Foreign direct investment is forecast to continue significantly with the growth of both domestic private and state-owned companies. However, a serious bottleneck remains in the lack of skilled labour and professionals.

“Recruiting skilled labour is indeed a challenge in Vietnam, as seen by the relatively high vacancy rates for managerial and high level occupations,” said World Bank economist Jeffrey Waite.

A Ministry of Labour, War Invalids and Social Affairs labour survey shows that only about 80 per cent of planned recruitment at the managerial level has been implemented. 

A survey of Japanese firms operating in Vietnam found problems in recruiting middle-management and engineers. The most recent Vietnam investment climate survey seconded that opinion and pointed to “major” or “very severe” shortages in staff. According to human resource consultancy, Navigos Group, the supply of qualified workers is consistently 30 per cent lower than demand and is forecast to increase significantly in the future.

Finance, banking, investment, infrastructure development, IT and high technology have been hit the hardest. Banking, for example, will be facing a severe shortage in 2008 when a series of both local and foreign banks will be licenced. “This is the number one challenge for many banks,” said Pham Tuan Tu, general director of Global Petro Bank.

With the shortages come spikes in salaries. According to Navigos Group’s salary survey 2007, wages rose by 12 per cent on average. But, pay-outs to middle management increased by close to 50 per cent. In the foreign investment sector, middle management positions fetch anywhere between $15,000 to $30,000 per year. While, banking, investment and securities professionals earn between $60,000 to $80,000 per year.

Navigos Group regional director of executive search and selection, Nguyen Thi Van Anh, said: “This is of course understandable. Companies need to not only attract, but also retain the best talent. The first thing the companies do is to increase salary levels and improve their compensation and benefits system.”

Since local workers have been found wanting, a growing number of companies are looking abroad to get the job done. 

“The number of foreigners working in Vietnam will rise in the future. The salaries that companies pay depend on their calibre qualifications and responsibilities. But in general, the salary for foreigners is higher because they have better skills,” Anh said.

Australian Chamber of Commerce chairman Paul Fairhead said: “For most companies, this is a short-term solution. Usually companies bring foreign managers with a view, not only to running the company, but also to training local managers to take over. Skill transfer and capacity building are the objectives.”

The labour market challenges faced today also reflect the inadequacy of efforts to reform the education and training system in Vietnam. The business community continues to find that very few graduates of Vietnamese universities have the skills necessary to enter the workforce without substantial additional training.

A disproportionate emphasis on theory, failure to consult with industry and a lack of focus on analytical skills mean that most graduates must be re-trained or receive supplementary training from employers.

“Training institutions generally do not adhere to the training needs of industry. They do not have a sufficient number of teachers and tutors,” said Dang Duc Dung, vice chairman of Hanoi Business Association. 

“Their teaching equipment and tools are updated and improve slowly and their education managers lack flexibility and are unable to attract interest and support from enterprises.”

The current mismatch in the labour market is only the tip of the iceberg.

Fairhead said without a change there would be an erosion of Vietnam’s competitive advantage in terms of abundant, cheap and educated labour.

“Indeed, Vietnam’s attractiveness as an investment destination in Asia will be increasingly questioned as workers’ salaries begin to outstrip their productivity and costs of recruitment and training rise,” he said.
In a Business Environment Sentiment Survey 2007 of Vietnam Business Forum Secretariat, enterprises showed that the shortage of labour, especially in management level had become one of the main obstacles for expanding business in Vietnam.

“This problem should be addressed urgently if Vietnam wishes to maintain its competitiveness, especially during the post-WTO period when rapid increases in foreign investment will lead to an increase in demand for human resources,” a Vietnam Business Forum Secretariat report said.
Recently, US-based tire manufacturer Michelin expressed interest in building a billion dollar-factory in Vietnam. 

A Michelin official said that the factory would require about 100 managers. However, the official said the supply of labour was also one of Michelin’s biggest concerns. Fairhead said the failure to confront labour market challenges also raised questions regarding Vietnam’s ability to handle significant expansion of complex business activities in high-tech sectors. “This is a long-term problem with no quick fixes.”

Many companies are responding proactively to the shortage of management by developing in-house training and professional development programmes, cooperative partnerships with universities and performance-reward systems to be able to recruit and retain talented workers.