VZCZCXRO4560
OO RUEHDT RUEHPB
DE RUEHHM #0878/01 2740603
ZNR UUUUU ZZH
O P 300603Z SEP 08
FM AMCONSUL HO CHI MINH CITY
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4957
INFO RUCPDOC/USDOC WASHDC PRIORITY 0079
RUEHHI/AMEMBASSY HANOI PRIORITY 3325
RUCNARF/ASEAN REGIONAL FORUM COLLECTIVE
RUEHHM/AMCONSUL HO CHI MINH CITY 5185

UNCLAS SECTION 01 OF 02 HO CHI MINH CITY 000878 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS, USAID/ANE, EEB/TPP/BTA/ANA, DRL/ILCSR 
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 ELAB EINV PREL SOCI VM
SUBJECT: LABOR PROBLEMS PERSIST, WORRYING INVESTORS 
 
REF: HCMC 320 
 
HO CHI MIN 00000878  001.2 OF 002 
 
 
¶1. (SBU) Vietnam's deficit of human resources is now the most 
frequently cited challenge facing companies in southern Vietnam. 
 This issue is shifting leverage from factory managers to 
workers, leading to more strikes in the first half of 2008 than 
in all of 2007, as well as contributing to 18 percent wage 
inflation since January.  Weak local labor institutions 
(including most provincial branches of the Vietnam General 
Confederation of Labor and Ministry of Labor) put pressure on 
management to resolve labor disputes.  Successful factory 
managers avoid strikes by devoting time and resources to 
understanding their workers needs and ensuring that local unions 
act as clear channels for communication.  Additional 
transparency and training are needed, but the United States can 
also help by creating opportunities for non-governmental 
organization and civil society actors to educate workers, 
managers and regulators about their rights and obligations.  End 
Summary. 
 
Foreign-owned Factories Pinched by Strikes 
------------------------------------------ 
¶2. (SBU) U.S. investors and partner companies, especially in 
manufacturing, are being affected by labor unrest and unexpected 
demands for wage increases.  According to one U.S. buyer, there 
were 544 labor actions in all of 2007 but 500 in the first half 
of 2008.  The dispute resolution roles that Vietnam's labor law 
assigns to the Ministry of Labor (MOLISA) and the Vietnam 
General Confederation of Labor (VGCL) are rarely put into 
practice locally, so when workers strike it's up to employers to 
find a resolution.  73 percent of the strikes in 2007 were at 
foreign direct investment (FDI) companies and 83 percent were in 
Ho Chi Minh City (HCMC), and Binh Duong and Dong Nai provinces. 
Since FDI employs 500,000 workers in garment factories, foreign 
companies have significant exposure to and impact on Vietnam's 
labor markets. 
 
¶3. (SBU) HCMC labor analysts believe that workers strike because 
the rising cost of living in southern Vietnam hits low-wage 
unskilled workers hardest; year-on-year inflation in September 
was 27.9 percent.  They say that DOLISA and VGCL do try to 
create an environment for workers and managers to resolve 
difference, but in practice do little else.  Workers often 
remain ignorant of their rights and obligations under the labor 
law and as a result adopt a "strike first" mentality. 
 
¶4. (SBU) Earlier this year the strike first mentality cost one 
factory "one million dollars a day for 10 days, all over 30 
cents per worker per day."  Lack of an effective union meant 
that the company management did not have anyone to negotiate 
with, and leaders that eventually came forward did not represent 
the interests of the full group.  Even after an initial 
agreement was reached, workers refused to return to work. 
Because of this type of experience, FDI managers call on the GVN 
to fully and consistently implement the Vietnam's 2006 amended 
Labor Law, which requires workers to go through an 
administrative and mediation process before going on strike. 
 
Foreign Strategies and Results 
------------------------------ 
¶5. (SBU) In practice, successful companies are finding ways to 
work around the system to strengthen unions in their shops in 
order to make sure they understand their workers.  In a few 
cases, factories do have strong and de facto independent unions 
that pay into Vietnam's VGCL union umbrella system but receive 
little or no support or direction from above. 
 
¶6. (SBU) One Korean-invested garment producer in Dong Nai 
province employs nearly 10,000 workers at an average starting 
wage of 65 USD, just barely above Vietnam's minimum wage for 
that area.  The company has a staff of up to ten ex-patriots 
human resource (HR) specialists working specifically on labor 
relations and strengthening the factories various shop unions. 
Through regular trainings, meetings and feedback channels, these 
HR specialists concentrate on enabling the unions to effectively 
convey the concerns of the workers to management, and to serve a 
channel for open dialogue.  The manager of this factory says 
that his company ends up trying, with little effect, to help 
provincial DOLISA and VGCL play more than a superficial role. 
So far, the company's approach has paid off.  Despite the low 
wages they have not had any strikes. 
 
¶7. (SBU) Not all managers are this successful.  A 
Taiwanese-invested company in Thay Ninh Province pays its 18,000 
workers 90 USD, 43 percent more than the Korean company, and 
 
HO CHI MIN 00000878  002.2 OF 002 
 
 
well above minimum wage.  This factory's human resource 
department processed paperwork but little else, and the manager 
seemed almost contemptuous of his workers saying "they earn more 
than anyone else around and they still strike."  Earlier this 
year, workers walked out for several days before management was 
able to get a response to the question, "what do you want?" 
Unfortunately the response was attached to a rock and thrown at 
the office building.  This strike was resolved later that week 
with another small increase in salary, but the manager expects 
more trouble in the future. 
 
Contrast with the Vietnamese Way 
-------------------------------- 
¶8. (SBU) Vietnamese companies say that strikes at FDI factories 
are completely understandable, because foreign managers do not 
involve workers in the management process.  They emphasize that 
Vietnamese-owned enterprises accounted for just 27 percent of 
strikes in 2007.  Vietnamese managers believe this is because 
the labor representatives in Vietnamese factories are much more 
powerful than in FDI factories.  Vietnamese companies 
traditionally have institutionalized channels for communication, 
dialogue and dispute resolution, not only through the unions but 
also through the Party.  A Vietnamese-owned factory's union 
leader often interacts with the factory's manager as an equal. 
 
Conclusion 
---------- 
¶9. (SBU) Since so much of Vietnam's export success is based on 
comparatively cheap labor, encouraging MOLISA and VGCL to play a 
constructive role in dispute resolution should be a priority for 
the GVN.  Already, a few multinationals have decided they 
probably will not expand production in Vietnam because of the 
strikes.  But since the vast majority of strikes happen at FDI 
factories, it has been easy for the GVN to remain sanguine about 
the problem.  Individual companies are stepping up to fill the 
education vacuum and international, non-governmental and 
especially corporate social responsibility organizations are 
beginning to play a larger role.  The United States can help by 
encouraging the GVN to make space for these kinds of groups to 
teach managers best practices, help strengthen local unions and 
to build the capacity of MOLISA and VGCL.  Our industry and 
government interlocutors agree; Vietnam's long-term economic 
competitiveness is at stake.  End conclusion. 
 
¶10. (U) This cable was coordinated with Embassy Hanoi. 
FAIRFAX