By Heloise Dessanges
Apr. 22 – Even though they are usually better off than local Vietnamese companies, it seems that many foreign invested enterprises (FIEs) established in the country encounter hardships to follow the general evolution in terms of human resource (HR) management. Although one of the major advantages for foreign companies to invest in Vietnam remains the low cost of the workforce, the situation is changing for skilled labor, especially for the light and heavy industrial sectors. On average, salaries are rising, working-conditions are getting better, and policies are becoming more precise in Vietnam, but many FIEs are dragging behind.
It is commonly thought that employees have a better income in FIEs than in domestic companies. This isn’t necessarily true and actually, although they usually get added bonuses and incentives, their basic salaries tend to be quite lower.
According to Tran Dinh Thien, head of the Vietnam Institute of Economics, blue-collar workers in FIEs are paid less on average (VND1.2 million/month) than those working in the local public and private sectors. And the gap is even wider for labor-intensive business fields (garment/textile, leather, footwear, wood processing). Furthermore, many FIEs have difficulties to bring their HR practices in line with government policies.
Over the past few years, the government has clarified the salary issues, but some FIEs still keep their complex salary systems. Also, even if the minimum wage is adjusted every year under the country’s labor regulations, many individuals employed at FIEs earning more than the minimum wage (depending on the location of the employee) have not seen any subsequent changes in their salaries. Finally, the various bonus and incentives systems are frequently a source of conflict, notably because they are often not clearly specified in the work contract.
Work conditions claim
Income amount is not the only claim; salary claims go along with demand for better working-conditions. In fact, overtime work is widely used in FIEs with only 52 percent of workers in FIEs working eight hours a day, while 6.5 percent worked over 10 hours per day, according to the Vietnam General Confederation of Labor & Trade Union. Furthermore, FIE employees generally have to work under higher pressure than their counterparts in Vietnamese companies. However, workers in foreign companies consider the compensation they receive is not sufficient considering their efforts.
The general dissatisfaction of employees in FIEs regarding the average salary and the work conditions mainly leads to two different reactions from the workers, namely either strikes or job hopping – both of which create troubles for companies.
As these HR issues are becoming more and more important with the years, labor tensions soar, and thus the number of strikes hitting Vietnam have been increasing drastically recently. The grievances usually concern wages and overtime as previously explained. Those strikes have become a new HR issue by themselves; it takes time and money for the company to reach an agreement with the employees. It stops, or at least slows down, the activity and thus involves important losses for FIEs.
FIEs also have to face the problem of job-hopping among their workers, and notably of manual laborers. Many foreign invested labor-intensive companies, especially those in free trade zones and industrial parks (IPs), are experiencing massive labor shortages. This phenomenon is not only due to salary or work condition factors. Actually, it is also because most of the laborers are more likely to choose jobs near their home towns and families because of the increase of the living costs in main cities that have made them less attractive than in the past, but also because the opportunities have soared with the creation of many IPs in agricultural regions. In any case, it forces enterprises to anticipate, recruit and adapt their HR policies, work more to compensate the sudden worker shortages and thus, it implies losses of time and/or money.
Dezan Shira & Associates is boutique professional services firm providing foreign direct investment business advisory, tax, accounting, payroll and due diligence services for multinational clients in Vietnam. To contact the firm, please email firstname.lastname@example.org, visit www.dezshira.com, or download the firm’s brochure here.