Search

 

Cablegate: Steep Wage Inflation Hits Hcmc Employers, Consulate

VZCZCXRO6886
OO RUEHDT RUEHPB
DE RUEHHM #0239/01 0660847
ZNR UUUUU ZZH
O P 060847Z MAR 08
FM AMCONSUL HO CHI MINH CITY
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3834
INFO RUEHHI/AMEMBASSY HANOI PRIORITY 2558
RUCPDOC/USDOC WASHDC PRIORITY 0065
RUEHC/DEPT OF LABOR WASHINGTON DC
RUCNARF/ASEAN REGIONAL FORUM COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHHM/AMCONSUL HO CHI MINH CITY 4056

UNCLAS SECTION 01 OF 03 HO CHI MINH CITY 000239

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EAP/MLS, USAID/ANE, EEB/TPP/BTA/ANA, DRL/IL
STATE PASS USTR FOR BISBEE
USDOL FOR DUS PONTICELLI, ZHAO
USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO
TREASURY FOR CHUN

E.O. 12958: N/A
TAGS: ECON EFIN ETRD ELAB EINV VM
SUBJECT: STEEP WAGE INFLATION HITS HCMC EMPLOYERS, CONSULATE
INCLUDED

REF: A) Hanoi 193, B) Hanoi 56, C) 07 Ho Chi Min 1196, D) 07 Hanoi 2013

HO CHI MIN 00000239 001.2 OF 003


1. (U) Summary. Rapid economic growth accompanied by years of
rising foreign investment in Vietnam mean companies new and old
are competing over human resources, especially the limited pool
of professionals (ref B). Combined with uncomfortably high
inflation, the corporate scuffle for personnel has led to
unprecedented wage growth -- 13 percent nationwide in 2007 and
more than 50 percent in certain hot sectors like finance and
information technology. Geographic disparities are even
greater, with the "war for talent" felt most acutely in HCMC,
where wage increases in key sectors reportedly reached 150 to
200 percent in 2007. If these trends continue, rising salaries,
inflation and the high cost of office space rental may start to
deter investment in the future. Closer to home, this situation
has already started to erode the Consulate's ability to retain
highly-qualified staff, as nine of the sixteen employees who
have resigned in the past two years told us they left for
higher-paying jobs. End summary.

Labor Market Woes: Quantity over Quality
-----------------------------------------
2. (SBU) Currently in Vietnam, 1.4 million young people enter
the workforce each year, while only 35,000 older workers exit
it. This trend likely will continue for the next 10-15 years as
the economically active population reaches a peak. By 2010
Vietnam will have 48.5 million people of working age, an
advantage compared to other countries in the region such as
Thailand, which is estimated to have a labor force of only 41.6
million by the same year. Despite this influx of new workers,
when it comes to staffing key management and technical
positions, companies are finding a severe shortage of qualified
personnel, particularly for the top-level senior management
positions.

3. (SBU) Each new company is forced to dip into the same shallow
pool of qualified people or to hire staff away from other
employers. This trend of companies' aggressively poaching each
other's employees is increasingly common. Last year HSBC lost a
dozen bankers to local banks, and Unilever had a number of
experienced local managers leave for local consumer-goods firms
offering comparable salaries as well as stock options. Banks
often turn to hotels for entry level workers with good people
and language skills. The General Manager of the Sofitel, for
example, told CG that he lost 84 employees to banks last year.
With the advent of job-searching sites like Vietnamworks.com,
workers are easily able to discover how much they could earn by
switching to a new job, and many will do so without hesitation.

4. (U) The shortage of highly skilled and trained workers means
trouble for companies looking to build businesses in Vietnam.
While GDP has increased more than tenfold since 1990, from $6.5
billion to $71 billion in 2007, spending on education has not
risen to produce the increasingly skilled labor the nation
desperately needs. Public expenditure on education (as a
percent of GDP) was just 3.4 percent in 2007. The Minister of
Education and Training recently reported that the county's
234,000 businesses face a shortage of 1.4-1.6 million trained
workers. By 2010, they project the shortage could be up to 8
million.

