CLS+ VIETNAM Objective: To explore labour practices in the global - PDF document

1/24/2017 CLS + Linking Trade and Shared Prosperity in Global Supply Chains in Asia Vietnam Country Study Ready-Made Garment, Footwear and Electronic Industries Do Quynh Chi Research Center for Employment Relations 1 CLS+ VIETNAM • Objective: To explore labour practices in the global supply chains in Asia within the context of preferential trade agreements • Regional Project in Pakistan, Cambodia, Myanmar and Vietnam • Vietnam study focus on garment (RMG), footwear (Sports shoes), and electronics (mobile phones and parts) industries • Provinces: HCMC, Long An, Da Nang and Bac Ninh 2 1

1/24/2017 Research Methodology 3 Factories visited Labour force Location Industry Ownership HCMC Garment Vietnamese 700 HCMC Garment Korean 1,300 HCMC Garment Korean 9,600 Dong Nai Garment Vietnamese 3,300 Long An Garment Korean 2,300 Long An Garment Vietnamese 3,000 Da Nang Garment Vietnamese 4,000 Da Nang Garment Vietnamese 11,000 Dong Nai Footwear Korean 17,300 Dong Nai Footwear Taiwanese 22,100 Long An Footwear Taiwanese 23,300 Bac Ninh Electronics Korean 1,100 Bac Ninh Electronics Korean 150 Bac Ninh Electronics Korean 3,300 Bac Ninh Electronics Korean 1,500 Bac Ninh Electronics Korean 10,000 4 2

1/24/2017 Overview of Garment, Footwear and Electronics Industries in Vietnam FDI and domestic sector s’ contribution Vietnam Export Structure 2015 to export value (%) FDI Domestic Handphones Computer Others and parts and 10 28% 19% electronic 23 23.4 appliances 37 10% Seafood 4% 90 77 76.6 Crude oil Machinery 63 2% 5% Rice Garment 2% Coffee 17% 2% Wood products Footwear 4% Footwear Garment Electronics All 7% 5 Overview of Garment, Footwear and Electronics Industries in Vietnam Garment Footwear Electronics No. of exporting 2,500 1,382 1,100 firms in Vietnam Labour force 2,500,000 930,000 325,583 Imported materials 60% 55% 90% Female workers 70% 6 3

1/24/2017 GLOBAL SUPPLY CHAIN OF READY MADE GARMENT 7 8 4

1/24/2017 How Labour Cost is Determined in Global RMG Supply Chain? • 7/8 suppliers: CMT price not increased since 2012 • 3/8 suppliers: CMT price reduced 5-10%/year • Price of apparel imports to US decreases by 0.02% last decade • Brands apply default CMT price for each product while vendors pressure on suppliers to lower costs regardless of labour costs  Labour Cost is not an issue in the price negotiations in the global garment supply chain 9 Price Structure and Profit margin of Brands, 1 st tier suppliers and sub- contractors in the RMG supply chain “ If the MW continues to rise at this rate and the CMT prices still frozen, our company can last for at most 3 more years” - Director of a Vietnamese 2nd-tier supplier - “S ome brokers came to us with the orders of very low prices...Our normal price is 1.5 USD/unit but they offered only 0.9 USD. They said if you don’t want this price, we can find suppliers who agree with even 0.7 USD. To have enough work for the workers, sometimes we had to accept that low price ”. - Deputy Director of an equitised Vietnamese company- 10 5

1/24/2017 LABOUR STANDARDS • Wages depend on skills and productivity (former SOEs pay Workers’ most-trusted channel of higher than FDI) grievance-handling • Overtime closely monitored • Complaints about OSH standards in 2 FDI firms (strikes in 2/3 companies) • Better labour-management dialogue and worker satisfaction in Vietnamese firms than in FDI companies 11 Japanese vs. US Buyers U.S low-cost clothing brands Japanese high-end clothing brands • Large order volumes with • Smaller in order volume relatively simple and easy with more complex and product specifications sophisticated product specifications • Limited technological transfer and monitoring • Technological transfer much more important and • Easy to switch from one occurred more intensively supplier to another, from one country to another • More incentive to maintain long-term buyer- supplier relationship 12 6

