Cost Impact: New Labour Code, New Union Law, and Draft Employment Law

In 2012, the National Assembly passed two important laws regarding labor matters including Labor Code No. 10/2012/QH13 dated 18 June 2012 taking effect effective date from 1 May 2013 (the “New Labor Code”) and Law No. 12/2012/QH13 on Trade Union dated 20 June 2012 taking effect from 1 January 2013 (the “New Union Law”). These laws will replace the current Labor Code passed on 23 June 1994, amended and supplemented in 2002, 2006 and 2007 (the “ Current Labor Code”) and current Law No. 40-LCT/HDNN8 on Trade Union dated 30 June 1990 (the “Current Union Law”). Also, the new draft of Employment Law is under discussion and expected to take effective from 1 January 2015 (the “Draft Employment Law”).

Providing many new regulations, these new laws will explicitly impact to labor relationship and employers’ business. In the scope of this document, we will focus on the impact of new laws to company (employer) costs. Specifically, the revisions can make company direct / indirect costs (as defined below) increased.:

• “Direct cost” revisions mean legal requirements that would directly impose higher taxes, fees and labor costs on the enterprises, e.g., increase of probationary salary, minimal salary rates, insurance contribution rates, change of leave regimes, increase of salary for overtime, new regulation of union fund, etc.

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Japanese investors leave China, bringing opportunities to Vietnam

Rushing to leave China to avoid possible negative impacts to be caused by the sovereign dispute, Japanese investors are now eyeing South East Asia, including Vietnam.

China would remain the most important trade partner for Japan, but Japanese businesses would surely cast its eyes to other regional countries, especially the ones in South East Asia. This is really a golden opportunity for Vietnam to attract the Japanese investment wave.

However, experts think that Vietnam has some disadvantages in attracting the investments in some key industries.

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Foxconn plant in China closed after riot, company says

SHANGHAI. Sep 24, 2012. Foxconn Technology, a major supplier to some of the world’s electronics giants, including Apple, said it closed one of its large Chinese plants early Monday after police were called in to break up a fight among factory employees.

One Foxconn employee reached by telephone Monday afternoon, however, said the disturbance began when workers started brawling with security guards, and eventually led to a huge riot involving more than 1,000 workers. Foxconn said no property was destroyed or damaged.

Unconfirmed photographs and video circulated on social networking sites, purporting to be from the factory, showed smashed windows, riot police and large groups of workers milling about. The Foxconn plant, in the central Chinese city of Taiyuan, employs about 79,000 workers.

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Why External Hires Get Paid More, and Perform Worse, than Internal Staff

Here is some research sure to rankle every employee who has applied for an internal promotion and been passed over in favor of someone brought in from the outside. According to Wharton management professor Matthew Bidwell, “external hires” get significantly lower performance evaluations for their first two years on the job than do internal workers who are promoted into similar jobs. They also have higher exit rates, and they are paid “substantially more.”

Bidwell suggests that his paper “provides unique evidence on the value to firms of internal labor market structures. Results show that internal mobility allows the firm to staff higher-level jobs with workers who have better performance but are paid less.” By detailing the strong advantage of internal mobility over external hires, he adds, “these findings help to explain the continued resilience of internal labor markets in the face of pressures for worker mobility.”

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Executive Summary: Promote, Don’t Pass Over, Wharton Magazine, Summer, 2012

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Young Workers Give Southeast Asia an Edge

Asia’s manufacturing powerhouses, Japan, South Korea, and China, are among the fastest-aging countries in the world, while developing nations in Southeast Asia are among the youngest in the region. As factories, jobs, and investment flow south to tap younger and cheaper labor, economic growth in the 10-member Association of Southeast Asian Nations (Asean) is poised to accelerate, propelling the area’s currencies and fueling consumer and property booms, Bank of America (BAC) says.

