The Transformation of Human Resource Management and Industrial Relations in Vietnam

The Transformation of Human ResourceManagement and Industrial

Relations in Vietnam

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The Transformation of Human ResourceManagement and

Industrial Relationsin Vietnam

ANNE NGOC VO

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For my Mum and Dad, whose desire for me to be successfulgives me motivation to work.

For Grant Cox, my husband, whose heartfelt support madethis book possible.

And

For Hoang Nam, my newly born nephew, for whom thewhole life journey has just begun.

List of Figures and Tables

List of Figures

Figure 2.1 Vietnamese GDP’s growth rate, 1986–2007 20

Figure 4.1 MNC Auto1’s Balanced Scorecard 77

List of Tables

Table 2.1 Structure of GDP by ownership 24

Table 2.2 Employment distribution by types of ownership, 2000–2006 25

Table 2.3 Foreign investment by country of origin, 1988–2007 28

Table 2.4 FDI by sector, 1988–2007 29

Table 2.5 The Vietnamese national business system 38

Table 3.1 The labour force’s educational level 44

Table 3.2 The studied MNCs’ turnover rates in 2007 45

Table 3.3 The studied SOEs’ turnover rates in 2007 46

Table 3.4 Recruitment methods of SOEs and MNCs 61

Table 3.5 Selection criteria of SOEs and MNCs 62

Table 4.1 The hierarchical process of PM in SOEs under the centrally planned economy 67

Table 4.2 The hierarchical process of PM in SOEs after Doi Moi 72

Table 4.3 Performance rating distribution systemapplications in MNCs 81

Table 5.1 The relationship between performance rating and performance-related pay applied for all permanent employees 97

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Table 5.2 Benefits offered by studied firms topermanent employees 101

Table 5.3 SOEs’ bonus practices 102

Table 5.4 Allowances and benefits offered by studied firms for permanent employees 104

Table 5.5 Fixed bonus practices 106

Table 6.1 Educational attainment of SOE FMCG4’s workforce 116

Table 6.2 Training budget in 2006 117

Table 6.3 Training budget in 2007 122

Table 7.1 The nature of communist unions versus capitalist unions 132

Table 7.2 Number of trade union officials in occupational-basedunions 136

Table 7.3 Number of trade union officials in locally based unions 137

Table 7.4 Union density in state-owned enterprises 140

Table 7.5 Union density in foreign-invested companies 140

Table 7.6 The table of content of 1994 Labour Law 146

The Transformation of HRM/IR in Vietnam

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AcknowledgementsI would like to thank Professor Anthony Ferner of the De MontfortUniversity, the United Kingdom. This book is an expansion of my PhDthesis on the transfer of multinational companies’ human resource man-agement policies and practices, which I completed under his supervision.I am very grateful for his guidance, support and encouragement. Theexperience has given me the confidence to embark on the journey ofwriting this book.

I would like to thank the Faculty of Commerce, the University ofWollongong, Australia, for the financial support to conduct a fieldworktrip for this project. Thanks to Suzanne Kotevski, whose excellent assis-tance in the last months of writing this book made it a bearable process.Special thanks to Hoàng Hai Vân, who displayed admirable patience andbore with my unceasing e-mails and phone calls to acquire informationon human resource-related issues in Vietnam.

Last but not least, this study is mainly based on interviews conductedwith many local and foreign-invested companies operating in Vietnam.This work would not have been possible without the generous help andtrust of more than 100 expatriate managers, Vietnamese directors, man-agers, officers and workers, whom I had the good fortune to meet andinterview. Their hard work, learning spirits and struggle for success in thecurrently difficult situation in Vietnam have been a constant source of ad-miration and encouragement for me. I would like to express my gratitudeto each one of them.

Wollongong 20 June 2008

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About the authorDr. Anne Ngoc Vo obtained a Bachelor of Commerce degree inInternational Business from the Foreign Trade University, Vietnam, aMaster of Business Administration from the University of Newcastle,Australia and a Doctoral degree in Human Resource Management fromLeicester Business School, the De Montfort University, the UnitedKingdom. She is currently a lecturer in Management at the Faculty ofCommerce, University of Wollongong, Australia. She researches andpublishes in the areas of international and comparative human resourcemanagement, focusing on the transfer of human resource managementpolicies and practices across borders and human resources-related issues,especially in the context of developing countries.

Born in the late 1970s in Vietnam, the author grew up in the communistcentrally planned economy and later witnessed the dramatic changes thatthe economy reform, commonly known as ‘Doi Moi’, brought to hercountry. These changes were evident not only in the macro-economicstatistics, but also in the lives of normal working people around her, in-cluding her own family. New roads, building and houses were built; newshops and businesses were opened; and new products began to be adver-tised on billboards that triumphed over each other on the streets – allcovered in dust and pollution caused by the never-ceasing flows of vehi-cles, construction sites and industrial waste. The façade of Vietnam’s bigcities has changed to the extent of being barely recognisable. Dr. Vo wasamong the first generation born after the reunification of Vietnam, whochose to study English rather than Russian as the foreign language inschool and observed with curious eyes the then-rare foreigners whowalked the pavements of Saigon’s city centre in the early 1990s. The topicof the transformation of Vietnam, and in particular of human resourcemanagement systems, is thus not only fascinating from an academic per-spective but also very close to her heart. In this book, she hopes to do jus-tice to the changes in her mother country.

AbbreviationsAFTA: Association of Southeast Asian Nations Free Trade Area AmCham: American Chamber of Commerce APEC: Asia Pacific Economic CooperationASEAN: Association of Southeast Asian NationsBOT: Build, Operate and Transfer CLC: Collective Labour ContractCMEA: Council for Mutual Economic AssistanceE&T: education and trainingESO: Employees Supply OrganisationFDI: foreign direct investment FMCG: fast moving consuming goodsGDP: Gross Domestic Product GNI: Gross National Income GSO: General Statistics OfficeHQ: headquarterHRM: human resource managementIR: industrial relations JV: joint ventureMD: managing director MNC: multinational companyMOET: Ministry of Education and TrainingMOLISA: Ministry of Labour, Invalids and Social AffairsMPI: Ministry of Planning and InvestmentODA: Official Development Assistance PM: performance managementPRP: performance-related payR&S: recruitment and selectionSOCB: state-owned commercial bankSOE: state-owned enterpriseT&D: training and development VCCI: Vietnamese Chamber of Commerce and Industry VCGL: Vietnamese General Confederation of Labour

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VCP: Vietnamese Communist Party VEAM: Vietnam Engine and Agricultural Machinery VND: Vietnamese dong VOTECH: vocational and technical education and trainingWTO: World Trade Organization


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Introduction

1.1 Background

The Socialist Republic of Vietnam stretches over the length of the Indo-Chinese Peninsula, covering an area of approximately 330,000 sq. km.Bordered by China to the north, Laos to the northwest, Cambodia to thesouthwest, and the South China Sea to the east, Vietnam is positioned ata strategic and central location in South East Asia. The history of thissmall country is nothing short of heroic and remarkable, and is markedby a continuous struggle over centuries for independence and autonomyagainst its larger neighbour China. Despite this, it was only since thewars with France and the United States of America that Vietnam emergedonto the global arena. The conquest of Vietnam by France began in 1858,with Vietnam becoming a part of French Indochina in 1887. DuringWorld War II, Japan and France fought over Vietnam, with Japan finallyexpelling the French. After the war, France attempted to re-establish itscolonial rule; however in 1954, the French were defeated by the commu-nist guerrilla forces under Ho Chi Minh. The Geneva Accords leftVietnam divided into a communist north and an anti-communist south.At this point in time, America had replaced France as the primary spon-sor of the anti-communist government. Tension between the North andthe South mounted over the next few years, resulting in the eruption of afull-scale war in 1964. The war ended in 1975 with the withdrawal ofAmerican forces, and Vietnam was united under the communist govern-ment of the North.

After decades of wars and struggle, the nation committed itself to thedevelopment of a socialist economic system, which soon resulted in eco-nomic failure. During 1976–1980 (the Second Five-Year Plan), thegrowth rate of national income was only 0.5 per cent, instead of the

1

1

targeted 13–14 per cent (Fforde & De Vylder, 1996: 167). In 1980,Vietnam’s gross domestic product (GDP) growth rate was 1.6 per cent(Statistical Yearbook, 1995). In the same year, food production reachedonly 69 per cent of its target, coal 52 per cent, electricity 72 per cent, seafisheries 40 per cent, cotton fabric 39 per cent, paper 37 per cent andso forth (Vu, 1995: 19). By the mid-1980s, the Vietnamese economywas only barely sustained, thanks to significant assistance from theEastern Bloc.

At the Sixth National Congress of the Communist Party in December1986, the Vietnamese government introduced an intensive economic re-form, known as Doi Moi, with the objective of redirecting the economicsystem from a centrally planned to a market-oriented one. There are twokey points in the Vietnamese government’s reform agenda, namely the re-form of the state sector and the adoption of an ‘open door policy’ in for-eign economic relations. Prior to 1986, state sectors were the sole playersin the economy. Fforde (1999) argues that Vietnamese economic reformshad to start by tackling the state sectors as the government could nolonger subsidise them. In 1981, the government enacted Decision 25/CP1

that provided guidelines and measures to increase the initiatives andfinancial autonomy of state-owned enterprises (SOEs) in business opera-tions (Nguyen & Tran, 1997). This milestone enactment led theVietnamese government to gradually introduce a series of guidelines andpolicies for reforming the structure and management of SOEs. These newregulations focused on some of the most important aspects of SOE man-agement such as formulation of plans, purchase and sale of assets, profit-based accounting system, reduced budgetary support, investment of theenterprise’s own resources, acquisition and leasing of assets, and greatermanagerial flexibility in hiring and firing of employees, setting of wages,salaries, benefits, etc. (Nguyen & Tran, 1997; McCarty, 1993). Morecurrent steps of the reform process involved rationalisation through acombination of consolidation and liquidation of SOEs, reorganisingSOEs, establishing general corporations and implementing the transfor-mation of SOEs into joint-stock companies.

With Doi Moi, the Vietnamese government has sought industrialisa-tion by embracing an ‘open door policy’ towards foreign investment,thus welcoming a new influx of newcomers to the economy in the formof multinational companies (MNCs). In December 1987, the NationalAssembly reintroduced the Law on Foreign Investment in Vietnam. InSeptember 1988, the Foreign Investment Law was enacted. The Law wasamended several times, notably in 1990, 1992, 1996, 2000 and 2003,and in 2005 a new Unified Investment Law was issued. Facilitating


2

capital inflows and competing with neighbouring countries for foreigndirect investment (FDI) are obviously high on the Vietnamese government’sagenda list. Within the short span of two decades, foreign investment hasbecome a major growing factor in the country’s economy, contributingsubstantially to the recent development of Vietnam in many ways includingincreasing export and access to international markets, accelerating theprocess of international integration, deepening the cultural exchange, etc.Most importantly, foreign-invested firms are the main source of transfer oftechnology and management practices to Vietnam.

In her succinct summary of the literature on spillover effects, Le ThanhThuy (2007) argues that there are three important channels throughwhich FDI can inspire innovation activity of domestic firms in the hostcountry: demonstration, competition and labour turnover (Le, 2007).The presence of foreign firms in the domestic markets can stimulate localfirms to innovate or develop new products and processes by demonstra-tion. The first source of potential competitive advantage for MNCs is atthe parent-company level and represents the unique bundle of assets andcapabilities that the MNC has developed over its lifetime (Taylor,Beechler & Napier, 1996). If these factors are transferred to the sub-sidiaries, technical progress in industry in the host country is expected(Blomström, 1986). Domestic firms can observe foreign firms’ ‘best prac-tices’ and imitate them or make efforts to acquire these techniques andapply them, which will result in production improvements. MNCs alsotend to diffuse their superior technology to domestic firms throughcompetition. Under the pressure of competition, domestic firms are morelikely to introduce new technologies earlier than would otherwise havebeen the case. On the other hand, competition spurs further technologytransfers to subsidiaries (Blomström, Kokko & Zejan, 1994). Finally,MNCs can create spillover effects on domestic production throughlabour turnover. This effect occurs when employees in MNCs decide tomove to domestic firms or start their own small and medium businesses(Blomström & Kokko, 1996). There has been extensive research exam-ining the technological spillover effect of FDI in different host countries.Blomström and Sjöholm’s (1999) research in the Indonesian contextshows that foreign firms have high levels of labour productivity and thatdomestic firms benefit from spillovers. Similarly, Cheung and Lin (2004)find positive spillover effects in China, Kozlov (2001) in Russia, Sinaniand Meyer (2002) in Estonia, though to different extents.

In Vietnam, the technology gap between foreign and domestic sectorsis expected to create the spillover effects from FDI. Furthermore,FDI flows into Vietnam during periods when the country experiences

Introduction

3

important structural reforms; hence, its impact in introducing new ideas,technology and know-how is likely to be higher in Vietnam compared tothat in other countries. Le (2007) finds significant positive spillovereffects in Vietnam’s industry during 1995–1999 and comparativelylesser spillovers in 2000–2002. However, it is noted that compared totechnology spillover, the effects in terms of management technologies inVietnam is subject to little research, with some exceptions such as Zhu(2002), Le and Truong (2005) and Napier (2005). There is some evidencethat SOEs lag behind MNCs, the latter offering higher wages and moresophisticated human resource management (HRM) policies (includingperformance-based pay schemes and better training) and thereby attract-ing younger and more talented employees out of the domestic SOEs intothe MNCs (O’Connor, 1996; Vo, 2006). Similarly, Le and Truong (2005)point out that foreign-invested firms, in general, are more advanced inthe adoption of some HRM practices, such as selection, compensationand benefits, and training, compared to SOEs. However, how MNCstransfer management technology and the extent to which HRM andindustrial relations (IR) policies and practices have changed in SOEs as adirect result of spillover effects remain unclear.

1.2 The changing face of employmentpractices in Vietnam

The economic reform in Vietnam, in particular the reinforcement of thestate sector and the emergence of the foreign-invested sector, has had anenormous impact on the structure of the Vietnamese economy and conse-quently on the working conditions of employees. With these rapid changes,expansion and diversification of the system, the traditional labour legisla-tion proved increasingly inadequate. Recognising the necessity of adjustingto the changing labour situation, the Vietnamese government started pass-ing a lot of new legislations addressing the issue since 1987. Most signifi-cantly, the new Trade Union Law was introduced in 1990, the Trade UnionConstitution in 1993 and the Labour Law in 1994. These legislations haveprovided a common legal framework for new labour–management rela-tions in both the public and the private sector and marked the beginning ofthe transformation of HRM and IR systems in Vietnam.2

Several studies have suggested that prior to the economic reforms,HRM and IR practices in SOEs were the product of the ideological,political and economic factors prevailing in that period, which followed


4

the Soviet model (see, for example, Nguyen & Tran, 1997). Before DoiMoi, HRM/IR was centrally controlled by the state and characterised bya lifetime employment system, state-administered reward systems andlabour immobility. The inflexible state-planning mechanism also de-prived enterprises of the authority to recruit and dismiss employees.Employees were assigned their workplace according to a state plan, afterwhich they could be linked to it for their lifetime. Labour mobility be-tween enterprises, localities and industries was discouraged, if notstopped. Wages were calculated according to a government pay scale,based on detailed job categories, salary rates, salary grades and length ofservice. The remuneration system was rigid with narrow differentialswithin categories, which did not reflect the market value of labour. Thevariation among the grades was small in order to achieve ‘egalitarian-ism’. Performance appraisals were widely practised with only two maincriteria – ‘fulfil responsibility’ and ‘moral/attitude’. Promotions to a greatextent were decided on ‘moral’ aspects and connections. The unions’ rolewas to act as a ‘transmission belt’ between the party and the ‘mass’(Fahey, 1995). Their roles were limited to acting on behalf of the enter-prises in distributing goods to workers, organising social activities, allo-cating workers’ housing and looking after other material needs.

Reflecting the widespread changes in society, the employment system inVietnamese firms in general, and in SOEs in particular, has witnessed someremarkable changes. Decision 217/HDBT3 on 14 November 1987 imple-mented a business self-control mechanism for SOEs and thus transformedSOEs from state-controlled economic units into independent ones. SOEsare now required to restructure their corporate governance, to reduce thesurplus staff and to diversify their operations so as to meet the demands ofthe new market imperatives. Noticeably, since Doi Moi, the employee baseof the state sector has decreased significantly, due to the massive downsiz-ing programme in the early 1990s. As far as labour recruitment is con-cerned, the lifetime employment system has gradually been replaced by a‘labour contract’ system. SOEs now have the freedom to hire employees orrequest governmental labour offices to recruit for them according tocriteria set by the enterprises. The enterprises can reject any recommendedcandidate if that person is not qualified or the recruitment is not needed bythe enterprise (Le, 1997; Nguyen & Tran, 1997). The restriction on labourmobility has now been relaxed. With the new Labour Code, pension andhealth insurance coverage are the same in public and private enterprises,and the generalisation of the scheme makes it possible to transfer one’spension record from one enterprise to another. This signals a trendtowards a more flexible and mobile labour market.

Introduction

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Furthermore, SOEs now can design their own reward systems, in linewith their operating situation and on the principle of remunerating ac-cording to performance. They can choose to pay and promote theirworkers in conformity with the government’s policy on salaries andwages. Workers can earn an income corresponding to their work per-formance in the enterprise. The government has imposed a floor incomebut not an income ceiling (Le, 1997; Nguyen & Tran, 1997). Wage dif-ferentials within the state sector between skilled and unskilled workershave been significantly increased (O’Connor, 1996). With the growth ofthe private sector and, in particular of foreign-invested enterprises, thedemand for educated workers has increased and with it the education-related wage differentials. In an effort to retain highly trained personnel,the government adjusted its official wage schedule, thereby encouraginga raise in the relative pay of educated workers in SOEs.

In the context of national transformation, it is evident that the ‘old’HRM/IR model of the centrally planned system has lost its relevance andthere are signs of an emerging new system. Furthermore, the amount offoreign investment flooding into Vietnam has significantly contributed tothe need for a change of HRM practices in the state sector to remaincompetitive in their own playground. The contrasts between a trans-forming state sector and a newly emerging foreign-invested sector interms of organisational structure and economic behaviour has led to aseries of interesting questions, namely (1) the extent to which SOEs havetransformed their HRM/IR system; (2) the extent to which MNCs are asource of innovation and provide a benchmark in terms of employmentpractices for leading Vietnamese SOEs and (3) the future shape ofHRM/IR system in Vietnam.

1.3 Aims and objectives of the book

The book broadly aims to examine the transformation of the HRM/IRsystem in Vietnam. In particular, it inspects the rapidly changing HRpractices in two different types of large Vietnamese enterprises, namelySOEs and MNCs, and to develop an explanation of why their HRMpractices have developed along their paths. On the one hand, this bookseeks to analyse the way in which the management of human resourcehas changed in SOEs and to record the ways in which these enterpriseshave developed their HR systems. On the other hand, it aims to study thetransfer of HR policies and practices and the formation and development


6

of these practices in MNCs’ subsidiaries in Vietnam. The book will sys-tematically identify and compare the following HRM practices beingused in the two sectors since the 1990s:

■ recruitment and selection (R&S)■ performance management (PM)■ salary and other incomes■ training and development (T&D)■ labour relations.

Following the literature, the project also seeks to develop an explanationfor the observed trends in HRM/IR. Particular attention will be paid totype of ownership (i.e. state-owned, foreign-owned and joint ventures)as an explanatory variable, but other possibilities include larger legaland economic changes associated with the opening of the Vietnameseeconomy, type of industries, size of enterprise, history of enterprise(especially whether it is a ‘greenfield’ or ‘brownfield’ site) and the role ofunions.

1.4 Methodology

The aims of this book are pursued through a case study research strategy.The largely exploratory nature of the research and the need to examine indetail the employment practices of the companies means that consideringcase studies is the most appropriate strategy (Yin, 1994; Kelly, 1999). Aqualitative method also provides a sophisticated instrument to capturethe often subtle, complex and changing ways in which companies oper-ate. Although a quantitative method is very useful for obtaining a broadoverview of patterns, it is unable to successfully capture the complexityof the phenomenon and to explain the differences in behavioural patternsof companies in different sectors.

The research is located in North and South Vietnam, highlighted byHanoi, the capital, and Ho Chi Minh City, formerly Saigon. These twocities are undoubtedly at the forefront of the Vietnamese economy, pri-marily due to their considerable advantage with better consumer andlabour markets, infrastructure and higher amount of foreign investment.Moreover, as compared with the rest of the country, Hanoi and Ho ChiMinh City, and their surrounding provinces, have a more dynamic busi-ness atmosphere and cope more quickly with the market economy and

Introduction

7

possess wider relationships with foreign investors. There has always beena very high concentration of FDI in these two cities and in their satellitecities. During 1988–2007, Ho Chi Minh City and Hanoi attracted39.2 per cent of the total investment projects in Vietnam, the other61 provinces sharing the remaining 60.8 per cent (MPI, 2008). Thus,companies that are located in this area can serve as excellent samples oftransformed SOEs and MNCs operating in Vietnam.

‘Firms compete in industries, not nations’ (Porter, 1990: 619). Severalstudies point out the relevance of taking into account the role of industryin the analysis of MNCs’ operations including their HRM (Caligiuri &Stroh, 1995; Ferner, 1997; Locke & Kochan, 1995; Colling & Clark,2002). Porter (1990) states that industries vary along a spectrum frombeing multidomestic to global in international competition. In multi-domestic industries, competition in each country is independent ofcompetition in other countries, whereas in global industries, a firm’scompetitive position in one country affects and is affected by competitionin other countries.

Foreign subsidiaries of MNCs in multidomestic industries are rela-tively independent of the headquarters. They primarily rely on inputsfrom the local environment and are driven by local consumer marketand local competition. As they are usually more dependent on local re-sources, foreign subsidiaries in multidomestic industries have a greaterneed to gain local legitimacy. Therefore, it is more likely that they adoptmore of the features of the host country’s firms and be more responsiveto the host country and local situation (Bartlett & Ghoshal, 1989). Asfar as HRM is concerned, in the multidomestic industry, the role ofHRM is most likely to be more locally responsive, and less interna-tional in orientation (Schuler, Dowling & De Cieri, 1993). Industriesconsidered to be traditionally multidomestic are retailing, commercialbanking, insurance, distribution, consumer food product, brandedpackaged product, etc.

On the contrary, foreign subsidiaries in global industries are moretightly entangled with the headquarters and other subsidiaries of theMNC. Their production is a rationalised process to produce standardisedproducts in the most cost-effective way (Bartlett & Ghoshal, 1989). Dueto the need for integration and coordination, foreign subsidiaries in theglobal industry receive a high level of support from headquarters in termsof technology as well as managerial know-how and are under less pressureto conform to local norms (Rosenzweig & Singh, 1991). As far as HRMis concerned, the transmission of country-of-origin influence is more


8

marked in MNCs operating in more global industries compared withmultidomestic ones (Ferner, 1997); HRM is better integrated into the in-ternational corporate strategy of the parent company (Schuler, Dowling& De Cieri, 1993). A number of industries, such as automobile, chemical,consumer electronics and semiconductor industries, have become globalindustries since the 1970s.

This book attempts to capture the industrial influence in the shaping ofHRM policies and practices of domestic and foreign-invested firms.During the fieldwork, the automotive and engine industry, as a represen-tative of global industries, and fast-moving consumer goods (FMCG)industry as a representative of multidomestic industries, were chosen.

Some criteria, including the following, governed the choice of firms.

■ Priority is given to firms that have a larger number of employees.■ Since FDI is a relatively new phenomenon (Foreign Investment Law

was enacted in December 1987), priority is given to companies thathave been in operation for a longer time. The purpose is to investigatetheir HRM/IR in the longest possible time span.

With these criteria, 19 companies, within the chosen industries, wereselected for investigation for this research. In particular, there are 11foreign-invested companies of different nationalities and 8 SOEs, wheresome of the SOEs are directly linked with some of the MNCs as they arethe Vietnamese partners in some joint ventures. The 19 chosen companiesare coded as follows:

■ in the automotive industry: MNC Auto1, MNC Auto2, MNC Auto3,MNC Auto4, MNC Auto5, SOE Auto1, SOE Auto2, SOE Auto3 andSOE Auto4;

■ in the FMCG industry: MNC FMCG1, MNC FMCG2, MNCFMCG3, MNC FMCG4, MNC FMCG5, MNC FMCG6, SOEFMCG1, SOE FMCG2, SOE FMCG3 and SOE FMCG4.

The fieldwork was performed during three time intervals over a six-yearperiod, from 2001–2007. Thus, in total it took more than nine months.The fieldwork adopted several methods of data collection, including in-terview with key personnel, documentary analysis and non-participantobservation.

Multiple in-depth interviews were held in turn with key informants tocompile information on HRM and IR policies and practices in Vietnam.There were two groups of interviewees: inside the enterprises (workplace

Introduction

9

level) and outside the enterprises (macro level). The first group includedthe management of companies (the HR manager was always included),trade union officials and employees at the shopfloor level. The secondgroup included government officials at both national and local levels.They provide the official, and in some cases unofficial, views of theVietnamese General Confederation of Labour (VCGL), the Ministry ofLabour, Invalids and Social Affairs (MOLISA), the Management of theIndustrial Zone, and the occupational and industrial trade unions of thestudied firms to name but a few. In total, 171 interviews were conducted.The average interview took more than one hour. In the case of MNCs,the result of the interviews in Vietnam has been enhanced by interviewsheld in, or alternatively questionnaires sent to, the headquarters of thestudied companies. The main purpose of the interview/questionnaireconducted at global/regional level is to cross-check the information pro-vided by the subsidiaries, especially to identify what international HRMpolicies are present at this level and to what extent the companies expectthem to be transferred to Vietnam.

The results of the interviews were strengthened by document analysisand non-participant observation. Assessment of a wide range of docu-ments was helpful and necessary for case studies and analysis of indus-tries. Though limited, interviews conducted in situ allowed observationof the work environment and personnel relations within the firms. Non-participant observation included observing work practices at shopfloorlevel, attending some trade union meetings and the management meeting,chatting and sharing meals with employees at the company’s canteenand taking part in the Company Family Day. Field notes recorded theseobservations.

The combination of data-gathering methods (i.e. triangulation) is vitalin the case study method for cross-checking data, thus ensuring reliabil-ity (Kelly, 1999; Yin, 2003). When a consistent picture emerges, throughcross-checking interviewees’ viewpoints, documentary analysis (whenpossible) and non-participant observation, the collected information canbe considered reliable.

1.5 An overview of the book

Chapter 2 examines the Vietnamese business system. It provides anoverview of the Vietnamese economic situation, focusing on the crucialeconomic reform, Doi Moi. Emphasis is placed on the analysis of the


10

state sector and foreign-invested sector. It has been considered that DoiMoi has been the most significant force of change in the Vietnamesecontemporary society, leading to the consequent transformation in allthe main subsystems and the HRM/IR environment in recent years. It isargued in this chapter that the Vietnamese business system currently hasan incoherent and transforming nature and contains features of both acentrally planned economy and a market-oriented one. The subsystems(the state, the financial system, the system of education and training, thenetwork of business associations, etc.) are constantly under the pressureof change and innovation. Arguably, this environment is receptive tochanges and facilitates the internal reform and development of currentpractices and the penetration and transfer of novel forms of economicorganisation and management techniques.

The next chapters, Chapters 3–7, present the empirical investigation ofthe book. Four substantive HRM/IR areas, namely recruitment and selec-tion, management of manager career, the reward system and performancemanagement and employee relations policies are discussed.

Chapter 3 opens with a discussion on the opportunities and difficultiesthat companies face in the Vietnamese labour market, which influencetheir R&S policies and practices. It then discusses how SOEs and MNCstackle the concerns of hiring the best talent in order to sustain their placeat the competitive level in the economic race. The chapter shows thatthere are significant differences between recruitment and selection prac-tices in the two economic sectors. As far as recruitment is concerned,SOEs and MNCs draw talent from different sources. While SOEs focusmore on internal promotions and personal recommendations, MNCsrely more on the external labour market such as direct advertisement, re-cruitment agencies and headhunters. Furthermore, the chapter revealsthat the selection process in SOEs is simple, subject to personal agendaand has low level of reliability and validity. SOEs show strong preferencefor educational qualifications and harmonious characters. Nepotism isstill prevalent in recruitment decisions. Meanwhile, top-level positionsare normally appointed rather than selected. This situation implies theneed for objective selection criteria and sophisticated selection methodsin the state sector. The findings of this chapter taken as a whole indicatea weak transformation in the staffing practices in SOEs. On the contrary,MNCs use a wide range of selection techniques such as written examina-tions, psychometric tests and assessment centres. They are also stronglyadaptive to the limitations, constraints and opportunities that they facein the Vietnamese labour market.

Introduction

11

Chapter 4 examines PM systems in SOEs and MNCs in Vietnam acrossfive main functions of a PM system, namely setting performance objec-tives, monitoring performance, evaluating performance, providing feed-back and planning for future performance. The chapter shows that withthe development of economic reforms, PM in SOEs is in a gradual tran-sition from a political-oriented bureaucratic assessment towards an equi-table system that aims to break egalitarianism by linking performance tocompensation. However, PM systems in SOEs strongly focus on short-range goals, namely justifying merit increases and identifying candidatesfor promotion, whereas long-range goals such as detecting employees’training needs to improve future performance and identifying their careerdevelopment aspirations and opportunities are neglected. On the otherhand, in MNCs’ subsidiaries, PM practices are diverse and depend onMNCs’ nationalities. A wide range of advanced PM tools and tech-niques, including the use of Balanced Scorecards, SMART objectives,360-degree feedback and forced distributions, are found in non-Asianfirms. With a close-loop process, PM systems in these firms provide amore equitable framework for reviewing, rewarding and developinghuman resources. However, PM systems in Asia-based MNCs are char-acterised by a top–down process of both objective setting and perform-ance reviewing, and thus allegedly suffer from favouritism and lack ofopenness.

Chapter 5 examines the current systems of salary and other incomes inSOEs and MNCs in Vietnam, both in terms of legal and regulatory docu-ments as well as real practices. The chapter shows that there has been amajor shift in the reward system in the state sector. The governmenthas curbed its control over salary management, and the egalitarianismreward system of the centrally planned economy has been gradually re-placed by a dual salary system, which is a combination of a ‘hard’ salarythat strictly follows the government’s salary schemes and a ‘soft’ salarythat reflects both firm’s and individual’s performances. On the otherhand, MNCs enjoy minimum formal constraints in designing and imple-menting their remuneration practices. The Vietnamese government isconscious of the necessity to keep the level of salaries in foreign-investedcompanies at a minimum level, while MNCs are allowed to design and/orimplement their own reward systems. However, companies are faced withlack of skilled labour and job-hopping to augment salary. The combina-tion of these factors explains the co-existence of some well-developed andstandardised reward systems in some MNCs and more pragmatic systemsin others. With MNCs offering much higher reward packages, more qual-ified and competent employees have been attracted to work for the


12

foreign-invested sector, causing a domestic ‘brain drain’ situation in theVietnamese labour market.

Chapter 6 examines some key weaknesses of the educational andvocational training system that has led to a mismatch between the systemoutputs and company human resource inputs. This is followed by a de-tailed analysis of T&D activities in SOEs and MNCs under three cate-gories, namely the extent and nature of training, training programmesand the comprehensiveness of training programmes. It argues that underincreasing pressure to improve organisational efficiency, SOEs have in-troduced some fundamental changes into this HR function; however,T&D systems in SOEs have not advanced far from the old days of thecentrally planned economy. The activities suffer from limited financialresources, low-quality training courses, obsolete training methods andlack of systematic training systems. On the other hand, foreign investorsrecognise the lack of skills and qualifications in Vietnam’s labour forceand thus the need for management training. The companies intensifytheir efforts to provide training and develop strategies to achieve a higherreturn on their investment in training, especially for managerial staff. Inorder to obtain a higher return on their investment in training, in the con-text of high turnover rates and poaching, companies develop counterstrategies such as legally binding their staff for a certain number of yearsafter providing training or providing them with firm specific pro-grammes. A more comprehensive and systematic T&D approach isrecorded in non-Asian MNCs compared to a production-focused one inAsian MNCs.

Chapter 7 examines the structure and roles of trade unions, looking attheir nature and their position in relation to management at the grassrootlevel. It is concluded that there is little difference in union activities instate and foreign-invested sectors. In both forms of economic organisa-tions, burdened by many constraints from within as well as from theoutside, at the workplace level, the trade unions are highly dependent onthe management and play a supporting role rather than an adversarialrole to management. Their activities are limited to arranging holidays,organising social activities with the company’s funds and encouragingworkers to fulfil production quotas. They do not appear to be the realrepresentatives of the workforce in any way and are fundamentally dif-ferent from their Western counterparts. Operating in the peaceful IR en-vironment of Vietnam, MNCs, regardless of the industry they are in andtheir nationalities, tend to localise their IR practices. They cooperate withunions, as required by the host country’s labour law, to different extents,and employ paternalistic strategies. Some of them maintain proactive

Introduction

13

strategies to minimise the influence of the unions, such as offering onlylegitimising supports to unions, ensuring that the HR department ratherthan the unions are the source of welfare and paternalistic generosity, es-tablishing direct management-sponsored communication channels, andformal grievance procedures to directly solve labour conflicts.

At the workplace level, trade unions are not able to utilise the auton-omy that the new legislation has given them. Being under the shadow ofthe party for many decades, trade union cadres are not equipped with thenecessary knowledge and their organisation lacks the necessary resourcesto make use of their newly found autonomy and create their own power.It is safe to say that the transformation of Vietnamese trade unions, in-tended by the Labour Code, trade union laws and a series of related reg-ulations, has had very limited results.

Chapter 8 is divided into three main sections. In the first part, the mainfindings of this book are reviewed. It discusses the changing HRM/IRpractices in two different types of large Vietnamese enterprises, namelySOEs and MNCs. In the state sector, stimulated by the new market imper-atives and the consequent need to improve efficiency, it appears that SOEmanagers used their new freedom to introduce many changes. The emer-gence of an HRM system in embryonic form is recorded. In the foreign-invested sector, a much stronger emphasis on the HRM function results ina high level of investment and attempts to transfer headquarters’ policiesand practices to Vietnamese subsidiaries. A variation of those organisa-tional practices can be, and indeed have been, successfully transferred toVietnam. The profile of HRM/IR policies and practices in MNC sub-sidiaries is shaped by the interplay of parallel or opposing forces, namelyhome country, host country, industrial and organisational effects.Furthermore, this book argues that MNCs may consider that the transferof HRM/IR policies and practices itself is not necessarily a prerequisite fortheir successful operation in Vietnam. In this case, instead of transferringhome-grown practices, MNCs will seek to use fairly universalistic forms ofcommonsense management and adopt very simple HRM systems. Whilesome MNCs considered here transferred home-grown practices in theirsubsidiaries in other countries, in Vietnam, the same MNCs in fact maydowngrade their practices and/or localise their practices.

In the second part, the transformation of the HRM/IR system inVietnam is discussed. It is argued that the Vietnamese business systemhas dramatically altered over the years and is flexible enough to accom-modate various organisational changes and to endure inconsistent orsometimes contradictory management policies and practices. While someSOEs can retain their old characteristics as there still are some legacies of


14

the past to support them, the system offers enough opportunities forthose who choose to adopt and develop more sophisticated HRM prac-tices. Positive spillover effects and knowledge transfer from the foreign-invested sector to SOEs are acknowledged. However, existing researchsuggests that the adoption of best practices in SOEs and the transforma-tion of the HRM/IR system in Vietnam are gradual and inadequate.Instead of adopting best practices systematically, SOEs tend to use eithera universal commonsense management or a ‘trial and error’ approach bycopying and testing ideas from other firms in a haphazard and eclecticmanner. The low degree of transformation might be attributed to thelingering effects of the past legacies, perceived lack of necessity andassumptions about the importance of particular HRM practices. This sec-tion also argues that further reform in the state sector (e.g. further consol-idation and liquidation, restructuring, equitisation) will foster the reformof HRM/IR, which in the long term will lead to the realisation of amodern and scientific model of management. Finally, in the third part,research limitations and suggestions for future research are presented.

Notes1. Decision 25/CP, issued on 21 January 1981 by the Vietnamese government,

regarding several directions and measures to enhance the rights of industrialstate enterprises to take initiatives in production and business and in self-financing.

2. Although the term ‘human resource management’ is used in this book, it isimportant to note that many HR departments are called personnel andadministration departments and they still are policy implementers rather thanstrategic decision-makers. In fact, their roles and responsibilities are focusedmore on administrative activities than on organisational management.

3. Decision 217/HDBT, issued on 14 November 1987 by the Vietnamese Councilof Ministers, regarding the policies for renovating the planning, economicaccounting and socialist business of SOEs.

Introduction

15

Vietnam as a transforming country

2.1 Introduction

This chapter adopts the institutionalist approach to analyse theVietnamese business system. Institutionalism analysis shows how differ-ent forms of economic organisations have been established, reproducedand changed in different market economies. It focuses on macro-level so-cietal institutions, in particular those that govern the ‘access to critical re-sources, especially labour and capital’ (Whitley, 1999: 47). It argues thatdominant institutions are integrated and their features mutually rein-force; therefore, national institutional arrangements are strong androbust (Hollingworth, 1997). The effects of variations in businesses’institutional contexts on companies’ behaviour in general and on HRMpolicies and practices are prominent, as a ‘firm will gravitate towards themode of coordination for which there is institutional support’ (Hall &Soskice, 2001: 9).

This chapter analyses the Vietnamese business system by examiningthe key institutions, namely the economic system, the party and thestate, the financial system, the system of education and training andfinally the network of business associations. It argues that in the middleof a radical transformation process, instability and dynamism existwithin each component institution and thus in the national business sys-tem as a whole. Possessing in itself internal struggles to renovate, thesystem is arguably more receptive and is a fertile ground for the devel-opment, as well as the transfer and implementation, of novel forms ofHRM/IR practices.

17

2

2.2 The economy

This section provides an overview of the Vietnamese economic situation.It discusses the economic reform known as Doi Moi, which began in1986. In this regard, the chapter focuses on the transformation of SOEsincluding their critical roles in the economy, and the formation and de-velopment of the foreign-invested sector. The purpose of this discussionis to provide the background for the analysis of HRM/IR activities takingplace in these two economic sectors, which will be discussed in subse-quent chapters of this book.

2.2.1 The economy before Doi MoiBefore 1975, two contrasting economic systems co-existed in Vietnam. In1945, after the defeat of the French in the battle of Dien Bien Phu, theVietnamese communists took control over North Vietnam. Hence,Vietnam was effectively split into two sovereign states, which then devel-oped two very different political and economical paths. In particular,with the support of the Soviet Union, Democratic Republic of Vietnamwas created in the North and developed an economy with all the charac-teristics of a Soviet-style socialist-centralised economic system. On theother hand, in the South, the Republic of Vietnam was supported by theUnited States of America and became decentralised and was heavilydependent on American trade and aids (Beresford, 1988). After the unifi-cation of the two, a communist-style constitution was enacted, whichformally committed the country towards the development of a socialisteconomic system. Under this system, the state and collective sectors,which were highly subsidised by the state budget, were considered as ‘theengine for economic growth’. Large-scale private economic organisationswere forced or encouraged to join the state or collective sectors. Thisprocess effectively eliminated the market mechanism except in householdactivities.

However, as early as 1977, it became clear that the economic strategywas not working, as the economy was witnessing steady declines in pro-duction in vital industries, including agriculture (Le & McCarty, 1995).During 1976–1980 (the Second Five-Year Plan), the economy witnessedonly 0.5 per cent growth in national income, 1.9 per cent in agriculturalproduction and 0.6 per cent in industrial production, instead of the tar-geted 13–14 per cent, 8–10 per cent and 16–18 per cent per year, respec-tively (Fforde & De Vylder, 1996: 167). Vietnam suffered an economic


18

crisis in 1979, which had both domestic and foreign causes. On the onehand, the country faced unusually bad luck with weather, which cut agri-cultural output, and the overhasty collectivisation of the South, whichcaused depression in industrial, commercial and agricultural activities. Onthe other hand, after the Cambodian–Vietnamese War in 1978, mostWestern and Chinese aid and trade were cut off, although a number ofEuropean countries did not adhere to the American embargo.

