Vietnam Seeks Gains as China Labor Costs Rise

By Montlake, Simon | The Christian Science Monitor, September 12, 2010 | Go to article overview

Vietnam Seeks Gains as China Labor Costs Rise


Montlake, Simon, The Christian Science Monitor


With China labor costs rising, Vietnam is hoping that its cheaper labor will attract more foreign investment. But Vietnam's rickety infrastructure and lack of skilled workers remain obstacles to growth.

A recent spell of walkouts over pay and conditions in China's southern export zone seems likely to spur low-cost producers to expand operations in countries where wages remain significantly lower than in China.

China's wage inflation is being closely watched in Vietnam, which has expanded aggressively since the 1990s into labor-intensive industries like clothing, footwear, and furniture. The US, its former adversary, is now Vietnam's biggest export market and last year became the largest investor here. Exports of textiles and garments, an industry that employs around 1.7 million Vietnamese, rose by 17 percent in the first seven months of the year.

But economists say that Vietnam won't necessarily reap the immediate benefits of rising labor costs in its giant neighbor.

While labor costs are low - around two-thirds less than in China - export industries are held back by rickety infrastructure, an inefficient bureaucracy, and a lack of skilled workers. Companies are also concerned by signs that the government may impose price controls on private businesses to tamp down inflation, currently around 8 percent.

Keeping labor costs down is only one factor in attracting more investment to Vietnam, says Adam Sitkoff, executive director of the American Chamber of Commerce in Vietnam. Employers also need to see an upgrading of facilities like ports, roads, and utilities, amid a sharp rise in demand for electricity that the state-owned utility struggles to meet.

"How can you attract investors to a place where you can't keep the lights on?" asks Mr. Sitkoff.

Not just China talking strike

Moreover, as in China, factory workers in Vietnam are also ready to stop work. While independent unions are illegal, wildcat strikes have erupted in industrial zones where foreign-owned manufacturers are clustered. Strikes have risen since 2006 and average 400 a year, of which the majority are in textile factories, according to the Ministry of Labor.

In May, a textile workers' union and a national industry association agreed to raise starting salaries to $82 a month, up from less than $50. But only 70, mostly state-run, companies have signed the pact, says Nguyen Tung Van, the head of the union. Many foreign-owned companies are reluctant to sign, he says.

"We tell the bosses, if you keep paying low salaries, you won't keep your workers. They don't want to listen, but they must listen," he says.

The collective textile-industry pact marks a departure from Vietnam's practice of setting a general minimum wage for factory labor. Analysts say it may reflect fears that the official Communist Party-affiliated union is losing its relevancy as workers begin to assert their rights, particularly in the booming private sector.

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