South Korean conglomerate such as Samsung
are concerned that Vietnam’s minimum wage hike plan will weigh on their operations and they may consider moving their production bases to other countries with lower labor costs, The Korea Herald reported.
Vietnam’s National Salary Council last week failed to decide how to raise the minimum wage for Vietnamese workers, which now moves between $108 and $157 on dependence of geographical zones.
The Vietnam General Confederation of Labor, which represents employees, has asked for an increase of 11% in next year while the Vietnam Chamber of Commerce and Industry, the representative of employers, has proposed raising by 4.62%.
The average wage hike will also lead to rises in other expenditures for medical and social insurance benefits.
“There are over 4,000 Korean companies doing business in Vietnam. A sharp wage hike will drop profitability, especially in labor-intensive industries,” said Im Choong-hyun, head of Korea Chamber of Commerce and Industry Vietnam office.
“With the estimated wage raise, the companies that lose productivity will consider moving to other countries in order to reduce costs.”
The country’s export revenue increased just 5.7% in the first half to $82.13 billion, far below a target of 10% growth set for this year.
The foreign-invested sector accounts for 71% of exports and 59% of imports, dominating key manufacturing exports of Vietnam.
Source: General Department of Vietnam Customs, World Bank
A number of trans-national companies have shifted their production from China to Vietnam due to rising labor costs. However, the Southeast Asian country is losing this competitive edge to neighboring countries such as Laos and Cambodia.
Economist Pham Chi Lan has warned that a low-cost workforce will be an advantage for Vietnam in the coming five to ten years only, especially for the apparel industry. This feature will lose its appeal when manufacturers increase automation.
Vietnam’s garment and textile exports grew just 4.72% year-on-year to $12.6 billion in the first six months of this year as Vietnamese-made products have become less competitive. This is the lowest growth pace for the same period over the past decade.
In order to alleviate their difficulties, the Vietnam Textile and Apparel Association (Vitas) has called on the government not to increase minimum wage in 2017 and only increase it once every two or three years to create favorable conditions for competition.
The minimum wage in Vietnam has risen an average 26.4% per year for local enterprises and 18.1% each year for enterprises with foreign investment in the period of 2008-2016, according to Vitas.
“As wages will inevitable rise Vietnam’s current comparative advantage in low skill, low cost labor intensive manufacturing will dissipate,” the World Bank has said in its latest update on Vietnam’s economy.