Apparel firms fear a rise in the minimum wage will lead some foreign investors to move out of Vietnam

Apparel firms fear a rise in the minimum wage will lead some foreign investors to move out of Vietnam

Vietnam's textile, garment and footwear industries are likely to be hardest hit by a government decision to increase minimum wages by up to one-third from 1 October.

Wages are being raised to help workers cope with surging levels of inflation - and to reduce the likelihood of strikes.

According to plans announced last week by Prime Minister Nguyen Tan Dung, the new pay levels will vary depending on whether they apply to rural or urban areas.

For businesses in Hanoi and Ho Chi Minh City, the new minimum wage will rise to VND2m (US$97) a month. This compares to VND1.55m (US$75) for foreign owned firms and VND1.35m (US$66) for Vietnamese firms.

The move brings forward a pay rise that had been planned for 1 January 2012, with the new wages now running from 1 October 2011 until 31 December 2012. It also means there will be no further wage adjustment next year.

According to the Ministry of Labor - Invalids and Social Affairs (MOLISA), the new minimum wage brings Vietnam in line with Laos, Indonesia and the Philippines.

"In the first six months 2011, there were 34 strikes in Hanoi capital and most of them are related to the minimum wage," said Mr Ngo Chi Hung, manager of the Hanoi Industrial Parks and Exporting Processing Zones board. "Raising the minimum wage is necessary to prevent increasing strikes."

However, the labour-intensive textile, garment and footwear industries will be hurt by the wage rise - and are calling for a delay to the decision, according to Mrs Dang Phuong Dung, secretary general of Vietnam Textile and Apparel Association (Vitas).

"Rising wages in Vietnam will seriously affect the garment and footwear industries, which have high levels of manpower," Chris Kim, deputy general director of Korean owned Mirae Fiber JSC, told just-style. "They mean Vietnam will lose competitive power compared to other countries."

The last two years have seen a number of companies move to Vietnam from China and Indonesia to take advantage of lower salaries here.

"But now the Vietnamese garment industry faces a number of difficulties," Kim explains. These include a shortage of locally-sourced raw materials, higher wages than Myanmar and Bangladesh, and a fear that some foreign investors will now have second thoughts about Vietnam.

"If the Vietnam government increases wages, no textile and garment and footwear company can survive in Vietnam," Mr Kim warns.

In the first seven months of 2011, Vietnam's textile and garment exports have risen by 30% on the same period last year, to reach US$7.6bn.