HCMC Leading the Wave of Wage Growth
------------------------------------
5. (U) Nowhere in Vietnam is wage pressure felt more acutely
than in and around Ho Chi Minh City, where the per capita GDP is
already nearly triple the national average and the city's 12.5
percent growth rate continues to considerably outpace the
country average of 8.5 percent. In HCMC and the neighboring
provinces that make up the "Southern Economic Zone," the labor
shortage is leading to increasingly large migration amounting to
approximately 500,000 new migrants every year, according to city
officials. In Binh Duong province local villagers account for
only 40 percent of the total workforce and in Dong Nai the
percentage is just 30 percent. This migration is occurring
partly because even HCMC's "low end" wages are higher than
elsewhere. Nationwide, the official poverty rate as measured by
GVN standards is about 25 percent. In HCMC, it is less than 2
percent. In 2008, the HCMC city government officially created
its own poverty line that is 67 percent higher than the national
standard. Even with this new standard, the poverty rate in HCMC
is expected to drop to a statistically insignificant level
(below 2 percent) before the end of this year. In contrast, poor

HO CHI MIN 00000239 002.2 OF 003


infrastructure and spotty implementation of reforms leave many
regions of the country poor and with little opportunity for
their young, eager populations.

7. (U) In HCMC, in particular, the changing makeup of the work
force also plays into the steep wage curve. While most of the
Vietnamese economy remains in agriculture and industry, in 2007,
services comprised 53 percent of the HCMC economy. Not only
that, the service industry is growing at a 14.3 percent annual
clip and will make up an even larger percentage of the city's
economy in future years. Many of these new services jobs are in
finance, real estate, corporate headquarters services, and
personnel -- fields that demand the highest salaries.

Inflationary Pressures Squeezing Workers and Companies
--------------------------------------------- ---------
8. (U) Inflation ran above 14 percent in January, thereby
contributing to wage pressure (ref D). The prices of basic
foodstuffs, gas and other essential goods have increased
significantly and are expected to continue to rise. Most
companies feel compelled to compensate their employees for this
increase in the cost of living, usually by increasing pay or
awarding higher bonuses. This month a new record high for the
annual Lunar New Year pay bonus was set by a foreign-invested IT
firm in HCMC, which gave a generous $15,000 to top employees.

9. (U) While salaries have increased dramatically for highly
educated and skilled employees, wage increases for average
laborers have been more measured, compared to the sharp spike in
inflation. Labor experts say that inflation worries helped
spark the many pre-Tet (lunar New Year) strikes at industrial
parks in Binh Duong, Dong Nai and HCMC, further pressuring
businesses.

...and the Demand for Talent Goes Through the Roof
--------------------------------------------- -----
10. (U) According to Navigos, one of the leading HR companies in
Vietnam, demand for labor grew 67 percent in 2007, compared to
an increase of only 22 percent in supply. Consequently, Navigos
reports, average private-sector incomes increased 13 percent in
the past year across all economic sectors in Vietnam. Another
HR consulting firm, Le and Associates, confirmed the overall
rise but brought home the incredible impact of geography on
wages when she explained to the Ambassador recently that
salaries at some of the bigger companies in HCMC increased by as
much as 150 to 200 percent in 2007 due to the struggle to retain
staff.

11. (U) Both Navigos and Le and Associates point out that the
shortage of qualified personnel is caused in part by the low
quality of university graduates, who generally lack
critical-thinking and problem solving skills. The low overall
number of university graduates is also insufficient to meet
demand. There are only 300,000 university spots open every year
for 1.8 million applicants. Overall tertiary enrollment in
Vietnam is only 10 percent, compared to 15 percent in China and
89 percent in Korea.

Price of Talent Could Discourage Investment
-------------------------------------------
12. (SBU) According to Watson Wyatt Global, a human-resource
consulting firm, the shortage of senior managers and other
qualified personnel is more acute in Vietnam than in any other
ASEAN country. The pressure for higher wages could quickly
erode the advantage of low labor costs in Vietnam compared to
the rest of the world. Already, several major foreign firms
such as Intel, Renensas (Japan), Grenada (Japan) and Hon Hai
(Taiwan) are struggling to find qualified personnel. If this
problem continues, it could deter foreign firms from further
investment. For now, some companies are attempting to solve
their labor shortage by establishing their own training programs
to bring employees up to their standards. At a recent lunch
with the Ambassador, several leading local Vietnamese firms
explained that they can no longer afford to hire Vietnamese
workers for some key positions, such as accountants, and have
instead turned to hiring expatriate workers from Taiwan and
Malaysia -- two economies where the average per capita income is
much higher than in Vietnam.