Another advantage for Southeast Asia is proximity to Japan and China, which have billions to invest overseas. Japan’s foreign direct investment into the Asean region more than doubled in 2011, to $19.6 billion, from the year before, surpassing the $14.2 billion it invested in China and Hong Kong, according to the Japan External Trade Organization. “Asean labor costs are becoming relatively cheaper because China’s wages are rising,” says Satoshi Osanai, a Daiwa Institute of Research economist in Tokyo. Migrant workers’ average pay rose 21 percent in China to 2,049 yuan ($ 322) a month in 2011, according to the country’s National Bureau of Statistics. The average wage in Japan is 26 times higher than in the Philippines, government and International Labor Organization data show. A Japanese laborer makes an average daily wage of $ 209.20; a Manila worker paid at the high end of the minimum wage makes about $ 11 a day.

Demographic divident

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Tholons ranks HCM City 17th, Hanoi 21st as software outsourcing destinations

According to the latest Tholons’ report on the 100 cities in the world most attractive in software outsourcing, HCM City ranks the 17th, while Hanoi at 21st.

Tholons still believes that in South East Asia, Vietnam remains one of the biggest ITO (information technology service outsourcing) providers which can replace India and China in the field.

The low labor cost, the improved business environment and qualified labor force all are the reasons that have made big companies such as Intel, IBM, Teleperformance and Siemens decide to set up their distribution centers in Vietnam.

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Sustaining Vietnam’s Growth: The Productivity Challenge (McKinsey Global Institute)

Feb 17, 2012. Vietnam’s economy has come an extraordinarily long way in a short time. China is the only Asian economy that has grown faster since 2000. But today Vietnam’s economy faces complex challenges that require a transition to a productivity-driven growth trajectory. Vietnam now needs to boost labor productivity growth by more than 50 percent to maintain its rapid growth.

MGI finds that between 2005 and 2010, an expanding labor pool and the structural shift away from agriculture contributed two-thirds of Vietnam’s GDP growth. The other one-third came from improving productivity within sectors. Vietnam has globally competitive niches across the economy from textiles and footwear and coffee and rice to tourism.

But the first two drivers now waning in their power to drive further growth and Vietnam needs to boost its overall labor productivity growth by more than 50 percent, from 4.1 percent annually to 6.4 percent, if the economy is to meet the government’s target of 7 to 8 percent annual growth by 2020.

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McKinsey to Vietnam: Get Cracking (Wall Street Journal) – FDI

The experts at global consulting firm McKinsey & Company have a message for Vietnam: Speed up economic reforms, or you’ll get left behind.

In a new report issued this week, the firm’s research arm – The McKinsey Global Institute – concluded Vietnam needs to do more to shake up its state-owned enterprises and boost labor productivity, among other steps – challenging tasks that if not executed could saddle Vietnam with sub-par growth for years to come.

According to the report, two main engines have driven Vietnam’s remarkable economic growth of recent years: an expanding labor pool, and a structural shift away from agriculture into more productive sectors such as manufacturing and services. Those factors combined to put more people to work, often in more-advanced jobs than farming, and together accounted for about two-thirds of Vietnam’s gross domestic product growth from 2005 to 2010, it said.

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Vietnam deputy PM orders better labor policies given soaring strikes

Jan 11, 2012. Vietnam Deputy Prime Minister Nguyen Thien Nhan has ordered better labor policies because strikes continue to occur, with 2011 recording twice the number compared to the previous year.

Figures from the Ministry of Labor, Invalids and Social Affairs at a recent conference showed that factory workers in Vietnam went on 857 wildcat strikes during the first 11 months of 2011, news website Dan Tri reported Tuesday. A wildcat strike is a spontaneous strike not authorized by the labor union.

The labour strike number has been on the rise in Vietnam since 2006. Last year had also set a record, with 857. There were 422 in 2010, 218 in 2009 and 720 in 2008.

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Illegal foreigners in Vietnam labor market

Jan 13, 2012. Lax regulations are allowing more than 31,330 foreigners to work illegally in Vietnam, labor officials said at a conference this week.

The illegal number of workers accounted for 40 percent of the 78,440 foreign workers in Vietnam as of September 2011, the labor ministry said.

Most are manual laborers performing simple tasks, and are from South Korea, China, and Japan.

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