Saturday, May 27, 2023

Vietnam Is Losing Economic Ground To China Due To Lack Of High-Skilled Workers

Forbes – Vietnam has grown at an average 6.2% per year since 2000, gaining fame worldwide as a go-to place for export manufacturing, largely because of cheap labor. The minimum wage in Hanoi and Ho Chi Minh City is just 3.9 million dong ($172) per month. But this advantage from one of the world’s fastest-growing economies looks like less of a good deal when you realize that 78% of the workforce has no academic qualification and just 9% have credentials from a university or higher. The lack of more skilled labor has become an increasingly obvious barrier to growth in value-added exports such as high-tech goods, which require advanced studies for mastery.

This picture taken on January 11, 2017 shows Vietnamese employees eating lunch at the Ford automotive plant in the northern province of Hai Duong. (HOANG DINH NAM/AFP/Getty Images)

“While this has allowed Vietnam to maintain lower labor costs than its neighbors, especially China, it will also restrict the country’s ability to attract investments in high technological manufacturing,” professional services firm Healy Consultants Group says in a May 2017 report on the issue.

Without a fix Vietnam could lose ground to China as Asia’s economic darling. A similar number, 76%, of Chinese workers also have “no skill at all,” Beijing’s state-run China Daily news website says. More than 90% of Chinese companies are “affected by the shortage and low quality” of workers, it adds.

But the remaining 24% in China is backed by the sheer number of 830 million working-age adults. A lot have degrees from top Western universities. Some know enough to do a job briefly for someone else and learn how the technology works, then quit to start their own. Manufacturers also pick China for factories to be near its giant consumer market. Vietnam, with just 93 million people and a still-emerging middle class, isn’t there yet.

The mostly rural Southeast Asian nation was climbing out from the destruction of war and interminable poverty in the 1980s when its Communist government began to invite factories. That history left a lot of people without formal education. Assemblers of furniture and builders of auto parts, both typical of Vietnam’s manufactured exports, could be taught on the job, avoiding the need for formal education. New foreign direct investment pledges plus additional money for existing projects totaled $24.4 billion last year, about one-eighth of GDP.

Today, educated Vietnamese job hop for more pay and get away with it because they’re in short supply, analysts say. “There is an increasing competition for labor, which leads to inflation of wages and high employee turnover,” says Oscar Mussons, senior associate with the Dezan Shira & Associates business consultancy in Ho Chi Minh City.

Vietnam has proven it has the mettle to get people educated. It ensures that 98% of children attend primary schools with little favor to one gender over the other. As of 2010 the government had precise goals for vocational training in line with “socio-economic development,” per the World Bank.

Now the government wants to lean more on high-tech exports. It has attracted Intel, Foxconn Technology and Samsung Electronics to do production or design. They’re going to need skills, which will in turn raise wages and bring Vietnam closer to China in the eyes of foreign export producers. University-educated workers today earn an average $164 more per month than the rest, Healy Consultants Group says.

The government may begin to target certain industries for rigorous education drives, Mussons says. “Vietnam’s willingness to focus on strengthening the country’s competitiveness through education is going to be crucial in the next few years,” he says. “The Vietnamese government will have to pick industries that they think will be winners and to build up education programs around these sectors.”

Ralph Jennings , CONTRIBUTOR, Forbes Magazine

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