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Vietnam is a country of 79.9 million people that is slightly larger than New Mexico. Approximately 85-90% of the people are ethnically Vietnamese, with indigenous minorities residing in the Central Highlands of the country. Vietnamese is the official language for government in business matters. Use of English is on the rise, but is not commonly used for official purposes.

Vietnam experienced average GDP growth of 9% between 1993 and 1997. While increasing, the per capita GDP is $1,950, a figure that is lower than many of Vietnam’s neighbors. Most observers believe that additional economic liberalization is needed, as the effects of the initial reforms have run their course. Growth rates declined from 8.5% in 1997 to 4.8% in 1999, but rebounded to 6.8% in 2000. A similar growth rate is expected for 2001, though the global economic slowdown will have a negative affect.

Table 1: Economic Indicators

Source: World Bank

The Labor Pool

Vietnam has a labor pool estimated to be nearly 40 million workers, with an additional 1.5 million workers joining the work force each year. This large, inexpensive, and relatively well-educated labor pool has been a major attraction to foreign investors. The agricultural sector remains the largest employer (67%). Industry and services employ 33% of the labor force, with services producing the largest portion of the GDP.

Laws require employers to permit the establishment of labor unions within six months of a company’s creation. Unions must be members of the Vietnam General Confederation of Labor and report directly to the Communist Party. Unions don’t attempt to improve worker conditions, instead they aim to improve productivity and facilitate communication between workers and management. As a result strikes are rare in Vietnam. There were 71 strikes in 2000 and none were directed at American invested companies.

While Vietnam has a relatively large and educated workforce, there are still shortages of managerial and skilled workers. The government is attempting to fill these voids by improving education and training; however, progress remains slow. The high demand for skilled workers, coupled with the low supply has led to wage increases for these types of employees. In fact, some American managers in Vietnam have reported that it is easier to hire an expatriate than a local employee.

The shortage of qualified skilled labor in Vietnam has led to rampant job-hopping and employee poaching. Most affected by these trends are companies employing the more highly skilled workers. In order to improve employee retention, employers must show employee that they are respected and trusted.

The Vietnamese government seeks to promote a more knowledge-based economy, as compared to the present preeminence of agriculture. In order to do this, the government is attempting to modernize its IT sector and promote a software industry. Recently, the government opened the Quang Trung Software City in hopes of expanding its IT export potential. This marks the beginning of an ambitious plan, which seeks to employ 60,000 skilled IT workers by 2005. Other Southeast Asian countries have attempted similar promotions of the IT sector.

Labor Laws

Basic requirements under Vietnamese law are as follows.

Table 2: Basic Requirements and Labor Standards

Source: Vietnam Ministry of Labor, War Invalids, and Social Affairs

Official workday length is Vietnam is similar to other countries in the region and is fixed at eight hours per day. Traditionally, this meant 48 hours per week; however, the Vietnamese government is now encouraging foreign companies to adopt five day and 40 hour workweeks.

Leave: Every worker is entitled to one day off per week. Workers who have been with their respective company over one year are entitled to 12 days of paid leave per year. This is higher for those in dangerous professions or are younger than 18; they receive 14-16 paid days off per year. Workers receive three days off for marriage and one day off for the marriage of a child. Female workers receive four to six months of maternity leave per year, pending on the nature of their work.

Companies have differing protocols for excused leave. Despite laws restricting overtime hours to 200 per year, one joint venture, the Louitech-Leasgo, has penalized workers 28,000 dong (less than $2) per day for not working overtime. However, in general overtime is not mandatory and workers receive 1.5 times their usual wages when they do work. Workers receive double their usual pay for working on holidays. There are six official paid holidays in Vietnam, which are Western New Year, Tet holiday, Victory Day, International Labor Day, National Day, and National Day of the Individual Employee.

Benefits: Companies must provide a small portion of the employee’s wage for health benefits. Employers must pay 2% of the employee’s wages to an authorized health insurance company in order to provide the employee with health care. The employee, who contributes 1% of his/her wages, supplements this. This payment is comparable to other Southeast Asian countries, and lower than in many other Asian states.

An additional 5% of the worker’s wages must be withheld for payment into a local insurance fund for the worker. This is for old age benefits, disability benefits, and burial expenses.