By the mid-1980s, the Vietnamese economy was only barely sustained,thanks to the significant assistance from the Eastern Bloc. The lowestpoint was reached in 1985, when a miscalculated currency reform wasintroduced, which effectively revalued the dong, in a bid to reduce theamount of money circulating and to encourage the import-reliant econ-omy, but this in fact resulted in an escalating inflation rate. This monetarymiscalculation may have been the final contributory factor in Vietnam’sdecision to re-evaluate its economic policies and may have paved the wayfor the Doi Moi period. As Wurfel (1993: 23) puts it, ‘Economic necessitywas the mother of [Vietnamese] reformist invention’.

2.2.2 The economy since Doi MoiVietnam’s economic reform process has been gradual and homeopathicwith the overriding political power still residing, as opposed to what istermed ‘shock therapy’ or ‘big bang’ in the context of East Europeaneconomic reforms (Kerkvliet, Chan & Unger, 1999).

At the Sixth National Congress of the Communist Party in December1986, the Vietnamese government formally introduced a comprehensivereform programme, known as Doi Moi, with the objective of liberalisingand deregulating the economy. This was the major turning point in theeconomic development of the country. The focus of the reform was onfive main areas: (1) the market economy was accepted, (2) an ‘open doorpolicy’ in foreign economic relations was adopted, (3) private ownershipwas allowed in all activities, (4) the industrialisation model that gavetop priority to heavy industries at the expense of agriculture and light in-dustries was dismantled and reversed and (5) SOEs were downsizedand restructured (Tran, 1997: 11–13). A series of laws were enacted toregulate the new direction of the economy. The new market-orientedeconomy was firmly endorsed when the National Assembly adopted anew constitution in 1992. It is important to note that the core premiseof socialism has remained in place throughout the economic reformstorms. The revised constitution still holds socialism as a long-term goal,


19

stresses the leading role of the Communist Party and maintains stateand collective ownership of business as the foundation of the economicsystem. The main goal of economic reforms has been understood as to‘correct the nature of socialism’, while avoiding a political discontinuity(Fforde, 1999).

The results of economic reforms are remarkable. The GDP growth ratehas increased gradually since 1986 (see Figure 2.1). During 1992–1997,Vietnam achieved an average GDP growth of 8.8 per cent, reaching thepeak of 9.54 per cent in 1995. This represents the longest period of sus-tained economic growth in Vietnam’s recent history (Vietnam EconomicTimes, 26 May 2003). Vietnam’s economy slowed down in the late1990s, due to the Asian crisis. However, since the first quarter of 2000,its economy has witnessed some recoveries. In 2007, the growth acceler-ated to 8.48 per cent, which marked the seven consecutive years of in-crease in GDP (GSO, 2008).

On the international relations front, after Doi Moi, Vietnam recog-nised the importance of global economic interdependence and took apath towards international reintegration. In the 1990s, it became a mem-ber of the World Bank, the International Monetary Fund and the Asian


20

Figure 2.1 Vietnamese GDP’s growth rate, 1986–2007

Source: GSO (2006, 2008).

Development Bank. Vietnam became a part of the Association ofSoutheast Asian Nations (ASEAN) in 1995, the ASEAN Free Trade Area(AFTA) in 1996, and the Asia Pacific Economic Cooperation Forum(APEC) in 1998, and in November 2006, it became a member of theWorld Trade Organization (WTO).

In spite of the recent economic successes, the fact is that Vietnam is avery poor country. It is still healing the wounds from decades of wars1

and is in the process of recovering from its distorted and ill-managedmacro-economic policies. Vietnam is mainly an agricultural economy. In2007, the agriculture, forestry and fishery sectors employed 53.9 per centof the national labour force and accounted for 20.3 per cent of the GDP.The industrial sector accounted for 41.6 per cent of the GDP and pro-vided employment to 20 per cent of the labour force. The service sectorproduced 38.1 per cent of the GDP and employed 26.1 per cent of thenational labour force (GSO, 2008).

The country’s export–import profile reveals that it is in a very disad-vantaged position in the world market, exporting mainly crude, low-techand agricultural goods – commodities that are subject to competitive,volatile and low prices, whereas it imports both intermediate and fin-ished high-tech goods that are subject to increasingly high prices. TheVietnamese export grew in 2007, with crude oil and agricultural products(rice, coffee, etc.) accounting for over 50 per cent of the total export,along with textiles (16 per cent) and footwear (8.2 per cent); the exportof light manufactured products such as furniture, ‘low-tech’ electrical ap-pliances and handicrafts has also increased (CIEM, 2008). Imports wereconcentrated on intermediate goods, machinery and equipment, trans-port equipment, petroleum products, fertiliser, steel products, raw cot-ton, grain, cement and other goods.

It is estimated that in 2006, 16 per cent of the Vietnamese populationwas living below the poverty line (Joint Donor Group, 2007: 4). As far aspopulation income is concerned, in 2007, the Vietnamese GNI per capita(gross national income divided by the mid-year population) was USD 790.This was a real achievement for the country, considering that in 1992,it had a per capita income of about USD 220. However, that was not evenhalf the average for East Asia and the Pacific (USD 2,180) (World Bank,2008). With this level of income, Vietnam has been classified by theWorld Bank as a low-income economy2 (World Bank, 2008). It isgrouped with Cambodia, Bangladesh and Laos, among other nations. Incomparison, China, the Philippines, Thailand and other countries belongto the lower-middle-income economy group, while Malaysia, Poland andothers have upper-middle-income economies.


21

2.2.2.1 State sector

The state sector is the backbone of the Vietnamese economy. Adoptingthe Soviet Union economic model, the Vietnamese government believedthat a focused development of the state sector was the quickest way toachieve industrialisation and develop the economy. As a result of this de-velopment strategy, as early as 1960, 100 per cent of industrial establish-ments, 99.4 per cent of commercial establishments and 99 per cent oftransportation facilities, which once belonged to foreign and Vietnamesecapitalists, were nationalised and transformed into SOEs (Vu, 2002).SOEs came under direct control and management of line ministries of thecentral and/or local government. They operated as production units only,leaving the management side of it to the government. Operating profitswere pre-determined in the plan, and losses were made up from govern-ment budget expenditure (Vu, 2002). Significant investment was pouredinto this sector. The number of SOEs grew dramatically from the time ofreunification to the eve of Doi Moi – from 7,000 in 1976 to over 12,000by the end of 1989. Despite the large number, SOEs consist of smallunder-capitalised enterprises controlled by and supported with subsidiesfrom the government (O’Connor, 1996: 14).

Despite drawing a large amount of government investment and therapid expansion of the state sector, the Second Five-Year Plan(1976–1980) was a total failure. The growth rate of national income wasonly 1.7 per cent instead of the targeted 13–14 per cent per year, and theaverage annual growth rate of industrial SOEs was 1.5 per cent (Vu,2002: 6). To maintain the role of SOEs as the foundation of the economy,an SOE reform became a requisite. Clearly in Vietnam, even at the em-bryonic stage of Doi Moi, reforms focused on SOEs (Fforde, 1999). Thereform began tentatively in the early 1980s. On 21 January 1981, thegovernment enacted Decision 25/CP, which aimed to provide guidelinesand measures to increase the initiatives and financial autonomy of SOEsin business operations (Nguyen & Tran, 1997). It is worth noting thatDecree 25/CP of 1981 was the first pilot scheme aimed at renovating thecentrally planned mechanism, which had controlled the management andoperations of SOEs until that time.

The SOE reform was accelerated in the latter half of the 1980s, withDecision 217/HDBT issued on 14 November 1987 and a new statutefor State Industrial Enterprises issued in April 1988. The long-awaitednew regulations virtually eradicated all elements of the old planningmechanism by giving SOEs the autonomy to formulate and implementtheir own business strategies. The new regulation focused on some of


22

the most important aspects of SOE management, such as formulationof plans; purchase and sale of assets; profit-based accounting system; re-duced budgetary support; greater managerial flexibility in procurementof inputs and marketing of outputs; investment of the enterprise’s own re-sources; acquisition and leasing of assets; hiring and firing of employees;setting of wages, salaries and benefits; and allocation of after-tax profits(Nguyen & Tran, 1997; McCarty, 1993).

The combination of a changed economic management mechanism, achanged domestic environment, in which SOEs had to respond to cus-tomer demands and were no longer assured a market for their output,and adverse external conditions (e.g. the collapse of the Council forMutual Economic Assistance [CMEA]3 in 1991, which limited the abilityof the government to provide cheap material inputs to a few key indus-tries), put many SOEs under severe strain. In January 1990, roughly40 per cent of SOEs were running financial losses (O’Connor, 1996; Vu,1995). While the initial reaction of the Vietnamese government was toextend subsidised credit to the troubled SOEs, the risk of re-ignitinginflation ultimately forced a policy reversal. Thus, the next step of thereform process involved some forms of rationalisation through a combi-nation of consolidation and liquidation of SOEs.

Decree 315/HDBT4 issued in 1990 realised the rationalisation and liq-uidation of SOEs by initiating a review of existing SOEs to evaluate theextent of debt and the liquidation requirements. By the end of 1989,12,297 SOEs were operational in Vietnam, with a total capital value of34,216 billion Vietnamese dong (VND). By June 1993, the number ofSOEs had dropped to 7,060, with a total capital value of 44,965 billionVND. Later on, between June 1993 and April 1994, SOEs continued to bereformed, and the cumulative number of SOEs reduced further to 6,264,with a total capital of 53,150 billion VND (approximately USD 5 billion)(Nguyen & Tran, 1997). The number of employees was reduced from3.86 million in 1985 (about 15 per cent of the total labour force) to2.92 million in 1993 (or 9 per cent) (GSO, 1994, cited in Beresford, 1995).

Since 1994, the SOE reform has become even more robust, targeting atreorganising SOEs, establishing General Corporations (Decision 90/TTg5

and Decision 91/TTg6) and implementing the transformation of SOEsinto joint-stock companies (Decree 28/CP7). The government also issuedthe Law on State Enterprises in order to provide a framework for enter-prises to operate. Recently, the focus of the reform was on speedingup the equitisation process (Decree 44/1998/ND-CP8 and Decree64/2002/ND-CP9). SOEs continued to decline. In 2000, the number ofSOEs was 5,759, which fell to a total number of 3,706 (out of the total


23

of 131,318 enterprises in the whole economy) at the end of December2006 (GSO, 2008: 125).

Overall, the reforms have had a major impact on the economic per-formance of SOEs. The strength of the state sector and its contribution tothe national economy has been reinforced in recent years. SOEs still serveas an important instrument of the state in macro-economic regulationand ensure a leading role for the state in the socialist-oriented marketeconomy. They provide key products for the national economy, makemajor contributions to the state budget and ensure macro-economic bal-ance and stability. The dominant position of the state sector is recordedin the country’s official statistics and in a variety of studies on theVietnamese economy (e.g. Vu, 2002). General Corporations have beenestablished to group several SOEs within a sector under one managementumbrella, with the aim of strengthening the accumulation of capital andincreasing competitiveness. Some General Corporations, such as VietnamAirlines, Vietnam Post and Telecommunications, and Vietnam Electricity,monopolise or near monopolise a wide range of industries deemed strate-gic. The state sector’s contribution to GDP remains significant, althoughfrom 1986 to 1991, its contribution to GDP decreased moderately. Fromthat time on, the role of the state sector has begun to recover. Since themid-1990s, it has contributed around 38 per cent to the GDP (GSO,2000, 2006). In 2007, the state sector accounted for 36.4 per cent of theGDP (GSO, 2008) (see Table 2.1).

As far as job generation is concerned, before Doi Moi, SOEs were amain source of labour demand. Since the restructure process in early1990s, employment opportunities within SOEs have significantly de-creased. Employment in the state sector in 1986 represented close to15 per cent of the total employment or approximately 4 million people


24

Table 2.1 Structure of GDP by ownership

2000 2002 2003 2004 2005 2006 2007*

State sector 38.52 38.38 39.08 39.10 38.40 37.39 36.43

Non-state sector 48.20 47.86 46.45 45.77 45.61 45.63 45.91

Foreign-invested 13.28 13.76 14.47 15.13 15.99 16.98 17.66sector

Source: GSO (2006, 2008).

*Preliminary.

(O’Connor, 1996: 14). In 2000, the employment of SOEs shrunk sharplyto just over 2 million (GSO, 2006: 121). In 2006, the state sector em-ployed around 1.9 million or 28.29 per cent of the workforce (GSO,2008: 132) (see Table 2.2). Despite the massive downsizing, SOEs are stillheavily over-staffed. A recent analysis conducted by Belser and Rama(2001) indicates that as many as half of the workers would be redundantif SOEs were to operate in the same manner as their private sectorcounterparts.

In terms of employment practices, the state sector has truly embarkeditself on a profound transformation process. As a result of Doi Moi, mostgovernment-provided benefits to workers were abolished, such as housingand travel allowances, medical insurance and retirement benefits.Responsibility for these benefits was transferred to the enterprises. Newmanagement autonomy in decision-making is evident in the dismissalof lifetime employment, freedom to hire and fire, implementation ofindividual employment contracts and application of performance-basedwages, salaries and benefits, and so on.

The transformation of Vietnamese SOEs is far from being complete. Thenumber of SOEs is still large, and there will be further reduction. Majorchallenges facing Vietnamese SOEs also include out-of-date technologyand rising overdue debts and inefficient management. In 2000, there werejust over 40 per cent of profitable enterprises, 31 per cent of break-evenones and 7.8 per cent of chronically loss-making ones (Tran, 2003: 4). Themanagement and operation of SOEs are said to be inefficient, comparedwith the foreign-invested sector, and are burdened by bribery and corrup-tion. Due to the legacies of the past, the majority of SOEs suffer from a


25

Table 2.2 Employment distribution by types of ownership,2000–2006

2000 2001 2002 2003 2004 2005 2006

State-owned 2,088,531 2,114,324 2,259,858 2,264,942 2,249,902 2,037,660 1,899,937enterprises

Non-state 1,040,902 1,329,615 1,706,857 2,049,891 2,475,448 2,979,120 3,369,855enterprises

Foreign-invested 407,565 489,287 691,088 860,259 1,044,851 1,220,616 1,445,374enterprises

Total 3,536,998 3,933,226 4,657,803 5,175,092 5,770,201 6,237,396 6,715,166

Source: Adapted from GSO (2006: 121, 2008: 132).

weak management capacity. Attempts to attract a new generation ofhighly competent managers are still feeble and unsystematic.

2.2.2.2 Foreign-invested sector

Attracting foreign investment has been an integral part of theVietnamese reform process since the late 1980s. In December 1987, theNational Assembly replaced the 1977 Law with the Law on ForeignInvestment in Vietnam. In September 1988, the Foreign Investment Lawwas enacted. Significant amendments to the law were made in 1990,1992, 1996 and May 2000. Ordinances, decrees and circulars on the as-pects of FDI are under repeated revision and refinement, in the light ofclose comparison with those of neighbouring countries, to hold foreigninvestors’ interest in Vietnam. A new Unified Investment Law was issuedin 2005 with the aim to create equal conditions for both domestic andforeign investors. These changes and amendments aim to improve the in-vestment climate in Vietnam, to grant foreign investors more rights andincentives and to promote the transfer of technology (Nguyen &Nguyen, 2007). Willcocks (1991: 72) describes the Vietnamese ForeignInvestment Law as follows:

[T]his law is widely regarded as one of the most liberal and flexible in-vestment laws enacted by a communist country. It represents a seriousattempt by the Vietnam Government to encourage investment . . . anda very great desire on the part of the reformers to revitalise theeconomy of Vietnam.

In terms of practical operations, the Foreign Investment Law offersgreat freedom for companies. Under Decree 28, Article 63, issued inFebruary 1991 to clarify the Foreign Investment Law, the Vietnamesegovernment pledges not to interfere in the operation of the FDI project,provided it does not breach the licence stipulations of the Ministry ofPlanning and Investment (MPI). Gillespie’s (1990: 417) observationholds true today:

[V]ery few mandatory regulations that purport to govern or restrictthe internal management between the joint venture parties. Thisgives the parties considerable flexibility in allocating profit, loss,capital contribution and to a lesser extent internal management,organisation and structure.


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By the end of 2007, Vietnam had received commitments of about USD 85 billion (for some 8,684 projects) from 82 countries and territo-ries (see Table 2.3). Despite its relative short history of development,Vietnam has been quite successful in attracting FDI. Among its neigh-bouring countries, Vietnam ranks as the third largest investment recipientin ASEAN (Mirza & Giroud, 2004).

FDI in Vietnam has been dominated by regional investors, with the topfour investors from the Asian region accounting for 68 per cent of all in-vested capital. Even though the US investment in Vietnam is fairly lim-ited, it has had an enormous political impact. The US investment hasincreased over the medium term since the signing of the Bilateral TradeAgreement between the two countries in 2000. For the European investorsas a whole, the number of projects accounts for only about 9 per cent ofthe total investment capital (see Table 2.3).

The distribution of FDI in Vietnam by sectors tends to reflect the econ-omy’s weak position in the global commodity chains. Investment in theindustrial sector (68.6 per cent of the total implemented capital) has con-centrated heavily on natural resource exploitation, especially oil and gas,light industry (textiles and garments) and low-value-added manufacturingindustries, focusing on the comparative advantage in labour-intensiveproduction. The services sector accounted for 24.5 per cent of the totalimplemented capital, reflecting a high demand for infrastructure develop-ment, tourism and office construction, while FDI in agriculture–forestry–maritime accounted for a modest 6.9 per cent and has significantlydecreased over the years (see Table 2.4).

All 63 provinces of Vietnam have attracted FDI, but investors have sofar located their investments mostly in urban areas and other environswhere they can take advantage of more developed infrastructure. Ho ChiMinh City and Ha Noi accounted for 27.6 and 11.6 per cent, respec-tively, of the total FDI absorbed by Vietnam in 1988–2007 (MPI, 2008).Other provinces with high amounts of foreign capital are concentrated inthe South, in areas like the industrial zones at Dong Nai, Binh Duong andVung Tau. On the contrary, big cities in the North and central areas, forexample Hai Phong and Da Nang, attract relatively less FDI. The higherconcentration in the South is due to the area’s rich natural resources andthe quick institutional reforms of the local government (Le Thanh Thuy,2007).

The Foreign Investment Law allows four kinds of investment: jointventure, wholly foreign-invested enterprises, cooperation contracts andBuild, Operate and Transfer (BOT). Joint ventures were very popular inVietnam. However, there has been a growing preference among investors


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Table 2.3 Foreign investment by country of origin, 1988–2007

Country Total and No. of investment Legal

No. territories projects capital capital Disbursement

1 South Korea 1,857 14,398,138,655 5,168,461,054 2,738,114,393

2 Singapore 549 11,058,802,313 3,894,467,177 3,858,078,376

3 Taiwan 1,801 10,763,147,783 4,598,733,632 3,079,209,610

4 Japan 934 9,179,715,704 3,963,292,649 4,987,063,346

5 British Virgin 342 7,794,876,348 2,612,088,725 1,375,722,679 Islands

6 Hong Kong 457 5,933,188,334 2,166,936,512 2,161,176,270

7 Malaysia 245 2,823,171,518 1,797,165,234 1,083,158,348

8 The USA 376 2,788,623,488 1,449,742,606 746,009,069

9 The Netherlands 86 2,598,537,747 1,482,216,843 2,031,314,551

10 France 196 2,376,366,335 1,441,010,694 1,085,203,846

11 Cayman Islands 29 1,838,565,385 759,845,518 595,021,987

12 China 550 1,792,264,711 883,530,586 253,214,212

13 Thailand 167 1,664,884,302 703,563,821 832,736,253

14 The United 99 1,443,398,564 672,587,919 648,750,076Kingdom

15 Samoa 55 1,266,841,668 482,165,000 28,449,882

16 Australia 171 999,263,145 475,924,973 396,948,361

17 Luxembourg 15 803,816,324 724,259,400 12,107,668

18 Switzerland 46 720,846,029 347,132,981 530,773,248

19 Czech Republic 99 546,082,331 297,197,185 161,318,063

20 British 6 511,231,090 146,939,327 117,169,763 West Indies

Sub-total (20 leading 8,080 81,301,761,774 34,067,261,836 26,721,540,001 countries and territories)

Sub-total (remaining 604 3,755,071,396 1,819,348,035 2,512,897,305 62 countries and territories)

Total (all countries 8,684 85,056,833,170 35,886,609,871 29,234,437,306 and territories)

Source: Foreign Investment Agency, MPI (2008).


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Table 2.4 FDI by sector, 1988–2007

No. of Committed Legal Sector projects capital capital Disbursement

Industry and 5,819 51,405,264,671 21,118,126,226 20,045,968,689construction

Oil industry 40 3,902,961,815 2,345,961,815 5,148,473,303

Light industry 2,572 13,553,033,810 5,943,809,944 3,639,419,314

Heavy industry 2,434 24,437,228,586 9,293,803,365 7,049,865,865

Foodstuff 312 3,643,885,550 1,617,923,717 2,058,406,260

Construction 461 5,868,154,910 1,916,627,385 2,149,803,947

Agriculture 929 4,458,158,278 2,115,319,681 2,021,028,587 and forestry

Agriculture 800 4,008,270,499 1,867,539,550 1,852,506,455 and forestry

Fishery 129 449,887,779 247,780,131 168,522,132

Services 1,936 29,193,410,221 12,653,163,964 7,167,440,030

Wholesale 966 2,155,006,145 947,877,283 383,082,159 and retail

Transport and 211 4,323,882,565 2,781,446,590 721,767,814 communication

Hotel and tourism 227 6,135,310,332 2,569,935,362 2,401,036,832

Finance and 67 915,827,080 850,404,447 714,870,077 banking

Health, education 272 1,249,195,062 573,586,594 367,037,058 and culture

New town 9 3,477,764,672 944,920,500 111,294,598 development

Offices and 154 9,418,878,164 3,468,469,591 1,892,234,162 apartments

Industrial zones 30 1,517,546,201 516,523,597 576,117,330 and export processing zones

Total 8,684 85,056,833,170 35,886,609,871 29,234,437,306

Source: Foreign Investment Agency, MPI (2008).

for 100 per cent foreign-invested enterprises following the December1992 amendments to the Foreign Investment Law and the ensuing regu-lations of 16 April 1993, which basically offer equal treatment to whollyforeign-invested projects as to joint ventures for the purpose of invest-ment incentives (Leproux & Brooks, 2004). Wholly foreign-investedenterprises accounted for 77.65 per cent of the licenced projects and61.65 per cent of the committed capital, while joint ventures accountedfor only 18.89 per cent of the licenced projects and 28.89 per cent of thecommitted capital during 1988–2007 (MPI, 2008). This might be becausethe reliance of foreign investors on domestic counterparts is becomingcomparatively less important when foreign investors are more experi-enced with the Vietnamese market situation and some of them find it dif-ficult to cooperate with their Vietnamese counterparts (Bui, 2004).

As an integral part of the national economy, FDI has no doubt con-tributed to the development of Vietnam in many ways: attracting foreigncapital, reducing poverty, creating new jobs, improving the balance of in-ternational payment, increasing export and access to international mar-kets, accelerating the process of international integration, deepening thecultural exchange and so on. Foreign investment has become a major andgrowing factor for the country’s economy, particularly the industrialcomponent and exports. FDI is the biggest source of capital inflow to theeconomy, except for long-term borrowings (World Bank, 2003). Thecontribution from FDI companies to the GDP has steadily increased (seeTable 2.1). It is estimated that in 2007, FDI contributed 17.66 per cent tothe GDP, 57.2 per cent to export and 9.25 per cent to the total statebudget revenues (excluding revenue from oil) (GSO, 2008). In terms ofcontribution to employment, up to 2006, foreign-invested firms created1.45 million direct jobs, which is about three quarters of that in the statesector (GSO, 2008: 132). Indirectly, FDI has provided more employmentthrough sub-contractors or suppliers.

Most importantly, foreign-invested firms are the main source of trans-fer of technology and management practices in Vietnam (Nguyen et al.,2008). To a certain degree, they have created a spillover effect in regardto technology and management practices to domestic firms. Tran (2002)points out three kinds of spillover effects in Vietnam, namely betweenjoint ventures from foreign to Vietnamese partner, from joint ventures toVietnamese firms and direct spillovers from multinationals to Vietnamesefirms. More advanced technologies, higher productivity and a bettertrained workforce are the main reasons for the spillover effect. The tech-nologies used by foreign-invested firms are generally of a higher levelthan that of domestic firms, especially in high-tech industries such as oil


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and gas, telecommunications, chemical, electronics, automobile sectorsand so on (Le, 2007). According to Beresford (2008), the output peremployee in industrial foreign-invested firms is significantly higher thanthat of SOEs. In 2000, for example, the output per employee in foreign-invested firms was 1.86 compared with 1 in SOEs (Beresford, 2008:233). Furthermore, foreign-invested firms have helped to modernisemanagement and corporate governance. They have been the most impor-tant training providers to the country’s young workforce. Some 300,000workers, 25,000 technicians and 6,000 managers have been trained, orretrained, partially abroad (Le, 2002, cited in Le, 2007: 16).

In summary, this section contains some descriptions of the Vietnameseeconomy, before and after Doi Moi. Vietnam is portrayed here as a de-veloping and transitioning nation that is trying its best to renovate itseconomy in a bid for a higher economic development rate. Though thereare some economic achievements, the economic transition is far fromcomplete. Vietnam is still a low-income, agricultural country and remainsin a disadvantaged position in the world trade arena. The state sectorbears a heavy responsibility of maintaining a socialist orientation for eco-nomic development and promoting economic, political and social stabil-ity and development of the country. To achieve their role, SOEs are undergreat pressure to remain viable and competitive. The reform in this sectorhas been partly achieved due to massive reduction in SOEs and the devel-opment of a legal framework to ensure self-sufficiency and autonomy forSOEs in production and management activities. They, however, face in-creasing competition from newcomers in the form of private sector andforeign-invested firms. The latter enjoy an attractive investment environ-ment and contribute significantly to the Vietnamese economy in terms ofcapital inflows and technology and management practices transfer toVietnam. To maintain their lead position in the new market economy,SOEs are forced to learn and acquire technological and management ca-pabilities from foreign firms. However, questions such as to what extentMNCs are a source of innovation, whether they provide a benchmark interms of employment practices for leading Vietnamese SOEs and how farSOEs have transformed their HRM/IR systems remain unanswered.

2.3 The role of the party and the state

As in other socialist countries, the Vietnamese polity is characterised byextensive party intervention in state affairs. It is very difficult, if notimpossible, to separate the Vietnamese government’s roles and functions


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from that of the party. This section thus discusses the role of the partyand the state as integrated institutions.

The Vietnamese political system is dominated by a sole politicalparty – the Vietnamese Communist Party (VCP). Like other communistparties, the VCP adheres to the principles of democratic centralism,which insist on unanimity at the top and unquestioning obedience frombelow (Riedel & Turley, 1999). Vietnam’s zeal for Doi Moi has notbeen mirrored in its approach to political reform. Vietnam’s ruling VCPhas consistently insisted that it can better serve the country than politi-cal pluralism. The VCP and the government maintain a long-standingpolicy of not tolerating open dissent and of prohibiting independentpolitical and labour organisations. All non-governmental Vietnameseorganisations must belong to the VCP-controlled Fatherland Front. Aswith China, the communist party’s rule is grounded in broad, althoughnot unquestioning, popular support (Beresford, 1988). However,should the economic reforms continue apace and ideological shifts keepup, the party may find itself only communist in name (Ashwood, 1994;Beresford, 2008).

The nature and roles of the VCP have two major implications to thebusiness system and to the operation of firms. First, the party maintainsthe ideology of the socialist society, imported from the former SovietUnion. This ideology respects the peaceful co-existence of different actorsof the economy in a win–win relation: the state, the management and theemployees/their legal representatives. This defines the nature of IR inVietnam and the unions’ stance towards management and also influencesHRM policies and practices in firms. Secondly, the party’s monopoly inthe political arena and its close relationship with the state ensure thatgovernments enjoy majority support and that policy initiatives are notoverturned after a government changes. This creates a high degree ofpolitical stability, which contributes to a long-term framework for indus-trial decision-making.

As already mentioned, there is an extensive party intervention in af-fairs of the state. This can be observed in two aspects. First, party mem-bers occupy most chairs in the government apparatus. At the ministeriallevel, senior party members hold nearly all posts. Secondly, the maindecision-making body is not the government itself, but the party, princi-pally the Political Bureau. The Political Bureau not only plays a centralrole in initiating legislation and in directing the work of the legislatureand ministries, but also has the power to issue decrees independently ofthe formal government apparatus and those who have the force oflaw (Beresford, 1988). This gives the Vietnamese government and other


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socialist governments a markedly different character from their Westerncounterparts.

After the reunification, the state adopted a centralised and interven-tionist stance. This model was loosened after 1986. The Vietnameseeconomy today can be best analysed as a mixed economy, where stateand market forces together operate the economy. However, the role of thestate in the economy is still dominant, as discussed previously. Moreover,the state adopts an interventionist stance in managing the economy. Theintervention of the state has been exercised mainly through the issue oflegislation and national industrialisation plans, and through the bankingsystem.

2.4 The banking system

Prior to 1988, the banking system was characterised as a part of the cen-trally planned economy. It was under the direct control of the govern-ment, with the sole task of financing the national budget and SOEs on anon-commercial basis (Wolff, 1999; Gates & Truong, 1992). Vietnam’sfirst banking reform was initiated in early 1988 and reinforced in 2001,laying a new commercial basis for Vietnam’s banking system. However,to a large extent, the nature of the banking system has not been changed.

The banking system is still characterised by its small size and insuffi-cient capital. The banking industry is still under the strict control of thegovernment. The banking system is dominated by five large state-ownedcommercial banks (SOCBs), but also includes a small, and moredynamic, segment of foreign-owned and joint venture banks. The SOCBsfrequently operate on a non-commercial basis, and are subject to govern-ment direction and interference. Accounting for more than 70 per cent ofthe total assets in the system (IMF, 2003: 48), the SOCB’s domination inVietnam is greater than in other developing countries. In fact, they havea near-monopoly in the banking and finance sector. Some 37 foreign bankbranches and over 30 semi-private joint-stock banks are market oriented.However, they only operate on a limited local scale, serving niche markets(IMF, 2003: 48).

As in other countries, in Vietnam, the banking system is a macro-economic tool to guide the economy. The Vietnamese government allo-cates bank credit to SOEs in accordance with industrialisation plans andnational social objectives. SOEs remain the main recipients of bankcredit, typically borrowing on an unsecured basis at concessionary inter-est rates. In 1997, the State Bank of Vietnam issued several directives to


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the SOCBs, aiming to improve the availability of credits to SOEs. By2000, SOEs accounted for about two thirds of loans from SOCBs (IMF,2003: 48). During 1997–2002, the credit to SOEs averaged at around46.2 per cent of total credit to the economy. This concentration on SOEscrowds out investment opportunities of other economic sectors. Thecredit requirements of MNCs are met by foreign banks, while joint-stockbanks appear to be the primary source for serving the domestic privatesector. The private sector often relies on informal financial arrangementssuch as money lenders, friends and relatives and local savings and creditrings (Wolff, 1999). Consequently, domestic firms and joint ventures donot develop any close ties with banks.

2.5 The education and training system

As of 2007, the total population of Vietnam was 85.1 million (GSO,2008). In terms of its population, Vietnam ranks 12th in the world, witha natural annual growth rate of about 2.2 per cent. With 89 per cent ofthe population under and in the working age, the labour pool continuesto increase by 1.1–1.3 million workers annually (GSO, 2008). Vietnamundoubtedly belongs to the category of ‘young population’ countries andoffers an abundant source of labour forces. However, a question arises asto the quality of the nation’s labour force, which is determined by theeducation and training (E&T) system.

The Vietnamese government is aware that an improvement in thehuman resource base is essential to underpin macro-economic reforms;continued weakness in the education sector will result in a human re-source bottleneck that will impede faster growth. In the early 1990s, withsignificant improvement in the economy, action was taken to renovatethe E&T system; for example, the type of ownership in education hasbeen diversified, more attention has been paid to vocational training, thecontents and methods of education and training have been continuouslyrenewed and the standardisation of teachers was implemented at alllevels (Ministry of E&T, 1997a, 1997b).

The government’s continuous effort in upgrading the quality of the na-tional E&T system is evident in the Vietnam Education Law of 2005.Compared with the 1998 Education Law, the 2005 Education Law’semphasis was clearly on increasing the quality of E&T system, such asproviding regulations for educational programmes, administrators’ respon-sibilities, educational quality accreditation, prohibiting behaviours forteachers and learners, policies towards children at pre-school institutions


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and policies towards private institutions which had not been regulated bythe 1998 Education Law. Noticeably, the new law expands the compul-sory lower secondary educational level. Compared with the 1998 Law, inwhich only primary education was compulsory, the 2005 Education Lawaims to raise the general educational level of the country. Furthermore,the Ministry of E&T is no longer responsible for writing the textbooksused in schools and universities. Such responsibility is now vested inschools and universities. This first signal of a decentralised educationalsystem hopefully will result in better designed and more relevant educa-tion programmes.

Although the reform in the E&T system has achieved some encourag-ing results, such as increasing number of enrolments, increasing numberof education institutions and diversifying types of educational institu-tions, the national E&T system in general is deteriorating in quality.Local newspapers often voice the public’s concerns, frustration and dis-appointment in the system. The Lao Dong newspaper [Labour] (2008),for example, voiced their utmost disappointment when the EducationPublisher had to print three books solely for the purpose of correcting allthe mistakes that the school textbooks had made. Educational renova-tions are described as a messy, unsatisfactory experiment that affects thenext generations. Poor quality also results from irrelevant and heavy cur-riculum and under-qualified and under-paid teachers at all levels of edu-cation. Limited physical and support infrastructure is evident in over-crowded schools, insufficient teaching materials and schools operating intwo to three shifts (ADB, 2003).

Even though mass education level is high, Vietnam still suffers from asignificant scarcity of highly skilled labour. It is estimated that 96 per centof the Vietnamese population is literate and 80 per cent graduate fromprimary schools. However, the skilled labour force accounts for only8 per cent of the total labour force (MOLISA, 2002: 7). Managementeducation is not a focus of study at colleges and universities. Until theearly 1990s, management courses, such as business administration, mar-keting, human resources and so on, which are popular in more developedcountries, were virtually non-existent in Vietnam.

The Vietnamese E&T system strongly emphasises Confucian values,which have greatly influenced the Vietnamese standards of social valuesand provided the background for Vietnamese political theories and insti-tutions. The educational system upholds strict hierarchical orders, right-eous behaviour in relationships and social harmony. Whitley (2000)makes the criticism that the Confucian values present in the teaching andlearning style affect the nature of authority relations in the workplace.


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Paternalism in education and training leads to paternalism in employmentrelations, causing an imbalance in the employer–employee relation, wheresuperiors are expected to give concrete directions and to act in the interestsof subordinates. The Confucian values that govern personal relationships,such as respect for elders, loyalty to friends, benevolence on the part of su-periors and others, might also influence the conduct of HRM/IR practicessuch as payment and performance appraisal practices in firms.

2.6 Business networks

Embedded in an institutional environment that until 1986 did not en-courage the development of the private sector, and where the allocationof input and distribution of the production output process are centrallycontrolled, business associations in Vietnam have been historically weak.

Three types of associations exist. First, the Vietnamese Chamber ofCommerce and Industry (VCCI), which in the past was essentially re-sponsible for foreign trade interests, represents business enterprises fromall economic sectors and business associations in Vietnam. The VCCIhas admitted private enterprises as members only since 1993. Given itstraditional dependence on the state and the strong position of SOEsamong its members, the VCCI was supportive of and submissive to thestate. In recent years, VCCI’s stand has shifted more towards serving thebusiness community by consulting proposals, collecting feedback andsubmitting views on the government legislation and policy, particularly inregard to the business environment in Vietnam. Second, separate fromthe VCCI are a small number of business groups that represent specificdomestic industries, established at local and regional levels since the early1996. Third, the Vietnam Union for Cooperatives and Small andMedium Enterprises emerged from the former association of coopera-tives. The power of these organisations is even more limited than that ofthe VCCI, and their activities are normally concerned with informationsharing and generating suggested policies for the government’s consider-ation. None of these bodies have so far been particularly successful inrepresenting their members in an economic sense. They are dependent ongovernment contributions and finance their activities by qualifying fordevelopment aid resources and running their own enterprises.

The Vietnamese government, however, promotes interfirm cooperationin strategic industries. The prime minister issued Decision 90/TTg on7 March 1994 to promote the organisation, establishment and register of


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enterprise associations, and to define in detail the criteria for establishingState General Corporations, which includes SOEs in the same industry. Inthe meantime, Decision 91/TTg issued on 7 March 1994 established busi-ness conglomerates in some industries. In Vietnam SOEs’ general corpo-rations and conglomerates, interfirm cooperation is utilised to stabiliseoutput and prices. Elsewhere, interfirm relationships have been very lim-ited, especially in the newly developed non-state sector. Relationshipsamong producers and suppliers have been more opportunistic and basedon bid-price contracts with many suppliers. Weak linkages among firmsand industries, together with the lack of any close relationship betweenbanks and economic organisations, are the main reasons why Vietnamesefirms tend to concentrate on traditional industries that require a low levelof capital investment, focus on short-term profit maximisation and investless in the training and development of their staff.

Alongside business networks of Vietnamese firms, many foreign in-vestors have formed groups in Vietnam, representing their country’scommercial interests. For example, American companies participate inthe American Chamber of Commerce in Vietnam (AmCham). Under theAmCham umbrella, a number of formally constituted committees oper-ate to support US commercial interests, including financial services, de-velopment cooperation, government relations, infrastructure and energy,trade, investment, law, and so on (American Chamber of Commerce,2008). Similarly, Japanese companies join the Japan Business Associationin Vietnam. The collective voice of these organisations is a significantforce. The Japanese Automobile Manufacturers Association in Vietnameffectively dominates the Vietnamese automobile industry. These tradeassociations are powerful and backed up by the Japanese government,which is the biggest provider of Vietnam’s Official DevelopmentAssistance (ODA) sources10. When the Vietnamese government imposedlimits on motorcycle parts in 2002, their lobby to the Vietnamese gov-ernment resulted in Vietnam relaxing the curbs about two months laterafter a diplomatic row with Japan (Reuters, December 18, 2002).

2.7 Conclusions

The chapter provided an overview of the Vietnamese national businesssystem and its vigorous reforms towards a ‘liberalisation’ of the econ-omy. Doi Moi has been the most significant force of change in contem-porary Vietnamese society, leading to the consequent transformation ofall the main institutions in the national business system in recent years.


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Table 2.5 The Vietnamese national business system

Characteristics

Economic background ■ In the process of transferring from a centrallyplanned economy to a market-oriented one

■ A developing, low-income, agricultural country■ Very poor infrastructure■ High level of instability■ Bearing great pressures from external forces

and dependent on foreign capital

The party and ■ Monopoly in politicsthe state ■ Stability in politics

■ Centralised and interventionist state

The financial and ■ Characterised by its small size and under-fundingbanking system ■ The banking industry is almost a monopoly field

of state-owned commercial banks, and understrict control of the government

■ State banks primarily serve SOEs

The system of ■ A unitary systemeducation and training ■ Large and inexpensive labour force, which

enjoys a high level of mass education, butsuffers from a considerable degree of scarcityof skilled labour

Business networks ■ Business associations have been historicallyweak

■ They only play the role of a dialoguing bridgeto connect the business community and thegovernment

■ Relationships among producers and suppliersare opportunistic and based on bid-pricecontracts with many suppliers

■ Weak business linkages and the lack of aclose relationship between banks and firmsare the main reasons why Vietnamese firmsconcentrate on traditional industries whichrequire low capital investment, focus on short-term profit and invest less in humandevelopment

■ Foreign associations and chambers are activelyengaged in promoting their commercial interestsin Vietnam

The chapter also provided some analysis of the key institutional com-plexes, including the party and the state, the financial system, the systemof education and training, and the network of business associations. Themain characteristics of the Vietnamese national business system are sum-marised in Table 2.5.

