Electronics producers in Vietnam see trouble, opportunity amid economic woes

Following the Vietnamese Tet (Lunar New Year) festival in early 2009, the demand for electronics in Vietnam has dropped steeply, signifying what is likely to be a rough year for electronics producers both domestically and abroad. In the first two months of 2009, Vietnamese total exports fell more than 5% from 2008 while electronics exports dropped by more than 13%.

While it is normal in Vietnam for demand for electronics to fall after Tet, industry insiders foresee the trend continuing deeper into 2009 than usual. Others worry that supply will greatly exceed demand this year as a result of newly instituted WTO import tax cuts that came into affect in January.

Domestically, many electronics producers have turned to promotional programs to attract customers.

In addition to discounts, Sony and Nguyen Kim Electronics have even begun to give out free shirts and movie tickets to customers.

The need to encourage consumers to spend is not surprising.

An estimated 500,000 Vietnamese workers lost their jobs last year, and the government expects that at least 400,000 more will be laid off in 2009. When workers are laid off, most return to the countryside to live with their families, who are often no longer receiving remittances from other family members who have also lost jobs in urban areas.

With the Vietnamese workforce growing by almost one million workers each year, the economic downturn could not have come at a worse time.

However, where many officials project great losses for 2009, some employers are continuing to hire workers. The government has also used the economic downtown to emphasize the need for strike prevention and increased worker training.

Some hiring despite economy

Indeed, some electronics manufacturers are planning to hire more workers in 2009. Most hires will occur in the Industrial Parks (IP) and Export Processing Zones (EPZ) of Ho Chi Minh City, where the electronics components industries are located alongside textile, packing and shoe factories. (See, also: Venture Outsource interview with president of Saigon High Tech Park)

Although export demand is down, many companies are still receiving orders for goods, but they do not have enough workers to meet the demand. As such, some are planning to offer increased salaries and entertainment activities to attract workers. Others have loosened job requirements to attract new workers to the industry. For example, some companies have increased the age limit for workers to 36, no longer requiring them to be between 18 and 25 years of age.

Legal revisions to prevent worker strikes

Although some industries in Ho Chi Minh City are hiring workers, elsewhere in Vietnam companies are facing increased worker tension as layoffs increase. National Assembly deputies and local businesses are trying to reformulate provisions of the Labor Law to prevent authorities from having to intervene in labor disputes. Instead, they hope to establish a mediatory group between workers and employees to prevent strikes from occurring.

Disagreements about worker payment and salary scales are the primary motivations behind employee strikes that have occurred over the past year.

In Ho Chi Minh City, 95 strikes occurred in 2008, an increase from 65 in 2007. Over 56,000 workers took part in 94 strikes in Binh Duong.

Because all labor union representatives are workers, the effectiveness of unions in mediation is limited. Workers are often afraid of confronting bosses out of fear of being fired. In turn, changes to the law will likely lead to more worker disputes even if they succeed in reducing the number of strikes.

Intel, Foxconn, government prioritize worker training

Despite attracting record sums of foreign direct investment (FDI) in 2008, the Vietnamese government was unable to implement funding effectively because of a shortage of skilled workers.

At the start of the fourth quarter of 2008, Vietnam had disbursed $8 billion of FDI, only 14% of the total $57 billion pledged.

As a result, foreign-invested enterprises (FIEs) and the Vietnamese government are embarking on worker training programs to allow more FDI projects to be implemented.

Many foreign enterprises, including Intel, have complained about a shortage of skilled workers. In response, Intel and others have organized training courses for their employees.

Foxconn Group of Taiwan, which is conducting a $5 billion project in Vietnam, has begun sending engineers to Taiwan for training in addition to constructing a new human resources training center.

The Vietnamese government understands that Vietnam will not remain attractive to foreign investors if it does not invest in improving human resources.

During the October 2008 legislative session of the National Assembly, deputies proposed the state offer preferential tax and land policies to encourage high-tech research. Some suggested Vietnam should implement preferential policies to attract Vietnamese overseas – known as Viet Kieu – to return to the homeland.

The government has also tried to develop a network of vocational training schools, but that network remains unable to meet the demands of foreign enterprises. As such, the government continues to push for more vocational training at universities, calling for the establishment of 120 vocational training colleges and 300 secondary vocational training schools. Thus, when looking to hire locally, it would be wise for human resource managers to establish relationships with vocational schools.

Unemployment and worker disputes

There is no doubt 2009 will bring high unemployment and an increase in worker disputes, despite increased hiring in parts of Ho Chi Minh City. As industrialized countries reduce their imports, electronics producers in Vietnam will continue to feel the effects of the economic downturn. After receiving increased foreign investment in 2008, Vietnam will see some FDI projects delayed or canceled in 2009. In turn, the number of new FDI projects will also decline.

Yet, even as corporations face shortages in capital for expenditures, the economic crisis as it not only pertains to Vietnam, but elsewhere, presents opportunity to prepare for the future.

As demands for electronic production decrease this year, there will be more time to devote to training workers. Both the Vietnamese government and corporations would be wise to follow in the footsteps of Intel and Foxconn and invest in more programs to develop worker technical skills.