Labor productivity among biggest 'pain points' for investors in Vietnam

By Dat Nguyen   March 5, 2024 | 11:38 pm PT
Labor productivity among biggest 'pain points' for investors in Vietnam
Workers construct a tunnel on an expressway in Ninh Thuan Province, central Vietnam. Photo by VnExpress/Viet Quoc
Several issues are making foreign investors reluctant to pump more capital in Vietnam include low labor productivity, poor logistics capacity, and inconsistent policy, according to HSBC Vietnam.

Vietnam still ranks behind other major ASEAN markets in terms of labor productivity with output per hour worked being relatively low at 9.7 compared to a range of 10~26 for other ASEAN nations, said Tim Evans, CEO of HSBC Vietnam, in a note Tuesday.

This is one of the "pain point" for HSBC customers who find it difficult to access high quality labor in the country, he added.

Another issue is that Vietnam’s logistics performance index lags behind China, Malaysia and Thailand with gaps shown in logistics capacity, delivery time and traceability.

Logistics infrastructure currently falls short of meeting the expected international standards while road transport still accounts for roughly three-fourths of overall transport even though there is high demand for sea transport and port space.

HSBC customers also face challenges in navigating through Vietnam’s regulations and policies.

According to the latest HSBC Global Connections survey, regulatory developments are among the top two challenges for foreign firms operating in Vietnam in which 30% of surveyed companies pointed to the challenge of adapting to fast-changing regulations and policies within the market.

Evans said that a more consistent and easy-to-comprehend regulatory framework would be a positive step in attracting new parties to invest into the market.

He added that the supply chain, however, is clearly shifting from China to other Asian countries and Vietnam and India are attractive destinations.

A EuroCham survey also indicates that European companies operating in China are continuing to review their supply chain strategies with ASEAN being selected as the top destination for these shift in investments.

China is also building out supply chains in neighboring countries such as Vietnam, Evans said.

"ASEAN is benefiting from this diversification trend and Vietnam is a key player in this space."

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