For the purpose of this discussion, the incoherent and transforming na-ture of the Vietnamese business system needs to be emphasised. In themiddle of a radical transformation process, the Vietnamese business sys-tem contains features of both a centrally planned economy and a market-oriented one. The transformation of the country is a learning and exper-imental process. The formation and implementation of new legislation,including regulations governing the status and operations of domesticand foreign firms, remain a major source of uncertainty. The sub-systems(the state, the financial system, the system of education and training, thenetwork of business associations, etc.) are constantly under the pressureof changes and innovations. This environment arguably is receptive tochanges and facilitates, on the one hand, the internal reform and devel-opment of current practices and, on the other hand, the penetration andtransfer of novel forms of economic organisation and management tech-niques. The aims of the following chapters are to find out whether and towhat extent domestic SOEs have changed their HRM/IR system to adaptto the new environment, what types of HRM/IR practices have theMNCs successfully transferred to Vietnam and to what extent MNCs area source of innovation and provide a benchmark in terms of employmentpractices for leading Vietnamese SOEs.

Notes1. After the French and American war, the country fought the Chinese (over

national boundaries), and the Khmer Rouge at different times from 1954until 1989.

2. The World Bank’s main criterion for classifying economies is gross national in-come (GNI) per capita. Based on its GNI per capita in 2007, every economy isclassified as low income, $935 or less; lower middle income, $936–3,705;upper middle income, $3,706–11,455; and high income, $11,456 or more.

3. CMEA was established in 1949, including Bulgaria, Czechoslovakia,Hungary, Poland, Romania, Soviet Union, Albania, East Germany,Mongolia, Cuba and Vietnam. It was an economic organization of commu-nist states and a kind of Eastern Bloc equivalent to – but more geographicallyinclusive than – the European Economic Community. Its purpose was to helpmembers develop their economies in accordance with socialist economicprinciples and organisation and promote bilateral relations among members(Wikipedia, 2008).


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4. Decree 315/HDBT, issued on 1 September 1990 by the Vietnamese Council ofMinisters, regarding reorganising production and business in the public sector.

5. Decision 90/TTg, issued on 7 March 1994 by the Vietnamese government,regarding work to re-arrange state enterprises.

6. Decision 91/TTg, issued on 7 March 1994 by the Vietnamese government,regarding capital investment development in State Enterprises.

7. Decree 26/CP, issued on 23 May 1993 by the Vietnamese government,regarding temporarily stipulating the new wage regime in enterprises.

8. Decree 44/1998/ND-CP, issued on 29 June 1998 by the Vietnamese govern-ment, regarding the transformation of state-owned enterprises to joint-stockcompanies.

9. Decree 64/2002/ND-CP, issued on 19 June 2002 by the Vietnamese govern-ment, regarding the conversion of SOEs into joint-stock companies.

10. In 2003, Japan’s ODA shared 30 per cent of the total ODA to Vietnam(ODA total amount: $2.8 billion, Japan’s ODA: $0.84 billion) (Embassy ofJapan in Vietnam, 2003: 1).


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Recruitment and selection

3.1 Introduction

Recruitment and selection (R&S) may well represent one of the most im-portant HRM functions. The calibre of the workforce in general, and ofthe top management in particular, determines the competitiveness of anorganisation. Sparrow and Hiltrop (1994) argue that effective R&S prac-tices are the pre-requisite for influencing and organising human behaviourin line with the strategic direction of the organisation. It is also believedthat the costs of business failure can often be attributed to ineffectiveR&S methods (Lewis, 1984; Terpstra, 1996).

This chapter discusses the issues faced by SOEs and MNCs in hiring andretaining the best talent in order to sustain their hold at the competitivelevel in the economic race. The chapter is structured as follows. Section 3.2analyses the Vietnamese institutional influences on R&S policies andpractices. It discusses how an unbalanced labour market and unstablelegislation might influence companies’ R&S strategies. Sections 3.3 and3.4 analyse the R&S strategies that SOEs and MNCs, respectively, havedeveloped in the Vietnamese labour market. Finally, some brief conclu-sions close the chapter.

3.2 Factors influencing companies’recruitment and selection strategies

An understanding of companies’ work environment is vital for analysingtheir R&S policies and practices. This section discusses in detail the op-portunities and challenges that companies have encountered in recruiting

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3

and retaining their Vietnamese employees. In particular, the legislationregarding R&S in the state and foreign-invested sectors is discussed andthe Vietnamese labour market is examined.

3.2.1 The legislative environmentR&S policies and procedures were introduced only after Doi Moi, whenthe government had loosened control in labour allocation. The 1987Decision 217/HDBT stipulated that SOEs could either hire workersfrom locations recommended by the labour offices or request the officesto recruit for them according to criteria set by the enterprises. Labourcontrol by residence permit was abandoned; skilled workers could behired from other locations if they could not be found, or found in suffi-cient number, in locations where the enterprise was situated. The enter-prise could reject any recommended candidate if that person was notqualified or if the recruitment was not needed by the enterprise (Le,1997; Nguyen & Tran, 1997). Overall, the state sector has displayedsatisfaction with the newly found freedom in determining their R&Sstrategies.

In the foreign-invested sector, the labour legislation relating to R&Sis marked by its instability. In the process of developing and defining,the legislation has been continuously changed since 1986, normally tolegalise some de facto practices. Three of the most important legislativechanges in the recruitment, employment and management of Vietnameseemployees working for foreign firms were made in 1998, 1999 and2002, respectively. These pieces of legislation marked the government’sgradual handover of the autonomy in R&S activities to foreign-investedfirms.

In 1998, Decree 85/1998/ND-CP1 stipulated that the state’s EmployeesSupply Organisations (ESO) were in charge of the control and manage-ment of employees working in foreign-invested companies. ESO’s re-sponsibilities included receiving applications from Vietnamese employeesand documents requesting employment from foreign organisations;choosing and supplying Vietnamese employees to foreign organisations;and dealing with administrative formalities related to the management ofVietnamese employees working for foreign organisations. In this case,even though foreign-invested companies had the right to select suitableemployees, the recruitment process and recruitment sources were totallydependent on the ESO. In July 1999, the Vietnamese government issuedDecree 46/1999/ND-CP2, which allowed foreign-invested firms todirectly recruit employees if the ESO were unable to meet the supply


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requirement within 30 days of the receipt of the requirement. In 2002,the Amendment to the Labour Code allowed MNCs to directly recruitVietnamese staff without the assistance from ESO, provided that theysubmit to the labour department in the relevant localities a list of staffhired by them (Article 132). The amendment thus gave MNCs the com-plete right to recruit and select suitable candidates.

MNCs have been freed from many restrictions imposed on their R&Sactivities. The role of ESO has changed from managing to administratingand facilitating. However, the legislative environment still affects MNCs’recruitment function in two ways. First, the instability of legislation pre-vents companies from considering long-term recruitment strategies.Secondly, companies are faced with lots of different kinds of legislationand confusing directives from central, local, formal and informal sources.In practice, enterprises violate some law due to the pressure of businessneeds, which might be tolerated in some locations, but may be consideredunacceptable in other locations, depending on the point of view of localauthorities. That is to say, the R&S practices of MNCs in Vietnam needto be flexible and adaptive.

3.2.2 The unbalanced labour marketWith a total population of 85.1 million, 89 per cent of which is underand in the working age (GSO, 2008), Vietnam offers an abundant sourceof labour forces. However, a noticeable aspect of this labour market isthe excess of non-skilled and semi-skilled labour co-existing with theshortage of highly skilled labour. On the one hand, one of Vietnam’s prin-cipal features that attracts foreign investors has been its large and inex-pensive labour force. The low-skilled labour force demands a salary aslow as USD 50 per month in the foreign-invested sector, which gives com-panies an opportunity to reduce their labour costs. On the other hand,companies display a demand for skilled labour. It is estimated that in2005 the size of the labour force who graduated from universities ac-counted for only 5.28 per cent of the total labour force, although this isthe highest figure since 1996 (MOLISA, 2006: 160) (see Table 3.1).

Companies claim that the outputs of the educational system do notmeet the required inputs of the companies. The study of managementeducation was not a focus of colleges and universities. Until the early1990s, management courses, such as business administration, marketing,human resources and others, which are popular in more developed coun-tries, were virtually non-existent in Vietnam. In their surveys in the late1990s and early 2000s, with leading MNCs in Vietnam, William Mercer


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repeatedly identified that management and interpersonal skills continueto be a weakness of Vietnamese employees, which is experienced byforeign-invested companies. Recruitment difficulties are acknowledgedas one of the main reasons behind the rising and competitive compensa-tion and benefit packages and fast-track promotion for high performersin the foreign-invested sector. Interestingly, while MNCs exhibit a con-tinuous and rising need for talents, SOEs’ labour retrenchment meansthat they require minimum new labour input, with the exception of somenewly found and expanding industries such as banking and finance andinformation technologies.

In foreign-invested companies, high turnover rates of white-collarworkers illustrate the seriousness of the retention issue and the importanceof recruitment of new skilled staff. Companies typically report average an-nual turnover rates of 6–8 per cent, but for skilled staff, rates may go up to25 per cent (see Table 3.2). As a consequence of the shortage of skills,poaching and job-hopping are popular. Furthermore, in recent years, com-panies have experienced greater volatility in their operations in Vietnam.The expansion of their businesses might be curbed unexpectedly bychanges in government regulations regarding the operation of the industry,forcing the companies to slow down or temporarily cease production –such as the situation that motorbike producers faced in late 2001. Themixture of expansion and restriction makes workforce planning unpre-dictable and recruitment even more difficult.


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Table 3.1 The labour force’s educational level

1996 1999 2002 2005

Have no education 5.16 4.28 3.78 4.08

Less than elementary 16.98 18.42 16.04 13.17

Elementary school (grade 1–5) 21.12 28.61 31.56 28.99

Middle school (grade 6–9) 24.06 30.45 29.37 32.18

High school (grade 10–12) 21.28 10.69 11.26 11.56

Vocational training 9.05 4.18 3.86 4.74

University and higher education 2.35 3.38 4.12 5.28

Total 100 100 100 100

Source: Adapted from MOLISA (2006: 160).

A totally different picture has emerged in the state sector. Since DoiMoi, SOEs are required to be profitable. Enterprises that are not finan-cially sustainable are likely to be merged with other companies, declaredbankrupt and closed down. In order to achieve profitability, most SOEswere forced to significantly reduce the number of their employees (seeChapters 1 and 2). The problem of surplus labour has had an impact onthe studied enterprises. SOE FMCG2, for example, is a large enterprisethat has reduced their workforce substantially by 17.67 per cent during1990–2007. In 1990, the firm had 1,523 employees, which reduced to1,254 in 2007. This means the displacement of 269 employees. Similarly,SOE FMCG1 has reduced their workforce by 21.56 per cent, and SOEAuto4 by 23.42 per cent during the past 20 years.

Despite the substantial SOE labour force that has been restructured todate, case study evidence suggests that overstaffing, a legacy of the cen-trally planned system, is still evident in SOEs. An extreme example ofoverstaffing is evident in the comment of an HR manager. Reflectingupon the 12 accountants working in SOE Auto2, she was of the view that‘It was more than twice of what the company really needs’. Furthermore,overstaffing is a long-enduring problem for SOEs, as legal regulation


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Table 3.2 The studied MNCs’ turnover rates in 2007

Company Turnover rate (%)

MNC Auto1 16

MNC Auto2 19

MNC Auto3 32

MNC Auto4 �20

MNC Auto5 25

MNC FMCG1 14

MNC FMCG2 �15

MNC FMCG3 17

MNC FMCG4 19

MNC FMCG5 22

MNC FMCG6 17

Note: The annual rate of turnover could fluctuate from one year to the other and varysignificantly among case studies.

imposes obligations on enterprises in their treatment of surplus workers.They are required to re-train existing ones for any new positions, allowemployees to take extended leave, and put staff on reduced workload andpay and find or create suitable jobs for redundant workers (The 2002Amendment to the Labour Code, Article 17). The government has alsoimplemented a number of policies to assist surplus workers, such asfinancial incentives for enterprises who absorb surplus workers and aone-off payment to surplus workers who find other employment.Embedded in the socialist ideology for long, firms also believe thatmorally they are responsible for the well-being of their employees, whichincludes providing them with a continuous flow of job and income.Therefore, SOEs show great reluctance in hiring new labour, and insteadopt for retraining their existing workforce to suit their new requirements.If surplus labour cannot meet the new labour requirements, it is a commonpractice to take surplus workers from other firms.

In the process of dramatic downsizing and equitisation, which beganin the 1980s and late 1990s, respectively, SOEs consistently display avery low level of new labour requirements and also a very low level ofturnover rates (see Table 3.3). This finding seems to be controversial,given the generally low performance of the SOE firms and much less at-tractive salary package in SOEs. Employees remain with the state sectordespite the fact that they often complain about the low salaries officially


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Table 3.3 The studied SOEs’ turnover rates in 2007

Turnover rate of the Company whole workforce (%)

SOE Auto1 0

SOE Auto2 3

SOE Auto3 1–2

SOE Auto4 1–2

SOE FMCG1 2

SOE FMCG2 1

SOE FMCG3 3

SOE FMCG4 �1

Note: Turnover rates can fluctuate slightly over the years. However, turnover is higher inthe blue-collar work segment than in the white-collar one, which can go as low as 0%.

paid by the enterprises. Job openings in these firms also attract a largenumber of applicants. Top-level SOE employees benefit considerablyfrom ‘unofficial’ income that is concealed (see Chapter 5); meanwhile,shopfloor workers enjoy less-demanding, less-competitive and more-per-manent jobs. Furthermore, labour profiles in the state sector show thatSOE employees tend to be older and less skilled; therefore, their mobilityis more limited compared with that of the labour force in foreign-invested sectors.

3.3 Recruitment strategies

This section discusses the recruitment policies and practices of the investi-gated SOEs and MNCs. In particular, it examines how these companiesutilised internal and external recruitment channels. Internal recruitmentchannels consist of recruitment within the companies and recruitmentthrough joint venture (JV) partners in cases where the studied firms areJVs with Vietnamese SOEs. External recruitment channels consist of di-rect recruitment from the external labour market, recruitment by employ-ment agencies and recruitment through personal networks. Although allthe studied companies indicate the use of both external and internalchannels of recruitment, SOEs have a much greater tendency to recruitinternally based on internal promotions within the organisation and per-sonal recommendation, while MNCs rely more on the external labourmarket for their recruitment.

3.3.1 Recruitment in SOEsBefore Doi Moi in 1986, the concept of an external labour market didnot exist, as employees were assigned to enterprises by the government,except for a small proportion of the labour force who chose to enter theprivate sector. The government guaranteed permanent employment andlifetime welfare coverage in SOEs. The recruitment, allocation to firmsand dismissal of employees were all subject to the official approval ofstate personnel departments. If an employee wished to transfer to a newcompany against the wish of his/her current company, the companycould hinder the transfer by refusing to release the individual’s personnelfile. A personnel file contains the employee’s personal information suchas educational level, professional and salary ranks, political status and


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work history. Therefore, without the file, the employee cannot beallocated in the new enterprise, and face the risk of being cut off from thestate welfare system. Furthermore, geographical mobility was tightlycontrolled by a system of residence permits, which allowed persons tolegally reside and work in one area only. Transferring to another job orlocality also involved dealing with civil authorities who controlled resi-dence registration and food supply allocation. The two managementsystems, one at company level (employees’ personnel files) and one atnational level (residence permits), almost virtually eliminated labourmobility across firms and geographic regions, creating a tightly closedlabour market, and also constituted a form of social and political control(also see e.g. O’Connor, 1996).

However, these rules have been relaxed, and now SOEs justify theirR&S decision based only on the quality of candidates. In practice, SOEshave a clear tendency to recruit internally based on internal promotionsand personal recommendations. To a much lesser extent, they also giveout advertisements in newspapers to attract more candidates.

3.3.1.1 Recruitment through personal networks

The benefits of recruitment through personal networks are widely accred-ited. For example, DeWitte (1989) argues that people who are referred byother employees are better and more realistically informed about the joband culture of the organisation than those who apply through othersources. What is special in Vietnam is the intensiveness of the recruitmentby this method and the underlying power of the entangled web of personalrelationships.

Vietnamese personal networks can be best described as similar to theChinese ‘guanxi’, which is understood as a special kind of relationshipcharacterised by implicit rules of obligation and reciprocity (Yeung &Tung, 1996). The four main elements of guanxi are trust, favour, depend-ence and adaptation (Wong, 1998), which often influence decision-making(Wong, 1997). In a manner similar to guanxi, Vietnamese personal net-works influence much of the business conducted in Vietnam. Those whoare in charge of R&S functions in Vietnam are normally under an incred-ible level of pressure directly from their social circles and indirectly fromthose who belong to the social circles of these persons. Visits are paid,phone calls are made and even money changes hands to ensure that certainpersons are on the recruitment list. One of the most oft-cited reasons forfailing the recruitment process is ‘I do not have any connection with them’,


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as one blue-collar interviewed employee in MNC Auto4 explained whyhe failed to be selected for MNC Auto1, which was his first choice ofemployer.

The influence of personal networks is strong, and companies are will-ing to take advantage of them. Many enterprises give priority to hiringtheir employees’ immediate family members (parents, spouse, children)and relatives. It is not unusual to see up to three or four members of afamily (husband, wife, son/daughter, siblings) working in the same com-pany in Vietnam. Employment based on personal contacts often hasbeneficial effects for the management, since sponsors do not normallyrecommend low-quality people for fear of losing their own reputation.However, Verma and Zhiming (1995) assert that relations might affectthe implementation of HRM policies such as job assignment, rewardpolicies, disciplinary action and conflict management. In addition, the re-fusal of applicants with better qualifications, but without connections,will finally lead to a deterioration of the quality of the workforce. Howfar such personal networks can affect the fairness and the quality of R&Sin SOEs is hard to determine. But the truth is that in Vietnam in general,and in the investigated companies in particular, this is widely accepted byboth the recruited employees and the recruiters as part of the game.Although companies claim that they try to limit the negative effects ofpersonal networks through a selection process, they acknowledge the factthat the vast majority, if not all, of their new recruits have a direct con-nection of some kind with the companies’ management board or existingemployees.

3.3.1.2 Internal transfer and promotion

SOEs give priority to internal labour sources when it comes to targetingprospective candidates to fill vacancies in the office. It is customary thatvacancies are posted internally before any advertisement is made exter-nally. Promoting blue-collar employees to a position in the office, as along service bonus, is a norm in SOEs. Priority is given to those who havebeen working with the company for a longer time, with little considera-tion to their potential fit to the new job. The decision to access the inter-nal labour market brings in a number of distinct advantages. It is cost-effective, preserves organisational culture, promotes loyalty and motivatescurrent employees (Lauterbach & Weisberg, 1994). New employees whoenter the organisation via internal recruitment sources have more realisticexpectations than employees recruited via external recruitment sources


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(Moser, 2005). Furthermore, reliance on the internal labour market is asolution for labour surplus in the state sector.

3.3.1.3 Advertisement

To a much lesser extent, SOEs also use newspapers to attract a widerpool of candidates for office positions by posting advertisements. In thiscase, a company’s established name and reputation is the key to attract-ing job seekers to respond to an advertised position. ‘Wanted’ signboardsposted at the front gate are also used to recruit blue-collar workers.Companies may post recruitment notices in certain areas, especially to at-tract candidates who live in the immediate neighbourhood. This practicecan benefit the company in some ways, such as by minimising vandalismand theft by poor locals and establishing a good relationship with theneighbourhood. Notably, the automotive industry has a clear preferencefor recruiting men for blue-collar positions. Employers do not like hiringwomen for several reasons. One reason is the potential financial lossassociated with childbearing, but employers also show gender stereotypethinking and a lack of recognition of women’s skills. Although prohibitedby labour laws and other regulations, recruitment advertisements fre-quently specify ‘male candidates only’. In some SOEs, where the labourlegislations are expected to be respected, this overt discrimination stillexists.

3.3.2 Recruitment in MNCsIn the Vietnamese context, due to the constraints of the Vietnameselabour market, which is short of highly skilled labour, MNCs utilise allchannels of recruitment and maintain a balance between internal and ex-ternal labour markets. Recruitment through personal networks is alsovery popular in foreign-invested firms despite the fact that it has beencriticised as being biased and subjective.

3.3.2.1 Internal transfer and promotion

It appears that, as in their SOE counterparts, MNCs give priority to in-ternal labour sources when it comes to targeting prospective candidatesto fill managerial vacancies. It is customary that vacancies are posted in-ternally before any external advertisement is made. MNC FMCG1, for


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example, emphasises developing the internal labour market to the extentthat they refuse to recruit externally for vacant positions in the factory.External recruitment is only available at the head office for more trans-ferable skills such as in sales, marketing and financial posts. Reliance onthe internal labour market, as in the case of MNC FMCG1, might wellbe caused by the limited nature of the Vietnamese labour market, whichis unable to provide firms with the skills they need, and by the relativenovelty of the industry and technology, which requires a certain amountof training time for new staff to reach an efficient level of operation.Therefore, big firms tend to grow their own managers.

3.3.2.2 Recruitment through joint venture partners

In the past, at the start of operations, foreign partners in a JV often reliedon the Vietnamese partner to recruit employees (both blue-collar andwhite-collar ones) for the new establishment. Attracted by higher earningsin JVs and motivated by the need to downsizing their own workforce, theVietnamese partners would simply transfer some of their own employeesto the JVs. Interviewees alleged that sometimes this lot included relativesor friends of the Vietnamese officials who might not be qualified for thejob. These persons were transplanted directly into the new organisationwithout going through any selection process. Two main problems relate torecruiting employees from the Vietnamese partners in the JVs: they oftendo not have the right skills – production and management alike – and theyare deeply embedded in the social structure of SOEs. These employees aremore likely to perceive local companies as referents and value them asbenchmarks (see e.g. Björkman & Lu, 1997). Therefore, appointing per-sons from the local partner is likely to negatively impact on the practicesof the JVs.

As per the experience of the investigated companies, breaking the work-ing habit of the former SOE staff is more difficult than simply terminatingtheir contracts and recruiting new staff in their place. MNC FMCG1,MNC FMCG2 and MNC FMCG3 have experienced the conversion intoownership status with the significant increase in the foreign partners’shares. These companies believed that the old staff were incapable of cop-ing with the challenge of the new organisational structure, due to theirdeep embeddedness in the old system. A blunt strategy of making redun-dancies was applied. Three continuous redundancy processes were con-ducted in MNC FMCG1 in 1997, 1998 and 1999. Around 14 managers,together with nearly 250 blue-collar workers from the ‘old days’, weretargeted. The result is, at present, only one manager and about 50 workers,


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who were much younger and whose performances were rated far betterthan their cohorts, remain with MNC FMCG1. Similarly, MNC FMCG2and MNC FMCG3 have deliberately dismissed managerial staff memberswho were the input of the Vietnamese JV partners when the foreign part-ners bought the JVs outright.

Even though the direct transfer of personnel from the Vietnamese part-ners has been popular within JVs established in and before 1995, it hasgradually declined ever since. It seems that MNCs in Vietnam havelearned not to recruit the bulk of managers, professionals and blue-collarworkers from the local JV partners. They are now very careful in select-ing employees with the appropriate attitudes and capabilities, who arewilling and able to perform in the expected manner. This issue is nowoften stressed by MNCs during JV negotiations. Both parties in the JointVenture Contract agree upon a precise number of people from theVietnamese partners – most commonly for top management positions asstipulated in the Foreign Investment Law. The rest of the JV employeescan then be freshly recruited from other sources. In fact, companies haverecruited and selected workers from the Vietnamese partners under thestrict condition that successful applicants must fulfil certain criteria andundergo the same selection process as any external candidates.

3.3.2.3 Direct recruitment

MNCs invite applications by advertising in newspapers and magazines,attending job fairs and recruiting directly from graduates of educationalinstitutions. The most popular source of directly recruiting white-collaremployees is advertisements in newspapers, as it is the most effectiveway of reaching the wider and more dispersed target groups. However,companies have experienced problems in both attracting high-qualityapplicants and dealing with the large numbers of applications throughnewspaper advertisements, which makes the processing time consumingand inefficient.

Another source of direct recruitment of white-collar employees is uni-versities. Companies actively seek skilled candidates in universities by or-ganising a wide range of activities such as establishing direct connectionswith local technical schools and universities, offering the chance of fac-tory visits for students, holding campus recruitment activities, providingscholarships, sponsoring student competitions and activities, and so on.However, interestingly, companies that conduct such activities aim at thelonger-term objective of promoting their image among potential job ap-plicants instead of the shorter-term objective of having a regular intake of


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new graduates. In fact, none of the investigated companies recruit freshgraduates on a regular basis or give them any priority in the R&Sprocess. The main concern expressed with regard to hiring graduates isthe high turnover rate in this group.

3.3.2.4 Recruitment by employment agencies

As mentioned in Section 3.2.1, before 1998, in theory, foreign-investedfirms were required to send their requests for labour to the local ESO.In 1999, Decree 46/1999 ND-CP allowed foreign employers to directlyrecruit Vietnamese employees if the ESO were unable to meet the supplyrequirement within 30 days of the receipt of such a requirement.However, it did not solve the main problem: the inefficiency of the ESO.Companies have complained that the labour sources provided by theESO were plentiful in quantity but poor in quality, were very slow andfailed to meet any urgent needs.

Therefore, as far as the recruitment of white-collar employees is con-cerned, the normal practice was to perform a ‘fake movement’ – called soby the interviewed HR practitioners. Companies would inform the ESOof their needs and, at the same time, conduct their own recruitment.When the selection process would come to the end, companies would re-fuse the list provided by the ESO, which normally only arrived at thistime, on the basis of ‘unsuitability’, and would legally register their se-lected employees. This practice was popular among foreign-investedcompanies, with or without the unofficial consent of the local ESO.Interviewed HR managers noted that at some locations the local ESOshowed their tolerance of this practice, while others were stricter, inwhich case the companies would face troubles when registering newemployees who were recruited from outside ‘the formal channel’. Thisresulted in a small fine per case. However, if the incident was repeated,companies might be faced with the possibility of a labour inspection. Toovercome this problem, the investigated companies developed a counter-strategy. In case of an urgent need, the companies came to a verbal agree-ment with their new recruits to show their official joining date in thelabour contract one or two months later to legalise the recruitmentprocess. In this way, the companies took over the ESO’s recruiting func-tion while still acknowledging their administrative functions.

Since late 2002, foreign-invested firms have been allowed to directlyrecruit Vietnamese staff without having to go through the ESO. Eventhough the use of the ESO in recruiting skilled labour is extremely lim-ited, all of the investigated companies acknowledged that the local ESO


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are the main source of blue-collar worker recruitment, and may havecontributed up to 95 per cent of their blue-collar workforce. This is aneconomic and diplomatic decision. On the one hand, the local labourmarkets, which are abundant in non-skilled or low-skilled labour, pro-vide firms with more candidates than they are able to handle. Takinghelp from the ESO saves time, because they provide shorter lists of can-didates. Companies claim that they could receive a list of thousands ofcandidates if they do not provide the ESO with a limit. For example,MNC FMCG1 had asked the local ESO for 150 candidates for 100 va-cancies, while MNC FMCG3 had asked for up to 500–600 candidatesfor 150 vacancies. Recruiting local persons through local ESO to fillshopfloor positions also saves time. Companies save commuting costs,as well as recruiting costs, when compared with other recruitmentmethods. On the other hand, by using the local labour force, whichhelps to reduce underemployment and unemployment rates, and thuspushing up the local economies, companies maintain a better relation-ship with local authorities that may turn out to be extremely useful intheir operations.

Another type of recruitment process is through employment agenciessuch as non-state ‘recruitment consultants’ and ‘executive search con-sultants’, commonly known as ‘headhunters’ in the Vietnamese labourmarket.3 This is however practised only by big firms for recruiting man-agerial and skilled workers. It seems to be much more popular with non-Asian MNCs than with Asian ones. MNC FMCG1 and FMCG5, forexample, widely use this channel. Long-term contracts are signed withseveral headhunters with corporate discount rates. But some AsianMNCs such as MNC Auto2 and MNC FMCG4 claim that they havetried their services, but reckon that even though employment agenciespresent their candidates within the agreed time span, the quality of can-didates is ‘not much higher than the average of the market’. Thus, theydecided that using them is not cost-effective.

3.4 Selection strategies

This section discusses the selection strategies of the investigated SOEsand MNCs. It is argued that the selection process of SOEs is simple, sub-ject to personal agenda and has a low level of reliability and validity. Onthe contrary, MNCs strongly adapt to the limitations, constraints andopportunities they face in the Vietnamese labour market. There is


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evidence of MNCs shortening the selection process to meet with the con-tingency nature of R&S in the Vietnamese market and diluting globalselection criteria to respond to a scarcity of labour at the skilled end, andof skills and knowledge at the low-skilled end, of the labour market.

3.4.1 Selection in SOEsThe first step of the selection process is to establish a selection and inter-view panel. The structure of the panel is probably the first sign of changesin the selection process within the state sector. Back in the 1980s, the man-agement of the Vietnamese SOEs was under the supervision of the fourcommittees, consisting of the Communist Party representative(s), theboard of directors, the trade union representative(s) and the youth unionrepresentative(s). Often the trade union representative was either the man-aging director or the deputy managing director, and was therefore seen asclosely linked to management (Fahey, 1995). The selection panel oftenconsisted of representatives of these four committees.

However, since Doi Moi, the situation has changed. The new structureof the panel is quite similar across firms and industries. To maintain stan-dards of selection, a panel of at least three (it can be up to four or five) isestablished, including one representative of the personnel/HR depart-ment, one functional head and one member of the board of directors. Thecomposition of the panel clearly shows the tendency towards a devolve-ment of responsibility to line management, which in general is a new prac-tice in SOEs.

A typical, simple process for selecting white-collar and blue-collarworkers consists of reading a written application to make the first cut,then conducting interviews and finally a probation period for the newlyrecruited employee. For blue-collar workers, a manual dexterity test isnormally required. In some companies, applicants do not need to gothrough any interviews. Candidates are required to produce a medicalcertificate before they start working. An illustrative example of the sim-ple selection process is given by SOE FMCG3. After the initial screeningand shortlisting process, which is based on the job description, inter-views are conducted by a board comprising an HR manager, senior linemanagers and a vice director or general director. After the interviewstage, the HR department asks the selected candidate to submit a med-ical certificate as an evidence of being in a healthy state to do the job.The process ends when the candidate presents the medical certificate andthe labour contract is signed. Probation period varies from three to six


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months, depending on the position. No case has been reported where thecandidate failed the probation. Interviewed managers have revealed thatthe selection costs are minimal for both white-collar and blue-collarworkers.

HR managers have revealed that SOEs rely highly on interviews as aselection method. Interview questions are to ascertain an applicant’s qual-ities such as logical thinking, general business awareness and, moreimportantly, attitude. Interviews are unstructured and no scoring key isused. The use of interviews in SOEs is believed to possess inherent prob-lems and is not sufficient to identify the best candidates. More valid andreliable selection methods are absent in SOEs, as an HR manager noted:

Although we are aware of different selection methods, such as abilitytests, psychometric tests, assessment centres and other advancedmethods of assessment used in MNCs, we only need a very limitedamount of labour input, thus economically it does not make sense toadopt a systematic and costly selection process.

The use of more sophisticated selection methods could be quite costly ifthe organisations do not have any appropriately trained staff (which isnormally the case) and instead have to acquire professional help fromoutside. However, as most applicants would be transferring from otherfirms in the same General Corporation, HR managers can informally col-lect information about the candidates from his/her current and formeremployers and colleagues before the interviews.

Before the interview, a copy of the candidates’ CVs is given to eachmember of the interview panel. The majority of HR managers have re-vealed that it is a common practice to have some informal discussionwithin the interview panel before the interviews, in which not only thecandidates’ qualifications, skills and abilities but also their relationshipwith their sponsors (who either work in the company or have connec-tions with those in power in the company) are discussed. In many cases,the selection decision is made before the interview is ever conducted.

Furthermore, the selection criteria have not changed since the daysof the centrally planned economy. In particular, the selection criteriafor managerial appointments are still based on education, personality,self-confidence, work experience and good attitude. The strongest em-phasis is placed on the applicants’ educational qualifications. It is notedthat managing directors, vice managing directors and, in some cases,senior managers are appointed directly by a higher authority, namely theGeneral Corporation management or the relevant ministry. The selection


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criteria in these cases are not published and focus on political reliability,education qualifications, previous working performance and personalconnections/links of the candidates within the power circles.

3.4.2 Selection in MNCsA typical process for selecting both white-collar and blue-collar workersincludes at least four steps. The process consists of reading a written ap-plication to make the first cut, an interview, a health check and a proba-tion period – not necessarily in this order. In the majority of cases, thecompanies may require different types of tests (including written test)and/or two rounds of interviews. For blue-collar workers, a manual dex-terity test is normally required. An illustrative example of the extremelycareful and rigorous selection process is given by MNC Auto3. The com-pany’s selection process includes a written test, which is designed, sent toand marked in the company’s headquarters, a first interview before apanel of interviewers, a second interview approximately a week later, aphysical examination, a drug test and a probation period for the success-ful applicant. The first interview is conducted by a local personnel man-ager and respective immediate superiors, which is supervised or joined bytwo or three expatriate managers. The second interview normally in-volves top managers, where a vice general director or a general directoris often present. To be a blue-collar worker in MNC Auto3, a candidatehas to pass a manual dexterity test as well.

Induction and probation are considered as an extension of the selec-tion process. Firms have used the induction and probation period tore-emphasise the companies’ values, especially in Japanese firms, and forfurther testing the new recruits in a ‘real working context’, as put by theMNC Auto2 HR manager. The probation period – typically threemonths – is actively used to further classify new recruits. It has a specialmeaning in the studied Vietnamese subsidiaries where selection criteriaare diluted to match the knowledge floor of the local labour market.MNC Auto2 claims to use the probation period as a final selection de-vice. The final interview with the general director is only held after thecandidates pass the probation period. If the candidates do not performwell enough, their immediate supervisor can decide not to take them onand the selection process ends there. MNC Auto2 claims that around5–6 per cent of candidates fail to get through probation and thus fail tobe selected. Other companies have confirmed that the performance ofnew recruits in this period influences their decisions on the type of labour


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contract, and its specific terms, they will sign with the new employeesafter the probation period.

A rigorous and expensive selection process is not a collective practicein the foreign-invested sector. Operating in the same flourishing motor-bike market, MNC Auto4 has no intention of following such a rigorousselection process. In the FMCG industry, MNC FMCG3 and MNCFMCG4 also adopt simple selection processes, especially for manualworkers. Cost, time savings and the sort of candidates the companywants to draw from the labour market explain this low-cost strategy.They look for manual workers (packers) with good health, and as far aseducation is concerned, basic literacy is sufficient. The company thereforebelieves that selection of packers should be a simple and straightforwardbusiness. In comparison, the automotive industry and other factories inthe FMCG industry need a higher skills level in their employees and adopta more complex selection process accordingly.

It is evident from the case studies that ‘foreign’ tests are of little use totest the locals’ knowledge. Instead, selection tests are designed by a groupof Vietnamese staff on the basis of the following:

1. the knowledge they believe is necessary to perform the job’s tasks;

2. the basic and/or advanced knowledge of the main subjects relating tothe job the candidates are applying for (this part is based on the contentof relevant subjects taught at high school, college or university);

3. the skills and/or knowledge that the companies wish the successfulcandidates to possess (these tests can be made to comply with theglobal format or can be totally localised).

With regard to the selection criteria, the MNCs show a high degree ofsimilarity as they all lay emphasis on the job applicants’ capability, workexperience and job performance. In their global ‘competence list’, candi-dates for white-collar positions are rated based on educational and train-ing experience, past performance, leadership, commercial awareness,teamwork spirit, communication, motivation, adaptability, resourceful-ness, interest in position, knowledge, behaviour, command over English andso on. However, in Vietnam, some managers claimed that it is hard to meas-ure some ‘Western concepts’, such as ‘motivation’ and ‘resourcefulness’.They are not confident with these notions and are concerned that theycannot accurately rate candidates on these criteria. An interview with anHR manager at the regional level of the same company also reveals thatmarking candidate performance and filing selection results, in particular,and the selection practice, in general, are ‘loose’ in Vietnam because of


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the lax legal system regarding this issue. The interviewed expatriate pro-vided an example that a subsidiary in Australia, for instance, has to bevery careful in rating candidate performance, and keeping such data, toprotect itself in case of any queries or lawsuits regarding issues such as‘equal opportunities’, while it is not the case in Vietnam.

When the global selection criteria seem to be impractical, the investi-gated companies opt for more ‘practical’ criteria. It is found that regard-less of their industries and their nationalities, companies make their se-lection decision mainly on the basis of two factors: language skills andattitude. However, the problem is that fake language accreditations arereadily available, because they have become an ‘entrance ticket’ to com-panies, including those that have nothing to do with foreigners.Therefore, companies have begun to organise their own English tests to‘pick out those who possess tons of language degrees but cannot under-stand what they are asked in a speaking test’ (MNC FMCG3 HR man-ager). As far as attitude is concerned, companies particularly look forthose who show ‘dynamism’, ‘swiftness’ and, most importantly, ‘the abil-ity to learn quickly’ – traits which are considered essential, given the lowquality of labour input.

Last but not least, there has been an ongoing debate about the‘domestic brain drain’, where the foreign-invested sector attracts moretalented employees out of the domestic labour market than SOEs as theyoffer higher salary and benefits and better training opportunities (see e.g.O’Connor, 1996; Bonwick & Associates, 1999). This study acknowl-edges the existence of the phenomenon. For example, painters are a ‘rarecommodity’ that the studied automotive companies seek, due to severalpractical reasons. As the size of the factories in Vietnam is relativelysmall, automotive factories are equipped with semi-automatic produc-tion lines, which means advanced painting techniques (cathode electro-deposit) are present hand in hand with less sophisticated ones (spraying).Different components of a product are made from different materials,and unfinished products are subject to minor scratches and marks.However, a single monotone colour coat of paint needs to be achieved onthe surface of the finished product. This requires good painters, whoseabilities lie between technical skills and the arts. Highly experiencedpainters of SOEs in the automotive industry are hunted by foreign-invested companies. In fact, two senior painters of MNC Auto2 wererecruited from its Vietnamese JV partner, while one of MNC Auto1 waspoached from MNC Auto2. It is not surprising that skilled professionals,after accumulating work experience at SOEs and becoming more desir-able in the labour market, are likely to move to the foreign-invested


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sector for higher salaries, better training opportunities and more dynamicwork environment.

However, the move from an SOE to an MNC is a calculation, with bothpull and push factors that cannot be easily untangled. Top-level execu-tives, with their movement to an MNC, can bring with them their valu-able networks, contacts and experience, but they are often in their 50sand less inclined to move. Furthermore, as mentioned in Section 3.2.2,top-level SOE employees benefit considerably from ‘unofficial’ incomethat is concealed, meanwhile shopfloor workers enjoy less-demanding,less-competitive and more-permanent jobs (which also applies to white-collar workers). The ‘war for talents’, created by rising salaries for thehigh-end segment of the workforce in Vietnam, is perhaps much morepredominant in newly found and expanding industries such as the bank-ing, finance and information technological industries.

3.5 Conclusions

This chapter has investigated staffing practices in the state and foreign-invested sectors in Vietnam and shows that there are significant differ-ences between R&S practices in the two sectors (see Tables 3.4 and 3.5).As far as recruitment is concerned, one of the main differences betweenstate and foreign-invested companies is the preference displayed by SOEsto recruit internally, based on internal promotions, internal transfer andpersonal recommendation, while MNCs rely more on the external labourmarket, such as direct advertisement, recruitment agencies and head-hunters. Internal recruitment not only helps to solve the issue of laboursurplus, but also motivates current employees to perform better and in-creases job security and employee commitment to the organisation.However, relying heavily on internal recruitment and being unwilling tochange this practice has created stagnation in SOEs.