13. (U) A recent anecdote from Intel illustrates the issue.
After scouting the country for top engineering graduates to

HO CHI MIN 00000239 003.2 OF 003


staff the 1000 engineering positions needed in the $1 billion
assembly and test facility it is building, the company found
that only 90 of 2000 students could pass its rigorous screening
exam. Of those, only 40 successfully passed the interview stage
and were selected for more training and possible employment.
This is clearly a worrisome sign for American investors looking
to hire local talent, and it is also detrimental to Vietnam's
ability to move up the value chain to develop more advanced
industries.

What's in the GVN Toolbox?
--------------------------
14. (U) Since his promotion to Deputy Prime Minister last year,
Minister Nguyen Thien Nhan has focused on improving Vietnam's
educational system. This includes increasing the availability
of student loans and scholarships and studying the training
curricula of foreign schools to adopt some of the same practices
in Vietnam. However, this is a long-term solution that will not
solve the immediate need for personnel. In the meantime,
Minister Nguyen is also encouraging businesses to partner with
MOET to establish training centers that will funnel qualified
graduates to work in companies that finance the centers. As an
incentive for this investment, the government will offer
favorable tax rates to participating businesses. So far, 75
education and training contracts have been signed between the
government and private, mostly foreign-invested, businesses.

15. (U) The government is expected to remove the current cap on
the number of foreign personnel a company can employ, making it
easier for foreign firms to hire the expatriate workers they
need to fill slots for which no Vietnamese are available.
Navigos reports that after a slight dip in the 2nd quarter of
2007, the number of foreigners looking for work in Vietnam more
than doubled in the 3rd quarter.

The Impact at Home
------------------
16. (SBU) The recent rise in salaries and increase in
competition for talented employees, particularly in HCMC, has
also affected ConGen Ho Chi Minh City's ability to recruit and
retain locally engaged staff. For example, some Consulate
employees are likely competitive for IndoChina Capital's
recently advertised positions paying net monthly salaries
starting at USD 2,000 per month for college-educated English
speakers with experience in a multinational environment. From
January 2006 until the present, sixteen employees ranging from
grades FSN 1-10 have resigned their positions. Nine of the
employees left to take higher paying jobs. In the most extreme
example, one former employee reported that the salary at her new
job would be $42,000 a year, more than three times the salary of
an FSN-10. Several positions at the Consulate remain unfilled
despite repeated advertisements.

Comment:
--------
17. (SBU) American firms investing in Vietnam should be prepared
for a competitive environment and a war for talent. Especially
for the IT, electronics and telecommunications industries,
businesses may have to set up in-house training programs, and/or
hire managers and skilled employees from other countries to fill
in the gaps. In the long term, if the human-resources crisis is
not alleviated, Vietnam will experience decreased interest in
investment and deceleration of economic growth. End comment.

18. (U) This cable was coordinated with Embassy Hanoi.
FAIRFAX

© Scoop Media

 
 
 
 
 
World Headlines

 

Werewolf: Gordon Campbell On North Korea, Neo-Nazism, And Milo

With a bit of luck the planet won’t be devastated by nuclear war in the next few days. US President Donald Trump will have begun to fixate on some other way to gratify his self-esteem – maybe by invading Venezuela or starting a war with Iran. More>>

Victory Declared: New Stabilisation Funding From NZ As Mosul Is Retaken

New Zealand has congratulated the Iraqi government on the successful liberation of Mosul from ISIS after a long and hard-fought campaign. More>>

Gordon Campbell: On The Current US Moves Against North Korea

If Martians visited early last week, they’d probably be scratching their heads as to why North Korea was being treated as a potential trigger for global conflict... More>>

ALSO:

Gordon Campbell: On The Lessons From Corbyn’s Campaign

Leaving partisan politics aside – and ignoring Jeremy Corbyn’s sensational election campaign for a moment – it has to be said that Britain is now really up shit creek... More>>

ALSO:

Another US Court: Fourth Circuit Rules Muslim Ban Discriminatory

ACLU: Step by step, point by point, the court laid out what has been clear from the start: The president promised to ban Muslims from the United States, and his executive orders are an attempt to do just that. More>>

ALSO: