NGUYỄN HẢI THY Foreign Trade 1 – K37

Group 12

International Business Management

LABOUR EXPORT OVERVIEW OF VIETNAM

IN THE INTERNATIONAL ECONOMIC

INTEGRATION

University of Economics HCMC

Faculty of Commercial – Tourism - Marketing

Lecturer: Ph.D Trieu Hong Cam

Labor Export Overview of Vietnam in The International Economic Integration

University of Economics HCMC

Faculty of Commercial – Tourism - Marketing

LABOUR EXPORT OVERVIEW OF

VIETNAM IN THE INTERNATIONAL

ECONOMIC INTEGRATION

Nguyen Hai Thy

Ft1 – K37 – Group12

6th, December, 2013

Labor Export Overview of Vietnam in The International Economic Integration

Table of Contents

Page

1. Introduction 1

2. Definition 1

3. Benefits 1

4. Risks 2

5. Opportunities 3

6. Challenges 4

7. Facts 6

8. Recommendations 6

9. Conclusion 8

References 9

Labor Export Overview of Vietnam in The International Economic Integration

1

1. INTRODUCTION

As the general trend of the world, the process of globalization has brought new opportunities for economic growth and social development in our country. International economic integration enables Vietnam to bring into play the available resources. Besides natural resources, Vietnam has achieved high growth constantly over the years by relying on a cheap and abundant labor source.

Up to October 2013, Vietnam population is consisted of around 91 million people, ranked the world's 13th, the third of Southeast Asia, and continuously increase with population growth rate of approximately 1.05 % each year. Moreover, the population pyramid resembles a triangle with few old people, many young ones, and those labor age is dominant. Hence, labor is a comparative advantage of Vietnam to foreign competition, including the developed countries like USA, Japan, and Taiwan. An effective method to take advantage of labor resources is labor export. Exporting labor can strengthen economic development for our country and reduce a large amount of unemployment.

Understanding of labor export situation in our country as well as its competitiveness and benefits or risk will help us have an overview in this field and rational use of resources to develop the national economy.

2. DEFINITION

Vietnamese labor export to foreign countries often referred to as Vietnam's labor exports, the economic activity in the form of the Vietnamese labor supply abroad under a contract to serve the needs of labor for foreign enterprises.

There are five forms of labor export to foreign countries: agreement signed between the two governments; labor cooperation and experts; Vietnam enterprises receive contract, construction project, joint ventures, connect products and investment abroad; employees directly sign labor contracts with foreign individuals and organizations and the mainly one is Vietnamese enterprises serve labor supply.

3. BENEFITS

Labor export is considered as an external economic sector brings many benefits to the economy - society of our country.

At first, Labor export contributes labor to create jobs and improve living standards for many people. Although Vietnam's economy has recovered and continues to grow, most people in Vietnam still poverty, unemployment and low education levels. The desire to improve their lives is the main reason of exporting Vietnam labors to work overseas. Labor exports could help ease the country's growing burden of unemployment, as well as alleviate poverty. In some villages which has high rate of labor exports, many people become rich from poverty, the estimated average of remittances may reach 40 to 100 billion annually. Others come back home becoming investors, build businesses and create jobs for local workers.

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Then, Labor exports also bring a large income, an increase of foreign exchange for our country. In 2010, Vietnam was ranked 16th among 30 countries have the most remittances and considered as one of ten countries get the highest income from export labor.

Another benefit is that exporting labor helps a division of labor access to advanced technology and machinery; modern management mechanism and style of industry; and improves their skills. Because of being trained at developed scientific - technical countries, this would certainly be an elevator that help raising employees’ self-value to find the much higher salaries when return home.

Also, foreign language, one of significant barriers to investment of foreign corporations, becomes easy with the employees who used to work abroad. Knowing foreign languages as well as high skills and experienced work help employees get in high positions at foreign corporations.

4. RISKS

Besides remarkable benefits, there are also some concerned issues happening through exporting labor. About policies, structures and management in and out of country, regulations and legal procedures are not clearly enabling businesses to take advantage of the law and force workers suffer unreasonably high cost or do illegal things to get more profit. The legal system of labor export is limited, especially in the matter of handling errors. The sanctions are not strong and tough enough so that people seem not respect the law as well as regulations much.