When comparing SOEs and MNCs in terms of selection criteria, thefindings have revealed that the selection process in SOEs is simple, subjectto personal agenda and has a low level of reliability and validity. As far asthe selection criteria are concerned, SOEs show strong preference for ed-ucational qualifications and harmonious characters. Nepotism is stillprevalent in selection decisions. Furthermore, top-level positions are nor-mally appointed rather than selected. On the contrary, some MNCs use awide range of selection techniques, such as written examinations, psy-chometric tests and assessment centres. They are also strongly adaptive to


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Table 3.4 Recruitment methods of SOEs and MNCs

Internal channel External channel

Internal Personal Transfer Career University transfer networks from JV fair recruitment Advertising ESO Headhunters

SOE Auto1 ✓ ✓ ✓

SOE Auto2 ✓ ✓ ✓

SOE Auto3 ✓ ✓

SOE Auto4 ✓ ✓

SOE FMCG1 ✓ ✓ ✓ ✓

SOE FMCG2 ✓ ✓ ✓


SOE FMCG4 ✓ ✓

MNC Auto1 ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

MNC Auto2 ✓ ✓ ✓ ✓ ✓ ✓ ✓

MNC Auto3 ✓ ✓ ✓ ✓ ✓ ✓

MNC Auto4 ✓ ✓ ✓ ✓

MNC Auto5 ✓ ✓ ✓ ✓

MNC FMCG1 ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

MNC FMCG2 ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

MNC FMCG3 ✓ ✓ ✓ ✓ ✓

MNC FMCG4 ✓ ✓ ✓ ✓

MNC FMCG5 ✓ ✓ ✓ ✓ ✓

MNC FMCG6 ✓ ✓ ✓ ✓ ✓ ✓ ✓

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Table 3.5 Selection criteria of SOEs and MNCs

1st 2nd Written Assessment Manual Health interview interview test centres Presentation test check Probation

SOE Auto1 ✓ ✓ ✓ ✓

SOE Auto2 ✓ ✓ ✓ ✓ ✓




SOE FMCG2 ✓ ✓ ✓ ✓ ✓



MNC Auto1 ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

MNC Auto2 ✓ ✓ ✓ ✓ ✓ ✓ ✓

MNC Auto3 ✓ ✓ ✓ ✓ ✓ ✓

MNC Auto4 ✓ ✓ ✓ ✓ ✓ ✓

MNC Auto5 ✓ ✓ ✓ ✓ ✓ ✓

MNC FMCG1 ✓ ✓ ✓ ✓ ✓ ✓ ✓

MNC FMCG2 ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓


MNC FMCG4 ✓ ✓ ✓ ✓ ✓


MNC FMCG6 ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓


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the limitations, constraints and opportunities they face in the Vietnameselabour market. There is evidence of companies shortening the selectionprocess to meet the contingency nature of R&S in the Vietnamese marketand diluting global selection criteria to respond to a scarcity of labour atthe skilled end, and of skills and knowledge at the low-skilled end, of thelabour market.

What can be observed in the Vietnamese labour market is that there is aclear distinction in many job applicants’ perception of job requirementsand the nature of the work environment in the two sectors. Jobs in SOEsare perceived as suitable for those seeking less-demanding, less-competitiveand more-permanent jobs, with a prospect of earning ‘unofficial’ incomewhen employees reach managerial positions; meanwhile jobs in MNCsare considered as very demanding, but highly paid, with good learning anddevelopment opportunities. Drawing on the traditional recruitmentchannels, SOEs do little to break this perception, and as a result, there is aconsiderable gap in the quality of labour that these two sectors attract.Consequently, this has implications on job performance and attitudes inthe two sectors. Furthermore, selection criteria have not advanced far fromthe old days of the centrally planned system. Emphasis is still placed heav-ily on the personal contacts that a candidate possesses. Selection processesare often very simple and are totally lacking in the use of more reliableselection methods. Taken as a whole, the findings in this chapter indicate aweak transformation of the staffing practices in SOEs.

Notes1. Decree 85/1998/ND-CP, issued in 1998 by the Vietnamese government,

regarding the control and management of employees working in foreign-invested firms.

2. Decree 46/1999/ND-CP, issued in July 1999 by the Vietnamese government,regarding the recruitment of employees in foreign-invested firms.

3. Some of the well-known employment agencies are William Mercer,PricewaterhouseCoopers, Ernst & Young, Hay and BA (foreign-investedfirms), and TD&D, Sy Minh and BCC (Vietnamese firms).

Performance management

4.1 Introduction

Although there is no universally accepted model of employee perfor-mance management (PM), it often includes setting up an employee’sobjectives, monitoring and measuring the performance of the employee,providing feedback on the results and, possibly, rewarding and planningto improve future performance (Mabey & Salaman, 1995). Togetherwith the reward system, PM is central to the regulation of the employ-ment relationship and ensures that employees are motivated to fully ex-ploit their competencies (Bamberger & Meshoulam, 2000).

The objective of this chapter is to examine PM systems in SOEs andMNCs in Vietnam. The chapter is structured as follows. Section 4.2 outlinesPM systems in SOEs during the centrally planned economy and the currentpractice of PM since the introduction of Doi Moi, and diagnoses to whatextent PM is currently utilised to serve administrative, judgemental andemployee development purposes. Section 4.3 examines the PM systems inMNCs’ subsidiaries. Finally, some brief conclusions close the chapter.

4.2 Performance management in SOEs

This section examines and compares the PM systems in SOEs under thecentrally planned economic system and after Doi Moi, across five mainfunctions of a PM system, namely setting performance objectives, moni-toring performance, evaluating performance, providing feedback, andplanning for future performance. It argues that PM in the state sector has

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4

gradually shifted from a politically oriented bureaucratic process to-wards an equitable system that emphasises individual achievement.However, the PM system still neglects identifying training needs to im-prove current performance and preparing for future career-developmentopportunities.

4.2.1 PM under the centrally planned economyPrior to Doi Moi, PM was an important element of personnel adminis-tration in Vietnam. Performance appraisals were usually conductedonce or twice per year, facilitated by the administration department.PM, during this period, was a lengthy and highly hierarchical process,involving staff at all levels of the company, including the employees, theproduction lines, the departments, the company’s board of directorsand the representatives of mass organisations (see Table 4.1). Therewas an intensive intervention from mass organisations. Any PMdecision had to be made with the concurrence and under the supervi-sion of the ‘Four Committees’, consisting of the Communist Party rep-resentative, the board of directors, the trade union representative, theyouth union representative, and sometimes the women’s associationrepresentative.

Performance criteria were vague and included factors such as politicalattitude, work attitude, work performance, technical skills, cooperationand personal (harmonious) relationships with colleagues, especially withthe managers, etc. Two non-performance criteria, namely political atti-tude and work attitude, were commonly used for evaluation of employ-ees’ performance. In this way, performance appraisals were subject tovagueness and were thus open to individual interpretation. However, it isvery important to note that although PM lacked well-defined and meas-urable criteria and other appraisal techniques commonly used in Westernmarket economies, PM in SOEs could be highly objective as the compa-nies allow ‘democratic’ voicing of opinions in performance appraisals,which means that opinions from a wide range of employees are gatheredin order to achieve a ‘democratic’ evaluation of an employee’s perform-ance. Although the PM system operated in a hierarchical order, in whichthe decision of the committee at a lower-level needed approval of theimmediate higher-level committee, the evaluation of an individual’sperformance was conducted in the open and in the presence of theemployee and all of their colleagues, and the results were made public.


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Step 1 Employee Self-evaluation

Step 2 (appliedfor blue-collarworkers only)

Productionteam

■ Review employee’s self-evaluation■ Compare among team members■ Approve or revise self-evaluation■ Report to the production managerEvaluation was conducted in an openperformance review meeting attendedby all team members, productionteam heads and representatives of massorganisations.

Step 4 Trade unioncommittee

■ Administration staff members collectthe performance rating fromdepartments and production lines

■ Report to trade union committee■ Review departments’ and production

lines’ overall ratings■ Compare performance across

departments and production lines■ Advise performance rating distribution

for each department and production line

■ Evaluation reports were then returnedto departments and production lines

Step 3 Department/productionlines (1)

■ Review employee’s self-evaluation■ Compare the performance with other

members of the department (white-collar workers) or production line (blue-collar workers)

■ Approve or revise previous evaluation■ Report to the trade union committeeAt the departmental level, evaluation wasconducted in an open performance reviewmeeting attended by all members,department heads and representativesof mass organisations. At the level ofproduction lines, participants includeproduction line heads and representativesof mass organisations.

Table 4.1 The hierarchical process of PM in SOEs under thecentrally planned economy

Step Level Content

(continued)


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■ Revise evaluation rating of allemployees in their departments andproduction lines according to theinstruction given by the trade unioncommittee

■ Report to the company’s performanceappraisal committee

At this stage, the evaluation decisionwas made in a closed meeting, attendedby department heads or productionline heads, their deputy heads andrepresentatives of mass organisations.

Step 6 Performanceappraisalcommittee

■ Administration staff members collectthe performance rating fromdepartments

■ Report to the company’s performanceappraisal committee, which comprisedof the board of directors andrepresentatives of mass organisations

■ Final decision was made■ All individual performance ratings were

made public■ Complimenting titles were granted

(Excellent Employees, CompetitiveSoldier, Labour Hero)

Table 4.1 (Continued)

Step Level Content

These practices allowed an objective view of an individual’s performancefrom multiple sources.

Finally, the role of PM during the centrally planned economy in SOEsshould not be neglected. It was considered an important element of per-sonnel administration, as employees’ performance, especially those ofcadres, was recorded in their personnel file, which would move withthem from organisation to organisation. Although PM did not have animmediate influence on payment, it played a vital role in the life of SOEemployees as it formed the basis for job promotion, desirable transfersand the distribution of welfare benefits such as, and most importantly,allocating heavily subsidised or free housing.

4.2.2 PM since Doi MoiSince the economic reform, SOEs have been under great pressure to re-main economically viable and competitive, and as a result have revisedtheir PM systems with the aim of breaking the old practices of egalitari-anism, which did not distinguish between high and low performers anddid not link performance to rewards. There have been some attempts toadopt Western PM practices. However, changes have only been partiallysuccessful, and PM systems still serve more an evaluation purpose ratherthan a developmental purpose.

4.2.2.1 Setting performance objectives

Before the reform, SOEs were directly controlled and managed by thegovernment. Both managers and employees paid little attention to pro-duction targets, knowing that operating profits were pre-determined inthe plan and losses were made up from the government budget expendi-ture (Vu, 2002). Now, as a legacy of the centrally planned economic sys-tem, organisational objectives are not normally conveyed to low posi-tioned employees and there is a very weak link between organisationalobjectives and individual performance objectives. SOE employees areonly vaguely aware of company plans; thus, they neither consciouslystrive to achieve common organisational goals nor attempt to link theirindividual performance objectives with that of the company. Noticeably,the majority of firms reported that no individual performance objectivesare set biannually or annually. Employees are expected to ‘fulfil theirtasks as reasonably expected’, as put by Auto SOE3’s vice managing di-rector. Furthermore, motivation to perform is not high in an environmentwhere underperformers are not likely to be penalised or fired and the re-cruitment of new talents is restricted, given the limitations in recruitmentand selection activities faced by SOEs.

SOE FMCG1, however, is an exception, where the company alignscompany business objectives and individual objectives using BalancedScorecards1 to set business objectives and successfully engage their em-ployees in this process. It is noteworthy that the company is a pioneeringcase in Vietnam that applied new practices in PM and its success provesthat SOEs can potentially learn and use best practices in PM as amanagement tool.

The previous PM system in SOE FMCG1, the performance appraisal cri-teria system, did not reflect the company’s strategic priorities, and employeeswere not directly responsible for their work unit/department/firm’s


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performance. In December 2003, the company started the equitisationprocess and more than ever before, embarked on the task of achievingcommercial success. The company’s board of directors realised that theperformance criteria were difficult to accurately measure, and that thePM system had become a formality that provided no real value. In 2001,inspired by the success of foreign-invested firms in the same industry, andurged by the need to align performance and payment, the managementdecided to adopt Balanced Scorecards, with some assistance provided bya consulting firm.

The board of directors and the top management team agreed on thecompany’s strategic objectives and incorporated these objectives into acompany-level Balanced Scorecard. The companies share their businessobjectives and targets, embodied in the company’s Balanced Scorecard,with their employees and actively encourage them to suggest strategiesby which these targets can be achieved. The company’s BalancedScorecard was then cascaded down to all departments, work units andemployees, who then developed their own Balanced Scorecards in a man-ner that was in alignment with the company-level objectives. An individ-ual’s performance plan was then prepared by the employee and approvedby his/her direct manager and assigned for the next 12 months. Individualscorecards view organisational performance from different perspectivessuch as finance, cost, customer satisfaction, growth, etc. As a result, com-pany employees had clearer objectives, measures and performance targets.Their efforts and performance determined the levels of pay, benefits andbonuses they received. In this way, the company motivated and linked in-dividual performance to company objectives and achievements. The com-pany so far has achieved some improvements in vertical and horizontalalignment, as a result of its Balanced Scorecard implementation.

4.2.2.2 Monitoring performance

Depending on the company, PM is held once a year at fixed intervals. Thefinal year-performance review is backed up by mid-year review andregular check-ups by heads of department or production lines. In arelationship-based society2 like Vietnam, regular check-up is a norm.Direct supervisors, and colleagues in the same work unit, often noticefirst hand any changes in an employee’s work performance and the rea-sons thereof. Reciprocating good deeds, such as offers to cover somework, change shifts, etc. to help colleagues achieve their objectives indifficult times are common. This practice not only helps managers to


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identify performance problems before they become serious, but also pro-vides the employees with a support mechanism – which is said to beimportant in the Vietnamese context. However, regular check-ups andinterim performance reviews are better understood as informal discus-sions and daily interactions than formal reviews.

4.2.2.3 Measuring performance

Performance criteria are quite similar across the studied SOEs, as revealedin the companies’ standardised performance appraisal sheets. While theappraisal criteria are different for each company, they, in general, consistof four broad areas, namely work achievement, work attitude and effort,collegial relationship and potential for further improvement. An overallgrading from excellent, good, pass or poor is required for the first threecategories. PM process still is a highly hierarchical process, as depicted inTable 4.2.

Compared to their own systems prior to Doi Moi, political attitudeand the ability to maintain a harmonious relationship with co-workers,colleagues and managers are still highly valued. These appraisal criteriaare vague, hard to measure and open to individual interpretation andfavouritism. On the other hand, the ‘performance’ criteria, which areused to evaluate an employee’s work effectiveness and real contributionsto the organisation, have been given much more attention since the eco-nomic reforms. However, in the majority of cases, with the exception ofSOE FMCG1, the performance measurement is based mainly on thecompletion of tasks specified in the individual contract, irrespective ofthe company’s performance.

There is little change recorded at the shopfloor level for blue-collarworkers. A worker’s performance is assessed mainly on the basic of theirproduction quantity and quality. Quantified workload, tools and ma-chine maintenance, labour discipline, and safety are the areas assessed.To a lesser extent, cooperation demonstrated that personal relationshipswith colleagues, especially with the leaders, are also important to havegood results. In contrast to the PM process for white-collar workers,performance is rated mainly at the level of execution.

It is noteworthy that since Doi Moi, the PM process has been separatedfrom the intervention of mass organisations, such as the party, the tradeunion, the youth union and the women’s associations, although trade unionrepresentatives are still informed of the final performance-rating decisions.Nonetheless, the importance of working attitude, in general, and political


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Step 1 Employee Self-evaluation


■ Review employee’s self-evaluation ■ Compare the performance among

members of department (white-collarworkers) or production line (blue-collarworkers)

■ Approve or revise previous evaluation ■ Report to the company’s

administration/HR departmentAt departments, evaluation is conductedin an open performance review meetingattended by all employees and departmentheads. At production lines, evaluations arereviewed by production heads.

Step 4 Administration/HR department

■ Administration/HR department collectsthe performance rating fromdepartments

■ Review departments’ and productionlines’ overall ratings

■ Compare performance acrossdepartments and production lines

■ Advise performance rating distributionfor each department and production line

■ Evaluation reports were then returnedto the departments and production lines


■ Revise evaluation rating of allemployees in their department andproduction lines according to theinstruction given by theadministration/HR department

Step 2(applied forblue-collarworkersonly)

Productionteam

■ Review employee’s self-evaluation■ Compare among team members■ Approve or revise self-evaluation■ Report to the production managerEvaluation is conducted in an openperformance review meeting attended byall team members and production teamheads.

Table 4.2 The hierarchical process of PM in SOEs after Doi Moi

Step Level Content

attitude in particular, are still predominant in SOEs. To be promoted to toppositions, preference is given to an employee who is a Communist Partymember, or at least a potential party member who is under party’s consid-eration and supervision. ‘Red does not mean leader, however to be a leader,you must be red’ is still a common expectation in SOEs.

Since Doi Moi, the major purpose of performance assessment is shiftedto linking payment to individual performance. Although sincere attemptsto link performance to payment are recorded (emphasis on performancerather than seniority and attitude, the introduction of pay for perform-ance, etc.), it is evident that the old practice of egalitarianism still lingerson. Of an organisational workforce, normally more than 70 per cent israted in the top-two performance levels in a four-level rating system,namely excellent, good, pass and poor. The forced distribution of per-formance ratings, which can be used to control the numbers of employ-ees above or below a specific level, is not utilised in SOEs.

In a relations-based society like Vietnam, employees are inclined toinvest personal time and resources to cement harmonious workingrelationships with key managers and their peers, sometimes at the


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Step 6 Performanceappraisalcommittee

■ Administration/HR staff memberscollect the performance rating fromdepartments

■ Report to the company’s PerformanceAppraisal Committee, which comprisedthe board of directors andrepresentatives of trade union

■ Final decision was made■ All individual performance ratings were

made public■ Complimenting titles were granted

(Excellent Employees, CompetitiveSoldier, Labour Hero)

■ Report to the company’s performanceappraisal committee

At this stage, final evaluation ratings aredecided in a closed meeting, attended bydepartment heads or production lineheads and deputy heads.


Step Level Content

expense of their personal gain. Such investments may include elaborategifts, private parties, family visits, offer to cover work for sick colleagueswithout extra pay, etc. It is uncommon for Vietnamese employees toshow their dissatisfaction with the lack of an equitable rating distributionin case it hurts their working relationships. Being sick, injured or unfor-tunate events befalling on immediate family members, such as death orcritical illness, are, in many cases, accepted as excuses for substandardperformance and might not result in being penalised in performance rat-ing and, thus, payment. On the other hand, there are reported cases offemale employees, who have just returned to their posts after maternityleave, willingly accepting a lower performance-rating level in order to ‘befair’ to other hard-working peers. Similarly, high performers, who haveremained at the highest performance-rating level for a couple of years ormore, voluntarily accept a lower rating to ‘give a chance’ to those behindthem.

4.2.2.4 Providing feedback

The exchange of formal performance feedback is an imperative elementof the PM system. As mentioned above, SOEs exercised ‘democratic’voicing of opinions in performance appraisals, where opinions from allemployees working in the same department or production line are gath-ered in order to achieve a ‘democratic’ evaluation of an employee’s per-formance. However, Vietnamese employees have a non-confrontationalstyle of communication, as they try to minimise the loss of face andpreserve harmonious relations. Negative feedback and areas for im-provement are normally provided and recorded in vague terms only (e.g.working attitude needs to be improved, performance can be enhanced),where more detailed feedback is preferably given in informal talks insome private place out of the working hours.

Interviewed managers revealed that they are hesitant to criticisechronic low performers as it would do more harm than good to theirwork units and harm the harmonious working environment. Further,the current state sector’s employment system, which favours long-timeemployment, makes it very difficult for managers to dismiss theseemployees. With few exceptions, performance appraisal meetings are usu-ally considered a formality. Negative feedback is only received indirectlywhen production lines/departments are sometimes forced to downgradesome employees’ performance ratings as instructed by the company’sperformance appraisal committee.


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4.2.2.5 Planning for future performance

In theory, performance appraisals should include not only short-rangegoals, such as justifying merit increases and identifying candidates forpromotion, but also long-range goals, such as detecting employees’ train-ing needs to improve future performance and identifying their career de-velopment aspirations and opportunities (Foot & Hook, 1996). Whenperformance feedback indicates that an employee did not attain their ob-jectives due to insufficient capabilities, it is their manager’s responsibilityto help the subordinate to identify their training needs, and provide suit-able training to fill in the capability gap. Discussing long-term careerplans and opportunities, within the scope of PM, also have positiveeffects on employee motivation and loyalty.

It is evident that although SOEs use PM systems to justify pay forperformance and salary increases and identify candidates for promo-tion, all of which are considered short-range goals, they do not use thistool to implement any long-range goals. It is evident that SOEs showmore emphasis on the assessment of past performance than on planningfuture development. Although all the studied SOEs claim to have train-ing programmes for their employees, it is generally considered the em-ployees’ responsibility to be appropriately trained (see also Chapter 6).There is a very weak link, if any, between the results of an employee’sperformance appraisal and any training and development opportunitiesthey might receive in the near future. In practice, career planning anddevelopment are hardly discussed during the performance appraisalprocess. To advance in their career, individual employees must seek outand take advantage of opportunities offered by the organisation’s ca-reer development programmes, or, in the majority of cases, seek coursesand training programmes outside the organisation, where they mustpay for themselves. There is neither a formal procedure for replacementof, nor career path made by managers and/or the HR department, foremployees.

4.3 Performance management in MNCs

This section examines the PM practices of the studied MNCs. It shows thatin the foreign-invested sector, PM practices are diverse. A wide range ofadvanced PM tools and techniques, including the use of Balanced Score-cards, SMART objectives, 360-degree feedback and forced distributions,


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are found in non-Asian firms. However, in Asian MNCs, PM is charac-terised by a top–down performance objective setting, an informal andregular performance review, and performance appraisals conductedstrictly top–down and allegedly suffering from favouritism and lack ofopenness.

4.3.1 Setting performance objectivesThe studied American- and European-based MNCs report systems oftop–down alignment. The company’s objectives are cascaded down to de-partment’s, team’s, manager’s and employees’ objectives. Each employeeis required to set their own performance objectives based on their teamand manager’s objectives. Each objective needs to be provided with ameasurement of success and achieved within a deadline. Employees thenhold a discussion with their manager on their objectives, measures of suc-cess and timings, and make the relevant changes. The manager’s approvalmust be obtained before the performance objectives are logged into thesystem, either in the hard copy kept by the HR department or in soft copystored by the company’s HR information system.

Balanced Scorecards are a popular PM tool. The Balanced Scorecard ofMNC Auto1, for instance, is built on a regional/global one. It includesfive key business priorities: volume revenue and market share, cost andbusiness structures, product programme and execution, quality and cus-tomer satisfaction, and people and safety (Figure 4.1). This allows head-quarters to measure how each subsidiary is performing with a similarmeasurement system and common criteria. Each department in the sub-sidiary develops its own business plan which is linked to the company’sBalanced Scorecard. Individuals and teams in departments throughoutthe company then translate the higher-level strategic objectives intopersonal and team objectives.

In order to clarify as much as possible an individual’s objectives andresponsibilities, companies use SMART objectives. SMART objectivesare set to be stretch and specific (objectives should be challenging andstate exactly what will be achieved); measurable (objectives must bequantifiable so that performance can be checked); aligned (there mustbe a clear link between the objective and the business BalancedScorecard); realistic (while objectives should be challenging they shouldalso be achievable); time–target (objectives should specify a completiondate and milestones). Even though MNC FMCG3 does not use the


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Balanced Scorecard and SMART objectives, there is an extensive use ofmeasurable objectives. In essence, there is one principle controlling thesetting of individual objectives: to use measurable objectives to achieveclarification in individual objectives by supporting a more precise rank-ing of employees and ultimately linking performance to the incentiveand reward systems.

The studied Asian MNCs also report a system of top–down align-ment. The top–down process, however, ends at departmental heads inthe office and production line heads in the factory. While the targets setfor the production area are relatively fixed, there is a certain degree offlexibility in setting individual objectives in the office area. White-collaremployees are expected to take ‘fringe tasks’ when they arise. In somecompanies, target setting is a one-way process, with little engagement ofthe subordinates.3 Individual objectives are set but not written down,


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Figure 4.1 MNC Auto1’s Balanced Scorecard

Quality & CustomerSatisfaction• Objectives and targets (SMART)• Measures

Product Program &Execution• Objectives and targets (SMART)• Measures

Volume Revenue & MarketShare• Objectives and targets (SMART)• Measures

Cost & Business Structures• Objectives and targets (SMART)• Measures• Initiatives

People & Safety• Objectives and targets (SMART)• Measures• Initiatives

Company’sobjectivesand targets

which significantly damages the reviewing process. One interviewedprofessional in MNC Auto4 has stated:

The setting of objectives has been extremely one-way. He [her im-mediate supervisor] sets the department’s objectives and allocatestasks to individuals. We will do what we are told to do. It is hard tosay that you do not feel comfortable with this or that objective. Hemight feel you are not heartily enthusiastic with your job or, worse,you are not capable of doing it. Also, you should be prepared topick up any work that turns up unexpectedly on the way . . .

Vietnamese employees differ in their opinions about this practice. Someexpress their objections, while some willingly accept it. Expatriates andVietnamese top managers provide comments, which are later cross-checked by the author with lower-level employees as accurate, that manyof their employees are happy to have their objectives set for them.Explanations could include the passive attitude rooted in the Vietnameseeducation style, respect for hierarchical order and the typical Vietnamesenon-confrontational attitude.

4.3.2 Monitoring performanceCompanies normally review an employee’s performance once or twice peryear in accordance with their headquarters’ accounting and financial prac-tices. The annual and six-monthly PM is often backed up by interim as-sessments. Besides maintaining mid-year and annual performance reviews,Asian managers are said to rely more on informal discussions and daily in-teractions than on formal reviews and resulting discussions to rate theirVietnamese subordinates. Performance coaching and counselling, if neces-sary, are offered in non-Asian firms. When significant variation in per-formance is considered a warning sign of an underlying problem, compa-nies offer the chance to discuss and assist employees. In this case, however,whether the employee chooses to follow the counselling process or not,he/she is still expected to achieve the specified performance objectives.

4.3.3 Measuring performanceThe performance evaluation criteria used in MNCs consist of a numberof factors such as work performance, knowledge of the job, quantityand quality of work, managerial and leadership skills, teamwork, etc.


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They are normally set at the MNCs’ headquarters. For example, MNCFMCG3 uses global performance evaluation criteria, which include twomain criteria, namely leadership qualities and work results. Leadershipqualities consist of building talent, collaborative, decisive, innovative,inspirational and visionary. While the qualities are the same for everyone,the descriptive behaviours for how the qualities are demonstrated varywith the employee’s roles. Work results are assessed against the per-formance objectives set at the beginning of the performance appraisalcycle.

Performance evaluation, which is based on a combination of employ-ees’ performance results and behaviours (working attitude), is not an ex-clusive pattern that only occurs in Vietnamese SOEs; MNCs, includingnon-Asian firms, evaluate individual behaviours too. The performancerating form of MNC FMCG1 requires a lengthy rating of individualcritical behaviour, which includes attendance at work and other plantactivities; adherence to plant safety/security standards and practice;confronting improper behaviours; adapting personal behaviour tobecome a part of the work team; recognising and utilising the contri-butions of people from diverse backgrounds, gender and level in theorganisation, etc.

Individual reviews for professionals and managerial staff are morecomplicated than for blue-collar workers. For the former group, inter-views with the employees and their immediate supervisors are conductedindividually, while the evaluation of blue-collar workers is carried out ina meeting with their team, in which each team member’s performance isdiscussed openly in the presence of their colleagues. Simple as they are,open discussions and individual reviews always exist at the shopfloorlevel. In most of the case studies, performance reviews are linked directlyto their pay (see section ‘Pay for performance’ in Chapter 5).

In MNCs, advanced PM tools and techniques are widely applied, whichis illustrated by the use of the 360-degree feedback technique used in theUS and European firms and forced distributions of performance ratings inall US firms. The premise behind the 360-degree feedback is that the bestway to understand and improve one’s performance is to gather andprocess feedback from multiple sources that are in contact with one’s serv-ices, which include their peers, supervisors, customers, etc. (Stone, 2008).The 360-degree feedback is applied solely to top management, whichmeans about less than 10 employees in each company are subject to thistype of performance review. The implementation of top-management360-degree feedback is managed at the regional level. The list of raters ischosen randomly from the employee’s relationship map. They then access


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the form on the intranet, fill in and send it electronically to the regionalheadquarters. The HRM department in Vietnam is not directly involved inthis process except inasmuch as they provide the employees with sufficient‘competence’ to take part in this process by organising in-house perform-ance seminars beforehand.

The distribution of performance ratings is seen as a sharp tool to notonly evaluate individual performance but also to create competition topush up performance among employees. It is noted that while using dis-tributions of performance rating is also a popular practice in VietnameseSOEs, the ‘forced’ element is what makes some MNCs different andmore aggressive in their attempt to link performance and the pay system(see Table 4.3). The flexibility of the distribution varies among firms.Some firms keep a firm grip on the top performer’s end, while others paymore attention to the ‘needs improvement’ end. Forced distributions alsoinfluence an employee’s future career with the firm. High performers inthese companies are promoted to a higher position when the opportunityarises. On the other hand, employees who fall in the lowest group mightbe faced with counselling, improvement plans, etc. and are not able to re-sign their labour contracts with the companies if they are in the bottomgroup for two or three consecutive periods.

The 360-degree feedback includes upward rating which is unfamiliar,and might be considered as incompatible, in a hierarchical society likeVietnam. Meanwhile, the forced distributions system promotes com-petition among colleagues, and thus can damage their harmoniousrelations. Presumably, the transfer of these technologies into theVietnamese subsidiaries could be faced with strong reactions and evenrefusal from the local employees. However, in practice, no particularconstraints on the implementation of the 360-degree feedback andforced distributions are recorded, except for the high cost of educationinvolved in the 360-degree feedback process, especially as the examin-ers are expected to be chosen from a multiple of sources that mayinclude external ones.

This smooth transfer might be a result of the newly liberated businesssystem at the macro-level, and a cultivated ‘foreign culture’ in the studiedfirms at the micro-level. The breakdown of the centrally planned econ-omy, leading to the collapse of the communist model of an egalitarian ap-proach of income distribution, makes the ‘capitalist countries’ methods ofdistributing principles’, which are strongly based on individual perform-ance, more acceptable to the society in general and employees in particu-lar. Vietnamese employees have come to consider performance-relatedpayment as an important dimension of modern PM practices. At the


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Table 4.3 Performance rating distribution system applicationsin MNCs

Forced distributions

Company White-collar employees Blue-collar employees

MNC Auto1 A (5%–10%), B�, B, C. ‘Looser’ forced distributions areapplied for blue-collar workers.

MNC Auto2 S (special), A, B, C. No forced distribution is imposed.However, normally S and A occupy 5%–10%. A global forceddistribution system is being considered.a

MNC Auto3 A, B�, B�, C. No forced distribution is imposed byheadquarters. However, company distributes rankingsas follows: normally A accounts for about 3%, B� 10%and B� 20%.

MNC Auto4 1, 2, 3. No forced distribution is imposed, although thepercentage of 1 is normally around 5%–10%.

MNC Auto5 A, B, C. No forced distribution is imposed.

MNC FMCG1 1 (15%–20%), 2 (65%–70%), 3 (15%).

MNC FMCG2 Exceptional (15%), meet Ratings are the same as expectation (80%), below white-collar employees. expectation (5%). However, forced distribution

is not applied.

MNC FMCG3 Exceed expectation (20%), Ratings are the same as meet expectation (70%), white-collar employees. less than average (10%), not However, forced distribution rated (for temporary workers). is not applied.

MNC FMCG4 Ratings are conducted but no forced distribution. There arefour ratings: outstanding (91–100 marks/100), very good(81–90 marks), satisfactory (71–80 marks), needs improve-ment (61–70 marks) and non-satisfactory (below 61 marks).

MNC FMCG5 There are three ratings: exceptional, meet expectation orbelow expectation. Forced distribution is applied; however,the information on the distribution is not communicated toemployees. All ratings are solely decided by expatriatemanagers.

MNC FMCG6 Ratings are conducted but no forced distribution. There arefour ratings: outstanding, very good, good, competent andunderperforming. However, the number of ‘high potential’within the outstanding group is limited to 1 or 2 only.

aQuestionnaire with regional headquarters.

company level, employees have a positive perception of American/European standards of ‘fairness’ and ‘straightforwardness’, whichreflects a common perception about the way Westerners conduct businessin general. This is seen as a refreshing and welcome work environment.Many managers assert that they will not work for SOEs (again), becausethey are nurtured in, and get fond of, this work environment, as onemanager of US FMCG3 recounted:

I used to work for another MNC, and then I had my first child. Myhusband and I decided that I should move to a SOE to reduce theworkload and have more time with my family. However, I left aftersix months. I suppose I got used to a foreign invested company’sworking atmosphere. I’m no longer sensitive and patient enoughwith personal networks, unnamed and untransparent rules and allthose things . . . I’m tired of bending my back and lowering my head.So, here I am in MNC FMCG3. The workload is even heavier . . .but I’m happy to be here.

4.3.4 Providing feedbackPM systems in the non-Asian MNCs are consistently marked by a highlevel of employee participation in the process and the openness of theprocess. Evaluation of individual performance is open for discussion, andif employees disagree with the performance evaluation rated by theirsupervisors or colleagues, they can voice their concerns and ask for are-evaluation. Immediate supervisors and HR managers are responsiblefor organising interviews to ‘check and balance’ evaluations to minimiseunfairness or favouritism. The final ratings are decided by both parties.

On the other hand, the PM process in Asian-based MNCs involves noface-to-face discussion. Vietnamese interviewees state that the processlacks openness, and the fairness of the process is dubious and can be sub-ject to favouritism, especially in the case of white-collar workers wherethe assessment of employees is solely done by direct supervisors.Interviewed managers report that their bosses have the final say in theirrankings, and it is not unusual that they use this right to upgrade ordowngrade the rankings significantly, based on their personal view of theemployees. In fact, this practice has significantly reduced Vietnamesemanagers’ trust in the meaningfulness of the PM process that they them-selves conduct. Many of them consider the process as a documentaryrequirement and/or a judgemental tool rather than a developmental tool.


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The halo effect (Cooper, 1981), which means the tendency to let one rat-ing dimension influence all rating dimensions, is evident in these twocompanies. The HRM plant manager of MNC FMCG4 says:

Even if I do not fulfil my target this year, but my boss believes in mypotential, I’m still rated very highly. I suppose they have differentperspectives, based more on their perception of a particular person.

In the same line of argument, MNC Auto3’s salary specialist adds thatthe system allows for favouritism in the workplace, where the assessmentis on surface behaviour rather than on long-term performance. She says:

They [managers] have a rather fixed perception about each of theiremployees. They do have their ‘favourites’ . . . One of my colleaguesplayed a game once on his computer during the working time, andour boss caught him in action. After that, nothing could change hisidea about him [my colleague], even though for sure he has notbeen the only one who plays games in working hours. There was arather uncomfortable atmosphere after that between his boss andhim . . . The guy felt it and he probably thought it meant the end ofhis career in this company. He left two months ago, roughly fourmonths after the incident.

Although the practice of top–down appraisal, which heavily depends onmanagers’ personal evaluations, is in line with some aspects ofVietnamese culture, such as respect for authority and hierarchical orders,Vietnamese employees in general are dissatisfied with this PM practice.This may be explained by the fact that this practice is contrary to the cus-tomary Vietnamese practice – which has been predominant in SOEs fordecades – of ‘democratic’ voicing of opinions in performance appraisals.Thus, the relationship between national cultural traits and their influ-ences on firms’ behaviours is indeterminate and complex. In this case,respect for authority and hierarchy is traditionally implemented in a fash-ion that stresses openness and ‘democratic’ participation in decision-making.

Mendonca and Kanungo (1990) believe that performance appraisalpractices with a more confrontational mode of feedback during the ap-praisal discussion may not be effective in developing countries where ‘facesaving’ is important. Weldon and Jehn (1993) argue that Chinese man-agers and professionals are more concerned about collective welfare andharmonious relations than personal gain. The findings of this research in


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the investigated MNCs reveal that this is not necessarily the case. Relatingto the performance review discussion, difficulties involved in providingand receiving direct criticism in Vietnam are acknowledged. Interviewedexpatriates admit that they sometimes have to ‘tone down’ their criticism,if they have any, to their local employees. Criticism, which is consideredharsh, rude or unfair, may deteriorate the manager–subordinate relations.The situation can get worse in the Vietnamese context where unfair criti-cism would be faced with nothing but silence from the side of theVietnamese employee. Moreover, word of mouth, which is popular in aVietnamese workplace, might also be the cause of misconceptions aboutthe manager and result in the deterioration of relations between that man-ager and other Vietnamese employees who are close friends or relatives ofthe employee. A Japanese MNC’s subsidiary, which is one of the pilot casestudies of this research, reports a case of the Vietnamese employeesboycotting a Japanese manager, due to his ‘improper manner’ to theVietnamese subordinates. This led to a refusal to extend his work contractin Vietnam.

Nevertheless, it is argued that the problem of direct criticism is more apotential than a real difficulty, and that cultural values are not over-whelming constraints to the implementation of PM, as long as expatri-ates and local managers are sensitive enough towards the issue. TheMNC FMCG1 plant director states that he has good and thorough dis-cussions with Vietnamese employees, which also covers negative issues.His success may be explained by the fact that this expatriate has managedto build a good relationship with locals during his five-year stay inVietnam. His subordinates add that the positive result is due to the man-ager’s amicable nature and a certain degree of tolerance for a ‘foreigner’by the employees.

4.3.5 Planning for future performanceIt is evident that MNCs not only use PM systems to achieve short-rangegoals (merit increase, pay for performance and promotion) but also usethis opportunity to set long-range goals. PM systems in the majority ofMNCs provide an equitable and transparent framework for constructivediscussions between supervisors and employees about past performanceefforts, identifying personal strengths and weaknesses, giving recognitionto significant achievements, defining strategies to address identified per-formance issues, career aspirations and a long-term professional devel-opment plan.


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Based on this discussion, training and development relevant to individ-ual performance areas, professional aspirations and longer-term organi-sational needs are offered to employees. Some companies report the useof performance planning to address issues relating to the immediateimprovement of the current job tasks, and career planning to deal withthe individual’s skills and preferences to fulfil their career aspiration inthe future. While the basic responsibility for training and developmentplanning rests with individual employees, the organisation’s role is todevelop an environment for personal growth, provide training and devel-opment opportunities and promote internally whenever possible. Basedon the results of the PM process, some companies, such as MNC Auto1,MNC FMCG1, MNC FMCG2 and MNC FMCG6, provide employeesof great potential with coaching services, regular non-judgemental feed-back and encourage employees to do their best (see also Chapter 6).

4.4 Conclusions

This chapter has examined PM in SOEs and MNCs in Vietnam. In thestate sector, the PM system strongly focuses on short-range goals, namelyjustifying merit increases and identifying candidates for promotion,whereas long-range goals, such as detecting employees’ training needs toimprove future performance and identifying their career developmentaspirations and opportunities, are neglected. With the development of eco-nomic reforms, PM is in a gradual transition from a politically orientedbureaucratic assessment towards an equitable system that aims to breakegalitarianism by linking performance to compensation and placingstronger emphasis on merit and achievements.

In the foreign-invested sector, the transfer of advanced PM systems isrecorded with some instances of adaptations to the local situation. Thischapter has demonstrated that there are substantial differences betweenVietnamese and MNCs’ PM practices. The differences have been sug-gested to encompass the criteria of how employees are evaluated, themethod of evaluation, the source of appraisal, etc. A wide range ofadvanced PM tools and techniques, such as Balanced Scorecard, SMARTobjectives, 360-degree feedback and forced distributions, are successfullytransferred to the Vietnamese subsidiaries. With a close-loop process, PMsystems in non-Asian firms provide a more equitable framework forreviewing, rewarding and developing human resources. PM systems inAsia-based MNCs are characterised by a top–down process of both


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objective setting and performance reviewing, and thus allegedly sufferfrom favouritism and lack of openness.

Finally, this chapter acknowledges certain cultural influences on thepractices of PM. However, the successful implementation of the 360-degreefeedback and forced distribution system, and the limitation of top–downappraisal processes that lack openness and employee participation, illus-trates the transience and indeterminacy of national cultural traits.Against Hofstede (1980), and other culturalists, who see some unchang-ing national differentiation on culture, this chapter illustrates thatcultural values can actually evolve. The transitional period in Vietnam,which has witnessed the fall of the centrally planned system and its prom-ises, is receptive to new and seemingly contrasting practices. As arguedby Gamble (2001), cultural traits such as attitudes to hierarchy are oftencomplex and ambiguous, provoking different responses in differentsituations.

