Dec 25, 2012

Vietnam - Halcyon days of cheap labour over

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Rising wages in Vietnam are prompting many foreign investors in labour-intensive industries to look to other countries with cheaper labour cost to make investments.

A report recently released by Japan External Trade Organisation (Jetro) shows that Japanese labour-intensive companies in Vietnam are looking to expand investments in countries like Cambodia, Bangladesh and Myanmar, where the labour cost is cheaper. The report was based on the annual survey of Jetro on Japanese-affiliated firms’ operations in Asia.

“Japanese companies, especially manufacturers, are highly concerned about Vietnam’s planned new minimum pay rise from 2013,” Jetro announced in the report, cited this as the main reason for the new investment trend.

This is not an attitude unique to Japanese investors. Kim Jung In, chairman of Korea Chamber of Business in Vietnam (Korcham), said many South Korean labour-intensive companies were also eyeing Cambodia and Myanmar as potential investment destinations.

“Vietnam’s competitiveness of investment in labour intensive industries is not as desirable as in the past,” he said.

Both Japan and South Korea are the biggest investing countries in Vietnam at this time, with 1,800 projects from Japan and 3,159 projects from South Korea. Many of them have been investing in Vietnam to take the advantage of the nation’s cheap labour cost.

The average wage of Vietnamese workers in the manufacturing sector in 2011 was $123 per month, much lower than $205 in Indonesia, $248 in Philippines, $280 in India and $306 in China, according to Jetro’s report. However, Jetro pointed out that the average wage in the manufacturing sector in Bangladesh was just $78 per month, Cambodia with $82 and Myanmar $68.

Furthermore, Jetro also found out that the pay rise in Vietnam reached the highest level among Asia nations, at 16.8 per cent during 2010-2011 and 17.1 per cent during 2011-2012. Meanwhile, during 2011-2012, it was just 9 per cent in Indonesia, 10.5 per cent in Bangladesh, 11.4 per cent in China and 12.2 per cent in Myanmar.

However, while labour-intensive foreign companies are exploring relocation to other markets from Vietnam, the foreign direct investment in high value added and modern manufacturing industries in Vietnam has been increasing.

This year, for the first time, cell phones, auxiliary devices, electronic appliances, computers and machineries have ranked on the top of export categories in Vietnam, surpassing garment - textile and footwear, according to the General Statistics Office of Vietnam.

“This suggests that Vietnam is on the stage of advancing into a high value-added industry instead of simply exporting primary industrial products,” said In at Korcham, indicating that the country’s economic structure was being quickly reorganised from primary industry to secondary industry.

Foreign manufacturers in hi-tech industries in Vietnam include US’ Intel Corporation, which is operating a $1 billion chipset factory in Ho Chi Minh City, US’ Jabil and General Electric, Finland’s Nokia, South Korea’s Samsung Electronics, Japan’s Nidec Corporation and Meiko Electronics.

Samsung in November this year received an investment certificate for expanding its total investment capital in Vietnam to $1.5 billion from the current $670 million. General Electric last month also announced to build an engineering centre in Vietnam to focus on product design, applications and services for the oil and gas sector.

“The investment outlook in Vietnam for modern manufacturing companies is promising,” said Christopher Towmey, chairman of Amcham.

Ninh Kieu |

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