1/24/2017 GLOBAL SUPPLY CHAIN OF SPORTS SHOES 13 • Booming of FDI into footwear since 2011 • Increasing domination of East Asian suppliers; • Domestic factories as sub-contractors 14 7

1/24/2017 • Brand profit: 9% • FOB factory profit: 7.5% • Assembly factory profit: 3% • Labour cost: 9% 15 Cost Minimisation • Assembly prices from Adidas and Nike have been USD11 and USD12/pair for 5 years; ‘Unnegotiable’ • Labour cost not a factor of negotiations between brands and their suppliers. • Supplier increase its efficiency and minimise (labour) costs to retain and increase its profit margin. Output increased by 31%/year , Workers paid MW plus 5% seniority. 16 8

1/24/2017 LABOUR STANDARDS • Wages depend on seniority and MW • Dialogue mechanisms exist but not effective; unions dependant on management • Overtime closely monitored (OT limit set by brands) • Complaints on OSH standards in 2/3 firms • Labour standards in 2 nd tier suppliers not closely monitored, subject to violations 17 SUPPLY CHAIN OF MOBILE PHONES AND PARTS 18 9

1/24/2017 PRODUCTION FLUCTUATIONS AND BRANDS’ MONOPSONY • High production fluctuations: Priority is given to the ‘core suppliers’ while fluctuations are shifted to other suppliers • No price negotiation: prices are posted on the brand’s website and reduced every quarter • No third-party monitoring • Labour audits every quarter but whether or not violations lead to sanctions depend on the brand’s preference Life Cycle of a typical electronics product 19 LABOUR STANDARDS • Total income is high but basic wages Workers’ most-trusted paid at MW level; Overtime pay grievance-handling channel accounts for 35-50% of total income • Excessive overtime (up to 100 hours/month) and high production fluctuations • Signs of gender discrimination in: recruitment, job assignment, and promotion • Limited mechanisms for social dialogue at workplace • Labour standards are better in the suppliers that sell to more than one brand. 20 10

1/24/2017 INDUSTRIAL POLICY AND IMPACTS ON LABOUR STANDARDS 21 Marginalisation of Domestic Firms from Global Value Chain • Incentives for industrial FDI and domestic sector s’ contribution to upgrading become obstacles Vietnam’s export value (%) to domestic firms to move up the global value chain FDI Domestic • Competitive advantages based on low labour cost 10 and supply of unskilled 23 23.4 37 labour are diminishing • Without good labour skills and strong supporting 90 (domestic) industries, global 77 76.6 63 brands not willing to shift higher-tech production to Vietnam  Race to the bottom Footwear Garment Electronics All 22 11

1/24/2017 Provincial Industrial Policy Da Nang Long An • • Key industries: tourism, seafood Key industries: garment and processing, electronics and footwear garment • Keen to accelerate investment • attraction (250ha of IZs/year)  Priority to tourism and clean and high-tech industries: in 2015, Not selective of FDI projects (a turned down 20% of FDI projects $300m project on dying just of high environmental risks and started); Offer additional using low tech, unskilled labour incentives to FDI projects (longer tax holiday) • Strong investment in • infrastructure, labour skills (Da Infrastructure (housing for Nang ranks first in easiness to workers) not commensurate with recruit skilled labour). Top PCI for FDI attraction (Long An ranks last 5 years in easiness to recruit skilled labour) 23 Provincial Labour Policy Da Nang Long An • Strong labour law • Weak enforcement enforcement • Slow in handling labour • Active in handling labour disputes (32 strikes in 2015) disputes (1 strike in 2015) • Traditional union approach • Pioneer in union reform prevails (30% new unions set up by bottom-up approach; first multi-employer bargaining agreement) 24 12

1/24/2017 Without an effective industrial policy, more international trade threatens to deepen under- development and prevent economic catch-up (Herr et al., 2016) 25 Future prospects • More international trade should be coupled with strong (national and provincial) industrial policy so as to ‘race to the top’ not the other way • Support to the domestic sector to engage more and higher in global supply chains • Enhanced monitoring of the labour practices in the global supply chains with more engagement of the brands 26 13