middleclass

ASEAN – The next PRD?
Special Report: Shop Talk – China, ASEAN and robotics
Vietnam’s long coastline increase
its attractiveness
disruptions to production schedules and/or delayed shipments.
Vietnam’s 3,400km-long coastline and location in the South China Sea – one of the
world’s busiest maritime routes – increase its attractiveness. The country has
developed several ports in HCMC, Haiphong and Danang. Investment in developing
sea ports, while forthcoming, has been dispersed across multiple locations without a
focus on developing a single port to world-class standards. Nevertheless, the port in
HCMC ranks among the top 25 in the world.
The clustering of supply chains in key industrial parks and nearby areas is beginning
to result in constraints on some key resources. For example, our Taiwan clients
located in Dong Nai province mentioned that it is less easy to find workers than
previously. The growing number of foreign investors with major international brand
names has attracted a large number of workers living nearby and driven up monthly
wages. As a result, many smaller and less-established producers are forced to look
further out to meet hiring demand, resulting in higher recruitment expenses and
maintenance costs, as they have to keep up with the market’s ‘going rates’.
Clients are not overly concerned
about rising wages in Vietnam, as
they remain among the region’s
lowest
Rapidly increasing wages, albeit currently low, were also highlighted as a general
concern. According to our clients, wages have been rising by about 10-15% per year.
Wages in Vietnam remain manageable currently, compared with regional
competitors. An average manufacturing worker in Vietnam earns about USD 185 per
month, according to a Japan External Trade Organisation (JETRO) 2015 survey.
This puts Vietnam roughly in the middle of the regional wage spectrum. Wages
increased by about 10% in 2015, broadly in line with our clients’ feedback of 10-15%.
Clients are not yet overly concerned about the level of wages, suggesting that it is
still profitable to be based in the country. However, Vietnam will also need to
eventually move up the value chain to justify higher wages. Using Malaysia as a
guide and assuming wages in Vietnam and Malaysia rise about 10% and 5% per
year, respectively, Vietnam will reach Malaysia’s wage levels in about 11-12 years.
Figure 37: Wages in Vietnam are manageable but rising rapidly
Labour costs in various cities, USD per month
900
Bangladesh Sri Lanka Cambodia Laos Vietnam
800
India Indonesia Philippines Malaysia Thailand
700
600
500
400
300
200
100
0
Manufacturing - Worker
Non-manufacturing - Staff
Source: JETRO, Standard Chartered Research
19 July 2016 42