Notes1. The Balanced Scorecard is a strategic planning and management system that

aligns business activities to the vision and strategy of the organisation, im-proves internal and external communications and monitors organisation’sperformance against strategic goals. The Balanced Scorecard provides a more‘balanced’ view of organisational performance, from both the financial per-formance side and the employee’s perspective, which in turn helps the organi-sation to achieve their optimal long-term performance goals (Kaplan &Norton, 1992).

2. Li, Park and Li (2004) and Maurer and Li (2006) distinguish relation-basedand rule-based societies. A rule-based system relies on public order, or the ruleof law, to govern business, thus excluding the use of private relations tocircumvent public rules. On the other hand, a relation-based society relies onprivate relations to govern business, thus circumventing public rules.

3. Kaizen, a philosophy which provides suggestions for improvement, on theother hand, is a bottom–up process.


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The reward system

5.1 Introduction

An employer’s reward system determines the wages and benefits pro-vided to their employees (Dessler, 2003). The importance of the rewardsystem to the successful operation of an organisation has been wellrecognised (Storey, 1992; Kessler, 1995; Roth & O’Donnell, 1996).From the company’s perspective, it is a communicator of the organisa-tion’s objectives and a powerful tool to manage and shape the work-force’s behaviour. From the employees’ perspective, a well-designedreward system recognises their abilities and efforts and encourages theirengagement, productivity and loyalty. In a market where skilled staff arein demand, such as Vietnam, job-hopping and employee poaching arepopular; thus, in order to hire and retain such staff, the design, imple-mentation and management of employee reward systems are of para-mount importance.

The objective of this chapter is to look into the current systems ofsalary and other income (allowances, benefits, bonuses and supplemen-tary income) in SOEs and MNCs in Vietnam, both in terms of legal andregulatory documents as well as real practices. The chapter is structuredas follows. Section 5.2 examines the constraints and opportunities thatthe Vietnamese environment poses to the design and implementation ofcompany remuneration practices. Section 5.3 examines the salary systemand section 5.4, the allowance, benefit and bonus practices of the studiedfirms. Some brief conclusions close the chapter.

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5

5.2 Factors influencing companies’ reward systems

The Vietnamese business environment poses two main constraints oncompany reward systems, namely the legislation regarding remunerationpolicies in state and foreign-invested firms and the labour-marketimperfections.

As far as legislation is concerned, the government regulates state sectorand foreign-invested sector with two different sets of laws. In the statesector, the government stipulates the principles for developing the salarysystem (employee specifications, salary scales and salary tables), mini-mum salary and salary ratio. Under the pressure of rising living costs andinflation and competition from the private and foreign-invested sectors,in recent years the government has increased the minimum salary levelseveral times.1 Most recently, Decree 166/2007/ND-CP,2 proposed by theMinistry of Internal Affairs, Ministry of Labour, War Invalids and SocialAffairs (MOLISA) and the Ministry of Finance on adjusting salary andsocial subsidies and reforming the salary management mechanism, raisedthe minimum salary level to 540,000 VND (about 33.75 USD) permonth, effective from 1 January 2008. This salary is based on a maxi-mum of eight hours per day, six days per week and is equivalent to a dailysalary of 22,493 VND (about 1.4 USD). Even with the new regulation,the minimum salary level in SOEs is lower than that of MNCs.Furthermore, SOEs are required to consult enterprise trade unions andtheir salary systems have to be registered with higher authorities, namelyGeneral Corporations and the local labour authority.

On the other hand, foreign-invested companies are free to apply eithertheir own reward system or the Vietnamese one (Circular 11/LDTBXH-TT, Article 2a).3 The question of increasing or decreasing the minimumsalary in the foreign-invested sector has long been debated. During theperiod from 1990 to 2007, the Vietnamese government reduced the min-imum salary level in foreign-invested companies three times, from 50 USDto 30 USD per month.4 This shows that the government favoured theidea of maintaining a low minimum salary level. Some arguments sup-port this move. First of all, the minimum salary level in the foreign-invested sector has already been shown to be higher than that of the statesector. Any increase in the minimum salary in the foreign-invested sectorwill worsen the brain drain process from SOEs to foreign-invested firms.Inevitably, more qualified and competent workers have been attracted byjoint venture enterprises, due to the wage difference between these two


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sectors. Second, a low minimum salary in foreign-invested companies is amust in order to compete with neighbouring countries for foreign capital.In the past, some of the neighbour nations had, at times, an even lowerminimum salary of 27 USD, in contrast to Vietnam’s minimum salary of50 USD. Considering Vietnam’s young population, with more than halfof it in the working age, a low income is argued to be better than to beunemployed or under-employed.

However, in 2007, under great social pressures caused by rising wavesof strikes in labour-intensive foreign-invested companies, the governmentissued Decree 168/2007/ND-CP5 that raised the minimum salary in thissector up to 50 USD again. Recently, there has been a change in govern-ment attitude towards salaries in the foreign-invested sector. In particular,the rate of increase of the minimum salary for workers in the foreign-invested sector is kept lower than that of the state sector. The aim is toreach the same level for all enterprises, following Vietnam’s WTO com-mitments (non-discrimination between forms of business). It is expectedthat by 2012, Vietnam will have a common minimum salary for allenterprises (Personal interview with MOLISA conducted in 2007).

Furthermore, foreign-invested firms are required to make some contri-bution to two publicly managed funds: social insurance and medical in-surance. Employers are to contribute 15 per cent of gross salary for socialsecurity (employees contribute 5 per cent) and 2 per cent for health insur-ance (employees contribute 1 per cent). The system was recently over-hauled, positively affecting high-income earners. The Law on SocialInsurance, which came into effect in January 2007, caps salary at 20 timesthe minimum wage for contribution purposes. For higher-paid employees,who might earn 60 or more times the minimum wage, this reduces contri-butions significantly in comparison to the past.

As far as the labour market is concerned, at the skilled end of thelabour market, companies encounter the problem of lack of qualified andskilled candidates in some fields such as computing, marketing, humanresource management, etc. This is a ubiquitous problem in Southeast Asiaas a whole (Hainsworth, 1993; Kuruvilla & Venkataratnam, 1996). Inthis context, job-hopping in a bid for a higher salary has become popu-lar. The labour market thus puts upon companies certain pressures in de-signing their remuneration package to retain their employees, or at leastthe valuable ones. Moreover, most interviewed companies consider highpersonal income tax for local staff as the biggest constraint to their salarypolicies. Since 1994, the government has reduced the rates of personalincome tax several times. However, companies still claim that theVietnamese tax rates are very high and effectively place a barrier to the

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upward progression of Vietnamese employees, as they advance to posi-tions of authority within an organisation.

5.3 Salary systems

This section discusses in detail the salary policies and practices of the stud-ied firms. The state sector has witnessed major changes in its salary system.A dual system of ‘hard’ salary, which strictly follows the government’ssalary system, and ‘soft’ salary, which is distributed in accordance to indi-vidual performance, co-exists. The future tendency is to place stronger em-phasis on the ‘soft’ system or individual performance. On the other hand,in the foreign-invested sector, the systems are highly centralised, in termsof the defined position in the salary market, the permitted salary range andthe compensation structure, which places a great emphasis on individualperformance-related pay. However, there are instances where centralisedpolicies are translated into practices and procedures in a manner that issuited to the local situations and preferences.

5.3.1 Salary systems in SOEsPrior to Doi Moi, SOEs had very little discretion over workers’ wages.Wages were calculated according to a government pay scale. Salary in-creases were largely determined by the length of service and politicalattitudes, and bear no relationship with economic performance of thefirms. Salaries were paid roughly 60 per cent in kind in the form of foodcoupons and subsidised commodities and 40 per cent in cash (Che, 1995,cited O’Connor, 1996). The gap between the grades was small in order toachieve ‘egalitarianism’. This system gave rise to a very severe problem.Given their lack of accountability and the egalitarian salary system, em-ployees were not obliged to perform well. Moreover, as they were to re-ceive no extra benefit even if they performed better, most employees hadlittle incentive to improve their performance. Ultimately, this led to thenotoriously low productivity and inefficiency of the SOEs.

In the wake of the Doi Moi period, the government has given special at-tention to the remuneration policies in order to make them more relevantto the new economical situation. The new salary system has been in oper-ation since 1 April 1993 with two government decrees 25/CP6 and 26/CP7

dated 23 May 1993. While the salary system remained centrally controlledby the government, SOEs are now responsible for designing of their own


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reward systems, in line with their operating situation and on the principleof remunerating according to performance. They however must pay andpromote their workers in conformity with the government’s policy onsalaries and wages. Every worker now earns an income corresponding tohis or her work performance. The government only imposed a floorincome but not an income ceiling (Le, 1997; Nguyen & Tran, 1997). Wagedifferentials within the state sector between skilled and unskilled workershave been increased. These changes were seen as a big move towards mon-etising salary, replacing and abolishing the system of subsidised distribu-tion, and towards reproducing the labour force (GTZ, 2006).

Presently, the salary system of Vietnam consists of five components:

1. Salary scale for elected offices: it is applied to citizens elected to lead-ing positions in the state institutions: the national assembly, the gov-ernment. It covers positions from the state president to vice-chairmanof district people’s committees.

2. Salary scale for professional civil servants working in judiciary andlaw-enforcing branches.

3. Salary scales for civil servants working in administrative and profes-sional fields.

4. Salary scale for army and police officers, and personnel having perma-nent jobs in military and security services.

5. Salary scale for personnel working for SOEs.

According to Decree 25/CP, the salary is calculated as follows:

Salary � Minimal salary level � Salary ratio

According to the Labor Code, Article 56, ‘the minimum wage is set onthe basis of the cost of living of an employee who is employed in the mostbasic job with normal working conditions.’ When the cost of living in-creases, resulting in the decrease of the real salary, the government adjuststhe minimal salary level. The minimal salary level determined in April1993 was 110,000 VND. Since then there have been fluctuations in bothprice index and inflation, requiring the government to adjust the minimalsalary level several times. In January 2008, the minimal salary level wasincreased to 540,000 VND.

In terms of salary ratio, the ratio between the minimal salary level, theaverage salary level and the maximal salary level has also been increasedto the most recent figures of 1:2.34:10 (Official Document 01/BCDTLNNissued on 13 January 2005). This shows that the government has

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recognised the necessity to widen the gap between unskilled and highlyskilled labour. The salary ratio for an employee is determined by a com-plex matrix of salary ladders and salary schemes. A combination of awide range of salary factors, such as employee’s educational background,work experience, seniority, the industry, the size of the enterprise thatone works in, position titles, standards required by their occupied posi-tions, working conditions, etc. determines the salary ratio. For example,for workers directly involved in business and production, there are twosalary ladders that are divided in accordance with 21 industrial sectors.In total, there are 423 salary ratios, the highest of which is 4.24 (forworkers in mining and in drilling systems in the ocean), the lowest is 1.08(for workers making ice creams).

Many researchers (e.g. Nguyen, 2004, 2005; GTZ, 2006) have pointedout constraints in the salary system, such as the salary system is too com-plex; there are far too many salary schemes, grades and steps; employeescan gradually proceed through salary schemes and ladders without theneed to improve their performance; seniority is strongly emphasised; andthe salary ratios do not reflect precisely the characteristics, complexityand the work nature of each job. More importantly, the SOE salary isinsufficient for employees to maintain an average living standard. A recentsurvey on the actual expenditure of a household of civil servants hasshown that the official income is only 2,888,000 VND per month,whereas the minimal living cost required is 4,178,000 VND. Thus, theincome satisfies only a proportion, 69 per cent, of the living cost (GTZ,2006: 32). In this situation, SOE employees must find other jobs to sup-plement their income, leading to low productivity and limited work stim-ulation in the state sector. For many employees, supplementary incomefrom additional jobs provides an important contribution to the level ofincome necessary to satisfy their families’ living needs. Coupled with amuch lower salary when compared to the private and foreign investedsectors, it is difficult for SOEs to attract and retain talent. Currently, noeffective solution has been found for this problem.

5.3.1.1 Pay for performance

Evidence of a transforming HRM system in SOEs is most clearly observedin their attempt to minimise the legacy of the centrally planned economy’segalitarianism by linking individual performance and payment.

On the one hand, the 1994 Labour Code stipulates that the govern-ment determines the salary schemes and ratios to be applied for all SOEs


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in a unified way; on the other hand, the government provides SOEs withautonomy in salary allocation. Case studies show that while salary sys-tems remain within the government’s framework, there is evidence of dif-ferent incentive mechanisms. Investigated SOEs have successfully devel-oped and adopted a dual salary system consisting of two parts, namely a‘hard’ salary, which strictly follows government’s salary schemes, and a‘soft’ salary, which is sensitive to firm’s performance and individual’s per-formance. The ‘soft’ salary enhances the effectiveness of the salary systemand helps to increase productivity.

Dual salary system in SOE Auto2: an exampleSOE Auto2 introduced a new salary system in 2002. It was the result of aconsulting and discussing process that lasted more than one year betweenthe company’s salary specialists and each work unit in the company. Thecompany’s dual salary system can be represented by the followingequation:

Ti � T1i � T2i

where Ti: salary of employee number i; T1i: basic salary of employeenumber i determined by Decree 25/CP (‘hard’ salary); T2i: performance-related payment, independent of Decree 25/CP (‘soft’ salary).

T2i is calculated as follows:

where Suc: salary budget of the work unit. Each work unit is assigned witha percentage of the total salary budget of the company in accordance withthe significance of their contribution to the firm; Sud: salary budget ac-cording to Decree 25/CP of the work unit, , and m is thenumber of employees; ni: actual working days of employee number i; hi:salary ratio, defined by the enterprise, according to the complexity level ofthe job, responsibility level and performance level of employee number i.

For workers whose salary is calculated according to the number ofproducts they produce, their salary is calculated as follows:

T � Lp � q

where T: salary of the employee; Lp: the labour price of each product; q:the quantity of the product produced by the employee.

Sud = ami=1T1i

T2i =

(Suc - Sud)

amj=1njhj

ni hi

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In reality, depending on the firm’s economic performance, T1i (the‘hard’ salary) fluctuates around 40–60 per cent of the total salary re-ceived. The remaining 60–40 per cent is ‘soft’ salary. The more finan-cially successful the company, the higher the proportion of ‘soft’ salary.

The HR director of SOE Auto2 confirmed that their employees earnedhigher incomes compared with their colleagues who work in SOEs inother industries. However, compared to the salary offered by the newjoint ventures and wholly foreign-owned companies in the same field,their salary policy lagged behind. He added:

The managing director [of SOE Auto2] is paid less than 1,000 USDa month while CEOs of non-state companies could easily earn morethan 3,000 USD per month, not including other allowances, bene-fits and bonuses such as the right to purchase at favourable pricecompany shares or other special treatment.

This is a common problem in other investigated SOEs and, in general,the state sector. A survey conducted at 500 enterprises of state, privateand foreign-owned enterprises around the country by MOLISA hasrevealed that SOEs were at risk of losing skilled labour due to large gapsin salary structure among different sectors and professional levels.Managers in foreign-invested companies received much higher salaries incomparison to equivalent positions in other types of enterprises. Theiraverage monthly salary rose from 11.1 million VND (690 USD) inDecember 2004 to 12 million VND (750 USD) in June 2005. Meanwhile,the average monthly salary of managers in SOEs rose from 3.9 millionVND (244 USD) to 4.3 million VND (269 USD) and in the private sectorfrom 2.9 million VND (181 USD) to 3 million VND (188 USD) duringthe same period (Vietnam News, 2006). Unless SOEs revise their salarypolicies, the foreign-invested sector will continue to attract higher quali-fied and educated employees.

5.3.2 Salary systems in MNCsCompanies identify their strategies and positions in the industrial salarymarket following headquarters’ general policy and direction. For exam-ple, MNC Auto1’s global reward philosophy is to provide a total com-pensation package that is fully competitive with other leading companiesin each country in which the company operates. These include companies


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in automotive and other industries in which MNC Auto1 competes forhigh-quality workforce. This global view reflects in the reward packagethat MNC Auto1 Vietnam offers – one that is fully competitive with thelargest and best managed companies in a variety of industries, and par-ticularly those in the car industry.

Compared to the non-Asian MNCs, the strength of Asian-basedMNCs (including Japanese ones) does not lie in the attractiveness of theirsalary and benefits packages. The amounts paid by the latter are oftenlower than that paid by the former MNCs in the same industry. This find-ing is in line with other studies conducted elsewhere, which claimed thatJapanese companies are not the preferred employers in overseas markets,particularly in other Asian countries, due to their less-attractive salarypolicies (Taura, 2005; Konomoto, 2000; Taylor, 2001). Especially for thecategories of higher-paid employees (managers and top executives),salaries paid by Asian-based MNCs are significantly below that of theirAmerican and European competitors. In the automotive industry, for ex-ample, MNC Auto1 pays twice as much as MNC Auto3 and MNCAuto4 pay to managerial and professional employees. The pay differen-tials seem to be more prominent considering that MNC Auto3 comesfirst in terms of profit (in the entire car industry), and MNC Auto1 andMNC Auto3 are comparable in terms of assets and size of workforcewith similar skills and talents. In the FMCG industry, similar picture canbe observed in any comparison between MNC FMCG2 and MNCFMCG4 – the two companies are close in terms of assets and size ofworkforce. It is noted that all the case studies include firms that areconsidered as high payers in the Vietnamese market, as commented bygovernment authorities at the Ministry of Planning and Investment(MPI), and MOLISA.

Nonetheless, the studied Asian-based MNCs report no difficulty in re-cruiting and retaining the types of employees they want. These sub-sidiaries pay less, but since the labour force for blue-collar workers isabundant, and the wages paid by the investigated Asian-based plants arestill higher than what would be paid in other plants in the same industry(local firms for example), the Asian-based MNCs have no difficulty in re-cruiting the kinds of blue-collar workers they want. In the case of localmanagerial personnel, however, the situation is somewhat different. Thesalaries paid by Asian MNCs to professional and managerial personnelare so below non-Asian firms that this makes them unattractive to highlyqualified Vietnamese professionals. This may reflect the attitude of theseMNCs that they do not attempt to recruit the most highly qualified

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managerial and professional employees from the host country. Followingan ethnocentric global staffing strategy, these companies tend not to as-sign vital posts and responsibilities to local employees.

Income differentials among groups of employees in MNCs are muchmore significant than in SOEs. Companies also report a rapid escalation inthe salaries of top executives. These differentials reflect the marketsituation for different groups of employees. The incomes of workers andstaff tend to be stable and relatively low. Some companies employ a largepercentage of temporary workers to achieve a flexible workforce in orderto significantly reduce labour costs. The basic salary for temporary workersis calculated to be equal to the salary level of the lowest salary grade forpermanent workers (as in the automotive industry) or to the daily wage (asin the FMCG industry). Their salary is, in most cases, also exclusive ofbonuses, allowances and benefits.

While highly centralised and complex remuneration systems are evidentin most of the cases studied, it is noted that the freedom to apply any salarysystem might result in extremely simple reward systems in MNCs. In par-ticular, in MNC FMCG4 and MNC FMCG5, the salary system is dividedinto two categories: one for white-collar employees and the other for blue-collar employees. The wage of a blue-collar employee is calculated based ontheir working days per month. On the other hand, the only reference usedto establish the starting salary and the increment rates for white-collaremployees is the market average salary for such employees. The salaries ofthe professionals and top executives at MNC FMCG4 and MNC FMCG5are negotiated on an individual basis with expatriate managers, most oftenwith the general directors who also personally decide salary incrementswithout any systematic salary structure. However, the extremely simplifiedsalary structure, for the time being, functions fairly well. Interviewed man-agers seem to be happy with their compensation. They claim that theirsalaries are not high but have never lagged far behind the industry’s averagelevels. In practice, MNC FMCG4 and MNC FMCG5’s salary system forwhite-collar employees works in the context of a small-sized subsidiary.Expatriate managers are confident that they can keep pace with the fluctu-ations in the salary market for this group, probably by their informalnetwork, and restricting the number of white-collar employees.

5.3.2.1 Pay for performance

The relationship between individual performance rating and performance-related pay is emphasised in MNCs’ salary structure and explained indetail in Table 5.1.


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Table 5.1 The relationship between performance rating andperformance-related pay applied for all permanentemployees

Performance grade Performance-related pay (PRP)

MNC Auto1 A, B+, B, C Each performance grade will beallocated a PRP index. An ‘A’ rate willget a higher index than a ‘C’ rate.

MNC Auto2 S (special), A, B, C ■ If rated S: extra 2 month salary■ If rated A, B: extra 1.5 month salary■ If rated C: no extra pay.

MNC Auto3 A, B+, B�, C ■ If rated A: extra 2 month salary■ If rated B+, B�: extra 1.5 month salary■ If rated C: no extra pay.

MNC Auto4 1, 2, 3 Depending on the rating of employees’and company’s performances,employees will receive PRP.

MNC Auto5 A, B, C Depending on the rating of employees’and company’s performance,employees will receive PRP.

MNC FMCG1 1 (performing above expectations), 2 (performing according to expectations), 3 (performing below expectations)

■ Employees rated 1 are in the highest salary band/curve (higherfrequency of salary rises and largeamounts)

■ Employees rated 2 are in the middlesalary band/curve

■ Employees rated 3 are at the lowestsalary curve and basically flat liningor going backwards if includinginflation.

(continued)

MNC FMCG2 Exceptional, meet Depending on their performance,expectation, below employees will be sorted in three distri-expectation bution curves, exactly as MNC FMCG1.

Applied for staff and upper level only.

MNC FMCG3 Exceed expectation, Performance ratings will be used to meet expectation decide salary increase and promotion.(70%), less than average (10%), not rated (for temporary workers)

Besides, companies also offer stock option and individual/team incen-tives. All the US firms, without exception, offer stock option to seniorexecutives while none of the other companies exercise this practice.Individual/team incentives are given as one-off payments for team per-formance or exceptional individual performance. The rewards for success-ful team projects and individual performance are adjusted against otherbudgets but not integrated into the salary budget. Team-performance-related payment is made directly in US and European firms. MNCFMCG2, for example, claim to lay a greater emphasis on team rather thanon individual performance goals in future.

It is noted that, outside the scope of the interviewed companies, thereare signs of foreign investors violating the salary-related legislation. Somedelicate techniques have been developed by these companies to lower thereal minimum salary paid to Vietnamese employees. One of these tech-niques is to ignore the signing of a labour contract. According toMOLISA’s report (2002: 23), only 70 per cent of foreign-investedenterprises have signed labour contracts. The simple reason is that thefirms do not want to increase their expenses. A labour contract wouldcompel the companies to contribute a part of monthly wage expendituretowards the government’s social security and health insurance funds.Of this 70 per cent, some companies deliberately sign extremely basiccontracts, neglecting essential terms such as job descriptions, trial time,working hours, resting time, working conditions and terms which relateto termination of contracts. Some companies sign repeating seasonalcontracts or short-term contracts that significantly curtail labour rightsand reduce the salary level of employees and companies’ financial


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Performance grade Performance-related pay (PRP)

MNC FMCG4 No formal system exists

MNC FMCG5 No formal system exists

MNC FMCG6 Outstanding, very Depending on the rating of employees’ good, good, and company’s performance,competent and employees will receive PRP. under performing

responsibilities towards the Vietnamese government. Some of them paylower than the minimum level without the approval of the relevantauthority. Some apply the minimum salary level to trained or skilledworkers.8 Some include all fringe benefits in the salary package to say thatthey pay higher than the minimum level. Some illegally prolong the trialor training time9 and increase the required productivity to reduce the realsalary paid to employees.10 These situations continue despite the LabourLaw explicitly mandating wages, insurance and other conditions; thisreveals that the enforcement of Labour Law regarding salary issues isextremely ineffective.

5.4 Other incomes

This section discusses in detail other incomes that SOE and MNC em-ployees might receive. It argues that, in the state sector, allowances, ben-efits and bonuses are still tied with the government’s inflexible salaryschemes. On the other hand, unofficial income is an ongoing issue, whichleads to corruption in SOEs. Meanwhile, MNCs offer very similar typesof allowances, benefits and bonuses as their SOE counterparts. There aresome evidence of MNCs that take advantage of the lax regulation to re-duce social security and health insurance contributions to the state.

5.4.1 Other incomes in SOEsOther sources of income that SOE employees might receive include dif-ferent types of allowances, benefits, bonuses and unofficial income.

5.4.1.1 Allowances

Allowances are normally estimated on the minimal salary level andinclude the following types:

Area allowance: This allowance is designed to supplement the incomeof employees working in remote areas where the climate is notfavourable, and living and transportation conditions are harsh. There are45 cities and provinces in Vietnam that enjoy area allowance. The aver-age level of area allowance for the communes, wards and townships is0.38 in comparison with the minimal salary level, which in other wordsmeans 38 per cent of the minimal salary level (GTZ, 2006: 19).

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Hazardous, difficult and dangerous allowance: This allowance is tocompensate those employees who work in hazardous and dangerousareas; it is not included in their salary. The levels of hazardous and dan-gerous allowance are 0.1, 0.2, 0.3 and 0.4 in comparison with the mini-mal salary level.

Mobile allowance: This allowance is to compensate those employeeswho work in professions requiring them to move frequently, causing in-stability in their life. There are three levels of mobile allowance: 0.2, 0.4and 0.6 in comparison with the minimal salary level.

Responsibility allowance: This allowance is to compensate those em-ployees who are directly involved in production, or who carry out theirprofessional or operational work, while at the same time undertakingmanagerial tasks not included in their appointed position, or those tasksrequiring high responsibility not accounted for in their salary. There arethree levels of responsibility allowance: 0.1, 0.2 and 0.3 above the mini-mal salary level.

Special allowance: This allowance is provided to those employees whowork on remote islands and bordering areas where the living conditionsare extremely difficult. There are three levels, namely 30, 50 and 100 percent of the minimum salary level, that are determined according to theconsideration of the difficult living conditions in each commune.

Allowance for attraction: This allowance aims to attract people tocome and work in new economic zones, far-off islands in which infra-structure (transportation, electricity, residence, school, kindergarten,hospital, etc.) is either lacking or insufficient. There are four levels of theallowance: 20, 30, 50 and 70 per cent of the post, grade or professionalsalary. The duration to receive the allowance depends on the actual diffi-culty (usually 3–5 years or more).

5.4.1.2 Benefits

Companies offer various benefits, as seen in Table 5.2.

5.4.1.3 Bonuses

Bonuses constitute an important part of the income for SOE employees inVietnam. The government leaves the individual enterprises with muchfreedom to determine the amount in the revenue after paying taxes to thestate. The fixed bonus is often in the form of a Tet (Lunar New Year)bonus. The 13th month salary bonus is very popular in the SOEs.In some cases, bonuses are divided on an equal basis, creating some


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Table 5.2 Benefits offered by studied firms to permanent employees

SOE SOE SOE SOE SOE SOE SOE SOE Auto1 Auto2 Auto3 Auto4 FMCG1 FMCG2 FMCG3 FMCG4

Uniform for blue-collar workers ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

Uniform or cash for clothes for white-collar worker ✓ ✓ ✓ ✓

Subsidised lunch ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

Company’s good purchase programme ✓ ✓

Commuting for staff ✓ ✓ ✓

Car for top executives ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

Gifts on personal daysa ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

National special daysb ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

Mobile phone for managers ✓ ✓ ✓ ✓

End-of-year celebration ✓ ✓ ✓ ✓

Outing/holidayc ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

Sporting activities ✓ ✓ ✓

Annual health check ✓ ✓ ✓ ✓ ✓ ✓ ✓

Health insurance ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

Commuting for blue-collar ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

workers

aGifts are normally given on occasions such as weddings, childbirths and birthdays.bNational special days such as Women’s Day (8 March), Children Day (1 June), Mid-Autumn Moon Festival.cOuting and holidays are organised by trade union and depend on firm performance and budget.

egalitarianism. In other cases, bonuses are paid in accordance with thesalary received by the individual employee; thus those who work longerand have a higher salary would receive more bonus. Besides this, em-ployees might receive some small gift or cash on special days such asMid-Autumn Moon Festival, Women’s Day, Independence Day, etc.However, these types of bonus are not fixed and are dependent on thefirm’s performance and the viability of trade union activities (Table 5.3).

5.4.1.4 Unofficial income

The concept of unofficial income, and related issues such as the genera-tion of the unofficial income by enterprises and by employees in the statesector, emerged in the transition to a market economy in Vietnam (GTZ,2006). These issues are complex, controversial and closely connected tothe present low salary, allowance and bonus system. No official statisticsare available on unofficial income.

The sources of this revenue can come from services provided to otheragencies, organisations or individuals using the available resources, leas-ing space, equipment, facilities, fees from contract work, etc. SOE em-ployees also enjoy unofficial income from individuals. CEOs receive giftsand under-the-table money in lieu of favours. The amount in the envelope


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Table 5.3 SOEs’ bonus practices

Company Fixed bonus practices

SOE Auto1 13th month salary, divided on equal basis

SOE Auto2 13th month salary, divided on equal basis

SOE Auto3 13th month salary, paid in accordance with individualemployee salary

SOE Auto4 13th month salary, paid in accordance with individualemployee salary

SOE FMCG1 13th month salary, divided on equal basis


SOE FMCG3 13th month salary, paid in accordance with individualemployee salary


depends on the role of the receiver and the political and/or economic ben-efit of the favour extended. For unlawful cases, the amount of moneymay be huge, up to billions of VND. Employees in lower positions canalso receive ‘facilitation payment’ in the form of gifts or money for pro-viding assistance in dealing with certain issues. Unofficial income re-ceived from individuals is extremely hard to measure; however, it is anongoing issue in SOEs. Lucrative unofficial income enjoyed by employeesat high positions is believed to be the real reason for them to stay with thestate sector, when their official income might be 10 times lower than thatof their colleagues in the foreign-invested or private sectors. Meanwhile,corruption is endemic in Vietnam. A ‘Report of the Survey on Corruptionin Vietnam’ (2005) by the Vietnamese government reveals that 77 percent of enterprises consider corruption to be the most significant socio-economic problem in Vietnam (Nigh, 2008). However, according to theWorld Bank’s Vietnam Development Report (2006), Vietnamese firms at-tached a surprisingly low importance to corruption, with only a few ofthem rating corruption as a constraint on their business activities. Onepossible explanation offered by the World Bank is that entrepreneurs inVietnam simply have learned how to ‘live with floods’, to the point wherethey do not see it as a significant constraint on their activities (WorldBank, 2006: 48).

5.4.2 Other incomes in MNCs

5.4.2.1 Allowances and benefits

While salary practices are centrally designed, various types of allowancesand benefits are left open to the subsidiaries to decide on what is suitableto the Vietnamese situation. Even though the value of these may vary sig-nificantly, companies appear to offer very similar types of allowances andbenefits, which also resemble those offered by their Vietnamese SOEpartners to their employees (Table 5.4).

5.4.2.2 Bonuses

As far as bonus is concerned, the Labour Code indicates that the employeris responsible for paying a fixed bonus to those employees who haveworked for more than one year when the company reaches ‘break-even’point. The payment should not be lower than one month salary and mustbe paid to all permanent employees.

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Table 5.4 Allowances and benefits offered by studied firms for permanent employees

MNC MNC MNC MNC MNC MNC MNC MNC MNC MNC MNC Auto1 Auto2 Auto3 Auto4 Auto5 FMCG1 FMCG2 FMCG3 FMCG4 FMCG5 FMCG6

Uniform ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

Subsidised lunch ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

Accident insurancea ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

Company’s good ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

purchase programme

Commuting for staff ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

Car for top executives ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

Gifts on personal ✓ ✓ ✓ ✓ ✓ ✓ ✓

days

National special ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

days

Mobile phone for ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

managers

End-of-year ✓ ✓ ✓ ✓ ✓

celebration

Family Day ✓ ✓ ✓ ✓

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MNC MNC MNC MNC MNC MNC MNC MNC MNC MNC MNC Auto1 Auto2 Auto3 Auto4 Auto5 FMCG1 FMCG2 FMCG3 FMCG4 FMCG5 FMCG6

Outing ✓ ✓ ✓ ✓

Sporting activities ✓ ✓ ✓ ✓ ✓ ✓ ✓

Annual health check ✓ ✓ ✓ ✓ ✓ ✓ ✓

Health insurance ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

Commuting for ✓ ✓ ✓ ✓ ✓

blue-collar workers

Positionb ✓ Xc ✓ ✓

Living aread ✓e ✓ ✓

Laptopf ✓ ✓

Helmet for motorcycle ✓

Summer drink ✓

aAccident insurance refers to 24/24 hour insurance, which is different from health insurance.bPosition allowance refers to the extra money paid to managers for the extra responsibilities they bear.cMNC Auto3 used to have position allowance, however now this is calculated directly to salary.dLiving area allowance refers to the extra money paid to staff to compensate for the time and health damages they bear when working outside the maincities. This allowance is paid mainly to attract talents from Hanoi and Ho Chi Minh City to work outside their living areas.eLiving area allowance in MNC Auto2 is called ‘hardship allowance’.fLaptops are provided to managers only.

All of studied companies provide a fixed bonus in compliance with theLabour Code to all of their permanent/regular employees. Some of themprovide much more than that required by law by providing an extra onemonth salary (14th month salary) as fixed bonus. A fixed bonus is paideither at the year-end or before Lunar New Year holiday (Tet holiday)(Table 5.5).

There is evidence that some companies, who are not objects of this re-search, do not provide any form of bonus and simply pay 12 months offixed salary after reaching their break-even point. This obviously violatesthe Labour Law, but it does exist in practice.

In many cases, allowances/benefits and bonuses are used to adjustindividual packages and, most importantly, to minimise the social andmedical insurance costs, and to avoid the high personal income tax.Taking advantage of the ambiguous regulations regarding reward po-lices in foreign-invested companies, many firms developed a so-called‘70/30 style’ of remuneration package, in which companies and indi-viduals come to a verbal agreement that the company pays 70 per centof the agreed salary as ‘fixed salary’, while the remaining 30 per cent is


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Table 5.5 Fixed bonus practices

Company Fixed bonus practices

MNC Auto1 13th month salary

MNC Auto2 13th month and 14th month salary

MNC Auto3 13th month and 14th month salary



MNC FMCG1 13th month and 14th month salary

MNC FMCG2 13th month salary

MNC FMCG3 13th month salary. Depending on company’s profit leveland budget 14th month and 15th month salary mightbe offered




in the form of non-salary payment (benefits, bonus). Applying thisstructure, companies only contribute to the social insurance and healthinsurance funds on the basic of 70 per cent of what they actually payto their employees and accordingly avoid or reduce the high personalincome tax. The ‘70/30 style’ remuneration package gets the supportof the higher income groups, namely professionals, managers and topexecutives, who aim at short-term benefits in terms of reduced incometax. It is because employees have to contribute 6 per cent of theirsalary (of which 5 per cent is for social security and 1 per cent forhealth insurance) to state-controlled funds, but they receive the sameamount of money and the same kind of health services, regardless oftheir higher contribution. Therefore, social security and health insur-ance are seen as more for the benefit of the lower income group whilethe high-income groups only hesitantly contribute to these government-controlled funds.

However, a majority of big companies do not utilise this paymentstructure. Interviewed HR managers explain that this practice is basedon the assumption that the related authority (company trade union,local trade union, local MOLISA, etc.) will turn a blind eye to this prac-tice as long as the company does not violate the minimum paymentlevel. However, in the event of being audited, the company must be ableto verify their proportion of allowances/benefits and bonuses.Moreover, a cut in social security payments leads to a smaller pensionpaid to the employees in the future. Thus, the strategy is not for em-ployees’ long-term benefit, and can possibly cause labour relationsproblems for the company. In fact, the main reason for applying the70/30 style is to reduce or avoid high income tax for managers and topexecutives.

Until 2001, MNC Auto1 had an optional ‘mutual agreement’ with aselected group of highly paid managers and top executives, in which theemployees accepted the 70/30 style so that both parties could benefitfrom a lower income tax and social security and health insurance reduc-tion, on the condition that the company agreed to pay a certain amountof extra money to cover the potential loss of pension. However, in July2002, the government adjusted the income tax system, which reduced thetax rate levied on the high-income group, and stated that in future the70/30 regulations would not be accepted. This situation forced MNCAuto1 to totally abandon the 70/30 style to avoid legal problems (alsothe benefits of the 70/30 style have been reduced under the new incometax system).

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5.5 Conclusions

This chapter aims to find out the extent to which the state sector has re-formed the reward system since Doi Moi; and the extent to which MNCshave transferred home-grown reward systems to their Vietnamese sub-sidiaries, and their experiences when implementing such practices. Thechapter shows that there has been a major shift in the reward system inthe state sector. The ‘egalitarianism’ reward system of the centrallyplanned economy has been gradually replaced by a dual salary system,which is a combination of a ‘hard’ salary, strictly following the govern-ment’s salary schemes, and a ‘soft’ salary, reflecting both firm’s andindividual’s performances. The break from the ‘egalitarianism’ system isremarkable.

Nevertheless, the system reveals numerous problems hindering workstimulation and higher productivity of state employees. It is still debat-able whether the foundation for establishing detailed salary schemes issound and is laid on a scientific basis. Furthermore, the system is toocomplex with too many salary schemes, grades and steps. Employees cangradually proceed through salary increments without the need to im-prove their performance. A salary increase therefore has little impact onemployee motivation. Most importantly, salaries in SOEs are insufficientfor employees to maintain an average living standard, leading to the sit-uation in which state employees must find other ways to supplementtheir income. Apparently, low pay and restrictions imposed by the cur-rent payment mechanisms have led to a problem of domestic brain drainfrom the state sector to the public and foreign-invested sectors, and isconsidered to be one of the root causes of corruption in the state sector.The transformation of the reward system is therefore far from comple-tion. A more aggressive reform, for example, a tighter link between indi-vidual performance and payment is however limited by current govern-ment regulations that require SOEs to follow the state guidelines in termsof salary schemes, minimum salary level and salary ratios.

Meanwhile, a level ground in terms of salary for MNCs and SOEs hasnot been established. Foreign-invested enterprises are still required to paytheir employees minimum wages that are nearly twice that of theirdomestic counterparts. However, they enjoy minimum formal constraintson the design and implementation of their remuneration practices. Theenvironment makes possible the emergence of highly contrasting prac-tices. On one hand, there are MNCs that transfer well-developed andstandardised reward systems to their Vietnamese subsidiaries. Their


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headquarters tightly control the reward systems in Vietnam, evident in awell-defined salary position, permitted salary ranges and the practice ofvariable pay which strongly emphasises individual performance.However, there are instances of adaptation to the local situation as seenin fixed bonuses, allowances and benefits, which resemble those inVietnamese SOEs. Taking advantage of gaps in legislation and a weaklaw-enforcement mechanism, MNCs develop practical tactics to reducelabour costs, such as the ‘70/30’ salary package and the extensive use oftemporary workers. On the other hand, the environment allows the im-plementation of some extremely simple salary structures, such as in thecase of MNC FMCG4 and MNC FMCG5.

Notes1. The Vietnamese government has adjusted the minimum salary level several

times as follows:■ In April 1993, the minimal salary level was 110,000 VND■ December 1993: 120,000 VND■ January 1997: 144,000 VND■ January 1999: 180,000 VND■ January 2001: 210,000 VND■ January 2003: 290,000 VND■ October 2005: 350,000 VND■ October 2006: 450,000 VND■ January 2008: 540,000 VND

2. Decree 166/2007/ND-CP, issued on 16 November 2007 by the Vietnamesegovernment, regarding the general minimum wage.

3. Circular 11/LDTBXH-TT, issued on 3 May 1995 by MOLISA, regarding themanagement of reward systems in foreign-invested companies.

4. Changes in salary levels in foreign-invested sector since 1990:■ On 29 August 1990, MOLISA issued Decision 365/LDTBXH-QD regu-

lating that the minimum salary of employees in foreign-invested compa-nies is 50 USD per month.

■ On 5 May 1992, MOLISA issued Decision 242/LDTBXH-QD regulatingtwo levels of minimum salary in foreign-invested firms: 35 USD permonth for Ha Noi and Ho Chi Minh City; and 30 USD per month for therest of the country.

