Speaking at a workshop entitled “Sharing experience in integration and implementing WTO commitments” jointly held by the Vietnamese Foreign Ministry and Germany’s Hanns Seidel Foundation in Hanoi on July 7, Dr. Pincus said cheap labour cost is the first buffer step. Vietnam will be the loser if its long-term development strategy is based on labour cost because labour cost accounts for a small part of production cost. It is urgent for Vietnam to improve the quality of human resources and take part in the ongoing technology revolution.

Low cost not advantage anymore

Big companies are increasing their spending in research and development activities. They don’t compete with each other in terms of low cost but technology and creativeness. The game has changed and it means that developing countries are unable to compete with conglomerates in developed countries based on low cost. Developing countries need to have new strategies.

According to Pincus, it is a mistake for developing countries to pursue South Korea’s chaebol strategy from 2008. The world has changed significantly and the thing that developing countries, including Vietnam, need to do is integrate into the international research and development systems of leading groups in the world.

Therefore, developing countries must seek technological fields that they can do better than huge conglomerates or they “need to seek unique markets”, Mr Pincus advised.

China doesn’t have a single firm listed among the top 300 companies investing in research and development. China’s challenge is how to bring research and development activities into China so its workers can learn how to produce hi-tech products at low cost.

The most important thing for Vietnam, according to Pincus, is government assistance for private firms to help them gain a position in the creative process of global groups. “Vietnam cant’ copy South Korea’s experience and form chaebols,” he said.

However, Vietnam can follow in China’s footsteps in providing research and development services for giants and turning its companies into links in the global creativity chain, Pincus said.

The UNDP’s specialist emphasised that Vietnam can’t develop based on a low labour cost strategy. He explained: “You can’t develop based on low labour cost because high productivity, not low labour cost, is attractive to global groups.”

Many people asked why, though China’s labour costs are low, many products are still manufactured in the US? The answer is that the productivity of American workers is 28 times greater that Chinese workers. This means that Chinese workers’ salaries must be 28 times lower than those of American workers. This is all right for the leather and footwear or garment industry, not computers or hi-tech products.

The total expenditures for direct workers at factories of developing countries accounts for 3-4% of the export price or 0.75% of retail price. Thus, labour costs only make up a very small part of production costs. Bigger expenditures include land, power, transport fees, telecom, as well as risks like power cuts, corruption, etc.

What does Vietnam need to do?

Pincus talked about Ireland as an example. Within 35 years, from a country with a high ratio of illiteracy, Ireland had the highest ratio of university graduates in Europe, which made the country an attractive destination for foreign investors, especially investors in hi-tech industries.

In 2003, Dell accounted for 5% of Ireland’s GDP and in that year, Ireland became the world’s largest exporter of software. To achieve this success, Ireland made huge investments in infrastructure and education.

The lesson for Vietnam, according to Pincus, is that low labour cost can’t propel Vietnam towards industrialisation, but the quality of its labour force. Vietnam should invest more in education to improve the quality of human resources and infrastructure.

As some say that Vietnam is a poor country it should invest in primary education, Pincus said, “That was the thinking of the pre-1990 period. There is no other choice now than developing the research ability of graduate and post-graduate levels.”

He pointed out the fact that the two leading universities in Vietnam, the National University and the Polytechnic University, have almost no scientific works announced internationally. He said the number of scientific works published by Vietnam is much lower than those published by the Philippines, Thailand and China. Hi-tech products account for a very small part of Vietnam’s GDP.

If Vietnam is not ready to invest in its higher education system or assist the private sector in research and development, it will miss opportunities. The current development rhythm is very fast and Vietnam will have no opportunities if it makes mistakes, Pincus stressed.

Source: TBKTVN