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A price to pay

Released at: 08:00, 29/04/2017

A price to pay

Photo: Viet Tuan

Automation may be good for business and Vietnam’s economy but it comes with a human cost.

by Hong Nhung & Nguyen Quynh

Automation has been changing the global manufacturing industry for some time and Vietnam has also been subject to its effects. The country’s major corporations have been looking at replacing their human workforce with machinery or robots in certain industries, to raise productivity, reduce production time, and minimize labor costs. The country’s leading ceramics and porcelainware producer Minh Long I has cut worker numbers at its factory from 400 to 20 for no change in productivity, Mr. Ly Huy Sang, Deputy General Director, told a conference in early March.

The development of the fourth industrial revolution along with increasing perfection in robotics production are driving the global manufacturing industry towards robotics. Automation is the future but also a concern for many enterprises as well as the Vietnamese Government, as there are still millions of low-skilled workers in the country’s key export sectors, including electrical, electronics, textiles, clothing and footwear, which are important in the model for Vietnam’s economic development.

Positive transformation

The positive impacts of automated technology in production can’t be denied. According to the “ASEAN in Transformation: How Technology is Changing Jobs and Enterprises” report released by the International Labor Organization (ILO) last year, only 24 per cent of Vietnamese enterprises are implementing technology improvements; lower than the general trend in ASEAN. But it is the best country in the region when it comes to research and development investment. 

In recent years, a number of textile and footwear businesses have rebuilt their manufacturing practices by innovating technology to improve product quality and productivity. For example, enterprises have applied robotics in fabric cutting to not only increase productivity but also avoid dangers facing workers. Each of these machines replaces 15 workers and companies broke even on the investment within 18 months.

Last year, the Hung Yen Garment JSC (Hugaco) promoted investments in technology in order to improve productivity. Chairman Nguyen Xuan Duong said that productivity increased 5 to 7 per cent compared to 2014 and 2015 while the workers’ living standards also improved. “We plan to cooperate with foreign companies in the future to gain experience and technology transfer,” he said. 

Automation has also been applied at many food manufacturing and processing enterprises. Mr. Pham Thanh Hung, Deputy Director of the Ba Huan Co., which specializes in clean food, said that the company decided to import Moba automated egg grading machines from the Netherlands. The technology automates nearly 100 per cent of egg processing tasks. “Prior to introducing the technology, 40 workers could only process 200,000 eggs a day,” Mr. Hung said. “With robotics, nearly 1 million eggs are processed a day.” 

Owing to the application of scientific advances in sugarcane cultivation, in 2015-2016 the total cultivation area of the Thanh Thanh Cong Sugar JSC (TTCS) increased from 12,000 ha to 13,800 ha and productivity by 20 per cent, reaching 80 tons per ha. Total sugarcane output is 1.09 million tons, up 110,000 tons from 2014-2015. “We plan to have an area of 30,000 ha of raw materials to ensure a stable supply of sugarcane totaling 2.3 million tons,” a representative from TTCS told VET.

Meanwhile, the Canon Thang Long Plant in Hanoi employed 13,000 workers seven years ago but now has 8,000 after introducing automation, with turnover and production remaining stable, Ms. Dao Thi Thu Hien, Senior Office Manager at Canon Vietnam, told a conference at the end of last year. Replacing human labor with technology is now an indispensable trend in cutting costs and competing, according to Ms. Nguyen Thien Ly, Deputy General Director of the Garment No. 10 Corporation.

Despite the tremendous impact on productivity, automated technology cannot always replace people. “Robots can only participate in 30 per cent of the textiles and garments sector,” said Mr. Duong. “The remaining 70 per cent of the process still need human hands. The 2.8 million workers in the textiles and garments industry are still very much involved in production.”Vietnam’s productivity, however, is lower than many countries in the region. Recent figures from the Ministry of Industry and Trade (MoIT) show that its overall labor productivity growth in 2015, in terms of purchasing power parity, rose 6.4 per cent from 2014. Overall labor productivity grew 3.9 per cent annually from 2006 to 2015. Experts have said that Vietnam needs to boost its overall labor productivity growth by more than 50 per cent if its economy is to meet the government’s target of 7 to 8 per cent annual growth by 2020. Without this lift, growth is likely to decline to between 4.5 and 5 per cent.

Total employment in e&e production, by country

Source: ILO report, 2016

Total employment in tcf manufacturing, by country

Source: ILO report, 2016

Limited effect

Despite the significant advantages of automation, the increasing application of machinery and robotics instead of people in manufacturing industry results in a degree of instability. Low-skilled workers in developing countries face an increasing risk of unemployment. The two giants in the world’s clothing and footwear industry Nike and Adidas, have been pioneers in automating their production lines. Nike, according to the Portland Business Journal, has announced it will automate a number of manufacturing processes and complete its supply chain in its home country.

While considered the world’s manufacturing center, China has also been addressing the possibility of about 100 million workers becoming unemployed due to rising labor costs. A future where millions of Vietnamese workers also lose their jobs in cutting-edge industries is therefore also more than likely. A report from the General Department of Vietnam Customs shows that three groups of products - electronic components, garments and textile, and footwear - last year accounted for more than 40 per cent of the country’s total export turnover.

More than two-thirds of the 9.2 million workers in the textile, clothing and footwear (TCF) industries in Southeast Asia are threatened by automation, including 86 per cent of Vietnam’s TCF workers, whereas about three-quarters of workers in the electrical and electronics (E&E) sector may be replaced by robots in the coming decades, according to the ILO report. Another survey by the Vietnam Chamber of Commerce and Industry (VCCI) revealed that nearly 5 million workers in textiles, electronics, and retail will be affected by technology movements.

A company producing leather footwear incurs a range of expenses, including health insurance, wages and accommodation for its workers, so “once robotics develops, enterprises will dismiss some workers to save on costs,” said Mr. Nguyen Van Khanh, General Secretary of the Ho Chi Minh City Shoes and Leather Association (SLA). Mr. Diep Thanh Kiet, Chairman of the SLA, also acknowledged that automation in fashion manufacturing may reduce the competitive advantages in low-cost labor held by many developing countries in Asia.

He also said that Vietnam is still concentrating on exporting natural resources and selling its labor, while innovation in production is yet to develop strongly and create high added value in global value chains. As a result, Vietnam’s industry needs an automation strategy for the manufacturing sector in general and the leather footwear industry in particular, because of rising labor costs into the future. 

Automation will help accelerate the country’s competitiveness, he believes, and international corporations are more likely to set up production bases in countries using automation. At the same time, “the government must have long-term solutions to ensure the social welfare of domestic workers once employment falls,” he believes.

As the country’s workforce will grow from 55.5 million in 2016 to 62 million by 2025, “globalization and technological revolution pose increasingly greater challenges for Vietnam’s economy,” said Deputy Minister of Labor, Invalids and Social Affairs Dao Hong Lan. “In order to meet employment demand, Vietnam needs to create roughly 650,000 jobs every year, and structural employment changes is one way to increase workplace productivity,” she said.

Technology will create significant opportunities to close productivity gaps, improving both competitiveness and working conditions. “It will certainly shift in the coming years, as technology costs decline and labor costs increase,” said Mr. David Lamotte, ILO’s Deputy Director for Asia and the Pacific. The ILO has suggested Vietnam enhance relevant workforce skills to modernize skills development and meet the changing workplace dynamics.

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