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Vietnam’s economy is taking off dramatically. After a long period of steady growth, foreign direct investment (FDI) leapt by 70% in 2006, reaching a high of $10 billion. The country’s economy, growing at an annual average of 8% for the last few years, is moving beyond basic industries, like garment-making, to more sophisticated products. In 2007, Intel and Foxconn (a large Taiwanese electronics manufacturer) each began new projects in Vietnam valued in the billions of dollars. This new phase of growth is creating new challenges for HR managers there.

Blue-collar employment

In this high-growth environment, Vietnam’s workforce is also expanding very quickly. The country has a population of over 85 million, making it the thirteenth most populous country in the world. The 45 million working Vietnamese are increasingly moving to the cities to take industrial and service jobs. According to the General Statistics Office of Vietnam, in mid-2006 there were 8.2 million people employed in industry or construction. This number has been increasing by over 500,000 annually since 2000 (see chart). The foreign-invested enterprise (FIE) minimum wage of VND 710,000 (about $44) monthly is lower than basic wage levels in much of China. Vietnam’s plentiful labor makes it a draw to international firms that might have invested in China before.

Yearly Net Change in Number of Employees in Vietnam, by Type of Employment

Source: General Statistics Office of Vietnam

However, over the past two years, significant labor tensions have hit Vietnam. In early 2006, there were dozens of major strikes by tens of thousands of FIE employees. Their grievances included inadequate wages, excessive overtime, and illegitimately deducted wages. Strikes in Vietnam are almost always illegal strikes, unauthorized by a union. Procedures for legal strikes are generally tedious and difficult. Most of these strikes were against Korean or Taiwanese FIEs. They came around the time the government raised the minimum wage to its current level, and were sometimes against companies that delayed its implementation.

Although strikes have not been repeated in such large number since this period in 2006, they have not ended either. Compounding labor tensions, inflation rose significantly in Vietnam in the first half of 2007. Gasoline prices went up by 20%, and some food prices by over 10%. Some large garment companies experienced strikes demanding higher wages in early 2007. In general, paying more than the minimum wage may be necessary to retain reliable basic laborers, especially in the more modern urban areas around Ho Chi Minh City. Some enterprises report paying wages of over $80 per month (more than 50% above minimum wage) to low-level employees.

White-collar employment

As more companies enter Vietnam, recruiting skilled employees for technical and management positions is becoming more difficult. Due to cultural differences and the legacy of Communism, the majority of local workers in Vietnam are not well suited to the demands of Western companies. Growing multinational companies are desperate for personnel who have experience in Western companies and can speak English. However, the pool of people that meet these requirements is small, and due to competition they tend to have inflated salaries. There is also the risk of poaching, which is rising as competition heats up.

Vietnamese salary levels are increasing rapidly. After white-collar salaries rose by around 8% on average per year in 2004-2005, they jumped by over 11% in 2006, well above the rate of inflation. Salary increases for key staff are likely to be even higher. In 2007, levels for higher positions are at least $2,000 per month for HR managers, $3,500 for CFOs, and $5,000 for CEOs. Other job functions particularly in demand include finance, accounting, sales, and marketing.

More expensive expatriates can help when no one else is available, but they often encounter cultural and language barriers. One solution to this dilemma is to hire overseas Vietnamese. Referred to as Viet Kieu, there are about 3 million of these worldwide, about half in the US. Many have key skills and usually speak Vietnamese, so they can integrate well with local workforces.

The Vietnamese legal system can sometimes make overseas Vietnamese ambivalent about returning for high-level positions. In Vietnam, civil law and criminal law are not well separated. Sometimes a party involved in a dispute can have their adversary imprisoned for months, even over a business dispute that is civil in nature. This is infrequent, but it happens enough for some candidates to be concerned. Even native Vietnamese occasionally shy away from positions like CFO, which are seen as particularly at risk.

In the longer run, training local employees in-house can also provide good returns. Although it requires an investment in the employee, it circumvents the supply shortage and gives the employee a more Western business understanding. It can also instill a sense of loyalty and limit job-hopping.

Changes to labor laws

The Vietnamese social insurance system requires contributions of 15% of salary from the employer and 5% from the employee. The system was overhauled recently, significantly affecting some FIEs. The Law on Social Insurance, which went into effect on January 1, 2007, caps “salary” at 20 times the minimum wage for contribution purposes. For higher-paid employees, who might earn 60 or more times the minimum wage, this will reduce contributions significantly as compared to the past. On the other hand, plans are underway to increase contribution rates gradually to 18% from the employer and 8% from the employee by 2014.

Minimum wages, which are different for foreign and domestic companies, are also set to increase over the next few years. There have been no increases in the minimum wage for FIEs since early 2006. However, the domestic minimum wage is set to increase yearly starting on January 1, 2008. The Ministry of Labor, War Invalids, and Social Insurance (MOLISA) hopes to unify the domestic and FIE minimum wages by 2010, which will mean some increase in the FIE minimum wage.

On July 1, 2007, the new Law on Gender Equality took effect in Vietnam. Passed in November 2006, this law bans “all forms” of discrimination against women, although its details are vague. It also offers tax breaks to enterprises employing a large number of women.

Officially, enterprises have been limited by law since 2003 to a maximum of 3% foreigners out of their employees. There are a number of exceptions to this rule, and it is sometimes left unenforced. However, it has been under heavy criticism from FIEs operating in the country. In September 2007, the government announced it would abolish the cap.

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