Leather and footwear industry: Seeking labor productivity solutions

Although the National Wages Council (NWC) assembled three times this year and suggested a 12.4 percent increase in the 2016 minimum wages, concerned parties were not satisfied with this proposal. There are over 800 leather and footwear enterprises with approximately one million workers nationwide. Foreign invested companies account for less than 25 percent of the total number of businesses but contribute 77 percent to the sector’s total export earnings. Many leather and footwear manufacturers said that minimum wages shouldn’t be increased, as labor productivity remains unchanged.

Vu Ngoc Giang, former Deputy Director of the Leather and Shoe Research Institute (LSI) under the Ministry of Industry and Trade, said that workers should not be blamed for the low labor productivity because labor productivity is decided by production conditions including equipment, technology and the working environment. Therefore, businesses should not take labor productivity as a reason for keeping wages unchanged, Giang said.

According to Giang, over the past 20 years, the global leather and footwear industry has experienced consecutive technology innovations, while changes in Vietnam remain poor. Capital shortages, outdated technology, weak administration and lack of senior human resources are something that has made labor productivity at small to medium-sized enterprises low.

After free trade agreements take effect, tariff barriers will be lowered or cut but technical and non-tariff barriers will be set up, challenging small to medium-sized domestic leather and footwear enterprises. Labor productivity improvement and technological innovation are not only solutions but also major challenges for these businesses. About 60 percent of Vietnamese leather and footwear products are outsourced at low labor costs. Eighty percent of foreign companies in Vietnam decided to invest in the country due to low labor costs. Continuous increases in minimum wages, with the average increase over the past five years reaching 16 percent, are causing great pressure on businesses and are making Vietnam less attractive to foreign investors.

In consideration of this, the state’s preferential interest policies are important for enterprises in order for them to renew technology and increase labor productivity.