The Social Impacts of the Global Economic Crisis on Enterprises and Workers in Vietnamese Industrial Parks: A rapid assessment report | Layoff | Employment

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For this study of the social impact of the global economic crisis on the formal sector in Vietnam, interviews were carried out with four enterprises and 23 workers at industrial parks near Ha Noi. Four key findings have been extrapolated: businesses have been trying to retain some production and skilled workforce despite lack of orders by a variety of strategies
    Oxfam Discussion Paper    The Social Impacts of the Global Economic Crisis on Enterprises and  Workers  in Vietnamese Industrial Parks    A rapid assessment report   Nguyen Ngoc Anh (DEPOCEN) and Nguyen Thi Thu Phuong (Center for Analysis and Forecasting – Vietnam Academy of Social Sciences)   For the Viet Nam Academy of Social Sciences, with support from   Oxfam GB and the World Bank   July 2010   For this study of the social impact of the global economic crisis on the  formal sector in Vietnam, interviews were carried out with four enterprises and 23 workers at industrial parks near Ha Noi. Four key  findings have been extrapolated: businesses have been trying to retain some production and skilled workforce despite lack of orders by a variety of strategies; nonetheless there has been huge unemployment; those still employed have reduced income and raised living costs; workers are responding to this by: accepting lower-paid jobs, waiting for more vacancies on the industrial parks, studying, or returning to their home towns; loss of remittances for education is impacting workers and their  families, but the impact of home areas is otherwise low or unknown.   Oxfam Discussion Papers   Oxfam Discussion Papers are written to contribute to public debate and to invite feedback on development and humanitarian policy issues. They are ’work in progress’ documents, and do not necessarily constitute final publications or reflect Oxfam policy positions. The views and recommendations expressed are those of the author and not necessarily those of Oxfam. For more information, or to comment on this paper, email     A. Impacts on enterprises in industrial parks 1   1. Background information The research for this section was conducted in early 2009 at two industrial parks near Hanoi, Thang Long Industrial Park and Quang Minh Industrial Park. Originally, the research was planned to focus only on Thang Long Industrial Park. However, the response rate from enterprises located in Thang Long Industrial Park was unusually low. Only two enterprises out of nearly 50 contacted agreed to meet with the researchers, although the research team made considerable efforts to increase the response rate. 2 This may be explained by the difficult situation that enterprises are currently facing. They hesitate to disclose information at this sensitive time. Therefore, the research team decided to conduct further interviews with enterprise owners at a similar park, Quang Minh Industrial Park. These interviews were only possible thanks to personal contacts and connections. Quang Minh is a good substitute for Thang Long Industrial Park for several reasons. Firstly, like Thang Long Park, Quang Minh Park mainly hosts investors from Japan. Secondly, Quang Minh Industrial Park is located quite close to Thang Long Industrial Park (they are on the same road from Noi Bai airport to Hanoi city centre, only 15 minutes’ drive away from each other). In total, the research teams conducted four interviews with enterprise owners, two in Thang Long Industrial Park and two in Quang Minh Industrial Park. Brief overview of Thang Long Industrial Park   Thang Long Industrial Park was established in 1997 by Sumitomo Corporation in a joint venture with a local partner, Dong Anh Mechanic Company. The park is located in Dong Anh district, just across the Red River from the centre of Hanoi. The location is considered by investors as ideal as it is situated between Noi Bai airport and the centre of Hanoi. The park is considered one of the biggest and most successful in the north of Vietnam. In total, there are 85 investors (tenants) in the Park, of which 67 are manufacturing factories, and the remainder are offices. The park houses many big names such as Canon and Yamaha. The majority of investors are export-oriented firms. Brief overview of Quang Minh Industrial Park   Quang Minh Industrial Park was established in 2001, and is one of the seven biggest industrial parks in Viet Nam. The park is located in Me Linh district (formerly part of Vinh Phuc province). Similarly to Thang Long Park, the location of Quang Minh IP is considered by investors as ideal as it is situated between Noi Bai airport and the centre of Hanoi. The park hosts both foreign direct investors (FDIs) and domestic investors whose production is mainly for the export market. 