VZCZCXRO6886
OO RUEHDT RUEHPB
DE RUEHHM #0239/01 0660847
ZNR UUUUU ZZH
O P 060847Z MAR 08
FM AMCONSUL HO CHI MINH CITY
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3834
INFO RUEHHI/AMEMBASSY HANOI PRIORITY 2558
RUCPDOC/USDOC WASHDC PRIORITY 0065
RUEHC/DEPT OF LABOR WASHINGTON DC
RUCNARF/ASEAN REGIONAL FORUM COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHHM/AMCONSUL HO CHI MINH CITY 4056

UNCLAS SECTION 01 OF 03 HO CHI MINH CITY 000239 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS, USAID/ANE, EEB/TPP/BTA/ANA, DRL/IL 
STATE PASS USTR FOR BISBEE 
USDOL FOR DUS PONTICELLI, ZHAO 
USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO 
TREASURY FOR CHUN 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD ELAB EINV VM
SUBJECT: STEEP WAGE INFLATION HITS HCMC EMPLOYERS, CONSULATE 
INCLUDED 
 
REF: A) Hanoi 193, B) Hanoi 56, C) 07 Ho Chi Min 1196, D) 07 Hanoi 2013 
 
HO CHI MIN 00000239  001.2 OF 003 
 
 
¶1. (U) Summary.  Rapid economic growth accompanied by years of 
rising foreign investment in Vietnam mean companies new and old 
are competing over human resources, especially the limited pool 
of professionals (ref B).  Combined with uncomfortably high 
inflation, the corporate scuffle for personnel has led to 
unprecedented wage growth -- 13 percent nationwide in 2007 and 
more than 50 percent in certain hot sectors like finance and 
information technology.  Geographic disparities are even 
greater, with the "war for talent" felt most acutely in HCMC, 
where wage increases in key sectors reportedly reached 150 to 
200 percent in 2007.  If these trends continue, rising salaries, 
inflation and the high cost of office space rental may start to 
deter investment in the future.  Closer to home, this situation 
has already started to erode the Consulate's ability to retain 
highly-qualified staff, as nine of the sixteen employees who 
have resigned in the past two years told us they left for 
higher-paying jobs.  End summary. 
 
Labor Market Woes:  Quantity over Quality 
----------------------------------------- 
¶2. (SBU) Currently in Vietnam, 1.4 million young people enter 
the workforce each year, while only 35,000 older workers exit 
it.  This trend likely will continue for the next 10-15 years as 
the economically active population reaches a peak.  By 2010 
Vietnam will have 48.5 million people of working age, an 
advantage compared to other countries in the region such as 
Thailand, which is estimated to have a labor force of only 41.6 
million by the same year.  Despite this influx of new workers, 
when it comes to staffing key management and technical 
positions, companies are finding a severe shortage of qualified 
personnel, particularly for the top-level senior management 
positions. 
 
¶3. (SBU) Each new company is forced to dip into the same shallow 
pool of qualified people or to hire staff away from other 
employers.  This trend of companies' aggressively poaching each 
other's employees is increasingly common.  Last year HSBC lost a 
dozen bankers to local banks, and Unilever had a number of 
experienced local managers leave for local consumer-goods firms 
offering comparable salaries as well as stock options.  Banks 
often turn to hotels for entry level workers with good people 
and language skills.  The General Manager of the Sofitel, for 
example, told CG that he lost 84 employees to banks last year. 
With the advent of job-searching sites like Vietnamworks.com, 
workers are easily able to discover how much they could earn by 
switching to a new job, and many will do so without hesitation. 
 
¶4. (U) The shortage of highly skilled and trained workers means 
trouble for companies looking to build businesses in Vietnam. 
While GDP has increased more than tenfold since 1990, from $6.5 
billion to $71 billion in 2007, spending on education has not 
risen to produce the increasingly skilled labor the nation 
desperately needs.  Public expenditure on education (as a 
percent of GDP) was just 3.4 percent in 2007.  The Minister of 
Education and Training recently reported that the county's 
234,000 businesses face a shortage of 1.4-1.6 million trained 
workers.  By 2010, they project the shortage could be up to 8 
million. 
 
