Foreign companies drawn by cheap labour to open factories in the country are going elsewhere as inflation forces workers to demand higher pay
Bloomberg in Hanoi 18 June 2011
Japanese motor maker Minebea chose Cambodia over Vietnam to build a plant for 5,000 workers in a sign growing labour disputes are lessening Vietnam’s appeal as a low-cost alternative to China.
“A strike would be trouble,” Yasunari Kuwano, a spokesman at Minebea, said of the US$62 million plant, which will make electric motors for appliances and digital equipment. “Labour is the key focus for us in choosing Cambodia. We need reliable labour.”
As Minebea broke ground last month in Phnom Penh, London-based cable maker Volex Group and Japanese lingerie company Wacoal Holdings were among investors in Vietnam that faced illegal wildcat strikes. Workers are demanding better pay after the highest inflation rate in Asia hurt their purchasing power.
The strikes have dented Vietnam’s 25-year-old goal of attracting foreign investors to set up manufacturing hubs by offering a reliable workforce with minimum wages now half those of China. “The nation is at a critical crossroads,” said Victoria Kwakwa, the World Bank’s country director in Hanoi. “Vietnam can’t assume that FDI will continue. Money can go elsewhere.”
Inflation quickened to a 29-month high of 19.8 per cent in May, a level the World Bank called “intolerable” in a report this month. The bank, which expects inflation to peak this quarter and then ease to 15 per cent by year-end, said Vietnam must stick to monetary tightening policies until the rate was at least halved. Soaring prices and industrial unrest have given Vietnam the worst-performing stock market and currency in Asia in the past year
The VN Index of shares has declined 12.8 per cent in the period, and the dong has slid 7.6 per cent against the dollar. Prime Minister Nguyen Tan Dung’s government in March switched its emphasis to fighting inflation rather than economic expansion, and has cut its 2011 growth target to 6 per cent from as much as 7.5 per cent. With credit-rating agencies lowering the nation’s sovereign-debt grade in part on weaknesses in economic policymaking, some foreign direct investors are wary of making a long-term bet on Vietnam.
Srithai Superware, a Bangkok-based company that makes tableware, this month suspended plans for a US$5 million expansion at its plant in southern Vietnam because of “economic instability”, said Santi Sakgumjorn, general director of the Vietnamese unit. The company said it would set up a subsidiary in neighbouring Laos. “In the short term, we have no confidence in the economic situation in Vietnam,” he said. The factory has been hindered by rising production costs after two salary increases this year, he said. Vietnam’s workers say they have little choice but to strike as costs rise. At an industrial park in Hanoi, Le Kien scanned job openings, looking for better pay, after his shift at a plant that assembles cables used in Honda and Yamaha motorcycles.
“The price of everything - food, gas, electricity - has gone up by more than my pay rise,” said Kien, 24, whose monthly salary is equivalent to US$87. “I can’t even afford to start a family. I wouldn’t have enough to buy milk for my baby.” That’s even after Kien and most of his 500 colleagues went on an illegal strike in April and won a 13 per cent pay increase. The Taiwanese firm he worked for had already boosted salaries in January, he said.
Labour disputes have hit local units or suppliers of companies such as Yamaha, Panasonic and Adidas. Yamaha was forced to halt production of motorbikes in Hanoi when 4,000 employees downed tools in March. Workers were given a pay raise to return, a spokesman said.
Vietnam had 336 strikes in the first four months, according to Vietnam’s General Confederation of Labour. That is on course to beat the 2008 record of 762. Many are wildcat stoppages, which lack legal authorisation, according to the Geneva-based International Labour Organisation.
“Every day, somewhere in the country, there is a strike,” said Youngmo Yoon, a Vietnam labour specialist for the organisation. “Most are being organised by workers spontaneously.” Often the workers won higher wages, he said. Vietnamese salaries are expected to rise nearly 12 per cent this year, the highest gain in Asia Pacific and almost double the regional average, according to an salary trends survey by ECA International. Vietnam raised its minimum wage by 14 per cent last month. “It’s a vicious cycle,” said Dr Prakriti Sofat, an economist at Barclays Capital. “Higher inflation, unhappy workers strike, businesses raise wages, then pass costs to consumers.”
Some companies continue to invest in Vietnam, where 60 per cent of the 87 million population is under 35 and minimum wages, at US$85 per month, are still the second lowest among Asian economies.