2      2. Major findings 3  The impact of the economic crisis   To varying degrees, almost all FDI enterprises, from hi-tech to labour intensive, in the two industrial parks are being affected by the economic crisis. There is evidence that labour-intensive enterprises are more likely to be affected. The economic crisis has hit investors in the parks quite hard. Most of the factories have cut back their production, only one or two being able to maintain their production levels. With the economic crisis unfolding since November/December 2008, the production of investors in the Thang- Long and Quang Minh industrial parks has contracted significantly, especially for electronics and automobile manufacturers, and other sub-contractors, due to the fact that they are export-oriented manufacturers. For example, the severe situation in Thang Long Industrial Park can be seen in the fact that industrial water usage within the park has decreased by 30–40%. 4  Although no mass cancellation of orders has taken place, there is evidence that the number of orders has dropped significantly. As a result, the sales and production of these FDI enterprises has dropped significantly, in some cases sales decreasing by 30– 40% (Nissin), and even 50% (Inoac). The cancellations of orders and drop in production and sales are due to a significant drop in export demand, as these companies are set up in the industrial parks for the purpose of producing for the export market. 5  In 2008, the demand for labour was very high and it was difficult to recruit enough employees. Vacancies were abundant and employees could shop around for good jobs. However, the situation has changed dramatically since November 2008. The demand for labour is virtually zero, there are no vacancies to be found. Although no direct evidence of financial strain was reported during the interviews, it seems that investors in the Thang Long Park have had to plan a financing scheme to deal with the current financial difficulties. In particular, the Thang Long Management Board (an FDI firm) has had to re-schedule rent payment for many tenants (from advance payment to monthly payment). Coping strategies   In the face of the economic recession, all the enterprises interviewed are cutting back their costs using various strategies. Cost-saving   The companies interviewed were found to have cut costs by intensifying their cost savings such as cutting back on electricity, office materials and labour cost (examples include no over-time payments, reducing the number of work shifts, paying 70% wages for days off and encouraging workers to take holidays). Laying off employees  As most of the enterprises in the two industrial parks were using temporary and seasonal workers, these workers were the first to be made redundant. As these workers are employed on short-term contracts, the employers tend to let them go once their contracts expire. A representative of the developer (landlord) of Thang Long Industrial Park says that among 50 000 workers in TLIP, 3 000 have lost their jobs since late 2008; and the current demand for new workers is reaching zero. However, it seems that a much higher number of jobs in TLIP have been lost in reality, according to our interviews with workers and some sources from mass media. 3      The FDI enterprises in TLIP prefer a worker’s “voluntary resignation” rather than a “redundancy” in downsizing, as redundancies need to follow a strict procedure stipulated by the Labour Code and may affect the company’s prestige. In fact, the representative of the TLIP developer comments that none of the reported 3 000 workers who have lost their jobs in the past several months were made redundant. Regarding permanent workers who have often received training, the decision is more difficult for the employers. They tend to keep key and important staff while encouraging the less skilled to resign. The employers do not lay off their employees in a straightforward manner. They instead encourage voluntary redundancy, whereby the workers will submit their resignation in return for some benefits such as a lump-sum payment equivalent to one or two months’ wages. Another factor is that the economic down-turn occurred at the annual Tet holiday; this encouraged workers to hand in their resignation to get the compensation money to go back home for Tet. However, laying-off, especially for permanent employees, seems to be a difficult decision for investors due to the cost of re-hiring and training later. As a result they have adopted several tactics such as work-sharing schemes, encouraging employees to take long holidays and paying 70% of wages for employees to stay at home for some time. At the same time, to keep up the morale of the remaining employees, while still paying their wages, they ask them employees to do such things as cleaning and maintaining the factories. Finding new customers/orders  One of the solutions often suggested is to find new customers and orders. In the face of economic recession, companies now realise that they rely too much on orders from big producers. Given the decreased number of orders, they are now attempting to switch to other lines of products. Stock-piling   Firms that produce mainly for export, in order to keep their employees expecting the current economic recession to be over soon, have tried to maintain a minimum level of production, and keep stock-piling. 4  
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