Foreign invested companies incur additional expenses. 15% of Vietnamese workers’ wages are contributed to social insurance benefits. This amount is split, as 10% is paid to the local labor office for employment benefits. The remaining 5% is paid to a social insurance fund that the foreign company creates and operates. This fund is used to pay for illness, work-related accidents, occupational disease, maternity leave, childcare, and funeral expenses for those killed in job-related accidents. These social taxes do not apply to foreign workers.

Labor Organization: The Vietnam General Confederation of Labor (VGCL) is the Communist Party labor organization. This is the umbrella organization from which all local unions must operate. The VGCL represents 95% of unionized public sector workers, 90% workers in state-owned companies, and 50% private sector employees.

Under the Labor Law workers have the right to strike under certain circumstances. Labor disputes must first be resolved within the enterprise’s own labor conciliation council. If the dispute is not resolved the provincial labor arbitration council then handles it. Decisions may be appealed to the provincial people’s court, after which time unions may strike.

Strikes are prohibited for companies that are important to the economy, national security, or defense. This includes electrical production, telecommunications, transportation, banking, public works, and the oil and gas industry.

Wages

Table 3: Monthly Minimum Wages in Selected Cities

Source: Vietnam Ministry of Labor, War Invalids, and Social Affairs

Wages in Vietnam are lower than its Southeast Asian neighbors. The Ministry of Labor, War Invalids, and Social Affairs sets minimum wage standards. While state-owned companies are exempt from paying minimum wages, foreign-invested companies are expected to pay a monthly minimum wage. This ranges from $45 in Ho Chi Minh City and Hanoi to $35 in smaller cities. These wage requirements are among the lowest in Asia. In Taiwan, the minimum monthly wage is 10 times greater than in Vietnam. In general, wages in Vietnam tend to range from $30-$180 per month. By investing in Vietnam, companies can avoid the higher wage costs associated with regional counterparts.

Cultural Considerations

Vietnam is a Confucian society and as a result business practices are similar to those in China, Japan, and Korea, rather than its Southeast Asian neighbors. Social dynamics and Vietnam’s view of the world are reflected in the business climate. Additionally, consensus building, and “face” are important issues.

While business in America is viewed positively and deals are assumed to benefit both sides, few in Vietnam share this optimism. To the majority, business is seen as a zero-sum game, where there is a clear winner and loser. This makes defining relationships with the Vietnamese counterpart and the local market very important. Sometimes American and Western companies may believe they have a deal completed, only to find their Vietnamese counterpart seeking to change the agreement to improve their terms.

Consensus building is a prominent feature in Vietnamese social and business behavior. In Vietnam, all parties have a voice in decision-making was well as veto power. All sides must agree on a deal and it is impossible to simply ignore minority opinions. Failure to accommodate the dissenting opinion can lead to stalemate in negotiations.

Face is an important principle to many. Many Vietnamese fear losing face and they will seek to reduce spontaneous discussions and negotiations. Tact and discretion are excellent tactics to be used in negotiations to prevent a Vietnamese counterpart from losing face. The loss of face of a counterpart in front of his or her superiors, subordinates, or peers could endanger the entire deal.

Recruiting

Employee recruiting for local Vietnamese takes approximately six months. Foreign companies generally use local contacts or headhunters to do a search. If these options are unsuccessful, then companies are permitted to advertise or recruit workers. The Vietnamese government prefers that native Vietnamese be hired by foreign enterprises if possible.

In order to hire an expatriate or overseas Vietnamese worker, the company must receive a work permit from the government, which lasts three years. Such a permit can be obtained for under $20 per year. Permits must be used for employees at joint ventures, foreign owned companies, and local companies.

The Future of Foreign Investment in Vietnam

Foreign investment in Vietnam is currently becoming more suited to the market. As such, the quality and efficiency of Foreign Direct Investment projects has improved. Some businesses have restructured their projects to adapt to Vietnamese economic conditions. The labor market remains a strong asset, due to its low cost and many workers with primary educations. Training and educational programs continue to improve, which will improve the quality of the labor force. As this is done more foreign companies will seek to invest in Vietnam. Reformers within the Communist Party are seeking and gaining additional reforms to encourage more foreign investment. While there is some resistance from hard-line members of the Politburo, most Vietnamese leaders see the merits of further liberalization and realize that Vietnam’s future lies in the international market.

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