Investment
High labor cost emerges top risk for Vietnam’s FDI attraction
Until now, cheap labor cost is still one of the factors attracting foreign investors to Vietnam as they still target labor intensive industries that use low-skilled workers.
As Vietnam’s labor cost ranks the highest among countries in Southeast Asia, the issue now becomes the topmost concern of foreign investors when pouring in the country, experts warned.
According to a report on enhancing enterprise competitiveness and strengthening small and medium-sized enterprise linkages released recently, the World Bank (WB) says Vietnam's labor costs are higher than in comparable Southeast Asian peers.
The WB defines labor costs for each firm as the cost of all payments to all workers divided by the number of workers. It says wage costs about US$2,739 per worker for the median Vietnamese firm, about twice as high as in Laos, Myanmar and Malaysia, and about 30 to 45 percent higher than in Cambodia, Thailand and the Philippines.
A report from the Japan External Trade Organization (JETRO) also pointed out high labor cost is a key risk in Vietnam’s investment climate. More than 60 percent of Japanese enterprises view high labor costs as an obstacle.
The risk therefore is breaking Vietnam’s advantage as an attractive destination with cheap labor in the eyes of Japanese investors.
According to Takimoto Koji, chief representative of JETRO in Ho Chi Minh City, if the risk of high labor cost ranked third in investing in Vietnam in 2016, it topped in 2018.
This is really a matter of concern for Vietnam if the country still wants to attract investment capital from Japan, Takimoto Koji noted.
Focus on skilled workforce
Until now, cheap labor cost is still one of the factors attracting foreign investors to Vietnam as they still target labor intensive industries that use low-skilled workers. However, as its labor cost is equal and even higher than other countries in the region, Vietnam will have to replace the cheap labor advantage for the skilled workforce advantage in the time to come to raise the competitiveness, experts said.
Nihad Ahmed, senior economist at global provider of economic analysis and forecasts Focus Economics, said that one of Vietnam's weaknesses is the lack of skilled workers, emphasizing that Vietnam is far behind China, Singapore, Malaysia and Thailand in this field while developing a highly skilled workforce is critical to attracting FDI into value-added industries.
The Vietnamese government is formulating a new national FDI attraction strategy in the 2018-2030 period, in which the development of skilled workforce will be one of the top priorities.
Wim Douw, senior private sector specialist of International Finance Corporation - World Bank’s arm on the private sector in developing countries, also highlighted some recommendations to serve as key inputs for the Vietnamese government to device the new strategy. Among them, he suggested Vietnam should create and implement an integrated national skills development plan to accelerate the country’s transition from low skilled to highly qualified labor, which will facilitate technology transfer from foreign invested enterprises.
Head of the Delegation of the European Union to Vietnam Bruno Angelet said that a human resource with high technical expertise is the important factor that European investors require.
Besides bringing in opportunities of jobs with high income and international standard working environment, a skilled workforce will help Vietnam learn governance skills and get technology transfer, Angelet said, adding however, this is a challenge for Vietnam's education system in meeting the demand for human resources.
Meanwhile, Vu Dai Thang, Deputy Minister of Planning and Investment, also said it is necessary to develop skilled human resources to reposition Vietnam’s competitive edge in attracting foreign investment.
Development of skilled workforce will be one of the country’s top priorities
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The WB defines labor costs for each firm as the cost of all payments to all workers divided by the number of workers. It says wage costs about US$2,739 per worker for the median Vietnamese firm, about twice as high as in Laos, Myanmar and Malaysia, and about 30 to 45 percent higher than in Cambodia, Thailand and the Philippines.
A report from the Japan External Trade Organization (JETRO) also pointed out high labor cost is a key risk in Vietnam’s investment climate. More than 60 percent of Japanese enterprises view high labor costs as an obstacle.
The risk therefore is breaking Vietnam’s advantage as an attractive destination with cheap labor in the eyes of Japanese investors.
According to Takimoto Koji, chief representative of JETRO in Ho Chi Minh City, if the risk of high labor cost ranked third in investing in Vietnam in 2016, it topped in 2018.
This is really a matter of concern for Vietnam if the country still wants to attract investment capital from Japan, Takimoto Koji noted.
Focus on skilled workforce
Until now, cheap labor cost is still one of the factors attracting foreign investors to Vietnam as they still target labor intensive industries that use low-skilled workers. However, as its labor cost is equal and even higher than other countries in the region, Vietnam will have to replace the cheap labor advantage for the skilled workforce advantage in the time to come to raise the competitiveness, experts said.
Nihad Ahmed, senior economist at global provider of economic analysis and forecasts Focus Economics, said that one of Vietnam's weaknesses is the lack of skilled workers, emphasizing that Vietnam is far behind China, Singapore, Malaysia and Thailand in this field while developing a highly skilled workforce is critical to attracting FDI into value-added industries.
The Vietnamese government is formulating a new national FDI attraction strategy in the 2018-2030 period, in which the development of skilled workforce will be one of the top priorities.
Wim Douw, senior private sector specialist of International Finance Corporation - World Bank’s arm on the private sector in developing countries, also highlighted some recommendations to serve as key inputs for the Vietnamese government to device the new strategy. Among them, he suggested Vietnam should create and implement an integrated national skills development plan to accelerate the country’s transition from low skilled to highly qualified labor, which will facilitate technology transfer from foreign invested enterprises.
Head of the Delegation of the European Union to Vietnam Bruno Angelet said that a human resource with high technical expertise is the important factor that European investors require.
Besides bringing in opportunities of jobs with high income and international standard working environment, a skilled workforce will help Vietnam learn governance skills and get technology transfer, Angelet said, adding however, this is a challenge for Vietnam's education system in meeting the demand for human resources.
Meanwhile, Vu Dai Thang, Deputy Minister of Planning and Investment, also said it is necessary to develop skilled human resources to reposition Vietnam’s competitive edge in attracting foreign investment.