Furthermore, Vietnam ‘s labors still has low educational level and labor export acknowledge, which is hard to satisfied the international standard and compete with other labor-intensive countries. Employees may not access to correct information sources on issues related to labor export’s activities. Workers often find information through acquaintances that came back from working abroad and ask “middle-man” with incorrect information. The lack of information makes these workers vulnerable to scams and do not consider all the benefits and risks.

Moreover, the establishment of the center, organizations is increasing, which makes the management of the agency become difficult. Currently there are more than 150 enterprises have functions of exporting labor. The business center is opened and widespread but there is no supervision, strict inspection.

Then, workers may easily face a fraud from bad exporters or exploitation and abuse of foreign companies. Seeking better pay overseas, many migrants are being ruthlessly exploited, while relevant agencies lack the means to monitor or protect them. There are series of risks such as being not able to work abroad after waiting a long time, and get back the amount deposited, or if there is, only a small part may be returned. Many workers in Malaysia have to suffer labor contracts fraud, be abused, beaten or starved. For the labor export to Russia, the employees are very easy to be fooled and cannot find legitimate place. There are thousands of Vietnam were falling into "slave labor" in this market. They were kept in the isolated area and worked too

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hard in the illegal garment factories. They were badly exploited, seized any identification and did not have the financial ability to become Vietnam. In early 2012, a number of labor export illegally in Russia call for help from Vietnam reporters because of without being paid all year.

5. OPPORTUNITIES

Opportunities for Vietnam labor export remains in the traditional market such as Japan, Taiwan, Korea, Malaysia ... These countries has growing economy and high demand in the reception of foreign workers, including labor of Vietnam. Especially in Japan, the receiving organization as well as the factories here has expressed their desire to strengthen receiving large Vietnamese trainee upcoming time.

Korea market is expected to attract more workers in recent years. The average income of employees working in Korea in the highest average from 1300-1700 USD / month (approximately 26-35 million / month), is also popular from 1000-1500 USD / month. South Korea will remain the key markets of Vietnam in 2013 and will attract a large number of workers involved.

Taiwan is currently the leading labor export market of Vietnam. Recently, Taiwan has loosened its policies for foreign workers, opening up opportunities for Vietnam to increase labor exports to this market in the near future.

Besides, Taiwan issued a new policy regarding foreign workers in Taiwan. Most of these provisions create favorable conditions for foreign workers in Taiwan, as well as encourage Taiwan businesses to hire foreign workers to meet the labor demand in the booming economic development, reducing rates of laborers quitting and decreasing unauthorized labor. Most notable is the extension of the adjustment of reception conditions for foreign workers to supply manpower for some sectors. Accordingly, 3 new sectors will receive foreign laborers, namely production of plastic safety caps, toilet cleaning and cosmetics, and 6 sectors will have their foreign laborer quota increased by 5 percent, namely garment, suitcase production, bags, frozen meat, bicycle components, printed circuit boards, measuring and semiconductor packaging.

To prevent the labor brokerage fees from being pushed up too high, since January 7th 2013, Taiwan has officially implemented the provisions on not renewing license or not allowing the establishment of branches of brokerage firms in Taiwan and not to renew the license for the labor export company from the countries having high rates of laborers quitting in the first 3 months after immigration. The preferential regulations on quotas of foreign workers stipulate that newly invested businesses in Taiwan can demand more foreign labor, 5-10 percent of the allowed rate, and that Taiwanese enterprises returning from abroad can add 15-20 percent of the foreign workers rate. Taiwan Labor Commission also issued revised procedures and support for foreigners voluntarily returning to their home countries to retrieve their passports, cash and property that their owners or broker retain from June 11th 2013.

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Also starting from April 1st, Taiwan has implemented an adjusted base salary; accordingly, the base salary is increased to VND13.4 million per month. This wage is applied to all employees (including the last entry before April 1st). In addition, insurance policies for workers are also adjusted. This is considered a positive sign, bringing opportunities to increase Vietnam's labor exports to Taiwan in the future.

