Vietnam’s Appeal Diminishes as Labor Strikes Increase

Jun 16, 2011. Japanese motor maker Minebea Co. chose Cambodia over Vietnam to build a plant for 5,000 workers in a sign growing labor disputes are hurting Vietnam’s appeal as a low-cost alternative to China.

“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.”

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.

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.

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.

“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.”

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Business Week, Jun 23, 2011.