The upcoming AEC is more important than many realize as regional labor movement is about to increase significantly.
The amount of detail involved in mapping skills for each job in every affected sector across every ASEAN country is massive. I attended a meeting in Hanoi on the “Tourism Qualifications Equivalence Matrix”, which is being supported very well by a technical team from the EU. When seeing hundreds of pages of technical detail, I must admit it was difficult for me to initially see the full implications of what this would really look like in practice. To explain what I think may happen, let us look first at how Vietnam already compares within the region in labor mobility.
The current work permit regulations in Vietnam are quite strict and therefore the number of foreign workers is much lower than in other comparable ASEAN countries. The total number of work permits currently issued by the Ministry of Labor, Invalids and Social Affairs (MoLISA) is just 55,000 (in case you were wondering who these people are, MoLISA statistics say 86 per cent are over 30 years old, 90 per cent are male, 58 per cent are from Asia, and 28 per cent are from Europe). Compare this with our neighbors Thailand, Malaysia and Singapore, who each have millions of foreign workers. Those countries also already have freer movement of foreign labor.
There is strong global and regional competition for skilled workers. A couple of years ago I was invited to speak to Vietnamese students and professionals in Singapore, to persuade them of the advantages of returning to Vietnam. Vietnam obviously benefits when such professionals return and I was happy to help Vietnam, the country I live in and am a guest of. A couple of weeks after I returned from Singapore I was contacted by a very pleasant lady from the Singaporean Government who asked to meet with me in Vietnam. She said that while they had no problem with me trying to persuade Vietnamese to return, could I also help find skilled Vietnamese workers who could go to work in Singapore. They were particularly interested in computing and engineering professionals and had a very impressive program of how they could attract foreign workers. This experience reminded me that the ASEAN Economic Community (AEC) will speed up this competition for skilled workers considerably.
The flow of workers between countries at different stages of economic development often looks like Table 1.
Management know-how flows from where it is more abundant, in more developed economies, to the less developed economies that can benefit from it. Lower-level skilled labor flows from where it is more abundant, in less developed countries with lower salaries, to where it is less available, in more developed economies. However, not every skilled worker in, for example, Vietnam, is suitable to suddenly relocate to, for example, Malaysia, and the reason for this is labor productivity. Workers in less developed countries are generally less productive than those in more developed countries. So while a worker in, for example, Singapore, has a much higher salary, their relative output is much higher too, as Table 2, on regional productivity per worker, shows.
The productivity and competitiveness challenge for Vietnam is already very clear. Upcoming trade agreements with a number of countries open up the Vietnamese market to both opportunities and challenges in a way never experienced before. The Vietnamese Government has, in my view, responded brilliantly to this, with Resolution No. 19, which sets powerful targets for improving every aspect of national competitiveness. Each ministry is assigned clear competitiveness targets to move Vietnam up the regional and global rankings within an ambitious timeframe. Within the context of freer movement of labor in the AEC, improving labor competitiveness in Vietnam is more important than ever.
The key to improving Vietnam’s labor competitiveness is up-skilling the workforce. Effective education and training systems are vital to compete globally and regionally. Gaining knowledge of international standards obviously helps Vietnamese workers (and the economy in general) to compete internationally. Therefore, foreign training providers in Vietnam play a vital role in improving the situation. We look forward to the government’s continued streamlining of the operating environment for these foreign training companies.
However, even with all of the good work being done in training, Vietnam will not close its regional productivity gap overnight. Vietnam as a generalization has some excellent labor quality at the skilled and executive level, but continues to have persistent shortages of suitable middle management. With the AEC we can reasonably expect that this gap will be filled by increasing numbers of regional foreign managers in the affected sectors. On the flip side of this, we can expect large numbers of skilled Vietnamese workers, already in short supply here, to be tempted by higher salaries in other countries. This could lead to even more demand for foreign managers in Vietnam to fill a larger local skills shortage, leading to a cycle of increased regional labor mobility.
Let me make some predictions for Vietnam (which hopefully will be more accurate than those made by the British Government in 2004).
Tourism - expect to see many more workers from the Philippines working in hotels in Vietnam. Next year when you hear a hotel reception or restaurant supervisor speaking suspiciously fluent English, have a look at their name tag and see if I am right.
Engineering - expect to see more Vietnamese engineers working regionally, which in turn will alter their salary expectations in Vietnam as they realize their value.
Medical - there will be an influx of specialists from the Philippines into this booming sector, but also from Cambodia to assist with the rapidly expanding medical tourism market of wealthy Cambodians coming to Vietnamese hospitals for treatment.
You will note in my predictions the Philippines is mentioned, as the fact is that they have the largest skilled labor export capability in the region and I suspect many Filipinos would prefer to work closer to home, in Vietnam, than in, for example, the Middle East. Expect to see a much larger Filipino expatriate community in Vietnam in the future. Next year, if you notice new Filipino shops and restaurants in Ho Chi Minh City this would be a good indication that this prediction is accurate.
Freer regional movement of labor presents both increased opportunity and increased competition. Overall it is economically beneficial and it will change millions of people’s individual careers for the better. My main message here is this change is bigger than most people anticipate. My advice to businesses in Vietnam in the affected sectors is to start thinking now about how this will affect you. Is it a chance to up-skill your workforce and perform better? Or is there a risk of losing some key local staff? It is best to proactively take some steps now before your competition does.