Low-cost strategy dictates FDI recruitment

  • 03:43 - 2014/04/07

Foreign investors have distributed US$1.12 billion in foreign direct investment (FDI) projects in Viet Nam during the first two months of 2014, up 6.7 per cent from one year ago, according to government statistics.

Viet Nam`s abundance of cheap labour has played an increasingly pivotal role in wooing foreign firms looking to set up overseas manufacturing operations in the country.

However, this low-cost strategy could, in the long-term, hamper the nation`s economy and the quality of the labour force.

A recent survey of 100 FDI companies, released by the Institute of Labour Science and Social Affairs and Manpower Group, indicates that Vietnamese workers lack soft skills, such as teamwork, communications skills and the ability to adapt to new circumstances. It also points out a worrying trend that some FDI businesses attract workers from their rivals, rather than training their workers.

Viet Nam News reporters Thu Huong and Minh Thi spoke to labour experts and representatives of FDI companies about the recruitment trend.

According to the research, we continue to see that many foreign-invested enterprises in Viet Nam are continuing with the "low-skill, low-cost" strategy, despite 52 per cent of the surveyed companies saying they have managed to grow their businesses, even during the economic slow-down. At the same time, many college graduates have to work as blue-collar workers in these factories. What are your thoughts on this?

Goran Hultin, chairman and chief executive officer of Caden Corporation (Switzerland), adviser to labour authorities in China and Viet Nam, one of the study`s authors

Foreign investors, Viet Nam, cheap labour, good vocational skills

Goran Hultin

Although the "low-skill, low-cost" strategy advantage continues to attract foreign investment, it is not going to last long and may have a harmful impact on the quality of the Vietnamese labour force and the national economy, in the long run.

Upon consideration of the annual increase of approximately 20 per cent in the minimum wage in Viet Nam, it is very likely that these foreign investors will move their factories to countries that offer lower labour costs, unless Vietnamese labour quality is significantly improved to allow for technological upgrades and higher productivity in the next few years.

All the companies that we surveyed and interviewed truly indicate an ambition to move up to a higher value-added level, so that they actually broaden their product spectrum, in terms of manufacturing. However, that requires more technical, computer and soft skills.

If Viet Nam stays stuck in the low-scaled sector, it will have to face competition from countries that emerge in the global market, which has a lower-cost level.

Do Quynh Chi, researcher and consultant in industrial relations, Research Centre for Labour Relations

Foreign investors, Viet Nam, cheap labour, good vocational skills

Do Quynh Chi

I think these college graduates are actually victims of both family excitations and a slow-to-reform education system.

This situation shows that the education system and the labour market are going in two opposite directions: while foreign employers do not regard degree qualifications as the most important factor in their recruitment decisions, the education system keeps promoting higher education qualifications and ignoring practical skills and the employability of students.

Nguyen Dinh Son, labour expert from the Bureau for Occupational Skills under the General Department of Vocational Training

I think having a university degree does not mean that you need to become researchers or managers. Still, learning through practical work experience might actually be good for some people who want to become managers, later on. It might be a good start in its own way. A manager with good vocational skills might actually become someone whom the workers admire and follow.

The issue is whether those people can make use of the skills and knowledge they gained at college while in the workplace. Whether they choose to continue keeping their positions as blue-collar workers, or trying to reach a higher position, is dependent on their own choices and competence.

What are the biggest skill deficiencies among Vietnamese workers? What should we do to take advantage of the FDI sector in skill developments?

Vikas Kapoor, Senior Director North Manufacturing & Plant Manager, Suntory PepsiCo Vietnam Beverage

Foreign investors, Viet Nam, cheap labour, good vocational skills

Vikas Kapoor

Most of our employees in manufacturing and engineering are either college graduates or university graduates. In Bac Ninh, we are facing the following issues. Sometimes, we don`t find properly qualified people to be technicians to operate our equipment. The majority of people who join are new graduates and, hence, we need to spend time and effort to train them to meet our requirements.

Our business is about the consumers: the quality perceived by the consumers and the quality we deliver to the consumers. We don`t believe in only inspecting for quality.

Quality needs to be produced on the manufacturing line. If everybody on the line is trained, the products will be of a higher quality. That`s why we spend a lot on different types of training: such as generic skills, health and safety, quality and technical skills, to make sure our people are qualified as skilled technicians, supervisors and managers.

