The Impact of I.T. Development Outsourcing on Worker Dynamics in Vietnam
18.3 The Vietnamese Context
158 A. Shillabeer
18 The Impact of I.T. Development Outsourcing on Worker Dynamics in Vietnam 159 The skew towards a younger workforce means potential longevity in terms of worker employment however it is not without its own inherent issues. The availability of world class higher education options for young people is recent and although growing, their family centred culture presents a constraint to the western concept of leaving home and moving to the city for University study. This is especially true for daughters. As a result of this cultural barrier, less than 15 % of young workers undertake any technical training, and very few have a high level of work ready skills [9]. Of those that do gain a tertiary education, only a small number have an opportunity to learn English or another language and this can present a considerable communication barrier for overseas employers.
With considered management the Vietnamese people are a dedicated, skilled and dependable resource but a deep understanding of the cultural landscape and employment laws is required for any level of success to be achieved.
18.3.2 Outsourcing Engagement in Vietnam
Vietnam’s outsourcing sector is benefiting from the rising costs and growing problems in the Indian and Chinese business environments. A number of US companies are showing increased interest in Vietnam as a potential outsourcing destination in light of trade tensions with China and lowered cost effectiveness of dealing with India [7].
Vietnam has proven to be an effective base for smaller-scale IT operations, but lacks the numbers of skilled workers necessary for larger initiatives. The lack of key skills is a result of the nation’s previously poor technical education system. The biggest obstacle that Vietnam faces is the lack of English speakers as noted earlier. This is a key barrier to the Vietnamese IT sector becoming a major global competitor [7].
Vietnam has tremendous potential to become an IT outsourcing hot spot. Salaries of junior employees are only 23 % of similar positions in the US and senior or highly skilled employees earn 32 % of that collected by their US counterparts. The country has already gained the endorsement of some of the top companies in the world, including Intel, which built a USD 1 billion computer chip plant in the country [7].
It would appear that the time is right for Vietnam to become a significant out- sourcing option for major overseas companies however there is a potential hurdle on the horizon. For the first time there has been policy consideration of the outsourcing sector by the Vietnamese Government. A new labour code was released on May 1st, 2013 and while its direct impact is as yet unknown, section 5, articles 53-58 present much to consider by potential outsourcing companies. Of particular note is article 56.5 as discussed following in a recent news briefing:
the outsourced employee’s salary [should not be] lower than that of the outsourcing party’s employees at equal levels, doing the same or equivalent job, and further on in article 58.3 this right is codified. The issue of equality between outsourced and regular employees is reiterated in article 57.2 which states that the working conditions of outsourced employees cannot be worse than the working conditions of the non-outsourced employees of the same company doing equivalent jobs.
160 A. Shillabeer Prior to this new code being released, Vietnam was ranked 13th in the world with a cost competitiveness index of 7.4 which is in the top 10 [7]. Whilst the cost of real estate and taxes are competitive, the very low human resource cost makes Viet- nam most attractive. The effect of the labor code may be to throw Vietnam out of contention for consideration as an outsourcing option in the future given that there are other barriers in terms of business and political environment issues and poor infrastructure [7]. The ramifications of the implementation will be closely watched by employers and employees alike.
18.3.3 The Effect of Outsourcing on Vietnamese Workers
For many young Vietnamese the opportunities provided by outsourcing companies are very attractive. The opportunity to earn (relatively) high wages and have a 40 h week upon graduation from an IT or computer science degree together with the social status afforded by working for an international company cannot be measured.
This is a very desirable goal. Many are willing to pay the higher education fees to attend an English speaking university to further increase their potential to secure this type of work. The effect of this is to change the education platform and give young people aspirations that are way beyond what previous generations could even dream of. They are becoming more westernised in their attitude towards money, material goods and workplace quality. Whilst this is a positive step forwards it also means that the traditional values of being family centred, having a connection to the past and building Vietnam rather than the individual are being lost. The workforce is becoming more mobile and urban migration is increasing as young people seek opportunities in major cities or overseas. Outsourcing provides these young people the chance to live a very different life than their parents and will set a precedent for all that follow.
Outsourcing offers all workers the chance to change their lives through increased pay and working conditions. Many companies are targeting the more highly skilled workers to reduce training costs and lag time and there is an expected increase in demand of at least 60 % for technical and managerial staff over the next 3 years [9]. The effect of this has been to drain Vietnamese companies of their most skilled people who have often been with the company for many years. Vietnam is following the path of India and Sri Lanka who now both have double-digit attrition rates. This lowers the potential for Vietnamese companies to be able to compete with overseas companies as they cannot pay the higher wages or maintain skills within their teams.
They constantly have to recruit but find the pool contracting as competition for human resources increases in an industry where skill demand already far outweighs supply [9]. The stability that used to characterise the Vietnamese workforce is being eroded and the skills maturity in local businesses is also being lost. Local businesses train and develop their young employees then lose them when an international company offers to double their pay. This is a natural event, we would all be attracted by this, but the impact upon the IT workforce is highly detrimental.
18 The Impact of I.T. Development Outsourcing on Worker Dynamics in Vietnam 161 Companies such as IBM are investing heavily in Vietnam and are developing links with local universities to access the best graduates and influence a curriculum that suits their needs. Whilst the investment of millions of dollars is a welcome boost to the technology landscape of Vietnam these initiatives raise questions of longevity.
India followed a similar trajectory, a rags to riches story for its workers but we now see that dream fading as higher costs and the attraction of cheaper and easier business environments in near neighbours becomes a strong driver for change. The future of millions of outsourcing employees is of concern. If Vietnam does become the next big thing in IT outsourcing, what would become of its technology workers if companies move offshore or change their skill requirement? There is already evidence of worker retrenchments after major projects with specific skill sets are completed. Vietnamese workers would not be willing to go back to their old jobs and conditions and pay level [6]. They will, as seen in other countries, potentially become a significant burden on the Government or their families if they were not eligible for unemployment benefit.
This would be of most impact on younger Vietnamese who had never experienced anything but the international context. We must also be cognoscente of the fact that local businesses are already struggling and many will simply not be there to return to.