Chinese Shoe Companies Need To Be Cautious About Moving To Vietnam

After the implementation of the labor contract law, many businessmen outside China have considered investing in Vietnam, which has relatively low labor costs.

But now the foreign businessmen in Vietnam have to deal with the new labor and capital problems: with the increase of foreign enterprises to build factories, the strike is increasingly frequent.

In Vietnam, more than 150 strikes took place in 2006, and about 160 thousand people participated. In 2007, there were 541 strikes, involving 350 thousand people, involving 24 provinces and municipalities.

(March 31st International Herald Guide), according to the Vietnam labor newspaper, the number of workers in southern Vietnam has been on strike this year, and has been on the rise.

For example, in January 8th, there were 3 workers' strike incidents in Xin Shun export processing zone of Hu Zhiming city.

One day in January 16th, Korea Companies, Australian companies, 2 Japanese companies and 1 Vietnamese companies went on strike.

The latest massive strike took place at a shoe factory in Nike. According to the Agence France-Presse reported on April 2nd, at least 15 thousand workers took part in the strike and asked the factory to raise their salaries to cope with the soaring prices in Vietnam.

The demands of workers are a reflection of Vietnam's high inflation, which has begun to pose a threat to the country's rapidly growing economy.

Vietnam's inflation rate in 2007 was 4 percentage points higher than that of the economic growth rate, while the inflation rate in the first quarter of this year reached 9.2%. In the past year, the growth rate of the consumer price index reached 19% in the 13 years, far exceeding the 7.5% annual economic growth rate of Vietnam since 2000.

Inflation led by rising food prices is bound to exacerbate even the lowest proportion of the total expenditure of food in the total expenditure.

The authorities have also taken a series of measures to deal with inflation, such as the 11% reduction of rice exports this year (Vietnam is the world's third largest exporter of rice), in order to curb rising food prices. The central bank has tightened its demand for commercial bank reserves and conditions of its loans, restricted loans to buy stocks to fight speculation in the stock market, and reduced the index of Vietnam stock exchange by 44% in the first three months of this year.

Although the Vietnamese government has raised the minimum wage standard for foreign factories in Hanoi by 25% in 2006, it has increased by 12% in 2007. In January this year, the region took the lead in raising salaries by 13%, but the trade union said it was still difficult to make up for the rising trend of price indices in the coming years.

According to experts, Vietnamese people "pay more attention to family life, do not want to work overtime, more money is not dry".

Vietnamese laws also confirm that unless a public crisis is caused, no one has the right to intervene to stop the strike.

Although the Xigong Liberation Daily and the economic times reported that almost all the recent strikes were spontaneous, which were not in accordance with the law and without the leadership of the grass-roots trade union, strictly illegal, but the government hoped that different interest groups could fully express their views in the process of adjusting the minimum wage standards in August each year, and reached a consensus through game theory.

But now the rising tide of strikes has prompted the Vietnamese government to reflect on its tolerance and ambiguous attitude towards strike.

In January 30th, the Vietnamese government promulgated decision No. twelfth, made specific provisions and explanations on the 176th provisions of the labor law on suspending and stopping the strike and settling the collective interests of laborers, and made clear 5 kinds of strikes that must be postponed or stopped seriously after the prime minister's decision.

Vietnam's strike is mainly concentrated on labor-intensive enterprises such as textile garments and shoemaking invested in Korea, Japan and Taiwan, China.

But these enterprises, which originally saw the low cost of labor in Vietnam, are now finding themselves facing more and more problems: due to the years of war, the male labor force in Vietnam is rather short; Vietnam's 87 million national population is no doubt that more manufacturing factories are providing enough labor intensive supply market, such as China, and enough talents to meet the requirements of high-tech jobs; Vietnam's rapid growth in foreign trade has also led to more trade frictions, for example, the anti-dumping duties imposed by the EU on 16.5% and 10% of the leather shoes produced by the EU in 2006 and October 7th will not expire until October 7th this year.

At present, the cost of labor in Vietnam has been similar to that of mainland China, Indonesia, Bangladesh and Kampuchea, but it is still growing at a rate of 15% per year. With frequent strikes, a shortage of labour force, a two faced government swing, and a shift in Vietnam's economy from a labor-intensive industry to an internal demand based and service oriented industry, foreign capital may have to rethink its strategy and position in Vietnam.

South Korea's "daily economy" recently reported that in 2007 Vietnam's largest investment in Korea, on the one hand, has invested more than 2/3 of the year's investment in real estate and other service industries. On the other hand, some of the most difficult labor intensive enterprises have started to move from Vietnam to Kampuchea.

This is not good news for Vietnamese workers lacking a sense of security in the wave of globalization.