■ On 1 April 1996, MOLISA issued Decision 385/LDTBXH-QD regulatingfour levels of minimum salary:– 45 USD per month for enterprises located in Ha Noi, and Ho Chi Minh

City;– 40 USD per month for enterprises located in Hai Phong, Vinh, Hue, Da

Nang, Bien Hoa, Can Tho, Ha Long, Nha Trang and Vung Tau;

The reward system

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– 35 USD per month for enterprises located in other provinces and cities,or enterprises which use a large amount of manual workers in agricul-ture, forestry and fishery;

– 30 USD per month for enterprises located in under-developing areaslacking infrastructure, and those which use a large amount of manualworkers and are faced with financial difficulties, with the approval ofMOLISA.

■ The government has recently issued Decree 168/2007/ND-CP stipulatingthat since 1 January 2008:– 62 USD in region 1, comprising urban districts of Hanoi and HCM

City;– 56 USD in region 2, comprising suburban districts of Hanoi, HCM

City, urban districts of Hai Phong, Ha Long City in Quang Ninhprovince, Bien Hoa city in Dong Nai province, Vung Tau city in BaRia – Vung Tau province, Thu Dau Mot town and the districts ofThuan An, Di An, Ben Cat and Tan Uyen of Binh Duong province;

– 50 USD in region 3, comprising all remaining areas.■ It is expected that by 2012, Vietnam will have a common minimum salary

for both SOEs and MNCs.5. Decree 168/2007/ND-CP, issued on 16 November 2007 by the Vietnamese

government, regarding the regional minimum wage in respect to Vietnameselabourers working for foreign-invested companies, departments, foreignorganisations, international organisations and expatriates in Vietnam.

6. Decree 25/CP, issued on 23 May 1993 by the Vietnamese government,regarding temporary provisions of new salary regimes for civil servants,administrative staff and armed force personnel.

7. Decree 26/CP, issued on 23 May 1993 by the Vietnamese government,regarding temporary stipulation of the new wage regime in enterprises.

8. Garment Hanoi–Germany joint venture pays international standard garmentworkers the minimum salary level (The Labourer, 25 July 2000).

9. During the training period, workers are paid only 70 per cent of the monthlyminimum wage.

10. Quoc Bao Shoes Production company (The Labourer, 25 July 2000).


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Training and development

6.1 Introduction

At the macro-level, a well-trained workforce contributes to the competi-tive advantage of a country and enhances its economic growth (Russell,Terborg & Powers, 1985; Kamoche & Mueller, 1998). At the firm level,the investment in human development results in continual innovationand increased productivity, efficiency and profitability (Lucas, 1988;Mathews, 2002; Taylor & Davies, 2004; Huselid, Jackson & Schuler,1997). Furthermore, employees expect their companies to provide themwith learning opportunities to further their personal development andimprove their employability. The training and development (T&D) ofemployees is extremely important in a developing country like Vietnam.The Vietnamese government recognises the importance of developing aneducated and trained workforce to meet the demands of the evolvingmarket economy (Le & Morgan, 2001). However, the current educationand training (E&T) system, which has been described as ‘backward andobsolete’ (MOET, 2001), fails to meet this demand. Thus, the task ofequipping the workforce with adequate skills and knowledge falls oncompanies’ shoulders.

This chapter is structured as follows. Section 6.2 examines some keyweaknesses of the educational and vocational training system that lead toa mismatch between the system outputs and the company’s humanresource inputs. Sections 6.3 and 6.4 analyse T&D activities in SOEs andMNCs, respectively, under three categories, namely the extent and natureof training, training programmes and the comprehensiveness of trainingprogrammes. Finally, some conclusions close the chapter.

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6.2 Factors influencing companies’training and development strategies

The Vietnamese E&T system can be classified as a unitary system(Maurice, Sellier & Silvestre, 1986), where achievement in formal educa-tion is regarded as a crucial indicator of competence and ability, and only‘failures’ enter the state’s practical training, which suffers from low pres-tige and a scarcity of funding. Education has long been seen as a meansof achieving higher income and upward social mobility and of gaining re-spect. There is strong resistance to undertaking vocational and technicaleducation and training (VOTECH) where instead, continuing the generaleducation is preferred, as it opens the door to university entrance(Beresford, 1988). VOTECH is considered widely inferior to universityeducation in the Vietnamese society. Although government’s investmentin VOTECH is improving slowly, the fact remains that it is extremelypoor. In 2002, the budget for VOTECH accounted for only about 5 percent of the total budget for E&T. In 2003, it increased to 6 per cent, andin 2004, to 6.5 per cent (Nguyen, 2006: 8). The weak vocational trainingsystem has become a constraint to the sustainable development of thecountry, as the majority of jobs most needed in Vietnam’s transitionaleconomy require technical skills (Nguyen, 2007).

Furthermore, a chronic mismatch exists between the output of the ed-ucation system and the input of the companies (Duoc & Metzger, 2007;Hargreaves et al., 2001). Three main factors contribute to this problem.First, graduates from the E&T system lack practical experience andskills, and thereby fail to meet companies’ selection requirements(MOET, 2001). Up to 80 per cent of graduate students have to be re-trained by employers to match the requirements of labour inputs(Nguyen & Truong, 2007: 142). Although Vietnamese students are well-versed in theory, their ability to apply theory to the work situation isextremely limited. Graduates from the Foreign Trade University, forexample, during their four-and-a-half-year course, were exposed to real-life experience only once at the end of their course in the form of com-pany visits to write their graduation thesis. As the current curriculum isnot related to practical training needs (Hargreaves et al., 2001), studentsmust be re-trained before actually being assigned the work. Secondly, thelabour market data in Vietnam is scarce (Duong & Morgan, 2001). As aresult, training and education providers are not fully aware of the typesand number of workers in demand. Thirdly, there is a total lack of for-mal and professional career guidance and counselling for students.


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Vietnamese students get career guidance from their parents, relatives andfriends. Decisions are based on general perceptions of what are consid-ered as prestigious careers (such as lawyers, medical doctor) or ‘in fash-ion’ careers, rather than on realistic occupational information, the needsof the industry, personal abilities and employment expectations. This re-sults in the widespread situation where graduates choose fields of studythat are not suitable for them, and later switch their career path andwork in fields that are different from their university degrees.

When the economy develops along a new direction towards a market-oriented one, the old management style becomes inadequate; instead ofthat, there is increasing demand for competent business managers. Untilthe 1990s, business and management education was almost non-existentand the experience of Vietnamese enterprises with market mechanismswas extremely limited. Now, more than two decades after Doi Moi, theshortage of appropriate managerial expertise still exists in the country asa whole, but is felt most acutely in SOEs. In their surveys with leadingMNCs operating in Vietnam, William Mercer identified that managementand person-related skills continue to be the weakness of Vietnameseemployees. Kim (1996) describes this as a defect in the ‘human factor’ andpredicts it could be the biggest obstacle to Vietnam’s economic progress.

Due to the weaknesses in the E&T system, the workplace is expectedto be the other major source of skill formation and training in Vietnam.Incentives are offered to enterprises in the form of tax exemption to en-courage in-house training for their employees (Education Law, 1998;Labour Law, 1992). In theory, the law provides scope for the integrationof training into business strategies and HRM systems. However, withoutimposing a floor level of training budget and a proper inspection, moni-toring and enforcing mechanisms in place to ensure a consistent imple-mentation of the law, ultimately, the level of investment on human devel-opment is still dependent on each company.

6.3 Training and development in SOEs

This section looks at T&D activities in the state sector. It argues thatunder increasing pressure to improve organisational efficiency, SOEshave introduced some fundamental changes into their HR function; how-ever, T&D systems in SOEs have not advanced far from the old days ofthe centrally planned economy. Their activities suffer from limited finan-cial resources, low-quality training courses, out-of-date training methodsand a lack of systematic approach to training.


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Prior to the economic reform, the concept of an external labour marketwas non-existent and employees were assigned to enterprises by the gov-ernment, in many cases, without regard to the match between an em-ployee’s skill and knowledge and the firm’s demands. At the workplacelevel, bounded by the centrally control system, bureaucratic rules and pro-cedures and secured by the lifetime employment system, SOE employeeswere not motivated to learn and develop new skills and knowledge. Thetraining offered to workers was mainly on the job, focusing on enhancingproductivity and improving organisational health and safety. Meanwhile,short courses to strengthen employees’ political beliefs were widely avail-able, and employees were required to attend these courses if they wishedto be promoted. This bureaucratic system created a gap that was expectedto be filled by three main channels of education, namely in-service train-ing (dao tao tai chuc), specialised training (chuyen tu) and supplementarystudies (bo tuc van hoa). These national training programmes were theonly sources available to SOE employees from which to gain the extraeducation they needed to fulfil their tasks and/or were a prerequisite forfuture promotion.

As far as T&D for managers is concerned, the opportunities wereextremely limited. This was because SOEs were considered merely asproduction units, whereas any necessary management function wascentralised and controlled by the government. SOE managers thereforewere not trained in business management, as the skills were deemed un-necessary. Furthermore, overseas training opportunities, mainly withinthe old communist system, were very rare and granted to top cadres asa reward for their contributions rather than on the basis of trainingneeds. On those rare occasions, the selection criteria for trainingopportunities were mainly based on the cadres’ position, seniority andpolitical attitude.

The economic reform has challenged the operation of VietnameseSOEs. The companies have realised that poor T&D systems lead to pooremployee attitude, low commitment and high levels of employeeturnover, which can be critical to business operations (see also Neupert,Baughn & Dao, 2005). Recently, the training and re-training of employ-ees at the workplace level have witnessed some slow yet fundamentalchanges. First, the role of training provider has shifted from the centralgovernment to enterprises. Secondly, the selection criteria for the trainingof an employee now emphasises less on position, seniority and politicalattitude, and is instead more in-line with job demands and requirements.Thirdly, a much wider range, and higher quality, of training programmes


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are offered to employees. However, the legacies of the past, together withthe fact that T&D remains a low priority on the list of ‘pressing issues’that management must attend to, have resulted in low training budgetsand a weak T&D function in SOEs.

6.3.1 The extent and nature of trainingTo start with, workforces with low skill levels seem to be common inSOEs. SOE FMCG4’s labour profile can be used to illustrate this point.According to the company’s statistics on the quality of its labour force,SOE FMCG4 had 324 employees in 2004. Only 17.6 per cent of theworkforce had university or college degrees, the remaining 82.4 per centhad medium or below-medium skills level (see Table 6.1). Although allmanagerial staff members and professionals have university or collegedegrees, the majority of blue-collar workers have lower degrees (highschool or vocational ones). Interestingly, more than 20 years after DoiMoi, political training is still considered very important, with 83 per centof professionals and upper level personnel having attended and achievedcertificates for these courses. This figure reveals the importance of politi-cal training and attitude, in general, in promotion and career develop-ment opportunities in the state sector. Language ability (mostly English)has become a new requirement, not only in the foreign-invested sectorbut also in the state sector. New recruits in SOEs now need to have atleast a B-level English certificate (intermediate level) even though theirjobs have little, if any, to do with language. However, only 4.9 per cent ofthe workforce actually has any English language certificates. Noticeably,none of the managerial staff have any kind of business administration de-gree. Interviews with other SOEs reveal that the situation of the low skillslevel is common in the state sector and may be worse in smaller and less-well-resourced enterprises.

Most Vietnamese SOEs recognise the importance of employee T&D;however, they are faced with the chronic problem of having very limitedfinancial resources for these activities. HR managers report difficulties inobtaining funds and getting approval for training courses. The averagetraining cost per employee ranges from USD 14 to USD 21 per annum,which is about 7–19 times lower than the cost incurred by MNCs oper-ating in the same industries. This suggests that although there has beenan improvement in training activities, currently SOEs still lack commit-ment to employee development and pay little attention to nurturing andretaining talents through T&D opportunities (see Table 6.2).


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Table 6.1 Educational attainment of SOE FMCG4’s workforce

Educational level Political training

University/ High Vocational Advanced Middle Lower Business Position Total Postgraduate college school and lower Language level level level administration

Managing 1 0 1 0 0 1 0 1 0 0director (MD)

Vice MD 2 0 2 0 0 1 0 0 2 0

Professionals 39 0 39 0 0 9 1 6 25 0

Staff 32 0 0 4 12 2 0 0 5 0

Workers 250 0 15 4 231 3 0 0 8 0

Total 324 0 57 8 243 16 1 7 40 0

6.3.2 Training programmesOn-the-job training, the majority of which is conducted in the work-place as part of the normal experience of employees, is the most popu-lar training method in SOEs. On-the-job training mainly focuses ontechnical workers and involves learning through the assistance andsupervision of an experienced and senior employee, normally the pro-duction line leader, who helps the trainee learn some useful knowledgeand skills that are directly applicable to the trainee’s production lines.This type of training has benefits in that it is customised and encom-passes real work experiences. Relying on in-house resources, on-the-jobtraining is also cost-effective and is thus preferred in SOEs. Workers, ingeneral, are ranked in terms of technical skills from first to seventhgrade, the latter being the highest skill level. They are expected to up-grade their skills gradually, by passing the ‘Upgrading Technical SkillsExaminations’ that are held regularly. To pass these examinations,SOEs provide their workers, especially those who hold pivotal posi-tions in the production lines, with some short in-class training courses(1–2 days) which are specially designed to cover some theoretical aspectof production. These examinations motivate workers to develop andimprove their skills and raise their employability. However, no penaltyis charged if workers fail the examinations; in fact, those who fail arestill allowed to remain in their positions. Thus, upgrading skills is leftto each individual’s endeavour.


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Table 6.2 Training budget in 2006

Company Training expenditure/employee (USD)

SOE Auto1 19

SOE Auto2 16

SOE Auto3 14

SOE Auto4 N/A

SOE FMCG1 18

SOE FMCG2 >10

SOE FMCG3 21

SOE FMCG4 N/A

SOEs recognise that their severe shortage of qualified managers is pos-ing a serious problem at present and will continue to do so in the imme-diate future. As a result, professional and managerial staff members areoffered more training opportunities than workers. Across the case stud-ies, around 60–65 per cent of the training budget is invested in trainingprofessionals and managers. Training programmes cover the followingfields: business administration, government policy studies (e.g. tax poli-cies), English, informatics and political training. Training courses are notoffered on a regular basis but are dependent on the availability oftrainees, trainers and, most importantly, funding. They are organisedeither by the company or by their General Corporation. Training is con-ducted by trainers from universities, external consultants or relevant gov-ernmental agencies (e.g. tax policies courses are taught by the Tax PolicyResearch Institute, and business administration courses by the VietnamChamber of Commerce and Industry). The majority of these courses arereserved for department heads and upper-level employees.

Overseas training opportunities are very rare and mostly restricted fordirectorial and top managers. Often, these managers are sent on businesstours to visit foreign enterprises and learn from their operations. The du-ration is about 7–10 days. In many cases, the cost is covered in equip-ment selling/buying contracts with the foreign partners, in which trainingis a part of the deal. Overseas travelling/training opportunities are highlysought after and still considered as ‘rewards’ to key employees.Therefore, the selection criteria are highly subjective and are set at thesole discretion of the top executives of the company and their GeneralCorporation (see also Truong & Ha, 1998).

To limit training budgets, SOEs encourage their employees to em-bark on self-study. Companies provide support by partly reimbursingtheir tuition fees (normally 50 per cent). The most popular methodsstill are in-service training and specialised training for graduate andpostgraduate levels and supplementary studies for high school andlower levels. Employees attend these classes in the evening after work.Companies might allow their employees to take leave for studyingpurpose. However, in general, the understanding is that studies mustnot interfere with their obligations at work. Although coordinatedand implemented by universities, these training programmes suffer se-rious deficiencies and learning quality is greatly neglected (Truong &Ha, 1998). In practice, programmes are shortened to reduce learningtime as much as possible, teachers are overpowered by the student-managers and examination results can be corrupted. The quality hasbecome so low that it has given rise to a popular adage ‘as ignorant as


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specialised training students, as stupid as in-service training ones’.However, these training programmes are still very popular as they pro-vide employees the chance to attain the minimum level of educationrequired for their positions or an extra degree, which would be viewedfavourable in promotion competitions, at a low cost, in terms ofboth finance and time investment. In many cases, obtaining a degree/certificate is the main objective, rather than upgrading one’s skills andknowledge.

As discussed in Section 6.3, in-service training, specialised trainingand supplementary studies were popular prior to Doi Moi. Recently,with the renovation and expansion of the educational system, moreoptions are now available to the public. Employees can invest on highquality E&T programmes, offered either by local educational institu-tions or by foreign-invested ones. Some choose to undertake a seconduniversity degree or master degree. Management degrees, such asMaster of Business Administration, have been very popular. Comparedto the cost of in-service or specialised training, tuition fees for these de-grees are much higher. However, enrollments have been increasingsteadily, evidencing the real demand for business and managerial skills.

Finally, re-training is an important part of T&D activities in thestate sector. In the old centrally planned economy, the compulsion im-posed on enterprises by the government to employ more than the nec-essary number of staff led to over-employment in SOEs. Since DoiMoi, SOEs’ restructuring has led to mass redundancies. Most of the re-dundant employees have low-level, outdated and over-specialisedskills, which hinder their mobility and employability in the new labourmarket. The government requires all downsizing SOEs to provide re-training to their laid-off workers so they can be redeployed to otherfunctions in the same company or can regain employment somewhereelse. On the one hand, re-training successfully preserves the state sec-tor’s reputation in securing jobs for their employees. However, on theother hand, it causes stagnation and prevents the injection of ‘newblood’ into the SOEs’ labour force, as revealed by SOE Auto3’s HRmanager:

Many of these employees have managed to retain employment rela-tionships with the enterprise. We put people on the re-trainingschemes with the view that their skills will be upgraded and moreimportantly, relevant to our company. Afterwards they might stillwork for us on non-permanent contracts or they will find a jobsomewhere else nearby. . . . We see all the old faces.


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6.3.3 Comprehensiveness of training programmesMore often than not, when financial resources are limited, especially inthe state sector, employee training is seen as part of the non-core busi-ness, so employers prioritise other investment areas, such as new tech-nologies and marketing expenses, rather than T&D programmes(Nguyen & Truong, 2007). The studied firms also demonstrate a lack ofsystematic approach to training. A formal analysis process that is re-quired to identify training needs is absent in SOEs. This leads to a wasteof the already limited training resources. For example, trendy courses,such as English and computing skills, are offered to employees regardlessof their job tasks. At the training design and implementation steps, thereis a lack of coordination between employees and their direct supervisors,between and among departments and a lack of senior managementinvolvement throughout the training process. The focus of T&D activi-ties in SOEs is not customised to meet the particular needs of differentgroups of employees. Further, the contents of training courses are con-veyed through the old method of training (e.g. classroom-style training,one-way communication), and are thus often complained about beingrepetitive, boring and irrelevant.

Furthermore, the training process lacks an evaluation phase to mea-sure the effect that various T&D activities have on employees’ andfirm’s performance. Evaluation, if at all it exists, is done informally bydirect supervisors and does not follow any prescribed procedure orstandard. This prevents managers from realising that investing in T&Dprogrammes is worthwhile and reinforces the vicious circle in whichmanagers view T&D activities as non-essential to the organisation’ssuccess. Thus, training in SOEs continues to be a weak HR area, whichreceives little investment and remains ad hoc, fractured and poorlycoordinated.

Finally, a gap exists between employee learning and organisational re-sults. This finding is in agreement with Kamoche’s (2001) research. The‘traditional administrative attitude’ (Kamoche, 2001), where employeeswork under bureaucratic rules and procedures, and are not able tochange their work practices to more efficient manners to suit the currentdemand, is still embedded in the mindset of SOE workforce. Althoughmanagers are eager to learn and indeed gain new knowledge, many arereluctant to apply their knowledge to their workplace. A psychologicalhurdle amongst the Vietnamese workforce is an unwillingness to expressindependence and take risks.


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6.4 Training and development in MNCs

This section looks at T&D activities in MNCs. It argues that foreign in-vestors recognise the lack of skills and qualifications in Vietnam’s labourforce and, especially, the need for management training. They providemore training to their employees than their SOE counterparts. MNCs in-tensify their training efforts and develop strategies to achieve a higherreturn on their investment in training, especially for managerial staff. Toobtain a higher return, in the context of high turnover rates and poach-ing, companies develop counterstrategies such as legally binding theirstaff for a certain number of years after providing them training or firm-specific programmes. A more comprehensive and systematic T&Dapproach has been recorded in non-Asian MNCs compared with aproduction-focused T&D approach in Asian MNCs.

6.4.1 The extent and nature of trainingIn general, T&D is centrally controlled, especially during the early yearsof establishment. All companies run regular courses, which follow theinternational format developed by the global corporations. The sub-sidiaries’ training activities are monitored and backed up by experts fromheadquarters (HQ) or other countries, who irregularly visits for a quick‘check up’, which is followed by an annual audit. Training is one of the10 components of the MNC Auto1 Production System, which is auditedannually on a global scaled score.1 It is certainly one of the most crucialcomponents of quality control from HQs. The use of ‘coercive compar-isons’ (Ferner & Edwards, 1995) tightens the coordination process fromHQs and prevents subsidiaries from diverging themselves from the globalmould. A score of 4.3 (out of a maximum 5.0) reveals that the trainingprocess is identified as one of MNC Auto1’s strengths, as stated in theglobal audit report dated 17 April 2002.

The average training fund per employee ranges from USD 96 to USD342 per annum. Overall, operating in the same industry, non-AsianMNCs spend more in training and offer more training programmes totheir local employees than Asian MNCs. However, industrial effect isrecorded when observing the trend across industries. Some Asian compa-nies in the automotive industry (i.e. MCN Auto3 and MNC Auto5) haveinvested a similar amount in employee training as the non-Asian firms inthe FMCG industry. Firm size is also significantly correlated with thetotal training expenditure (see Table 6.3).


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MNCs make a significant effort and investment in training their man-agement staff. Although most of the companies do not keep separatestatistics on training for blue-collar and white-collar workers, interviewdata reveals that each management staff member spends around 5–10 percent of their working time annually on training programmes. As staff areunder heavy pressure during work hours in Vietnam, more than 5 percent of working time per year devoted to training is considered a lot oftime away from work. These companies, however, believe that the long-term investment is worthwhile. Most importantly, they understand thattraining is the key to retaining local managers. All interviewedVietnamese managers, without exception, acknowledge that the oppor-tunities for further T&D in the form of training by ‘foreign invested


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Table 6.3 Training budget in 2007

Company Training expenditure/employee (USD)

MNC Auto1 342

MNC Auto2 127

MNC Auto3 140

MNC Auto4 N/A

MNC Auto5 >120

MNC FMCG1 >200

MNC FMCG2 273

MNC FMCG3 200

MNC FMCG4 87

MNC FMCG5 160

MNC FMCG6 >250

Notes: 1. The training budget in any particular year may not accurately reveal the T&Dlong-term strategy of a company. The budget can fluctuate, influenced by a company’sshort-term business strategy. For example, MNC FMCG1’s training time in 2002 was notmore than 1 per cent of working time. However, their HR manager revealed that a muchhigher percentage was decided during the setting-up period, but the focus of thecompany’s business strategy in 2002 was less on training.2. Companies are hesitant to reveal budget data, so the figures should be considered asindicative and approximate.

companies’ and overseas training are one of the strongest reasons fortheir decision to work for those companies. Interviews conducted bycompanies with the group of regretted turnover also proves this – themost cited reason for leaving the companies was the lack of training orthe feeling of receiving less T&D opportunities than expected. This againre-confirms that there is a skilled labour shortage in Vietnam, and over-all in Asia (Stahl & Zheng, 2002; Zheng, 2005).

A lower proportion of the companies’ training budget is devoted to thetraining of blue-collar workers. Furthermore, the number of training pro-grammes provided to white-collar workers is much higher and consists ofa wider range of topics compared with those provided to clerical and pro-duction staff. This is especially the case in the FMCG industry, where thesimplicity of the production process requires very little training. Lineworkers in MNC FMCG3, MNC FMCG4 and MNC FMCG5 are virtu-ally only trained for basic production techniques during their inductionprogramme.

6.4.2 Training programmesTraining programmes in MNCs often start with the very basics of busi-ness education in the curriculum. Employers provide broad-based foun-dation training for their staff as a basis for further training providedlater. MNC Auto1, for instance, has implemented a ‘learning tree’ train-ing scheme with roots (basic business skills: stage 1), trunks (functionalskills and advanced business skills: stage 2) and leaves (management andleadership skills: stage 3). In the first stage of this programme, 100 percent of staff is required to participate to ensure that all employees havebasic business awareness and speak the same business language. In thenext stages, the company seeks to develop potential managers only,where intensive training programmes are tailored to prepare them toassume managerial posts. Similarly, MNC Auto3 developed a model ofon-the-job training in six steps, which covers the company’s wholeworkforce. Step one is for the lowest level of employees, while step six isfor managerial staff members. The six steps aim to upgrade employees’skills and knowledge from the very basic level, such as to complete rou-tine repeatable jobs under detailed instructions and regular supervision,through to using their own judgement and creativity to complete taskswith limited supervision.

Managers and professional/technical staff undertake more externaltraining programmes than internal ones. Internal training mode is mainly


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on-the-job training for clerical, sales and production employees.Normally, companies establish a regular relationship with trainingproviders to cater for basic training needs. Employees are required to ac-tively pursue training by choosing courses to suit their personal develop-ment needs (courses are available on a ‘first come, first served’ basis) ortaking them as a compulsory requirement for their current or new posts.Many of these programmes are taught overseas or by foreign experts sothat Vietnamese managers can gain international exposure and experi-ence. Some of them are required to take international assignments as partof their training programmes.

Non-Asian MNCs, such as MNC Auto1, MNC FMCG1 and MNCFMCG2, also offer ‘shadowing opportunities’, where high potential localemployees tag along and observe expatriate managers from HQ full time.Mentoring is also used as a training strategy. However, effective formalmentoring relationships may not be formed easily in Vietnam due to thelack of expatriate managers and the cultural differences that form a gapbetween mentors and mentees. In addition, the demand in terms of timefor mentoring programmes has a negative effect on expatriate managers’business effectiveness. Thus, the popularity and success of mentoring pro-grammes are limited in the studied firms. This finding complements theargument that Western mentoring policies have trouble being transferredto the Asian context, and mentoring relationships that are developed nat-urally are more effective than mentoring that is created by formal means(Weldon & Vanhonacker, 1999).

Compared to their SOE counterparts, training methods in MNCs aremore diverse and advanced. One of the most recent approaches adoptedby MNCs is e-learning and blended learning. E-learning uses companyintranet to deliver training courses to employees, and thus allowsVietnamese employees to gain access to a well of knowledge available tothe company’s global workforce. However, as a type of education wherethe medium of instruction is computer technology without personalinteraction, e-learning has certain weaknesses, such as the lack of in-structor interaction (Bouhnik & Marcus, 2006; Flamholz & Cheung,2007). In the Vietnamese context, e-learning might not be optimal as theworkforce does not have a strong knowledge platform to make good useof the company’s global resources.

Blended learning aims to overcome the inadequacies that evolve frome-learning, by incorporating two or more methods for deliveringtraining (Bersin, 2004; Mackay & Stockpot, 2006). Typically this wouldinclude e-learning along with a mixture of other training methods suchas on-the-job training or classroom-style training. One increasingly


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popular style of a blended learning programme involves combining bothe-learning and manager-led on-the-job training. This style of traininghas proven to be liked by Vietnamese employees and to be more efficientthan a singular classroom or e-learning program. Employees can learnand apply their training more immediately in a real work environmentand can gain increased levels of motivation as the relevance of trainingto the job is clearly demonstrated. Blended learning also transfers theresponsibility of learning to the individual, provides more immediatefeedback from the supervisor and offers greater flexibility in the paceand timing of delivery (De Jong & Versloot, 1999; Lewis, 1997; Holtonet al., 1997).

Besides the formal T&D channels, companies are aware of and use in-formal cultural aspects of management development to create a commonlanguage and shared attitudes across their operations globally. Non-Asian companies focus on policies such as an in-house top managementprogramme and management forum, where participants are executivesfrom all regions of the world and have contributed greatly to a strongglobal culture. By contrast, Asian corporations encourage employees toidentify themselves within the corporation by emphasising the company’sphilosophy. In addition, e-forums, e-networks and e-learning, which arevery popular in the studied firms, contribute greatly to creating a globalculture and transferring ‘soft skills’.

In the Vietnamese market, companies are faced with a dilemma – theycould spend a fortune on training and developing their management staffonly to see them leave the company (newly equipped with skills thatmake them more desirable in the market) for higher paying employers, inmany cases a competitor company. As skills are scarce within and acrossindustries, job-hopping to accelerate salary is popular. While some com-panies have a practical viewpoint on this matter, others think twice be-fore determining their training budget. The MNC FMCG2 HR managersaid:

When talented and ambitious people are equipped with new knowl-edge and skills that they learnt in a multinational company, theybecome a precious commodity in the labour market, you shouldexpect that they might want to move on.

On the other hand, MNC Auto3 claims they are unwilling to bear thetraining costs for managers because of the perception that such employ-ees are highly individualistic and inclined to switch jobs whenever a moreattractive opportunity becomes available. Moreover, each industry is


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narrow enough, so the list of talents within it is widely known to insid-ers. The production manager of MNC Auto1 can easily name top/keyperformers in MNC Auto2 or MNC Auto3. The competition for high-quality staff is fierce. MNC Auto1’s regional sales and marketing man-ager used to be MNC Auto3’s sales and marketing manager. He was oneof the pioneers in assisting the country director in setting up MNCAuto3’s operations in Vietnam. MNC FMCG3’s production managerused to work for MNC FMCG4. Furthermore, there is clear evidence ofspillover effects caused by employees who used to work for foreignMNCs and then subsequently moved to local firms. In some other cases,possessing local connections and newly acquired knowledge, Vietnamesemanagers leave MNCs and start their own businesses in the same or re-lated industry, providing services to their former employers.

Preventative strategies have been applied to keep trained managerswith the companies and reduce the regretted turnover rate. Some compa-nies provide training and education programmes and/or financial sup-port to managers’ education only on the condition that they are bound bya legal contract with the company to stay for at least three to five yearsafter the programme, otherwise, hefty fines would be applied. MNCAuto3, on the other hand, offers highly firm-specific training courses(such as the company’s New Circle Leader, Training Within Industry,Company Philosophy higher level, etc.), which greatly improve thechance of getting acknowledged and promoted within MNC Auto3 butare of little help in seeking jobs elsewhere. No ‘normal’ degree or certifi-cate has ever been given. The company thus limits the ability of theiremployees to use the knowledge gained in the company to advance theirpositions in other companies.

6.4.3 Comprehensiveness of training programmesIn general, non-Asian MNCs tend to invest more in training their man-agers than Asian firms. Moreover, a well-structured and systematic ap-proach to T&D is evident in non-Asian MNCs. Training needs are iden-tified as a cycle which requires close cooperation between supervisorsand subordinates. They are discussed annually in performance appraisalmeetings, based on several factors: the company’s and the department’sbusiness objectives and an analysis of the person’s performance targets,achievements, performance gaps and career aspirations. Managersanalyse the actual and required skills level of the employees to outline


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skill deficiencies and determine whether training is the most appropriateway to solve the deficiencies, and if so, to decide the training priorityorder. The main goal of the needs analysis is to lay out the foundation forthe implementation and evaluation stages. The areas of training cover awide range of issues and subjects, which also emphasise human-relatedskills. The training results are monitored to allow a continuously im-proving training cycle. Employees are provided with adequate regularfeedbacks and opportunity to use their newly learnt skills. Interviewedmanagers express their content with the T&D that they receive, and mostjudge the system to be effective or very effective.

A second feature that non-Asian MNCs share is their commitment tojob rotation. The arrangement for job rotation is fairly formal, at least onpaper, even though the results do vary significantly and are limited ingeneral. Job rotation takes place every two or three years and continuesin a manager’s career. Managerial staff members are required to select thearea of expertise they wish to move into in the near future, while their su-pervisors are responsible for providing them with the relevant training tomake them capable in their new jobs. MNC FMCG1 industries report nodifficulty in the inter-functional mobility of their staff – indeed they re-port an impressive 25 per cent of their management staff qualified for asecond area of mastery. However, other companies admit limitations in thisactivity at the present. For instance, MNC Auto1 states that ‘meaningfulrotation is rather limited at the top levels’. The requisite special knowl-edge would be too high, while the knowledge and skills of managers arestill limited. This does not allow cross-functional mobility without deteri-oration in performance. Due to the workload and the endeavour for highperformance ratings, sections/departments/firms tend to resist rotation.Nonetheless, non-Asian MNCs are making an effort to develop interdisci-plinary skills. The long-term perspective is to develop a highly competentlocal management staff which has been trained in a wide variety of func-tional skills and is able to replace expatriate managers, which is in linewith their management localisation strategy.

This is in marked contrast to a number of Asian MNC cases. Trainingin these firms is merely based on production needs and the availabilityand convenient timing of courses offered by the company or trainingproviders from outside. A departmental manager in MNC FMCG4pointed out that when he was appointed as the factory HR manager in2001, he had received no preparatory training to equip him to take on thechallenges of the post. He reports that he therefore needed to embark onseveral months of hard self-study to undertake his current job effectively.He, along with many others, says that he feels there are gaps in the areas


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of ‘leadership’ training as well as in marketing and sales, informationtechnology, planning, labour law, health and safety law, and so on.

Training programmes in Asian MNCs focus heavily on technicalknowledge and neglect people management skills, while a more balancedapproach is taken in non-Asian MNCs. Furthermore, in all Asian sub-sidiaries in Vietnam, job rotation is not a popular practice. Even thoughsome limited movement has been recorded, for example shifting stafffrom HRM to public relations department, it is reckoned that the move-ment is designed more to fill the human resource gap and for the con-venience of the company, rather than for intended rotation. Rotation forworkers in production lines is much more popular. Vietnamese managersin these companies are often seen as stuck in narrow specialisms. MNCAuto3 serves as an example in this context. An ethnocentric approach inglobal staffing strategy restrains the subsidiary from developing theirlocal management staff. The company’s ‘Rotation Rule’, which requiresthat a person does not remain longer than three years at the same post, isapplied to senior managers and upper-level staff only. In effect, this elim-inates the possibility of rotation for the local managerial staff. The train-ing programmes show a strong trend towards developing Vietnamesemanagerial ‘specialists’ rather than ‘generalists’.

6.5 Conclusions

This chapter has briefly examined the educational and vocational train-ing system in Vietnam, with a focus on its impacts on companies’ T&Dsystems. The overal picture is that the E&T system, despite the govern-ment’s vigorous attempt to renovate it, remains unable to deliver a well-educated and skilled workforce. A chronic mismatch exists between theE&T system’s outputs and the company’s human resource inputs. Thus,the social demand on companies to provide T&D opportunities for theiremployees is paramount.

In the state sector, although there has been an increase in training ac-tivities (e.g. increased training budget, more training courses offered andwidening training fields), T&D systems in SOEs have not advanced farfrom the old days of the centrally planned economy. There is little evi-dence to suggest that T&D forms part of an HR strategy proactivelypursued by SOEs. The activities suffer from limited financial resources,low-quality training courses, out-of-date training methods and lack ofsystematic training systems. High-quality training opportunities are


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mostly only offered to top executives and managers – those who arealready privileged with a higher level of skills and qualifications.Coordination is lacking between employees and their direct supervisors,and between and among departments, and there is also a lack of involve-ment by senior management in the training processes. At present, T&Dachievements are heavily reliant on each individual employee’s will andcommitment. In order to foster company training, the state needs to pro-mote enterprise training by implementing stronger, and clearly enforce-able, economic, legislative and administrative mechanisms. There is alsoa need for a closer linkage to be established among enterprises and edu-cational and training institutions.

On the other hand, in the foreign-invested sector, for MNCs that donot focus on exploiting cheap labour, the training and re-training of theVietnamese labour force are seen as imperative. In general, MNCs pro-vide much more T&D programmes for employees than their SOE coun-terparts. Modern training techniques, various and relevant trainingprogrammes, including overseas programmes, are utilised. Trainingquality is also greatly enhanced by the use of up-to-date, technology-driven methods such as e-learning and blended learning. A more com-prehensive and systematic T&D approach, which includes a full circleof training need analysis, training design, implementation and evalua-tion, is recorded in some companies in this sector. The main issue inmanagerial T&D in the Vietnamese context is the conflict between theneed to intensify T&D for local managers versus the risk that, in thechaotic Vietnamese labour market, this will worsen the turnover rateand poaching. Companies have intensified their training efforts to keepup with the global standard and at the same time develop counter-strategies to get a higher return on their investment on training inVietnam. Limited training which focuses on production needs and neg-lects people management skills is recorded in some Asian MNCs.

Note1. MNC Auto1’s Production System’s 10 components consist of managing, train-

ing, work groups, administration, machine, safety, total inventory, manufac-turing, engineering design and material flow.


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Industrial relations

7.1 Introduction

Trade unions’ roles in and impact on the workplace are undeniable. Theycontribute to set up an IR environment, which allows HRM activities tohappen. As a ‘collective voice’ representing organised workers within en-terprises, unions air workplace differences for managerial consideration,therefore reducing turnover and improving morale and cooperation(Deery, Erwin & Iverson, 1999). A study of the contemporary HRM sys-tem in Vietnam is incomplete without an analysis of the IR environmentand trade unions’ activities at the workplace.

This chapter is structured as follows. Section 7.2 provides an overviewof the IR system in the centrally planned economy and the contemporaryeconomy. It analyses the organisational structures within trade unionsand the challenges they face in transforming their organisation and ac-complishing the tasks that government assigns them. Section 7.3 presentsthe constraints of trade unions’ activities, in terms of adopting a newstructure, financial and time budgets, membership and leadership. InSection 7.4, trade union’s roles and activities in the investigated SOEsand MNCs are examined across six main functions defined by theVietnamese labour and trade union legislation: providing education, or-ganising social activities, managing the labour force, checking on man-agement, solving conflict and protecting labour rights. Section 7.5 exam-ines the management–trade union relationship. Finally, some briefconclusions close the chapter.1

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7.2 The changing nature of theVietnamese IR system

Vietnamese workers are represented by the Vietnamese GeneralConfederation of Labour (VGCL). The role and nature of trade unionsdo not conform to the Western liberal-democratic model of unionism inwhich unions are independent representatives of collective employee in-terests. As in any other communist country, the state is the main em-ployer in Vietnam. The union does not play the role of protecting or fur-thering the interests of employees, as workers are assumed to haveinterests similar to those of the government. There is no recognition ofthe possibility that the interests of the three actors might differ. The maindifferences between Vietnamese unions in particular, and communistunions in general, and capitalist unions are summarised by Littler andPalmer (1986: 265) as in Table 7.1.

Prior to Doi Moi, at the workplace level, employees were managedby four pillars of power: the Communist Party representative, the man-agement, the trade union representative and the representative of theYouth Union. The party enjoyed the most power. The unions’ role wasto act as a ‘transmission belt’ between the party and the ‘masses’(Fahey, 1995). Although they claimed to represent and protect the


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Table 7.1 The nature of communist unions versus capitalistunions

Communist unions (classic Capitalist unions (classic dualism) adversarial model)

1 Unitary view of economic Pluralist view of economic interests: it is axiomatic that interests.no ‘industrial conflicts’ exist.

2 The production function is Representative function isparamount. paramount.

3 Protection of members’ rights Production function is either is secondary. (a) not acknowledged or

(b) secondary.

4 Subordination to the party. Autonomous organisation.

5 No collective bargaining. Union Adversarial collective bargaining practices exclude the use of is the typical process of adversarial means. industrial relations.

rights of workers, from a perspective of capitalist unionists, they didnot execute this fundamental function. Vietnamese trade unions’ keyaim and objective was to work hand in hand with the management tomobilise workers to fulfil and over-fulfil production quotas set by thecommand economy. This usually involved launching socialist labouremulation campaigns to encourage workers to increase productivityand to participate in technical innovation activities. They also providedthe human touch to bureaucratic institutions by organising social activ-ities and serving as counsellors for employees’ work-related and per-sonal problems. The tight integration of trade unions into the manage-ment of SOEs was most evident in their roles in distributing materialgoods to employees on behalf of the enterprises, such as salary, benefitsand bonus, and allocating employees’ subsidised housing. Finally, thetrade unions were also required to raise an employee’s political con-sciousness, by encouraging them to follow the Party’s guidelines andultimately become a member of the Party.

