CLS+ VIETNAM Objective: To explore labour practices in the global - - PDF document

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Vietnam Country Study Ready-Made Garment, Footwear and Electronic Industries

Do Quynh Chi Research Center for Employment Relations

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CLS + Linking Trade and Shared Prosperity in Global Supply Chains in Asia

CLS+ VIETNAM

• Objective: To explore labour practices in the

global supply chains in Asia within the context of preferential trade agreements

• Regional Project in Pakistan, Cambodia, Myanmar

and Vietnam

• Vietnam study focus on garment (RMG), footwear

(Sports shoes), and electronics (mobile phones and parts) industries

• Provinces: HCMC, Long An, Da Nang and Bac Ninh

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Research Methodology

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Factories visited

Location Industry Ownership Labour force HCMC Garment Vietnamese 700 HCMC Garment Korean 1,300 HCMC Garment Korean 9,600 Dong Nai Garment Vietnamese 3,300 Long An Garment Korean 2,300 Long An Garment Vietnamese 3,000 Da Nang Garment Vietnamese 4,000 Da Nang Garment Vietnamese 11,000 Dong Nai Footwear Korean 17,300 Dong Nai Footwear Taiwanese 22,100 Long An Footwear Taiwanese 23,300 Bac Ninh Electronics Korean 1,100 Bac Ninh Electronics Korean 150 Bac Ninh Electronics Korean 3,300 Bac Ninh Electronics Korean 1,500 Bac Ninh Electronics Korean 10,000

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Overview of Garment, Footwear and Electronics Industries in Vietnam

Handphones and parts 19% Computer and electronic appliances 10% Machinery 5% Garment 17% Footwear 7% Wood products 4% Coffee 2% Rice 2% Crude oil 2% Seafood 4% Others 28%

Vietnam Export Structure 2015

Footwear Garment Electronics All 77 76.6 90 63 23 23.4 10 37 FDI Domestic

FDI and domestic sectors’ contribution to export value (%)

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Overview of Garment, Footwear and Electronics Industries in Vietnam

Garment Footwear Electronics

• No. of exporting

firms in Vietnam

2,500 1,382 1,100

Labour force

2,500,000 930,000 325,583

Imported materials

60% 55% 90%

Female workers

70%

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GLOBAL SUPPLY CHAIN OF READY MADE GARMENT

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How Labour Cost is Determined in Global RMG Supply Chain?

• 7/8 suppliers: CMT price not

increased since 2012

• 3/8 suppliers: CMT price

reduced 5-10%/year

• Price of apparel imports to US

decreases by 0.02% last decade

• Brands apply default CMT price

for each product while vendors pressure on suppliers to lower costs regardless of labour costs  Labour Cost is not an issue

in the price negotiations in the global garment supply chain

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Price Structure and Profit margin of Brands, 1st tier suppliers and sub- contractors in the RMG supply chain

“ If the MW continues to rise at this rate and the CMT prices still frozen, our company can last for at most 3 more years”

• Director of a Vietnamese 2nd-tier supplier
• “Some brokers came to us with the
• rders of very low prices...Our normal

price is 1.5 USD/unit but they offered

• nly 0.9 USD. They said if you don’t

want this price, we can find suppliers who agree with even 0.7 USD. To have enough work for the workers, sometimes we had to accept that low price”.

• Deputy Director of an equitised Vietnamese

company-

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LABOUR STANDARDS

• Wages depend on skills and

productivity (former SOEs pay higher than FDI)

• Overtime closely monitored
• Complaints about OSH standards

in 2 FDI firms (strikes in 2/3 companies)

• Better labour-management

dialogue and worker satisfaction in Vietnamese firms than in FDI companies

Workers’ most-trusted channel of grievance-handling

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Japanese vs. US Buyers

U.S low-cost clothing brands

• Large order volumes with

relatively simple and easy product specifications

• Limited technological

transfer and monitoring

• Easy to switch from one

supplier to another, from

• ne country to another

Japanese high-end clothing brands

• Smaller in order volume

with more complex and sophisticated product specifications

• Technological transfer

much more important and

• ccurred more intensively
• More incentive to

maintain long-term buyer- supplier relationship

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GLOBAL SUPPLY CHAIN OF SPORTS SHOES

