Thailand and Vietnam are drawing investors away from China
International medium-sized enterprises are orienting their investments in increasing fashion toward the ASEAN member states. Word has started to get out about the intellectual property risks in China as well as the attractive tax incentives in Southeast Asia. Furthermore, thanks to the ACFTA free trade agreement, producers from Thailand, Vietnam, and Indonesia are able to serve the Chinese market duty-free and with shorts routes for transport.
But what does a comparison of well-trained and well-paid labor look like? “Cheap” isn’t everything. The availability, competence, and work culture of the region must be measured against that of the Chinese, who are renowned for their industrial work ethic.
China’s job market is, however, nowadays considered expensive, especially in the industrial “exurbs” from Shanghai to Shenzhen. Workers in Vietnam are known for their low wages and quality work. But the question is, are there enough well-trained workers for technically well-equipped factories? Thailand has the know-how for this, as it is the home of highly developed automobile and electric industries. But aren’t the big car manufacturers and their suppliers “sucking dry” the job markets and driving up the prices?
The following is a comparison of the crucial criteria for the job markets in these three countries.
“Soft Facts” and Characteristic Features of the Work Culture
China is known for a high employee turnover rate. Personal and especially vertical relationships are meaningful elements of Chinese culture. Company loyalty is therefore not as strong as loyalty to individuals, for example to one’s immediate superior. If one key employee leaves the company, many other workers who were close to them will follow them out the door.
Low-qualified workers have been treated without dignity for a long time. For this reason, even qualified workers leave the company frequently. Additionally, they are receptive to protests, which are often tied to violence, against poor working conditions. However, over the years it has been possible to form a team of employees familiar with international companies and their demands. But be warned: westerners are often given unreasonable expectations regarding auxiliary services or working conditions when they are advised that “this is how generally how it is in China”.
Vietnam’s workers are generally considered to be diligent, delivering quality work. However, like the Chinese, the Vietnamese also switch companies often, sometimes for a few extra dong per month. Strong benefit plans and an attractive working environment are the most effective magnets for attracting talented applicants. One should be particularly wary of the tendency of Vietnamese managers to place family members in company positions, often with disregard for qualifications or suitability to the job. Anyone who tolerates such actions will be paving the way to dynamics which are difficult to control as well as a poor work product, jeopardizing the company’s overall organization.
The reason Thai workers switch jobs is more often due to market conditions than their cultural background. Officially, 99.35% of the population was employed as of December 2015. Workers are virtually bombarded with offers due to the fierce competition between companies looking for employees. Important criteria for establishing employee loyalty are: the prestige of one’s boss, fair interactions, in-house training and voluntary employee benefits to complement the very few benefits guaranteed by law.
The most important personnel decision for a western executive director in Thailand is that of selecting and hiring an excellent HR manager, a position best filled by a woman. The western boss will be respected but will most likely never be the one to whom the team turns or gives their trust. By no means should one try to save money on this decision. The HR manager has a substantial impact on whether employees experience their treatment as fair and remain loyal to the company. Whoever manages to pull this off can look to keep the churn rate at around 10%, even for production.
Attractiveness for Expat Managers
It is standard for new investments in all three countries that one’s “guy on the ground” be chosen from the main factory or at least be a company director from within one’s own culture. Local management should only be attempted after several years. Even then it can be risky, but having known your employees for several years makes it easier to know who should get that promotion to company director.
It costs significantly more to obtain western managers or the so-called “guys on the ground” for China than it does in Europe. Quality of life and social surroundings are usually perceived by foreigners as unfavorable. Irrespective of the risk associated with them, it is also very difficult to find Chinese managers. The exclusion criteria usually include politically rather than professionally oriented training systems at the university level and a poorly developed understanding of western management culture. On top of that, highly-qualified Chinese managers commonly favor a job search in Hong Kong or even Singapore. It is important to carefully review professional qualifications and résumés. One in every five applicants uses fake documents to make themselves look better.
Western managers are comparatively easy to find in Thailand, also offering more affordable prices for local contracts. One reason for this is that a high number of western companies relocate their managers after several years to a new job site. Many of these managers, however, have discovered Thailand to be such a pleasant host country, for themselves as well as for their families, that they opt to decline the new position in the German company and decide instead to look for alternative employment in Thailand. Thai management personnel can be employed once managers have studied in Europe or the US and have acquired, whenever possible, the relative linguistic and cultural competencies. The numerous engineers educated in Germany are especially capable and could be integrated into management teams almost without a second thought.
A considerably strong pioneering spirit is necessary for western managers in Vietnam in order to come to terms with the significantly worse living conditions when compared with China or Thailand. Nevertheless, the task might be appealing to second-level managers at main production sites. Here they can prove their worth in a proper management role. It is difficult to find Vietnamese management. One exception to this are the 160,000 Vietnamese who were educated in the DDR during the Vietnam War, who are familiar with European culture and who typically have preserved their affinity to Germany and Europe.
Middle Management and Specialists
The Chinese job market is developing from a massive supply of unskilled temporary workers to a market set up for a workforce that is becoming more and more educated. Due to the aging and thus shrinking working population, specialists are not just expensive but also difficult to come by. This means it is always important to consider that employees walk away with expensive on-site or external training experience in order to then look for a better paid job with their new qualifications without any kind of guilty conscience. It is not uncommon for a well-trained employee to say goodbye with sincere gratitude for the training provided by his disappointed boss who has opened up great opportunities for the employee in a new company.