The economic reform in Vietnam has had an enormous impact on thestructure of the Vietnamese economy and consequently on the workingcondition of employees. With these rapid changes – expansion and diver-sification of the system – the traditional labour legislation provedincreasingly inadequate. Recognising the necessity to adjust to the chang-ing labour situation, the Vietnamese government passed the new TradeUnion Law in 1990, the Trade Union Constitution in 1993 and theLabour Law in 1994. These legislations mark the beginning of the trans-formation of the IR system in Vietnam.

The Vietnamese 1990 Trade Union Law opens by re-stating that theunion is an organisation under the leadership of the Communist Party(Article 1.1). However, the substantial details of the law show that theparty has taken serious attempts at transforming trade unions by grant-ing them considerably more autonomy and, for the first time, placingthem on the opposite side of management. First, a clear-cut division ex-ists between management and labour. The role of the Vietnamese tradeunions is no longer limited to assisting management or carrying out man-agerial functions. Unions are empowered to ‘check on’ the management(Article 2.2). Secondly, they have the right to get support from foreignorganisations. In particular, they can join international trade union or-ganisations (Article 1.3), accept donations from international sources(Article 16.2.a) and keep these as union assets (Article 17). Thirdly, aVietnamese union official’s salary is paid from union funds (Article 15.3).This means that in the workplace, union cadres are expected not to be onthe management payroll and to be independent of management.


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The Trade Union Constitution of 1993 intended to establish and rein-force occupational trade unions (Article 14). This attempts to reinforceoccupational trade unions aiming to voice interests that may be differentfrom those of the state and the local governments. Company-based tradeunions are therefore under the control of two hierarchies. The traditionalvertical one represents geographical or locally based union structure,while the horizontal one is concerned with the occupational structure. Alllocally based and occupation-based trade unions, however, are under thesame umbrella of the VGCL.

The new Labour Law of 1994 clearly showed that the government ac-cepted a tripartite structure for industrial relations, consisting of labour,employers and the state. The trade unions’ role of protecting workers’labour rights is affirmed. Despite persistent objections from other bu-reaucracies during the heated debate over the drafts, trade unions are tobe set up in enterprises of all ownership types, including foreign-investedfirms (Article 153.1). Finally, Vietnamese workers were given the right tostrike for the first time (Article 173.2), although the exercise of this rightwas severely limited by law and legislation that govern it.

These laws and constitutions suggest that the Vietnamese CommunistParty is willing to relax its hold on the labour unions and that a stronglegislative base exists for trade unions to step out of the Party and thestate’s shadow and reform their organisation to perform the function ofworkers’ representatives in protecting their rights and interests. However,there is an enormous gap between what is written on paper and what isimplemented in reality due to the ideological legacies of socialism, or-ganisational inertia and the government’s eagerness to maintain labourpeace and to attract foreign capital (Nørlund & Chan, 1998).

7.3 Trade unions’ constraints

7.3.1 Organisational structureThe presence of trade unions in a company is required as per theVietnamese Labour Law. While the formation of trade unions in SOEsdates back all the way through their long history, their formations inMNCs differ according to their modes of entry. In theory, in greenfieldfirms, the establishment of trade unions should be initiated either by theVietnamese partner in the case of firms that are joint ventures or by thetrade union at provincial level in the case of firms that are wholly foreignowned. In brownfield establishments, trade unions are already part of


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the pre-existing state-owned firms. In practice, however, it was themanagement – concerned about achieving legitimacy in Vietnam – who ini-tiated the establishment of company trade unions in some of the studiedfirms (e.g. MNC Auto1, MNC Auto2, MNC FMCG4 and MNC FMCG6).

After the introduction of the Trade Union Constitution in 1993, the ex-isting occupation-based trade unions consolidated and strengthened them-selves, and some new ones were established. However, the developmentand expansion of trade unions in general and occupation-based unions inparticular is still constrained by laws and financial difficulty. The estab-lishment of any new union needs to be ‘approved’ by a higher-level union(Decree 133/HDBT, Article 1.22). Further, with the support of the Party,the VGCL retains the ultimate power of founding and disbanding any newunion organisations, as the Party fears any new unions may be abused forpolitical purposes (Trade Union Constitution, Article 26).

Locally based and occupation-based unions are expected to work handin hand to fulfil some of their main tasks, such as educating workers, pro-viding training to union officials and checking on the company’s labourenvironment. Some of their roles are interchangeable. In fact, companytrade union leaders find it difficult to disentangle the roles of the verticaland horizontal union structures. The newly strengthened occupation-based unions, which aim to break down the traditional structure of thedominance of locally based unions and voice an interest from a profes-sional perspective, are not attractive to enterprise-based union members.The main reasons for the occupation-based unions’ inefficiency are theirlimited budget and the limited number of personnel that these unions areallowed to maintain and are able to afford. There are two sources thatcontribute to their budget, namely union fees from union members(foreign-invested companies are no longer required to pay this since1997) and a modest union budget allocated to them by the state. Thenumber of trade union officials in an occupation-based union is depend-ent on the total number of workers they have (see Table 7.2).

Unions of the studied firms in the automotive industry are members ofthe VEAM (Vietnam Engine and Agricultural Machinery Corporation)Confederation of Labour. VEAM has 15 sub-companies and employsmore than 8,000 workers, which means the VEAM trade union canmaintain a leadership team of four or five officials. In fact, up until 2001,due to financial constraints, the VEAM trade union organisation hadonly two officials, one a union president and the other a vice president.They have increased their staff number to four persons only recently.Meanwhile, the union members are based in 15 enterprises, which are lo-cated throughout the northern, southern and central areas of Vietnam.


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They admit that they are losing their grip from union members’ activities.VEAM union leaders at best could pay only one visit per year to theirunion members’ firms that are located in remote areas.

In comparison, the traditional locally based unions are in a better posi-tion. Geographical proximity allows them a faster aid in case of need. As aresult of their long history of development, they also benefit from a muchbetter organised and more reasonable staffing structure (see Table 7.3).Vinh Phuc Confederation of Labour’s organisation, for example, is at least10 times bigger than that of VEAM. Thus, in fact, even though the dualsystem of locally based unions and newly developed occupation-basedunions exists, enterprise-based unions are linked more closely to locallybased unions, just as they used to be before 1986. The main aims ofoccupation-based unions are not achieved, while locally based unionscannot accurately reflect occupational interests.

Company-based union’s relationships with their locally based and oc-cupational unions are limited to administrative functions and joiningtheir social activities (such as sports competition, AIDS/HIV preventionand environment campaigns). Company-based unions are required tosend to upper-level local and occupational unions quarterly, mid-yearand yearly reports regarding labour headcount, compensation and bene-fits policies, and labour disputes. Reports on an ad hoc basis are also re-quired in cases of labour disputes. However, the investigated companiesreveal that they do not maintain this correspondence with upper-levelunions, nor with occupational or locally based unions. In terms of pa-perwork, virtually only one-way communication exists – from upper-level unions to company-based unions.


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Table 7.2 Number of trade union officials in occupational-basedunions

Total number of workers in the The number of trade union officials corporation (person) allowed (person)

10,000 4–5

10,000–30,000 5–6

30,000–50,000 6–7

50,000–90,000 7–9

Over 90,000 10

Source: Decision 1537/QD/TLD, issued on 17 December 1996 by the VGCL, regardingthe number of trade union officials in occupational-based unions.

7.3.2 Financial and time resourcesTrade union’s dependence on management, in terms of financial and timeresources, strongly influences the role of trade union in relation to man-agement. As far as financial resources are concerned, companies wererequired to pay 2 per cent of their payroll to the union’s budget (of whichthe company unions are allowed to keep 1 per cent and transfer the other1 per cent to locally based unions). Since 1997, to polish the investmentenvironment, the government dropped this obligation for foreign-investedenterprises. Since then, officially the main financial source of unions hasbeen their modest union fees. This amount is clearly insufficient to pay forthe union’s activities and finance salaries for union cadres.

In fact, trade union funds in Vietnamese SOEs have been insufficient topay the salaries of union cadres, and therefore, part of the trade unionchairs’ salary still derives from the enterprises. In fully foreign-investedcompanies and joint ventures, companies might voluntarily keep financ-ing trade union’s activities. Also, employees’ representatives, in mostcases, are chosen within the enterprises. They are full-time employees,who are on the company payroll and are paid extra money, either by the


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Table 7.3 Number of trade union officials in locally basedunions

Number of trade union Union grades officials allowed (people)

Grade 1: Hanoi Federation of Labour and Not in excess of 70Ho Chi Minh City Federation of Labour,each of which has more than 30,000 workers and 1,500 union members

Grade 2: Federation of Labour of cities Not in excess of 40and provinces in the Delta areas, which has more than 5,000 workers and 500 union members; provinces in central and mountainous areas, which has more than 3,000 workers and 300 union members

Grade 3: Federation of Labour of provinces, Not in excess of 25which has a number of workers and unionmembers less than those in Grade 2

Source: Circular 1251/TLD, issued on 10 January 1995 by the VGCL, regarding thenumber of trade union officials in locally based unions.

company or by the unions to do the unions’ work. Financially dependenton companies, trade union cadres’ roles as representatives for employees’interests are as a result more or less limited.

On the other hand, to make unions more affordable and attractive toworkers, some company-based unions, of their own accord, decide to re-duce union fees, and by doing so abandon VGCL’s regulation. VGCL stip-ulates that ‘monthly union fees equal one percent of the monthly salary.Those who do not have a fixed salary will contribute one percent of the pay-ment they receive that month’ (Circular 06/TT-TLD3). In practice, in 2004,this amount was worth around 20,000–280,000 VND/person/month. TheMNC Auto1 union reduced it to 10,000 VND/white-collar worker/monthand 7,000 VND/blue-collar worker/month, while MNC FMCG1 reduced itto 10,000 VND/employee/month. Even further, MNC Auto3 went as lowas possible to a mere 2,000 VND/employee/month, which might explaintheir 100 per cent union density.

Financial problems are no doubt one of the reasons why trade unionactivities are virtually absent in some foreign-invested companies, suchas MNC FMCG4. In other companies, the management voluntarilykeeps financing trade union activities. It is then obvious that the man-agement can have a say on how the union’s budget should be spent, andin this way can influence trade union activities. Some unions continue toreceive their 1 per cent as before 1997, while the company saves 1 percent of its payroll due to the cut in the contribution to higher-levelunions. Some other unions receive company funding on an ad hoc basis.MNC Auto1 earmarks 1 per cent of the company’s salary budget for‘employee activities’; however, this budget is allocated to the HRMdepartment instead. In each case, trade unions are heavily financiallydependent on their companies.

A related issue is salary for trade union leaders. By law, a Vietnameseunion official’s salary is paid out of union funds (The Labour Law, Article15.3), and the source of union finances includes membership fees and al-locations from state revenue (The Labour Law, Article 16.2.a.b). This isdone with the intention to get the union cadres off the company payroll.In fact, trade union funds have always been insufficient to pay the salariesto union cadres (see also Chan & Nørlund, 1998). The VEAM unionclaims that quite apart from other factors, financial limitations make itimpossible to maintain full-time union officials as company-based unionmembers. In all the investigated unions, union cadres are also full-timeemployees. They therefore receive the so-called supplementary paymentfrom upper-level union (supplement to the salary paid for their full-timejob by the companies). This modest amount of money is already a burden


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on the union’s budget. Nevertheless, trade union officials are willing totake union jobs to raise their profile in the companies. However, being onthe company payroll as full-time employees, trade union cadres’ roles asrepresentatives for employees’ interests are more or less restricted.

As far as the time budget for union activities is concerned, the regula-tion is that companies should allocate six working days for the unionpresident to do union-related work, if the firm employs more than 150persons, or three working days, if the firm has 80–150 workers (Article18, Resolution 133/HDBT4). In fact, although union officers acknowl-edge that the companies are willing to allow them to have time off forunion meetings and activities, they do not formally receive this time.Working as high-level managers simultaneously, union committee mem-bers are extremely busy with their full-time jobs. They openly admit thattheir full-time jobs get first priority over union tasks.

Burdened by these constraints, trade union officers’ roles and activitiesin the studied firms are very limited, compared with their expected rolesas regulated in related laws. The first sign of feeble union activities can beseen in the frequency of the Trade Union Annual Conference, which – asits name suggests – should be held once a year. In SOEs, as part of theirtradition, Trade Union Annual Conferences are held closely with, or aspart of, the companies’ Employee Conferences. However, none of the in-vestigated MNCs have done this. Since its establishment in 1998, theMNC Auto3 union has so far organised only two Union AnnualConferences. MNC FMCG4 and MNC FMCG3 have done one so far.The rest of the studied MNCs have not arranged any annual conferenceat all since their establishment, even though they believe that companymanagement does not pose any constraint on the activity.

7.3.3 Union density and leadershipIt is reasonable to assume that under such circumstances, the uniondensity is low. In fact, in investigated companies, union density varies sig-nificantly (Tables 7.4 and 7.5).

In general, union density in the automotive industry is very high, com-pared with that in the FMCG industry, where there has been a decliningtrend. Especially, the union density in MNC FMCG4 has decreased fromits peak of 98 per cent at its establishment to 10 per cent at present. Unionleaders believe that the union density at the workplace level is very muchdown to one single factor, namely the enthusiasm of company-basedunion leaders. Moreover, the higher union densities are recorded in


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companies located in the northern area, around Ha Noi. This mightreflect the concentration of political power (and its indirect influence) andthe higher political awareness and interest in the capital and its satellitecities. Meanwhile, a more relaxed and easygoing attitude is evident in theideology of southerners.


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Table 7.4 Union density in state-owned enterprises

Company Union density (%)

SOE Auto1 98

SOE Auto2 95

SOE Auto3 100

SOE Auto4 100

SOE FMCG1 97

SOE FMCG2 100

SOE FMCG3 100

SOE FMCG4 �90

Table 7.5 Union density in foreign-invested companies

Company Union density (%)

MNC Auto1 69

MNC Auto2 100

MNC Auto3 93

MNC Auto4 92

MNC Auto5 87

MNC FMCG1 90

MNC FMCG2 47

MNC FMCG3 53

MNC FMCG4 10

MNC FMCG5 63

MNC FMCG6 58

As per regulation, firms with more than 300 employees are allowed tohave full-time trade union cadres, which means that all the studied firmscan have full-time trade union cadres sent to the firms by upper-levelunions. However, neither union nor management wants to realise thisregulation. Union cadres themselves fear that if they cannot get enoughvotes from union members in the enterprise that they are running for inthe next term, they will lose their posts and be transferred back to upperunion organisations. This is considered as a bad career move, because insome ways, these people are regarded as ‘losers’. To remain in one postfor a longer time, or better yet permanently, full-time union cadres needto prove themselves embedded in the enterprises and/or be ‘flexible’ tothe management. On the other hand, management and, in many cases,employees prefer ‘insiders’ to ‘outsiders’. They argue that ‘insiders’ are ina better position to understand their industries, occupations and accord-ingly their interests. Even though being voted out from their posts is nota concern for ‘insider’ union cadres, the main problem they face is thelack of time they are devoting to union activities. As full-time employees,they can hardly find time to organise union activities and adjust theirtime with that of their colleagues and workers, who normally work ondifferent shifts.

It is noted that in MNC Auto2, a foreign-invested company, where100 per cent union density is recorded, the union chairman is simultane-ously the company’s human resource manager. VEAM indeed judges thisas one of the favourable factors that help to promote the trade union’s role,and accordingly union density, in MNC Auto2. Acting as the union presi-dent and the HRM manager, he fosters a direct dialogue between manage-ment and workers and adds considerable weight to the union’s voice. Fromthe employees’ perspective, a position on the board of management con-firms the quality, authority and respect of trade union leaders. In fact, tradeunion leaders in the studied firms are not only ‘insiders’ who are embeddedin the firms but also middle- or higher-level managers. This underlines thefundamental difference between Western and Vietnamese trade unions,and leads to the question of what position trade unions take towards man-agement, which will be discussed in the next section.

7.4 Trade unions’ roles and activities

The Trade Union Law of 1990 indicates that trade unions’ roles includeproviding education to employees regarding labour law and work disci-pline, organising social activities, managing the labour force, representing


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workers in negotiations to resolve labour disputes, representing workersin signing collective labour contracts and checking on management. Thissection analyses the implementation of each of these functions in thestudied SOEs and MNCs. It is argued that compared to what is regulatedand understood by labour-related laws, trade unions’ roles and activitiesin the workplace are limited to organising social activities, providingeducation to employees regarding labour law and work discipline, andhave not exceeded the traditional roles and activities of the former cen-trally planned system.

7.4.1 Education functionTrade unions are expected to promote the constitution and laws, edu-cate workers to follow the law, protect socialist property, increase pro-ductivity and promote work discipline. Normally, trade unions performthis function in liaison with the company in relation to the whole work-force. The extent to which company-based trade unions perform thistask varies significantly, ranking from providing none to ad hoc classes.Information sessions regarding labour laws are available on request, butno mass education has been conducted so far.

7.4.2 Organising social activitiesThe most recognisable function of a trade union is organising social ac-tivities in companies. This is also the most traditional function. In fact,the interviewed union leaders revealed that this is the union’s main (andin many cases, the only) contribution to workers’ life. A cross-checkwith workers shows that this is the strongest function of the trade unionand that, for a majority of employees, the notion of a trade union islinked with ‘the organiser of social activities’. Trade unions organisesports, recreation, charity activities and tourist activities (by themselvesand/or in conjunction with locally based or occupational unions).Further, unions provide a ‘personal touch’ to their members by visitingthe sick, attending weddings and funerals of union members and, some-times, their immediate family members, presenting gifts and greetingmessages on birthdays and national holidays and so on. Some unionsmanage these activities within their budgets while some coordinate withcompanies.


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7.4.3 Managing the labour force and checkingon the managementIn SOEs, as a legacy of the centrally planned economy, trade unionleaders are still deeply embedded in the company’s board of directors.In many cases, the trade union chairman is simultaneously the man-aging director of the company or the vice managing director.Consequently, it is safe to state that in MNCs, managing the labourforce and checking on management are totally beyond the trade union’sability.

Unions are unable to enforce the observance of laws regarding labourissues. The most outrageous example would be how MNC Auto1 andMNC FMCG3 got away with their ‘70/30’ salary structures.5 This isconsidered by the Ministry of Labour, Invalids and Social Affairs(MOLISA) as one of the subtle ways in which companies manage toavoid their obligation to the state. This salary structure has been ap-plied in these companies since their establishment, with trade unionsturning a blind eye to it. Another example is the lack of a CollectiveLabour Contract (CLC) in MNC Auto3, which is among those firmsthat employ a large labour force. At the end of 2002, after five years ofoperation, MNC Auto3 did not have a CLC. Such neglect, whether de-liberate or not, is possibly due to the lack of a vigorous mechanism oflaw enforcement. In fact, no enforcement has been exercised on thecompany. If it were done, it would have cost them a mere 3,000,000VND (approximately USD 200). The potential advantage for compa-nies if they do not have any CLC is much greater than this. This is themain reason why the rate of companies that sign CLCs in Vietnam islow, around 50 per cent of foreign-invested companies, according to aVGCL report (2002: 36).

7.4.4 Resolving labour disputesBefore applying any disciplinary measures to employees, the manage-ment is required to inform, discuss and agree upon the matter with theexecutive committee of the trade union. However, the nature of the so-called discussion or negotiation between union and management onlabour issues is dubious. Most of the time, the management simply in-forms the trade unions about what decision has been made. It is notunusual for the unions to be on the same side as the management whensolving labour conflicts. Union and management both show intolerance


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to social delinquency, such as prostitution, drug use, possession and oth-ers. In these cases, unions play the role of a ‘middleman’ to convey themanagement’s message, as MNC Auto1 union president insists: ‘theunion officials contribute to convince the employees of a harmoniousmanagement–employee relationship’.

According to an incomplete statistic of VCGL (2002), during the pe-riod from early 1995 (since the Labour Law was enforced) to mid-2002,472 collective strikes took place, of which 262 happened in foreign-invested companies, accounting for 55.5 per cent of strikes occurring inVietnam. Labour strikes are highly concentrated in firms invested byTaiwan, Korea and Hong Kong, which normally operate in labour-intensive industries. Up to 2002, they were responsible for 71.43 per centof the total strikes. Taiwanese firms have been the most notorious with109 strikes, accounting for 41.6 per cent of the incidents in the foreign-invested sector and 23.1 per cent of the total strikes in all sectors. Mostof the strikes occurred in the industrialised provinces or cities such asHo Chi Minh City, Dong Nai, Binh Duong, Ba Ria Vung Tau, Ha Noiand Hai Duong.

Interestingly, 100 per cent of these strikes are illegal. This is becauseregulations governing the use of strike as a weapon severely reduce thepossibility and legality of labour militancy. First of all, in most cases,these strikes were organised by the workers themselves, with all theunions standing by, which make these strikes illegal, regardless of the factthat they followed the right procedures and processes (The Labourer,1 January 2002). The fact that only 60 per cent of foreign-investedcompanies have a union established in their organisations means thatfor 40 per cent of foreign-invested companies – the most turbulentlabour environment, especially in firms invested by Hong Kong,Taiwan and Korea and operating in labour-intensive industries – theright to strike does not apply. Secondly, strikes are prohibited in cer-tain enterprises of public service and enterprises that are essential tothe national economy or national security and defence, as indicated ina list issued by the government (The Labour Law, 1994, Article 174).Thirdly, workers must give two weeks’ notice prior to any industrialaction to allow time for mediation. Strikes can only be used as legalweapons after the failure of conciliation attempts of the company’sLabour Conciliation Council and Labour Arbitration Council at theprovincial level (The Labour Law, 1994, Article 171). Fourthly, whenit is apprehended that a strike may constitute a serious threat to the na-tional economy or public safety, the prime minister has the power toissue a decision to suspend or to stop the strike (The Labour Law, 1994,


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Article 175). The government has so far shown a considerable degreeof determination in disposing of any so-called illegal representatives ofemployees.

Many are of the opinion that the reasons why the recent labour strikeshave been organised by the workers themselves, bypassing the tradeunions, are the general lack of understanding of the labour laws and thebelief that strike is the quickest way to solve labour disputes. In fact, thisis only one side of the coin. The reality of these strikes showed clearly thatthe unions’ involvement was too weak. Almost all the unions were unableto perform their full range of functions, with some union leaders unwillingto voice the concerns of workers, fearing that it may affect their jobs.

7.4.5 Signing collective labour contractsOne of the main tasks of trade unions is to represent workers in signinga CLC with the directors of the companies and later being responsible formonitoring the performance of such contracts. Exercising collective bar-gaining at the workplace level is constrained significantly due to the gov-ernmentally centralised ‘floor of rights’. Moreover, due to the limitedcompetence of union leaders, this is not a product of bargaining but ofmanagerial prerogative.

The structure and content of CLCs are highly regulated by law. The1994 Labour Law is divided into component chapters, each dealing witha specific sub-field, which leaves little space for company-level ‘bargain-ing’ (see Table 7.6). In any case, the contents of the collective contractmust not contravene the prescriptions of the Labour Law and other leg-islation. Therefore, collective bargaining is only a secondary source ofrights and obligations in labour relations, after legislation.

In general, the basic content of CLCs is a copy of the Labour Lawmixed with the Company Code of Conduct. The floor of working termsand conditions is set by the labour legislation; management and tradeunions can come to a common decision to add some ‘pluses’ across aspectrum of issues on pay and working conditions additional to thelabour legislation. In practice, these ‘pluses’ are not the result of bargain-ing, but are simply offered by management. As a general rule, all of thestudied firms’ CLCs provide employees with some more favourable termsthan those prescribed by labour legislation.

Even further, competencies in bargaining are probably lacking amongthe trade union officers in Vietnam, who have long been unfamiliar withsuch a concept. Most importantly, in the majority of cases, they are


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managerial staff. Without exception, CLCs of all the investigated compa-nies are the direct result of either management proposal and/or law-consulting services. The contribution to the content of the CLC from em-ployees and trade unions is extremely limited. The straightforward andsimple process by which management drafts the CLC, and the union ac-cepts it without further amendment, is a common practice. In otherwords, there is nothing resembling collective bargaining in the Westernsense of the term. Furthermore, the VGCL, in their guidelines forcompany-based unions on the CLC and the Labour Contract, insists onthe importance of reaching unanimity through processes of consultationand negotiation (Circular 08/TT-TLD6). Thus, the consensual and collab-orative properties of ‘collective bargaining’ are strongly emphasised.


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Table 7.6 The table of content of 1994 Labour Law

1 Preamble

2 General provisions

3 Employment

4 Apprenticeship

5 Labour contract

6 Collective Labour Contract

7 Salary

8 Working time, rest time

9 Labour discipline, material responsibility

10 Labour safety, labour sanitation

11 Specific provisions on women’s labour

12 Some specific regulations concerning the under-age labourer andother types of labourers

13 Social insurance

14 Trade union

15 Settlement of labour disputes

16 State management of labour

17 State inspection on labour, sanctions against violations of labourlegislation

18 Implementation provision

7.5 Management–trade unionsrelationship

In this section, the management practices regarding the industrialrelations of the studied companies are analysed. It is evident thatmanagement cooperates with unions to varying extents and employspaternalistic strategies.

As the bottom line, all interviewed union officials in both SOEs andMNCs claim that the company is either ‘cooperative’ or ‘very coopera-tive’ to union activities. In fact, in SOEs, trade union is an integratedcomponent of the organisation. Meanwhile, MNCs do not see the unionas a constraint for their operations and/or recognise the unions’ role insupporting management to manage the employees. In the studied compa-nies, either a harmonious relation between management and union or thelack of trade union activities is recorded. Noticeably, in all CLCs, espe-cially in MNCs, the non-adversarial nature of management–labour rela-tions is stressed at length. MNC Auto2, for example, emphasises in theIntroduction chapter of their CLC that:

In the administration of this Agreement, and in day to day relation-ships, the Parties will exhibit mutual trust, understanding and sin-cerity, and, to the fullest extent possible, will avoid confrontationaltactics.

and

Should differences or misunderstandings occur they will be resolvedthrough full and open communication. The manufacturing envi-ronment will be based on the team work, mutual trust and respectthat gives recognition to the axiom that people are the most impor-tant resource of the Company. The Parties are cognisant that if thisendeavour is to be a success, labour and management must worktogether as members of the same team.

However, the level of cooperation between the company and the tradeunion varies, ranging from considering the union as an integrated part oftheir organisations to offering minimal support to the union. It is impor-tant to note that the studied firms invest in Vietnam with the main purposeof expanding their market, rather than cost saving (compared to other in-dustries such as textile, footwear, etc.). The companies offer relatively high


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salaries and a good working environment to their employees, comparedwith the average level in the outside market. In this circumstance, it is un-likely that they would have any problems with trade unions. This is notthe case with some labour-intensive manufacturing companies, wherelabour strikes are most likely to happen.

All the investigated SOEs and some of the foreign-invested firmsadopt a fully cooperative and supportive approach to trade union.MNC Auto2, MNC Auto3 and MNC FMCG1 are categorised in thisgroup due to their financial support to trade unions and their attemptsto integrate trade unions into the organisations as informal employeeservices department. These companies have kept contributing 1 per centof their salary budgets to the union after 1997. Unions can use this fundat their will, and companies do not require financial reports from theunion. This plan is submitted to the board of directors, and when it isapproved, money is transferred to the union’s budget. The union com-mittee is expected to provide a financial report to the management atthe end of the year. In return, it is the union’s responsibility to allocatethis fund for employee services, such as for indulging in sports activi-ties, visiting the sick or presenting gifts on birthdays, for employeesunder the joint name of ‘the company and union’. The trade union, inthis way, becomes an integrated part of the organisation, with the fullsupport of the management to function as an employee servicesprovider for the company.

The majority of the investigated MNCs opt for a limited cooperationstrategy. The proviso of Trade Union Law states: ‘the employer mustclosely cooperate with and create favourable conditions for the tradeunion to operate’. The law, however, is vague about what ‘favourableconditions’ are. That is left open to the companies to decide. Manycompanies chose the minimal approach, which means they do not in-terfere with trade union activities, but they do not provide unions withtime and/or financial resources. This, in effect, significantly decreasestrade unions’ roles and activities. It is believed that the minimalapproach in foreign-invested companies is the result of either managersignoring trade unions, considering them as unimportant, or companystrategies designed to keep the union out of issues of managementprerogative.

These MNCs use a wide range of HRM techniques to encouragedirect communication and involvement of employees, such as em-ployee surveys, direct communication channels (speak-out meetings,‘boundary-less’ work organisation) and a Joint Consultative Committee.If employees have any complaint, they are encouraged to use either the


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formal grievance-handling procedure through the Joint ConsultativeCommittee or the direct management-sponsored communication chan-nels by referring their problems directly to the board of directors. All ofthese companies utilise regular employee surveys to monitor the level oftheir employees’ satisfaction, and when the problem areas are identi-fied, they are processed on an individual basis. The common point isthat if there is any reason for employee dissatisfaction, the employeesshould use these provided communication channels to deal directlywith the management, which diminishes the role of an employee’scollective entity.

In effect, in these companies, there is a dual system of employee serv-ices: one is the traditional system provided by trade unions and theother is developed by the company. The company makes sure that theHR department, rather than unions, is the main or the only source ofwelfare and paternalistic generosity. The company’s mechanism is in amuch better position than the union in terms of time and finance.Companies fulfil union roles such as sending birthday gifts to employ-ees, organising holidays and social activities, visiting and attending insickness/birth/death and so on. Formal ‘employee services’ staff mem-bers are developed and established in the HRM department. They posetough competition to trade unions, because of their much better posi-tion for providing employee services, compared to what part-timeunion officials can do.

7.6 Conclusions

This chapter outlined the structure and roles of trade unions, looking attheir nature and position in relation to management at the grassrootslevel. It is concluded that there are little differences in union activities atMNCs and SOEs. In both forms of economic organisations, burdened bymany constraints from within as well as from the outside, at the work-place level, the trade unions are highly dependent on the managementand play a supporting role rather than an adversarial role to manage-ment. Their activities are limited to arranging holidays, organising socialactivities using the company’s funds and encouraging workers to fulfilproduction quotas. Basically, their roles are the same as they were duringthe period of centrally planned economy. The only difference is thatnow the object of their support is the management. They do not appearto be the real representatives of the workforce in any way and are


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fundamentally different from their Western counterparts. The constraintsplaced upon trade union activities affect and restrict the free exercise ofbargaining rights. CLCs are in fact not the product of bargaining, but ofmanagerial prerogative.

At the workplace level, trade unions are not able to utilise the auton-omy that the new legislation has given them. After many decades of beingunder the shadow of the party, trade union cadres are not equipped withthe necessary knowledge and their organisation lacks the necessary re-sources to make use of their newly found autonomy and create their ownpower. It is safe to say that the transformation of Vietnamese tradeunions, intended by the Labour Code and by Trade Union Laws and a se-ries of related regulations, has had very limited results.

Notes1. The format of this chapter is different from previous chapters in the way that

the analysis of trade unions’ roles and activities across six main functions inSOEs and MNCs is blended. This is because there is little difference in unionactivities in the two forms of economic organisations. Trade unions are bur-dened by the same constraints from within as well as from the outside. Theyare both highly dependent on the management and play a supporting rolerather than an adversarial role to management.

2. Decree 133/HDBT, issued on 20 April 1991 by the Vietnamese Council ofMinisters, providing guidance for the implementation of the Trade Union Law.

3. Circular 06/TT-TLD, issued on 20 January 1995 by the VGCL, regardingworkers’ salaries.

4. Resolution 133/HDBT, issued on 20 April 1991 by the Vietnamese Council ofMinisters, regarding time budget for union activities.

5. A compensation and benefit package in which companies and individualscome to a verbal agreement that a company pays 70 per cent of the agreedsalary as ‘fixed salary’ and the remaining 30 per cent is paid in the form ofnon-salary payment (allowance, benefit, bonus). Applying this structure, com-panies only contribute to the social insurance and health insurance funds onthe basis of 70 per cent of what they actually pay to their employees and ac-cordingly avoid or reduce the high personal income tax.

6. Circular 08/TT-TLD, issued on 18 February 1995 by the VGCL, regardingreaching unanimity through processes of consultation and negotiation.


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Discussion and conclusions

8.1 Introduction

Since the late 1980s, economic reform in Vietnam has brought about sig-nificant changes to the country’s socio-economic system. It has also hadprofound impacts on the management of human resources, which are thefocus of this book. In particular, this book inspects the rapidly changingHR practices in two predominant types of large Vietnamese enterprises,namely SOEs and MNCs. On one hand, it seeks to analyse the way inwhich the management of human resources is changing in SOEs and torecord the ways in which these enterprises have developed their HR sys-tems. On the other hand, it aims to study the transfer of HR policies andpractices in MNCs’ subsidiaries in Vietnam and the extent to whichMNCs are a source of innovation and provide a benchmark in terms ofemployment practices for leading Vietnamese SOEs. Finally, the bookattempts to define the future shape of HRM/IR systems in Vietnam.

This final chapter is divided into three main sections. In Section 8.2, themain findings of the previous chapters are reviewed. In Section 8.3,the transformation of HRM/IR system in Vietnam is discussed. Finally,research limitations and suggestions for future research in Section 8.4close the book.

8.2 Summary and discussion of main findings

The main findings of this research are summarised and discussed in thissection. This section discusses, firstly, the shaping and development ofHRM/IR systems in SOEs and, secondly, the HRM/IR system in MNCs’subsidiaries.

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8

8.2.1 HRM/IR system in SOEs: emergenceof HRM in embryonic formInstitutional theorists suggest that organisations achieve legitimacy bybecoming ‘isomorphic’ with the institutional environment (DiMaggio &Powell, 1991). In order to survive and prosper, organisations must becompatible with their operating environments, which include the politi-cal, social and economic contexts in which they operate. Two decades ofsocial and economic reform have witnessed a series of changes in SOEs ingeneral, and their HRM policies and practices in particular. Stimulatedby the new market imperatives and the consequent need to improve effi-ciency, it appears that SOEs have used their new freedom to introducemany changes. To start with, in the centrally planned economy, as SOEsoperated as production units only, leaving the management side of it tothe government, the administration department’s role was limited tokeeping personnel records, processing payroll, benefits administrationand recording employee status. However, following Doi Moi, adminis-tration departments assumed more strategic responsibilities pertaining toHRM, including but not limited to job analysis, HR planning, recruit-ment and selection, performance appraisals, compensation and benefits,training and development. As enterprises progressively obtained controlof their own managerial activities, they were able to implement morepractical managerial strategies. However, due to organisational inertia,the legacies of the centrally planned economic system, the lack of finan-cial resources and a general lack of knowledge about the ‘modern’ con-cept of HRM among those who are responsible for HR function haveresulted in a slow pace of change in SOE’s HRM systems.

8.2.1.1 Recruitment and selection

Two major changes marked the breaking up of the lifetime employmentsystem and have opened the gate for enterprises to enter the open labourmarket. The first change occurred in 1987, when the government issuedDecision 217/HDBT, and later reconfirmed in Labour Code 1994, whichstipulated that SOEs could hire workers according to criteria set by theenterprises. The enterprise could reject any recommended candidate ifthat person was not qualified or the recruitment was not needed by theenterprise. Employees can also be hired from other locations if they couldnot be found in sufficient numbers in the locations where the enterprisewas situated. This freedom to recruit and select employees of firms,


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together with the abandonment of labour control by residence permit,and employment opportunities offered by newly emerged economic sec-tors, such as the private and foreign-invested sectors, increased labourmobility and allowed the emergence of an open labour market thatwould not have been possible in the centrally planned economy.

The second major change is the adoption of the labour contract systeminstead of permanent employment. The 1994 Labour Code formalisedlabour contracts as the basis for the employer–employee relationship.Labour contracts stipulate the work to be performed, working hours andrest breaks, wages, location of job, conditions on occupational safetyand hygiene, and social insurance for employees (Labour Code 1994,Article 29). Since the introduction of the legislation, all newly employedworkers in the state sector have been put on termed contract. The intro-duction of the labour contract system was a milestone in labour reformsbecause it revoked the long-standing tradition of lifetime employmentand shifted the power of decision-making regarding the utilisation ofhuman resources from the state to the enterprises.

Struggling to improve their efficiency, SOEs embarked on a process ofrestructuring, where most of them significantly reduced the number oftheir employees. Despite this substantial restructuring of the SOE labourforce, evidence suggests that overstaffing, which is a legacy of the cen-trally planned system, is still evident in SOEs today. Furthermore, bylaw, SOEs are required to re-train and assign redundant employees to anew job, if possible. If a new job cannot be created, then the employermust pay an allowance to the employee for loss of work (Labour Code,1994, Article 17). They are also expected to allow employees to take ex-tended leave and to put staff on a reduced workload and pay before anyredundancy can be made. This shows that currently SOEs manage theirhuman resources based on both economic factors and political andsocial factors.

As far as recruitment is concerned, SOEs focus strongly on internalpromotions and personal recommendations. To a much lesser extent,they also utilise advertisements in newspapers to attract more candi-dates. A typical process for selecting white-collar and blue-collar work-ers is very simple and consists of reading a written application to makethe first cut, then interviews, health checks and a probation period forthe newly recruited employee. For blue-collar workers, a manual dex-terity test is normally required. SOEs rely heavily on unstructuredinterviews as a selection method, which has a low level of reliabilityand validity, and thus is not a sufficient method to identify the bestcandidates.


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As far as selection is concerned, the selection criteria have not changedsince the days of the centrally planned economy and are mainly based oneducational qualifications and harmonious personal characteristics.Nepotism is still prevalent in selection decisions. Furthermore, top-levelpositions are normally appointed rather than selected. This situation im-plies the need for objective selection criteria and sophisticated selectionmethods in the state sector.

8.2.1.2 Performance management

Prior to Doi Moi, PM was an important element of personnel adminis-tration in Vietnam. PM, during this period, was a lengthy and highly hi-erarchical process, involving staff at all levels of the company. Any PMdecision had to be made with the concurrence and under the supervisionof the ‘Four Committees’, namely representatives from the CommunistParty, the board of directors, the trade union, the youth union and some-times the women’s association. Appraisal criteria strongly emphasisednon-work related criteria, such as good moral, political attitude, work at-titude, cooperation and harmonious relationships with colleagues.Political status (e.g. being a member of the Communist Party) and atti-tude was the most important criteria in promotion assessment. However,it is important to note that although PM lacked well-defined and meas-urable criteria, as well as other appraisal techniques commonly used inWestern countries, performance appraisals could be highly objective asthe companies’ exercised ‘democratic’ voicing of opinions, especially forblue-collar workers, which means appraisals were often conducted in theopen and in the presence of the employee and all of their colleagues, andthe results were made public.

Since the economic reforms, PM in SOEs has been in a gradual transi-tion from a politically oriented bureaucratic assessment towards an equi-table system that aims to break egalitarianism by linking performance tocompensation and placing stronger emphasis on individual merit andachievements. The PM process has been separated from the interventionof mass organisations, although trade unions are still informed of thefinal performance rating decisions. Employees can no longer take forgranted that they will receive the same treatment regardless of their pro-ductivity. Instead, the new performance appraisal system places strongemphasis on competence and performance criteria, which are used toevaluate an employee’s work effectiveness and real contributions to theorganisation, and has been given much more attention since the


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economic reforms. Although solid attempts to link performance to pay-ment have been recorded, the old practice of egalitarianism still lingers.Vietnamese employees show reluctance in enforcing equitable rating dis-tribution if it hurts their working and personal relationships. PM systemsstill serve more as an evaluation purpose rather than a developmentalpurpose.

8.2.1.3 Reward system

Prior to Doi Moi, SOE managers had virtually no discretion over work-ers’ salaries. Salaries were calculated according to a government payscale, based on educational level, grade and length of service. The salaryand rank of an employee were determined by the length of service andpolitical attitudes, and bear no relationship with the economic perform-ance of either the firm’s or the individual’s performance. The variation inthe grades was small in order to achieve egalitarianism. Given their lackof accountability and the egalitarian salary system, employees were notobliged or encouraged to perform well. Ultimately, this led to the notori-ously low productivity and inefficiency of SOEs.

