to Yen104.2/US$1 on December 24 and Yen105/US$1 on December 31.

On January 21, 2014, the exchange rate was quoted at Yen104.65/US$1.

While the yen depreciation has benefited Japanese businesses, it has made Vietnamese software export firms suffer. The bigger the businesses are, the bigger losses they incur. It is simply because 20 percent of a $5,000 contract makes nothing if compared with the 20 percent of a $1 million contract.

The exchange rate fluctuation is considered an unpredictable and unavoidable risk. In many cases, the losses caused by the exchange rate fluctuation are so big that they can make profitable businesses into unprofitable.

Le Quang Luong, CEO of Luvina, a software firm, admitted that his company’s revenue in Vietnam dong has decreased due to the yen depreciation.

When asked what Vietnamese software outsourcers should do to minimize the risks, Luong said it would be easier for small firms to deal with the problem.

“Small firms don’t have long term and stable clients or business plans. Therefore, they just need to raise the prices by 20 percent,” he explained.

“But this is not the way big firms can follow. The only thing they can do is to keep patient, try to cut down expenses and ask for the gradual price increases to the acceptable levels,” he said.

Vietnamese software firms have been warned that the Japanese yen would not regain its value in 2014. The yen/dollar exchange rate is expected to stay at 115 yen per one dollar by the end of 2014.

In principle, Vietnamese software firms can negotiate with the Japanese partners to use the US dollar for payment instead of the yen. However, the majority of the Japanese partners prefer yen, which is a big headache to Vietnamese outsourcers.

Analysts have noted that the most feasible solution is the one being applied by TMA Company. In the contracts signed between the company and the Japanese partners, the value of the contract is defined in Japanese yen. However, there is a provision that the two parties would reconsider the exchange rate fluctuation once in every six months to make reasonable decisions.

This means that the value of the contract can be changed, so that the two parties can share risks.

However, the solution, applied by TMA for a long period, has not become popular yet in Vietnam, just because of the lack of the cooperation for development among the Vietnamese companies.

Japan has always been the biggest market for Vietnamese software firms which bring 40 percent of the total turnover and 30 percent of the profit of the software outsourcing industry.

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