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Vietnam’s Factories Grapple With Growing Unrest

Ben Bland in Hanoi
Thursday, 19 Jan 2012 | 7:42 PM ET

The number of wildcat strikes in Vietnam doubled last year as workers suffering from Asia’s highest inflation rate struggled to obtain better wages.

Vietnam, Hanoi skyline with reflection in river.
Buena Vista Images | The Image Bank | Getty Images
Vietnam, Hanoi skyline with reflection in river.

Vietnam has been successful in recent years in attracting low-cost manufacturers looking to escape rapid wage rises in southern China. But investors now warn that more progress is needed on economic reform and industrial relations if that trend is to continue.

An emphasis on breakneck growth and the channelling of cheap credit and resources to wasteful state-owned companies has also left Vietnam with persistently high inflation, which threatens to undermine the country’s appeal to manufacturers.

There were 857 strikes in the first 11 months of 2011, when annual inflation averaged over 18 percent, according to government figures released to the state media. That is more than double the number of strikes in 2010 and more than in 2008, the previous record year for strikes, when inflation peaked at 28 percent.

“This is a very worrying number,” Nguyen Thien Nhan, a deputy prime minister, told a government conference on the issue earlier this month, according to state media. “We need to research whether or not this is a new trend and whether it is localised or nationwide.”

Wages for unskilled factory workers in Vietnam remain considerably lower than in China, around $100 a month compared to $300, according to factory managers.

Those low wage levels have helped Communist-ruled Vietnam attract a growing number of cost-conscious international manufacturers including Canon , the Japanese electronics company, Intel , the US chip producer and hundreds of predominantly Taiwanese and South Korean manufacturers producing shoes and garments for international apparel brands such as Nike .

But wages have recently been rising sharply in Vietnam, particularly in industries that require workers with more experience.

Some companies had to increase salaries on four occasions last year to stave off strikes, and the government raised the minimum wage in key industrial areas to 2,000,000 Vietnam dong ($95) in August, an increase of up to 49 per cent.

“Manufacturing companies are squeezed on both sides, by buyers that are squeezing down product prices and workers that are constantly demanding more money because of the rising cost of living,” says Jonathan Pincus, who heads Harvard University’s economics teaching programme in Ho Chi Minh City.

Strikes are one of the major current concerns of Japanese manufacturers, who run many of Vietnam’s biggest and most technologically advanced factories, according to Hirokazu Yamaoka, the chief representative of Japan’s trade promotion body in Hanoi. Dozens of Japanese companies were hit by walkouts last year, he says, despite attempts to head off discontent with pre-emptive wage rises.

The rising tide of labour strikes also represent a serious political challenge, in authoritarian, one-party Vietnam, where the weak, government-controlled Vietnam General Confederation of Labour is the only legal trade union and workers who try to organise strikes independently face arrest or other sanctions.

Foreign diplomats and factory bosses say the government is caught in a bind between the need to develop better communication channels between workers and employers, and its fears that organised labour may become a threat to political stability.

“The government is faced with a big problem in how to address these strikes,” says Youngmo Yoon, who works on industrial relations at the International Labour Organisation in Hanoi. “If the disputes and strikes do not take place in an orderly and regular manner, there’s the potential for these strikes to spread and take on political aspects, which is what the government fears a lot.”

He says that the VGCL is not being pushed hard enough by the government to take on the challenge of representing workers, in contrast to the equivalent official body in neighbouring China, the All-China Federation of Trade Unions.

“The key difference between Vietnam and China is that the All-China Federation of Trade Unions is being pushed by the Communist party to take on the work of representing workers and controlling the situation,” says Mr Yoon.

Although they are not typically supporters of enhanced labour rights, some factory managers in Vietnam also want to see stronger worker representation to ensure better lines of communication.

“Our workers went on strike after their rice portions were cut by the catering contractor who was trying to save money because of inflation,” says one European factory manager. But because the official trade union was not acting as an effective communication channel, the company had no way of knowing about the problem until it was too late, he says.

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