Low worker productivity weakens GDP growth in Vietnam

According to official governmental statistics, by 2020 the share of the population five to 19 years of age is projected to drop to 22% from the 27% it was in 2010 with the median age of 27.4 continuing to inch upwards.

According to government projections, the country’s workforce is likely to expand by roughly 0.6% a year over the next decade, a decline of more than three-quarters that from the annual growth of 2.8% experienced from 2000 to 2010.

Growth in the work force will still make a positive contribution to the gross domestic product, but markedly less than it did over the past 15 years.

The country’s recent economic growth has also been propelled by extraordinarily rapid migration from rural to urban areas—from low-productivity agriculture to the higher manufacturing and service sectors.

In the absence of any increased labour productivity, the transition from farms to the metropolitan areas would need to double just to offset the slowdown in the gross national product resulting from a smaller and older workforce, said the experts at the conference.

The point that the speakers were making is that it is most likely GDP growth in Vietnam will slow dramatically over the next few years without significant improvement in labour productivity growth patterns within economic sectors.

They predicted that annual workforce productivity needs to rise 6.4% annually if the country is to achieve GDP growth of 7% a year by 2020, the target set at the 11th National Party Congress in January 2011.

Domestically oriented companies, such as those in the service or retail sectors, are much more threatened by slower GDP growth in Vietnam than are the multinational companies that use the country as an export base for manufactured goods.

They also cautioned multinational corporations that have opened production facilities in Vietnam to avoid locking in excess capacity—as the country’s economy may not match the robust growth trends of the past.

Anecdotal and survey evidence consistently indicates that the wage cost advantage of Vietnam that has so often in the past been touted as a significant plus is eroding and multinationals must boost their training costs to improve labour productivity to remain competitive globally.

Multinationals continually complain about a lack of basic work readiness among new recruits in both the manufacturing and service sectors but far too little is being done to address the problem, said the speakers.

Many companies in other countries have responded effectively to this problem by providing in-house training both before an employee starts working and while the employee is on the job.

They suggested that Vietnam should follow the lead of global best practices and seek to improve competitiveness by providing continued education and training for employees in all sectors of the economy.

In addition, they underlined the importance of concentrating on improving long-term value and bottom-line profits rather than, as is customarily done in Vietnam, merely seeking to increase top-line revenue.

Too many domestic companies spend too much energy competing on price with far too little emphasis placed on product quality, features, and branding or on developing unique offerings that can command price premiums, said the experts.

Local companies must develop better programs to recruit employees and train them so that their skills and productivity improve, they added.

They must learn to take a more professional approach to retaining and promoting their best workers, through incentive packages and greater management autonomy.

The notion of increasing the value of each employee’s performance is not yet widely understood among even the major Vietnamese companies let alone the small family-owned businesses, which still account for a major part of the economy, the experts concluded.