Labour shortage, automation and workers’ organizations – Challenges or opportunities?

Dr Chang-Hee Lee, ILO Viet Nam Director, explains how these new factors have an impact on workplace management.

Comment | 27 December 2019

Businesses in Viet Nam face challenges of rising labour costs, labour shortage, lack of skills, lack of commitment. Why are these challenges becoming more serious in recent years? What is future prospect?

It is true that businesses operating in Viet Nam these days, whether they are local or foreign companies, face a number of challenges that you mentioned such as labour shortage or rising labour costs. But I must say these are the happy challenges for Viet Nam, if you compare with many other countries where the challenges are lack of job opportunities because the economy is not growing strongly. In many countries, they are not rising labour costs, but stagnant wages. In Vietnam, we have opposite situation, because there is sustained high economic growth. That is why I say we have happy challenges.

Still they are serious challenges for businesses. But I would also like to point out different industries face different problems. For example, domestic service industry such as hotel or restaurant do not face same level of cost pressure as garment industry faces as garment factories have to compete with factories in Bangladesh or Myanmar.

The issues of “lack of skills” and “lack of commitment” are not clear-cut, not black or white. It is true that there is a great difficulty to find workers who have all requirements and can become 100% productive when they begin their jobs. But we also need to ask if management has skills to maximize skill potentials of workers through more effective organization of work, through better in-house training, and through more effective incentive system.

When we say ‘lack of commitment’, I assume we are talking about a situation where workers move from one company to another, they don’t stay long at one place. Indeed, it is not desirable for companies, as they lose experienced staff. At the same time, we also have to question whether employers are capable of creating attractive workplace where working environment is safe, working conditions are good, and workers’ contributions are effectively rewarded so that workers develop strong commitment to the company.

Do you think that the increasing number of FDI enterprises investing in Viet Nam also has a role in labour shortage?

Labour shortages are results of sustained economic growth, largely driven by increased FDI. There are not many countries in the world that have achieved the economic growth of more than 6 per cent in the last 10 years like Viet Nam.

So we can say that the increase in FDI is one factor that drives labour shortage. It is also the result of the Government policies relying on global integration through free trade agreements such as CPTPP and EVFTA. So there are more investments, creating more companies and more workers needed, which may lead to labour shortage. Now, in addition, there is the trade war between the US and China, so many companies are shifting their production from China to Viet Nam.

I do not have updated statistics on labour shortage, but virtually all HR managers I have met told me this is one of top concerns of companies in different industries.

How have other countries dealt with these challenges during their earlier stages of development?

Every country that is more developed than Viet Nam today has gone through this process. For example, Korea went through this challenging period in 1970s and 1980s. Even China with 1.3 billion people went through labour shortages and rising labour costs since mid 2000s. So this is the process of development that every successful country goes through. Now Viet Nam is going through this process.

"This is the process of development that every successful country goes through."

Chang-Hee Lee, ILO Viet Nam Director

This is the period when companies, industries and economies have to transform their model of development. Until recently Viet Nam’s main strengths have been low costs and low wages at the bottom of global supply chains. The fact that there are rising labour costs and labour shortage means the model of economic growth purely based on low costs and low wages is coming to an end. It is time for industries in Viet Nam to upgrade their competitiveness, improve productivity and working conditions. Rising wages do not necessarily mean rising unit labour cost. If productivity growth outpaces wage growth, unit labour cost will go down, making companies more competitive. So you have to develop workplace management system for higher productivity. Also you have to make workplace more attractive for workers in terms of environment, working conditions and motivation.

In response to the challenges, many businesses are introducing automation in the context of Industrial Revolution 4.0 as the solution. What do you think?

Industrial Revolution 4.0 is a buzz word in today’s Viet Nam. But I think employers are pragmatic, and they will compare costs of automation and rising labour costs. If manufacturing a product by machine is cheaper than by manual work of workers they may go for automation. I do not think we have reached that stage in Viet Nam, and we have to remember that only part of production process can be automated.

When I had discussions with experienced HR managers of some companies in the wood industry, some suggested that they may automate the work processes which are too noisy and toxic because workers don't want to be in such conditions these days. I think it is sensible suggestion.

The National Assembly adopted the revised Labour Code in November 2019. What are key changes and what are the implications of the revised Labour Code for effective and efficient workplace management?

The National Assembly adopted the revised Labour Code last November. When implemented, this will bring many changes to workplaces. The main changes are in the area of industrial relations. Now you can have only one union under the Viet Nam General Confederation of Labour (VGCL). The new law would allow workers to organize or join organizations of their own choosing and these workers’ organizations do not need to be affiliated with VGCL. This is a huge change and also a challenge – and employers and workers do not have any experience of dealing with this new situation. But I would like to emphasize that industrial relations systems in most countries operate based on full recognition of freedom of association. Then, there is no reason to believe Viet Nam cannot manage this new industrial relations system.

I would like to emphasize that this is the great opportunity to use new industrial relations to upgrade the workplace management system for better productivity, better competitive industries in Viet Nam. It is because when workers have a bigger voice and more bargaining power, they will try to bargain for better wages in one workplace rather than jumping from one company to another. Stronger voices of workers through independent union and collective bargaining is likely to create additional driver for better productivity, higher commitment and less employee turnover.

Dual challenges of labour shortage and new industrial relations come together should be seen as a golden opportunity for Viet Nam to upgrade its development models and competitiveness.

What are ILO’s current and future programmes to help businesses in Viet Nam to address the above challenges?

ILO Viet Nam has a series of projects and programmes to support businesses to improve productivity and industrial relations. For instance, we have SCORE programme in wood processing and furniture industry to help companies improve productivity and working conditions. We also have Better Work programme in garment industry to help them increase compliance and business performance. And we have a CSR project covering seafood and also wood processing industries to improve the CSR standards in the sectors. As Viet Nam is part of CPTPP and will become part of EVFTA, this will increase the requirements for the CSR implementation in the global supply chains.

Through those projects, we are helping businesses in key sectors improve their management system, their productivity and industrial relations. Transformation of workplace management system is the key driver for Viet Nam to achieve its ambition of becoming an upper middle income country by 2035.