HCMC Leading the Wave of Wage Growth 
------------------------------------ 
¶5. (U) Nowhere in Vietnam is wage pressure felt more acutely 
than in and around Ho Chi Minh City, where the per capita GDP is 
already nearly triple the national average and the city's 12.5 
percent growth rate continues to considerably outpace the 
country average of 8.5 percent.  In HCMC and the neighboring 
provinces that make up the "Southern Economic Zone," the labor 
shortage is leading to increasingly large migration amounting to 
approximately 500,000 new migrants every year, according to city 
officials.  In Binh Duong province local villagers account for 
only 40 percent of the total workforce and in Dong Nai the 
percentage is just 30 percent. This migration is occurring 
partly because even HCMC's "low end" wages are higher than 
elsewhere.  Nationwide, the official poverty rate as measured by 
GVN standards is about 25 percent.  In HCMC, it is less than 2 
percent.  In 2008, the HCMC city government officially created 
its own poverty line that is 67 percent higher than the national 
standard.  Even with this new standard, the poverty rate in HCMC 
is expected to drop to a statistically insignificant level 
(below 2 percent) before the end of this year. In contrast, poor 
 
HO CHI MIN 00000239  002.2 OF 003 
 
 
infrastructure and spotty implementation of reforms leave many 
regions of the country poor and with little opportunity for 
their young, eager populations. 
 
¶7. (U) In HCMC, in particular, the changing makeup of the work 
force also plays into the steep wage curve.  While most of the 
Vietnamese economy remains in agriculture and industry, in 2007, 
services comprised 53 percent of the HCMC economy.  Not only 
that, the service industry is growing at a 14.3 percent annual 
clip and will make up an even larger percentage of the city's 
economy in future years.  Many of these new services jobs are in 
finance, real estate, corporate headquarters services, and 
personnel -- fields that demand the highest salaries. 
 
Inflationary Pressures Squeezing Workers and Companies 
--------------------------------------------- --------- 
¶8. (U) Inflation ran above 14 percent in January, thereby 
contributing to wage pressure (ref D).  The prices of basic 
foodstuffs, gas and other essential goods have increased 
significantly and are expected to continue to rise.  Most 
companies feel compelled to compensate their employees for this 
increase in the cost of living, usually by increasing pay or 
awarding higher bonuses.  This month a new record high for the 
annual Lunar New Year pay bonus was set by a foreign-invested IT 
firm in HCMC, which gave a generous $15,000 to top employees. 
 
¶9. (U) While salaries have increased dramatically for highly 
educated and skilled employees, wage increases for average 
laborers have been more measured, compared to the sharp spike in 
inflation.  Labor experts say that inflation worries helped 
spark the many pre-Tet (lunar New Year) strikes at industrial 
parks in Binh Duong, Dong Nai and HCMC, further pressuring 
businesses. 
 
...and the Demand for Talent Goes Through the Roof 
--------------------------------------------- ----- 
¶10. (U) According to Navigos, one of the leading HR companies in 
Vietnam, demand for labor grew 67 percent in 2007, compared to 
an increase of only 22 percent in supply.  Consequently, Navigos 
reports, average private-sector incomes increased 13 percent in 
the past year across all economic sectors in Vietnam.  Another 
HR consulting firm, Le and Associates, confirmed the overall 
rise but brought home the incredible impact of geography on 
wages when she explained to the Ambassador recently that 
salaries at some of the bigger companies in HCMC increased by as 
much as 150 to 200 percent in 2007 due to the struggle to retain 
staff. 
 
¶11. (U) Both Navigos and Le and Associates point out that the 
shortage of qualified personnel is caused in part by the low 
quality of university graduates, who generally lack 
critical-thinking and problem solving skills.  The low overall 
number of university graduates is also insufficient to meet 
demand.  There are only 300,000 university spots open every year 
for 1.8 million applicants.  Overall tertiary enrollment in 
Vietnam is only 10 percent, compared to 15 percent in China and 
89 percent in Korea. 
 