Besides Taiwan, Macau (China) market is also attracting many Vietnam workers; especially workers need to do domestic work. Currently, it is estimated that more than 10,000 Vietnam workers are working here legally.

Nowadays, the situation was relatively stable Libya and began receiving workers demand Vietnam. To ensure that the interests of employees, some conditions of contract laborers brought to work in this country will change.

Japan is evaluated as a potential labor export market for Vietnam by large employers demand and quiet high salary. Working in Japan, workers have more opportunities to learn and access to modern technology. Recently, recruiting orders from Japanese for labor of Vietnam is growing strongly

According to Japan International Training Cooperation Organization (JITCO ) , the demand and supply market and number of Vietnamese student received internships from Japan is slowly stabilizing and developing along to increase in the number of business lines. In the first 8 months, Vietnam has exported 8,168 employees to the Japanese labor market. The industry has also become more diverse as Japan now not just outsource oversea employees in technical , mechanical but also in some other industries such as agriculture, electronics assembly , food processing , home decoration ... This is quite suitable to Vietnamese labor. Number of employees employed is not limited but it depends on the business’s negotiation and bargaining skills. The Deputy Director of Department of Management of Overseas Labor - Le Van Thanh, said , currently there are more than 100 companies send its employees to Japan to improve their skills and knowledge’s. More than that, number of application has been increasing over time with the same benefits. On the other side, Japan also gives priority to Vietnamese labor and jobs. In particular, Vietnam officially agreed to send nursing candidates to Japan to work and study. This will be a very potential field for Vietnamese domestic companies to recruit and train employees who are suitable to requirements of Japanese companies.

6. CHALLENGES

Vietnam’s labor market is in danger of losing its position in the country when the country officially opens its doors after entering the World Trade Organization (WTO). According to figures from the Vietnam Labor Export Association, around 70,000 Vietnamese laborers have been sent aboard and sent back 1.5 billion USD remittance. The figure is expected to increase many fold if they are trained methodically. However, due to fundamental shortcomings in occupational skills at present, Vietnamese laborers are weaker than those of other countries in the region.

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The danger of losing labor market in their country of Vietnamese domestic laborers will happen if they are not strong enough to compete with their foreign colleagues, especially when Vietnam officially opens its door at the time of entering into the WTO. After Vietnam joins the WTO, all economic barriers will be removed, creating favorable conditions for foreign enterprises to do their business in Vietnam. If the existing shortcomings of labor forces are not promptly addressed, the danger of foreign laborers encroaching on the great.

Vietnamese employees are mainly weak in occupational skills, working discipline and foreign languages compared to laborers from other countries in the region and in the world. This directly affects the incomes and positions of Vietnamese laborers. The country now has 43 million employees nationwide, 80 percent of whom are common laborers. 12.8 percent of the 95,430 guest workers having sent aboard by 64 labor export enterprises were trained occupational skills. According to VOVNews, apart from this, laborers’ lack of working disciplines leads to negative points such as failure to adhere to working principles. Weakness in foreign languages is a big reason why Vietnamese laborers are paid less than their foreign colleagues.

If Vietnam did not soon work out effective measures to improve the occupational skills of its labourers, the country’s labour market was likely to have an influx of labourers from Thailand, China, Laos. Previously, the most attractive element of Vietnam’s labour market was its low price. However, the advantage at present will become a disadvantage because workers at cheap prices usually have low working standards. Therefore, if the working standards of Vietnamese workers remain the same then the labour market will suffer when big investors pour their money into Vietnam. Only skilled workers will have chances to get jobs and earn stable incomes. Therefore, Instead of struggling for skilled workers who working for other companies, the labour market should train more skilled employees.

Minister of Labor, War Invalids and Social Affairs Pham Thi Hai Chuyen said Japan, South Korea, Malaysia, and Taiwan have been recruiting a limited number of Vietnamese workers since the start of 2013 due to the difficult global economic situation. They are among Vietnam’s traditional labor markets. South Korea, Vietnam’s second biggest market, has recently stopped hiring Vietnamese after taking in 1,560 since the start of this year. It is likely that less Vietnamese will be sent to Japan in 2014, because Japanese companies lowered their quotas for imported labour.

