A growing number of electronics companies are following apparel and other soft goods manufacturers to Vietnam in search of lower wages, according to the Hong Kong Trade Development Council (HKTDC), which noted that more Hong Kong exporters expect labor rates on the Chinese mainland to rise this year than a year ago.
The HKTDC's quarterly Export Index released Tuesday, March 11 shows 64 per cent of Hong Kong exporter surveyed predicted a rise in labor costs on the mainland, an increase of seven percentage points compared to the fourth quarter of 2014.
“In view of the shortage of factory workers and the surge in labor costs on the Chinese mainland, neighboring Vietnam has become a hotspot for setting up factories,” noted Dickson Ho, Principal Economist for Asian and Emerging Markets. “The minimum wage in Vietnam was raised by 15 per cent at the beginning of the year, to between US$101 and US$145 a month. Despite such an increase, it is still far lower than on the mainland and is roughly half of that in mainland cities.”
Ho said the confidence of foreign investors has generally been restored in Vietnam following labor unrest last May.
“Local factories are now back in operation as a host of remedial measures have been adopted by the Vietnamese government. Newly added foreign direct investment in Vietnam for 2014 has risen by 9.6 per cent.”
Among manufactured products in Vietnam, the growth in electronic products is most significant; increasing by 59 per cent from 2008 to 2013, double the rate of growth in other areas such as wooden products and metal materials. This is due to the comparatively high quality of the labor force in Vietnam, where the literacy rate is as high as 94 per cent and people are generally receptive to an English-speaking environment and to learning new skills. This is conducive to meeting the high-tech demands of electronics manufacturing.
Many multinationals such as Samsung, Intel and Microsoft have successively set up production bases in the country.
There are about 290 industrial parks with good facilities across Vietnam. To attract foreign investors, investment promotion zones offering special tax incentives have been set up in some of the industrial parks. Also, with its accession to the World Trade Organization in 2007, Vietnam enjoys lower tariff rates for its exports to Europe and the US, which could benefit Hong Kong companies, Ho said.
Exporter confidence improves
The HKTDC said its latest Export Index rebounded 6.7 points to 44.9 points, indicating that confidence among Hong Kong exporters rose in the first quarter of 2015. With the exception of jewelry, confidence increased across all industries compared to the previous quarter. Export sentiment in regards to specific regional export markets also improved. The indices for Japan, the United States and the Chinese mainland edged up to close to 50, reflecting relatively neutral sentiments of exporters for these markets. Confidence in the European market was still rather weak at 46.7.
Daniel Poon, Principal Economist (Global Research) of the HKTDC, said the data reveal that the global economy will basically maintain its current growth momentum in 2015.
“With the US expected to gradually tighten its monetary policy, combined with uncertainty for the European economy and labor constraints on the Chinese mainland, the export environment will remain challenging,” Poon said.
The HKTDC also noted that a growing number of electronics companies are now following footwear and apparel and other soft goods manufacturers into Vietnam to access lower labor rates.
