VZCZCXRO3620
OO RUEHDT RUEHPB
DE RUEHHM #0320/01 0851015
ZNR UUUUU ZZH
O P 251015Z MAR 08
FM AMCONSUL HO CHI MINH CITY
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3921
INFO RUEHC/DEPT OF LABOR WASHINGTON DC
RUCPDOC/USDOC WASHINGTON DC
RUEHHI/AMEMBASSY HANOI PRIORITY 2583
RUCNARF/ASEAN REGIONAL FORUM COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHHM/AMCONSUL HO CHI MINH CITY 4143

UNCLAS SECTION 01 OF 02 HO CHI MINH CITY 000320 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS, USAID/ANE, EEB/TPP/BTA/ANA, DRL/IL 
USAID/ANE/EAA FOR FRANK DONOVAN 
STATE PASS USTR FOR BISBEE 
USDOL FOR DUS PONTICELLI, ZHAO 
USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD ELAB EINV VM
SUBJECT: LABOR SHIFTS PUT PRESSURE ON MANUFACTURERS 
 
REF: A) HANOI 193, B) HANOI 56, C) 07 HO CHI MIN 1196, D) 07 HANOI 2013, E) HCMC 239 
 
HO CHI MIN 00000320  001.2 OF 002 
 
 
¶1. (SBU) Southern Vietnam's manufacturing workers are striking 
in the normally calm post-Tet Lunar New Year months, a precedent 
that sets the stage for higher wages yet to come. In one of Binh 
Duong province's key industrial parks, strikes persisted even 
though local average wages had climbed 30 percent in just three 
months.  Privately, some officials worry that southern Vietnam 
is losing its competitive advantage -- low cost labor.  This 
wage inflation is a natural consequence of development, others 
argue, and we should be encouraged to see that market forces, 
rather than central planning, are driving the reallocation of 
scarce human resources to higher value-added industries.  A 
window of opportunity is opening for USG-GVN collaboration on 
projects that can improve the functioning of Vietnam's labor 
markets.  End summary. 
 
Strikes Take a New Turn in the Southern Key Economic Zone 
--------------------------------------------- ------------ 
¶2. (SBU) Because strikes are relatively common events in 
Vietnam, few factory managers we talked to in January were 
concerned when tens of thousands of workers participated in 23 
walkouts in Dong Nai, 10 in Binh Duong and 10 in Ho Chi Minh 
City.  More than 2,000 strikes have occurred over the past 10 
years, especially in the months before the Vietnamese Tet New 
Year holiday.  One U.S. company country manager told us that 
15.7 percent inflation, misunderstandings about the government 
mandated minimum wage increases and migrant worker's desire for 
extra "pocket money" to take home for Tet were all driving 
workers to strike.  And in fact, according to the Ministry of 
Labor, Invalids and Social Affairs (MOLISA), workers did earn 
raises averaging 13 percent, enabling them to take home an 
average "Tet bonus" of $75 dollar per person. 
 
¶3. (SBU) But the same factory managers we talked to in January 
were increasingly distressed by early March.  The predictable 
pre-Tet labor unrest continued through the February 6-11 holiday 
and into March, longer than ever before.  On February 20 more 
than 4,500 workers at one Korean-invested Nike subcontractor in 
HCMC's Cu Chi district went on strike.  Other late February walk 
outs were reported in HCMC, Binh Duong and Ba Ria Vung Tau 
provinces. 
 
You Have to Have Workers in Order to Have Strikes 
--------------------------------------------- ---- 
¶4. (SBU) Migrant labor from Vietnam's central coast and Mekong 
Delta regions makes up 70 percent of Binh Duong's labor force, 
according the head of the provincial industrial zone authority. 
When workers went home for Tet this year, many found new 
factories open and hiring closer to their homes and families. 
For example, industrial parks in Danang City advertised 10,000 
factory positions on offer.  GVN development strategies and the 
broadening scope of foreign direct investment enabled factories 
to open in new areas, especially in the central coast (ref C). 
As a result, many workers found work closer to home, enabling 
them for the first time to forego their old jobs in the south. 
 
