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Changes in the human resource structure of Vietnam's industry in the US-China Trade War

2019-01-25 11:20:00

Ha Noi  - Vietnam's Capital

Ha Noi  - Vietnam's Capital

The harsh conflict over the China-US trade war in the past six months have triggered changes in the layout of overseas Taiwanese enterprises. In particular, the mode of overseas Taiwanese businesses in the past was to adopt the business model of“Taiwan orders China’s production and export to the US market”. However, under the threat of high tariffs, Taiwan firms began to look for other production factories outside China. A great discussion and attention has been paid towards Vietnam – a choice of most Taiwanese firms.

Vietnam's advantage

Ho Chi Minh City - VietNam

Ho Chi Minh City - VietNam

Compared to Ho Chi Minh City, which is the focus of Taiwanese businessmen in the past, the Northern Vietnam region has gradually gained more concerned and favored by Taiwanese technology factories under the impact of the trade war. There are several reasons for this:

First of all, in order to balance the economic development gap between the North and the South, the Vietnamese government has structured the North Vietnam region as a "High-tech zone". Important investment and industrial development projects in the electronics industry and high-tech industries have been set here. With the slogan "Made in Vietnam 2020", it is hoped that Vietnam will become a big manufacturing country.

Second, most manufacturers still care about labor costs. Even with social insurance and other expenses, the current labor cost in Vietnam is about 30% in Taiwan and 50% in China. Especially Saturday is still counted as a working day in Vietnam; plus, there are fewer national holidays in Vietnam compared to other ASEAN countries. Thus, it is almost two months more labor time a year in Vietnam than other places, which is the productivity that all manufacturers are most willing to see.

Third, North Vietnam's stricter social control would make it more manageable in terms of controlling labor disputes.

Fourth, considering the geographical advantages, especially in North Vietnam, the relevant raw materials and goods can be connected through the "Pearl River Delta" in about one day by land, and the "Yangtze River Delta" can be reached within  three days.

Fifth, cost-sensitive manufacturers are also optimistic about Vietnam's "foreign trade agreement." In addition to the AEC within the ASEAN and the CPTPP that has recently come into force, the free trade agreement signed with the EU will also take effect this year. All of the above elements have explained why Vietnam can take advantage over other ASEAN countries.

The inevitable transfer of Taiwanese industry

Ha Noi

Ha Noi

Most of the early Taiwanese investment in Vietnam was concentrated in South Vietnam. At the same time, the metal processing manufacturing industry and the textile industry were mostly. The trade war backstage merchants increased their visits to Vietnam through the electronics industry and technology industry.

Compared with the Taiwanese electronics industry, Japan, the electronics industry began to accelerate the migration of Vietnam after the floods in Thailand in 2014. The inspection time is about two years; South Korea is led by the "leading industry". LG's production factory settled in Haiphong and Samsung's production factory in Ningping are all manufacturers directly negotiating with suppliers to invest in Vietnam. In connection to that wave, the trade war has shortened the time for foreign business inspections. Most of them hope to complete the land search and production in a year or so. The rapid land demand makes the rent price in the industrial zone rises.

For Japan and South Korea, going abroad, whether in China or Vietnam, is "a foreign country". It can be adjusted before the factory is set up in the management and cultural mentality. South Korea has set up training centers in Taiyuan and Beining, and the South Korean government encourages the whole family to go to work, and the demand for spilled service industry also drives the economic vitality around the industrial zone. Taiwanese factories that originally turned to Vietnam are limited by their past experience in China, and the cost of management learning will increase.

For Japan and South Korea, going abroad, whether in China or Vietnam, is "a foreign country". It can be adjusted before the factory is set up in the management and cultural mentality. South Korea has set up training centers in Taiyuan and Beining, and the South Korean government encourages the whole family to go to work, and the demand for spilled service industry also drives the economic vitality around the industrial zone. Taiwanese factories that originally turned to Vietnam are limited by their past experience in China, and the cost of management learning will increase.

Industrial mobility and changes in the industrial structure of Vietnam's industry

The migration of tech giants and the recruitment of thousands of workers have changed the human resources structure of Vietnam. In some industrial areas, labor shortages and employee turnover rate are becoming serious problems. Compared with traditional industries, the better working environment provided by tech factories will attract more labors from different areas.

For the traditional industrial Taiwanese factories that have already entered Vietnam, they must maintain labor relations through "increasing wages" and "organizational culture"; according to the author's field observations, the entry of large-scale tech factories has allowed small-scale, labor-intensive Taiwanese businessmen to consider moving their factories to lower-wage provinces (Northwest area, Central area). This has indirectly contributed to the industrial upgrading of foreign investment in North Vietnam.

Local human resources agencies also said that it is difficult to recruit not only workers in domestic market but also overseas workers in Taiwan in the past years. It is necessary to go deep into central Vietnam or remote rural areas to recruit workers. In addition to the aforementioned factors, Japan's opening policy of hiring migrant workers has also made it easier for some Vietnamese migrant workers to work in Japan, which is a more attractive market than Taiwan.

Conclusion

Compared with the small and medium-sized enterprises that entered the country in the early stage, the technology industry and the electronics industry have already considered the risk of diversification when investing in the construction of factories. It is expected that the arrival of foreign capital will lead to an increase in the cost of wages. When building a factory, it has already considered "automatic production " to reduce labor costs. Based on the above analysis and interviews, the author proposes the following recommendations based on observations:

1. Due to the large-scale arrival of foreign capital, the capital of Taiwanese businesses entering Vietnam will be much higher than before. The Vietnamese government and workers will also have more choices. To deal with the competition from other foreign investors in recruiting Vietnamese labors, both traditional and modern Taiwanese companies must provide better working conditions. Otherwise, unstable labor mobility will inevitably affect production efficiency; traditional small and medium-sized enterprises are suggested to think of the solutions as they will certainly face the reality and challenges in the future.

2. Most Taiwanese businessmen said that they are tired of settling the factories but then moving to another places not long after. Therefore, the automation of improving production efficiency will become an important strategy for Taiwanese businesses in the future.

3. Korea’s experience shows that the entry of the manufacturing industry has boosted the development of the surrounding service industry. At present, there are not many manufacturers of Taiwanese business in services and domestic markets. As the demand for a new wave of Taiwanese businesses, the demand for overseas service providers will become a concern.

4. In the past, the experience of Thailand, when the domestic economy improved, and the willingness to work overseas will be reduced. With the influx of foreign capital to make Vietnam a big manufacturing country, whether Vietnam will affect the willingness to work overseas is the same issue as Thailand, is an issue that worth considering.

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