The second concern is that on reaching a position of higher responsibility, such as the supervisory level, you need to interact with people from the outside world. Low levels of English or a lack of language skills will become an obstacle for your work, as well as career development. It could be translated back into policy, making English mandatory at some point so that people can reach a certain minimum level.

Hultin: The greatest recognised skill shortages are, nevertheless, in soft skills such as communications and teamwork, but also in work attitudes, such as quality consciousness, punctuality and dependability. The lack of soft skills is practically pronounced among public sector workers, a deficiency that requires attention as Viet Nam continues to develop and grow its market economy.

This raises the need to improve the development of generic skills at all levels of education, as well as build public-private partnerships between vocational training institutions and foreign-invested enterprises, and to involve experienced managers, engineers and workers from foreign-invested enterprises to align vocational training curricula with job market needs and as trainers.

Chi: I must say that not all FDI enterprises are committed to a training approach. As we pointed out in our research, there are two approaches when it comes to finding the right skills: training and poaching [which means hiring from rival companies].

We should not expect that all FDI companies will hire and train Vietnamese workers. However, for those companies that have been committed to a training approach, which corresponds with their long-term investment strategy in Viet Nam, the Government should provide incentives to them for doing so.

Although the number of these FDI companies might be small, they will be the pioneers in skill development, creating good models for Vietnamese companies to follow. The skillful employees trained by these FDIs, on the other hand, will be able to spread their skills to others by serving as visiting trainers in vocational training schools.

Son: As we are drafting the national occupational standards sets for 190 trades, we have tried to encourage enterprises, including FDI companies, to become involved in the preparation and review processes.

It is actually very important for us to have their co-operation, to make sure the occupation standards are practical and suit companies` needs. It is also beneficial, in the end, to the employers, as the standards will be used to re-direct the training programmes at vocational schools. Companies can also use the standards for their own training programmes.

However, it has been difficult to attract the companies` attention. Companies would have to get involved almost until the end. They need to contribute their opinions during the compilation process, and they also need to evaluate the final product when all is done. It`s not like attending a seminar, when you are invited, and spend a few hours contributing to the discussion.

We really need people with high occupational skills from companies to help us with our work to make sure the standards suit employers` needs in practical situations. The Government might need to have a compulsory procedure in place to encourage participation by businesses and make them become more active.

Still, the most important thing is to make enterprises understand the importance of getting involved in the process and how it works for their own good. They need to assign people to get involved. Even if there is a compulsory mechanism, the issue is whether the companies are actively involved.

Some FDI companies reportedly said in this study that they do not want to hire applicants from the public sector. Why is that?

Chi: Many people think that FDI companies can attract better workers because they pay higher. From our research, I found this assumption to be incorrect. Many state-owned enterprises are also paying competitively to fill key positions.

The key competitive advantage of FDI companies is their standardised process and indicators for performance evaluation and promotion, which lays out a predictable and fair career development path. A number of human resources managers and production managers I have interviewed said that they would not consider working for a state-owned enterprise, even though the pay may be higher, because they want to receive fair evaluations for their contributions and learn from the international corporate culture.

It was not our intention, initially, to ask about the foreign-invested enterprises` opinions of employees who used to work for the public sector but, interestingly, such issues came up and were repeated during our in-depth interviews. All of the five HR Managers we interviewed had bad experiences with these employees, describing them as passive, not committed to work, and poor in English skills. Two HR managers even claimed that they would normally turn down applications of those who used to work in the public sector.

Although their opinions might not be representative of all the FDIs, it sent an alarming message about a certain part of the labour force in the public sector.

Son: As many State companies go through equitisation and begin to operate with their own funding and without depending on the State`s subsidies, they have to try to become more serious about making a strategic staff management plan and realising it.

Yet, there are certain examples of why FDI companies can be better in staff management. In some Japanese companies, every morning upon arriving the staff has to gather together and shout the company`s slogans. This might seem funny to us Vietnamese, but actually that is how Japanese companies try to remind their employees of the aims they should be heading towards.

Another point worth thinking about is that FDI companies are often meticulous in their selection of new staff. They are often more careful than State enterprises, so it`s highly likely that they manage to select staff of higher quality.

Also, FDI companies have to run on their own, risk their own funds, so they can be more aggressive in boosting productivity. Many State companies receive subsidies from the Government and that is why they can be less proactive.

Source: VNS

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