¶5. (SBU) The seasoned company manager of Kimberly-Clark, a U.S. 
paper products manufacturer, found that just 40 percent of their 
contract laborers returned after this holiday season, far fewer 
than in past years.  His informal survey of 13 other large 
factories in the Vietnam Singapore Industrial Zone (VSIP) 
confirmed the poor rate of return.  Half the VSIP factories hung 
banners looking for workers when we visited in March.  In an 
effort to attract workers, wages on offer had climbed up 30 
percent over early January to more than U.S. $70 per month.  The 
manager said he does not expect the factory to approach full 
capacity until April. 
 
¶6. (SBU) VSIP managers talked around questions of a labor 
shortage in the provinces surrounding HCMC, saying that even 
VSIP's most labor-intensive industries have been able to scrape 
by.  They emphasized efforts to recruit additional unskilled 
workers from the Mekong Delta. 
 
Consequences for the Export Sector 
---------------------------------- 
¶7. (SBU) Many of the U.S. companies we interviewed that purchase 
goods made in Vietnam believe that the rising cost of living, 
wage inflation and new employment opportunities are leading to 
strikes in labor-intensive industries and creating long-term 
uncertainty, hence trouble, for Vietnam's economy.  One of the 
largest U.S. home improvement retail chains said that his 
 
HO CHI MIN 00000320  002.2 OF 002 
 
 
company's "just in time" supply-chain management allows no 
tolerance for supply delays.  A single week-long delay earlier 
this month likely means that the company will no longer source 
that product in Vietnam. 
 
Beginning the Push toward Higher Value Goods 
-------------------------------------------- 
¶8. (SBU) One farsighted Binh Duong provincial Party Committee 
member pointed out that while the backbone of Vietnam's 
competitive advantage is still cheap labor, the best industrial 
parks in the most progressive provinces are pioneering a 
transition to high-tech manufacturing requiring highly skilled 
workers and proficient engineers.  As labor-intensive garment 
factories relocate to areas with cheaper land and labor, they 
are often replaced by high-tech companies.  He pointed to VSIP 
(Singaporean) in Binh Duong and Tan Thuan High Tech Park 
(Taiwanese) in HCMC as prime examples, saying "this is the 
result of market forces at work". 
 
¶9. (SBU) For the time being Vietnam needs to foster both labor 
intensive and high-tech industry, the Binh Duong official added, 
saying that the Vietnam-Singapore Training Center (part of VSIP) 
offers training for unskilled workers, in part to attract them 
to the province, and trains the high-skilled workers that 
high-tech manufacturers require.  VSIP management said the park 
now boasts a growing roster of U.S.-invested technology 
companies including Johnson Controls, Spartronics (printed 
circuits and electronic final products), Unigen (precision 
machining) and Vector Fabrication (electronic components) among 
others. 
 
Comment: 
-------- 
¶10. (SBU) This year's post-Tet strikes demonstrate that 
Vietnam's economy is straining under the weight of rapid and 
sustained economic growth.  The provincial officials we talk 
with understand that turmoil and uncertainty in Vietnam's labor 
market have the potential to scare off companies thinking about 
investing or buying goods manufactured in this country.  We 
continue to emphasize that the United States shares Vietnam's 
interest in programs that strengthen support for workers -- 
especially those that foster workers' participation in 
labor-governance reforms and increase access to legal-redress 
mechanisms.  Additional regulatory transparency and good 
governance are essential for Vietnam's workers to make informed 
choices.  We expect that carefully constructed assistance 
programs addressing this increasingly shared interest would be 
well received.  End comment. 
 
¶11. (U) This cable was coordinated with Embassy Hanoi. 
DICKEY