One reason it is difficult for Vietnamese workers to compete with those from other countries, such as China or Indonesia is that the rate of Vietnamese workers who quit before the contract is up is higher than those of other countries. At the same time, “Airfare from China to Japan is much cheaper than from Vietnam, which is another reason for Japanese companies to choose Chinese laborers,” the general director said. Since September 2013, Taiwan has opened its doors to receive Filipino workers to get back to work so sending Vietnamese workers to Taiwan will no longer be as advantageous as in the early months, especially the recruitment of female workers

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will more rigorous. To keep its market share in this potential market, companies should be careful in selecting, training and giving orientation for employees to minimize the early return rate.

7. FACTS

Total number of labors that go abroad to work in ten first months of 2013 was 70.253 - according to figures collected from companies. This satisfied 88% of the planned targets.

In Vietnam, international labor mobility has more than 3 decade long experience. After the collapse of Eastern Europe block, during the 1990s, Vietnam sought to access new market places while maintained old ones. At present, the Government consider increasing international labor mobility a high priority, as mean to increase employment opportunities, generate more income for workers, and to meet poverty alleviation & socio-economic development strategic targets.

This activity started in 1980 in the form of labor cooperation with the socialist countries, when Vietnamese economy is still difficult. The activity has brought many advantages to Vietnam. Since the mechanism of change in 1991, the labor export activities flourished, expanding the market to many countries and regions. In the 21st century, there is a surge of Vietnamese labor export to foreign countries; three main markets are Taiwan, Malaysia and South Korea.

Taiwan labour market is mainly based on labour supply from Indonesia and Vietnam, in which, Indonesia dominates the labour supply for the service sector, while Vietnam is the main supplier for the manufacturing sector. According to the Department of Management of Overseas Labour, Ministry of Labour, Invalids and Social Affairs, as of October 2013, 37,394 Vietnamese employees were working in Taiwan, accounting for more than 53.2 percent of the total Vietnamese workers working abroad and much larger than the number of employees working in other markets: Japan 7,130 employees; Malaysia 6,280; Laos 4,549; Korea 4,219, etc. The figure shows that Taiwan remains by far the largest labour export market of Vietnam.

Vietnamese workers in Taiwan work mainly in the fields of manufacturing, construction, engineering, textiles, agriculture and furniture. Basic salary is about VND8-9 million a month. For factory workers, for an extra 2 hours a day, they are paid an additional 33 percent of salary for each hour, the next hour overtime is paid 66 percent of salary for each hour, overtime on Sundays and public holidays is paid twice as much as a regular working day.

8. RECOMMENDATIONS

To achieve the social and economic targets and overcome the constraints in this field, it is necessary to change for new development:

First of all, the labor needs to deploy the propagation and dissemination of the awareness of the law. When it comes to the need of going to work abroad, laborers should contact directly with the Overseas Labor Management Department, the

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Department of Labor, Invalids and Social, or companies having function at labor export. When the labor had registered by accident to illegal business, they should notify authorities and coordinate to handle those problems. On the other hand, labor export information of central and provincial labor services should be improved for easy access of all clients (companies, training institutions and workers).

Secondly, for the establishment of the labor export organization, Government must have stricter rules to limit the ones who do not qualify, do not function properly. The purification of these units will help to limit the negative behavior. The local authorities having headquarters of the labor export enterprises have to strengthen inspection and supervising activities and situations of those labor export enterprises. Capturing on time the actual situation, implementing the law as well as discovering early derogations are required.

Thirdly, Post Overseas Vietnamese Labor Law rules and regulations to be adopted and implemented this year should ensure the transparency and simplification of administrative procedures. Government have to amend, add the legal system more tightly and fuller as well as issuing policies, laws on prevention and handling violations with more powerful and more efficient sanction treatment, and have to push the Law on Overseas Vietnamese Labor and relevant regulations to be implemented effectively.

Fourthly, operation in labor export is a kind of activity needed the cooperation of countries having labor export’s relationship. In this collaborative process, we need to sign international treaties to create the advantages for labor export activities as well as have the most effective mechanism to protect the rights and benefits of abroad Vietnamese workers. Besides that, we should take advantage of international economic expansion to seek for new labor exporting channels.

