Contributions by Filippo Bortoletti Country Director, Dezan Shira & Associates, Vietnam

Vietnam’s labor market is going through a transformation, with people moving from the countryside to the city, and switching from agriculture to manufacturing and service industries. While agriculture contributes significantly to the local economy, employing many people, with the economy opening up, other sectors such as the service industry are growing looking to hire additional labor to meet demand. But this has proved challenging due to a shortage of labor.

Vietnam’s labor pool counts approximately 56 million people, with active workers being around 76 percent.

With further development, businesses are shifting production chains to Vietnam or relocating a portion of their value chains following a China plus one strategy. Therefore, Vietnam is developing into a prominent manufacturing hub in the Asian region.

However, demand for qualified labor is increasing. The number of employees working in foreign-invested enterprises (FIEs) have increased from 330,000 in 1995 to around 6.1 million in 2019. This shows an average growth rate of 7.72 percent during the 2005-2017 period higher.

Further, recent labor shortages caused by the pandemic and local workers returning to their hometowns have brought additional challenges to businesses.

According to the Ministry of Labor, Invalids and Social Affairs (MoLISA), about 1.3 million workers left Ho Chi Minh City and key southern provinces for their hometowns due to the pandemic between July and September 2021.

While the labor pool is growing fast – especially qualified workers, thanks to the efforts of the local government in promoting public and private vocational training – demand continues to grow at a rapid pace.

In addition, as competition in the labor market increases, companies should pay more attention to implement effective HR policies to attract and retain key employees. Therefore businesses would need to consider factors such as location and labor availability, salary packages, wage increases, and training, as well as social contribution regulations.

Labor shortages post-pandemic

To actively recruit and keep employees, businesses should offer support packages, and benefits and ensure a safe work environment.

Typically, it takes companies around one to two months to recruit unskilled labor, while it takes around two to three months for skilled labor.

Several manufacturers in Ho Chi Minh City have been forced to expand to other localities such as the Mekong Delta region to make use of the labor there. Hiring in major cities is becoming challenging due to a higher standard of living and inadequate or favorable policies for migrant workers. In addition, low wages and hard lockdowns during the pandemic drove many workers back to their hometowns, but high prices and inflation have prevented many of them from returning.

For example, the Taiwanese Pou Chen Corp stated that about 6 percent of staff in Ho Chi Minh City left. Similarly, a garment factory with five production lines requiring 35 workers each, only had 25-27 workers per production line resulting in production issues.

Therefore, several manufacturing businesses decided to expand into neighboring provinces, making it easier to recruit. However, depending on the business model, operating in rural areas – far from main economic hubs – can be challenging due to poor infrastructure, poor quality roads and inadequate connection with main ports and hubs.

That said, new purchase orders have continued to increase since the beginning of 2022, without disruptions in the local supply and production chains.

What can businesses do to retain workers?

Employees can change jobs for many reasons such as company management, labor relations, working environment, wages, etc. Therefore, salary and other welfare schemes are key factors for attracting labor.

To retain the employees, businesses have increased wages, some by up to 30 percent. Despite post-pandemic challenges, several businesses have also kept bonuses after the Lunar New Year holiday. Some businesses have also offered private health insurance on top of mandatory state insurance. While these are some options, businesses can take a step further to remain competitive to recruit and retain workers.

While wages are a key incentive, businesses can also offer other support such as increased health insurance, allowances for food and transport, or transport options for workers commuting to and from the company. Businesses can also build on-site living facilities that are suitable for employees. These can include sports facilities, daycare, and other entertainment options as incentives. Performance-based incentives can also be offered and ensure that employees remain productive.

Career growth and upskilling is another aspect that is important for employees. Therefore, businesses can also offer training and offer to pay for vocational schools. This will ensure that workers can get the desired education and build loyalty to the company.

Lack of skilled labor

FDI firms continue to struggle in hiring skilled labor in Vietnam. Major challenges include the lack of technology infrastructure, R&D spending, vocational, and technical skills. The lack of skilled labor has the potential to slow down the economic transition from labor-intensive industries to high-tech goods, reducing Vietnam’s competitiveness. Thus, the government should introduce reforms in education and industrial training to meet current industry demands, particularly related to Industry 4.0.

Government support

Skills and talent shortages are particularly acute in industries such as technology and banking. The country is currently lacking over 70,000 IT workers per year and the government is setting a target of creating a pool of 1.3 million IT workers by 2025.

To address the challenges within its labor force, the Vietnamese government has announced it will prioritize adapting its industries to a digital future and will improve the accessibility of on-the-job training programs in these fields.

Optimizing your recruiting and HR strategy

While businesses in Vietnam have come to accept the high turnover of personnel as a cost of doing business in the country, there is still a strong push to find ways to increase the amount of time that an employee is willing to spend at a company.

Providing higher salaries is certainly attractive, but money may not be the only factor in what makes Vietnamese employees stay longer at a company. Those businesses that find ways to build employee loyalty will therefore be particularly successful.

Investors in basic manufacturing benefit from significant wage discounts compared to costs in more established markets, such as China, and even regional competitors, such as India and Indonesia. However, Vietnam’s labor market is not without challenges. Companies operating in the country must pay close attention to challenges such as wage inflation, worker productivity, social insurance compliance, and structure HR policies to ensure successful hiring strategies.

Commonly encountered problems when hiring Vietnamese employees include a lack of English skills and a lack of technical skills. Many Vietnamese have a basic level of English but do not have the fluency required to conduct business in the language.

While the government is pushing English education throughout the school system, the full effect of this will not be felt for some time. One strategy for foreign businesses is to provide English lessons for their employees as part of a wider skills training program.

Additionally, the government, often in conjunction with foreign tech companies, is seeking to boost the technical skills of the country’s workforce. These programs are already starting to bear fruit as can be seen from the sizable investments that companies, such as Samsung and Intel, have made in Vietnam.

Due to the complexities of the labor market, many companies in Vietnam rely primarily on outsourced providers when it comes to HR, particularly for advice related to recruitment, training, and payroll. In fact, many multinationals report that they would like to outsource more of their operational HR practices to a regional shared services function.