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Cablegate: Labor Shifts Put Pressure On Manufacturers

VZCZCXRO3620
OO RUEHDT RUEHPB
DE RUEHHM #0320/01 0851015
ZNR UUUUU ZZH
O P 251015Z MAR 08
FM AMCONSUL HO CHI MINH CITY
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3921
INFO RUEHC/DEPT OF LABOR WASHINGTON DC
RUCPDOC/USDOC WASHINGTON DC
RUEHHI/AMEMBASSY HANOI PRIORITY 2583
RUCNARF/ASEAN REGIONAL FORUM COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHHM/AMCONSUL HO CHI MINH CITY 4143

UNCLAS SECTION 01 OF 02 HO CHI MINH CITY 000320

SIPDIS

SENSITIVE
SIPDIS

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

E.O. 12958: N/A
TAGS: ECON EFIN ETRD ELAB EINV VM
SUBJECT: LABOR SHIFTS PUT PRESSURE ON MANUFACTURERS

REF: A) HANOI 193, B) HANOI 56, C) 07 HO CHI MIN 1196, D) 07 HANOI 2013, E) HCMC 239

HO CHI MIN 00000320 001.2 OF 002


1. (SBU) Southern Vietnam's manufacturing workers are striking
in the normally calm post-Tet Lunar New Year months, a precedent
that sets the stage for higher wages yet to come. In one of Binh
Duong province's key industrial parks, strikes persisted even
though local average wages had climbed 30 percent in just three
months. Privately, some officials worry that southern Vietnam
is losing its competitive advantage -- low cost labor. This
wage inflation is a natural consequence of development, others
argue, and we should be encouraged to see that market forces,
rather than central planning, are driving the reallocation of
scarce human resources to higher value-added industries. A
window of opportunity is opening for USG-GVN collaboration on
projects that can improve the functioning of Vietnam's labor
markets. End summary.

Strikes Take a New Turn in the Southern Key Economic Zone
--------------------------------------------- ------------
2. (SBU) Because strikes are relatively common events in
Vietnam, few factory managers we talked to in January were
concerned when tens of thousands of workers participated in 23
walkouts in Dong Nai, 10 in Binh Duong and 10 in Ho Chi Minh
City. More than 2,000 strikes have occurred over the past 10
years, especially in the months before the Vietnamese Tet New
Year holiday. One U.S. company country manager told us that
15.7 percent inflation, misunderstandings about the government
mandated minimum wage increases and migrant worker's desire for
extra "pocket money" to take home for Tet were all driving
workers to strike. And in fact, according to the Ministry of
Labor, Invalids and Social Affairs (MOLISA), workers did earn
raises averaging 13 percent, enabling them to take home an
average "Tet bonus" of $75 dollar per person.

3. (SBU) But the same factory managers we talked to in January
were increasingly distressed by early March. The predictable
pre-Tet labor unrest continued through the February 6-11 holiday
and into March, longer than ever before. On February 20 more
than 4,500 workers at one Korean-invested Nike subcontractor in
HCMC's Cu Chi district went on strike. Other late February walk
outs were reported in HCMC, Binh Duong and Ba Ria Vung Tau
provinces.

You Have to Have Workers in Order to Have Strikes
--------------------------------------------- ----
4. (SBU) Migrant labor from Vietnam's central coast and Mekong
Delta regions makes up 70 percent of Binh Duong's labor force,
according the head of the provincial industrial zone authority.
When workers went home for Tet this year, many found new
factories open and hiring closer to their homes and families.
For example, industrial parks in Danang City advertised 10,000
factory positions on offer. GVN development strategies and the
broadening scope of foreign direct investment enabled factories
to open in new areas, especially in the central coast (ref C).
As a result, many workers found work closer to home, enabling
them for the first time to forego their old jobs in the south.

5. (SBU) The seasoned company manager of Kimberly-Clark, a U.S.
paper products manufacturer, found that just 40 percent of their
contract laborers returned after this holiday season, far fewer
than in past years. His informal survey of 13 other large
factories in the Vietnam Singapore Industrial Zone (VSIP)
confirmed the poor rate of return. Half the VSIP factories hung
banners looking for workers when we visited in March. In an
effort to attract workers, wages on offer had climbed up 30
percent over early January to more than U.S. $70 per month. The
manager said he does not expect the factory to approach full
capacity until April.

6. (SBU) VSIP managers talked around questions of a labor
shortage in the provinces surrounding HCMC, saying that even
VSIP's most labor-intensive industries have been able to scrape
by. They emphasized efforts to recruit additional unskilled
workers from the Mekong Delta.

Consequences for the Export Sector
----------------------------------
7. (SBU) Many of the U.S. companies we interviewed that purchase
goods made in Vietnam believe that the rising cost of living,
wage inflation and new employment opportunities are leading to
strikes in labor-intensive industries and creating long-term
uncertainty, hence trouble, for Vietnam's economy. One of the
largest U.S. home improvement retail chains said that his

HO CHI MIN 00000320 002.2 OF 002


company's "just in time" supply-chain management allows no
tolerance for supply delays. A single week-long delay earlier
this month likely means that the company will no longer source
that product in Vietnam.

Beginning the Push toward Higher Value Goods
--------------------------------------------
8. (SBU) One farsighted Binh Duong provincial Party Committee
member pointed out that while the backbone of Vietnam's
competitive advantage is still cheap labor, the best industrial
parks in the most progressive provinces are pioneering a
transition to high-tech manufacturing requiring highly skilled
workers and proficient engineers. As labor-intensive garment
factories relocate to areas with cheaper land and labor, they
are often replaced by high-tech companies. He pointed to VSIP
(Singaporean) in Binh Duong and Tan Thuan High Tech Park
(Taiwanese) in HCMC as prime examples, saying "this is the
result of market forces at work".

9. (SBU) For the time being Vietnam needs to foster both labor
intensive and high-tech industry, the Binh Duong official added,
saying that the Vietnam-Singapore Training Center (part of VSIP)
offers training for unskilled workers, in part to attract them
to the province, and trains the high-skilled workers that
high-tech manufacturers require. VSIP management said the park
now boasts a growing roster of U.S.-invested technology
companies including Johnson Controls, Spartronics (printed
circuits and electronic final products), Unigen (precision
machining) and Vector Fabrication (electronic components) among
others.

Comment:
--------
10. (SBU) This year's post-Tet strikes demonstrate that
Vietnam's economy is straining under the weight of rapid and
sustained economic growth. The provincial officials we talk
with understand that turmoil and uncertainty in Vietnam's labor
market have the potential to scare off companies thinking about
investing or buying goods manufactured in this country. We
continue to emphasize that the United States shares Vietnam's
interest in programs that strengthen support for workers --
especially those that foster workers' participation in
labor-governance reforms and increase access to legal-redress
mechanisms. Additional regulatory transparency and good
governance are essential for Vietnam's workers to make informed
choices. We expect that carefully constructed assistance
programs addressing this increasingly shared interest would be
well received. End comment.

11. (U) This cable was coordinated with Embassy Hanoi.
DICKEY

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