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Over the past few years, Vietnam’s high-tech manufacturing and service sector has been plagued with rising labor costs and a shortage of skilled workers. This has caused many Western companies to take a second look before setting up operations in Vietnam.

According to a recent labor survey conducted by Vietnam’s Ministry of Labor Invalids and Social Affairs (MoLISA), there was a nearly 8% increase in monthly salaries of Vietnamese workers at foreign enterprises last year, with a rise to an average of VND 2.6 million (about US$141) per month. This is due largely to inflation and the rapidly increasing cost of living in Vietnam. Unionization and worker strikes have also fueled wage hikes.

In January 2010, the Vietnamese government also announced that minimum wage for workers at foreign companies will be increased to VND 1.34 million (about US$73) per month in larger cities and VND 1 million (about US$54) in rural areas.

The shortage of skilled workers in Vietnam has also been a point of concern for foreign companies doing business there. According to the MoLISA survey, only about 40% of the country’s current workforce of 48 million is considered to be “trained.” More than half of the employers surveyed indicated having experienced difficulty in hiring workers whose skills matched their needs. This imbalance is particularly significant among Vietnam’s younger workers: nearly four out of five workers in their early twenties received no formal job training before joining the workforce. This has led to additional training costs for companies hiring from the local talent pool, particularly for those foreign companies engaged in more complex manufacturing processes that require technical skills.