A similar cautious attitude is, though to a lesser extent, also necessary in Thailand and Vietnam. On the one hand, there are high numbers of business management and technical academics in Thailand who have studied in Australia or the UK for at least a few semesters, which means there are well-qualified young professionals on the market. On the other hand, however, the number of Thais who return home without any recognizable results after four or five semesters is not low, either. Such students have most likely spent their time in apartments shared with people from their own country eating the same food they ate at home, delighting their proud parents when they show them the official confirmation of their semesters abroad.
Apart from that, there are numerous technical universities, the Thai-German Institute for training in technical craft occupations, as well as dual career training projects overseen by Germany. This basically means that there is a good supply of properly trained professionals who can quickly complete the required on-site training and then later be won over as loyal employees.
There is also a German-Vietnamese university in Vietnam as well, but younger Vietnamese have had scarcely any opportunities to prepare themselves for life in the comparatively low number of international companies via time spent studying abroad. For this reason, well-qualified professionals are not easy to find and generally more expensive than in Thailand.
Ancilliary Costs for Wages, Salaries and Working Conditions
Basically, the gross costs for wages throughout all profession groups are markedly higher than in the preferred investment countries of Southeast Asia. This is also why there is now a large number of Chinese companies investing in Thailand or Vietnam.
A comparison between Thailand and Vietnam can be summarized by saying that basic labor power is easier and cheaper to hire than in Thailand, although the ratio between the growing qualifications of the skilled workers in the two countries is equal or perhaps even inverse.
The following table lays out net wages in USD (including employers’ contribution). The number was derived from the practical values listed in a poll of 12 recruiting companies and from government statistics. The numbers for China refer to the Shanghai area.
|Position/Gross/Monthly Salary||China USD||Thailand USD||Vietnam USD|
|Expat manager (MD)||13,000||9,000||8,500|
|Personnel manager (HR)||5,400||2,400||2,300|
Source: SANET ASEANS ADVISORS, 2016
Please note for this next table that part of the ancillary costs in China are not centrally regulated:
|Social insurance||Employer: 39,2 %
Employee: 17,5 %
|Employer: 5 %*
Employee: 5 %*
ca. 420 USD/month
|Employer: 22 %
Employee: 10,5 %
|Minimum annual leave||11 days||13 days||8 days|
|Annual vacation||5-18 days||6 days||12-16 days|
|Sick pay||3-12 months||30 days||30-60 days*|
SOURCE: SANET ASEAN ADVISRS, 2016
Job Market Flexibility
Flexibility is an important assessment criterion for the job market in addition to wage and non-wage costs. It focuses on the possibility of separating one’s self from one’s employees under certain conditions, or to only give them temporary tasks to handle. In all of these countries, short-term contracts with strict terms are provided which cannot be extended.
In China, employees can be laid off for breaching the concretely negotiated duties of an employment contract. It is therefore recommended to put these duties in writing by making a long and detailed list of them in the employment contract. If, for example, working times are not effectively negotiated, then constant lateness cannot be cited as a reason for termination. Termination due to poor performance can only ensue during the three-month trial period.
It can become quite costly if there are mistakes in the termination: a half month’s pay is due after six months, and then one month’s pay is due for each year they are with the company. If an employee takes legal action in order to be reinstated, they can ask for double the amount of their severance pay if the termination has not been justified.
Employers can generally only terminate contracts without severance pay for a low number of clearly defined reasons in Thailand. Notice of termination must always be given at least four weeks in advance, even during the negotiated trial period. If the employer pays severance, then no grounds for termination must be indicated. The employee receives a severance amount equivalent to one month’s pay after 120 days, three months’ pay after one year’s work, and six months’ pay after more than three years of employment. The limit is set at 10 months’ pay. One should be aware, however, that Thai employees will leave the company – without complying with the period of notice – if and when they feel that they themselves or their work are not appreciated by their boss or superior. It is most commonly those in management positions who are the ones who make sure to terminate their contract via the employer and receive severance pay.
For contracts terminated by the employer in Vietnam, employees who have worked with the company for more than 12 months have the right to a severance amount of a half month’s pay for each year of their service. The average monthly salary of the employee over the last six months, including all premiums and special allowances, is used to calculate the severance pay amount.
If an employee’s contract is terminated due to having been made redundant, then an entire month’s salary is due for each year of service with a minimum amount of two months’ salary. Severance pay must be issued by the employer within 7 days after the termination has taken effect.
The bottom line is that this comparison of the job markets shows why more and more investors are choosing the two ASEAN member states of Thailand and Vietnam as investment countries. The decision between Thailand and Vietnam is really more a question of taste. Whoever is looking primarily for qualified specialists will choose Thailand, while companies looking for a large number of workers with less training will find their needs more suitably met by Vietnam, although it is also worthwhile for technically demanding companies to consider Vietnam as well.
The author Dr. Gunter Denk was himself, for 25 years, a responsible businessman and lead a German branded company with several locations in Europe and Asia. In the year 2000, he took, after fusion, the executive responsibility for a company that is noted at the stock-exchange in China. 2004, he founded the SANET ASEAN ADVISORS, a group of industry consultants at 5 locations in Southeast Asia. The group accompanied and accompanies under his leadership various direct investments of market introduction projects in china and Southeast Asia.