Vietnam manufacturing stress
January 20, 2012 by Jules
Growing inflation and rising wages are not a problem confined to China. Vietnam has long been suffering from these.
Although low-cost Chinese vendors still grow pale at the mention of trip to Vietnam by their buyers, especially in the garments, shoes and toy ndustries (an almost amusing prospect to Western clients, given what China has done to the West's manufacturing base in the past 25 years), the race is on to see who can remain competitive the longest.
Below is an extract from an interesting FT article that highlights the potential disruptions:
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 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 per cent, 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 per cent.
“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.
This all sounds much like China in the past 3 years... the question is, who can keep their currency the most stable and contain inflation the best?
The race is on, while Thailand's flooding issues have not helped anyone's supply chain.
In: Market News