Acute labour shortages are rattling FIEs

As high inflation hits Vietnam, workers are turning their backs on poor paying foreign-invested companies.

Foxconn, the world’s largest electronic outsourcer, this year opened two manufacturing facilities in northern Bac Giang province – making good on its investment promises.

But the company, which has big clients such as Apple, Hewlett-Packard and Dell, could only recruit 3,000 of the 5,000 workers needed to man the assembly lines.

“This is a big issue for Foxconn. The company reported that it was facing difficulties in recruiting workers here,” said Do Quoc Tuan, deputy director of Bac Giang Department of Planning and Investment.

Is that a real shortage?

Foxconn is one of thousands of foreign-invested enterprises (FIEs) in Vietnam now grappling with a massive labour shortage. In many industrial parks nationwide, banners announce recruitment campaigns, especially those in footwear, textile and garment, and electronic sectors.

In southern Dong Nai province, one of the most attractive places for foreign investment in Vietnam, companies are more than 30,000 workers short, according to the province’s Department of Labour, Invalids and Social Affairs.

Ho Chi Minh City Export Processing and Industrial Zones Authority also reported a massive shortage of around 20,000 labourers at the city’s industrial zones.

“I see labour shortages as a concern hindering manufacturing in Vietnam. This issue seems to be getting more serious,” said Haruki Narita, general manager at Japan’s Narita Techno Company in Vietnam.

The shortage was one of the main reasons forcing Japan’s Canon Inc. to decide to expand investment in Thailand instead of Vietnam, though this multinational corporation already has two manufacturing facilities in Vietnam.

During a meeting with the Ministry of Planning and Investment, a Canon executive said the firm was afraid of failing to recruit enough workers for a new factory in Vietnam.

But why have labour shortages hit FIEs in Vietnam, which is said to have an abundant and young workforce?

“Vietnam does not have a labour shortage. Our workforce is abundant to satisfy the needs of FIEs,” said Le Xuan Thanh, deputy director of Department of Labour-Salary under Ministry of Labour, Invalids and Social Affairs (MoLISA).

With population of 86.5 million, 57.8 per cent is of working age, Vietnam has an abundant workforce, according to the MoLISA. Each year, about 1.06 million people join the workforce, translating into 2.5 per cent growth.

“While we are trying our best to reduce unemployment and sending thousands of people to work abroad, so a labour shortage in Vietnam is illogical,” said Thanh.

Wage is the key

Thanh said low wages were behind the labour shortages. Figures from MoLISA’s Department of Labour-Salary show that the average wage for workers at FIEs is now about VND2 million ($100).

Currently, the average wage for workers at Foxconn’s facilities in Bac Giang was VND1.5 million ($75), said Tuan at Bac Giang Department of Planning and Investment.

As inflation reached 19.89 per cent in 2008 and continued up 6.52 last year, workers at FIEs claim current wages are falling short.

“I could hardly save any money during working at FIEs. Sometimes, I had to borrow money from my friends for sudden expenses,” said Nguyen Thu Thuy, who early this year left a job at Canon’s factory in Thang Long Industrial Park in Hanoi.

While working for Canon, she earned around VND2.1 million ($105) each month. One-fourth of her wage was spent on house rental fees while the remaining was enough for essential needs.

Now, doing farm work in her hometown in Phu Tho province, Thuy can earn the same amount each month, but does not have to pay for housing. “Even though earning here may be a bit lower, the net income is often the same as living expenses are more costly in cities,” she said.

For other people, who do not return to their hometown, they often shift companies for higher salaries.

Nguyen Thu Huyen, who is working at Metro Cash & Carry in Hanoi, said she had already worked at seven FIEs since 2006. Five of those companies are located in Vietnam Singapore Industrial Park in southern Binh Duong province.

“Each time I see a recruitment announcement offer higher salary, even just VND200,000 ($10) higher, I changed job,” she said.

Huyen now earns nearly $100 from her job at Metro Cash & Carry each month. “It cannot help me to save money as inflation is rising”.

The General Statistics Office reported that the consumer price index (CPI) by the end of October jumped 7.58 per cent against December 2009. Analysts say inflation could be 9 per cent this year.

“In general, high inflation is making workers’ lives more difficult. The only way for FIEs to cope with labour shortages is raising labour costs,” said Thanh.

Regarding wages it seems the proof is in the pudding.

Korea’s Samsung Electronics, for example, recruited nearly 8,000 people to work for its mobile phone factory in Bac Ninh province and plans to recruit about 27,000 people till 2015. “We do not face labour shortages,” said a Samsung executive at Bac Ninh.

Workers at Samsung earn about VND3 million ($150) on average. Furthermore, they are offered a free lunch or dinner each day. Samsung also builds an apartment building for workers and transports them to work on free bus. “I feel good to work here, I never think about leaving Samsung,” said a worker at Samsung Electronic Vietnam.

A recent Japanese External Trade Organisation survey showed that Japanese companies operating in Vietnam had to increase average salaries by 14 per cent this year.

However, Thanh said the net increase was not much as inflation this year might be up to 8.5 per cent.

“And while the dong is devaluing against other foreign currencies, the average wage of a worker in FIEs remains at around $100, like the previous years,” he added.

The dong has depreciated 7.4 per cent on the back market so far this year. Early last week, the US dollar’s value surged to a new record high of around VND21,200 per dollar.

Analysts say that FIEs do not want to increase wages as the government is regulating a minimum wage at low level, allowing those companies to pay a low salary but not violate government regulation.

The Vietnamese government has recently announced to raise minimum salaries at FIEs by 10.8 per cent on average, raising the lowest minimum level from VND1 million ($52) to VND1.1 million ($57.8) and the highest minimum level from VND1.34 million ($70.5) to VND1.5 million ($78.9).

The move is part of the government’s roadmap in applying similar salary levels at domestic and FIEs. The new minimum salary will be implemented from July 1, 2011.

But many FIEs say the new minimum salary regulation will not impact on their policy because the current wages are already higher.

The matter is if the companies do not raise salaries, they will continue facing labour shortages.

“The decision belongs to FIEs. Labourers will not work for these companies if they can earn more money at domestic enterprises or from independent jobs,” said Thanh.- VIR

Tags: invest in Vietnam, Vietnam FDI, Vietnam investment