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Vietnam’s lure hurt by strikes
Foreign companies drawn by cheap labour to open factories in the country are going elsewhere as inflation forces workers to demand higher pay
Bloomberg in Hanoi
18 June 2011
Japanese motor maker Minebea chose Cambodia over Vietnam to build a plant for 5,000 workers in a sign growing labour disputes are lessening Vietnam’s appeal as a low-cost alternative to China.
“A strike would be trouble,” Yasunari Kuwano, a spokesman at Minebea, said of the US$62 million plant, which will make electric motors for appliances and digital equipment. “Labour is the key focus for us in choosing Cambodia. We need reliable labour.”
As Minebea broke ground last month in Phnom Penh, London-based cable maker Volex Group and Japanese lingerie company Wacoal Holdings were among investors in Vietnam that faced illegal wildcat strikes. Workers are demanding better pay after the highest inflation rate in Asia hurt their purchasing power.
The strikes have dented Vietnam’s 25-year-old goal of attracting foreign investors to set up manufacturing hubs by offering a reliable workforce with minimum wages now half those of China. “The nation is at a critical crossroads,” said Victoria Kwakwa, the World Bank’s country director in Hanoi. “Vietnam can’t assume that FDI will continue. Money can go elsewhere.”
Inflation quickened to a 29-month high of 19.8 per cent in May, a level the World Bank called “intolerable” in a report this month. The bank, which expects inflation to peak this quarter and then ease to 15 per cent by year-end, said Vietnam must stick to monetary tightening policies until the rate was at least halved. Soaring prices and industrial unrest have given Vietnam the worst-performing stock market and currency in Asia in the past year
The VN Index of shares has declined 12.8 per cent in the period, and the dong has slid 7.6 per cent against the dollar. Prime Minister Nguyen Tan Dung’s government in March switched its emphasis to fighting inflation rather than economic expansion, and has cut its 2011 growth target to 6 per cent from as much as 7.5 per cent. With credit-rating agencies lowering the nation’s sovereign-debt grade in part on weaknesses in economic policymaking, some foreign direct investors are wary of making a long-term bet on Vietnam.
Srithai Superware, a Bangkok-based company that makes tableware, this month suspended plans for a US$5 million expansion at its plant in southern Vietnam because of “economic instability”, said Santi Sakgumjorn, general director of the Vietnamese unit. The company said it would set up a subsidiary in neighbouring Laos. “In the short term, we have no confidence in the economic situation in Vietnam,” he said. The factory has been hindered by rising production costs after two salary increases this year, he said. Vietnam’s workers say they have little choice but to strike as costs rise. At an industrial park in Hanoi, Le Kien scanned job openings, looking for better pay, after his shift at a plant that assembles cables used in Honda and Yamaha motorcycles.
“The price of everything - food, gas, electricity - has gone up by more than my pay rise,” said Kien, 24, whose monthly salary is equivalent to US$87. “I can’t even afford to start a family. I wouldn’t have enough to buy milk for my baby.” That’s even after Kien and most of his 500 colleagues went on an illegal strike in April and won a 13 per cent pay increase. The Taiwanese firm he worked for had already boosted salaries in January, he said.
Labour disputes have hit local units or suppliers of companies such as Yamaha, Panasonic and Adidas. Yamaha was forced to halt production of motorbikes in Hanoi when 4,000 employees downed tools in March. Workers were given a pay raise to return, a spokesman said.
Vietnam had 336 strikes in the first four months, according to Vietnam’s General Confederation of Labour. That is on course to beat the 2008 record of 762. Many are wildcat stoppages, which lack legal authorisation, according to the Geneva-based International Labour Organisation.
“Every day, somewhere in the country, there is a strike,” said Youngmo Yoon, a Vietnam labour specialist for the organisation. “Most are being organised by workers spontaneously.” Often the workers won higher wages, he said. Vietnamese salaries are expected to rise nearly 12 per cent this year, the highest gain in Asia Pacific and almost double the regional average, according to an salary trends survey by ECA International. Vietnam raised its minimum wage by 14 per cent last month. “It’s a vicious cycle,” said Dr Prakriti Sofat, an economist at Barclays Capital. “Higher inflation, unhappy workers strike, businesses raise wages, then pass costs to consumers.”
Some companies continue to invest in Vietnam, where 60 per cent of the 87 million population is under 35 and minimum wages, at US$85 per month, are still the second lowest among Asian economies.
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