Vietnam: Time to Stop the Delusion of Cheap Labour

Experts startedtalking about the end of cheap labour in China many years ago. Since then,Vietnam has stepped up as a potential alternative, with its low labour costsand government incentives. Yet Vietnam needs to look far beyond justreplicating the scale of production taking place in China in the past.

Ever since Chinafaced a decline in its role in manufacturing, Vietnam has become the darling offoreign investors in search of the next hot emerging market. Over the last fiveyears, the country’s exports have more than doubled as cheap labour andlow-cost infrastructure have drawn foreign direct investment (FDI) into themanufacturing sector, according to Bloomberg Business, which reported inApril that Vietnam’s purchasing manager’s index (PMI) has been above 50 everymonth since August 2013.

In addition to astrong base in furniture, textiles, and garment production, Vietnam is one ofthe leading exporters of cashew nuts, rice, coffee, seafood, fruits, andvegetables. The country also has considerable FDI, especially in high-techindustries as Microsoft, Samsung Electronics, LG Group, Intel, Canon, Panasonicand Toshiba continually expand operations in the country. 

Samsung has, inrecent years, turned Vietnam into one of its largest production hubs byinvesting nearly US$ 15 billion.

In April, CreditSuisse Group said Vietnam’s growing popularity as a global manufacturing hubwas one of the reasons for the growth. “The manufacturing sector, whichaccounts for 24% of Vietnam’s GDP, attracted 57% of the FDI inflows last year.The country stands to gain even more investment from the Trans-PacificPartnership,” Credit Suisse Group said.

However, theseachievements, while a sign of the country’s remarkable economic success, alsohint at deeper imbalances.

It’s worth lookingat the link between the absence of a strong high-skilled workforce and a largepool of low-skilled workers glorified and categorised as “cheap labour” in themanufacturing sector. Many experts are concerned that the government’s focus onbreakneck growth may conceal the ills of low-skilled labour — including childlabour — by associating “cheap labour” with “arich source of foreign investment that will boost the economy.” And it isproblematic to equate cheap labour with competitiveness.

The quality of theVietnamese workforce, according to some international indicators, remains lowand lags far behind the region. World Bank rated the quality of the country’slabour at 3.39 points on the 10-point grading scale, ranking 11thamong 12 rated Asian countries, much lower in comparison with South Korea at6.91 points, India at 5.76 points and Malaysia at 5.59 points.

The country’sproductivity was also low, just one-fifteenth of Singapore, one-fifth ofMalaysia and two-fifths of Thailand, being grouped in the four bottom ASEANcountries for its low capital, scientific and technological and labour levels.

According to TrinhD. Nguyen, an economist at HSBC, Vietnam now faces a skilled labour shortage astertiary education is not keeping up with corporate demand. Not only short ofskilled labour, even trained workers fail to meet requirements on job-relatedskills and have to be retrained in many cases, analysts pointed out.

Poor Englishproficiency, lack of cognitive skills, such as problem solving and criticalthinking, and core skills — teamwork andcommunication — as well as lack of work discipline areother disadvantages for Vietnamese workers to compete with those fromSingapore, Indonesia, Thailand and Malaysia.

Talking about thisissue, Dang Ngoc Tung, the president of Vietnam General Confederation of Laboursaid: “I do not know how members of the government think, but I feel lamentableand the nationalism concerns me. Is that the workers who are responsible forthe low productivity? Or (because of) the government who administrates economy?This is a major question that I suggest them to answer in the next five years.”

Inflation drivingwages higher but labour skills not advancing as quickly also threatens thegrowth and adds to a list of challenges policymakers face.

The government has been struggling to address Vietnam’s wagecompetitiveness. This year, they decided to raise the minimum wage by up to13%, despite calls for a higher increase from labour unions. In 2015, Vietnam’saverage monthly wage of US$ 96 to US$ 138 compares to minimum levels of US$121.90 in Cambodia, US$ 135.43 to US$ 296.96 in China, and US$ 265.68 inThailand.

However, the country cannot hold onto low wages forever. Expectations haverisen along with incomes. A series of strikes and disputes over the past yearshow that Vietnamese workers are increasingly vocal about their rights.

According toministry statistics, there were almost 50 strikes and labour disputes in thefirst two months of the year. One of these strikes involved nearly 20,000workers of a Taiwanese footwear factory in southern Vietnam in February. “Most strikesso far this year related to 2016 minimum wage adjustments, salaries, andemployee bonuses,” said Deputy Minister of Labour, Invalids and Social AffairsPham Minh Huan.

Analystsacknowledge the bottom line is that competing in terms of low wages is a riskybusiness and should only be considered an edge in the short-term for adeveloping country like Vietnam. According to Dr. Vo Tri Hao, a lecturer at HoChi Minh City’s Economics University, if Vietnam continues to rely on cheaplabour, there will be no pressure for technology innovation and move to moreadvanced techniques.

“Ifwe keep abuse of cheap labour and importing outdated technology we will beunable to improve productivity,” stressed Tung. “It would be much worse if wecontinue to rely on outdated Chinese technology and cheap labour in the nextfew years.” 

作者 / 潘栋

编译 / 许志亮

文 / 来源于《今日东盟》

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