Vietnam ‘must get smarter on HR’ as it heads towards middle-income status

Author: Thomas Maresca | Date: 21 Dec 2016

As the economy matures, it may be difficult to sustain such high GDP growth, say experts

HR specialists and economists are advising Vietnam’s government and private sector to get smarter over their personnel policies if the country is to maintain the productivity improvements that have make it increasingly prosperous.
A report released in October by the Institute of Chartered Accountants in England and Wales (ICAEW) on the issue cited research from the International Labour Organisation (ILO) to highlight Vietnam’s strong record: the report notes that Vietnam’s productivity grew 184 per cent from 1991 to 2012, far surpassing Thailand’s 85 per cent, Singapore’s 81 per cent and Malaysia’s 80 per cent growth over the same period.
That productivity growth is reflected in Vietnam’s leap from one of the poorest nations in Asia to a middle-income status country in 2010, with the poverty rate falling from nearly 60 per cent in the early 1990s to 20.7 per cent in 2010, according to the World Bank.
Textile and apparel manufacturers are continuing to relocate from China, and electronics manufacturers are increasingly looking to Vietnam for low-cost labour; Samsung, for example, operates three export-focused smartphone plants there.
Yet amid those relatively sunny figures, dark clouds loom. Much of Vietnam’s GDP growth over the past two decades has stemmed from its transition from an agricultural to a manufacturing economy. As the economy matures, many analysts warn that Vietnam's labour productivity is still too low to enable the country to fully take advantage of the growth opportunities on the horizon.
A 2012 report from the McKinsey Global Institute suggested that Vietnam needed to boost labour productivity growth by more than 50 per cent to maintain its rapid expansion.
Vietnam’s ministry of industry and trade has also echoed the concern: “Increasing labour productivity is the only way to reach a GDP per capita between USD15,000 and USD18,000 by 2035,” the country’s minister of planning and investment, Bui Quang Vinh, told Vietnamese language media earlier this year.
Bob Aubrey, chairman of the HR committee of the European chamber of commerce in Singapore, noted that in fast-developing countries, wages and living standards can quickly outpace the growth in productivity, changing the cost/productivity ratio. And a market’s economic development often leads to a lack of qualified local candidates for increasingly skilled positions.
One consequence, from a hiring perspective, is that the labour market can turn into a highly competitive talent war. “HR should focus on retaining talent," said Aubrey. "Being very conscious of rising wages, young people will jump to different employers because there's no downside."
Another role that HR departments can play is recognising the changing labour market and helping to influence overall corporate strategy.
"HR departments can say, ‘This trend is not going to change, we're not going to maintain the same ratio (of wages to productivity) we've had before,” said Aubrey. “We have to think about moving into a different area, or moving higher up the value chain."
Another problem is that Vietnam also face a lack of HR professionals to help navigate this rapidly changing landscape. Thanh Le, associate director of commerce, HR & IT at Robert Walters Vietnam, said that the shortage was felt especially keenly among professionals with experience in total reward and learning and development. “To deal with this issue, we recommend hiring managers consider targeting HR professionals in the early stages of their careers who can be trained and developed within the organisation,” said Thanh.
“There has also been a trend of multinational organisations in Vietnam seeking to attract returning Vietnamese HR professionals with international educational backgrounds and strategic experience. These specialists can bring global best practice of international business to the Vietnamese market, but have the additional benefit of local cultural understanding.”