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Cablegate: Comforts of a Cooler Labor Market Offset by Skilled Staff

VZCZCXRO7704
RR RUEHDT RUEHPB
DE RUEHHM #0691/01 3640725
ZNR UUUUU ZZH
R 300725Z DEC 09
FM AMCONSUL HO CHI MINH CITY
TO RUEHC/SECSTATE WASHDC 6198
INFO RUEHHI/AMEMBASSY HANOI 4088
RUCNARF/ASEAN REGIONAL FORUM COLLECTIVE
RUEHHM/AMCONSUL HO CHI MINH CITY 6441
RUCPDOC/USDOC WASHINGTON DC
RUEHC/DEPT OF LABOR WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE USD FAS WASHINGTON DC

UNCLAS SECTION 01 OF 02 HO CHI MINH CITY 000691

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EINV ELAB ETRD VM
SUBJECT: COMFORTS OF A COOLER LABOR MARKET OFFSET BY SKILLED STAFF
SHORTAGE IN HCMC

REF: HCMC 204

HO CHI MIN 00000691 001.2 OF 002


1. (SBU) Summary: At year's end, Ho Chi Minh City employers are
grappling with two distinct human resources trends rising from
the economic tumult in 2009. The global economic downturn has
given them the upper hand in negotiations with unskilled labor,
resulting in flat blue collar wages and cuts in benefits. In
stark contrast, business professional salaries are up by 16
percent as demand for managerial, sales and accounting skill
continues to outstrip the meager supply that Vietnam's
educational system can produce. In this mix, the planned
January 1, 2010 increase in the minimum wage worries many who
see the move eroding one of Vietnam's main competitive
advantages in the battle to attract investment -- low cost
labor. End Summary.

Exports Down, Giving Employers the Upper Hand

---------------------------------------------

2. (SBU) Vietnam's largest human resources consulting firm,
Navigos Group, conducts salary surveys year-round and publishes
an annual report benchmarking human resources HR and salary
trends by occupation and industry. Director of Navigos Group's
HR Advisory Services, Winnie Lam told EconOff that current
remuneration trends indicate a "massive" shift in the labor
market dynamic from 2008 to 2009. 2008 saw hundreds of strikes
as high inflation (28 percent in August) eroded workers standard
of living. At the same time, employers in some southern
provinces were struggling to find enough workers to enable them
to fill their orders. In the last year, labor intensive
export-oriented firms experienced an average 60 percent decline
in orders, Lam said, forcing many to focus on reducing their
labor costs. Despite shrinking demand for exports, nominal
wages for unskilled labor remained flat in 2009, buoyed by
inflation, Vietnam's law on minimum wage, and the practice of
informally indexing salaries to the national minimum wage, Lam
explained. She noted that in Vietnam employers often opt to cut
employee benefits rather than adjust salary because salary
adjustments require government approval. As a result, average
employee benefits have fallen by 50 percent since last year
among the companies Navigos surveyed. Cutting benefits but
maintaining or even slightly increasing salaries during a period
of financial uncertainty may seem counterintuitive, but this
helps companies reduce payroll costs while staying in compliance
with Vietnam's laws, she said.

3. (SBU) Employers are now more judicious in hiring, Lam
continued. They allow positions to remain vacant longer, taking
more time to find the right candidates. For example, the
average recruitment time has doubled; where finding a new hire
used to take two weeks, now takes a month. They also hold
firmer on salary offers. Whereas companies used to be willing
to pay 120 percent of their initial salary offer for a candidate
performing at 70 percent, they now hold the line on salaries and
expect a "120 percent" candidate. Companies are more willing to
fire underperforming employees and reduce payroll through
attrition. In general employers are feeling less rushed,
compared to 2008 when it was just about getting bodies in the
door. Unskilled workers read the news and understand the
balance between supply and demand, Lam concluded, and have
tempered their expectations in the short term.

Meanwhile Skilled Labor Demand Continues to Outstrip Supply

--------------------------------------------- --------------

4. (SBU) Laborers are being squeezed by current conditions, but
HCMC's professionals are on the other side of the equation.
Vietnamworks.com, the country's largest online job service, uses
posting data to quantify demand for various skills. While the
white collar labor market was somewhat softer in 2009, demand
for sales professionals picked up by 12.5 percent in the second
quarter of 2009, followed by accounting/finance, engineering,
administrative/clerical, and IT-software. The biggest gap
between labor supply and demand, however, remains in the top
management category - and the mismatch is reflected in higher
salaries. According to Navigos survey, aggregate white collar
salaries in 2009 actually increased by 16.5 percent and that
increase has been driven by the 22 percent jump in top
management salaries.


HO CHI MIN 00000691 002.2 OF 002


5. (SBU) Both new investment and localization strategies --
reducing costs by replacing expensive expat managers with
Vietnamese professional staff -- drive increasing demand for
local white collar workers, making it more and more difficult to
find strong local candidates. Ms. Pham Thi My Le, CEO of the HR
firm Le and Associates, said the talent deficit is so acute that
larger companies are replacing high-priced westerners with
Filipinos, Singaporeans and Malaysians for key positions like
marketing managers, sales managers, brand managers, copywriters,
finance managers. Vietnamworks.com confirmed they also see this
trend toward the "local international hire" in their online
postings. They also noted the increase of overseas Vietnamese
returning to Vietnam with needed skills and experience and, best
of all for employers, are already in country so do not add
additional relocation costs.

"Social Justice" or "Blunting Vietnam's Competitive Edge"?

--------------------------------------------- -------------

6. (SBU) From the first of the year 2010, Vietnam's minimum
monthly wage will increase under a Ministry of Labor decree. At
state-run and domestic companies in HCMC, the minimum wage will
rise to $54.50 US$ per month; at foreign-invested factories to
$74.40 US$ per month. While the increase in minimum wages
reflects a GVN attempt to protect those near the bottom of the
wage ladder, a number of the large, labor-intensive industries
face extreme price pressure and argue that the wage increase
will make it harder for them to continue to compete, effectively
driving investors and jobs to other countries.

Comment

-------

7. (SBU) Despite the shifting human resource dynamics many
employers aren't feeling relief, the Consulate General included,
because the in-demand skill-sets are the very human resources we
need. Although the HR survey results lag behind an uptick in
economic activity, in part spurred by GVN's economic stimulus
package, the overall trend still seems to hold. While media
reports indicate that demand for low-skilled labor is again
gaining traction, particularly seasonal demand ahead of the Tet
holiday, exporters are being affected differently and, in
general, still remain cautious in hiring.

8. (U) The cable was coordinated with Embassy Hanoi.
FAIRFAX

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