“A strike would be trouble,” Yasunari Kuwano, a spokesman at Tokyo-based Minebea, said of the $62 million plant, which will make electric motors for appliances and digital equipment. “Labor is the key focus for us in choosing Cambodia. We need reliable labor.”
As Minebea broke ground last month in Phnom Penh, London- based cable maker Volex Group Plc (VLX) and Japanese lingerie company Wacoal Holdings Corp. (3591) were among investors in Vietnam that faced illegal wildcat strikes. Workers are demanding better pay after the highest inflation rate in Asia hurt their purchasing power.
The strikes have dented Vietnam’s 25-year-old goal of attracting foreign investors to set up manufacturing hubs by offering a reliable workforce with minimum wages now half those of China. Planned foreign direct investment into Vietnam fell 48 percent in the first five months of 2011, to $4.7 billion.
“The nation is at a critical crossroads,” said Victoria Kwakwa in Hanoi, the World Bank’s country director in the Southeast Asian nation. “Vietnam can’t assume that FDI will continue. Money can go elsewhere.”
Inflation quickened to a 29-month high of 19.8 percent in May, a level the World Bank called “intolerable” in a report this month. The development bank, which expects inflation to peak this quarter and then ease to 15 percent by year-end, said Vietnam must stick to monetary tightening policies until the rate is at least halved.
Soaring prices and industrial unrest have given Vietnam the worst-performing stock market and currency in Asia in the past year. The VN Index of shares has declined about 12.8 percent in the period, and the dong has slid 7.6 percent against the dollar.
Prime Minister Nguyen Tan Dung’s government in March switched its emphasis to fighting inflation rather than stoking economic expansion, and has cut its 2011 growth target to 6 percent from as much as 7.5 percent. With credit-rating companies lowering the nation’s sovereign-debt grade in part on weaknesses in economic policymaking, some foreign direct investors are wary of making a long-term bet on Vietnam.
Srithai Superware PCL (SITHAI), a Bangkok-based company that makes tableware, this month suspended plans for a $5 million expansion at its plant in southern Vietnam because of “economic instability,” said Santi Sakgumjorn, general director of the Vietnamese unit. The company said it will set up a subsidiary in neighboring Laos.
“In the short term, we have no confidence in the economic situation in Vietnam,” Sakgumjorn said in an e-mail. The factory has been hindered by rising production costs after two salary increases this year, he said.
Vietnam’s workers say they have little choice but to strike as costs rise. At an industrial park in Hanoi, factory worker Le Kien scanned job openings, looking for better pay, after his shift at a plant that assembles cables used in Honda Motor Co. and Yamaha Motor Co. motorcycles.
“The price of everything -- food, gas, electricity -- has gone up by more than my pay rise,” said Kien, 24, whose monthly salary is equivalent to $87. “I can’t even afford to start a family. I wouldn’t have enough to buy milk for my baby.”
That’s even after Kien and most of his 500 colleagues went on an illegal strike in April and won a 13 percent pay increase. The Taiwanese firm he works for had already boosted salaries in January, he said.
Labor disputes have hit local units or suppliers of companies such as Yamaha, Panasonic Corp., and Adidas AG. Yamaha was forced to halt production of motorbikes in Hanoi when 4,000 employees downed tools in March. The workers were given a pay raise to return to work, Tokyo-based spokesman Shinichiro Irie said.
Vietnam had 336 strikes in the first four months, according to Vietnam’s General Confederation of Labor. That’s on course to beat the 2008 record of 762. Many are wildcat stoppages, which lack legal authorization, according to the Geneva-based International Labour Organization.
“Every day, somewhere in the country, there is a strike,” said Youngmo Yoon, a Vietnam labor specialist for the ILO. “Most are being organized by workers spontaneously.” In many cases, the workers win higher wages, he said.
Vietnamese salaries are expected to rise nearly 12 percent this year, the highest gain in Asia Pacific and almost double the regional average, according to ECA International’s Salary Trends Survey. Vietnam raised the minimum wage by 14 percent last month.
Some companies continue to invest in Vietnam, where 60 percent of the 87 million population is under 35 years old and minimum wages, at $85 per month on a purchasing-power parity basis, are still the second-lowest among Asian economies as measured by the ILO in 2009. Only Bangladesh was lower, while China’s monthly minimum wage was $173. The Vietnamese government is targeting pledges of $20 billion in foreign direct investment into Vietnam this year.
First Solar Inc. (FSLR), the world’s largest producer of thin-film solar panels, plans to invest an initial $300 million in a factory in southern Vietnam. Nokia Oyj, the Finnish maker of mobile phones, said earlier this year it plans to open a 200 million-euro ($287 million) plant near Hanoi in 2012 to produce low-end handsets.
For companies that do operate in the country, rising wages will put pressure on profits, said Alan Pham, chief economist for VinaCapital Investment Management Ltd., the biggest fund manager in Vietnam.
“It all adds to the negative impact on the psychology of the investor,” Pham said. A decline in foreign investment is particularly troubling because it could worsen the current account deficit, increasing pressure on the dong, he said.
Only 16 of the 284 companies on the Ho Chi Minh Stock Exchange have seen their share prices rise in 2011.
Almost a third of strikes this year have been at units of South Korean companies, according to Vietnam’s labor confederation. The bulk has occurred at garment factories, said Kim Soon Ok, director of the Korean Chamber of Commerce and Industry in Ho Chi Minh City. Many owners were caught off guard by the work stoppages, which delayed shipments and resulted in “huge losses,” she said.
Labor unrest in Vietnam is “a grave risk” to foreign businesses, Bath, U.K.-based risk consulting company Maplecroft Ltd. said in May. China’s productivity is 2.6 times greater than Vietnam’s, while Thailand’s is 4.3 times higher, according to a January report by Vietnam’s Ministry of Planning and Investment. Compounded with labor strife, it’s an equation that may make Vietnam less attractive to investors, said Maplecroft chief executive officer Alyson Warhurst.
“Companies are looking to see whether Vietnam is able to manage inflation and wage pressures, said Warhurst. “If Vietnam mismanages it, multinationals have other alternatives. They can go back to China. They can look elsewhere.”
--K. Oanh Ha and Diep Ngoc Pham in Hanoi. With assistance from Nick Heath and Nguyen Dieu Tu Uyen in Hanoi, Makiko Kitamura in Tokyo and Suttinee Yuvejwattan in Bangkok. Editors: Adam Majendie, Chris Anstey, Anne Swardson
To contact the reporter on this story: K. Oanh Ha in Hanoi at firstname.lastname@example.org
To contact the editor responsible for this story: Chris Anstey in Tokyo at email@example.com