In the wake of the Doi Moi period, the government has given specialattention to the remuneration policies in order to reinvigorate the statesector. Linking compensation to enterprise performance was the first im-portant step in compensation reform. SOEs now have the right to selectthe method of payment of salary (Labour Code 1994, Article 58), in linewith their operating situation and the quality and result of the work per-formed (Labour Code 1994, Article 55). The government only imposed afloor income but not an income ceiling. Wage differentials within thestate sector between skilled and unskilled workers have been increased.These changes were seen as a big move towards monetising salary, andreplacing and abolishing the system of subsidised distribution (GTZ,2006). However, SOEs are not totally free to set their own remunerationsystem as the government still determines and promulgates minimumsalary levels for each region and each industry (Labour Code 1994,Article 56) and stipulates the principles for formulation of salary scales,salary tables and labour rates (Labour Code 1994, Article 57). Case stud-ies show that while salary systems remain within the government’s frame-work, there is evidence of different incentive mechanisms. InvestigatedSOEs have successfully developed and adopted a dual salary system con-sisting of two parts, namely a ‘hard’ salary, which strictly follows thegovernment’s salary schemes, and a ‘soft’ salary, which is sensitive to


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firm’s performance and individual’s performance. The ‘soft’ salaryenhances the effectiveness of the salary system and helps to increaseproductivity.

The current salary system is criticised for being too complex and bur-dened with too many salary schemes, grades and steps. Furthermore,employees can gradually proceed through salary schemes and ladderswithout the need to improve their performance, and thus seniority isstill a weighting factor in determining payment. More importantly, theSOE salary is notoriously insufficient for employees to maintain an av-erage standard of living. In this situation, SOE employees must findother jobs to supplement their income, leading to low productivity andlimited work stimulation in the state sector. Corruption is also anotherconsequence.

8.2.1.4 Training and development

Prior to the economic reform, bounded by bureaucratic rules and proce-dures, and secured by the lifetime employment system, SOE employeeswere not motivated to learn and acquire new skills and knowledge.Training offered to workers was mainly on the job as required by the pro-duction lines that they were assigned to. Meanwhile, political trainingwas widely available. The lack of training resulted in low productivityand poor product quality.

Even after Doi Moi, workforces with low skill levels still are commonin SOEs. Case studies show that SOEs only invest limited resources onT&D for their managerial staff. The activities suffer from limited finan-cial resources, low-quality training courses, out-of-date training meth-ods and lack of systematic training systems. Training contents are con-veyed through old methods of training, and are thus often repetitive,boring and irrelevant. Workers are offered further technical on-the-jobtraining and are expected to pass technical grade examinations, whichare held regularly. These examinations motivate workers to develop andimprove their skills and raise their employability. However, no penalty isimposed on workers who fail the examinations. In fact, those who failthe test are still allowed to remain in their positions. Thus, upgradingskills is left to each individual’s endeavour. Meanwhile, a larger propor-tion of the training budget is devoted to professionals and managers.High-quality training opportunities are mostly offered to top executivesand managers as a form of rewards. A wide range of training courses arerecorded; however, management training courses are still primarily


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concerned with familiarising managers with the government’s law andregulations rather than offering them opportunities to learn modernmanagement concepts and methods. Obviously, this creates pressure onmanagers to undertake further training by themselves at their ownexpense. Finally, SOEs demonstrate a lack of systematic approach totraining with no training-need analysis, poor training design and imple-mentation and no training evaluation process. There is also a lack ofcommitment to training and involvement by senior management in thetraining processes.

8.2.1.5 Industrial relations

Prior to Doi Moi, at the workplace level, employees were managed byrepresentatives from the four pillars of power: the Communist Party,management, the trade union and the youth union. The party was offi-cially bestowed with most power. The unions’ role was to act as a ‘trans-mission belt’ between the party and the ‘masses’ (Fahey, 1995). Althoughthey grandly claimed to protect the rights of workers, they were pre-vented from having a chance to act out this fundamental function. Theirmajor roles were limited at supporting the management and performingsocial functions.

The economic reform in Vietnam has had an enormous impact on theworking conditions of employees. Recognising the necessity of adjustingto the changing labour situation, the Vietnamese government passed thenew Trade Union Law in 1990, the Trade Union Constitution in 1993and the Labour Law in 1994. These legislations, however, have not led toany fundamental changes in the IR system in Vietnam. Due to organisa-tional inertia, the ideological legacies of socialism, the government’s in-tention to maintain labour peace and limited financial resources, there isan enormous gap between what is written on paper and what is actuallyimplemented (Nørlund & Chan, 1998). It is merely an ‘old wine in a newbottle’ situation.

After many decades under the shadow of the party, trade union cadresare not equipped with the necessary knowledge to fulfil their roles prop-erly, and their organisation lacks the necessary resources to make use oftheir newly found autonomy and create their own power. As far as fi-nancial resources are concerned, officially the main financial source ofunions has been their modest union fees. This amount is clearly insuffi-cient to pay for the union’s activities and to finance the salaries of theunion cadres. The trade unions’ roles and activities in the workplace are


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limited to organising social activities and providing education to employ-ees regarding labour law and work discipline, and as such have notexceeded the traditional roles and activities defined under the former cen-trally planned system. While union density is currently high, it is on adecline. Higher union densities are recorded in companies located in thenorthern area, around Ha Noi, reflecting the concentration of politicalpower (and its indirect influence) and the higher political awareness andinterest in the capital and its satellite cities. Meanwhile, a more relaxedand easy-going attitude is evident in the ideology of southerners.

8.2.2 HRM/IR system in MNCs: the transferof HRM/IR across bordersOne of the objectives of this book is to evaluate and examine the differ-ent patterns in the diffusion of HRM/IR practices in Vietnam. To startwith, MNCs clearly have a different point of view on the relative impor-tance of the HRM function for the overall success of their business inVietnam, compared with that of SOEs. A strong emphasis on the HRMfunction results in a high level of investment on HRM and attempts totransfer home practices. This book argues that a wide range of HRMpractices can be and have been successfully transferred from MNCs’headquarters to their subsidiaries in Vietnam. The profile of HRM/IRpolicies and practices in MNC subsidiaries is shaped by the interplay ofparallel and opposing forces – home country, host country, and industrialand organisational effects – for internal consistency and/or isomorphismwith the local environment (Kostova & Zaheer, 1999).

Most literature on the transfer of MNCs’ HRM policies and practicesadopts an assumption that superior HRM practices are a significant ac-tual or potential source of competitive advantage for foreign-investedfirms over indigenous firms (e.g. Taylor, Beechler & Napier, 1996). Evenif it can be demonstrated that a particular set of HRM/IR practicescontributes significantly to superior performance in home country oper-ations, an MNC has to determine whether it wishes to transfer thesepractices at all. This book argues that MNCs may consider that the trans-fer of HRM policies and practices is not necessary for their successfuloperation in Vietnam. Under two circumstances, the transfer is notattempted in Vietnamese subsidiaries: (1) The company decides to use a‘testing the water’ strategy. In an environment fraught with uncertaintyand volatility, it is a logical approach to ‘test the water’ first and gradu-ally transfer more advanced (and costly) home practices, if they are


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considered to deliver superior economic performance; (2) The costs arethought to outweigh the likely benefits of transfer. It should be noticedthat the transfer of HRM policies and practices is not a prerequisite forsuccessful operation in Vietnam. Instead, a large proportion of FDI inVietnam aims at obtaining the advantage of the country’s large pool ofyoung, cheap and low-skilled labour force.

Empirically, some MNCs such as MNC Auto4 (in the automotive in-dustry) and MNC FMCG4 and MNC FMCG5 (in the FMCG industry)basically decided not to transfer their home practices to the Vietnamesesubsidiaries in all areas of investigation. Instead, they have a very highdegree of localisation of managerial practices (even though the same con-clusion cannot be drawn for transferring production technology). Someinitial attempts to copy home practices quickly dissolved in theVietnamese environment. Whether it is due to ‘testing the water’ or sim-ply obtaining advantages by exploiting lower-cost manufacturing, or acombination of both reasons, these cases provide accurate examples ofcompanies operating in a global and multidomestic industry which havea low desire to transfer their home country practices to Vietnam. This isto say that the landscape of MNCs’ HRM/IR systems in Vietnam is noteven or consistent, but instead consists of divergent practices that co-exist in parallel.

8.2.2.1 Recruitment and selection

In the Vietnamese context, due to the constraints of the Vietnamese labourmarket, which is short of highly skilled labour, MNCs utilise all channelsof recruitment, including internal promotion, recruitment through jointventure partners, advertising in newspapers and magazines, attending jobfairs, recruiting graduates of educational institutions, using employmentagencies and personal networks. However, they rely more on the externallabour market, especially direct advertisement, recruitment agencies andheadhunters. MNCs show a high degree of localisation of recruitmentpractices by utilising personal networks and internal headhunting agen-cies to establish their candidate pools despite the fact that this procedurehas been criticised to be biased and subjective.

Some MNCs have lived up to their well-known standards of possess-ing rigorous selection processes. With regard to the selection criteria,companies lay emphasis on a job applicant’s capability, work experienceand job performance in previous jobs. MNCs use a wide range of selec-tion techniques, such as written examinations, psychometric tests and


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assessment centres. They are also strongly adaptive to the limitations,constraints and opportunities that they face in the Vietnamese labourmarket. There is evidence of companies shortening the selection processto meet with the contingency nature of R&S in the Vietnamese marketand diluting the global selection criteria in order to respond to thescarcity of labour at the skilled end, and of skills and knowledge at thelow-skilled end, of the labour market.

However, some MNCs, especially those in the FMCG industry, adoptvery simple selection processes. Cost and time savings and the type of em-ployees they attempt to recruit are the main reasons for this low-coststrategy. They look for manual workers with good health, and as far aseducation is concerned, basic literacy is sufficient. These MNCs thereforebelieve that selection should be a simple and straightforward business.

8.2.2.2 Performance management

In the foreign-invested sector, PM practices are diverse, with distinctivepractices recorded in MNCs of different nationalities. In non-Asian firms,the PM process is closely linked with financial measurements and indi-vidual performance. A wide range of advanced PM tools and techniquesare found, including the use of Balanced Scorecards, SMART objectives,360-degree feedback and forced distributions. The end-of-year or six-monthly PM is often backed up by interim assessments and performancecoaching and counselling, if necessary. PM processes are marked by ahigh level of employee participation in the process and the openness ofthe process. It is noted that the 360-degree feedback includes upwardratings, which is unfamiliar and might be considered as incompatible in ahierarchical society. Meanwhile the forced distributions system promotescompetition among colleagues, and thus can damage their harmoniousrelations. Presumably, the transfer of these practices to the Vietnamesesubsidiaries could be faced with strong reactions and even refusal fromthe local employees. However, in practice, no particular constraint on theimplementation of the 360-degree feedback and forced distributions hasbeen recorded.

In Asian MNCs, a PM system of top–down alignment of performanceobjectives is popular. The process allegedly suffers from favouritism andlack of openness. Besides maintaining mid-year and annual performancereviews, managers rely more on informal discussions and daily interactionsthan on the formal reviews and discussions to rate their Vietnamese sub-ordinates. Performance appraisal is strictly top–down, and supervisors’


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decisions are considered as final. The PM process involves no upwardevaluation and little face-to-face discussion. Although top–down appraisalpractices are in line with some aspects of Vietnamese culture, such as re-spect for authority and hierarchical orders, Vietnamese employees in gen-eral are dissatisfied with this practice as it opposes the Vietnamese cus-tomary practice of ‘democratic’ sounding of opinions in performanceappraisals, which has been predominant in SOEs for decades.

8.2.2.3 Reward system

Foreign-invested companies are free to apply their own reward system totheir Vietnamese subsidiaries, with the condition that they meet the mini-mum salary level in the foreign-invested sector set by the government(Circular 11/LDTBXH-TT, Article 2a). However, they are faced with animperfect labour market, which has an abundance of low-skilled labour atone end of the market and a shortage of skilled labour at the other end.Companies commonly encounter the problem of lacking qualified andskilled candidates in some fields such as computing, marketing, HRM andso on. In this context, job-hopping in a bid for a higher salary has becomepopular. The labour market has thus placed upon companies certain pres-sures when designing their remuneration in order to retain their employ-ees, or at least the valuable ones. On the contrary, one of the biggest at-tractions of investing in Vietnam is the abundance of a cheap low-skilledlabour force. The minimum salary in this sector is USD 50 per month.

Compensation practices are highly centralised in terms of the definedposition in the salary market, the permitted salary range and the com-pensation structure, which heavily stresses individual performance.Salary structures heavily emphasise individual-performance-relatedpayment. Additionally, companies also offer stock options and individual/team incentives. There are, however, instances where centralised policieshave been adapted into practices and procedures in a manner that is suit-able to the local situation and preferences, as in allowances and benefits,a fixed bonus and the adoption of the ‘70/30’ reward style to avoid orreduce high personal income tax and labour costs.

However, there is evidence of MNCs utilising an extremely simple re-ward system. For example, MNC FMCG4’s salary system is divided intotwo categories: white-collar employees and blue-collar employees. Thewage of a blue-collar employee is calculated based on their working daysper month. Meanwhile, for white-collar employees, the only referenceused to establish the starting salary and the increasing rate is the market


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average level. The salaries of the professionals and upper levels are nego-tiated on an individual basis with the consultation of expatriate man-agers, most often with the general director. The extremely simplifiedsalary structure, at the time being, functions fairly well, in the context ofa small-sized subsidiary.

8.2.2.4 Training and development

MNCs recognise the lack of skills and qualifications in Vietnam’s labourforce and, especially, the need for management training. They make a sig-nificant effort and investment to train their management staff, as this is akey to retaining local managers. In general, T&D programmes are cen-trally controlled, especially during the early years of establishment.Management training programmes in Vietnam need to start with the verybasics of business education in their curriculum. Compared with theirSOE counterparts, training methods in MNCs are more diverse andadvanced, such as the use of e-learning and blended learning. Besides theformal T&D channels, companies are aware of and use informal culturalaspects of management development, such as emphasising the company’sphilosophy, management forum, e-forums, e-networks and so on, tocreate a common language and shared attitude. In order to encounter highturnover rates and poaching, companies develop strategies such as legallybinding their staff for a certain number of years after providing themtraining or firm-specific programmes.

On the contrary, T&D in some Asian MNCs are limited to meetingproduction needs and focus heavily on technical knowledge while ne-glecting people management skills. Furthermore, in all Asian subsidiariesin Vietnam, job rotation is not a popular practice. Although rotation forworkers in production lines is more popular, Vietnamese managers inthese companies are often seen as stuck in narrow specialisms. Thisshows that MNCs’ investment on T&D is dependent not only on the hostcountry’s situation, in this case Vietnamese labour market situation andthe output of the educational system, but also on the MNCs’ HRMstrategies, such as global staffing strategy, and business strategies.

8.2.2.5 Industrial relations

Operating in the peaceful Vietnamese IR environment, in which tradeunions are highly cooperative and bear little relation to unions as under-stood in the West, the studied MNCs are supportive of union activities.


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They do not see the union as a constraint for their operations and recog-nise the unions’ role in supporting the management to manage employees.The non-adversarial nature of management–labour relations is stressed atlength in companies’ Collective Labour Agreements. The level of coopera-tion between the company and the trade union, however, varies signifi-cantly, ranging from adopting a minimal approach to the union through toconsidering the union as an integrated part of the organisation.

Some MNCs have kept contributing 1 per cent of their salary budget tothe union after 1997. Unions can use these funds at their will and allocatethis money to employee services, such as sports activities, visiting the sickand giving birthday gifts to employees under the joint name of ‘the com-pany and union’. The trade union, in this way, becomes an integrated partof the organisation, with the full support of the management to functionas an employee services provider for the company. Other MNCs opt for alimited cooperation strategy, which means they do not interfere with tradeunion activities; however, they do not provide unions with time and/orfinancial resources. In effect, this significantly decreases the trade unions’roles and activities. Companies use a wide range of HRM techniques toencourage employee direct communication and involvement, such as em-ployee surveys, direct communication channels (speak-out meetings,‘boundary-less’ work organisation) and so on. If employees have any com-plaint, they are encouraged to use either the formal grievance procedure orthe direct management-sponsored communication channels by referringtheir problems directly to the board of directors. In these companies, thereis a dual system of employee services: one is the traditional system pro-vided by trade unions and the other is developed by the company. Thecompany makes sure that the HR department, rather than unions, is themain or the only source of welfare and paternalistic generosity.

8.2.3 Industrial and organisational effectsSector is a key variable in explaining variations in HRM patterns (Locke& Kochan, 1995; Colling & Clark, 2002). Porter (1990) states that in-dustries vary along a spectrum from multidomestic to global in their in-ternational competition. Global industries compete on a worldwide basisdrawing on global competitive advantages and the fact that what hap-pens in one country is affected by competition in other countries,whereas in multidomestic industries, competition in each country is in-dependent of competition in other countries (Rosenzweig & Singh,1991; Bartlett & Ghoshal, 1987). This book, however, does not find


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strong evidence to support this argument. No significant patterns of dif-ference exist between HRM/IR practices in the automotive and FMCGindustry. HRM/IR practices that could be expected to vary across indus-tries are, in fact, similar. For example, MNC FMCG1’s recruitment andselection is as competitive as MNC Auto3’s, if not more sophisticated.They also provide far more extensive training in both technical and in-terpersonal skills and a higher degree of employee involvement than anyAsian automotive companies.

This book finds several organisational factors, namely business strat-egy, administrative heritage, size, age and ownership type, clearly affectthe nature of HRM/IR policies and practices in SOEs and MNC sub-sidiaries. Firstly, business strategy shapes the strategic HRM practices ofthe firm (Beechler & Yang, 1994). The majority of MNCs incorporateHRM function in the companies’ business strategy; as a result, HRMfunction in these firms receives a much higher level of investment and isbetter developed. For example, People & Safety is one of the fiveelements in MNC Auto1’s Balanced Scorecard. This results in the com-pany being well known in the Vietnamese labour market as one of themost competitive salary payers and T&D providers. On the contrary, inthe state sector, the concept of business strategy has not yet covered theimportance of HRM.

Secondly, each firm has a body of administrative heritage that invisiblybut strongly shapes ‘how things are done’ (Bartlett & Ghoshal, 1989;Beechler & Yang, 1994). According to Bartlett and Ghoshal (1989), acompany’s administrative heritage is shaped by many factors, like itsmanagement’s norms and values, the national culture and social systems.Administrative heritage in the state sector, for example, is a hinderingfactor to the development of HRM. Embedded in the socialist ideologyfor long, SOEs show great resistance to reduce their workforce, believingthat morally they are responsible for the well-being of their employees,which includes providing them with a continuous flow of job andincome. Organisational inertia is also the reason for a persistently lowproductivity level in SOEs.

Thirdly, the company’s nature including its age, size and ownership typescontributes to determine its HRM policies. Yuen and Kee (1993) observethat there is a tendency for HRM practices to become more standardisedand formalised with time and that the bigger the company, the more likelythat they develop a formal HRM function and the less it depends on theexternal labour market. This argument holds true in this case. In its estab-lishment days, MNC Auto4 had small and under-developed HRM depart-ment of four full-time staff members (including an expatriate manager),


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whose responsibilities were limited at administrative functions, such asR&S, attendance records and payroll. Currently, the department homesnine well-trained staff members, whose jobs cover a wide range of HRfunctions and activities. In MNC FMCG4 and MNC FMCG5, the salarysystem is extremely simple. The wage of a blue-collar employee is calcu-lated on the basis of their working days per month. Meanwhile, the onlyreference used to establish the starting salary and the increment rate forwhite-collar employees is the market average salary for such employees.The extremely simplified salary structure, for the time being, functions wellin the context of a small-sized subsidiary.

Lastly, subsidiaries which are established through greenfield invest-ments are more likely to adhere to their foreign parents operations thanbrownfield ones. MNC FMCG1, MNC FMCG2 and MNC FMCG3have experienced the conversion into ownership status with the signifi-cant increase in the foreign partners’ shares. Only when the conversionprocess finished, was the speech of change in their HR function acceler-ated. This is because the introduction of foreign management practices toa newly established unit encounters less resistance than that to a unitwith on-going operations (Taylor et al., 1996; Lu & Björkman, 1997;Tayeb, 1998).

8.3 The transformation of HRM/IRsystem in Vietnam

For the purpose of this discussion, one main characteristic of theVietnamese business system needs to be emphasised: the incoherent andtransforming nature of the national business system. In the middle of aradical transformation process, the Vietnamese business system containsfeatures of both a centrally planned economy and a market-oriented one.Moreover, the transformation of the country to a market economy itselfis a learning and experimental process. The formation and implementa-tion of new legislation, including regulations governing the status andoperations of foreign and domestic firms, remain a major source of un-certainty. The subsystems (the state, the financial system, the system ofeducation and training, the network of business associations and the sys-tem of HRM/IR) are constantly under pressure due to changes and inno-vations. Institutional change in Vietnam is what Djelic and Quack (2002:10) call a ‘stalactite’ model of change, in which national configuration iseroded and reshaped progressively through time.


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Whitley (1999: 54) classifies different business systems according totheir broad traits and assesses the consequences for firms’ behaviour. Hedistinguishes between five types of business environments: dirigiste, stateguided, collaborative, arm’s length and particularistic business system.Each type of business system favours the formation and development ofa certain dominant type of economic organisation: artisanal, allied, co-operative, isolated hierarchy or opportunistic, respectively (Whitley,1999: 84–85). Applying Whitley’s typology, Vietnam in the period of rel-ative stability from 1975 to 1986 was classified as a dirigiste type of busi-ness system, in which the state dominates the market and controls theeconomy through ownership and credit allocation, and businesses arehighly dependent on the state. However, this classification became incor-rect when the important changes in external and internal environmentsstarted in the 1980s and 1990s. Internal sources of dynamism includebottom–up pressures of changes to increase productivity and policy deci-sions by national leaders, while external sources of dynamism include theglobal intensification of economic, political, social and cultural relations.As argued by Thelen and Steinmo (1992: 16–18), with significantchanges in environments in which national institutions are situated, ‘pre-viously latent institutions may suddenly become salient, old institutionsmay be put in the service of different ends or actors’ goals or strategiesmay shift within existing institutions’.

Indeed, the contemporary Vietnamese business system possesses somecharacteristics of a dirigiste business system (business development ishighly dependent on the state’s industrialisation policies, and the state di-rectly intervenes in the economy), some of a state-guided system (thestate has loosened its grip on economic activities and businesses are get-ting more self-directed) and some of a particularistic system (lack of trustamong economic organisations, weak collective intermediaries andnorms governing economic activities, unlikelihood of capital markets tobe significant sources of investment funds and the largely personal natureof authority relationships). The system has dramatically altered over theyears and is flexible enough to accommodate various organisationalchanges and to endure inconsistent or sometimes contradictory policiesand practices. Thus, it is not possible to conclude on a dominant type ofeconomic organisation in Vietnam today, be it artisanal, allied, coopera-tive, isolated hierarchy or opportunistic type.

Zooming in to examine the state sector, for example, in the past20 years or so, we have witnessed this sector cruising through the DoiMoi storms. As never before, since the country’s reunification, SOEshave had to change dramatically to survive and to successfully retain its


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role as the key economic instrument of the state in the socialist-orientedmarket economy. The 1980s was perhaps the most difficult time for thissector, when the combination of a changed economic managementmechanism, a changed domestic environment and competitive externalconditions put many SOEs under severe strain. The first step of the re-form process was involved with dramatic rationalisation through acombination of consolidation and liquidation. Recently, the focus ofreform is on speeding up the equitisation process. It is clear that thetransformation process of Vietnamese SOEs, in terms of their structureand operations, is far from being completed. In this context, some SOEsretain their old characteristics because there are still some legacies of thepast to support them, while some choose to move forward and adoptmore sophisticated HRM practices. A more advanced yet flexible HRMsystem is the response to the unpredictable environment in firms thatbelieve in the long-term benefit of developing HRM competitive edgesand are willing to put extra effort and financial commitment intodeveloping them.

This book acknowledges positive spillover effects (Tran, 2002; Le,2007) and knowledge transfer (Napier, 2005) from the foreign-investedsector to SOEs. Apparently, MNCs offer models of ‘best practices’ whichlocal firms could choose to benchmark. Foreign-owned firms, withoutdoubt, have important implications for the development of HRM prac-tices in Vietnam. The way human resources are managed in MNCs,especially those that attempted to transfer ‘best practices’ to theirVietnamese subsidiaries, is expected to impact on the way other organi-sational forms (including SOEs and private enterprises) will be managedin the future. However, existing research suggests that the adoption ofbest practices in SOEs and the transformation of HRM/IR systems inVietnam are weak. Instead of adopting best practices systematically,SOEs tend to use either a universal commonsense management or a ‘trialand error’ approach by copying and testing ideas from other firms in ahaphazard and eclectic manner. The low degree of transformation mightbe attributed to the perceived lack of necessity and assumptions aboutthe importance of particular HRM practices, a lack of financial resourceand a weak management team. There are cases where the more advancedHRM models are available in their JVs with foreign partners for ‘imita-tion’ or ‘learning-by-watching’; SOEs, however, choose to maintain theirold and less-effective models of management.

This argument conforms to the main findings made by a number ofpieces of research. The best of these studies recognise that Vietnamesefirms still seem to be in the period of ‘learning and developing an HRM


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system’ (Siengthai, 2004: 18; see also Kamoche, 2001; Zhu, 2002; Thang& Quang, 2005a, 2005b). The extent that Vietnamese firms adopt newHRM practices varies significantly and largely depends on the collectiveviews of each firm’s board of directors and top managers on the impor-tance of HRM function, which in turn decides the company’s endorsementand investment to the development of this function. The interrelationshipbetween HRM practices and enterprise performance and the early evi-dence presented in this book suggest that, in Vietnam, human resourcesare increasingly being viewed as having strategic and financial implica-tions, and competitive pressures will lead to a development of manage-ment systems towards Western-style HRM policies and practices.

This argument agrees with a number of pieces of research conducted ina very similar transitional context – China. A number of accounts ofChinese enterprises trace the transition from the ‘old’ HRM – charac-terised by centrally planned job allocation, guaranteed lifetime employ-ment, an egalitarian and highly standardised pay system and cradle-to-grave welfare benefits – to a newer approach that more closely resemblesmanagement practices of companies in the West (e.g. Zhao, 1994; Nyaw,1995; Verma & Zhiming, 1995; Warner, 1996; Wright, Mitsubash &Chua, 1998; Ding & Warner, 1999; Taylor, 2001). Benson and Zhu’s(1999) study of HRM practices in SOEs in the Shanghai region of Chinarecognises the diverse responses of Chinese enterprises to the new condi-tions and identifies three co-existing models of HRM: the minimalist ap-proach, where traditional practices continue largely unchanged; the HRapproach, where management has embraced modern HRM practices;and the transitional approach, where change is deemed necessary, butprogress is only partially successful (see also Verma & Zhiming, 1995;Ding & Warner, 1999).

8.4 Research limitations and suggestionsfor future research

This research has been conducted within a definite time scale and is sub-ject to some limitations in research methodology and scope. First, itconcentrates only on two industries. In general, it witnesses attempts bySOEs to transform their HRM systems and MNCs to transfer and main-tain relatively constructive HRM/IR policies and practices. However, ifthe research had investigated more labour-intensive industries (textiles,footwear, etc.), which are notorious for their cost-reduction strategies, it


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might have gained a different impression. The issues which the researchseeks to address here are limited to four aspects of work organisation. Ifthe research had encompassed other HRM/IR issues, such as work or-ganisation and teamwork, the outcomes would have been more com-plete. Secondly, the sample MNCs of this research are all relativelyyoung. The oldest studied JV was licensed in 1994 and came into opera-tion in 1995. This however reflects the reality that the Vietnamese econ-omy is still in its early period of implementing its open door policy.Lastly, adopting a qualitative method, this research does not rely on alarge sample as a survey approach would have done. The rationale ofchoosing the qualitative method is provided in Chapter 1, and the ap-proach is proven to be a sharp tool in solving the research questions ofthis book; nevertheless, a broad generalisation of a large number ofMNC subsidiaries implies certain risks.

Hopefully, the insights generated in this book will pave the way for fur-ther research. In relation to the previous limitations, three suggestions forfuture research are proposed. First, the need for expanding studies focus-ing on other types of economic organisations such as the private, collectiveand joint-stock companies is recognised. A more diverse picture of the HRsystem might emerge when investigating these economic organisations.Secondly, the research can be expanded to other host countries. A compar-ison between Vietnam and other developing and transitional economies(e.g. Bangladesh, Laos, Cambodia, etc.) is desirable to reconfirm the gen-eralisation made in this book. Lastly, future research should examineHRM/IR policies and practices of firms operating in different industries,especially labour-intensive ones, to enhance or adjust the research findingson limited industrial effects in the Vietnamese context.


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184

Index

185

‘boundary-less’ work organisation, 148

‘democratic’ voicing of opinions, 83‘hard’ salary, 93‘learning tree’ training scheme, 123‘soft’ salary, 93‘testing the water’ strategy, 158–159‘trial and error’ approach, 16713th month salary, 100, 102, 10614th month salary, 106360-degree feedback, 79–80, 85, 16070/30 style, 106–107

accident insurance, 1administrative heritage, 164advertisement, 50age, 34, 43, 89, 164 agricultural economy, 21aid, 19, 36, 136allied organisation, 166allowance for attraction, 100allowances, 99–100American Chamber of Commerce in

Vietnam (AmCham), 37American War, 1, 39area allowance, 99, 105arm’s length business system, 166artisanal organisation, 166

Balanced Scorecards, 12, 69–70, 75–76banking system, 33–34

benefits, 2, 4, 23, 25, 48, 59, 70, 87, 96,100, 103, 106–107, 133, 152, 161

blended learning, 124–125bonus, 70, 87, 99–107brownfield establishment, 7, 134, 165Build, Operate and Transfer (BOT), 27business association, 11, 17, 36, 165business networks. See business

associationbusiness objectives, 69, 70, 126business self-control mechanism, 5business strategy, 22, 113, 164

Cambodian-Vietnamese War, 19capital inflow, 3, 30, 31capitalist unions, 132–133career aspiration, 84–85, 126career development, 66, 75, 115career fair, 52, 61, 159career guidance, 112–113case study, 7, 10, 45, 58, 79, 93,

118, 155centrally planned economy, 33,

66–68, 80, 119, 143, 152CMEA, 23, 39collaborative business system, 166collective bargaining, 145–146Collective Labour Contract (CLC),

143, 145–146collective voice, 37, 131collective welfare, 83collegial relationship, 71

downsizing, 19, 25, 46, 51, 119dual salary system, 12, 93–94, 155dynamism, 17, 59, 166

Eastern Bloc, 2, 19economic crisis, 18–19economic reform, 19–31economic system, 17, 18, 20, 65,

69, 152economy, 18–31education and training

system, 34–36, 111Education Law, 34–35, 113educational attainment, 116educational level, 35, 44, 155egalitarianism, 5, 12, 69, 73, 90, 92,

102, 108, 154, 155e-learning, 124–125employability, 117, 119, 156employee activities, 138employee poaching, 13, 44, 87,

121, 162employee services, 148, 149, 163employee surveys, 148, 149, 163Employees Supply Organisations

(ESO), 42–43, 53–54employment agencies, 47, 53–54, 159employment contract, 25e-networks, 125, 162equal opportunities, 59equitisation, 23, 46, 70, 167evaluating performance, 12, 65export–import profile, 21extent of training, 115external recruitment channels, 47

face saving, 83face-to-face discussion, 82, 161Fatherland Front, 32FDI, 26–30feedback, 65, 74, 79, 82–84fieldwork, 9


186

commitment, 60, 114, 115, 127,157, 167

Communist Party, 2, 19–20, 32, 73,133, 134, 154, 157

communist unions, 132company philosophy, 126company Code of Conduct, 145company-based trade union, 134, 142compensation, 161competition, 3, 8, 31, 80, 88, 119,

126, 160, 13competitive advantage, 3, 49, 163conciliation, 144Confederation of Labour, 135, 136Confucian values, 35–36consolidation, 2, 15, 23, 167cooperative organisation, 36,

147, 166corruption, 25, 99, 103,

108, 156cost of living, 91Council for Mutual Economic

Assistance. See CMEAcounselling, 78, 80, 112, 160country-of-origin, 8cradle-to-grave welfare, 168,

See lifetime employmentcredit allocation, 166currency reform, 19

Decision 217/HDBT, 5, 15Decision 25/CP, 15, 22development strategy, 22, 112–113Dien Bien Phu battle, 18direct communication channels,

148, 163direct recruitment, 47, 52–53dirigiste business system, 166distribution of FDI, 27, 29document analysis, 10Doi Moi. See economic reformdomestic brain drain, 59, 108

financial resource, 137–139, 148,152, 156, 157, 167

Five-Year Plan, 1, 18, 22fixed bonus, 100, 103, 106, 161floor income, 6, 91, 155food coupons, 90forced distribution, 73, 78–81, 85, 160foreign direct investment. See FDIForeign Investment Law, 2, 9, 26,

27, 30, 52foreign-invested sector, 4, 26–31Four Committees, 55, 66, 154French War, 1, 18fully cooperative and supportive

approach, 148

general corporations, 2, 23, 24, 37, 88Geneva Accords, 1geographical mobility, 48global economic interdependence, 20global industries, 8–9, 163global selection criteria, 55, 59, 160global staffing strategy, 96, 128, 162GNI per capita, 21, 39greenfield firms, 134Gross Domestic Product growth rate

(GDP), 20guanxi, 48

harmonious relations, 66, 71, 74, 80,83, 147, 154, 160

hazardous, difficult and dangerousallowance, 100

headhunter, 54, 60health check, 57, 153health insurance, 89, 98, 99, 107host country, 3, 8, 14, 96, 158

ideological legacies, 134, 157imbalanced labour market, 41, 43–47income ceiling, 6, 91, 155individual objectives, 69, 77–78

Indochina, 1induction, 57industrial effect, 163industrial relations (IR), 4, 131–150industrial relations system, 132industrialisation, 2, 22, 33inflation rate, 19informal training channel, 125in-service training, 114, 118, 119institutional change, 165institutionalist approach, 17integration, 3, 8, 20, 30, 113, 133interdisciplinary skills, 127interfirm cooperation, 36, 37, See

interfirm relationshipinternal labour market, 49, 51internal recruitment channels, 47internal training mode, 123–124internal transfer, 49–51international reintegration, 20interpersonal skill, 44, 164interventionist stance, 33interview panel, 55, 56isolated hierarchy business system, 166isomorphic organisations, 152

Japan Business Association, 37job analysis, 152job generation, 24job hopping, 12, 44, 89, 125, 161job rotation, 127, 128, 162Joint Consultative Committee,

148–149Joint Venture Contract, 52joint venture, 7, 27–30, 47,

51–52, 137

labour contract, 5, 53, 80, 98,145, 153

labour control, 42, 153labour dispute. See strikelabour environment, 135, 144

Index

187

labour immobility. See labourrestriction

labour inspection, 53Labour Law, 4, 99, 113, 135, 136,

140, 146–148labour legislation, 4, 101, 115, 133,

134, 138, 144–146labour market, 43, 159–160labour mobility, 5, 48, 153labour pool, 34labour restriction, 5labour relations, 7, 107, 145, 147, 163labour statistic, 144labour turnover, 3labour-intensive production, 27laid-off worker, 119language accreditation, 59law enforcement, 143Law on Foreign Investment, 2, 26,

See Foreign Investment LawLaw on State Enterprises, 23leadership, 79, 139–141legitimacy, 135, 152length of the service, See senioritylifetime employment system, 5 limited cooperation strategy, 148liquidation, 2living area allowance, 105living costs, 88, 92local situation, 161locally based unions, 135–136long range-goals, 75low-income economy, 21

macro-economic policies, 21management education, 35management forum, 125, 162manual dexterity test, 55, 57, 153market imperatives, 14, 152mass redundancies, 119maximal salary level, 9medical certificate, 55

mentoring relationship, 124method of training, 120minimum salary, 88–89Ministry of Labour, Invalids and

Social Affairs (MOLISA), 10mismatch, 13, 111, 112, 128mobile allowance, 100monitoring performance, 70–71multidomestic industries, 1, 8–9

national business systems, 38, 165–178nature of training, 115–117negotiation, 143nepotism, 11, 60 non-commercial basis, 33non-participant observation, 9, 10

occupation-based trade unions, 135one-way communication, 120, 136on-the-job training, 117open door policy, 2, 19operating profits, 22opportunistic organisation, 166organisational inertia, 1organisational effects, 163–165outsider, 141overseas training, 118overstaffing, 45, 153ownership types, 134, 164

panel, 55, 56, 57particularistic business system, 166Party intervention, 31, 32paternalistics, 147pay for performance, 92–94,

See performance related paypay scale, 5 payroll, 137–139people management skills, 128, 162performance appraisal

committee, 68, 73performance appraisal criteria, 69performance coaching, 78


188

performance criteria, 66performance grade, 97–98performance management

(PM), 7, 65–86, 160–161performance objectives, 69–70performance rating, 79–81, 96–98performance-related pay

(PRP), 80, 97–98personal income tax, 89personal networks, 48–49personnel file, 47poaching, 44political attitude, 66, 71Political Bureau, 32political pluralism, 32political training, 115–116population, 21, 34, 35position allowance, 105presentation, 62preventative strategies, 126price index, 91private sector, 6, 34probation, 55–56, 57production unit, 22productivity, 3promotion, 5, 49–50province, 27psychological hurdle, 120

qualitative method, 7

rationalisation, 2recruitment and selection (R&S),

41–63recruitment consultants, 54recruitment strategies, 47–54relationship-based society, 70reliability, 153remuneration system, 5, 96, 155residence permit, 42, 48respect, 36, 78, 83, 112, 141, 147, 161responsibility allowance, 100

restructuring, 153re-training, 114, 119reunification, 22, 33reward system, 87–109

salaries, 6, 12salary ladders, 92salary package, 46, 99salary ratio, 91–92, 93salary scale, 91salary structure, 96, 143scarcity of labour, 63, 160Second Five-Year Plan, 22selection criteria, 56–57selection method, 56selection process, 57–60selection strategies, 54–60selection, 54–60seniority, 92service sector, 21shadowing opportunities, 124shortage of skilled labour, 161short-range goals, 75Sixth National Congress, 2, 19size, 164small-sized subsidiary, 96SMART objectives, 76, 77social activities, 142social mobility, 112social security, 89, 107socialist economic system,

See centrally planned economySOE reform, 22, 23soft skills, 125South East Asia, 1Soviet Union, 18, 32special allowance, 100specialised training, 118–119spillover effect, 3, 4, 15, 30stalactite model of change, 165State Bank of Vietnam, 33state guided business system, 166

Index

189

state sector, 2, 4, 5, 6, 14, 22–26state-owned commercial banks

(SOCBs), 33stock option, 98strikes, 144subsidised housing, 133supplementary income, 92support mechanism, 71surplus staff, 5systematic approach, 120

T&D, 111–128team incentives, 98team-performance, 98technology, 3–4the state, 22–26time resource, 137–139top–down alignment, 76, 77Trade Union Annual Conference, 139trade union cadre, 138, 139,

See also trade union leadersTrade Union Constitution, 4, 134, 135trade union funds, 137, 138Trade Union Law, 4, 141trade union leaders, 135, 141trade union membership, 131trade unions, 13–14, 131training and development. See T&Dtraining budget. See training

expendituretraining contents, 156training costs, 125training courses, 126–128training cycle, 127training expenditure, 117, 121–122training needs, 120training programmes, 117–119,

123–128transfer, 11transformation process, 165transmission belt, 132

triangulation, 10tripartite structure, 134turnover rates, 44

unbalanced labour market, 43–47union chairman, 141union density, 139–141union fees, 135union official’s salary, 133unitary system, 112universal commonsense

management, 167university recruitment, 52unofficial income, 102–103Upgrading Technical Skills

Examination, 117

validity, 153Vietnam Engine and Agricultural

Machinery Corporation (VEAM), 135

Vietnamese business system, 165–166Vietnamese Chamber of Commerce

and Industry (VCCI), 36Vietnamese Communist Party

(VCP), 32, 134Vietnamese General Confederation of

Labour (VCGL), 10, 132vocational and technical education

and training (VOTECH), 112

wage differentials, 6wage, 88–89Whitley’s typology, 166wholly foreign invested enterprises, 30work attitude, 66working age, 34, 89working condition, 91, 133world trade arena, 31World War II, 1written test, 57


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Documents

The Transformation of Human Resource Management and Industrial Relations in Vietnam