HANOI (ILO News) – A roundtable organized by the Delegation of the European Union discussed the opportunities brought to small and medium enterprises (SME) by the free trade agreement between the European Union and Viet Nam (EVFTA).

Taking place on 26 March 2021 in Hanoi, the event “SMEs and the EU – Viet Nam Free Trade Agreement” also touched upon the question of how SMEs meet the requirements of international markets and improve labour compliance.

Stephan Ulrich, Programme Manager of the ILO’s Sustaining Competitive and Responsible Enterprises (SCORE) Programme, which also contributed to the event, highlighted the diversity of the SME sector in Viet Nam.

“There are about 50,000 enterprises with more than 10 workers. Many of these companies are well organized, have good operational processes, some level of middle-management and human resources functions,” he said.

The majority of the enterprises are however smaller, he added. About 700,000 formal enterprises employ less than 10 workers, but on average, only 2.5 workers each.

Then there is also a growing segment of the household businesses, which are not SMEs under the definition of the SME Law. About 5 million household businesses employ 1.8 million workers in total, and they also export. Viet Nam’s craft villages, for instance, export goods of US$2.4 billion in value.

On compliance challenges, domestic private enterprises employ 30 per cent of workers informally. In household businesses, the rate goes up to more than 50 per cent. Informal employment means workers are not protected by social security and don’t build up a pension for their retirement.

Other labour rights concerns include work safety, excessive use of overtime, vulnerable employment for women, and access to justice in case of violation of worker rights.

There is evidence that trade improves productivity and working conditions. According to the ILO report on world employment and social outlook 2017, exporting makes companies more productive and tend to pay higher wages.

Ulrich praised Viet Nam’s 2019 Labour Code as an important step forward as it will accelerate progress towards expanding decent work for all women and men. With a solid legal framework in place, he suggested five actions to improve labour compliance in SMEs:

1. Stronger labour inspection to reduce unfairness between SMEs complying will legal requirements and companies violating the law.
2. Expanding social security coverage for workers in a way that is affordable to SMEs and workers.
3. Support through business and SME associations who play already a strong role in advocacy and who could further build up the services to SMEs.
4. Private compliance initiatives by international buyers and brands should include SME-specific support and requirements, and buyers should also review their sourcing practices to ensure they don’t disadvantage SMEs.
5. SME support programmes like the ILO’s SCORE Programme which is being implemented in Viet Nam in collaboration with the Viet Nam Chamber of Commerce and Industry, Ho Chi Minh City and public SME support agencies in the north.