Price of Talent Could Discourage Investment 
------------------------------------------- 
¶12. (SBU) According to Watson Wyatt Global, a human-resource 
consulting firm, the shortage of senior managers and other 
qualified personnel is more acute in Vietnam than in any other 
ASEAN country.  The pressure for higher wages could quickly 
erode the advantage of low labor costs in Vietnam compared to 
the rest of the world.  Already, several major foreign firms 
such as Intel, Renensas (Japan), Grenada (Japan) and Hon Hai 
(Taiwan) are struggling to find qualified personnel.  If this 
problem continues, it could deter foreign firms from further 
investment.  For now, some companies are attempting to solve 
their labor shortage by establishing their own training programs 
to bring employees up to their standards.  At a recent lunch 
with the Ambassador, several leading local Vietnamese firms 
explained that they can no longer afford to hire Vietnamese 
workers for some key positions, such as accountants, and have 
instead turned to hiring expatriate workers from Taiwan and 
Malaysia -- two economies where the average per capita income is 
much higher than in Vietnam. 
 
¶13. (U) A recent anecdote from Intel illustrates the issue. 
After scouting the country for top engineering graduates to 
 
HO CHI MIN 00000239  003.2 OF 003 
 
 
staff the 1000 engineering positions needed in the $1 billion 
assembly and test facility it is building, the company found 
that only 90 of 2000 students could pass its rigorous screening 
exam.  Of those, only 40 successfully passed the interview stage 
and were selected for more training and possible employment. 
This is clearly a worrisome sign for American investors looking 
to hire local talent, and it is also detrimental to Vietnam's 
ability to move up the value chain to develop more advanced 
industries. 
 
What's in the GVN Toolbox? 
-------------------------- 
¶14. (U) Since his promotion to Deputy Prime Minister last year, 
Minister Nguyen Thien Nhan has focused on improving Vietnam's 
educational system.  This includes increasing the availability 
of student loans and scholarships and studying the training 
curricula of foreign schools to adopt some of the same practices 
in Vietnam.  However, this is a long-term solution that will not 
solve the immediate need for personnel.  In the meantime, 
Minister Nguyen is also encouraging businesses to partner with 
MOET to establish training centers that will funnel qualified 
graduates to work in companies that finance the centers.  As an 
incentive for this investment, the government will offer 
favorable tax rates to participating businesses.  So far, 75 
education and training contracts have been signed between the 
government and private, mostly foreign-invested, businesses. 
 
¶15. (U) The government is expected to remove the current cap on 
the number of foreign personnel a company can employ, making it 
easier for foreign firms to hire the expatriate workers they 
need to fill slots for which no Vietnamese are available. 
Navigos reports that after a slight dip in the 2nd quarter of 
2007, the number of foreigners looking for work in Vietnam more 
than doubled in the 3rd quarter. 
 
The Impact at Home 
------------------ 
¶16. (SBU) The recent rise in salaries and increase in 
competition for talented employees, particularly in HCMC, has 
also affected ConGen Ho Chi Minh City's ability to recruit and 
retain locally engaged staff.  For example, some Consulate 
employees are likely competitive for IndoChina Capital's 
recently advertised positions paying net monthly salaries 
starting at USD 2,000 per month for college-educated English 
speakers with experience in a multinational environment.  From 
January 2006 until the present, sixteen employees ranging from 
grades FSN 1-10 have resigned their positions.  Nine of the 
employees left to take higher paying jobs.  In the most extreme 
example, one former employee reported that the salary at her new 
job would be $42,000 a year, more than three times the salary of 
an FSN-10.  Several positions at the Consulate remain unfilled 
despite repeated advertisements. 
 
Comment: 
-------- 
¶17. (SBU) American firms investing in Vietnam should be prepared 
for a competitive environment and a war for talent.  Especially 
for the IT, electronics and telecommunications industries, 
businesses may have to set up in-house training programs, and/or 
hire managers and skilled employees from other countries to fill 
in the gaps.  In the long term, if the human-resources crisis is 
not alleviated, Vietnam will experience decreased interest in 
investment and deceleration of economic growth.  End comment. 
 
¶18. (U) This cable was coordinated with Embassy Hanoi. 
FAIRFAX