Fifthly, perhaps upgrading the quality of vocational training is the immediate and urgent action. Besides enhancing the quality of pre-departure training services, training institutions should invest fund and human resource to develop and diversify high-skilled and market-oriented vocational training programs. One of the measures might explore is to cooperate with businesses to help students to get access to jobs. The country needs to shift from supplying cheap low-skilled manpower to more globally competitive and skilled manpower. On the other hand, the Government should have appropriate funding or loans policies applied to training institutions. Preferential bank loans and fees policies should be adopted, especially applied to rural workers so that more of them can have opportunity to join the exported labor while not falling into the debt burden.

Finally, to serve the longer-term goals, there is a need to develop a national labor export strategy. Such a big job can only be successful should it be based on a comprehensive study at the national level. The study should be global-approached, client-need-based and result-oriented. The output of the study will be used to feed in the labor export strategy that help tackle the shortcomings analyzed above

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(regulatory and policy environment, research and information, labor training and export services, budget and loans issues etc.).

9. CONCLUSION

This paper sets out to raise the visibility and awareness of the components involved in labor export to the basic characteristics of labor export in Vietnam.

There are benefits and risks regarding the labor export. It helps to solve the problem of high unemployment rates and enhances the national balance of payment. Remittances make up a large source of foreign funds in Vietnam. Gender equality is also promoted by labour export, because many women have become migrant workers. However, the “brain drain” is still the foremost concern. Protection of migrant workers’ rights also draws great attention. The great reliance on the global market makes the country vulnerable to external shocks.

More and more countries in the world have great increasingly demand on workforce as Japan, Taiwan, Korea, Malaysia, Macau ... At the same time, these countries provide continuously policies to support and improve skills for migrant workers. However, Vietnam is not the only labor intensive country in the world. The labour resources of many countries such as the Philippines, Indonesia, and China ... are not only abundant, but also have the language and skills training in accordance with standards international. Along with the process of international economic integration in recent years, cheap labor but unskilled as in our country is very difficult to compete with another developing countries around the world. That is the key opportunities and challenges with regard to labor export in Vietnam.

Have Vietnam labor become determined resources of success in international integration or become obstacles in the process of catching up with advanced countries, this depends on the rise will of our nation , of each business and each Vietnamese. If there is a logical policy, innovated technnology, creative and studious people, we will certainly succeed. Otherwise, we will lag far with the witness of high indicators of poverty and unemployment, low labor productivity and incomes, resulting in an economic marginalization of the globalization process. Therefore, to generate further growth in labor export activities , it is necessary for specific measures of the state , export companies and employees, contributing to accelerate the country's development in order to be closer to the stormy development of countries around the world.

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References

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3. Website of ICO International Joint Stock Company <http://www.icovietnam.com.vn/Pages/1549/introduction.aspx>

4. Thanh Nien, the flagship publication of the Vietnam National Youth Federation <http://www.thanhniennews.com/index/pages/20130412-vietnam-ministry-unlikely-to-achieve-labor-export-target.aspx>

5. Migration Information Source. Migration Policy Institute. <http://www.migrationinformation.org/usfocus/display.cfm?ID=364>

6. Website of Saigon Investment Manpower Commerce Import Export Corporation <http://www.vietnamlabourexport.com/labor-export-news/trang-1.html>

7. Vietnam Association of Manpower Supply – VAMAS < http://www.vamas.com.vn/lao-dong-nuoc-ngoai_t229c657tn.aspx>

8. Vietnam Manpower Center (VIMAC) < http://vimac.com.vn/newsdetail.aspx?Nid=179&l=1&mnid=19>

9. Administration of foreign workers <http://www.dolab.gov.vn/New/Default.aspx>

10. Ministry of labor – Invalids and social affairs < http://english.molisa.gov.vn/>

11. Vietnam Imports Exports - International Trade - Import Export Gateway. <http://www.vietnamimportexport.vn/import-export/vietnam-services/labour-export-cua-vidc.html>