DANANG, VIETNAM - Japanese companies that built plants in Vietnam to capitalize on its lowly paid workforce are finding the country is no longer such a cheap and abundant source of labor.
Wages have risen steeply in Vietnam in line with the country’s rapid economic development, while fierce competition for skilled workers has increased worker turnover rates at plants built by Japanese firms.
Japanese companies have flocked to Vietnam to tap its young workforce. According to the Japan External Trade Organization’s office in Hanoi, the number of corporate members in the local association of Japanese businesses jumped from around 330 in 2001 to about 1,000 in October 2011.
The thriving city of Danang in central Vietnam, a major transport hub, has been especially popular with Japanese companies. But the recent rise in wages has squeezed Japanese firms operating in the city, including Mabuchi Motor Co., a small motor maker.
Mabuchi Motor built a factory in Danang in 2005, and its workforce has since grown to around 4,800. But the monthly wage for new recruits has climbed to 2 million dong (around ¥7,400), three times higher than when the factory opened.
Nippon Steel Pipe Vietnam, which operates in an industrial park in the southern province of Ba Ria-Vung Tau, is also finding it hard to hire and retain workers.
“It’s really difficult to attract workers, unless we offer pay that is far above the minimum level,” said one of the company’s recruiting officers.
Nippon Steel Pipe officials said that workers are always looking to move to other companies with better working conditions, and exchange information about wages and work conditions while riding on commuter buses.
According to a JETRO survey on 190 Japanese manufacturers operating in Vietnam, around 20 percent reported difficulty securing a sufficient number of workers.
The labor shortage is particularly serious at large companies, which require a substantial workforce to keep their plants and factories running.
Vietnam, meanwhile, is counting on continued foreign investment to drive its economic development.
A shortage of local employees qualified for managerial posts is also a problem for Japanese companies in Vietnam.
To address the problem, Kansai Economic Federation (Kankeiren) Chairman Shosuke Mori visited Vietnam in late November and proposed a plan to train and educate workers hired locally in Vietnam at companies in the Kansai region for three years from fiscal 2012.
Experts say financial incentives alone, including higher wages, aren’t a silver bullet for the current labor shortage troubling Japanese companies.
Yoshiaki Ueda of the Japan-Vietnam Economic Exchange Center suggested Japanese companies in Vietnam should take local values into account, for example by building strong familylike ties with their workers.
“If companies create a familylike atmosphere among employees by organizing outings, for example, a bond of trust will be established, making them less prone to quit,” Ueda said.