Doing Business in Vietnam: A Guide to Understanding HR Trends

Once a company has gone through all the legal procedures required for the establishment of their business in Vietnam, the next big hurdle is the process of actually hiring the staff that will be needed – and dealing with the associated payroll obligations.

Hiring, and the associated legal obligations that go along with it, can be a confusing process. It is therefore strongly recommended that businesses take a careful look at all relevant regulation and engage a professional where appropriate to ensure proper compliance with all laws.

Vietnam is just now coming into the full benefits of its demographic dividend – where the country will see a massive influx of young people into the workforce over the next few years

In recent years, Vietnam has become an increasingly attractive place for businesses of all types. The country has a fast growing consumer class and a young and dynamic workforce that is continuing to build its skills set.

In fact, Vietnam’s labor force is growing by more than one million people per year. Currently, the hottest hiring areas are sales, IT & software, and marketing.

Talent shortages

There are a number of important HR trends occurring in Vietnam.

While labor costs are still low (50% that of China and 40% of those reported in Thailand and the Philippines), wages are steadily increasing. But over the past five years, this increase in salaries has come without a corresponding increase in productivity.

Compounding the costs of employing staff in Vietnam are the country’s comparatively high social contribution and income tax rates.

And due to the developing nature of the workforce in Vietnam, it is natural that there exists some difficulty in finding highly skilled employees. Skills and talent shortages are particularly acute in industries such as technology and banking.

However, many international companies, in partnership with the Vietnamese government, are sponsoring training programs to ensure that there are a growing number of highly skilled employees to choose from. Additionally, some companies, such as ANZ, are looking to attract Vietnamese expatriates back to the country since they tend to have a higher skills set.

Finally, the country’s young and growing workforce has new demands and high expectations for their futures. Vietnam is just now coming into the full benefits of its demographic dividend – where the country will see a massive influx of young people into the workforce over the next few years.

To understand what the next few years will bring to Vietnam, it is instructive to look at China. That country previously went through its own demographic dividend and saw explosive economic growth.

Employee churn

As the country’s workforce has continued to grow there has been a resulting rise in competition within the job market. This has increased the rates of turnover at many companies.

Employees are often shopping their skills around to other potential employers. It is not unusual to see applicants who have worked at a multitude of companies over a short span of time.

Commonly encountered problems when hiring Vietnamese employees include a lack of English and technical skills

While businesses in Vietnam have come to accept high turnover as a cost of doing business in the country, there is still a strong push to find ways to increase the amount of time that an employee is willing to spend at a company.

Providing higher salaries is certainly an attraction, but money may not be the only factor. Businesses that find ways to build employee loyalty will therefore be particularly successful.

Solving common problems

Commonly encountered problems when hiring Vietnamese employees include a lack of English and technical skills. Many Vietnamese possess basic English proficiency, but do not have the fluency required to conduct business in the language.

While the government is pushing English education throughout the school system, the full effect of this will not be felt for some time. One strategy for foreign businesses is to provide English lessons for their employees as part of a wider skills training program.

Additionally, the government, often in conjunction with foreign technology companies, is seeking to boost the technical skills of the country’s workforce. These programs are already starting to bear fruit as can be seen from the sizable investments that companies, such as Samsung and Intel, have made into Vietnam.

Companies may also find it difficult to transfer employees (especially women) to different cities or areas because of their strong local connections. This has the potential to put a drag on a company’s expansion plans as it may struggle to relocate experienced employees.

Thus, finding the right partner to aid in the recruitment process is crucial.

Due to the complexities of the labor market, many companies in Vietnam rely primarily on outsourced providers when it comes to HR, particularly for advice related to recruitment, training and payroll.

In fact, many multinationals report that they would like to outsource more of their operational HR practices to a regional shared services function.

About the Author

Dezan Shira & Associates, a specialist foreign direct investment practice that provides advisory services to multinationals investing in emerging Asia. This article was first published in Vietnam Briefing, and was reedited for clarity and conciseness. For further details or to contact the firm, please visit www.dezshira.com 

Photo credit: Shutterstock

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