Psst! Here’s how to beat turnover in Vietnam

With nano-thin margins in many electronics segments, it is only natural that OEMs are looking for the next low-cost place to build. Vietnam, which pops up on most radar screens, might be that place – or might not. The Asian low-cost leader has an upside and a downside.

At Technology Forecasters’ Quarterly Forum on April 23 and 24, Matthew Chanoff, TFI senior economist, will share his recommendations for outsourcing in Vietnam based on his quantitative analysis, and his recent interviews and plant tours in Vietnam. TFI will also release his report to members.

To pique your interest, let’s take a look at one issue, which Chanoff will examine in more depth: The labor force.

Vietnamese skilled workers are highly skilled, proficient in English and driven to learn what they don’t know. There just aren’t enough of them. This land of 80 million people has a skilled labor shortage. It should come as no surprise that even though Vietnam has a labor cost advantage, wages are rising.

One Western executive says wages have skyrocketed 300 percent for top performers in the four years he’s been in Vietnam.

“The challenge everyone is beginning to face now is the relative lack of skills and experience versus the demand,” says Lorien Hamilton, operations director of Technology Resources Group, a Hanoi-based software reseller and service firm.

Hamilton, who serves as vice chair of the Information, Communication and Technology Committee of the Hanoi chapter of the American Chamber of Commerce in Vietnam, says turnover rates are as high as 40 percent. “The more skilled, experienced, and internationalized the person is, the more difficult it is to keep them. That individual can change jobs and double his salary every six months to a year.”

Unlike China, where there are literally millions or workers to do fairly low-tech production line work, Vietnam has a far smaller pool of people to draw from. Hamiton notes that GDP is running at more than 8 percent in Vietnam, second only to China, but that people often overlook the inflation rate, which is between 15 and 20 percent in Vietnam. “We recently had a big pay review within TRG and it seems to be much harder to match expectations with a sensible pay increase,” he says.

Jason Craft, managing director of Spartronics, the Vietnamese subsidiary of Sparton Corp., an EMS company based in Jackson, Mich., says retaining staff is a challenge. Sparton, a high-mix, low-volume provider with about $200 million in annual revenue, built a factory in an industrial park near Ho Chi Minh City, and began to operate in 2005.

Craft says turnover can be brutal, but Spartronics has a relatively small churn among its 150 employees. He attributes that record to the fact that he’s the only Westerner in the plant, and that all his key staff positions are Vietnamese, which gives others in the workforce hope of being able to advance.

At most foreign companies he knows in Vietnam, the top two layers of management are ex-patriots, Craft says. His management team is Vietnamese, and has proven highly capable. At the time we talked, Craft had just completed home leave: “My staff proved they can do it. I’ve been in the U.S. for month and they’ve run it without me.”

This is an opportunity they would not find at most other plants. “Some guys working for me worked elsewhere and were three levels down and were going no higher,” Craft says. “That is why they came to work for me.”

Craft has seen Western companies struggle because they don’t pay attention to basics. “I’ve learned a lot of things about the Vietnamese and how to treat them. You’d better know what motivates and drives them so you can create benefits and retain them,” he says.

Vietnamese workers are extremely loyal when given a chance to keep learning, he says. “Right now they really value education and the challenge of learning things new. They’re not much different from Americans in this regard.”

Whatever the Vietnamese lack in engineering education, they seem to make up for with a thirst for knowledge. “If they don’t know something, they go learn it in a couple of days,” he notes. “My engineering force here is almost as competent as the one in the U.S”

Craft says members of his management team all speak English, and the entire workforce understands enough English that he can deliver instructions in English. He believes he has scored points with his management and engineering teams by training them in modern management practices, including Six Sigma and Lean, which they’ve been able to apply in the plant.

Much of what Craft advises seems like Human Resources 101, but all too often, companies forget the basics. In the end, what it takes to retain employees in Vietnam is the same thing it takes anywhere – the right kind of TLC from management.

Posted by Bill Roberts, April 3rd, 2008