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• Booming of FDI into footwear since 2011
• Increasing domination of East Asian suppliers;
• Domestic factories as sub-contractors

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• Brand profit:

9%

• FOB factory profit:

7.5%

• Assembly factory profit:

3%

• Labour cost:

9%

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Cost Minimisation

• Assembly prices from Adidas and Nike have been USD11

and USD12/pair for 5 years; ‘Unnegotiable’

• Labour cost not a factor of negotiations between brands

and their suppliers.

• Supplier increase its efficiency and minimise (labour) costs

to retain and increase its profit margin.

Output increased by 31%/year, Workers paid MW plus 5% seniority.

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LABOUR STANDARDS

• Wages depend on seniority and MW
• Dialogue mechanisms exist but not effective;

unions dependant on management

• Overtime closely monitored (OT limit set by

brands)

• Complaints on OSH standards in 2/3 firms
• Labour standards in 2nd tier suppliers not

closely monitored, subject to violations

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SUPPLY CHAIN OF MOBILE PHONES AND PARTS

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• High production fluctuations:

Priority is given to the ‘core suppliers’ while fluctuations are shifted to other suppliers

• No price negotiation: prices are

posted on the brand’s website and reduced every quarter

• No third-party monitoring
• Labour audits every quarter

but whether or not violations lead to sanctions depend on the brand’s preference

Life Cycle of a typical electronics product

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LABOUR STANDARDS

• Total income is high but basic wages

paid at MW level; Overtime pay accounts for 35-50% of total income

• Excessive overtime (up to 100

hours/month) and high production fluctuations

• Signs of gender discrimination in:

recruitment, job assignment, and promotion

• Limited mechanisms for social

dialogue at workplace

• Labour standards are better in the

suppliers that sell to more than one brand.

Workers’ most-trusted grievance-handling channel

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INDUSTRIAL POLICY AND IMPACTS ON LABOUR STANDARDS

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Marginalisation of Domestic Firms from Global Value Chain

• Incentives for industrial

upgrading become obstacles to domestic firms to move up the global value chain

• Competitive advantages

based on low labour cost and supply of unskilled labour are diminishing

• Without good labour skills

and strong supporting (domestic) industries, global brands not willing to shift higher-tech production to Vietnam  Race to the bottom

Footwear Garment Electronics All 77 76.6 90 63

23 23.4 10 37

FDI Domestic

FDI and domestic sectors’ contribution to Vietnam’s export value (%)

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Provincial Industrial Policy

Da Nang

• Key industries: tourism, seafood

processing, electronics and garment

• Priority to tourism and clean and

high-tech industries: in 2015, turned down 20% of FDI projects

• f high environmental risks and

using low tech, unskilled labour

• Strong investment in

infrastructure, labour skills (Da Nang ranks first in easiness to recruit skilled labour). Top PCI for 5 years

Long An

• Key industries: garment and

footwear

• Keen to accelerate investment

attraction (250ha of IZs/year)  Not selective of FDI projects (a $300m project on dying just started); Offer additional incentives to FDI projects (longer tax holiday)

• Infrastructure (housing for

workers) not commensurate with FDI attraction (Long An ranks last in easiness to recruit skilled labour)

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Provincial Labour Policy

Da Nang

• Strong labour law

enforcement

• Active in handling labour

disputes (1 strike in 2015)

• Pioneer in union reform

(30% new unions set up by bottom-up approach; first multi-employer bargaining agreement) Long An

• Weak enforcement
• Slow in handling labour

disputes (32 strikes in 2015)

• Traditional union approach

prevails

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Without an effective industrial policy, more international trade threatens to deepen under- development and prevent economic catch-up (Herr et al., 2016)

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Future prospects

• More international trade should be coupled

with strong (national and provincial) industrial policy so as to ‘race to the top’ not the other way

• Support to the domestic sector to engage

more and higher in global supply chains

• Enhanced monitoring of the labour practices

in the global supply chains with more engagement of the brands

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